Betterware de Mexico, S.A.P.I. de C.V.

advantages and the work we have done to increase efficiency and elevate our operating platform to support the strong growth we see ahead for the company. Diana will then review our financial results and our updated fiscal 2020 outlook. We have an outstanding third quarter. that included record sales and EBITDA and significant accomplishments toward our strategy. The momentum we have experienced in our business that has led to consistent sales and EBITDA growth over the past five years accelerated significantly this quarter, generating a 199% increase in net sales, bringing to our company 17,000 new distributors and 400,000 new associates, and our growth dropped a 234% increase in EBITDA. Amidst a pandemic backdrop, Better Works successfully capitalized on the market opportunity driven by the increased demand for household and cleaning products and the increased desire for employment in home. We are very proud of our team's ability to adapt, meet the increased demand, and continue to serve our customers in a changing operating environment. While BetterWear has always been a great place to work, the pandemic gave us an even greater opportunity to add to our distributors and associates. Our outreach and the ability to have our associate and distributor network conduct business digitally from home fueled a 100% an 86% increase in distributors and a 179 increase in associates during the quarter. As of quarter end, we have nearly 59,000 distributors and 1.2 million associates, which is the largest number of distributors and associates in the history of Better World. We are confident in our ability to continue to grow our distributor and associate base and expect our larger and stronger team will help drive our business going forward. Finally, during the quarter, we made continued strides to improve our financial health and position, namely, we reduced our leverage ratio of net debt to adjusted EBITDA to minus 0.4 from minus 0.1 at the end of the second quarter and increased our liquidity to 1,155 million pesos at quarter end. We continue to be focused on returning value to shareholders, and we again have proposed a dividend that is subject to approval at the next ordinary shareholders' meeting. So, in summary, we are very pleased with our ability to support the consumers' growing need for our products during the third quarter. Our strategic priorities combined with our continuous focus on managing expenses and working capital, have us poised to capitalize on the increased demand we are seeing across our business. And we believe we are in an invaluable position moving forward. With a strong cash flow and positive business momentum, we have the ability to invest in support of our future growth while maintaining strong financial performance. As Diana will discuss, we expect our strong performance to continue in the final quarter of the year, which is reflected in our updated guidance. I will now turn the call to Andres, our Chief Executive Officer who will highlight our progress on our four strategic pillars.

Thank you, Luis, and good morning to everyone. Before I review our strategic growth pillars, I would like to commend our team for their unwavering dedication and hard work during this quarter. We delivered an extremely strong third quarter performance, well beyond our expectations, that was supported by the efficiency and effectiveness of our robust operating platform. As you would expect, achieving the level of growth we experienced created some short-term impacts to the business in terms of delivery times and freight expense. Importantly, we reacted swiftly to expand our capabilities with significant increases in our pick and pack lines, operations workforce, forklifts and trucks, as well as an increased number of trucks moving between our warehouses daily. Our actions enabled us to return to optimal efficiency rates and on-time deliveries that were back to pre-COVID levels by the quarter end. Now, I will review our four key strategic growth pillars, which are centered on market penetration, geographic expansion, category expansion, and business intelligence and technology investments. And then I will discuss our web marketing and new campus. These initiatives are expected to support our future growth and increase efficiency. Starting with market penetration, we saw broad-based strength across all categories during the quarter, which was spurred by the increased demands for our household and cleaning products as a result of the COVID-19 pandemic, and also our deliberate actions to drive growth with high impact innovation. This capability sets us apart from peers, allowing BetterWear to take a leadership position with new product introductions. Our increased market penetration highlights our deep expertise in this category for which customers have learned to trust us and why we are the number one brand within the category in Mexico. Our constant focus on product innovation allows us to launch more and more successful products every day. This, combined with our unique multi-source design platform, generates more interest with customers and allows us to continue to differentiate ourselves. Our second strategic pillar is geographic expansion. During next quarter, we will introduce Better World Guatemala, following the successful pilot tests. Our sales, EBITDA, distributor, and associate growth in this new market has been consistently growing each month. We are extremely pleased with the momentum of the business and the strong profitability of Guatemala. In fact, EBITDA margin reached 50% in September, demonstrating that we can successfully replicate our business model in other countries. Up until now, our operations in Guatemala have been through a concessionary. In November, we will have a joint venture with the current concessionary as a minority partner to launch Better World Guatemala as a subsidiary of Better World Mexico. We expect its growth to accelerate towards 2022, and we look to expand to other countries in Central America, including Panama and Costa Rica. We are also targeting the expansion of Better World into South America, specifically Colombia and Peru in the coming years. Next, category expansion. We launched two catalogs during the third quarter, and we introduced 62 new products in these catalogs. Customer response to new categories has been strong. Our last pillar is business intelligence and technology investments. We have been developing our business intelligence capability for many years. with an increased focus over the last seven years. These capabilities enable us to make smart decisions, backed by technology in everything we do. Regarding web marketing, in addition to showcasing our products, our new website is a tool for our distributors and associates to grow their sales and earnings by continuing to reach additional customers. Our new and improved transactional website, betterword.com, will help our distributors and associates reach more customers in two ways. Number one, connecting new customers based on location to a distributor or an associate if they don't already have an existing relationship with one. This makes the purchasing transaction easier for the customer and offers increased incentives and economics for the distributor or the associates. Additionally, the distributors and associates will now be able to share a personal link that will automatically assign to them any purchase completed through their link. Again, generating increased economics for the distributor and the associates. Now, turning to our new campus. The new campus, which is on track to open before year-end, will be located in Huaxla, Jalisco, on the outskirts of Guadalajara, and will become our national distribution center and headquarters, consolidating our operations to one location. Our recent accelerated growth had us reaching full capacity at our existing facility, while the new facility has 2.5 times the storage capacity and 5.3 times the assortment capacity of our current locations, which is a significant increase. Some of the operational efficiencies that we expect to obtain from the new campus are consolidation of all our warehousing and distribution processes, optimization of space usage and inventory management efficiency, all backed by new technology. In support of our long-term growth planning, we recently completed a study by Bain and Company that identified opportunities to invest in future growth, improve service levels, and increase our competitive advantages. We are continuing to evaluate which investments make the most sense for the business, and we will continue to keep you posted. We are excited about our operational initiatives planned for the remainder of this year and beyond as we continue to build a stronger, better world, positioned for sustained, profitable growth. We look forward to updating you on our progress as we focus on building on our success today. I will now turn the call over to Diana to review our third quarter financial results.

Thank you, Andrés. Good morning, everyone. I would like to take this time to review our third quarter 2020 results. I will then share perspective regarding our outlook for the year. Please keep in mind that the currency I will refer to when reviewing our results and guidance is the Mexican peso, which is our functional and reporting currency. Given the relevance of this matter, I would like to provide clarity regarding the accounting impact of the warrant we inherited as a result of the merger with DD3 to our consolidated financial statement as of and for the nine months ended September 30, 2020. As reported in yesterday's 6K and earnings release, our net income and earnings per share include a $585 million non-cash expense related to the valuation of water. IFRS requires the warrants to be classified as a liability given that the functional currency of better work differs from the strike price of the warrant, which is fixed in U.S. dollars. Changes in the fair value of the liability are presented in the profit and loss statement under the heading Changes in Fair Value of the Warrant. IFRS requires the fair value of the warrant to be recorded in profit or loss for the period However, the company's operating income and the financial position is not impacted. For purposes of the company's EBITDA, the changes in the fair value of the liability are excluded as they represent non-cash charges. In addition, when the warrant has changed for the company's shares, the obligation associated with the liability will be extinguished with a corresponding increase in equity. Once the warrants have been redeemed, the net impact in the company's equity is zero, as the increase in their fair value is recorded in the profit and loss statement, reducing retained earnings, offset by the equivalent increase in equity as a result of the issuance of the shares. Turning to a review of the tier quarter, I will provide highlights of our results, which are detailed fully in our 6K 5G SLA. Total net revenues increased 199% to $2,271 million from $759 million in the prior period year. Gross profit increased 173% to $1,204 million. As a percent of sales, gross margin declined, driven by unfavorable currency as we buy our products in US dollars. and sell them in Mexican pesos. And to a lesser extent, higher freight costs incur to meet the searching demand. Selling expenses as a percent of sales were 10.7% of sales compared to 20.3% of sales in the year ago period, driven by strong sales growth. Higher sales and SG&A leverage a 244% increase in operating income to $721 million from $210 million. Operating margin as a percent of sales increased 410 basis points to 31.8% from 27.7%. EBITDA for the third quarter 2020 increased 234% year-over-year to $731 million, compared to $219 million in the prior year, and EBITDA margin expanded 330 basis points to 32.2% due to the increase in operational leverage. And finally, we report $15.22 in adjusted non-IFRS earnings per share. Now, turning to the balance sheet, As of September 30, 2020, we had $1,155 million in cash and cash equivalents, a 656% increase prior year period, and inventory growth supports our sales expectations. At quarter end, our leverage ratio of net debt to EBITDA was 0.4 times, down 0.3 times from the end of the second quarter. In the third quarter, we had $182 million of capital expenditures. For the year, we anticipate that we will invest $794 million in CAPEX for the year and increase from the $267 million spent in 2019. In terms of our outlook for 2020, as disclosing our pressure list, We are providing a net revenue outlook and raising our EBITDA expectations for the year to reflect our robust third quarter performance and expectations for a strong end of the year. We expect revenue for 2020 to be approximately $7,250 million and expect EBITDA to be in the range of $1,900 million to $2,100 million. up from 1,450 million previously, and EBITDA margin to be 26.2% to 28.9% versus 26.7% to 28.3%. We are pleased with our record growth, and over the long term, we expect our visible growth strategies supported by a strong infrastructure and talented team will enable our company to deliver consistent growth in sales and EBITDA in future periods. I will now turn the call over to the operator, and we will take any questions you may have.