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

Thank you, and welcome to BetterWear's fourth quarter and fiscal year 2022 earnings conference call. With me on the call today are BetterWear's executive chairman, Luis Campos, BetterWear's chief executive officer, Andres Campos, and corporate chief financial officer, Alejandro Ulloa. Before we get started, I would like to remind you that this call will include forward-looking statements, which are subject to various risks and uncertainties that could cause actual results to differ materially from expectations. Any such statement should be considered in conjunction with the cautionary statements and the safe harbor statement in the earnings release and risk factors discussed in reports filed with the SEC. Federalware assumes no obligation to update any of these forward-looking statements or information. A reconciliation and other information regarding non-GAAP financial measures discussed on the call can be found in the earnings release issued yesterday. as well as the investor section of the company's website. Now, I would like to turn the call over to the company's executive chairman, Luis Campos.

Thank you, operator. Good morning, everyone, and thank you for joining us today. I would like to begin my remarks by providing a brief recap of 2022, a year with significant challenges, but also with significant accomplishments. including the completion of the Jaffa acquisition, the progress we have made so far in terms of reigniting its growth and increasing its profitability, and the plans we have for the year. Then, Andrés will discuss Better World's results for the year and the key strategies and expectations for 2023 to return to growth. And finally, Alejandro Ulloa, our corporate CFO, will discuss our quarterly and full-year consolidated financial results, our expectations for 2023, and our capital allocation strategy going forward. As we mentioned in our earnings release published yesterday, 2022 was a transformational year for our company. During the year, We successfully completed the acquisition of Jafra's operations in Mexico and the US, along with its trademark rights worldwide. This acquisition has made us a more resilient company with a more diversified portfolio and position in unique product segments that allow us enter the attractive beauty and personal care market in Mexico and the US. It has allowed us to leverage Jafra's strong and well-positioned international brand, giving us access to millions of households through its thousands of consultants and leaders. In the short period since the acquisition, we have made great progress towards increasing Jafra's profitability and re-accelerating its growth. Starting 2023, we believe our company is in an invaluable position to capture growth and add value to our stakeholders, which among others include our sales distribution network, both at Jafra and Better Work, our collaborators and our shareholders. First, I will share insight into Jafra Mexico. During 4Q 2022, and in general during the year, outstanding results were achieved compared to 2021. We surpassed our expectations for the year. This was driven by the successful implementation of various business strategies aimed mainly at recovering and sustaining our base of leaders and consultants, and powering them with tools that increase their activity and productivity. The strategies that resulted in a top-line reacceleration include, among others, Number one, resuming the face-to-face dynamic with our consultants and leaders, increasing training and events as people have mostly returned to their normal activities. Number two, improving our catalog with increased product innovation, adapting to current local and global trends in a faster way. as we reduced our time to market from 18 to only eight months. And number three, enhancing our incentive program and strategic promotional campaigns. In terms of costs and expenses, discipline and control stand out. Coupled with savings, efficiencies, and synergies from the incorporation of Jafra to the better work group, resulting in better than expected EBITDA and EBITDA margin for the quarter and for the year. For 2023, the company will continue to invest in innovation, considering global trends in consumption habits formulas, and exclusive and quality ingredients to increase brand equity and maintain leadership in both sales and units in the fragrance category and increase its participation in the segments of skincare and color. We are in the process of rebranding many of Jafra's brands to make them more current, attractive, and profitable. We will also continue with a digital update in accordance with business priorities, which includes the launch of Jafranet 2, our app for consultants, and the development of a chatbot that allows immediate and permanent interaction with the field and should result in increased the enrollment of leaders and consultants. And finally, we continue to be in the process of identifying and implementing synergies and best practices as a group, which we expect to result in economies of scale and increased productivity. All the above is focused on strengthening the brand, increasing our market share in all of our product lines, while increasing our profitability. As for Jafra USA, in 2022, we saw negative results coming from strategy changes made in 2021 under the previous management, which led to lower productivity and activity by their consultants, which resulted in lower than expected net revenue. In Q4 2022, to combat the trend of declining revenue, productivity, activity, and sponsoring, we implemented an aggressive online promotional strategy, an extensive warehouse sale, and a very lucrative sponsoring incentive. These initiatives helped bridge a portion of the gap in revenue and consultant numbers, but was not a long-term sustainable strategy. In 2023, Jafra USA is focused on a business turnaround. We will be making a notable effort to improve the client and consultant opportunity and bring stability to the business. We have identified several key areas of focus. Number one, brand identity. According to the Collage Group, a consumer research company, Jaffa has a brand love score of 37%. Main competitors are above 50%. Neutrality towards Jafra is the main driver of the lower percentage. To improve brand log, Jafra has initiated a rebrand with Studio Crater to redefine our brand style guide. Number two, product innovation. We are extending our product categories to include wellness, which according to the Direct Selling Association increased its direct selling industry revenues from $12.4 billion in 2016 to $15.4 billion in 2021. We are also focused on improving our current product offering by first addressing problematic areas that are key talking points in the US, such as ingredient and packaging sustainability, animal testing, and cruelty-free certification. And the Jafra formulation stands or ingredients we say no to. Second, by creating a Jafra skin care category that opens the door to a new demographic The younger consumer that does not shop a system but compiles her ideal custom skin care routine based on personal needs and market trends. And third, by minimizing key gaps in our color portfolio. Number three, marketing. Our marketing area will be partnering with IT on software enhancements that will make us more competitive in the space while meeting the needs of our consultants and consumers. In addition, a digital focus will be to build our client base independent of our current consultant base to increase direct connection with the final client. Number four. business development. Within the Jafra program, there are barriers to entry and barriers to advancing in rank. We simplified entry as a consultant with a one-page registration. We have simplified the conversation for the consultant by integrating the starter kit and the consultant pack into one starter kit option, allowing them to join with a commissionable kit that bumps them to the 50% personal commission tier. We also adjusted or removed commission pieces that were motivating the wrong behavior or were a barrier to advancing in rank. Commissions will continue to be a focus in 2023 as we work to simplify the commission structure and add an affiliate rank for those who sell through social platforms. In terms of technology, we are working with direct selling software leaders to provide our consultants with a comprehensive virtual office experience. which would include a commission dashboard with insight into where the consultant currently stands regarding commission or rank, and a tool that prompts additional behaviors that drive those metrics. A recognition dashboard that shows company and personal standings, creating healthy competition at the field and individual level. and a hostess program that allows consultants to set up party links, assign a hostess, take client payments, and award behaviors. We are confident that as we continue to implement the 2023 commercial strategy, we will see slow but steady growth. However, initially, we do expect a decline as consultants readjust to the new Jafra environment. In fact, during January 2023, we have experienced some negative impact due to these changes. But month to date in February, we are already seeing a positive shift, allowing us to believe that we are moving in the right direction. I will now turn the call to Andrés to discuss better-worse performance for the quarter and the year, and our business strategies to return to growth.

Thank you, Luis, and good morning to everyone. Thank you for joining us today. As Luis mentioned, 2022 was a transformational period for our company in general and for Better Wear Mexico in particular. We believe last year was the conclusion of an extremely abnormal period which came with extraordinary challenges and remarkable achievements. We are proud of our results and after a long normalization period where people have mostly returned to normality, we continue to have a network of associates and distributors of twice the size it was in 2019, having captured the tremendous growth opportunity that the COVID pandemic brought with it. As you may remember, our growth rates exploded during the first quarter of 2020 and continued through the first quarter of 2021 due to lockdowns. resulting in increased demand for our household products and the increased need from people to generate an extra income when employment and economically active population sharply declined, which derived in a sharp increase in our associate and distributor base. Then, since 2Q21 and through 4Q22, the normalization phase took place. we underestimated the impact that the return to normality would have in our sales network turn due to the sharp decrease in demand for household products and therefore in our revenues. Having said that, during the second half of 2022, we were able to improve the rate of decline in our distribution network, making us confident that we are close to its stabilization and return to growth it is relevant to mention that during this period the home solutions market contracted more than our revenues therefore we were able to increase our market share from four percent in 2019 to eight percent in 2022 while reaching approximately 70% of market share within the direct selling channel in our categories. During this period, we restructured our operating expenses to align them to the current levels of sales, reducing fixed expenses and improving our distribution expenses as a percentage of net revenue. which proves our operational flexibility and will allow us to regain our profitability margins going forward. We also redefined the commercial strategy starting in the second quarter of 2022 in order to adapt it to the new reality of the market, which already had a positive impact in our third quarter of 22 and mostly in our fourth quarter of 22 results, reducing our revenue rate of decline, as mentioned in our earnings release yesterday. We believe that the restructuring of spending and the new commercial strategies have allowed us to start at an adequate level in 2023, which we can confirm with the results obtained in the first eight weeks of the year in terms of profit margins and average weekly sales, with the latter growing 3.3% compared to what was registered on average during the fourth quarter of 2022. If March continues this trend, quarter one of 2023 will be the first quarter in the last seven that we will stabilize sales or even grow compared to the previous quarter. This gives us confidence that we have the right initiatives in place to move the business forward positively. Let me share these initiatives with you. First, in terms of product. During the pandemic stage, the product portfolio was modified to meet the needs of the market. partially removing the focus from our core products. The redefinition of our commercial strategy is taking us back to concentrating our efforts on the core and expanding the number of SKUs. During the second quarter of 23, we will cover 100% of our main line, recovering almost 26 core concepts that we hope will generate incremental sales of 150 to 200 million per quarter. In February, we returned to 340 SKUs per catalog. And in April, we expect to reach almost 370. This will expand our catalog by eight pages starting in April. We are also ready to introduce the new categories of 2023 which will be launched along this year, including wellness, white piece for cleaning, baby and kids category, bedding, hydration 2.0, pets, and concentrated cleanable products. With them, we expect an incremental sale of 200 to 300 million pesos per quarter. Second, our catalog redesign. We launched a new design of the physical and digital catalog in January of 2023, achieving better exposure of our products, our prices, our offers, which should lead to greater excitement and superior navigability to improve sales conversion rates. Third, sales strategies. We are strengthening our sales strategy with the following three initiatives. First, an incentive program focused on attracting new associates and distributors to achieve better startup compensation, as well as an approach to keep them buying from their first catalogs in order to achieve attractive bonuses since the start. Tekon, our new Better Work Plus app, which generates a better experience and functionality for our sales force, such as easily registering other distributors and monitoring their performance. It is important to mention that the entire sales force is completely migrated by the end of February of 2023. And third, our new sales staff strategy with more than 80 new field managers who will work face to face with our distributors to motivate and train them on the field so they can become more successful. Fourth, operations. We have approximately 300 million pesos of excess inventory, which we will gradually reduce during 2023 and 2024 because we're prioritizing the exposure of best seller products in main categories and new categories. We are also working on the diversification of products manufactured in China. We are actively looking for plastic, textile, metal mechanical, electrical, and electronic manufacturing options in other countries such as India, Turkey, Southeast Asia, Central and South America, and especially Mexico. We believe that by 2024, we can be manufacturing more than 30% of our revenue outside of China. We are confident that these strategies will get us back on track and allow us to return to growth in 2023 and continue to profitably grow going forward. Now I will turn the call to our corporate CFO to discuss our 2022 financial results and expectations for 2023.