D-Market Elektronik Hizmetler ve Ticaret A.S. (HEPS) Q2 2022 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. I am Mina, your Chorus Call operator. Welcome and thank you for joining the Hepsiburada Conference Call and Live Webcast to Present and Discuss the Second Quarter 2022 Financial Results. All participants will be in a listen-only mode 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. Helin Celikbilek, Investor Relations Director. Ms. Celikbilek, you may now proceed.

Thanks, Operator. Thank you for joining us today for Hepsiburada’s second 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 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 deck, today’s press release, the 6-K, our Form 20-F filed with the SEC on May 2, 2022, and other SEC filings for information about factors which 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 measures, as well as the relevant IFRS to non-IFRS reconciliations. To enhance this call, we have posted our supplemental slide deck on the Financials page of our company’s Investor Relations website. As a reminder, a replay of this call will also be available on our Investor Relations website. With that, I will hand it over to our CEO, Murat. Murat Emirdağ: Thank you, Helin. Welcome, everyone, and thank you for joining us today. Before diving into dynamics and numbers of the second quarter, let me briefly remind you of our unique ecosystem that is well beyond an e-commerce platform. We have built an ecosystem that includes a well-established logistics network, fast-growing financial services, cross-border operations and key strategic assets that serve various purposes. Our diverse ecosystem has been instrumental in our solid performance in a challenging macroeconomic environment and underlines our future potential. Without further ado, let’s take a closer look at the second quarter in more detail. Next slide. To provide a better understanding of the macro picture, let’s take a look at some of the key indicators during the second quarter. Consumer Confidence Index was at an all-time low level with 63% in June. Although, it is still early to say, there are some signs of potential recovery with the Consumer Index rising to 72% in August. The annual inflation rate reached 79% by the end of June. We experienced 7%, 3% and 5% levels in April, May and June, respectively, and yet the growth rate of inflation slowed down in the second quarter compared to the first quarter. Please note that the community inflation during the past three years in Turkey surpassed 100% by the end of February and did a triggered the inflation accounting requirement as per IFRS. So we will discuss our financial performance as per the relevant standards of IFRS called IAS 29 in the upcoming slides. Next slide, please. It is important to understand the impact of inflation on consumer behavior, as well as the basket patterns. One of the key changes in the consumer behavior is that customers tend to switch to lower segment brands in their purchase decisions. They also favor budget-friendly choices with reliable customer experience. Another important change in terms of the basket pattern is that the basket size in value does not grow at the rate of inflation. We believe that there are several reasons for this. First, the pressure on consumer spending triggers changes in shopping decisions such as substitution for more affordable products or partial holdback in purchase decisions for certain categories. Second, we observed that the factors, including, but not limited to, inventory turnover and the competitive market dynamics affect the decision of sellers on our owned platform on to what extent the inflation impact will be reflected. Last but not least, generally speaking, the pass-through effect of inflation is usually more imminent in categories such as grocery, food and FMCG, which are actually limited in our GMV. Within this operating environment, our capability is ranging from 1P-3P Hybrid business model, the affordability solutions and more have played a significant role in meeting the changing dynamics as we continued our order growth. Now have a brief look at our H1 performance. Next slide, please. Since we has reported on an unadjusted for an inflation basis as previously, we would have reported 69% GMV growth and 72% revenue growth, resulting in an 8.3% gross contribution margin in the first half of the year. When adjusted for inflation, our GMV and revenue growth in H1 2022 were 3% and 5%, respectively. In the same period, gross contribution margin was 4.3%. The 29 million orders, which correspond to 31% growth, fueled by the continued momentum in the active customers and order frequency was instrumental in our H1 performance. Now let’s have a look at the second quarter performance in more detail. In the second quarter, on an unadjusted for inflation basis, we had 57% GMV growth and 63% revenue growth. When adjusted for inflation, our GMV and revenue declined by 10% and 6%, respectively, compared to the second quarter of last year. While we continue to deliver solid order growth at 8% year-on-year basis in Q2, the revenue decline in 1P and 3P operations during this period was mainly due to the limited pass-through effect of inflation to our average order value. Gross contribution margin was 5% in Q2, with a 2.8-percentage-point decline compared to the same quarter of last year, but with a 1.7-percentage-point improvement compared to the first quarter of 2022. We believe this quarter-on-quarter improvement underpins the progress in our path to profitability efforts. Our CFO, Korhan, will touch upon the underlying reasons in more detail soon. Another key highlight in Q2 2022 is the fact that we had positive free cash flow with TRY185 million. Let’s move on to the next slide to look into our operational metrics. We are glad to see that our four growth drivers continued their healthy rise on a yearly basis. Our active customer base grew by 18%, up to $11.7 million, while frequency grew by 23%, up to 5.2% on a year-on-year basis. This has been achieved with a lower marketing spending and higher marketing efficiency. Our active merchant base increased to nearly 89,000 this quarter. Our comprehensive merchant value proposition and our progress in enhancing merchant experience contributed to this solid increase. This has contributed to strengthening our product offering, where the number of SKUs more than doubled to 130 million as of June 30, 2022. Last but not least, we maintained our leadership in NPS in the sector. Thanks to our excellent customer experience on the back of our technology, logistics capabilities and our wide range of affordability solutions. While we are pleased to see our leadership in NPS, we continue to innovate for customers with breakthrough technology solutions and services. Let me now share two recent examples on the next slide. Post second quarter, we achieved two important milestones in line with our customer-centric approach. In July, we marked the first in the market by introducing Türkiye’s first new generation smart physical store, Hepsiburada Smart Store, solidifying our thought leadership in retail innovation. In Hepsiburada Smart Store, all shopping-related transactions are carried out using artificial intelligence, image processing and digital weight sensor technologies for an easy and convenient shopping experience. Second, we launched our paid subscription service, Hepsiburada Premium, replacing our earlier Loyalty Club. Hepsiburada Premium subscribers have access to a range of benefits. We are glad to see the promising customer interest in this program as the number of members has exceeded 200,000 by mid-September. Now I would like to switch gears and give an update on our nationwide logistics network, which is an essential enabler for our customer and merchant value propositions. Our last-mile delivery service, HepsiJet, served through a nationwide logistics footprint and delivered 57% of our orders from the marketplace operations. Regarding the next day delivery performance, HepsiJet delivered 83% of the orders on the next day in the second quarter. With HepsiJet XLarge, HepsiJet delivery of oversized items continued its fast penetration. HepsiJet XLarge carried around 75% of oversight items in our 1P operations. We are proud to have registered a new patent for HepsiJet in multi-vehicle route optimization technology, unlocking further efficiencies in our operations. On the fulfillment as a service, HepsiLojistik continued to scale its operations by adding 183 clients to its portfolio during the quarter, providing fulfillment services to 513 clients in total. On the next slide, let’s take a deeper dive on our progress with respect to other strategic assets, serving our customers, as well as our merchants. Our advertising solutions under HepsiAd were used by more than 10,000 merchants in Q2 2022. HepsiAd has been expanding its portfolio of services to include sponsored ad as of most recently. While the inbound arm of HepsiGlobal, we continued to expand our selection to some 4.4 million. Our cross-border outbound operations in Azerbaijan have gone live since the first quarter. Our primary focus in Azerbaijan has remained on advancing user experience and expanding our assortment during the second quarter. Our online grocery business, HepsiExpress, which has been rebranded as Hepsiburada Market, continue to expand its ecosystem throughout the quarter to reach 105 retailers. Hepsiburada Market perfect order ratio performance was 79% in the second quarter, up by 5 percentage points compared to the first quarter of 2022. Our flight ticket service, Hepsiburada Seyahat enabled sales of roughly 37,000 tickets in Q2 from 27,000 a quarter ago. In short, we will continue to diligently operate our strategic asset to help fuel further monetization and incremental growth for the overall ecosystem, while consistently improving cost-effective business models. On the next slide, I would like to give you an update on our financial services. Within our long-term strategy of becoming a leading fintech player across online and off-line channels in Turkey, we are determined to continue to expand our payments and affordability solutions. Marking its first year of launch, HepsiPay Wallet reached 8 million users as of the end of June. Around 39% of GMV passed through the Wallet. Launched in early Q1 2022 our Buy Now Pay Later solution is embedded within HepsiPay payment gateway and is currently available for purchases from our direct sales operations. Using Buy Now Pay Later approximately 500,000 customers were issued a shopping limit and over 100,000 of those customers use their limits as of the end of August 2022. Regarding the solutions like Buy Now Pay Later, we continue to diligently manage credit risk while maintaining our focus on growth optimization. Before I leave the floor to Korhan, let me say a few words on our guidance for the full year. Please note that at the time of transition to inflation accounting to provide more context on comparability, we refer to our guidance for GMV growth and EBITDA as a percentage of GMV on an unadjusted for inflation basis. First, based on our half year performance, we are raising our GMV growth guidance from around 50% to around 60% for the full year 2022 compared to 2021. Second, while we continue to have the liquidity to fund our operations to help provide additional visibility on this year’s performance, we will begin providing guidance for our full year EBITDA in 2022. Accordingly, we expect to deliver an EBITDA as a percentage of GMV within the range of negative 2.5% to negative 3%, which was around negative 6.5% last year. With this, I now hand over to our CFO, Korhan to give more color on our financial performance. Thank you all for listening. Korhan Öz: Thank you, Murat, and welcome, everyone. As already mentioned, inflation accounting, in other word the implementation of IAS 29 standard has become mandatory for all IFRS reporting companies in Turkey starting from this quarter onwards. Murat has mentioned the key financial highlights for both the inflation adjusted figures, as well as the unadjusted months to ease the understanding of restated financials. On this slide, I would like to give an overview of what inflation accounting requires and how this implementation impacts our financials. In IAS 29 requires our competitive financial statements are presented in terms of the measuring unit current as at June 30, 2022. For restatement, the monthly price index is published by the Turkish Statistical Institute are used, which are disclosed in our press release. Monetary items are not restated, while non-monetary items are restated from the date of acquisition. In addition, we indexed all our reported non-IFRS measures, such as GMV and EBITDA. As shown on this slide, the gross contribution margin from the sale of an illustrative item could turn from a positive 3% down to a negative 1.5% when restated as per IAS 29. Only if a good is purchased and sold within the same calendar month, then this transaction has no impact on gross contribution margin under the implementation of IAS 29. I will elaborate more on this one in the upcoming slides. In Q2, on an unadjusted for inflation basis, we generated TRY9.2 billion, corresponding to 57% year-on-year growth. Adjusted for inflation, the GMV became TRY9.6 billion with a 10% decline compared to Q2 of last year. Let me briefly address why there is some less [ph] decline on a year-on-year basis this quarter. GMV is a function of the growth in number of orders and average order value. We recorded continued order growth during the second quarter at 8% compared to a year ago. This order growth came through the growth in number of customers and the continued rise in the order frequency. Meanwhile, the growth in average order value was lower than the level of inflation in the second quarter. Actually, in our business model for the reasons Murat has already mentioned, average order value and inflation rates are not fully correlated due to limited pass-through impact of the inflation. On the next slide, I would like to discuss our revenue performance. On an unadjusted for inflation basis, our revenue grew by 63% in Q2 2022 compared to the second quarter of last year. The 6% revenue decline on an adjusted for inflation basis was mainly due to decline in revenue from 1P and 3P with similar underlying reasons discussed in GMV growth dynamics. Additionally, the decline in delivery service revenue was mainly due to a decrease in the number of parcels delivered, as well as limited pass-through effect of inflation on unit delivery service charges. Meanwhile, other revenue, which mainly consists of HepsiAd and HepsiLojistik revenue streams grew by approximately 54%. Now I would like to discuss our growth contribution performance in the next slide. Our inflation adjusted gross contribution margin was 5% in the second quarter of 2022 and 8.3% unadjusted for inflation. This difference was mainly driven by higher inflation adjustment on the cost of goods sold. Securing inventory became critical in order to ensure product availability, particularly in electronic goods in the inflationary environment. As a result, we secured a high level of inventory and had higher inventory turnover days in Q2, where the average order value growth was realized below the inflation rate for the reasons explained previously, resulting in 3.3-percentage-point decline in inflation adjusted gross contribution margin. Now I would like to provide insights regarding on year-on-year comparison. On an inflation adjusted basis gross contribution margin in Q2 declined 2.8 percentage points compared to the second quarter of last year, mainly due to decline in revenue, relatively higher monthly inflation rates and comparatively higher inventory days. On the other hand, compared to the first quarter of 2022, our gross contribution margin improved by 1.3 percentage points in the second quarter within the context of slowdown in the monthly inflation rate and with our increased focus on better inventory management, this performance is an indication of our focus on path to profitability. Next slide, please. Our inflation adjusted net operating expenses as a percentage of GMV was at 11.1% in this quarter, improved from 11.6% a year ago and 12% in the first quarter of 2022. 0.5-percentage-point improvement in net operating expenses as a percentage of GMV this quarter was mainly attributable to 1.3-percentage-point decline in advertising expenses and 1.1-percentage-point decrease in shipping and packing expenses against 1.9 percentage points rise in G&A expenses. The decline in advertising expenses was a result of savings achieved by enhanced marketing efficiency, including sharpened focus on retention and engagement across the customer life cycle, as well as the enhanced return on marketing investment in relevant channels while remaining competitive. The decrease in shipping and packing expenses was on the back of a decline in the number of parcels delivered and the limited pass-through effect of inflation on unit delivery service charges. The rise in our G&A expenses is a result of several factors, including from the annual salary rate and the incremental talent onboarding, including the organizational development for strategic assets. Let’s move to the EBITDA margin bridge on the next slide. On an unadjusted for inflation basis, EBITDA as a percentage of GMV improved by 0.5 percentage points compared to the second quarter of last year and 1-percentage-point compared to the first quarter of 2022, in line with our focus on path to profitability. On an adjusted for inflation basis, while the EBITDA as a percentage of GMV declined 2.4 percentage points compared to the second quarter last year, we observed an encouraging quarter-on-quarter progress with 2.1-percentage-point improvement. The 2.1-percentage-point improvement from the previous quarter was mainly attributable to the improvements in our gross contribution margin, as well as operating expenses, while 2.4-percentage-point decline on year-on comparison was driven by the decline in gross contribution margin and higher G&A expenses with the reasons I have already mentioned above. Next, I would like to say a few words on our cash flow dynamics. We generated a positive free cash flow of TRY185 million in the second quarter, around TRY2 billion up from negative TRY1.8 billion in the first quarter. Thanks to the positive cash generation from our operating activities with TRY397 million. Let me briefly walk you through the reasons behind the free cash flow dynamics from the year-on-year and quarter-on-quarter perspective. From the year-on-year perspective, I would like to shed some light on the operating cash flow in the first place. The key difference between two periods was the inflationary environment that has required access to inventory for continued product availability. Therefore, we secured a higher level of inventory and if when necessary, we used either advanced or shorter payment terms. Coupled with TRY212 million CapEx, we were able to achieve positive free cash flow with TRY187 million in Q2 2022. However, the amount of cash generated was lower than the last year due to the continued inventory purchase to secure product availability in the inflationary environment. From the quarter-on-quarter perspective, I would like to remind you the reason behind the negative operating cash performance in the first quarter of 2022. Generally, we purchased a high level of inventory during Q4 each year due to peak shopping season in Turkey. Usually, the payments of a part of such inventory purchases, as well as of other service payables fall into the first quarter of the following calendar years. As a result, even after CapEx included, we were able to achieve an improvement of TRY2 billion in free cash flow from previous quarters. Next slide, please. Our continued progress towards our path to profitability includes both our monetization and efficiency efforts. In terms of monetization, we are focused on gross contribution margin and strengthen our selection in non-electronics where profitability is relatively higher. With affordability solutions becoming more relevant for consumers, we continue to expand our affordability solutions set and further develop monetization of fintech services. In order to support growth of our ecosystem and monetize strategic assets, we expanded our ad services with new capabilities, as well as scale fulfillment services consistently. With our new loyalty program, we aim to gain more value from our customers. In terms of disciplined cost management and operational excellence, we set some efficiency measures on marketing spending and executing consistently with enhancements on retention and engagement in customer life cycle and segment-based acquisition. We also maintained the spin in G&A, ensuring efficiencies in organizations, process and systems. Optimization in unit economics of strategic assets and patented route in last-mile delivery also will help unlock further efficiency. Moreover, we control our cash position with focus on better inventory management and effective CapEx prioritization. As we deliver on these executional priorities and focus on our disciplined cash and cost management effort, we take more tangible steps towards our path to profitability. Next slide, please. As I end my presentation, I would like to leave you with a few highlights on our quarter-on-quarter momentum. Overall, our second quarter results on an inflation-adjusted basis showed improvement on several lines, including gross contribution margin, advertising expenses and enhanced EBITDA when compared to the first quarter of this year. This progress was achieved in the macroeconomic environment with continued challenges. Looking at acknowledging the challenges and uncertainties, we are confident to increase our GMV growth guidance from 50% to around 60% on an unadjusted for inflation basis. To provide further visibility on our path to profitability, we would like to share an EBITDA guidance for the full years, which we expect to end at a range between negative 2.5% to negative 3% on an unadjusted for inflation basis. We believe we are on the track with our path to profitability and continue to execute the disciplined cash and cost management. With this, I end our presentation. Thank you for listening. Operator, please open the floor for questions.

Thank you. [Operator Instructions] The first question is from the line of Tiron Cesar with Bank of America. Please go ahead.

Hi. Good afternoon or good morning, everyone. Thanks for the call and the opportunity to ask questions. I have two questions, if that’s okay. The first one relates to the free cash flow that you’re showing and obviously improving on a sequential basis. But if we compare it to this is a business which has obviously high seasonality in working capital, so if we compare the free cash flow to Q2 2021, actually there was quite a significant decrease. Can you please talk about it? And also, I think in the past, you used to mention in some of your releases that you don’t intend to or don’t need to raise capital in the next 18 months, does this statement still stand? Thank you so much. Murat Emirdağ: Sure. Thank you, Cesar, for the question. Please note that in Turkish online retail, we have a strong seasonality with higher than those, such as Legend of November in the last quarter. Accordingly, this seasonality affects our Q4 historically and it triggers negative operating cash flow in Q1 for the reasons as I explained during my presentation, we buy during Q4 and some part of those payments fall in Q1 and we generated a negative operating cash. Also, we have 1P-3P Hybrid business model. There 1P gives us a unique competitive advantage with operational flexibility in the market. And on the other hand, our inventory management is an integral part of our 1P operations and has a direct impact on our cash performance depending on the amount of inventory purchased, the inventory turnover days, the speed of inventory turnover days and the payment terms to suppliers, whether those are increasing or decreasing. In light of these factors, we continue to seek ways to improve our cash flow performance so that we eventually turn into a positive operational cash generating model for the full year. For this 18 months question, let me first clarify that our plan not to raise capital remains valid. We believe that we have the liquidity to fund our operations. We had previously provided 18 months window on our liquidity position to provide visibility under a very volatile environment, including foreign exchange fluctuations, rising inflation, as well as challenges in the regulatory framework. But now we have further understanding of this environment, those volatility factors and we are ready to provide a deeper visibility on our path to profitability by introducing our EBITDA guidance. So we expect to improve our EBITDA performance from negative 6.5% last year to a range of negative 2.5% to 3% this year on an unadjusted basis. I hope this is okay on your side, Cesar?

Yes. Thank you so much. That was very helpful. Thank you.

The next question comes from the line of Holbrook Luke with Morgan Stanley.

Yeah. Thanks for giving me the opportunity to ask a couple of questions. Just my first, sorry, if we’re rehashing what you said on the call, but on slide 22, you’ve got the minus 6.2% EBITDA as a percent of GMV adjusted and then you’ve got it 2.7% unadjusted. Can you just kind of go through a bridge a little bit and the delta between the two and what would your kind of EBITDA guidance be on an adjusted basis for the full year? Thanks. Korhan Öz: Well, unfortunately, we were -- we are not in a position to give an adjusted basis EBITDA guidance for the year end, because there are various factors affecting our inflation accounting. Even today, we don’t know what the inflation is going to be by the year end and there are so many factors that we have to take into concentration while calculating the inflation adjusted figures. And if you consider about the 6.2% versus 2.7%, this is a kind of technical calculation on our side. Once we buy the inventories, we multiply those inventories with an index until the date of sales. This increases the cost of goods sold significantly in line with the inflation versus the sales realized in the respective month. So on an adjusted basis, we are -- as Murat mentioned, we were not able to increase our average order values in line with the inflation. So the sales prices were not increased in line with the cost of goods sold increases. That resulted in a decrease in the cost of goods sold and consequently the gross contribution margin. One of the main effects of this is the age of the inventory, if you buy and sell the inventories within the same calendar month, there is no impact. However, if you buy a certain amount of inventories and sell in the following months, then the inflation accounting reduces your gross contribution margin. That is the main reason of this difference.

Okay. That’s clear. And just a second question is on your GMV guidance for the full year. I guess it would imply real terms kind of 10% decline year-on-year at the 60% on mark and I think you’ve seen order growth slow to up 8% in the last quarter. So just trying to get a handle on that, is this competitive dynamics, is this the macro situation, what are you seeing from your side? Murat Emirdağ: Let me take this question. Luke, it’s Murat speaking. Hi. So I guess the first thing to remember, maybe we are operating in an inflationary environment and we are remaining focused on our execution according to our plans by applying a disciplined constant cash management within our path to profitability. So it is important to remind everyone. And within that context, when you now refer this, let me start with the orders first. When you look at the order growth, which is resilient, has been resilient against all these challenges in the market actually has a couple of drivers behind it. Let me remind you of some of those which I think if you have understand our current order growth platform. One actually is to mention, first, an external factor, which is, of course, the macroeconomic environment. So there is definitely a continued pressure on consumer spending in the current environment and this affects the consumer behaviors. So consumers, in terms of their behavior we observe, they tend to shift towards more affordable products and also we observed they are applying potential holdback on certain categories. That is actually one a major consumer behavior aspect of it. If you look at our internal drivers, maybe I want to mentioned -- worth mentioning is the fact that within our disciplined cost and cash management, we are and we have been optimizing our service model for Hepsiburada Market, previously known HepsiExpress, as you remember. And in that sense, those optimizations actually also resulted in impact on our -- on the contribution to orders number from Hepsiburada Market to overall orders numbers, but again, it was a conscious choice that we’ve been applying to optimize the business model in line with our disciplined cash and cost management, and of course, ensuring a better customer experience, which you also saw in the results, with improved perfect order ratio. The other one from our internal drivers worth mentioning actually is the fact that we’ve been also optimizing constantly our marketing and execution and our focus on customer life cycle management, which means you will see and you are seeing it already, we’ve been actually emphasizing our focus on retention and engagement, and also in the meantime, with respect to acquisition, we grow very segment specific, such as women and use segment -- the used segment, et cetera. So we did try to make sure under this environment where the cost of marketing actually is substantially high, we should be also very efficient in terms of marketing channels, which eventually, of course, affect those numbers, which I described. Let me now switch the gears to GMV because you also referred in your question to GMV growth versus inflation. Now that I clarified, I guess, partially on the order side, let me take the next side of the GMV dynamics. The GMV, actually, if you look at the numbers in revenue and GMV with respect to adjusted and unadjusted. I guess, one of the key drivers, maybe the major driver is the gap between the AOV, average order value and the inflation rate. This is important to underline for everyone, because in our business model, our AOV and the inflation rates are not fully correlated. There are some reasons for it, but let me summarize very quickly the key reasons for that. One actually is definitely, as you discussed the consumer spending, the pressure on that and they’ve been changing their behavior, which triggers this shift towards affordable products, as well as partial holdback on certain categories. So that is one, which is much more about consumer behavior. The other one actually is, much more about an observation we have with respect to sellers. Sellers are also actually getting affected by these dynamics, because they cannot think about how much they can reflect on the business in terms of the inflation impact. So therefore, to what extent to apply that impact is actually affected by the inventory carryover, as well as competitive dynamics on the seller side. So that is another actually factor we also observed. The final one, last but not least, also it’s, I guess, very similar to other markets as well. The pass-through effect of inflation is usually more imminent in categories such as grocery or food or FMCG, and as you know, these are actually a very limited portion of our GMV. So in high level, that is why we see and we observe the AOV and inflation rate in our business model at least are not fully correlated. But with that said, as a side note, maybe, yeah, hypothesis could be, assuming the inflation growth will slow down over the years over time, the lag between selling price and inflation might narrow down over time. But again, it’s a hypothesis at this point, we yet to see, observe and monitor. And maybe also I can put some -- shed some light on the current trading as well, maybe now that we are speaking about these dynamics generate high value. As you know, we’ve been operating in the current period with our continued focus on our execution and we continue to surprise and drive our customers and merchants with our experience and innovation. And also based on the initial feedback so far we -- from our customers and merchants, we believe our diligent execution seems to resonate with them at this point. And also, we observed this initial positive feedback. Hopefully, it will also be reflected on the growth drivers of our business, including active customers, frequency, active merchants and selection expansion, as well as hopefully on the GMV side. That’s, I think, what we can at least share based on the initial impression we have as of this quarter. Let me stop here. Hopefully, I was able to address some of your questions, Luke. Thank you.

Yeah. Perfect. Thank you very much. That was all.

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

Thank you very much. I have three questions. The first question is about the free delivery. So what was the share of free delivery in total orders, I mean, so far year-to-date and compared to 2021, how has this changed? And you are quite excited about the Hepsiburada Premium and I wonder how much are you charging for the loyalty fee here? And the second question is about the GMV guidance. What is the average inflation have you considered on GMV guidance and can you provide a bit more detail on the guidance for quarter for the third quarter and the fourth quarter? And the final question is about the delivery cost and pass on the cost inflation in last-mile on the 3P. So how quickly are you able to pass the cost inflation in last-mile? And I couldn’t really understand this decline in shipping expenses, which was around 35% in real terms, very substantial, but you didn’t lose any orders according to your key KPIs. So can you please elaborate a little bit more. Thank you. Murat Emirdağ: Thank you, Hanzade. Actually, maybe it’s -- because it’s very related to the previous question of Luke, let me start with the question on more detail on guidance or few forward-looking expectations for Q3 and Q4 and I hand over to actually to Korhan. Okay, now at this point, let me just briefly -- I guess, I briefly covered what is the current trading momentum at this point. And again, our initial impression looks like our execution and our focus and experience and our disciplined diligent execution seems to have resonated well with our customers and merchants. But of course, this is still our early observation with respect to our current trading period. But on top, I guess, maybe it’s also worth mentioning for next quarter, because you mentioned that for the last quarter. And I guess, like, Korhan said, there is always a high seasonality in the Turkish retail -- online retail and Q4 is actually the peak season for all of us and that’s always good to remember. And historically, this is the case at least provided there are no new changes or developments on the consumer and macroeconomic environment, we can expect, I guess, fairly the same high seasonality will continue for the upcoming quarter. That is what we can share. And I guess also on top, we can -- at least share this much, we can -- we are looking forward to the next quarter to execute our plans accordingly and because we are also actively learning from year-to-date learnings and key takeaways in this environment and we’re going to definitely apply all those learnings and best practices and key takeaways to the upcoming quarters. And of course, maybe one final note before I hand over to Korhan that kind of our discipline we have in our execution with respect to cost and cash management, and our clarity on purpose in terms of path to profitability will be always in our minds when we execute next quarter as well. So let me just stop here and hand over to Korhan to take the other questions. Korhan Öz: Hanzade, on the free delivery share in total orders, I can give you this number. The out of the total GMV, around 65% to 67% of GMV pass-through for 3P and for the 3P cargo cost, those are fully covered either by the customer or by the merchant. So our market sales cargo costs are fully covered. The remaining 30% to 35% 1P cargo cost is covered partially by us and the remaining portion, if it’s above total threshold, we covered the cost, if it’s below total coverage than the customer pays for it.

And so what is the, I mean, current charge for the Hepsi membership. So that is the one, because you still offer pre-deliver for all loyalty members, right? Murat Emirdağ: The pre-delivery -- maybe with respect to Hepsiburada Premium, let me maybe Korhan share some insights and please get on it if you see any of that program. Basically, Hepsiburada Premium have very brand new and fresh programs as you know we introduced recently. And we, of course, are very pleased by the promising demand and initial reaction by the customers. And actually, in that Hepsiburada Premium paid subscription model, yeah, that number actually we shared here on the presentation as well almost about 200,000 subscribers. So it’s still relatively in early phase for us. With that said, that is actually a program which is currently available at TRY9.9 per month. This is the current price, and of course, this is the current price we are referring to, which is also publicly visible. And also in that program, we have multiple benefits that we offer to our customers, which are actually not just related to cargo benefits, but also some other benefits as well and actually in overall, our vision for this program to become actually a key differentiation for us. I think we should also be referring to our focus on retention and engagement we believe Hepsiburada Premium will eventually play an integral role to drive further engagement and loyalty in our customer base. And actually, we can see that also looking at the global examples and best practice as well. So this is our vision from this program. Let me actually Korhan start here. I hand over back to you because I have not shared the... Korhan Öz: Yeah. Thank you. Murat Emirdağ: …that’s the only… Korhan Öz: …turn on with Murat. On our platform, if the order is above TRY100 then the cargo is free with the Premium launch, we decreased this TRY25 for the Premium customers. Murat Emirdağ: But of course… Korhan Öz: That’s the gap is very insignificant for the time being. Thank you.

Okay. Thank you very much. Can I please ask a final question, if possible? It’s about actually e-commerce... Murat Emirdağ: I am sorry please remind us if we forget to address any questions, because you have multiple...

I will… Murat Emirdağ: …if we just forget, you just remind us.

I am trying to understand the impact -- positive impact from the new e-commerce law. So when do you expect to see the trans-positive [ph] sign from declining ad spending that cost by the new model now? And is it possible for you to share a rough calculation ad spending at post in terms of GMV in 2023 as a calc? Thank you. Murat Emirdağ: I think maybe it’s fair to say first. It is way too early to assess the impact at this point as some provisions of the new regulatory framework to get effective as of next year onwards. So it’s still an early phase. But I guess our initially impression and our initial review on the law makes us anticipate that this build eventually, over time, might create a more favorable operating environment for all players. The reason behind actually is the fact that the regulators actually attributed to certain design systems, which also we believe seem to resonate to delivery some standards. And the one we actually understand from the perspective which is that they try to ensure a more transparent, healthy and same market environment for all players, which makes sense for us. Of course, obviously, the second actually is they definitely want to prevent any monopolistic practice in the market to secure the long-term benefits of all stakeholders, including customers, SMB, suppliers and suppliers in general, which makes sense for us as well. And that, of course, but not least, they also want to establish and invest to friendly market environment for both domestic and international investors with a much transparent regulatory framework with a defined rules and regulations and I think, again, that is on us makes sense. So taking those principles, actually, we believe, in general, we anticipate a much more favorable environment -- operating environment for all the players. But again, the impact is early to assess. I guess that’s what we can actually mention at this point. In terms of calculation, I mean, this is maybe early to specify a certain number, but we are actually actively working on this analysis, what those thresholds, which were introduced in the regulatory framework means to us and moving forward in the New Year. But again, let me remind you, this is actually a separate side note. We’ve been already actively operating with a very cautious improvement in marketing efficiency and spending. So we believe our unique customer experience, which is, as you know, we are the market leader in terms of MPS [ph] and also our kind of does changed marketing engine, actually will become much more handy in the new rules and we are getting already ready for it.

Okay. Thanks very much. Murat Emirdağ: Thank you.

[Operator Instructions] 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. Murat Emirdağ: Thank you so much for your -- for all listening and actually we are looking forward to the next quarter’s earnings call.

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