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

Thank you. Welcome to BEFRA's second quarter 2025 earnings conference call. Speaking on today's call are BEFRA's president and chief executive officer, Andres Campos, and chief financial officer, Rodrigo Munoz. Before we begin, the company would like to remind participants that this call may contain forward-looking statements, which are subject to various risks and uncertainties that could cause actual results to differ materially than expectations. Please consider these statements alongside the questionary language and safe harbor statement in today's earnings release, as well as the risk factors outlined in BEFRA's SEC filings. BEFRA undertakes no obligation to update any forward-looking statement. A reconciliation of and other information regarding non-GAAP financial measures discussed on the call can also be found in the earnings release as well as in the investor relations section of the company's website. I would now turn the call over to BEFRA's president and CEO, Andres Campos. Please proceed, Mr. Campos.

Thank you, operator, and good afternoon, everyone. I'm pleased to share our results for the second quarter of 2025, a quarter that highlights the resilience and agility of our business. Following a challenging first quarter, we return to top-line and EBITDA growth, along with a strong quarter-over-quarter rebound and a positive free cash flow generation. These results are a clear signal of our ability to effectively navigate economic uncertainty, respond with agility, and build momentum across our businesses towards our long-term goals. PEPFAR's consolidated revenue grew 5.1% year over year and 1.8% quarter on quarter, driven by all of our business units. Importantly, we expanded our associate base from 1.12 million at the end of Q1 2025 to 1.13 million by the end of Q2 2025. a 0.5% Q on Q growth, also driven by growth across all business units. Better World Mexico returned to sequential growth with revenue up 4% quarter over quarter, a strong recovery from the 9.8% year-over-year decline in Q1, narrowing that gap to a negative 1.1% versus last year in the quarter. The sequential improvement was not simply due to a modest consumption rebound in Mexico, but rather the result of aggressive pricing strategies and product investments that achieved the following in the quarter. First, affordability and accessibility. We revised the pricing of our line products, the core of our average orders. making them more competitive without relying heavily on promotions that caught into margins. These made our most popular items more attractive, boosting seller engagement as well as sales. We also simplified some products as another way to increase affordability. Second, a return to associate-based growth. As a result, Of a new incentive program launched at the beginning of the year, we achieved net associate growth for the first time since Q1 2021, expanding from 649,000 to 670,000 associates, 3.3% growth quarter on quarter. Our distributor base also grew, increasing 3.5%. This is important as distributors are key drivers of team activity, retention, and growth. A more attractive points program also attracted more associates to BetterWork during the quarter. In addition, we have rolled out a new personal tagging system, enabling more targeted sales support and initiatives that help increase associate productivity, retention, and ticket size. Third, innovation. New product launches in our home solutions and kitchen categories led better sales growth this quarter, with seasonality concepts such as heat, insect, and rain control outperforming the previous year. And fourth, technology. We improved the functionality of our sales app, improving the backorder process and making digital payments much easier. Better World Mexico also achieved a strong profitability with an EBITDA margin of 19.9% and contributed to generating strong cash flow for the quarter. Now, turning to our beauty and personal care business, Jafra Mexico started delivering double-digit growth again and return to profitability, with its revenue up 10.9% year-on-year and its EBITDA margin expanding to 21.2%. Three key drivers behind this performance were, first, category strength. Our main source of category growth this quarter came from our rebranding efforts, which are the highlight of 2025. Fragrance rebranding led growth, boosted by the success of Navigo and Double Nature, while skincare was also positively impacted with the revitalization of Royal Jelly, our main franchise in that category. The branding efforts gave these products a modern look and also incorporated new sizes to make them more attractive to the consumer. Looking forward, we are particularly excited about the rebranding of our Royal Body brand in the third quarter, as well as the upcoming launch of a new spot remover under our higher-end Biolab skincare brand. Second, Salesforce productivity. Jafra's associate base increased 2.3%, while the average monthly ticket rose more than 9%. This was driven by a revamped leadership program, compelling incentives, and a refreshing brand identity that is resonating strongly with our seller community. And third, margin investments. Like BetterWear, we also adjusted pricing to drive volume and increase competitiveness. While these slightly impacted margins in the short term, we expect the mid to long-term benefits to include higher household penetration and an improved sales mix comprising more higher margin products. Now turning into Jafra US, while revenue decreased 8.9% year-on-year in US dollars, We delivered a 15.6% rebound quarter over quarter versus the first quarter of 2025. At the same time, the associate base grew 8.5% sequentially, while engagement improved significantly. We are excited about this progress and look forward to more sequential growth going forward. giving the enormous opportunity of the American market for Jaffa US. And after some years of understanding the business and the market, we have undergone deep transformation activities aimed to achieve constant growth. This includes, first, a compensation plan revamp. In April and May, we rolled out our new incentives plan, which fosters growth and activity. and includes a new loyalty program as well. We believe this new compensation plan will be key for growth in the coming quarters and years. Second, U.S. market-specific innovations. We will begin launching innovations targeting the U.S. market, starting in Q3 2025, namely our Around the World Fragrance Collection, We continue working with our innovation team to bring newness that caters for U.S. market niches more directly. And third, a new catalog design, which we will launch in September of this year. Turning briefly to geographic expansion, one of BEFRA's growth pillars, we are pleased to announce that we successfully launched Better World Ecuador in May, surpassing our second Q goal by reaching 2,500 active associates. This early success stems from replicating our proven Mexico playbook. At Better World Guatemala, our new management team is already showing better results, with Q2 sales returning to positive growth. These developments reinforce our conviction on Central America and the Andean region of Latin America as important markets, which should add growth to the group in the midterm. They represent a total addressable market equal to Mexico's. Accordingly, we are currently assessing the Colombian market for entry in 2026. With that, I'll turn it over to Rodrigo to go over the financials in more detail.

Thank you, Andres, and good afternoon, everyone. I will not get into some of other key figures of the quarter. Please have in mind that all figures that I'll be referencing are in Mexican pesos, our functional and reporting currency, and that all previous comparisons are year-over-year unless otherwise stated. Additional details are available in our earnings release published earlier on our investor relations website. Our consolidated gross margin was 67.1%, mainly in line with last year's results and reflecting our commercial investments in proactive pricing strategies at BetterWell and Jaffa Mexico. DataWare Mexico's gross margin was 55.2%, down 127 basis points year over year, due to proactive pricing strategies that Andres explained before. But we expect to see a continuation of the shift in consumer purchases towards a higher mix of line items and fewer promotional ones. which is projected to further improve margins in the second half of the year. Jafra's Mexico gross margin was 75.3%, down 167 basis points versus last year quarter, due to pricing changes made to support underweighted categories, such as skincare and cosmetics, which were not priced competitive before. It is important to mention that last year's gross margin showed non-recurring effects, and the level achieved in the second quarter of 2025 are in line with our expectations and above historical gross margin. The FIUS gross margin improved to 76%, supported by a more favorable mix of higher margin products and procurement savings. Consolidated EBITDA increased 3.5% year-over-year to 679 million pesos, with a margin of 19.1%, experiencing a strong quarter-over-quarter rebound after temporary effects seen in Q1 2025, and returning to our normal profitability levels of 19%. better-worth Mexico EBITDA margin remains healthy, despite the gross margin commercial investment, thanks to higher SG&A efficiencies and improved supply chain management. Jaffa's Mexico EBITDA increased 14.2% year-over-year, driven by revenue growth and disciplined expense control, while the EBITDA loss of the U.S. business has narrowed. A continued improvement in the top line paired with disciplined cost controls is expected to bring Jafa U.S. to the break-even point by year end. Free cash flow rose to 592 million pesos in this quarter, bringing year-to-date conversion to 44.2% of EBITDA and 87% conversion for the second quarter. After a challenging first quarter, we expect this trend to continue, aiming to reach our historical conversion level of around 60% of EBITDA's pre-cash flow in total year 2025. Consolidated EPS grew 7.7% year over year, supported by the increases in revenue and EBITDA, lower financial costs in Mexico, and a 45 million pesos decrease in income tax as a result of a positive adjustment related to the tax audit report of 2024. Debt leverage improved with our net debt to EBITDA ratio at 1.97 times, down from 2.08 times in Q1 2025. but still higher than the level reported in Q2 2024 of 1.8 times. Increase was mainly due to undertaking incremental short-term debt in Q1 in response to lower operating cash flow from non-recurring events explained before. In light of the quarter's free cash flow and considering current and expected market conditions, Our Board of Directors is proposing a 200 million peso dividend for Q2 2025, subject to ratification at the Ordinary General Shareholders Meeting on July 31st. This would mark our 22nd consecutive dividend since our IPO in 2020, underscoring our unwavering commitment to delivering sustainable long-term shareholder vaccine. We remain committed and are maintaining our full year guidance for 2025. As always, we will continue to closely monitor our approach. I will now pass the call to the operator for any questions you may have. Thank you.