| --- | --- | --- | --- | --- | --- | |-----------|-------|-------|-------|-----------------------|-------------| | | | | | | | | | | | | INVESTOR PRESENTATION | | | . . ● ● ● | | | | | MAY 2021 | | ● ● | | | | | Betterware® | The information presented here may include statements regarding future events and / or projected financial results. The results obtained may differ from those projected in this presentation because they are subject to risks and uncertainty that may change based on various factors that ...

Betterware de Mexico, S.A.B. de C.V. (NYSE:BWMX) Q1 2021 Earnings Conference Call May 7, 2021 9:00 AM ET Company Participants Luis Campos - Executive Chairman Andres Campos - Chief Executive Officer Diana Jones - Chief Financial Officer Conference Call Participants Eric Beder - SCC Research Joe Feldman - Telsey Advisory Group Operator Thank you and welcome to Betterware's Firsr Quarter 2021 Earnings Conference Call. With me on the call today are Betterware's Executive Chairman, Luis Campos, Chief Executive ...

PART I [ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS](index=10&type=section&id=ITEM%201.%20IDENTITY%20OF%20DIRECTORS%2C%20SENIOR%20MANAGEMENT%20AND%20ADVISERS) This section is not applicable as per the report - The report states that this item is not applicable[41](index=41&type=chunk) [ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE](index=10&type=section&id=ITEM%202.%20OFFER%20STATISTICS%20AND%20EXPECTED%20TIMETABLE) This section is not applicable as per the report - The report states that this item is not applicable[42](index=42&type=chunk) [ITEM 3. KEY INFORMATION](index=10&type=section&id=ITEM%203.%20KEY%20INFORMATION) This section presents selected financial data for 2017-2019, including balance sheets, profit/loss statements, and non-IFRS reconciliations, alongside comprehensive risk factors [Selected Financial Data](index=10&type=section&id=A.%20SELECTED%20FINANCIAL%20DATA) The company presents selected combined financial data for 2017-2019, showing consistent growth in net revenue, operating income, and net income, with non-IFRS reconciliations for EBITDA Selected Statement of Profit or Loss Data (in thousands of MXN) | | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | **Net revenue** | 3,084,662 | 2,316,716 | 1,449,705 | | **Gross profit** | 1,803,833 | 1,358,247 | 891,600 | | **Operating income** | 812,245 | 551,747 | 330,862 | | **Net income for the year** | 472,142 | 299,267 | 207,674 | Selected Balance Sheet Data (in thousands of MXN) | | As of Dec 31, 2019 | As of Dec 31, 2018 | | :--- | :--- | :--- | | **Total current assets** | 880,706 | 729,851 | | **Total non-current assets** | 909,020 | 727,748 | | **Total assets** | 1,789,726 | 1,457,598 | | **Total current liabilities** | 878,358 | 734,444 | | **Total non-current liabilities** | 636,886 | 642,890 | | **Total liabilities** | 1,515,244 | 1,377,334 | EBITDA and Adjusted EBITDA Reconciliation (in thousands of MXN) | | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | **Net Income for the year** | 472,142 | 299,267 | 207,274 | | **EBITDA** | 850,639 | 577,707 | 354,671 | | **Adjusted EBITDA** | 850,639 | 573,554 | 354,671 | Basic and Diluted Earnings Per Share (EPS) | | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | **Net income attributable to shareholders (in thousands of MXN)** | 472,142 | 299,267 | 207,674 | | **Weighted average of outstanding shares (in thousands)** | 30,200 | 30,200 | 30,200 | | **Basic and diluted EPS (MXN per share)** | 15.63 | 9.91 | 6.88 | [Risk Factors](index=13&type=section&id=D.%20RISK%20FACTORS) The company identifies several material risks, including business, Mexico-specific, internal control, and ownership-related factors - **Business Risks:** The company's success is highly dependent on its ability to retain and recruit independent distributors, and it relies heavily on third-party contract manufacturers, with approximately **89% of 2019 revenues** from products supplied by Chinese manufacturers, posing a supply chain risk, especially highlighted by the COVID-19 pandemic[63](index=63&type=chunk)[64](index=64&type=chunk)[70](index=70&type=chunk) - **Mexico-Specific Risks:** The company is exposed to currency exchange rate fluctuations, particularly the Mexican peso against the U.S. dollar, which could impact margins, and economic and political developments in Mexico also pose a significant risk[108](index=108&type=chunk)[109](index=109&type=chunk)[113](index=113&type=chunk) - **Internal Control and Public Company Risks:** Material weaknesses in internal control over financial reporting have been identified, and the management team has limited experience operating a public company, which could lead to challenges in complying with complex U.S. federal securities laws and regulations[98](index=98&type=chunk)[99](index=99&type=chunk)[101](index=101&type=chunk) - **Ownership and Governance Risks:** As a "foreign private issuer" and an "emerging growth company," Betterware is exempt from certain SEC disclosure and governance requirements, potentially affording less protection to shareholders, and controlling shareholders hold significant influence, which could lead to conflicts of interest[107](index=107&type=chunk)[147](index=147&type=chunk)[152](index=152&type=chunk) [ITEM 4. COMPANY INFORMATION](index=28&type=section&id=ITEM%204.%20COMPANY%20INFORMATION) This section details the company's history, business operations, organizational structure, and property, highlighting its direct-to-customer model and growth strategies [History and Development of the Company](index=28&type=section&id=A.%20HISTORY%20AND%20DEVELOPMENT%20OF%20THE%20COMPANY) Founded in 1995, Betterware is a leading direct-to-consumer company in Mexico, specializing in home organization, and completed a business combination with DD3 Acquisition Corp. in March 2020 - Betterware was founded in 1995 and is a leading direct-to-customer company in Mexico, specializing in the home organization segment[170](index=170&type=chunk) - On March 13, 2020, the company completed its business combination with DD3 Acquisition Corp., resulting in a merger where Betterware was the surviving entity[172](index=172&type=chunk) [Business Overview](index=28&type=section&id=B.%20BUSINESS%20OVERVIEW) Betterware sells home organization products through a two-tier sales model, leveraging in-house business intelligence, product innovation, and robust logistics for growth - The company operates a two-tier sales model with over **438,000 Distributors and Associates**, serving approximately **3 million households** every six weeks across Mexico[175](index=175&type=chunk) - Competitive strengths include a unique in-house business intelligence unit, a strong product development program that introduces **~300 new products annually**, and a logistics platform with zero last-mile cost for the company[181](index=181&type=chunk)[183](index=183&type=chunk)[188](index=188&type=chunk) - Growth strategies include short-term goals like web marketing/e-commerce and a new headquarters campus, and medium-term goals like launching new product lines, expanding into Latin America, and pursuing strategic acquisitions[189](index=189&type=chunk) [Organizational Structure](index=33&type=section&id=C.%20ORGANIZATIONAL%20STRUCTURE) This subsection provides diagrams illustrating the company's organizational structure both immediately before and after the consummation of the Business Combination - The report includes diagrams showing the company's organizational structure before and after the Business Combination[197](index=197&type=chunk)[199](index=199&type=chunk) [Property, Plants and Equipment](index=34&type=section&id=D.%20PROPERTY%2C%20PLANTS%20AND%20EQUIPMENT) The company's principal executive offices and distribution centers are located in leased premises in Guadalajara, Mexico, with a new distribution center under construction - The company is constructing a new distribution center in Guadalajara, Mexico, with an estimated total investment of **MX$581 million**, expected to be completed in Q4 2020[199](index=199&type=chunk) Leased Properties Summary | Leased properties | Term | Area (square meters) | | :--- | :--- | :--- | | Distribution center - CEDIS | December 31, 2020 | 12,657 | | Warehouse CEREC I | December 31, 2020 | 6,921 | | Warehouse CEREC III | December 31, 2020 | 4,717 | | Warehouse CEREC II | September 30, 2020 | 2,023 | | Mexico City – Casa Better | April 30, 2022 | 384 | [ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS](index=34&type=section&id=ITEM%205.%20OPERATING%20AND%20FINANCIAL%20REVIEW%20AND%20PROSPECTS) This section analyzes the company's financial performance, liquidity, capital resources, debt structure, and the initial impact of the COVID-19 pandemic [Operating Results](index=35&type=section&id=A.%20Operating%20Results) The company's net revenue increased by 33.1% in 2019, driven by distribution network growth, with stable gross margins and increased capital expenditures for new facilities Net Revenue Comparison (in thousands of MXN) | | Dec 31, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Net Revenue | 3,084,662 | 2,316,716 | - Net revenue grew **33.1% in 2019**, primarily due to an increase in the distribution network to **437,872 members** from 342,867 in 2018[219](index=219&type=chunk) - Capital expenditures increased significantly to **MX$182.6 million** in 2019 from MX$21.3 million in 2018, mainly due to the construction of the new headquarters and distribution center in Guadalajara[229](index=229&type=chunk) [Liquidity and Capital Resources](index=40&type=section&id=B.%20LIQUIDITY%20AND%20CAPITAL%20RESOURCES) The company's liquidity improved in 2019 due to increased operating cash flow, with debt facilities in compliance, and initial COVID-19 impacts affecting gross margin - Cash flow from operating activities increased to **MX$605,446 thousand** in 2019 from MX$338,214 thousand in 2018, mainly due to increased cash from sales and improved working capital management[234](index=234&type=chunk) - The company has a secured credit facility with MCRF P, S.A. de C.V. for **MX$600 million** and another with Banamex for **MX$400 million**, along with a revolving facility, with the MCRF loan fully repaid in April 2020[238](index=238&type=chunk)[239](index=239&type=chunk) - The COVID-19 pandemic has not interrupted operations as of the report date, but gross margin has been negatively affected by promotions and the appreciation of the U.S. dollar against the Mexican peso[251](index=251&type=chunk) [Contractual Obligations](index=44&type=section&id=F.%20DISCLOSURE%20OF%20CONTRACTUAL%20OBLIGATIONS) As of December 31, 2019, the company had total contractual obligations of **MX$1,260,535 thousand**, primarily consisting of long-term debt and accounts payable Contractual Obligations as of December 31, 2019 (in thousands of MXN) | | Less than 1 year | Over 1 year and less than 5 years | Over 5 years | Total | | :--- | :--- | :--- | :--- | :--- | | Accounts payable to suppliers | 529,348 | - | - | 529,348 | | Lease liability | 15,463 | 11,956 | - | 27,419 | | Derivative financial instruments | 15,555 | 16,754 | - | 32,309 | | Long-term debt | 137,163 | 484,903 | 49,393 | 671,459 | | **Total** | **697,529** | **513,613** | **49,393** | **1,260,535** | [ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES](index=44&type=section&id=ITEM%206.%20DIRECTORS%2C%20SENIOR%20MANAGEMENT%20AND%20EMPLOYEES) This section provides information on the company's leadership, compensation, board practices, and employee base, including an incentive plan adopted in March 2020 [Directors and Senior Management](index=44&type=section&id=A.%20DIRECTORS%20AND%20SENIOR%20MANAGEMENT) The company is led by Chairman Luis Campos and CEO Andres Campos, with a board including independent members and key executives like Gustavo Rodarte (CFO) and Fabian Rivera (Chief of Operations) - The leadership team includes Luis Campos (Chairman), Andres Campos (CEO), Gustavo Rodarte (CFO), and Fabian Rivera (Chief of Operations)[260](index=260&type=chunk) [Compensation](index=48&type=section&id=B.%20COMPENSATION) For fiscal year 2019, aggregate compensation for top management totaled **MX$34,450 thousand**, comprising fixed and performance-based components, with no compensation for the Board of Directors Executive Compensation for FY 2019 (in thousands of MXN) | Compensation Type | Amount | | :--- | :--- | | Fixed Compensation | 27,860 | | Variable Compensation (Bonuses) | 6,660 | | **Total Executive Compensation** | **34,450** | [Employees](index=50&type=section&id=D.%20EMPLOYEES) As of December 31, 2019, the company had **674 employees**, a slight decrease from 2018, with the workforce primarily distributed across Operations and Sales & Marketing Number of Employees by Function | | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Operations | 296 | 283 | 164 | | Sales and marketing | 263 | 289 | 347 | | Finance, administration, human resources, IT | 115 | 108 | 95 | | **Total** | **674** | **680** | **606** | [ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS](index=52&type=section&id=ITEM%207.%20MAJOR%20SHAREHOLDERS%20AND%20RELATED%20PARTY%20TRANSACTIONS) This section details the company's ownership structure, with Campalier and Promotora Forteza as major shareholders, and outlines key agreements related to the Business Combination Major Shareholders as of April 1, 2020 | Shareholder | Ordinary Shares | Percentage | | :--- | :--- | :--- | | Campalier, S.A. de C.V | 18,438,770 | 53.5% | | Promotora Forteza, S.A. de C.V. | 11,761,175 | 34.1% | - Key related party transactions stem from the Business Combination and include a Registration Rights Agreement, Lock-Up Agreements, the Merger Agreement, and a Warrant Amendment[305](index=305&type=chunk)[306](index=306&type=chunk)[307](index=307&type=chunk)[308](index=308&type=chunk) [ITEM 8. FINANCIAL INFORMATION](index=55&type=section&id=ITEM%208.%20FINANCIAL%20INFORMATION) This section confirms the inclusion of Audited Combined Financial Statements in Item 18, discloses an ongoing legal proceeding with the Mexican Tax Administration Service, and notes the absence of a dividend policy - The company is involved in a legal proceeding with the Mexican tax authority (SAT) concerning the 2010 fiscal year, with a maximum estimated contingency of **MX$14,010**, though management does not expect tax liabilities to arise from this matter[314](index=314&type=chunk) - The company has not implemented a formal dividend distribution policy as of the date of the report[315](index=315&type=chunk) [ITEM 9. THE OFFER AND LISTING](index=56&type=section&id=ITEM%209.%20THE%20OFFER%20AND%20LISTING) The company's ordinary shares are listed and began trading on the Nasdaq stock market under the symbol "BWMX" on March 13, 2020, in connection with its initial public offering - Betterware's ordinary shares are listed on Nasdaq under the ticker symbol "**BWMX**", with trading commencing on **March 13, 2020**[322](index=322&type=chunk)[323](index=323&type=chunk) [ITEM 10. ADDITIONAL INFORMATION](index=56&type=section&id=ITEM%2010.%20ADDITIONAL%20INFORMATION) This section summarizes the company's articles of association, including shareholder meetings, voting rights, director duties, anti-takeover provisions, material contracts, exchange controls, and U.S. federal income tax considerations - The company's bylaws include anti-takeover provisions requiring prior written approval from the board of directors for any person or group to acquire **20% or more** of the company's outstanding shares[167](index=167&type=chunk)[354](index=354&type=chunk) - The report provides a detailed summary of U.S. federal income tax considerations for U.S. Holders, covering taxation of distributions, dispositions of shares, and potential classification as a Passive Foreign Investment Company (PFIC)[370](index=370&type=chunk)[377](index=377&type=chunk)[380](index=380&type=chunk) [ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES REGARDING MARKET RISK](index=64&type=section&id=ITEM%2011.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20REGARDING%20MARKET%20RISK) The company is primarily exposed to exchange rate risk from U.S. dollar transactions, managed with forward contracts, and interest rate risk from variable rate borrowings, managed with swaps - The company's main market risks are exchange rate fluctuations (Mexican peso vs. U.S. dollar) and interest rate changes on its borrowings[392](index=392&type=chunk) Net U.S. Dollar Position (in thousands of US$) | | 2019 | | :--- | :--- | | Financial assets | 1,331 | | Financial liabilities | (16,095) | | **Net position** | **(14,764)** | [ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES](index=65&type=section&id=ITEM%2012.%20DESCRIPTION%20OF%20SECURITIES%20OTHER%20THAN%20EQUITY%20SECURITIES) This section describes Betterware's warrants, quoted on OTCQX under "BWXMF", exercisable for one ordinary share at $11.50, and redeemable by the company under certain conditions - Betterware's warrants trade on the OTCQX under "**BWXMF**", with each warrant exercisable for one share at an exercise price of **$11.50**[397](index=397&type=chunk) - The warrants became exercisable on **April 12, 2020**, and expire on **March 13, 2025**, and are redeemable by the company if the share price exceeds **$18.00** for 20 trading days within a 30-day period[397](index=397&type=chunk)[398](index=398&type=chunk) PART II [ITEM 15. CONTROLS AND PROCEDURES](index=67&type=section&id=ITEM%2015.%20CONTROLS%20AND%20PROCEDURES) The CEO and CFO concluded that disclosure controls were ineffective as of December 31, 2019, due to material weaknesses in internal control over financial reporting, with ongoing remediation efforts - Management concluded that disclosure controls and procedures were not effective as of **December 31, 2019**, due to the existence of material weaknesses in internal controls over financial reporting[415](index=415&type=chunk) - The material weaknesses are related to all five components of the COSO framework: control environment, risk assessment, control activities, information and communication, and monitoring activities[417](index=417&type=chunk) - Remediation efforts are in progress, including hiring new personnel, implementing controls, and documenting procedures, but the weaknesses are not yet fully remediated[418](index=418&type=chunk) [ITEM 16](index=70&type=section&id=ITEM%2016) This section covers governance and compliance, including the audit committee financial expert, Code of Ethics, principal accountant fees, change in certifying accountant, and differences in corporate governance from Nasdaq standards [Principal Accountant Fees and Services](index=70&type=section&id=ITEM%2016C.%20PRINCIPAL%20ACCOUNTANT%20FEES%20AND%20SERVICES) The company paid total fees of **MX$8,531 thousand** in 2019 and MX$741 thousand in 2018 to its principal accountants, primarily Deloitte in 2019 and KPMG in 2018 Principal Accountant Fees (in thousands of MXN) | | 2019 | 2018 | | :--- | :--- | :--- | | Audit fees | 6,246 | 640 | | Audit related fees | 1,826 | - | | Other fees | 459 | 101 | | **Total** | **8,531** | **741** | [Change in Registrant's Certifying Accountant](index=72&type=section&id=ITEM%2016F.%20CHANGE%20IN%20REGISTRANT%27S%20CERTIFYING%20ACCOUNTANT) On December 23, 2019, the company dismissed KPMG and appointed Deloitte as its auditor, with no reported disagreements on accounting principles or practices - The company changed its independent registered public accountant from KPMG to Deloitte on **December 23, 2019**[439](index=439&type=chunk) - There were no disagreements with the former auditor, KPMG, on accounting principles, financial statement disclosure, or auditing scope during the two fiscal years prior to the change[440](index=440&type=chunk) [Corporate Governance](index=73&type=section&id=ITEM%2016G.%20CORPORATE%20GOVERNANCE) As a foreign private issuer, Betterware's corporate governance practices differ from Nasdaq standards, including requirements for independent directors and nominating committees - The company follows Mexican law and its articles of association for corporate governance, which differ from Nasdaq standards for U.S. issuers[445](index=445&type=chunk) - Significant differences include: not requiring a majority-independent board, exemption from having a formal nominating committee of independent directors, and no requirement for regular executive sessions of only independent directors[445](index=445&type=chunk)[446](index=446&type=chunk)[447](index=447&type=chunk) PART III [ITEM 18. FINANCIAL STATEMENTS](index=75&type=section&id=ITEM%2018.%20FINANCIAL%20STATEMENTS) This section contains the Audited Combined Financial Statements for Betterware and BLSM for 2017-2019, prepared under IFRS, with reports from Deloitte and KPMG - The report includes the Audited Combined Financial Statements for the years ended **December 31, 2019, 2018, and 2017**, prepared in accordance with IFRS[455](index=455&type=chunk)[456](index=456&type=chunk) - The financial statements are presented on a combined basis for Betterware and BLSM as they are under common control and management[468](index=468&type=chunk)[506](index=506&type=chunk) [ITEM 19. EXHIBITS](index=76&type=section&id=ITEM%2019.%20EXHIBITS) This section lists the exhibits filed as part of the annual report, including the company's Articles of Association, Code of Ethics, and required certifications - A list of exhibits filed with the annual report is provided, including key corporate documents and required certifications[458](index=458&type=chunk)