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

Thank you and welcome to BetterWear's first quarter fiscal 2023 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 Uola. 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 and the earnings release and risk factors discussed in reports filed with the SEC. Betaware 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 in the investor section of the company's website. And now, I'd like to turn the call over to the company's executive chairman, Luis Campos. Thank you, sir. You may begin.

Thank you, operator. Good morning, everyone, and thank you for joining us today. I would like to begin my remarks by providing an update on our first quarter results for our consolidated operations. Then I will disclose additional details on Jafra both in Mexico and in the U.S. The progress we have made so far in terms of reigniting its growth and increasing its profitability and the plans we have for the rest of the year and going forward. Following this, Andres will discuss better world's operating results for the quarter and provide an update on the key strategies we have for 2023 and our expectations for the remaining quarters of the year. And finally, Alejandro, our corporate CFO, will discuss our quarterly consolidated financial results, our expectations for the full year, our capital allocation strategy, and our expected dividend payments going forward. With the accretive acquisition of Jafra last year, we are now a more resilient company as we possess a diversified product portfolio with complementary well-positioned product lines participating in attractive markets, both in Mexico and in the U.S. We are proud of the progress obtained since the acquisition was completed and specifically during first quarter 2023, which allows us to reaffirm our belief that our company is in an enviable position to capture growth and add value to our stakeholders. As we mentioned in our earnings release published yesterday, The first quarter of 2023, we have seen positive results of our business strategies in Better World and Jafra, with results in line with our expectations at the beginning of the year. In the case of Better World, which Andres will discuss in further detail, quarter-over-quarter results show clear trends of a stabilization and recovery in our key business metrics with improved incorporation, retention, and activity rates in our sales network. And in the case of Jafra, after almost a year of completing the acquisition, we are confident we made the right decision as we are quickly making great progress towards increasing its profitability and re-accelerating its growth in Mexico and in the U.S., leveraging, in better words, three business pillars of product innovation, business intelligence, and technology. Talking specifically about Jafra Mexico, the company continues to exceed the expectations set when we made the acquisition. Both commercially and financially. Since last year, we have focused our key strategies on increasing our leaders and consultant space, providing them with the right tools and incentives to increase their business, as well as financial discipline that has allowed us to increase margins by controlling costs and expenses. These strategies are already in place in Jafra and have proven successful, showing promising results in line with the beginning of the year projections. The strategies include, among others, number one, product innovation. We continue to invest in innovation across our product lines. During first quarter 2023, the new products we launched to the market contributed more than 7% of total sales. In 2021, this represented only 4%, and in 2022, we increased them to 6%. Since the integration with BetterWear, we have reduced our time to market from 18 to 8 months, following global trends in the cosmetics industry. We remain leaders in the fragrance category and continue to focus on strengthening our position in color and skin care, which are already showing positive performance. All our strategies and guidelines are aimed at strengthening the brand, increasing market share, and improving profitability. Number two, business development. We adjusted our incentive programs and are constantly working in the improvement and adaptation of the product catalog in accordance with global market trends. which should result in improved incorporation, retention, and reactivation trends. Number three, technology. The company continues to invest in technological tools, such as the chatbot, oriented so that the sales force has permanent online support to any mobile device. which will intensify communication and reduce waiting times. At the same time, Jafranet 2.0, our new app for consultants, which will be launched in May 2023 and will facilitate the administration and growth of their lineage and business. Number four, operations. we continue to be in constant search for efficiencies focused on cost and expense control and additional savings. Together with Better World, the analysis and implementation of best practices and synergies continue to allow leverage to higher purchase volumes and take advantage of commercial conditions such as payment terms, discounts, savings in distribution costs and storage, among others, all of which result in improved profitability and cash flow generation. The risk from the above sales for first quarter 2023 were 9.2% higher than fourth quarter 2022. and approximately 26% higher than first quarter 2022, and slightly above our expectations. It is noteworthy that March 2023 has been the most successful month in recent years. As for Jafra U.S., As anticipated during the quarter, we saw negative results coming from strategy changes made in 2021 under the previous management, coupled with the short-term negative impact of changes in our promotional strategy, which led to lower productivity and activity of our consultants and in net revenue below our projections. It is important to mention that these trends show positive signs during the last month of the quarter, much sooner than we expected. These strategy changes include, among others, number one, product marketing. During the first quarter of 2023, Jafra US implemented a print to digital transition strategy, reducing the size of the print brochure from 60 to 48 pages, which will continue to decrease as we lower the promotions offer. Digital tools will become more important from now on, allowing us to be more flexible and profitable while promoting our products across the country. Number two, digital marketing. Jafra engaged directly with a small client base through email and text message, with promising initial results increasing e-commerce conversion rate. We expect this initiative to attract a larger client base and higher conversion rates, resulting in increased revenue. Number three, business development. During March, we deployed other business initiatives to help adjust consultant activity and productivity, including two strong reactivation strategies that result in the reactivation of 4,800 consultants and increased revenue by approximately $1.1 million. These strategies, among others, with a strong focus on reactivation and retention, allowed us to move from a consultant activity rate of 37% in February to a consultant activity rate of 53% in March. Reactivation and retention will continue to be an important focus as we work to meet our projections while focusing on mid- and long-term strategies that will result in growth. Number four, technology. We are currently performing a software evaluation for the potential replacement of existing software. The implementation of this new software will allow us to be competitive in the e-commerce and the direct selling space in the U.S. and help to better monetize direct-to-consumer opportunities and create more impactful merchandising techniques and promotions for consultants. We are focused on developing the most effective and proven tools to take advantage of technology in favor of sales. Our strategy has had a positive impact on our business metrics sooner than expected, which reinforces our confidence in our plans. For the rest of 2023, Jafra US will continue to be focused on achieving its business turnaround, with the strategy's aim at improving the client and consultant opportunity and bringing stability to the business. We are confident that as we continue to implement the 2023 commercial strategy, we will see a slow but steady growth. I will now turn the call to Andrés to discuss BetterWorks unit performance for the quarter and our business strategies to return to growth.

Thank you, Luis, and good morning to everyone. Thank you for joining us today. As we mentioned in yesterday's release, we are proud to share that first quarter 23 was the first quarter to post quarter-on-quarter net revenue growth since the second quarter of 2021, which confirms the stabilization of our operations that we discussed during the last couple of quarters. It is relevant to mention that our net revenue for the quarter was 87% higher than in the first quarter of 2019, the pre-pandemic comparable period. We can confirm that our commercial efforts are yielding positive results. showing improvement in our key operating metrics. Our base of associates and distributors ended the period practically in line with year-end figures, delivering growth during February and March, after a normal seasonal decline during January. We also saw positive trends in the churn, activity rates and average orders. We are confident that these trends will continue through the rest of the year. we are also proud of our profitability metrics. Once again, we have demonstrated our flexibility to adapt and the benefits of our asset-light business model. While year-on-year EBITDA dropped due to decline in net revenue, we managed to significantly reduce our operating expenses, both in absolute terms and as a percentage of net revenue. to expand our EBITDA margin compared to the same period last year. And more impressively, compared with the fourth quarter of 2022, our EBITDA grew 95.4% and our EBITDA margin expanded from 15.5% to 29.9%. Now that our commercial efforts are showing positive performance, and that our operating expenses are aligned to our current operations, we are confident that we will be able to reach our full-year guidance. During the quarter, we have made great advances in the strategies we laid out during our last conference call, and we will continue to provide you with updates and additional details as we continue to make progress. These strategies include, first, in terms of product. During April, we recovered most of our core concepts that we needed to gain back after pandemic shifts in consumption. We also increased the number of SKUs to 360 and expanded our catalog by eight pages. We launched two new categories, wellness and YPs. We will keep launching other categories such as baby and kids, bedding, hydration 2.0, pets, and concentrated cleaning products during the rest of the second quarter and third quarter of 2023. Thanks to our deep proprietary market study that we update every year, we have developed the tools to expand our participation in each of the concepts we hold in our catalog. Our second strategy, catalog redesign. First of all, we launched a new design of the physical and digital catalog in January, achieving a much better exposure for products, our prices, our promotions, which should lead to greater excitement and superior navigability to improve sales conversion rates. We also launched our new enhanced PDF digital catalog, which is yielding more usability and better conversion. Downloads of this new digital catalog increased substantially from 58,000 in the fourth quarter of 2022 to 284,000 in the first quarter of 2023. During May, we will upgrade this digital catalog even further. improving its personalization and connection with our websites. With this development, we will also start a new digital marketing campaign to boost its impact. The third strategy is focused on sales. We strengthen this sales strategy with the following three initiatives. Number one, we focused our incentive program on attracting new associates and distributors to achieve better startup compensation, as well as an approach to keep them buying in their first catalogs in order to achieve attractive bonuses since the start. These programs have allowed us to return to growth in our associates and distributor base without increasing expenses. During February, We concluded the migration of all our sales network to our new Better Work Plus app, which generates a much better experience and functionality for our sales force, such as registering new distributors, monitoring their performance, among other features that we will be launching throughout the year. And number three, our new sales staff strategy. with more than 80 new field managers on the ground who will continue to work face to face with our distributors to motivate and train them so they can become more successful. And last but not least, our fourth strategy focused on operations. We will start operations of our automated peak impact tower in June of 2023. creating efficiencies in terms of time and labor required for our operations. In terms of excess inventories, during the quarter, we were able to reduce it by 65 million pesos ahead of our plans. We will continue to gradually reduce excess inventory during 2023 and 2024, while we prioritize the exposure of new categories and our best sellers of our main categories. We are also working on the diversification of products manufactured in China. We're actively looking for plastic, textile, metal, mechanical, electrical and electronic manufacturing options in countries such as India, Turkey, Southeast Asia, Central and South America, and especially Mexico. We believe that by 2024, we can be manufacturing approximately 20% of sales outside of China. We are confident that our continued effort in these strategies will get us back on track, resulting in sustainable growth for the rest of 2023 and continue to profitably grow going forward. Now, I will turn the call to our corporate CFO to discuss our financial results for the quarter and our expectation for the rest of the year.