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

Thank you and welcome to BetterWear's second 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, BetterWear's Chief Transformational Officer, Santiago 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 statement and the safe harbor statement in the earnings release and risk factors discussed in reports filed with the SEC. BetterWear assumes no obligation to update any of these forward-looking statements or information. A reconciliation and other information regarding non-GAAP financial measures discussed in the call can be found in the earnings release issued yesterday, as well as in 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 an update on our second quarter and year-to-date 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 in terms of revenue growth and increasing profitability, and the plans we have for the second half of the year and going forward. Following this, Andres will discuss better works operating results for the quarter and the first half of 2023 and provide an update on the key strategies we have for the second half of the year. Then, Santiago Campos, our new chief transformational officer, will explain his new role in the company and its relevance for our group's perspectives and future growth. And finally, Alejandro, our corporate CFO, will discuss our quarterly and year-to-date consolidated financial results, our expectations for the full year, and our capital allocation strategy and our expected dividend payments going forward. During the second quarter of 2023, we advanced our business strategy, seeing very positive results in Better World and Jafra, and overall generated results in line with our expectations. We are proud of the progress attained during first half 2023, which reinforces our belief that our company is in an ideal position to capture growth and add value for our stakeholders. During first half 2023, we focused on strengthening our balance sheet by reducing our leverage and improving our debt profile. Going forward, Our debt cost has decreased, and we have eased the strain on cash flow by postponing principal payments due in 2025 and 2026. Alejandro will comment on this further shortly. At Better World, we have achieved two consecutive quarters with quarter-on-quarter top-line growth, showing clear signs of stabilization, and recovery of our key business metrics. Profitability has expanded significantly, reflecting efficient cost and expense control. At Jafra, we continue making great progress, well ahead of our initial expectations, towards increasing its profitability and re-accelerating its growth in Mexico. We are accomplishing this as we leverage BetterWars, three business pillars of product innovation, business intelligence, and technology. Delving into this further at Jafra Mexico, the company continues to exceed the expectations set when we made the acquisition, both commercially and financially. During this period, Management has been focused on increasing our leaders and consultants base to boost top-line growth for the company, coupled with increased focus on product innovation and financial discipline to increase profitability. During the first half of the year, we have positive sales network growth, which experienced double-digit growth in our consultants base when compared to first half 2022 and throughout second half 2023. We will be even more aggressive in the incorporation, retention, and reactivation of the template to close the year with a better base. For background, in September 2022, some adjustments were implemented to the requirements for leaders to obtain their commissions. We knew that this change would lead to a purification or reduction of the leaders' base. One of the expected results of these adjustments to the requirements was that leaders would strengthen their groups. increasing the average number of consultants with orders each month. In 2023, the average number of consultants with orders in each personal group of each leader was 11.9 as compared to 9.6 in 2022, even better than the pre-pandemic period, which was 10.3. The previous strategy has also caused an increase in the compensation payments for most of the leaders, a favorable effect that strengthens the philosophy of the win-win business model. We will continue to make progress against the main strategies implemented during first half 2023, which have shown promising results some of them exceeding our beginning of the year estimates. The strategies include, among others, number one, product innovation. Newly launched products had a strong influence on our sales in the first half of the year, accounting for more than 12% of our total revenue. This demonstrates the success of our product development strategies and our ability to meet the changing needs and demands of the market. We will continue to invest in research and development to bring innovative products to the market and drive growth for our company. Our leadership in the fragrance category remains strong as we maintain our number one position in both sales value and volume. We are also working hard to regain market share in the color and skin care categories, which were impacted prior to the acquisition. By focusing on this area and continuously improving our products and strategies, We aim to further solidify our position as a market leader and continue to grow our business. We are currently undergoing a complete rebranding for Jafra and will provide an update on our progress soon. Number two, business development. Our primary objectives are to enhance incorporation, retention, and reactivation rates, with a particular emphasis on grooming future leaders. We are revamping incentive programs and aligning them with current market trends while also adapting our product portfolio accordingly. Our commercial area is undergoing a restructuring process that aims to enhance our support to our sales team and promote alignment of vision and objectives. One of the desired outcomes is to expand our geographic coverage and nurture the development of a new generation of consultants and leaders. We believe we can improve our commercial effectiveness and ultimately contribute to the company's growth and success. Number three, technology. During May 2023, our new app for consultants was launched and has been positively received by our sales force. We will continue to incorporate new and enhanced features to further improve their experience and productivity. During third quarter 2023, we will go live with our new chatbot to provide improved and automated assistance to our leaders and consultants, also resulting in savings for the company. Number four, operations. The integration of Better World with Jafra is enabling us to analyze and implement the most efficient practices for leveraging higher purchase volumes and maximizing commercial conditions. This strategic approach is expected to significantly improve our profitability and cash flow generation. We will continue to work towards identifying synergies and implementing best practices to further enhance our business operations. As for Jafra USA, in the first half of the year, we perform better than our expectations and are continuing to work towards completing our business transformation. Our primary strategies are centered around improving the incorporation, retention, and reactivation rates of our consultants, as well as boosting their productivity and activity levels. These efforts are crucial to ensuring the long-term success of our company and achieving our goals. These strategies include, among others, number one, product innovation. Together with Jafra Mexico, Jafra USA is committed to continually introducing cutting-edge products aligned with the rapidly evolving beauty industry with special efforts to modernize the Jafra brand while staying true to its heritage. Number two, digital marketing. We continue working towards increasing our brand awareness engaging directly with our client base through digital communication to attract a broader clientele and subsequently elevate our e-commerce conversion rates, ultimately driving revenue growth. Number three, business development. We have designed a comprehensive approach to increase brand awareness, and Salesforce engagement that includes social and personal community outreach, regional events, and growth incentivization. In Jafra USA, we are focusing on supporting growth and expanding the influence of our leaders in five pivotal regions, California, Texas, Florida, North Carolina, and Illinois. Four, technology. In May, we started working on a new e-commerce and virtual office platform using Shopify. The revamp, Jafra.com, will elevate the overall user experience and empower our stakeholders with more effective tools to engage and transact on the platform. For the rest of 2023, Jafra USA will continue to be focused on achieving its business turnaround, with strategies aimed at improving the client and consultant opportunity and bringing stability to the business. I will now turn the call to Andreas to discuss Better Worlds unit performance and our business strategies for the rest of the year.

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 the second quarter of 2023 was the second consecutive quarter to post quarter-on-quarter net revenue growth. which confirms that our strategies are having a positive impact, boosting our revenue and our network of associates and distributors. Our base of associates ended the quarter approximately in line with last quarter, while our end of period base of distributors grew 5% compared to the first quarter of 2023. As we have mentioned before, A growing base of distributors provides a platform to boost growth in our associate base going forward, which consecutively represents the base of continued growth going forward. We are confident that this positive trend will continue through the rest of the year. More impressively, in terms of profitability, we have demonstrated once again the flexibility of our company and the benefits of our asset-light business model. For the quarter, EBITDA increased 10% compared to the second quarter of 2022, expanding our EBITDA margin by 556 basis points, thanks to a 356 basis points gross margin expansion and increased operating leverage. For the first half of the year, our EBITDA margin expanded 221 basis points to 30.2% due to positive results of our cost and expense control strategies. During the quarter, we have made great advances in the strategies we laid out since the beginning of the year. These strategies include, number one, product portfolio strategies. In 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 in the catalog to 375 and expanded our catalog to 110 pages. During the quarter, we launched four new categories, baby and kids, bedding, hydration, and pets. Early signs are positive. with these categories combined representing 12% of total net revenues for the quarter. These four categories add to the two we have launched in the first quarter, namely wellness and cleaning wipings. We will continue to launch new categories, starting with cleaning consumables, which was launched in July 2023. Number two, catalog strategies. In addition to the new catalog design that we launched during the first quarter of 2023, in May, we launched our new pocket catalog. This new version was greatly received by the market, allowing us to reach more associates as well as customers, increasing our monthly printed catalogs from 3 to 4 million units per month. In terms of our digital catalog, In second quarter of 2023, we have 300,000 downloads, up from 58,000 in the fourth quarter of 2022. We will continue adding new functionalities to improve the customer's overall experience in our digital catalog. Number three, sales strategies. We strengthen our sales strategy with the following two initiatives. First, We focus our incentive program on attracting new associates and distributors by boosting startup compensation, as well as an approach to keep them buying from their first two catalogs. These strategies have already yielded positive results, mainly in terms of increasing our incorporation rates, both for distributors and associates. We have also continued to strengthen our new sales staff strategy, aimed at increasing face-to-face work with our distributors to motivate and train them, which has yielded very positive results in distributor retention and development. During the second semester of 2023, we will segment the country in 25 regions, up from 10 currently. to be able to leverage on this strategy and boost our geographic penetration. And finally, number four, operation strategies. In mid-June 2023, our semi-automated peak and back tower began operations with promising results. Our productivity has increased, although it is still too early to provide detailed results. we will continue to monitor our progress and provide updates on this front. On the other hand, we have successfully reduced excess inventories by 130 million pesos during the first semester of the year, exceeding our targets for the year. Further and final reductions of excess inventories are planned over the next 18 months. Given these initial positive results, we are confident that as these strategies mature, they will lay down the ground for sustainable and profitable growth for the remainder of 2023 and beyond. Now, I will turn the call to Santiago, our new Chief Transformational Officer, who will address his new role and strategic mission from here on.