BETTERWARE REPORTS THIRD QUARTER RESULTS: NET SALES INCREASED 199% AND EBITDA INCREASED 234%

Q3 2020

Earnings Release

Q3 2020 Earnings

BETTERWARE REPORTS THIRD QUARTER RESULTS:

NET SALES INCREASED 199% AND EBITDA INCREASED 234%

Guadalajara, Jalisco, Mexico, November 5, 2020. - Betterware de Mexico S.A.B. de C.V. ("Betterware" or the "Company"), announced today its consolidated financial results for the third quarter 2020. The figures presented in this report are expressed in nominal Mexican Pesos (Ps.) unless otherwise noted, are un-audited, prepared in accordance with IFRS and may include minor differences due to rounding.

We are very pleased with our record third quarter results, highlighted by strong sales growth, an increase in Adjusted EBITDA and an acceleration in the number of distributors and associates. We are very proud of our team's ability to adapt, meet the increased demand, and continue to serve our customers in a changing operating environment, and their hard work has enabled our strong third quarter performance. Amidst a pandemic backdrop, our recent results demonstrate that our unique technology driven platform that we've developed over the last five years is well positioned to disrupt the consumer products industry and to continue reaching more homes as we focus on delivering sustainable long-term growth.

Luis G. Campos

Executive Chairman of the Board

We made strong progress against our four key strategic pillars this quarter which are centered on market penetration, geographic expansion, category expansion and business intelligence and technology investments. Our disciplined execution of these strategies combined with strong innovation and an advantageous direct to consumer operating model continues to strengthen our competitive positioning as the number one home solutions brand in Mexico. We believe these strategies, along with our continued focus on managing expenses and working capital, have us poised to capitalize on the increased demand we are seeing for our products.

Andres Campos

CEO & Board Member

Quarterly results

Net revenues

Net revenues increased 199% to Ps. 2,271M from Ps. 759M in 3Q19. This increase was driven by a 186% increase in distributors and a 179% increase in associates fueling an increase in volume of 30M units to 42.2M units in 3Q20.

Contributing to the triple digit sales growth was the successful implementation of the Company's commercial strategies and technological advancements that have been developed over five years. As a result, the Company not only introduced successful innovation but also was able to serve its distribution network seamlessly in a work-from-home environment due to the COVID-19 pandemic.

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Q3 2020 Earnings

For the first nine months of 2020, net revenues increased 103% to Ps. 4,659M, compared to Ps. 2,294M of the same period of 2019. This growth was driven by the increase in distributors and associates which led to a 111% increase in volume to 84.3M units, compared to 40M units of the same period of 2019.

Gross margin

Gross margin was 54.6% in 3Q20 as compared to 59.9% in 3Q19. The decline in 3Q20 was driven by a (i) 320 basis points from the depreciation of the Mexican peso compared to the U.S. dollar, which negatively impacted product costs purchased in US dollars and (ii) 210 basis point increase in air freight costs, which were incurred in to meet the surge in demand.

For the first nine months of the year, gross margin was 54.0%, compared to 58.9% in the same period of 2019 mainly due to (i) 320 basis points from the depreciation of the Mexican peso compared to the U.S. dollar, which negatively impacted product costs purchased in US dollars and (ii) 170 basis points due to the significant increase air freight to meet the surge in demand.

EBITDA

For the quarter, Betterware's EBITDA increased 234% Year-on-Year to Ps. 730M, compared to 219M in 3Q19 and EBITDA margin expanded 3.3 pp to 32.2% due to the increase on operational leverage. In the first nine months of 2020 EBITDA increased by 118%, and the EBITDA margin was 29.1%.

Net Income

During 3Q20, the Company´s net income decreased -187.2% to Ps. -126M, relative to 3Q19. Net income includes non-cash expense of Ps. 585M related to the valuation of warrants (see below accounting for warrants). Without considering this impact, which does not affect the Company's cash flows or operating income, the Company´s net income during 3Q20 would have increased 214.7% to Ps. 456M, relative to 3Q19.

The Company's effective income tax rate is also impacted by the fair value adjustment of the warrants, which is recorded in profit and loss in accordance with IFRS but is excluded for purposes of determining the income tax for the period.

For the first nine months of the year earnings per share decreased to Ps. 8.35, compared to Ps. 11.02 of the same period last year. The decrease is also related to the accounting of warrants. Without considering this impact, which does not affect the Company's cash flows or operating income, the Company´s earnings per share for the nine months, would have increased to Ps. 25.24, compared to Ps. 11.02 of the same periods last year.

Accounting for the warrants

For accounting purposes and in accordance with IFRS, the warrants meet the definition of a derivative financial instrument as they represent a written put option that gives the holders of the warrants the right to exchange them for the Company's shares at a fixed price. Although the warrants will be exchanged for the Company's shares based on the terms of the warrant agreement, IFRS requires the derivative financial instrument to be classified as a liability given that the functional currency of the Company (MXN) differs from the strike-price of the warrants, which is fixed in USD. Changes in the fair value of the liability are presented in the profit and loss statement under the heading "Changes in fair value of warrants".

IFRS requires the fair value of the warrants to be recorded in profit or loss of the period, however the Company's operating income and the financial position is not impacted. For purposes of the Company's EBITDA, the changes in the fair value of the liability are excluded as they represent non-cash charges.

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Q3 2020 Earnings

When the warrants are exchanged for the Company's shares, the obligation associated with the liability will be extinguished with a corresponding increase in equity. Once the warrants have been redeemed, the net impact in the Company's equity is zero as the increase in their fair value is recorded in the profit and loss statement (reducing retained earnings), offset by the equivalent increase in equity as a result of the issuance of shares.

As of and for the nine months ended September 30, 2020, the Company has recognized the following impacts associated with the warrants:

• Fair value of the warrants as of September 30, 2020 is Ps. 517.8M
• Unrealized loss on valuation of derivative financial instruments of Ps. 585.4M
• Cash received by warrant holders exercising their rights to exchange their warrants for shares of the Company of Ps. 68.4M
• 1,573,888 warrants repurchased by the Company for a total outflow of cash of Ps. 27.7M
• Increase in equity as a result of the issuance of shares for the exchange of warrants of Ps. 163.8M

Subsequent to September 30, 2020 during the month of October 2020, 2,058,648 warrants have been redeemed for the Company's shares at a proportion of .37 warrants/share. The total impact to the Company's income statement resulting from the valuation of the warrants was a loss of Ps. 174.7M, offset by an increase in equity as a result of the issuance of shares upon the exchange of warrants for shares of Ps. 405.2M. Redemption of the outstanding warrants (approximately 1.5 million) will be completed by November 9 resulting in the cancelation of the liability for warrants and an increase in equity associated with the issuance of the Company´s shares.

Significant changes within the Balance Sheet

The Company's financial position remained strong during the third quarter, and included a reduction in leverage and increased liquidity due to the outstanding operating results recorded during the quarter and nine months of 2020.

Cash and equivalents increased Ps. 1,002M, or 656% from Ps. 153M in 2019 to Ps. 1,155M September 2020, primarily due to the cash received from increased sales. Accounts payable to suppliers increased Ps. 1,901M or 420% from Ps. 452M in 2019 to Ps. 2,353M in 2020, due to additional purchases in order to support the increase in sales. This growth is higher than the increase in inventory due to: (i) supplier credit terms of 120 days and (ii) inventory turnover of 87 days due to the accelerated growth in sales.

At quarter end, Betterware's leverage ratio was -0.4x times. During Q2, the Company chose to pre-pay its debt for Ps. 495M. This resulted in Ps. 39.6M of pre-payment penalty costs which are included within the interest expense line on the consolidated income statements.

The fair value of the warrants as of September 30, 2020 is Ps. 517.8M, which increased as their value is directly proportional to the increase in the Company's share price during the quarter.

Our Growth Expectations for 2020

Betterware has a proven track record of performance and a clear and executable growth plan, which includes expansion in current geographies and categories, as well as the addition of new markets and product extensions all supported by a robust infrastructure deeply rooted in business intelligence. The Company is pleased to be in a position to raise its EBITDA expectations for fiscal year 2020, which are appropriately tempered due to the uncertainty of market conditions during the pandemic. With this in mind, the Company is raising its expectation for FY2020 EBITDA to a range between Ps. 1,900 and Ps. 2,100, up from its previous guidance of Ps. 1,450M, and now expects EBITDA margin to be between 26.2% to 28.9%.

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Q3 2020 Earnings

Board of Directors Proposes Quarterly Cash Dividend

In recognition of the Company's ability to generate strong cash flow after investment, its Board of Directors has proposed to pay a Ps. 330M dividend to shareholders. The dividend is subject to approval at the next Ordinary General Shareholders' Meeting to be held on November 9, 2020.

The Company expects to pay a dividend associated with its year-end results that will be submitted to the Board of Directors for approval as the loss generated by the fair value of the warrants during the year (impacting retained earnings) will be offset by a corresponding increase in equity associated with the issuance of shares.

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Q3 2020 Earnings

Betterware de México, S.A.B. de C.V.

Consolidated Statements of Financial Position

As of September 30, 2020, and September 30, 2019

(In Thousands of Mexican Pesos)

				Sep 2020				Sep 2019
Assets
Cash and cash equivalents	1,155,207	152,821
Trade accounts receivable, net	680,303	300,459
Accounts receivable from related parties	50	604
Inventories	1,113,301	350,289
Prepaid expenses	180,405	43,119
Other assets	113,225	17,246
Derivative financial instruments	31,486	10,183
	Total current assets			3,273,977				874,721
Property, plant and equipment, net	549,847		201,028
Right of use assets, net	12,141		22,124
Deferred income tax	5,082		-
Intangible assets, net	307,324		288,900
Goodwill	348,441		348,441
Other assets	3,778		2,889
	Total non-current assets			1,226,613				863,382
	Total assets			4,500,590				1,738,103
Liabilities and Stockholders' Equity
Borrowings	77,459		119,334
Accounts payable to suppliers	2,352,882		452,137
Accrued expenses	298,659		55,169
Provisions	116,962		41,829
Income tax payable	93,330		27,386
Value added tax payable	51,712		25,134
Statutory employee profit sharing	7,129		3,411
Lease liability	9,101		9,049
Warrants	517,767		-
Derivative financial instruments	4,658		-
	Total current liabilities			3,529,659				733,449
Employee benefits	1,387	1,199
Derivative financial instruments	30,105	18,172
Deferred income tax	78,501	69,347
Lease liability	3,637	12,182
Borrowings	522,536	578,673
	Total non-current liabilities			636,166				679,573
	Total liabilities			4,165,825				1,413,022
Stockholders' Equity
Capital stock	328,530	55,985
Retained earnings	6,067	269,050
Other comprehensive income	168	46
	Total Stockholders' Equity			334,765				325,081
	Total Liabilities and Stockholders' Equity			4,500,590				1,738,103

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Q3 2020 Earnings

Betterware de México, S.A.B. de C.V.

Consolidated Statements of Profit or Loss and Other Comprehensive Income

For the three-months ended September 30, 2020 and 2019

(In Thousands of Mexican Pesos)

					Q3 2020				Q3 2019				∆%
Net revenue		2,270,838			758,513		199.4%
Cost of sales		1,030,781			303,921		239.2%
	Gross profit				1,240,057				454,592				172.8%
Administrative expenses		168,811		63,226		167.0%
Selling expenses		241,894		154,007		57.1%
Distribution expenses		107,973		27,410		293.9%
	Total expenses		518,678			244,643		112.0%
	Operating income				721,379				209,949				243.6%
Interest expense		-			(15,254)			-100%
Interest income		4,099			1,783		129.9%
Unrealized (loss) / gain in valuation of financial		(50,710)			7,760		-753.5%
	derivative instruments
Changes in fair value of warrants		(581,736)			-		100%
Foreign exchange loss, net		(16,136)			(625)		2481.8%
	Financing cost, net		(644,483)			(6,336)			10071.8%
	Income before income taxes				76,896				203,613				-62.2%
Income taxes		203,080		58,864		245%
	Net income				(126,184)				144,749				-187.2%
	EBITDA breakdown (Ps. $730 million)
	Concept				Q3 2020				Q3 2019				∆%
Net income		(126,184)			144,749		-187.2%
(+) Income taxes		203,080			58,864		245%
(+) Financing cost, net		644,483			6,336		10071.8%
(+) Depreciation and amortization		8,789			8,631		1.8%
EBITDA		730,168			218,580		234.1%
EBITDA margin		32.2%			28.8%		3.3%

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Q3 2020 Earnings

Betterware de México, S.A.B. de C.V.

Consolidated Statements of Profit or Loss and Other Comprehensive Income

For the nine-months ended September 30, 2020 and 2019

(In Thousands of Mexican Pesos)

					9M20			9M19				∆%
Net revenue		4,659,241			2,294,135		103.1%
Cost of sales		2,143,353			942,569		127.4%
	Gross profit				2,515,888			1,351,566				86.1%
Administrative expenses		401,981		256,122		56.9%
Selling expenses		559,674		403,897		38.6%
Distribution expenses		223,489		94,743		135.9%
	Total expenses		1,185,144			754,762		57.0%
	Operating income				1,330,744			596,804				123.0%
Interest expense		(70,827)			(59,984)			18.1%
Interest income		9,586			5,614		70.8%
Unrealized gain on valuation of financial derivative		30,377			8,640		251.6%
	instruments
Changes in fair value of warrants		(585,372)			-			100%
Foreign exchange loss, net		(36,213)			(6,538)		453.9%
	Financing cost, net		(652,449)			(52,268)			1148.3%
	Income before income taxes				678,295			544,536				24.6%
Income taxes		390,604		164,921		136.8%
	Net income				287,691			379,615				-24.2%
	EBITDA breakdown (Ps. $1,357 million)
	Concept				9M20			9M19				∆%
Net income		287,691			379,615		-24.2%
(+) Income taxes		390,604			164,921		136.8%
(+) Financing cost, net		652,449			52,268		1148.3%
(+) Depreciation and amortization		26,480			26,109		1.4%
EBITDA		1,357,224			622,913		117.9%
EBITDA margin		29.1%			27.2%		2.0%

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Q3 2020 Earnings

Betterware de México, S.A.B. de C.V. Consolidated Statements of Cash Flows

For the nine-months ended September 30, 2020 and 2019

(In Thousands of Mexican Pesos)

				Sep 2020			Sep 2019
Cash flows from operating activities:
Net income for the period		287,691	379,615
	Adjustments for:
Income tax expense		390,604	164,921
Depreciation and amortization of non-current assets and right of use		26,480	26,109
assets
Interest income recognized in profit or loss		(9,586)		(5,614)
Interest expense recognized in profit or loss		70,827	59,984
Gain of property, plant, equipment sale		-		-
Unrealized gain in valuation of financial derivative instruments		554,995	(8,640)
	Movements in working capital:
Trade accounts receivable		(433,216)		(101,683)
Accounts receivable from related parties		560	(604)
Inventory		(767,747)		(48,083)
Prepaid expenses and other assets		(210,859)		12,464
Accounts payable to suppliers and accrued expenses		2,068,416	25,362
Provisions		70,173	2,843
Value added tax payable		21,413	7,510
Statutory employee profit sharing		2,123	(585)
Income taxes paid		(331,982)		(166,551)
Employee benefits		(243)	(156)
	Net cash provided by operating activities		1,739,649	346,892
	Cash flows from investing activities:
Payments for property, plant and equipment		(361,966)		(177,634)
Disposal of property, plant and equipment		7,283	-
Interest received		9,586	-
	Net cash used in investing activities		(345,097)	(177,634)
	Cash flows from financing activities:
Repayment of borrowings	(1,267,258)		(189,987)
Proceeds from borrowings	1,195,749	223,743
Interest paid	(76,019)		(49,052)
Lease payment	(11,846)		21,231
Dividends and Capital stock increase, net	(293,668)		(199,755)
	Net cash used in financing activities	(453042)		(193,820)
	Net increase (decrease) in cash and cash equivalents	941,510	(24,562)
Cash and cash equivalents at the beginning of the period	213,697	177,383
Cash and cash equivalents at the end of the period	1,155,207	152,821

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Q3 2020 Earnings

Forward-Looking Statements

This press release includes certain statements that are not historical facts but are forward-looking statements for purposes of the safe harbor provisions under the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements generally are accompanied by words such as "believe," "may," "will", "estimate", "continue", "anticipate", "intend", "expect", "should", "would", "plan", "predict", "potential", "seem", "seek," "future," "outlook", and similar expressions that predict or indicate future events or trends or that are not statements of historical matters. The reader should understand that the results obtained may differ from the projections contained in this document, as past results in no way offer any guarantee of future performance. For this reason, the Company assumes no responsibility for any indirect factors or elements beyond its control that might occur inside Mexico or abroad and which might affect the outcome of these projections.

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Q3 2020 Earnings

Q3 2020 Conference Call

Management will hold a conference call with investors on November 6th, 2020 at 8am Central Standard Time (CST)/9am Eastern Time (EST). For anyone who wishes to join live, the dial-in information is:

Toll Free: 1-877-451-6152

Toll/International: 1-201-389-0879

Conference ID: 13711863

If you wish to listen to the replay of the conference call, please see instructions below:

Toll Free: 1-844-512-2921

Toll/International: 1-412-317-6671

Replay Pin Number: 13711863

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