Earnings Transcript for OZON - Q1 Fiscal Year 2021

Operator: Ladies and gentlemen, welcome to the Ozon's First Quarter 2021 Financial Results call. Before I pass the floor to Ozon's management, I would like to advise you that some of the information you will hear today may include forward-looking statements under the Private Securities Litigation Reform Act. Forward-looking statements are based on management's beliefs, assumptions, and information currently available, and are subject to known and unknown risks and uncertainties, many of which may be beyond our control. And actual results may differ materially. We encourage you to refer to the cautionary statements contained in the Company's press release issued today and SEC filings. During today's call, the company will be referring to certain non-IFRS financial measures and other metrics, reconciliations and definitions of you will find in the company's press release published today. Presentation today will be followed by a Q&A session. [Operator Instructions] Now, I will pass the floor to Alexander Shulgin, CEO of Ozon. Please go ahead, sir.

Alexander Shulgin: Thank you. Good morning and good afternoon everyone. Thank you for joining us today and welcome to Ozon's first quarter 2021 earnings call. Together with our CFO, Igor Gerasimov, who will make some comments on our business, on our quarterly results, and will update you on the outlook for the full-year 2021. We will try to give as much time as possible for the Q&A. We see strong performance and momentum in our business in 2021. Our results are a testimony to our commitment to our mission and strategic goal of transforming shopping experience for the Russian consumers by offering the unparalleled services to our buyers, whilst simultaneously empowering our sellers to grow and develop their businesses on our platform. In Q1, we generated GMV of RUB 74 billion, which is actually comparable in absolute terms to Q4 of last year. We are pleased with this result as typically Q4 is a much stronger quarter for consumer businesses. Our GMV growth reached 135% year-over-year, making this sixth quarter in a row with a triple-digit growth for our platform. Our offering resonates with the Russian consumers. Our buyer base 16 million, and grown by nearly 80% year-over-year, whilst our seller base also increased also increased dramatically, allowing our core growth engine, Ozon Marketplace, to further gain scale. And we expect to see accelerating flywheel effects in our business. Our assortment [breadths] [Ph] increased 2.5 times year-over-year, to 19 million SKUs. Coupled with speed and reliability of our delivery service and rollout of adjacent services, this means further enhancing our customer proposition. On the opposite side of the equation are our business partners, our sellers. With new toolset we develop for sellers and the new, more efficient commission structure, we see further growth in number on onboarding sellers. Our seller base nearly quadrupled compared to Q1 of 2020. For our platform to perform and to meet expectations of our buyers and sellers we need a well-calibrated logistics and fulfillment infrastructure. As part of our strategy, we aim to become closer to our buyers and provide fast and reliable logistics and fulfillment services to our sellers, both in metropolitan areas and in the regions of Russia. In order to do that, we continue to expand our fulfillment and logistics infrastructure. Our fulfillment footprint reached 250,000 square meters, and number of our offline pickup locations reached 12,000 across Russia in Q1, 2021. We were able to deliver 98% of parcels on time, which is a further improvement from 95% during the high season of Q4 2020, which enhances customer experience. Now, a few words about COVID and its impact, last year, the Russian government implemented the restrictions such as social distancing and lockdown measures, starting from March 2020, to combat the effects of the pandemic. The lockdown impacted Q2 the most, but the restrictions started to ease from around mid June onwards. Although it's very difficult to isolate the impact of COVID on our business with a great degree of certainty, we acknowledge that COVID helped to bring forward the online services option. Our business was in the fast expansion mode at the time when COVID hit, which accelerated sellers' migration to the businesses online in partnership with Ozon and buyers' adoption of the new ways of shopping by ordering online. Nonetheless, since the restriction eased we continue to see strong growth in all cohorts, with order frequency rising materially, up by about a third approximately. And if you look at our GMV growth, we reported triple-digit growth for the last three quarters while the lockdown already was eased. Despite lack of restrictions, we continue to ensure safety for both our colleagues and customers with all the necessary precaution measures. For example, contact-less delivery is one of such initiatives. Now, let me provide a bit more color on the Q1 performance. Our focus on improving product quality and better services for our buyers [indiscernible]. GMV growth reached 135% year-over-year, supported by strong order growth. In Q1, we delivered 34 million orders for our customers across Russia. Order growth accelerated to 161% year-over-year in Q1, from 137% year-over-year in Q4 2020. In Q1, we further improved delivery terms for our buyers, passing on some of the benefits of scale on to them. As we push into the regions, we were allowed more pickup locations which make our services accessible to more customers across Russia. Our core growth engine, Ozon Marketplace, showed tremendous performance in Q1. Share of 3P as percentage of GMV reached 58.4%, almost doubling from 32.6%, in Q1 2020. As a result of the rising order frequencies rapid growth in number of active customers, which reached 16 million. In addition, the growth was augmented by merchant base quadrupling year-over-year, driving significant assortment expansion which is very important for our customers. Overall, the sellers [appreciated] [Ph] our platform by the level of quality of service offered to them, which includes countrywide fulfillment and logistics, business analytics, tools to improve performance of their businesses, and help to growth with and large customer base. In February, 2021, we made an adjustment to our commission rates which further boosted seller engagement with the platform. There was a number of changes that we introduced to commission structures with the aim to stimulate trading on the platform and incentivize sellers to utilize our fulfillment infrastructure in an efficient manner. On the balance, it means that our take rates will likely be lower, which should be offset by higher trading volumes on the platform. We also would like to note that adjustment to the commission structure and the improvement in the breadth and quality of services offered by Ozon to its merchant base led to higher number of sellers onboarded onto the Ozon Marketplace. In Q1, we also strengthened the marketplace by [sufficient] [Ph] partnership and onboarding big brands and reliable retailers. The launch of fulfillment and sorting facilities in the regions, like get it closer to the regional seller base led to great attraction with regional sellers. Finally, I would like to note that, after beta testing last year, in Q1, we launched Storefront model, which enables sellers to facilitate deliveries to customers independently while using Ozon Marketplace as a digital storefront. While at this point in time it's not a big driver of our growth, it demonstrates that Ozon continues to develop products for the sellers. Our cohort performance is something that we monitor very closely, in particular in post-lockdown period. As you can see, the cohort performance remains very solid, with over 30% increase in order frequency year-over-year for last 12 months cohort in Q1. Company believes the strong cohort characteristics were driven by significant improvement in speed and reliability of delivery, with 98% share of on-time deliveries, and greater choice due to much wider assortment, up 2.5 times year-over-year to 19 million SKUs. Improved customer proposition is contributing to growth in buyers and great retention, as well as overall great order frequencies. Number of active buyers on Ozon Marketplace increased by 77% year-over-year to 16 million as of March 31, 2021, compared to 9 million as of March 31, 2020. Annual order frequency of Ozon buyers increased by 33%, to 5.9 in Q1 2021, compared to 4.5 in Q1 2020. Now, let me update you on our new verticals. We continue to rollout and scale our complementary services around core e-commerce platform, such as Ozon fintech, Ozon Express, and we see significant potential in these services. In fintech domain, we continue to build out B2B and B2C payments and lending business streams. Our flagship B2C payment product, Ozon card, the usage shows great traction, with [digital format expediting] [Ph]. There were over 780,000 activated cards as of March 2021, compared to 117,000 as of March 2020. The cardholders tend to spend more on the platform ordering 1.6 more often than those that use other payment methods. On the B2B front, I would like to highlight the launch of flexible payment plan. This is a unique product structured together with our partners which enables marketplace sellers to arrange a payment schedule that best fits their business needs, while it boost their loyalty into the platform, to drive higher volumes and should not have significant impact on our working capital. This quarter we continue to develop Ozon Express service. In March 2021 -- this past March, the average daily order volume was in double compared to December 2020. Our goal this year is to expand the former in the regions. Finally, we continue to develop head solutions for the sellers allowing sellers to spend [indiscernible] which is a natural source of monetization for Ozon platform. Although we see huge potential in Russia, by entering new markets we're unlocking additional growth for Ozon. CIS region is very similar in customer behavior in reference to Russia. We plan to launch our new fulfillment facilities and logistic operations in Belarus this year. Online retail market is estimated to be in the mid single-digit as percentage of the retail sales turnover. So, there is a lot of scope for growth in very low e-commerce penetration. Now, I would like to hand over to Igor Gerasimov who will discuss further our financial performance.

Igor Gerasimov: Thank you, Alexander. Good afternoon, everyone. As Alexander already highlighted we have the strong supply and performance in Q1 with GMV reaching 135% year-over-year. Now, I would like to take you through how the operating expenses evolved and the drivers for this. Overall in the first quarter, we expanded fulfillments and sorting centers in the regions which requires not only capital, but also additional operating expenses related to additional personnel, bills, and rents. In addition, a large share of operating cost growth is associated with the cost of strengthening our IT infrastructure and central office team in order to facilitate platform growth and product development. To scale our business, we need highly qualified software developers and other IT specialists. Our investment into IT talent is reflected into year-over-year increase in the technology and content expense line. If I take it line by line and go for the remaining key expense items which are fulfillment and delivery and GMV, general and administrative expense increased the most by 130% year-over-year growing almost in line with the GMV. We perceive this increase as an investment into acquisition of talented employees which we require in order to accelerate development of our platform. Fulfillment and delivery cost was up by 83% year-over-year driven primarily by higher number of orders processed through Ozon's fulfillment and logistics infrastructure across Russia and also new openings of additional infrastructure objects. In Q1 this year, we delivered 34.1 million orders compared to 13.1 million of orders in Q1 last year as a result of benefit of scale and despite the ramp up effect which puts additional pressure on the cost line. As a percentage, GMV fulfillment and delivery cost were down 140 basis points year-over-year to 15 point in percent of the GMV. Eighty four percent year-over-year increase in sales and marketing was driven by the increase in digital and offline advertising mostly aims at attracting new customers to Ozon platform but also increasing retention. It also has reduced year-over-year as a percentage of GMV reflecting better frequency and top performance. To sum up, although our operations expense together with cost of the good sold increased by 60% year-over-year in Q1 as a result of the fast expansion of Ozon operations, they actually decreased significantly as a percentage of GMV. In Q1, operating expense together with COGS accounted 55% of GMV, down from 81% in Q1 2020. This significant reduction is driven by the growing scale, our focus and mainly work on efficiency and cost optimization. Our profitability in Q1 was -- follow expectations. While business size more than doubled and active investments in logistics NIT took place, EBITDA remained practically at the level of the previous year in Ruble terms. Adjusted EBITDA loss of RUB 4.9 billion was quite comparable to the negative RUB 4.5 billion in Q1 2020 while GMV has more than doubled over the same time period. Adjusted EBITDA as a percentage of GMV including services improved significantly to negative minus 6.5 in Q1 2020 from negative 14.2 in Q1 last year due to economies of scale, efficiency gains in fulfillment and logistics as well as greater operating leverage. The rapid growth on GMV for the six quarters in a row, demonstrates that our strategy of focusing on building scale is playing out. We're planning to continue scaling our business and gaining market share. Cash flow from operating activities was negative for RUB 12 billion compared to negative RUB 2.4 million in Q1 2020. Let me provide some context around this [indiscernible] effect, which is quite typical for our operations. Q1 cash flow is typically significantly impacted by the dynamics of the previous year and by the fact that Q4 is seasonally the strongest in our business and in general across the whole industry. As a result of that, payments for inventory sold in peak season during the fourth quarter in Q1, resulting in significant cash outflows. We'll look forward to a gradual improvement in cash flow over the course of 2021 and expect operating cash flow for the year to be around breakeven. And thus we're reiterating our guidance of operating cash flow to be near breakeven for the full year. CapEx started to ramp up in Q1, but we expected to ramp up even faster in the following quarters given expected more than RUB 3 billion of CapEx this year. So, to sum up strong performance continued in 2021. This gives us confidence to increase our guidance for GMV to 100% year-over-year from previously communicated 90% or more. We believe that despite tough comps this year, even in future, our business can deliver triple digit growth fueled by flywheel effect on growing product and service improvements, tactical investments to accelerate market share growth and benefit from secured trends of online services adoption in Russia. We reiterate our guidance for CapEx. In 2021, we aim to deploy between RUB 20 billion to RUB 25 billion in order to expand and enhance our logistics infrastructure, follow e-commerce core business and growth of the new verticals, as well as that's fueled higher growth for longer in our platform. In Q1 2021 Ozon issued convertible bonds with aggregate principle amount of USD 750 million. These bonds are due 2026. The coupon is 1.875%. So it is to be paid semi-annually spanning from August 2021. This transaction helps us to strengthen our balance sheet position. As of the end of March 2021, we have cash and cash equivalents of RUB 148 billion. Recent exciting development for us is the acquisition of Oney Bank. This transaction allows us to obtain a banking license, which is required in order to keep developing our impact operations and gradually migrates to the first project thus delivering better products to our customers on both sides of the marketplace. This acquisition should allow us to provide faster payment services with lower commissions. We received Central Bank approval for the transaction on April 29 and on May 14, we closed the transaction. Therefore, we expect that the title to the bank will be passed to us before the end of the month. Total cash consideration for the transaction amounted to RUB 615 million. In February, 2021, we also registered our new microfinance entity with the goal to create financial products for our merchant base. Another exciting development for us is the MSCI Index inclusion announced last week. Ozon is expected to be included in MSCI Russia Index with the approximate weight of 0.8% as of close of business on May 27, 2021. Finally, I would like to note that, last quarter, we launched third-party logistic services. As a part of the new service, Ozon aims to become a reliable partner for many businesses across Russia, helping them to improve their presence online. We also see a big demand for cost-effective and reliable alternative delivery service in the regions with suboptimal logistic service provision. These initiatives create a new revenue stream for us, but more importantly it allows us to increase capacity utilization during the low season, and so to improve the returns on capital and shorten the payback period. We already have been able to forge great business partnerships, for example, with the international home goods and furniture chain, IKEA. Now IKEA products are available for delivery via Ozon in Moscow and in the Moscow region as we plan to make this service available throughout the country. Thank you for your attention, and let us move to Q&A.

Operator: Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] And your first question is from the line of Vyacheslav Degtyarev from Goldman Sachs. Please go ahead.

Vyacheslav Degtyarev: Yes, thank you very much for the call. Couple of questions, firstly, can you comment on the progression of the GMV growth performance throughout the month? How soft was the deceleration in April-May, and maybe the performance by month throughout Q1, what was the strongest month during the first quarter? And secondly, on the cost side, so basically all cost items improved as a percentage of GMV on a year-over-year basis in Q1, except for the G&A costs. Would you expect the same trajectory to continue throughout the year? Thank you.

Alexander Shulgin: Vyacheslav, thank you for the questions. So, now, as you probable remember, in Russia, lockdown measures were introduced in late March and therefore -- and they were lifted by the end of June 2021, largely across most of the Russian regions. Therefore, this time period definitely, yes, it creates the toughest comps throughout the year. And therefore, given that the growth was almost -- was nearing 200% year-over-year, on the year-over-year basis it's natural to expect some sort of deceleration. However, if we're looking on the two-year CAGR in terms of the GMV growth we see that the situation is largely stable, and performance is in line with our expectations. Therefore, while on year-over-year terms the performance might vary because of the base effect, taking into account the two-year CAGR growth rate it should be largely in line with the trends which we have observed previously in 2021. Speaking about the cost performance as a percentage of GMV, going forward for some cost lines, we still will be experiencing a negative pressure from the openings of the new infrastructure objects, as well as additional hiring in personnel. However, we aim to maintain, I mean, robust cost relative GMV, and definitely on year-over-year basis, and especially speaking about the full-year, an improvement should be able in many of the cost lines. However, I mean definitely would not provide any guidance on EBITDA, and -- but we remain focused on the cost discipline.

Vyacheslav Degtyarev: Okay, thank you very much.

Operator: Thank you. Your next question is from the line of Elena Jouronova from JPMorgan. Please go ahead.

Elena Jouronova: Yes, hi. Good day, congratulations for good results. I have a few questions, first and foremost on delivery and fulfillment costs. When do you think they should speak as percentage of GMV for online, and why?

Igor Gerasimov: I guess as a percentage -- thank you, Elena, it's Igor. I guess as a percentage [indiscernible] picture varies this year, and going forward. While the infrastructure ramps up, we'll be observing a gradual improvement.

Elena Jouronova: Understood. And how does in principle, how does the rising order frequency change your outlook for profitability?

Igor Gerasimov: Increase in order frequency will definitely be beneficial for us, and therefore while optically our AV might be reducing, because the purchases are becoming more frequent, and number of items in an order is lower following economics is neutral, but our cohort performance and retention is way better. Therefore in the long-term it should be beneficial for the company.

Elena Jouronova: So, basically even though this means pressure on your delivery costs, I mean the more frequent number of orders, but you see much in that…

Igor Gerasimov: No, no, it doesn't fit professional delivery costs, and this progression is completely in line with our expectations, and therefore the guidance which we have communicated to you already factors the same. Therefore, from our standpoint, this is just a natural reflection of the fact that people are becoming more frequent shoppers on Ozon, and that's it. So therefore, there shouldn't be any negative implications from the economic standpoint.

Elena Jouronova: Can you share with us how frequently your customers shop with you on average? I don't know number of orders per year or per quarter, what are the latest numbers?

Igor Gerasimov: In Q1, it's roughly 5.9 orders on the annualized basis. Therefore it's an increase from the fourth quarter last year. And this is also a reflection of the fact that people are using more of our own pick-up points and personal offers, which we actually wanted them to use more, because we're opening those objects quite rapidly right now, as you can see in our press release, and therefore it also leads to faster infrastructure. And for people -- just I mean a natural way of consumption. Therefore, it's also beneficial for our cohorts, as you could have seen in our presentation.

Elena Jouronova: And just a small follow-up, so you're saying about 5.9 orders per customer on an annual basis?

Igor Gerasimov: Yes.

Elena Jouronova: [Indiscernible]

Alexander Shulgin: Yes. Hi, Elena. In theory, the long-term target would be definitely in mid to high-teens longer term, that's for sure. I mean that's something which is already a reality in most of countries. And that's something that we would like to achieve. What we understand is that 5.9 is average. That also includes new customers, right, which just joined the platform. For those who are with us on for more than one year, this number would be already above 1.5 times higher. So, that's -- however we're quite happy with our corporate performance. I think it's on the slide six. So, that's -- you can see that every new cohort is better than the previous one, and it actually continues developing rapidly. So, we're quite happy. So, this 5.9 is actually already -- it's always difficult to calculate, it's just a matter of time for new cohorts to mature, even if the older cohorts do not improve.

Elena Jouronova: Okay, understood. I think among those of your more frequent shoppers who shop 365 days a year. And the final ones for me would be on -- [multiple speakers]

Alexander Shulgin: What's your frequency, Elena? Might be you can provide some estimates.

Elena Jouronova: I'm telling you it's 365 days a year; sometimes every day and sometimes twice a day. So, I'm like, you can tell that this is the potential. So, the final one for me would be on take rate dynamics. How should we think about this for the rest of 2021? I mean, remaining quarters, should we expect the take rates go down further as merchants kind of adjust to your new commission structure or maybe that's the pressure though there?

Alexander Shulgin: So, yes, as you know, we've done some changes since February. So, basically this result actually factoring some of the changes the input -- you know, [technical difficulty] versus Q4. We do not want to give any guidance, any promises here, but we just did -- we just made these changes in February. We still digesting them together with sellers, what we clearly see is that we see some response from sellers. So we saw our seller bases increasing rapidly. We see in particular by good response in terms of number of actives. So our goal to increase the assortment, it's -- we see it goes in the right direction. And we've also started seeing much better interest in our original infrastructures, because we -- you can now actually optimize some of the -- some of your costs if you bring that equity to the local fulfillment center. So having said that, so technically, you might see some reduction there, but it will be a clear reduction of cost as well, right. So for example, if today -- if you sell from Moscow to Yekaterinburg, you will sell a little pay for transportation activities. So, our report includes the part of the database, what you would see right in reports, and so it's growing some gross profit, and it also will be some cost there. If they bring directly to Yekaterinburg and sale in -- the order grows from Yekaterinburg. They will not pay for transportation. They will not pay us right there. So visually take rate was below, but costs will below as well. So this is something that might happen apart from that we kind of do. We're not working to, so that there are no big thoughts about changing commissions. So, we need to digest these commissions and to develop ancillary -- ancillary revenue, which is advertising services, where we're doing a lot today, and also cross-dock services, so you can actually pay us, and we bring this original fulfillment centers. So that's also important service costs. So to cut it shortly, I guess we just -- they just in this commission's the input they have and opposite on the ancillary part.

Elena Jouronova: Okay, thank you. And if I may, actually one more question, because the working capital dynamics are very volatile, and I do understand why this has been a source of cash outflow for Ozone in Q1. But in principal, has there been any underlying change with -- how fast you pay the [3P] [Ph] merchants?

Alexander Shulgin: No, I mean, nothing was changed, it was completely impact. So I mean, this will be a complex answer, but I'll try to keep it concise. So in 2020, the picture was distorted a bit by the COVID impacts, especially in the beginning of 2020 was distorted by the lagging impacts of the price revolution, which we decided to undertake in 2019. Therefore, the way we'll look at it is to combine the performance across several quarter, say if you're to look at the working capital dynamics for fourth quarter 2019 and first quarter 2020 together and compare it with the performance for the fourth quarter 2020 with the first quarter of 2021, you'll actually see that the dynamics is healthy. And therefore, it's better than it used to be over the comparable time period. But this segregation would allow you to I mean, avoid this impact which were ride between different processes.

Elena Jouronova: Okay, thank you very much.

Igor Gerasimov: Yes, I will touch briefly. I think, yes, the only way we used [indiscernible] this first-half versus first-half basis, because effectively we remember very well it's last month -- last weeks of March was a huge surge in GMV and in 1P as well. And you just got -- it's just like -- a little bit like a small new year within the year. And you can see that second quarter last year in terms of operating cash flow was not -- actually not good at all versus the first quarter, right. It's just the simplest of the surge in sales in March and we paid for these sales in the second quarter.

Elena Jouronova: Yes. Understood, thank you.

Operator: Thank you. [Operator Instructions] And your next quest is from the line of Ivan Kim of Xtellus Capital. Please go ahead.

Ivan Kim: Yes. Good afternoon. Can I just have three questions please? Firstly, on your share of delivers next day, so how is that progressing and how it compares maybe with the fourth quarter or a year ago? Secondly, as you reduced the threshold order for -- well, the threshold or value for free quarter delivery, what happens with the share of quarter delivery in total now in the first quarter versus last year, let's say? And then lastly, shall we expect G&A expenses growth ahead of January for the rest of the year. So is it something reasonable to issue? Thank you.

Igor Gerasimov: Okay. So, I will begin, and maybe Daniil and Alexander can follow-up. On the share of next day still remains at roughly a one third of total orders because those changes some of that faster implement, and therefore nothing which has material -- nothing which is materially different versus the fourth quarter of last year. On the threshold for AV, so it resulted in a small up tick in -- into the share of courier delivery I mean but at the same time we've been opening quite a lot of the pickup points. Therefore, it's hard to say what effects ultimately was as strongest on the blended basis. But as of now, the share of deliveries for parcel lockers and pickup points spent over 80%. But going forward we were yet to see how this will play out. Just as a reminder, I mean, our delivery channels are structured in a way that it makes it kind of being -- agnostic. Therefore it doesn't matter much for us whether customer gives goods for courier delivery or whether customer gives goods for parcel lockers pickup points because the cost and the respective commissions are structured in a way to make it largely neutral for the bottom line. G&A expense for the year, I mean, that was from annual guidance, but I can only say that in 2021, we are investing into talent acquisition and therefore the pace of G&A cost line growth will probably remain somewhat elevated, but I mean where I'm not sure yet whether they will be coupled with the G&A growth or not still, I mean, definitely is just an investment and definitely -- and it's quickly ramping up for this impact wouldn't be noticeable in the first quarters of 2022 and by the end of 2021 overall.

Ivan Kim: Great. Thank you for that figure.

Alexander Shulgin: So I think I said that one of the reasons behind new commission that we implemented in Q1 was to incentivize sellers to give the inventory in [indiscernible] across regions, which will both improve speed of delivery as well as reduce cost of potential GMV. Obviously it takes time to communicate and like change the way how sellers makes decision because there is some inertia in what the puzzle, but I think eventually these new commissions will have positive impact, both on speed of delivery, which is very important for us and also on costs.

Ivan Kim: Great. Thank you very much for this. And maybe the last one on Ozon Express. So, what was issue there, you said before [indiscernible] growth and revenue in GMV, so do you see similar trends this quarter and have you been opening more of that source? Thank you.

Alexander Shulgin: The business has very high growth rate, from a very low base of last year, we plan to open substantial number of stores in this year, and we're performing accordingly.

Ivan Kim: Okay, great. Thank you.

Operator: Thank you. Your next question is from the line of Maria Sukhanova of BCS. Please go ahead.

Maria Sukhanova: Yes, hi, everyone. I've got two questions. The first one on the inflation of your Financial Services into the customer base and to merchant base, so you do tell us how many Ozon cards that are active, but maybe if you could tell us what percentage of this is bought on installment. And also as merchants, if you could tell us probably what percentage of merchants uses your income in financial services and similar question with that retirement, so what is concentration of your advertising services into your merchants?

Alexander Shulgin: Okay, so the dollar penetration of Fintech services blending together with the payments goes to roughly 10% of the GMV already. So it's pretty significant. Obviously, most part of that is attributable to payment services, because this is a way more scalable product offerings, but lending vertical is gradually taken up to remind you, it was just I mean MVP at the end of the year, and over the course of first quarter, it has already been able to get a couple of percentage points of GMV which is I mean, very fast, which means very fast getting from a very, very small base. Before going forward, we're pretty confident in that our Fintech initiatives could go by way bigger share as a percentage of our own GMV.

Maria Sukhanova: And advertising please?

Alexander Shulgin: Advertising is increasing as a percentage of GMV gradually, obviously is very far from realizing its long-term potential, which should be somewhere close to mid single-digits as a percentage of GMV. In advertising, I mean you obviously need to mind that it's impacted by the trade marketing, which largely I think mostly attributable to gross profit and alternative back margin in the way, but the thing I'm talking about and the thing we're on which Daniil and his team are focused mostly is development of the advertising engine in marketplace, but the service which our sellers will be using, and as of now it's still very far from its long-term potential as I've mentioned.

Maria Sukhanova: Understood, thank you very much.

Operator: [Operator Instructions] There are no further questions at this time. Please continue. As there are no further questions, let me hand back to the presenters for closing remarks.

Alexander Shulgin: We want to thank everyone for joining us on this quarterly call and for your questions today. To sum up, we're very pleased with the progress we have made to-date with [155%] [Ph] growth in Q1 over last year. The core engine of our business is our marketplace firing on all cylinders. So, as of Q1 2021, the growth potential moves in our 3P and warranty business models. We've seen strong demand for our services from commercial consumers. Our customer base is growing fast and we're encouraged by our customers. We continue to focus on getting our business and expand our portfolio business as well as additional costs, which is complementary to our core business. We look forward to updating you and our progress we're making out in Q2 earnings call in August. Thank you and have a good afternoon.

Operator: That concludes the presentation. You may disconnect.