UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 20222023
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 000-51754
CROCS, INC.
(Exact name of registrant as specified in its charter) | | | | | | | | |
Delaware | | 20-2164234 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
13601 Via Varra, Broomfield, Colorado 80020
(Address, including zip code, of registrant’s principal executive offices)
(303) 848-7000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: | | | | | | | | | | | | | | |
| Title of each class: | Trading symbol: | Name of each exchange on which registered: | |
| Common Stock, par value $0.001 per share | CROX | The Nasdaq Global Select Market | |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | |
Large accelerated filer | Accelerated filer | Non-accelerated filer | Smaller reporting company | Emerging growth company |
☒ | ☐ | ☐ | ☐ | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of July 28, 2022,20, 2023, Crocs, Inc. had 61,650,39461,644,258 shares of its common stock, par value $0.001 per share, outstanding.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. From time to time, we may also provide oral or written forward-looking statements in other materials we release to the public. Such forward-looking statements are subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995.
Statements that refer to industry trends, projections of our future financial performance, anticipated trends in our business and other characterizations of future events or circumstances are forward-looking statements. These statements, which express management’s current views concerning future events or results, use words like “anticipate,” “assume,” “believe,” “continue,” “estimate,” “expect,” “future,” “intend,” “plan,” “project,” “strive,” and future or conditional tense verbs like “could,” “may,” “might,” “should,” “will,” “would,” and similar expressions or variations. Examples of forward-looking statements include, but are not limited to, statements we make regarding:regarding
•our expectations regarding future trends, expectations, and performance of our business;
•our expectations regarding leveraging selling, general and administrative expense as a percentthe impact on our business of revenues;
•our expectations regarding leveraging our global presence, innovative marketing, and scale infrastructure to grow HEYDUDE and to create significant shareholder value;
•our expectations regarding supply chain disruptions;economic trends;
•our belief that we have sufficient liquidity to fund our business operations during the next twelve months;
•the amount and timing of our capital expenditures; and
•our expectations about the impact of our strategic plans.
Forward-looking statements are subject to risks, uncertainties, and other factors, which may cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Important factors that could cause actual results to differ materially from the forward-looking statements include, without limitation, those described in the section entitled “Risk Factors” under Item 1A in our Annual Report on Form 10-K for the year ended December 31, 20212022 and our subsequent filings with the Securities and Exchange Commission, including those described in the section entitled “Risk Factors” under Item 1A in this report. Caution should be taken not to place undue reliance on any such forward-looking statements. Moreover, such forward-looking statements speak only as of the date of this report. We undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements, except as required by applicable law.
Crocs, Inc.
Table of Contents to the Quarterly Report on Form 10-Q
For the Quarterly Period Ended June 30, 20222023
| | | | | | | | |
PART I — Financial Information | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
PART I — Financial Information
ITEM 1. Financial Statements
CROCS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSINCOME
(UNAUDITED)
(in thousands, except per share data)
| | | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
Revenues | Revenues | $ | 964,581 | | | $ | 640,773 | | | $ | 1,624,729 | | | $ | 1,100,871 | | Revenues | $ | 1,072,367 | | | $ | 964,581 | | | $ | 1,956,533 | | | $ | 1,624,729 | |
Cost of sales | Cost of sales | 466,848 | | | 245,592 | | | 802,072 | | | 452,471 | | Cost of sales | 451,060 | | | 466,848 | | | 858,856 | | | 802,072 | |
Gross profit | Gross profit | 497,733 | | | 395,181 | | | 822,657 | | | 648,400 | | Gross profit | 621,307 | | | 497,733 | | | 1,097,677 | | | 822,657 | |
Selling, general and administrative expenses | Selling, general and administrative expenses | 249,769 | | | 199,859 | | | 456,016 | | | 328,392 | | Selling, general and administrative expenses | 302,818 | | | 249,769 | | | 544,260 | | | 456,016 | |
Income from operations | Income from operations | 247,964 | | | 195,322 | | | 366,641 | | | 320,008 | | Income from operations | 318,489 | | | 247,964 | | | 553,417 | | | 366,641 | |
Foreign currency losses, net | (1,202) | | | (117) | | | (722) | | | (621) | | |
Foreign currency gains (losses), net | | Foreign currency gains (losses), net | 551 | | | (1,202) | | | 148 | | | (722) | |
Interest income | Interest income | 86 | | | 71 | | | 188 | | | 98 | | Interest income | 548 | | | 86 | | | 719 | | | 188 | |
Interest expense | Interest expense | (32,963) | | | (4,712) | | | (52,215) | | | (6,344) | | Interest expense | (43,063) | | | (32,963) | | | (85,700) | | | (52,215) | |
Other income (expense), net | Other income (expense), net | 419 | | | 2 | | | (528) | | | 13 | | Other income (expense), net | 717 | | | 419 | | | 424 | | | (528) | |
Income before income taxes | Income before income taxes | 214,304 | | | 190,566 | | | 313,364 | | | 313,154 | | Income before income taxes | 277,242 | | | 214,304 | | | 469,008 | | | 313,364 | |
Income tax expense (benefit) | 53,989 | | | (128,388) | | | 80,289 | | | (104,198) | | |
Income tax expense | | Income tax expense | 64,830 | | | 53,989 | | | 107,053 | | | 80,289 | |
Net income | Net income | $ | 160,315 | | | $ | 318,954 | | | $ | 233,075 | | | $ | 417,352 | | Net income | $ | 212,412 | | | $ | 160,315 | | | $ | 361,955 | | | $ | 233,075 | |
Net income per common share: | Net income per common share: | | | | | | | | Net income per common share: | | | | | | | |
Basic | Basic | $ | 2.60 | | | $ | 5.02 | | | $ | 3.84 | | | $ | 6.47 | | Basic | $ | 3.42 | | | $ | 2.60 | | | $ | 5.84 | | | $ | 3.84 | |
Diluted | Diluted | $ | 2.58 | | | $ | 4.93 | | | $ | 3.79 | | | $ | 6.35 | | Diluted | $ | 3.39 | | | $ | 2.58 | | | $ | 5.78 | | | $ | 3.79 | |
Weighted average common shares outstanding: | Weighted average common shares outstanding: | | | | | | | | Weighted average common shares outstanding: | | | | | | | |
Basic | Basic | 61,590 | | | 63,595 | | | 60,712 | | | 64,526 | | Basic | 62,037 | | | 61,590 | | | 61,937 | | | 60,712 | |
Diluted | Diluted | 62,236 | | | 64,640 | | | 61,571 | | | 65,744 | | Diluted | 62,603 | | | 62,236 | | | 62,616 | | | 61,571 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CROCS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(in thousands)
| | | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
Net income | Net income | $ | 160,315 | | | $ | 318,954 | | | $ | 233,075 | | | $ | 417,352 | | Net income | $ | 212,412 | | | $ | 160,315 | | | $ | 361,955 | | | $ | 233,075 | |
Other comprehensive income (loss): | | | | | |
Other comprehensive income (loss), net of tax: | | Other comprehensive income (loss), net of tax: | | | | |
Derivatives designated as hedging instruments: | | Derivatives designated as hedging instruments: | |
Unrealized gains (losses) on derivative instruments | | Unrealized gains (losses) on derivative instruments | 223 | | | — | | | (156) | | | — | |
Reclassification adjustment for realized (gains) losses on derivative instruments | | Reclassification adjustment for realized (gains) losses on derivative instruments | 217 | | | — | | | 600 | | | — | |
Net increase (decrease) from derivatives designated as hedging instruments | | Net increase (decrease) from derivatives designated as hedging instruments | 440 | | | — | | | 444 | | | — | |
Foreign currency translation gains (losses), net | Foreign currency translation gains (losses), net | (26,352) | | | 3,442 | | | (36,503) | | | (7,186) | | Foreign currency translation gains (losses), net | 1,190 | | | (26,352) | | | 5,143 | | | (36,503) | |
| Total comprehensive income | $ | 133,963 | | | $ | 322,396 | | | $ | 196,572 | | | $ | 410,166 | | |
Total comprehensive income, net of tax | | Total comprehensive income, net of tax | $ | 214,042 | | | $ | 133,963 | | | $ | 367,542 | | | $ | 196,572 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CROCS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands, except share and par value amounts) | | | June 30, 2022 | | December 31, 2021 | | June 30, 2023 | | December 31, 2022 |
ASSETS | ASSETS | | | | ASSETS | | | |
Current assets: | Current assets: | | | | Current assets: | | | |
Cash and cash equivalents | Cash and cash equivalents | $ | 187,352 | | | $ | 213,197 | | Cash and cash equivalents | $ | 166,235 | | | $ | 191,629 | |
Restricted cash - current | Restricted cash - current | 32 | | | 65 | | Restricted cash - current | 2 | | | 2 | |
Accounts receivable, net of allowances of $28,087 and $20,715, respectively | 423,490 | | | 182,629 | | |
Accounts receivable, net of allowances of $34,385 and $24,493, respectively | | Accounts receivable, net of allowances of $34,385 and $24,493, respectively | 409,594 | | | 295,594 | |
Inventories | Inventories | 501,527 | | | 213,520 | | Inventories | 436,269 | | | 471,551 | |
Income taxes receivable | Income taxes receivable | 2,223 | | | 22,301 | | Income taxes receivable | 2,331 | | | 14,752 | |
Other receivables | Other receivables | 16,742 | | | 12,252 | | Other receivables | 27,991 | | | 18,842 | |
Prepaid expenses and other assets | Prepaid expenses and other assets | 36,941 | | | 22,605 | | Prepaid expenses and other assets | 58,794 | | | 33,605 | |
Total current assets | Total current assets | 1,168,307 | | | 666,569 | | Total current assets | 1,101,216 | | | 1,025,975 | |
Property and equipment, net of accumulated depreciation and amortization of $89,009 and $83,745, respectively | 140,278 | | | 108,398 | | |
Intangible assets, net of accumulated amortization of $116,500 and $108,167, respectively | 1,804,067 | | | 28,802 | | |
Property and equipment, net of accumulated depreciation and amortization of $110,510 and $97,136, respectively | | Property and equipment, net of accumulated depreciation and amortization of $110,510 and $97,136, respectively | 213,844 | | | 181,529 | |
Intangible assets, net of accumulated amortization of $136,490 and $125,014, respectively | | Intangible assets, net of accumulated amortization of $136,490 and $125,014, respectively | 1,795,876 | | | 1,800,167 | |
Goodwill | Goodwill | 714,143 | | | 1,600 | | Goodwill | 711,570 | | | 714,814 | |
Deferred tax assets, net | Deferred tax assets, net | 513,582 | | | 567,201 | | Deferred tax assets, net | 539,545 | | | 528,278 | |
Restricted cash | Restricted cash | 3,187 | | | 3,663 | | Restricted cash | 3,348 | | | 3,254 | |
Right-of-use assets | Right-of-use assets | 236,077 | | | 160,768 | | Right-of-use assets | 228,076 | | | 239,905 | |
Other assets | Other assets | 7,001 | | | 8,067 | | Other assets | 9,650 | | | 7,875 | |
Total assets | Total assets | $ | 4,586,642 | | | $ | 1,545,068 | | Total assets | $ | 4,603,125 | | | $ | 4,501,797 | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
Current liabilities: | Current liabilities: | | | | Current liabilities: | | | |
Accounts payable | Accounts payable | $ | 225,302 | | | $ | 162,145 | | Accounts payable | $ | 261,909 | | | $ | 230,821 | |
Accrued expenses and other liabilities | Accrued expenses and other liabilities | 242,754 | | | 166,887 | | Accrued expenses and other liabilities | 241,530 | | | 239,424 | |
Income taxes payable | Income taxes payable | 58,702 | | | 16,279 | | Income taxes payable | 84,845 | | | 89,211 | |
Current borrowings | Current borrowings | 25,403 | | | — | | Current borrowings | 20,000 | | | 24,362 | |
Current operating lease liabilities | Current operating lease liabilities | 49,983 | | | 42,932 | | Current operating lease liabilities | 57,656 | | | 57,456 | |
Total current liabilities | Total current liabilities | 602,144 | | | 388,243 | | Total current liabilities | 665,940 | | | 641,274 | |
Deferred tax liabilities, net | Deferred tax liabilities, net | 312,821 | | | — | | Deferred tax liabilities, net | 301,902 | | | 302,030 | |
Long-term income taxes payable | Long-term income taxes payable | 216,042 | | | 219,744 | | Long-term income taxes payable | 231,577 | | | 224,837 | |
Long-term borrowings | Long-term borrowings | 2,743,507 | | | 771,390 | | Long-term borrowings | 2,007,485 | | | 2,298,027 | |
Long-term operating lease liabilities | Long-term operating lease liabilities | 217,586 | | | 149,237 | | Long-term operating lease liabilities | 204,088 | | | 215,119 | |
Other liabilities | Other liabilities | 2,577 | | | 2,372 | | Other liabilities | 2,443 | | | 2,579 | |
Total liabilities | Total liabilities | 4,094,677 | | | 1,530,986 | | Total liabilities | 3,413,435 | | | 3,683,866 | |
Commitments and contingencies | Commitments and contingencies | 0 | | 0 | Commitments and contingencies | | | |
Stockholders’ equity: | Stockholders’ equity: | | | | Stockholders’ equity: | | | |
Preferred stock, par value $0.001 per share, 5.0 million shares authorized including 1.0 million authorized as Series A Convertible Preferred Stock, none outstanding | — | | | — | | |
Common stock, par value $0.001 per share, 250.0 million shares authorized, 109.3 million and 105.9 million issued, 61.6 million and 58.3 million outstanding, respectively | 109 | | | 106 | | |
Treasury stock, at cost, 47.7 million and 47.6 million shares, respectively | (1,690,780) | | | (1,684,262) | | |
| Common stock, par value $0.001 per share, 250.0 million shares authorized, 109.9 million and 109.5 million issued, 62.1 million and 61.7 million outstanding, respectively | | Common stock, par value $0.001 per share, 250.0 million shares authorized, 109.9 million and 109.5 million issued, 62.1 million and 61.7 million outstanding, respectively | 110 | | | 110 | |
Treasury stock, at cost, 47.8 million and 47.7 million shares, respectively | | Treasury stock, at cost, 47.8 million and 47.7 million shares, respectively | (1,707,136) | | | (1,695,501) | |
Additional paid-in capital | Additional paid-in capital | 783,862 | | | 496,036 | | Additional paid-in capital | 813,466 | | | 797,614 | |
Retained earnings | Retained earnings | 1,512,115 | | | 1,279,040 | | Retained earnings | 2,181,154 | | | 1,819,199 | |
Accumulated other comprehensive loss | Accumulated other comprehensive loss | (113,341) | | | (76,838) | | Accumulated other comprehensive loss | (97,904) | | | (103,491) | |
Total stockholders’ equity | Total stockholders’ equity | 491,965 | | | 14,082 | | Total stockholders’ equity | 1,189,690 | | | 817,931 | |
Total liabilities and stockholders’ equity | Total liabilities and stockholders’ equity | $ | 4,586,642 | | | $ | 1,545,068 | | Total liabilities and stockholders’ equity | $ | 4,603,125 | | | $ | 4,501,797 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CROCS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
(in thousands)
| | | Common Stock | | Treasury Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Stockholders' Equity | | Common Stock | | Treasury Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Stockholders' Equity |
| | Shares | | Amount | | Shares | | Amount | | | Shares | | Amount | | Shares | | Amount | |
Balance at March 31, 2022 | 61,572 | | | $ | 109 | | | 47,658 | | | $ | (1,690,312) | | | $ | 774,562 | | | $ | 1,351,800 | | | $ | (86,989) | | | $ | 349,170 | | |
Balance at March 31, 2023 | | Balance at March 31, 2023 | 62,023 | | | $ | 110 | | | 47,813 | | | $ | (1,705,896) | | | $ | 805,078 | | | $ | 1,968,742 | | | $ | (99,534) | | | $ | 968,500 | |
Share-based compensation | Share-based compensation | — | | | — | | | — | | | — | | | 9,300 | | | — | | | — | | | 9,300 | | Share-based compensation | — | | | — | | | — | | | — | | | 8,388 | | | — | | | — | | | 8,388 | |
Exercises of stock options, issuance of restricted stock awards, and vests of restricted stock units, net of shares withheld for taxes | Exercises of stock options, issuance of restricted stock awards, and vests of restricted stock units, net of shares withheld for taxes | 55 | | | — | | | 9 | | | (468) | | | — | | | — | | | — | | | (468) | | Exercises of stock options, issuance of restricted stock awards, and vests of restricted stock units, net of shares withheld for taxes | 44 | | | — | | | 12 | | | (1,240) | | | — | | | — | | | — | | | (1,240) | |
| Net income | Net income | — | | | — | | | — | | | — | | | — | | | 160,315 | | | — | | | 160,315 | | Net income | — | | | — | | | — | | | — | | | — | | | 212,412 | | | — | | | 212,412 | |
Other comprehensive loss | — | | | — | | | — | | | — | | | — | | | — | | | (26,352) | | | (26,352) | | |
Balance at June 30, 2022 | 61,627 | | | $ | 109 | | | 47,667 | | | $ | (1,690,780) | | | $ | 783,862 | | | $ | 1,512,115 | | | $ | (113,341) | | | $ | 491,965 | | |
Other comprehensive income | | Other comprehensive income | — | | | — | | | — | | | — | | | — | | | — | | | 1,630 | | | 1,630 | |
Balance at June 30, 2023 | | Balance at June 30, 2023 | 62,067 | | | $ | 110 | | | 47,825 | | | $ | (1,707,136) | | | $ | 813,466 | | | $ | 2,181,154 | | | $ | (97,904) | | | $ | 1,189,690 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Treasury Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Stockholders' Equity |
| Shares | | Amount | | Shares | | Amount | | | | |
Balance at March 31, 2021 | 65,225 | | | $ | 106 | | | 40,383 | | | $ | (783,926) | | | $ | 525,289 | | | $ | 651,744 | | | $ | (66,982) | | | $ | 326,231 | |
Share-based compensation | — | | | — | | | — | | | — | | | 11,294 | | | — | | | — | | | 11,294 | |
Exercises of stock options, issuance of restricted stock awards, and vests of restricted stock units, net of shares withheld for taxes | 47 | | | — | | | 10 | | | (1,158) | | | 1 | | | — | | | — | | | (1,157) | |
Repurchases of common stock | (2,890) | | | — | | | 2,890 | | | (293,773) | | | (6,227) | | | — | | | — | | | (300,000) | |
Net income | — | | | — | | | — | | | — | | | — | | | 318,954 | | | — | | | 318,954 | |
Other comprehensive income | — | | | — | | | — | | | — | | | — | | | — | | | 3,442 | | | 3,442 | |
Balance at June 30, 2021 | 62,382 | | | $ | 106 | | | 43,283 | | | $ | (1,078,857) | | | $ | 530,357 | | | $ | 970,698 | | | $ | (63,540) | | | $ | 358,764 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Treasury Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Stockholders' Equity |
| Shares | | Amount | | Shares | | Amount | | | | |
Balance at March 31, 2022 | 61,572 | | | $ | 109 | | | 47,658 | | | $ | (1,690,312) | | | $ | 774,562 | | | $ | 1,351,800 | | | $ | (86,989) | | | $ | 349,170 | |
Share-based compensation | — | | | — | | | — | | | — | | | 9,300 | | | — | | | — | | | 9,300 | |
Exercises of stock options, issuance of restricted stock awards, and vests of restricted stock units, net of shares withheld for taxes | 55 | | | — | | | 9 | | | (468) | | | — | | | — | | | — | | | (468) | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Net income | — | | | — | | | — | | | — | | | — | | | 160,315 | | | — | | | 160,315 | |
Other comprehensive loss | — | | | — | | | — | | | — | | | — | | | — | | | (26,352) | | | (26,352) | |
Balance at June 30, 2022 | 61,627 | | | $ | 109 | | | 47,667 | | | $ | (1,690,780) | | | $ | 783,862 | | | $ | 1,512,115 | | | $ | (113,341) | | | $ | 491,965 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CROCS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
(in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Treasury Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Stockholders' Equity |
| Shares | | Amount | | Shares | | Amount | | | | |
Balance at December 31, 2021 | 58,330 | | | $ | 106 | | | 47,583 | | | $ | (1,684,262) | | | $ | 496,036 | | | $ | 1,279,040 | | | $ | (76,838) | | | $ | 14,082 | |
Share-based compensation | — | | | — | | | — | | | — | | | 17,575 | | | — | | | — | | | 17,575 | |
Exercises of stock options, issuance of restricted stock awards, and vests of restricted stock units, net of shares withheld for taxes | 445 | | | — | | | 84 | | | (6,518) | | | (142) | | | — | | | — | | | (6,660) | |
| | | | | | | | | | | | | | | |
Share issuance at Acquisition | 2,852 | | | 3 | | | — | | | — | | | 270,393 | | | — | | | — | | | 270,396 | |
Net income | — | | | — | | | — | | | — | | | — | | | 233,075 | | | — | | | 233,075 | |
Other comprehensive loss | — | | | — | | | — | | | — | | | — | | | — | | | (36,503) | | | (36,503) | |
Balance at June 30, 2022 | 61,627 | | | $ | 109 | | | 47,667 | | | $ | (1,690,780) | | | $ | 783,862 | | | $ | 1,512,115 | | | $ | (113,341) | | | $ | 491,965 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Treasury Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Stockholders' Equity |
| Shares | | Amount | | Shares | | Amount | | | | |
Balance at December 31, 2022 | 61,749 | | | $ | 110 | | | 47,730 | | | $ | (1,695,501) | | | $ | 797,614 | | | $ | 1,819,199 | | | $ | (103,491) | | | $ | 817,931 | |
Share-based compensation | — | | | — | | | — | | | — | | | 15,852 | | | — | | | — | | | 15,852 | |
Exercises of stock options, issuance of restricted stock awards, and vests of restricted stock units, net of shares withheld for taxes | 318 | | | — | | | 95 | | | (11,635) | | | — | | | — | | | — | | | (11,635) | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Net income | — | | | — | | | — | | | — | | | — | | | 361,955 | | | — | | | 361,955 | |
Other comprehensive income | — | | | — | | | — | | | — | | | — | | | — | | | 5,587 | | | 5,587 | |
Balance at June 30, 2023 | 62,067 | | | $ | 110 | | | 47,825 | | | $ | (1,707,136) | | | $ | 813,466 | | | $ | 2,181,154 | | | $ | (97,904) | | | $ | 1,189,690 | |
| | | Common Stock | | Treasury Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Stockholders' Equity | | Common Stock | | Treasury Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Stockholders' Equity |
| | Shares | | Amount | | Shares | | Amount | | | Shares | | Amount | | Shares | | Amount | |
Balance at December 31, 2020 | 65,856 | | | $ | 105 | | | 39,132 | | | $ | (688,849) | | | $ | 482,385 | | | $ | 553,346 | | | $ | (56,354) | | | $ | 290,633 | | |
Balance at December 31, 2021 | | Balance at December 31, 2021 | 58,330 | | | $ | 106 | | | 47,583 | | | $ | (1,684,262) | | | $ | 496,036 | | | $ | 1,279,040 | | | $ | (76,838) | | | $ | 14,082 | |
Share-based compensation | Share-based compensation | — | | | — | | | — | | | — | | | 19,348 | | | — | | | — | | | 19,348 | | Share-based compensation | — | | | — | | | — | | | — | | | 17,575 | | | — | | | — | | | 17,575 | |
Exercises of stock options, issuance of restricted stock awards, and vests of restricted stock units, net of shares withheld for taxes | Exercises of stock options, issuance of restricted stock awards, and vests of restricted stock units, net of shares withheld for taxes | 528 | | | 1 | | | 149 | | | (11,620) | | | 236 | | | — | | | — | | | (11,383) | | Exercises of stock options, issuance of restricted stock awards, and vests of restricted stock units, net of shares withheld for taxes | 445 | | | — | | | 84 | | | (6,518) | | | (142) | | | — | | | — | | | (6,660) | |
Repurchases of common stock | (4,002) | | | — | | | 4,002 | | | (378,388) | | | 28,388 | | | — | | | — | | | (350,000) | | |
Share issuance at Acquisition | | Share issuance at Acquisition | 2,852 | | | 3 | | | — | | | — | | | 270,393 | | | — | | | — | | | 270,396 | |
| Net income | Net income | — | | | — | | | — | | | — | | | — | | | 417,352 | | | — | | | 417,352 | | Net income | — | | | — | | | — | | | — | | | — | | | 233,075 | | | — | | | 233,075 | |
Other comprehensive loss | Other comprehensive loss | — | | | — | | | — | | | — | | | — | | | — | | | (7,186) | | | (7,186) | | Other comprehensive loss | — | | | — | | | — | | | — | | | — | | | — | | | (36,503) | | | (36,503) | |
Balance at June 30, 2021 | 62,382 | | | $ | 106 | | | 43,283 | | | $ | (1,078,857) | | | $ | 530,357 | | | $ | 970,698 | | | $ | (63,540) | | | $ | 358,764 | | |
Balance at June 30, 2022 | | Balance at June 30, 2022 | 61,627 | | | $ | 109 | | | 47,667 | | | $ | (1,690,780) | | | $ | 783,862 | | | $ | 1,512,115 | | | $ | (113,341) | | | $ | 491,965 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CROCS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
| | | Six Months Ended June 30, | | Six Months Ended June 30, |
| | 2022 | | 2021 | | 2023 | | 2022 |
Cash flows from operating activities: | Cash flows from operating activities: | | | | Cash flows from operating activities: | | | |
Net income | Net income | $ | 233,075 | | | $ | 417,352 | | Net income | $ | 361,955 | | | $ | 233,075 | |
Adjustments to reconcile net income to net cash provided by operating activities: | Adjustments to reconcile net income to net cash provided by operating activities: | | | | Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization | Depreciation and amortization | 16,754 | | | 15,749 | | Depreciation and amortization | 25,780 | | | 16,754 | |
Operating lease cost | Operating lease cost | 30,887 | | | 29,758 | | Operating lease cost | 36,592 | | | 30,887 | |
Inventory donations | 1,941 | | | 641 | | |
Recovery of doubtful accounts, net | (180) | | | (2,556) | | |
| Share-based compensation | Share-based compensation | 17,575 | | | 19,348 | | Share-based compensation | 15,852 | | | 17,575 | |
Deferred income taxes | — | | | (176,862) | | |
Other non-cash items | 5,316 | | | 836 | | |
| Other non-cash items (1) | | Other non-cash items (1) | 769 | | | 7,077 | |
Changes in operating assets and liabilities, net of acquired assets and assumed liabilities: | Changes in operating assets and liabilities, net of acquired assets and assumed liabilities: | | | Changes in operating assets and liabilities, net of acquired assets and assumed liabilities: | | |
Accounts receivable | Accounts receivable | (181,154) | | | (82,621) | | Accounts receivable | (113,838) | | | (181,154) | |
Inventories | Inventories | (121,452) | | | (36,099) | | Inventories | 34,884 | | | (121,452) | |
Prepaid expenses and other assets | Prepaid expenses and other assets | (9,309) | | | (6,419) | | Prepaid expenses and other assets | (32,413) | | | (9,309) | |
Accounts payable, accrued expenses and other liabilities | Accounts payable, accrued expenses and other liabilities | 85,091 | | | 75,520 | | Accounts payable, accrued expenses and other liabilities | 27,819 | | | 85,091 | |
Right-of-use assets and operating lease liabilities | Right-of-use assets and operating lease liabilities | (29,927) | | | (22,759) | | Right-of-use assets and operating lease liabilities | (35,176) | | | (29,927) | |
Income taxes | Income taxes | 36,127 | | | 10,478 | | Income taxes | 8,389 | | | 36,127 | |
Cash provided by operating activities | Cash provided by operating activities | 84,744 | | | 242,366 | | Cash provided by operating activities | 330,613 | | | 84,744 | |
Cash flows from investing activities: | Cash flows from investing activities: | | | | Cash flows from investing activities: | | | |
Purchases of property, equipment, and software | Purchases of property, equipment, and software | (56,744) | | | (21,329) | | Purchases of property, equipment, and software | (51,645) | | | (56,744) | |
| Acquisition of HEYDUDE, net of cash acquired | Acquisition of HEYDUDE, net of cash acquired | (2,040,265) | | | — | | Acquisition of HEYDUDE, net of cash acquired | — | | | (2,040,265) | |
Other | Other | (20) | | | 6 | | Other | — | | | (20) | |
Cash used in investing activities | Cash used in investing activities | (2,097,029) | | | (21,323) | | Cash used in investing activities | (51,645) | | | (2,097,029) | |
Cash flows from financing activities: | Cash flows from financing activities: | | | | Cash flows from financing activities: | | | |
Proceeds from notes issuance | — | | | 350,000 | | |
| Proceeds from borrowings | Proceeds from borrowings | 2,240,677 | | | 170,000 | | Proceeds from borrowings | 214,634 | | | 2,240,677 | |
Repayments of borrowings | Repayments of borrowings | (195,000) | | | (305,000) | | Repayments of borrowings | (513,703) | | | (195,000) | |
Deferred debt issuance costs | Deferred debt issuance costs | (51,395) | | | (8,961) | | Deferred debt issuance costs | (612) | | | (51,395) | |
Repurchases of common stock | — | | | (350,000) | | |
| Repurchases of common stock for tax withholding | Repurchases of common stock for tax withholding | (6,756) | | | (11,619) | | Repurchases of common stock for tax withholding | (11,636) | | | (6,756) | |
Other | Other | 95 | | | 236 | | Other | — | | | 95 | |
Cash provided by (used in) financing activities | Cash provided by (used in) financing activities | 1,987,621 | | | (155,344) | | Cash provided by (used in) financing activities | (311,317) | | | 1,987,621 | |
Effect of exchange rate changes on cash, cash equivalents, and restricted cash | Effect of exchange rate changes on cash, cash equivalents, and restricted cash | (1,690) | | | (1,793) | | Effect of exchange rate changes on cash, cash equivalents, and restricted cash | 7,049 | | | (1,690) | |
Net change in cash, cash equivalents, and restricted cash | Net change in cash, cash equivalents, and restricted cash | (26,354) | | | 63,906 | | Net change in cash, cash equivalents, and restricted cash | (25,300) | | | (26,354) | |
Cash, cash equivalents, and restricted cash—beginning of period | Cash, cash equivalents, and restricted cash—beginning of period | 216,925 | | | 139,273 | | Cash, cash equivalents, and restricted cash—beginning of period | 194,885 | | | 216,925 | |
Cash, cash equivalents, and restricted cash—end of period | Cash, cash equivalents, and restricted cash—end of period | $ | 190,571 | | | $ | 203,179 | | Cash, cash equivalents, and restricted cash—end of period | $ | 169,585 | | | $ | 190,571 | |
| Non-Cash Investing and Financing Activities: | | |
Accrued purchases of property, equipment, and software | $ | 5,038 | | | $ | 6,423 | | |
Share issuance at Acquisition | 270,396 | | | — | | |
Accrued additional consideration for Acquisition | 6,616 | | | — | | |
(1) Amounts for the six months ended June 30, 2022 have been reclassified to conform to current period presentation.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CROCS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Unless otherwise noted in this report, any description of the “Company,” “Crocs,” “we,” “us,” or “our” includes Crocs, Inc. and our consolidated subsidiaries within our reportable operating segments and corporate operations. We are engaged in the design, development, worldwide marketing, distribution, and sale of casual lifestyle footwear and accessories for women, men, and children. We strive to be the global leader in the sale of moldedcasual footwear characterized by functionality, comfort, color, and lightweight design.
On February 17, 2022, we acquired (the “Acquisition”) 100% of the equity of a privately-owned casual footwear brand business (“HEYDUDE”), pursuant to a securities purchase agreement (the “SPA”) entered into on December 22, 2021. HEYDUDE is engaged in the business of distributing and selling casual footwear under the brand name “HEYDUDE.”
Our reportable operating segments include: (i) North America for the Crocs Brand, operating throughout the United States and Canada; (ii) Asia Pacific for the Crocs Brand, operating throughout Asia, Australia, and New Zealand; (iii) Europe, Middle East, Africa, and Latin America (“EMEALA”) for the Crocs Brand; and (iv) the HEYDUDE Brand. See Note 1413 — Operating Segments and Geographic Information for additional information.
The accompanying unaudited condensed consolidated interim financial statements include our accounts and those of our wholly-owned subsidiaries and reflect all adjustments which are necessary for a fair statement of the financial position, results of operations, and cash flows for the periods presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Such unaudited condensed consolidated interim financial statements have been prepared in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the U.S. Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. The year-end condensed balance sheet data was derived from audited financial statements but does not include all disclosures required by U.S. GAAP.
These unaudited condensed consolidated interim financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 20212022 (“Annual Report”) and have been prepared on a consistent basis with the accounting policies described in Note 1 of the Notes to the Audited Consolidated Financial Statements included in our Annual Report. Our accounting policies did not change during the six months ended June 30, 2022,2023, other than with respect to the new accounting pronouncements adopted as described in Note 2 — Recent Accounting Pronouncements and our business combination policy as described in Note 16 — Acquisition of HEYDUDE.Pronouncements.
Reclassifications
We have reclassified certain amounts on the condensed consolidated statements of cash flows inand Note 3 — Accrued Expenses and Other Liabilities and in Note 14 — Operating Segments and Geographic Information to conform to current period presentation.
Use of Estimates
U.S. GAAP requires us to make certain estimates, judgments, and assumptions. We believe that the estimates, judgments, and assumptions used to determine certain amounts that affect the financial statements are reasonable, based on information available at the time they are made. Management believes that the estimates, judgments, and assumptions made when accounting for items and matters such as, but not limited to, the allowance for doubtful accounts, customer rebates, sales returns, impairment assessments and charges, recoverability of long-lived assets, deferred tax assets, valuation allowances, uncertain tax positions, income tax expense, share-based compensation expense, the assessment of lower of cost or net realizable value on inventory, useful lives assigned to long-lived assets, depreciation and amortization and purchase price allocation for the Acquisition, as described in Note 16 — Acquisition of HEYDUDE, are reasonable based on information available at the time they are made. To the extent there are differences between these estimates and actual results, our condensed consolidated financial statements may be materially affected.
Condensed Consolidated Statements of Cash Flows - Supplemental Disclosures
| | | | | | | | | | | |
| Six Months Ended June 30, |
| 2023 | | 2022 |
| (in thousands) |
Cash paid for interest | $ | 81,354 | | | $ | 50,314 | |
Cash paid for income taxes | 102,107 | | | 45,186 | |
Cash paid for operating leases | 35,259 | | | 29,411 | |
| | | |
Non-Cash Investing and Financing Activities: | | | |
Right-of-use assets obtained in exchange for operating lease liabilities, net of terminations | $ | 19,062 | | | $ | 52,837 | |
Accrued purchases of property, equipment, and software | 20,657 | | | 5,038 | |
Share issuance at Acquisition (1) | — | | | 270,396 | |
Accrued additional consideration for Acquisition | — | | | 6,616 | |
(1) On February 17, 2022 (the “Acquisition Date”), we acquired (the “Acquisition”) 100% of the equity of a privately-owned casual footwear brand business (“HEYDUDE”), pursuant to a securities purchase agreement (the “SPA”) entered into on December 22, 2021.
2. RECENT ACCOUNTING PRONOUNCEMENTS
New Accounting Pronouncement Adopted
Business CombinationsIncome Taxes
In October 2021,The CHIPS and Science Act of 2022 (“CHIPS”) and the FASB issuedInflation Reduction Act of 2022 (“IRA”) were signed into law on August 9, 2022 and August 16, 2022, respectively. The legislation introduces new guidance primarily related to the accountingoptions for contract assetsmonetizing certain credits, a corporate alternative minimum tax, and liabilities from contracts with customers in a business combination.stock repurchase excise tax. The standard will becorporate alternative minimum tax and stock repurchase excise tax were effective for annual reporting periods beginning after December 31, 2022, including interim reporting periods within those periods, with early adoption permitted. Onas of January 1, 2022, we early adopted this guidance on a prospective basis.2023 and are the main provisions that are applicable to us. The adoption didCompany is currently monitoring the impact of both the CHIPS and IRA but does not haveexpect that any of the provisions included in these acts would result in a material impact onto our consolidated financial statements.deferred tax assets, liabilities, or income taxes payable.
New Accounting Pronouncement Not Yet Adopted
NewPillar Two Global Minimum Tax
On October 8, 2021, the Organization for Economic Co-operation and Development (“OECD”) released a statement on the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting, which agreed to a two-pillar solution to address tax challenges of the digital economy. On December 20, 2021, the OECD released Pillar Two model rules defining a 15% global minimum tax rate for large multinational corporations. The OECD continues to release additional guidance and countries are implementing legislation with widespread adoption of the Pillar Two Framework expected by 2024. We are continuing to evaluate the Pillar Two Framework and its potential impact on future periods.
Other new pronouncements issued but not effective until after June 30, 20222023 are not expected to have a material impact on our condensed consolidated financial statements.
3. ACCRUED EXPENSES AND OTHER LIABILITIES
Amounts reported in ‘Accrued expenses and other liabilities’ in the condensed consolidated balance sheets were:
| | | June 30, 2022 | | December 31, 2021 | | June 30, 2023 | | December 31, 2022 |
| | (in thousands) | | (in thousands) |
Accrued compensation and benefits | Accrued compensation and benefits | $ | 53,241 | | | $ | 62,945 | | Accrued compensation and benefits | $ | 44,718 | | | $ | 55,474 | |
Professional services | Professional services | 46,504 | | | 33,997 | | Professional services | 50,101 | | | 45,351 | |
Fulfillment, freight, and duties | Fulfillment, freight, and duties | 51,207 | | | 15,629 | | Fulfillment, freight, and duties | 27,754 | | | 41,646 | |
Return liabilities | | Return liabilities | 32,503 | | | 27,651 | |
Sales/use and value added taxes payable | Sales/use and value added taxes payable | 25,886 | | | 13,049 | | Sales/use and value added taxes payable | 32,247 | | | 27,249 | |
Return liabilities | 16,773 | | | 10,342 | | |
Royalties payable and deferred revenue | | Royalties payable and deferred revenue | 9,892 | | | 10,528 | |
Accrued rent and occupancy | Accrued rent and occupancy | 9,391 | | | 7,431 | | Accrued rent and occupancy | 9,830 | | | 8,972 | |
Royalties payable and deferred revenue | 8,152 | | | 7,425 | | |
| Accrued legal fees | 8,960 | | | 5,872 | | |
Other | 22,640 | | | 10,197 | | |
Accrued legal fees (1) | | Accrued legal fees (1) | 4,381 | | | 2,602 | |
Other (1) (2) | | Other (1) (2) | 30,104 | | | 19,951 | |
Total accrued expenses and other liabilities | Total accrued expenses and other liabilities | $ | 242,754 | | | $ | 166,887 | | Total accrued expenses and other liabilities | $ | 241,530 | | | $ | 239,424 | |
(1) Amounts as of December 31, 2022 have been reclassified to conform to current period presentation.
(2) At June 30, 2023, includes $12.5 million in accrued capital expenditures, primarily for distribution and logistics projects.
4. LEASES
Right-of-Use Assets and Operating Lease Liabilities
Amounts reported in the condensed consolidated balance sheets were: | | | June 30, 2022 | | December 31, 2021 | | June 30, 2023 | | December 31, 2022 |
| | (in thousands) | | (in thousands) |
Assets: | Assets: | | Assets: | |
Right-of-use assets | Right-of-use assets | $ | 236,077 | | | $ | 160,768 | | Right-of-use assets | $ | 228,076 | | | $ | 239,905 | |
Liabilities: | Liabilities: | | | | Liabilities: | | | |
Current operating lease liabilities | Current operating lease liabilities | $ | 49,983 | | | $ | 42,932 | | Current operating lease liabilities | $ | 57,656 | | | $ | 57,456 | |
Long-term operating lease liabilities | Long-term operating lease liabilities | 217,586 | | | 149,237 | | Long-term operating lease liabilities | 204,088 | | | 215,119 | |
Total operating lease liabilities | Total operating lease liabilities | $ | 267,569 | | | $ | 192,169 | | Total operating lease liabilities | $ | 261,744 | | | $ | 272,575 | |
Lease Costs and Other Information
Lease-related costs reported within ‘Cost of sales’ and ‘Selling, general and administrative expenses’ in our condensed consolidated statements of operationsincome were:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| (in thousands) |
Operating lease cost | $ | 16,656 | | | $ | 14,926 | | | $ | 30,887 | | | $ | 29,758 | |
Short-term lease cost | 2,371 | | | 1,963 | | | 5,003 | | | 3,404 | |
Variable lease cost | 12,013 | | | 10,659 | | | 16,565 | | | 14,307 | |
Total lease costs | $ | 31,040 | | | $ | 27,548 | | | $ | 52,455 | | | $ | 47,469 | |
Other information related to leases, including supplemental cash flow information, consists of: | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2022 | | 2021 |
| (in thousands) |
Cash paid for operating leases | $ | 29,411 | | | $ | 31,910 | |
Right-of-use assets obtained in exchange for operating lease liabilities | 52,837 | | | 43,582 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| (in thousands) |
Operating lease cost | $ | 18,393 | | | $ | 16,656 | | | $ | 36,592 | | | $ | 30,887 | |
Short-term lease cost | 4,192 | | | 2,371 | | | 7,234 | | | 5,003 | |
Variable lease cost | 14,570 | | | 12,013 | | | 20,118 | | | 16,565 | |
Total lease costs | $ | 37,155 | | | $ | 31,040 | | | $ | 63,944 | | | $ | 52,455 | |
The weighted average remaining lease term and discount rate related to our lease liabilities as of June 30, 20222023 were 7.56.6 years and 3.6%4.1%, respectively. As of June 30, 2021,2022, the weighted average remaining lease term and discount rate related to our lease liabilities were 7.37.5 years and 3.9%3.6%, respectively.
Maturities
The maturities of our operating lease liabilities were:
| | | As of June 30, 2022 | | As of June 30, 2023 |
| | (in thousands) | | (in thousands) |
2022 (remainder of year) | $ | 25,568 | | |
2023 | 54,625 | | |
2023 (remainder of year) | | 2023 (remainder of year) | $ | 30,083 | |
2024 | 2024 | 40,768 | | 2024 | 58,398 | |
2025 | 2025 | 29,934 | | 2025 | 43,463 | |
2026 | 2026 | 27,413 | | 2026 | 36,006 | |
2027 | | 2027 | 30,639 | |
Thereafter | Thereafter | 130,510 | | Thereafter | 100,593 | |
Total future minimum lease payments | Total future minimum lease payments | 308,818 | | Total future minimum lease payments | 299,182 | |
Less: imputed interest | Less: imputed interest | (41,249) | | Less: imputed interest | (37,438) | |
Total operating lease liabilities | Total operating lease liabilities | $ | 267,569 | | Total operating lease liabilities | $ | 261,744 | |
Leases That Have Not Yet Commenced
As of June 30, 2023, we had significant obligations for a lease not yet commenced related to a new HEYDUDE distribution center in Las Vegas, Nevada. The total contractual commitment related to the lease, with payments expected to begin in the third quarter of 2023 and continue through December 2033, is approximately $111 million.
5. FAIR VALUE MEASUREMENTS
Recurring Fair Value Measurements
All of our derivative instruments are classified as Level 2 of the fair value hierarchy and are reported in the condensed consolidated balance sheets within either ‘Prepaid expenses and other assets’ or ‘Accrued expenses and other liabilities’ at June 30, 20222023 and December 31, 2021.2022. The fair values of our derivative instruments were an insignificant asset at June 30, 2022 and an insignificant liability at both June 30, 2023 and December 31, 2021.2022. See Note 6 — Derivative Financial Instruments for more information.
The carrying amounts of our cash, cash equivalents, and restricted cash, accounts receivable, accounts payable, and current accrued expenses and other liabilities, and our Asia revolving facilities approximate their fair value as recorded due to the short-term maturity of these instruments.
Our borrowing instruments are recorded at their carrying values in the condensed consolidated balance sheets, which may differ from their respective fair values. During the six months ended June 30, 2022, we entered into a credit agreement for a term loan B facility in the aggregate principal amount of $2.0 billion (the “Term Loan B Facility”), as described in more detail in Note 7 — Borrowings. The Term Loan B Facility is classified as Level 1 of(as defined below) and the fair value hierarchy. The Notes (as defined below) are also classified as Level 1 of the fair value hierarchy and are reported in our condensed consolidated balance sheet at face value, less unamortized issuance costs. The fair valuesvalue of our revolving credit facilities approximate theirRevolving Facility (as defined below) approximates its carrying valuesvalue at June 30, 20222023 and December 31, 20212022 based on interest rates currently available to us for similar borrowings. The carrying value and fair value of our borrowing instruments as of June 30, 20222023 and December 31, 20212022 were:
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
| Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
| (in thousands) |
Term Loan B Facility | $ | 1,995,000 | | | $ | 1,825,425 | | | $ | — | | | $ | — | |
2029 Notes | 350,000 | | | 259,656 | | | 350,000 | | | 346,281 | |
2031 Notes | 350,000 | | | 246,750 | | | 350,000 | | | 341,250 | |
Revolving credit facilities | 130,000 | | | 130,000 | | | 85,000 | | | 85,000 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2023 | | December 31, 2022 |
| Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
| (in thousands) |
Term Loan B Facility | $ | 1,180,000 | | | $ | 1,184,425 | | | $ | 1,675,000 | | | $ | 1,642,547 | |
2029 Notes | 350,000 | | | 298,190 | | | 350,000 | | | 297,596 | |
2031 Notes | 350,000 | | | 280,900 | | | 350,000 | | | 284,240 | |
Revolving Facility | 200,000 | | | 200,000 | | | — | | | — | |
Non-Financial Assets and Liabilities
Our non-financial assets, which primarily consist of property and equipment, right-of-use assets, goodwill, and other intangible assets, are not required to be carried at fair value on a recurring basis and are reported at carrying value. The fair values of these assets are determined, as required, based on Level 3 measurements, including estimates of the amount and timing of future cash flows based upon historical experience, expected market conditions, and management’s plans.
6. DERIVATIVE FINANCIAL INSTRUMENTS
We transact business in various foreign countriesentities and are therefore exposed to foreign currency exchange rate risk that impacts the reported U.S. Dollar (“USD”) amounts of revenues, expenses, and certain foreign currency monetary assets and liabilities. In order to manage exposure to fluctuations in foreign currency and to reduce the volatility in earnings caused by fluctuations in foreign exchange rates, we may enter into forward contracts to buy and sell foreign currency. By policy, we do not enter into these contracts for trading purposes or speculation.
Counterparty default risk is considered low because the forward contracts that we enter into are over-the-counter instruments transacted with highly-rated financial institutions. We were not required to and did not post collateral as of June 30, 20222023 or December 31, 2021.2022.
Our derivative instruments are recorded at fair value as a derivative asset or liability in the condensed consolidated balance sheets. sheets within either ‘Prepaid expenses and other assets’ or ‘Accrued expenses and other liabilities’ at June 30, 2023 and December 31, 2022. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether we have elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged transactions in a cash flow hedge. We may enter into derivative contracts that are intended to economically hedge certain components of its risk, even though hedge accounting does not apply, or we elect not to apply hedge accounting.
We report derivative instruments with the same counterparty on a net basis when a master netting arrangement is in place. Changes in fair value are recognized within ‘Foreign currency losses, net’ in the condensed consolidated statements of operations. For the condensed consolidated statements of cash flows, we classify cash flows from derivative instruments at settlement in the same category as the cash flows from the related hedged items within ‘Cash provided by operating activities.’
ResultsAs of Derivative ActivitiesJune 30, 2023, we have derivatives not designated as hedging instruments (“non-hedged derivatives”), which consist of foreign currency forward contracts primarily used to hedge monetary assets and liabilities denominated in non-functional currencies. For our non-hedged derivatives, changes in fair value are recognized within ‘Foreign currency gains (losses), net’ in the condensed consolidated statements of income.
We also have cash flow hedges (“hedged derivatives”) as of June 30, 2023. We are exposed to fluctuations in various foreign currencies against our functional currency, the U.S. Dollar. Specifically, we have subsidiaries that transact in currencies other than their functional currency. We use cash flow hedges to minimize the variability in cash flows caused by fluctuations in foreign currency exchange rates related to our external sales and external purchases of inventory. Currency forward agreements involve fixing the exchange rates for delivery of a specified amount of foreign currency on a specified date. The currency forward agreements are typically cash settled in USD for their fair value at or close to their settlement date. We may also use currency option contracts under which we will pay a premium for the right to sell a specified amount of a foreign currency prior to the maturity date of the option.
For derivatives designated and that qualify as cash flow hedges of foreign exchange risk, the gain or loss on the derivative is recorded in ‘Accumulated other comprehensive loss’ in the condensed consolidated balance sheets. In the period during which the hedged transaction affects earnings, the related gain or loss is subsequently reclassified to ‘Revenues’ or ‘Cost of sales’ in the condensed consolidated statement of income, which is consistent with the nature of the hedged transaction. During the three and six months ended June 30, 2023, there was a loss of $0.3 million and $0.8 million, respectively, recognized due to reclassification from ‘Accumulated other comprehensive loss’ to ‘Revenues’ or ‘Cost of sales’ related to our hedged derivatives. During the next twelve months, we estimate that a gain of approximately $0.1 million will be reclassified to our condensed consolidated statement of income.
The fair values of derivative assets and liabilities, net, all of which are classified as Level 2, reported within either ‘Accrued expenses and other liabilities’ or ‘Prepaid expenses and other assets’ in the condensed consolidated balance sheets, were:
| | | June 30, 2022 | | December 31, 2021 | | June 30, 2023 | | December 31, 2022 |
| | Derivative Assets | | Derivative Liabilities | | Derivative Assets | | Derivative Liabilities | | Derivative Assets | | Derivative Liabilities | | Derivative Assets | | Derivative Liabilities |
| | (in thousands) | | (in thousands) |
Non-hedged derivatives: | | Non-hedged derivatives: | |
Forward foreign currency exchange contracts | Forward foreign currency exchange contracts | $ | 339 | | | $ | (113) | | | $ | 724 | | | $ | (938) | | Forward foreign currency exchange contracts | $ | 940 | | | $ | (1,114) | | | $ | 345 | | | $ | (360) | |
| Hedged derivatives: | | Hedged derivatives: | |
Cash flow foreign currency contracts | | Cash flow foreign currency contracts | 212 | | | (85) | | | 348 | | | (1,116) | |
Total derivatives | | Total derivatives | 1,152 | | | (1,199) | | | 693 | | | (1,476) | |
Netting of counterparty contracts | Netting of counterparty contracts | (113) | | | 113 | | | (724) | | | 724 | | Netting of counterparty contracts | (1,101) | | | 1,101 | | | (345) | | | 345 | |
Foreign currency forward contract derivatives | $ | 226 | | | $ | — | | | $ | — | | | $ | (214) | | |
| Total derivatives, net of counterparty contracts | | Total derivatives, net of counterparty contracts | $ | 51 | | | $ | (98) | | | $ | 348 | | | $ | (1,131) | |
The notional amounts of outstanding foreign currency forward exchange contracts presented below report the total U.S. Dollar equivalent position and the net contract fair values for each foreign currency position.
| | | June 30, 2022 | | December 31, 2021 | | June 30, 2023 | | December 31, 2022 |
| | Notional | | Fair Value | | Notional | | Fair Value | | Notional | | Fair Value | | Notional | | Fair Value |
| | (in thousands) | | (in thousands) |
Non-hedged derivatives: | | Non-hedged derivatives: | |
Singapore Dollar | Singapore Dollar | $ | 51,851 | | | $ | (85) | | | $ | 43,723 | | | $ | (296) | | Singapore Dollar | $ | 38,192 | | | $ | (675) | | | $ | 26,760 | | | $ | 207 | |
Indian Rupee | | Indian Rupee | 9,656 | | | (44) | | | 24,945 | | | (10) | |
South Korean Won | | South Korean Won | 21,693 | | | 51 | | | 18,403 | | | (320) | |
British Pound Sterling | British Pound Sterling | 18,861 | | | 2 | | | 25,795 | | | 104 | | British Pound Sterling | 9,285 | | | (283) | | | 14,509 | | | 128 | |
Japanese Yen | | Japanese Yen | 10,966 | | | 889 | | | 8,953 | | | 9 | |
Euro | Euro | 28,428 | | | 43 | | | 21,198 | | | 162 | | Euro | 8,059 | | | (112) | | | 5,068 | | | (29) | |
| Total non-hedged derivatives | | Total non-hedged derivatives | 97,851 | | | (174) | | | 98,638 | | | (15) | |
Hedged derivatives: | | Hedged derivatives: | |
Euro | | Euro | 26,011 | | | 211 | | | 51,914 | | | (360) | |
British Pound Sterling | | British Pound Sterling | 12,652 | | | (74) | | | 23,025 | | | 235 | |
South Korean Won | South Korean Won | 18,057 | | | (28) | | | 14,201 | | | (112) | | South Korean Won | 6,047 | | | 1 | | | 12,285 | | | (756) | |
Japanese Yen | 12,877 | | | 54 | | | 12,910 | | | 80 | | |
Indian Rupee | Indian Rupee | 21,285 | | | 229 | | | 10,379 | | | (86) | | Indian Rupee | 6,195 | | | (11) | | | 7,203 | | | 113 | |
Other currencies | 1,345 | | | 11 | | | 19,481 | | | (66) | | |
Total | $ | 152,704 | | | $ | 226 | | | $ | 147,687 | | | $ | (214) | | |
Total hedged derivatives | | Total hedged derivatives | 50,905 | | | 127 | | | 94,427 | | | (768) | |
Total derivatives | | Total derivatives | $ | 148,756 | | | $ | (47) | | | $ | 193,065 | | | $ | (783) | |
| Latest maturity date | September 2022 | | January 2022 | |
Latest maturity date, non-hedged derivatives | | Latest maturity date, non-hedged derivatives | July 2023 | | April 2023 |
Latest maturity date, hedged derivatives | | Latest maturity date, hedged derivatives | September 2023 | | June 2023 |
Amounts reported in ‘Foreign currency losses,gains (losses), net’ in the condensed consolidated statements of operationsincome include both realized and unrealized gains (losses) from foreign currency transactions and derivative contracts and were:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| (in thousands) |
Foreign currency transaction gains (losses) | $ | (3,135) | | | $ | 506 | | | $ | (4,052) | | | $ | (345) | |
Foreign currency forward exchange contracts gains (losses) | 1,933 | | | (623) | | | 3,330 | | | (276) | |
Foreign currency losses, net | $ | (1,202) | | | $ | (117) | | | $ | (722) | | | $ | (621) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| (in thousands) |
Non-hedged derivatives: | | | | | | | |
Foreign currency transaction gains (losses) | $ | 402 | | | $ | (3,135) | | | $ | (369) | | | $ | (4,052) | |
Foreign currency forward exchange contracts gains | 149 | | | 1,933 | | | 517 | | | 3,330 | |
Foreign currency gains (losses), net | $ | 551 | | | $ | (1,202) | | | $ | 148 | | | $ | (722) | |
7. BORROWINGS
Our long-term borrowings were as follows: | | | Maturity | | Stated Interest Rate | | Effective Interest Rate | | June 30, 2022 | | December 31, 2021 | | Maturity | | Stated Interest Rate | | Effective Interest Rate | | June 30, 2023 | | December 31, 2022 |
| | | | | | | | (in thousands) | | | | | | | | (in thousands) |
Notes issuance of $350.0 million | Notes issuance of $350.0 million | | 2029 | | 4.250 | % | | 4.64 | % | | $ | 350,000 | | | $ | 350,000 | | Notes issuance of $350.0 million | | 2029 | | 4.250 | % | | 4.64 | % | | $ | 350,000 | | | $ | 350,000 | |
Notes issuance of $350.0 million | Notes issuance of $350.0 million | | 2031 | | 4.125 | % | | 4.35 | % | | 350,000 | | | 350,000 | | Notes issuance of $350.0 million | | 2031 | | 4.125 | % | | 4.35 | % | | 350,000 | | | 350,000 | |
Term Loan B Facility | Term Loan B Facility | | 2029 | | 1,995,000 | | | — | | Term Loan B Facility | | 2029 | | 1,180,000 | | | 1,675,000 | |
Revolving credit facilities | | 130,000 | | | 85,000 | | |
Revolving Facility | | Revolving Facility | | 200,000 | | | — | |
Total face value of long-term borrowings | Total face value of long-term borrowings | | 2,825,000 | | | 785,000 | | Total face value of long-term borrowings | | 2,080,000 | | | 2,375,000 | |
Less: | Less: | | Less: | |
Unamortized issuance costs | Unamortized issuance costs | | 61,493 | | | 13,610 | | Unamortized issuance costs | | 52,515 | | | 56,973 | |
Current portion of long-term borrowings (1) | Current portion of long-term borrowings (1) | | 20,000 | | | — | | Current portion of long-term borrowings (1) | | 20,000 | | | 20,000 | |
Total long-term borrowings | Total long-term borrowings | | $ | 2,743,507 | | | $ | 771,390 | | Total long-term borrowings | | $ | 2,007,485 | | | $ | 2,298,027 | |
(1) Represents the current portion of the borrowings onunder the Term Loan B facility.
At June 30, 20222023 and December 31, 2021, $9.22022, $10.3 million and $10.4$10.8 million, respectively, of accrued interest related to our borrowings was reported in ‘Accounts payable’ in the condensed consolidated balance sheets.
Senior Revolving Credit Facility
In July 2019, the Company and certain of its subsidiaries (the “Borrowers”) entered into a Second Amended and Restated Credit Agreement (as amended, the “Credit Agreement”), with the lenders named therein and PNC Bank, National Association, as a lender and administrative agent for the lenders. In February 2022,Since that time, we have amended the Credit Agreement, which, as amended to date, provides for a revolving credit facility of $600.0$750.0 million, which can be increased by an additional $400.0$250.0 million subject to certain conditions (the “Revolving Facility”). Borrowings under the Credit Agreement bear interest at a variable interest rate based on (A) a Base Rate (defined as the highest of (i) the Overnight Bank Funding Rate (as defined in the Credit Agreement), plus 0.25%, (ii) the Prime Rate (as defined in the Credit Agreement), and (iii) the Daily Simple SOFR (as defined in the Credit Agreement), plus 1.00%), plus an applicable margin ranging from 0.25% to 0.875% based on our leverage ratio or 1.35% to 1.975% for the Daily Simple SOFR based on the leverage ratio, or (B) the Term SOFR Rate (as defined in the Credit Agreement), plus an applicable margin ranging from 1.35% to 1.975% based on our leverage ratio for one-month interest periods and 1.40% to 2.025% based on our leverage ratio for three month interest periods. Borrowings under the Credit Agreement are secured by all of the assets of the Borrowers and guaranteed by certain other subsidiaries of the Borrowers.
The Credit Agreement requires us to maintain a minimum interest coverage ratio of 3.00 to 1.00, and a maximum leverage ratio of (i) 4.00 to 1.00 from the quarter ended March 31, 2022 through, and including, the quarter ending December 31, 2023, (ii) 3.75 to 1.00 for the quarter ending March 31, 2024, (iii) 3.50 to 1.00 for the quarter ending June 30, 2024, and (iv) 3.25 to 1.00 for the quarter ending September 30, 2024 and thereafter (subject to adjustment in certain circumstances). The Credit Agreement permits, among other things, (i) stock repurchases subject to certain restrictions, including after giving effect to such
stock repurchases, the maximum leverage ratio does not exceed certain levels; and (ii) certain acquisitions so long as there is borrowing availability under the Credit Agreement of at least $40.0 million. As of June 30, 2022,2023, we were in compliance with all financial covenants under the Credit Agreement.
As of June 30, 2022,2023, the total commitments available from the lenders under the Revolving Facility were $600.0$750.0 million. At June 30, 2022,2023, we had $130.0$200.0 million in outstanding borrowings which are due when the Revolving Facility matures in July 2024, and $0.3$1.3 million in outstanding letters of credit under the Revolving Facility, which reduces amounts available for borrowing under the Revolving Facility. As of June 30, 20222023 and December 31, 2021,2022, we had $469.7$548.7 million and $414.7$748.7 million, respectively, of available borrowing capacity under the Revolving Facility.Facility, which matures November 2027.
Term Loan B Facility
On February 17, 2022, the Company entered into a credit agreement (the “Term Loan B Credit Agreement”) with Citibank, N.A., as administrative agent and lender, to among other things, finance a portion of the cash consideration for the Acquisition.
The Term Loan B Credit Agreement provides for an aggregate term loan B facility in the principal amount of $2.0 billion (the “Term Loan B Facility”), which is secured by substantially all of the Company’s and each subsidiary guarantor’s assets on a pari passu basis with their obligations arising from the Credit Agreement and is scheduled to mature on February 17, 2029, subject to certain exceptions set forth in the Term Loan B Credit Agreement. Additionally, subject to certain conditions, including, without limitation, satisfying certain leverage ratios, the Company may, at any time, on one or more occasions, add one or more new classes of term facilities and/or increase the principal amount of the loans of any existing class by requesting one or more incremental term facilities.
Each term loan borrowing which is an alternate base rate borrowing bears interest at a rate per annum equal to the Alternate Base Rate (as defined in the Term Loan B Credit Agreement), plus 2.50%. Each term loan borrowing which is a term benchmark borrowing bears interest at a rate per annum equal to the Adjusted Term SOFR Rate (as defined in the Term Loan B Credit Agreement) plus 3.50%.
Outstanding principal under the Term Loan B Facility is payable on the last business day of each March, June, September and December, in a quarterly aggregate principal amount of $5.0 million. Quarterly aggregate principal payments began on June 30, 2022, with the remaining principal amount due on February 17, 2029, the maturity date. As of June 30, 2022,2023, we had $1,995.0$1,180.0 million in outstanding principal and the Term Loan B Facility was fully drawn with no remaining borrowing capacity.
The Term Loan B Credit Agreement also contains customary affirmative and negative covenants, incurrence financial covenants, representations and warranties, events of default and other provisions. As of June 30, 2022,2023, we were in compliance with all financial covenants under the Term Loan B Credit Agreement.
Asia Revolving Credit Facilities
During the six months ended June 30, 2022,2023, we had 2two revolving credit facilities in Asia, the revolving credit facility with China Merchants Bank Company Limited, Shanghai Branch (the “CMBC Facility”), which providesmatured in January 2023 and provided up to 10.0 million RMB, or $1.5 million atusing current exchange rates and matures inas of January 2023, and the revolving credit facility with Citibank (China) Company Limited, Shanghai Branch (the “Citibank Facility”), which, as amended, provides up to an equivalent of $10.0$15.0 million.
As of June 30, 2023, we had no borrowings outstanding on the Citibank Facility. As of December 31, 2022, we had no outstanding borrowings on the CMBC Facility, and we had borrowings outstanding of $0.5 million on the CMBC Facility, which are due in September 2022 and borrowings outstanding of $4.9$4.3 million on the Citibank Facility, which are due at various dates within the third quarter of 2022. We had no borrowings under our Asia revolving facilities during the year ended December 31, 2021 or outstanding at December 31, 2021.Facility.
Senior Notes Issuances
In March 2021, the Company completed the issuance and sale of $350.0 million aggregate principal amount of 4.250% Senior Notes due March 15, 2029 (the “2029 Notes”), pursuant to the indenture related thereto (as amended and/or supplemented to date, the “2029 Notes Indenture”). Additionally, in August 2021, the Company completed the issuance and sale of $350.0 million aggregate principal amount of 4.125% Senior Notes due August 15, 2031 (the “2031 Notes”), pursuant to the indenture related thereto (as amended and/or supplemented to date, “the 2031 Notes Indenture” and, together with the 2029 Notes Indenture, the “Indentures” and, each, an “Indenture”). Interest on each of the 2029 Notes and the 2031 Notes (collectively, the “Notes”) is payable semi-annually.
The Company will have the option to redeem all or any portion of the 2029 Notes, at once or over time, at any time on or after March 15, 2024, at a redemption price equal to 100% of the principal amount thereof, plus a premium declining ratably on an annual basis to par and accrued and unpaid interest, if any, to, but excluding, the date of redemption. The Company will also have the option to redeem some or all of the 2029 Notes at any time before March 15, 2024 at a redemption price of 100% of the principal amount to be redeemed, plus a “make-whole” premium and accrued and unpaid interest, if any, to, but excluding, the date of redemption. In addition, at any time before March 15, 2024, the Company may redeem up to 40% of the aggregate principal amount of the 2029 Notes at a redemption price of 104.250% of the principal amount with the proceeds from certain equity issuances, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption.
The Company will have the option to redeem all or any portion of the 2031 Notes, at once or over time, at any time on or after August 15, 2026, at a redemption price equal to 100% of the principal amount thereof, plus a premium declining ratably on an annual basis to par and accrued and unpaid interest, if any, to, but excluding, the date of redemption. The Company will also have the option to redeem some or all of the 2031 Notes at any time before August 15, 2026 at a redemption price of 100% of the principal amount to be redeemed, plus a “make-whole” premium and accrued and unpaid interest, if any, to, but excluding, the date of redemption. In addition, at any time before August 15, 2024, the Company may redeem up to 40% of the aggregate principal amount of the 2031 Notes at a redemption price of 104.125% of the principal amount with the proceeds from certain equity issuances, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption.
The Notes rank pari passu in right of payment with all of the Company’s existing and future senior debt, including the Credit Agreement, and are senior in right of payment to any of the Company’s future debt that is, by its term, expressly subordinated in right of payment to the Notes. The Notes are unconditionally guaranteed by each of the Company’s restricted subsidiaries that is a borrower or guarantor under the Credit Agreement and by each of the Company’s wholly-owned restricted subsidiaries that guarantees any debt of the Company or any guarantor under any syndicated credit facility or capital markets debt in an aggregate principal amount in excess of $25.0 million.
The Indentures contain covenants that, among other things, limit the ability of the Company and its restricted subsidiaries to incur additional debt or issue certain preferred stock; pay dividends or repurchase or redeem capital stock or make other restricted payments; declare or pay dividends or other payments; incur liens; enter into certain types of transactions with the Company’s affiliates; and consolidate or merge with or into other companies. As of June 30, 2022,2023, we were in compliance with all financial covenants under the Notes.
8. COMMON STOCK REPURCHASE PROGRAM
During the three and six months ended June 30, 2023 and 2022, we did not repurchase any shares of our common stock.
During the three months ended June 30, 2021, we repurchased 2.9 million shares of our common stock at a cost of $300.0 million, including commissions, under a $300.0 million April 2021 accelerated share repurchase arrangement (“ASR”). Under the ASR, a financial institution delivers shares of our common stock during the purchase period in exchange for an up-front payment. The total number of shares ultimately delivered under the ASR, and therefore the average repurchase price paid per share, is determined based on the volume-weighted average price of our common stock during the purchase period. During the six months ended June 30, 2021, we repurchased 4.0 million shares of our common stock at an aggregate cost of $350.0 million, including commissions. This included 0.5 million shares received in January 2021 at the conclusion of the purchase period for an accelerated share repurchase agreement we entered into in November 2020.
As of June 30, 2022,2023, we had remaining authorization to repurchase approximately $1,050.0 million of our common stock, subject to restrictions under our Indentures, Credit Agreement, and Term Loan B Credit Agreement.
In July 2023, we repurchased 0.4 million shares of our common stock at a cost of $50.0 million, including commissions.
9. REVENUES
Revenues by channel and brand were:
Second Quarter | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2023 |
| Crocs Brand | | HEYDUDE Brand | | Total |
| (in thousands) |
Channel: | | | | | |
Wholesale | $ | 407,342 | | | $ | 148,825 | | | $ | 556,167 | |
Direct-to-consumer | 425,608 | | | 90,592 | | | 516,200 | |
Total revenues | $ | 832,950 | | | $ | 239,417 | | | $ | 1,072,367 | |
| | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2022 |
| Crocs Brand | | HEYDUDE Brand | | Total |
| (in thousands) |
Channel: | | | | | |
Wholesale | $ | 392,511 | | | $ | 162,499 | | | $ | 555,010 | |
Direct-to-consumer | 339,705 | | | 69,866 | | | 409,571 | |
Total revenues | $ | 732,216 | | | $ | 232,365 | | | $ | 964,581 | |
| | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2021 |
| Crocs Brand | | HEYDUDE Brand | | Total |
| (in thousands) |
Channel: | | | | | |
Wholesale | $ | 307,327 | | | $ | — | | | $ | 307,327 | |
Direct-to-consumer | 333,446 | | | — | | | 333,446 | |
Total revenues | $ | 640,773 | | | $ | — | | | $ | 640,773 | |
Year to Date
| | | Six Months Ended June 30, 2022 | | Six Months Ended June 30, 2023 |
| | Crocs Brand | | HEYDUDE Brand | | Total | | Crocs Brand | | HEYDUDE Brand | | Total |
| | (in thousands) | | (in thousands) |
Channel: | Channel: | | Channel: | |
Wholesale | Wholesale | | $ | 736,768 | | | $ | 249,418 | | | $ | 986,186 | | Wholesale | $ | 817,905 | | | $ | 316,688 | | | $ | 1,134,593 | |
Direct-to-consumer | Direct-to-consumer | | 540,673 | | | 97,870 | | | 638,543 | | Direct-to-consumer | 663,823 | | | 158,117 | | | 821,940 | |
| Total revenues | Total revenues | | $ | 1,277,441 | | | $ | 347,288 | | | $ | 1,624,729 | | Total revenues | $ | 1,481,728 | | | $ | 474,805 | | | $ | 1,956,533 | |
| | | Six Months Ended June 30, 2021 | | Six Months Ended June 30, 2022 |
| | Crocs Brand | | HEYDUDE Brand | | Total | | Crocs Brand | | HEYDUDE Brand | | Total |
| | (in thousands) | | (in thousands) |
Channel: | Channel: | | Channel: | |
Wholesale | Wholesale | | $ | 597,366 | | | $ | — | | | $ | 597,366 | | Wholesale | $ | 736,768 | | | $ | 249,418 | | | $ | 986,186 | |
Direct-to-consumer | Direct-to-consumer | | 503,505 | | | — | | | 503,505 | | Direct-to-consumer | 540,673 | | | 97,870 | | | 638,543 | |
| Total revenues | Total revenues | | $ | 1,100,871 | | | $ | — | | | $ | 1,100,871 | | Total revenues | $ | 1,277,441 | | | $ | 347,288 | | | $ | 1,624,729 | |
For information on revenues by reportable operating segment, see Note 1413 — Operating Segments and Geographic Information.
10. SHARE-BASED COMPENSATION
Our share-based compensation awards are issued under the 2020 Equity Incentive Plan (“2020 Plan”) and a predecessor plan, the 2015 Equity Incentive Plan (“2015 Plan”). Any awards that expire or are forfeited under the 2015 Plan become available for issuance under the 2020 Plan.
Share-based compensation expense reported in our condensed consolidated statements of operations was:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| (in thousands) |
Cost of sales | $ | 153 | | | $ | 151 | | | $ | 264 | | | $ | 237 | |
Selling, general and administrative expenses | 9,147 | | | 11,143 | | | 17,311 | | | 19,111 | |
Total share-based compensation expense | $ | 9,300 | | | $ | 11,294 | | | $ | 17,575 | | | $ | 19,348 | |
11. INCOME TAXES
Income tax expense and effective tax rates were:
| | | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
| | (in thousands, except effective tax rate) | | (in thousands, except effective tax rate) |
Income before income taxes | Income before income taxes | $ | 214,304 | | | $ | 190,566 | | | $ | 313,364 | | | $ | 313,154 | | Income before income taxes | $ | 277,242 | | | $ | 214,304 | | | $ | 469,008 | | | $ | 313,364 | |
Income tax expense (benefit) | 53,989 | | | (128,388) | | | 80,289 | | | (104,198) | | |
Income tax expense | | Income tax expense | 64,830 | | | 53,989 | | | 107,053 | | | 80,289 | |
Effective tax rate | Effective tax rate | 25.2 | % | | (67.4) | % | | 25.6 | % | | (33.3 | %) | Effective tax rate | 23.4 | % | | 25.2 | % | | 22.8 | % | | 25.6 | % |
The increasedecrease in the effective tax rate for the three months ended June 30, 2022,2023, compared to the same period in 2021,2022, was primarily driven by a shift in the prior year releasemix of valuation allowances resulting from the enactment of a tax law change.Company's domestic and foreign earnings. Our effective income tax rate, for each period presented, also differs from the federal U.S. statutory rate due to differences in income tax rates between U.S. and foreign jurisdictions. We had unrecognized tax benefits of $211.6$224.7 million and
$218.4 $219.4 million at June 30, 20222023 and December 31, 2021,2022, respectively, and we do not expect any significant changes in tax benefits in the next twelve months.
During the six months ended June 30, 2022,2023, income tax expense increased $184.5$26.8 million compared to the same period in 2021.2022. The effective tax rate for the six months ended June 30, 20222023 was 25.6%22.8% compared to an effective tax rate of (33.3)%25.6% for the same period in 2021,2022, a 58.9% increase.2.8% decrease. This increasedecrease in the effective tax rate was primarily driven by the prior year realization of deferred tax assets which were subject to a valuation allowance which did not reoccurshift in the current year.mix of the Company's domestic and foreign earnings. Our effective income tax rate, for each period presented, also differs from the federal U.S. statutory rate primarily due to differences in income tax rates between U.S. and foreign jurisdictions.
Our tax rate is volatile and may increase or decrease with changes in, among other things, the amount of income or loss by jurisdiction, our ability to utilize net operating losses and foreign tax credits, changes in tax laws, and the movement of liabilities established pursuant to accounting guidance for uncertain tax positions as statutes of limitations expire, positions are effectively settled, or when additional information becomes available.
12.11. EARNINGS PER SHARE
Basic and diluted earnings per common share (“EPS”) for the six months ended June 30, 2023 and 2022 were:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| (in thousands, except per share data) |
Numerator: | | | | | | | |
Net income | $ | 212,412 | | | $ | 160,315 | | | $ | 361,955 | | | $ | 233,075 | |
Denominator: | | | | | | | |
Weighted average common shares outstanding - basic | 62,037 | | | 61,590 | | | 61,937 | | | 60,712 | |
Plus: Dilutive effect of stock options and unvested restricted stock units | 566 | | | 646 | | | 679 | | | 859 | |
Weighted average common shares outstanding - diluted | 62,603 | | | 62,236 | | | 62,616 | | | 61,571 | |
| | | | | | | |
Net income per common share: | | | | | | | |
Basic | $ | 3.42 | | | $ | 2.60 | | | $ | 5.84 | | | $ | 3.84 | |
Diluted | $ | 3.39 | | | $ | 2.58 | | | $ | 5.78 | | | $ | 3.79 | |
In the three and six months ended June 30, 20222023 and 2021 were:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| (in thousands, except per share data) |
Numerator: | | | | | | | |
Net income | $ | 160,315 | | | $ | 318,954 | | | $ | 233,075 | | | $ | 417,352 | |
Denominator: | | | | | | | |
Weighted average common shares outstanding - basic | 61,590 | | | 63,595 | | | 60,712 | | | 64,526 | |
Plus: Dilutive effect of stock options and unvested restricted stock units | 646 | | | 1,045 | | | 859 | | | 1,218 | |
Weighted average common shares outstanding - diluted | 62,236 | | | 64,640 | | | 61,571 | | | 65,744 | |
| | | | | | | |
Net income per common share: | | | | | | | |
Basic | $ | 2.60 | | | $ | 5.02 | | | $ | 3.84 | | | $ | 6.47 | |
Diluted | $ | 2.58 | | | $ | 4.93 | | | $ | 3.79 | | | $ | 6.35 | |
In the three months ended June 30, 2022, and 2021, 0.4 million and an insignificant number of outstanding shares respectively, issued under share-based compensation awards were anti-dilutive and, therefore, excluded from the calculation of diluted EPS. In the six months ended June 30, 2022 and 2021, 0.2 million and an insignificant number of outstanding shares, respectively, issued under share-based compensation awards were anti-dilutive and, therefore, excluded from the calculation of diluted EPS.
13.12. COMMITMENTS AND CONTINGENCIES
Purchase Commitments
As of June 30, 2022,2023, we had purchase commitments to third-party manufacturers, primarily for materials and supplies used in the manufacture of our products, for an aggregate of $348.6$279.4 million. We expect to fulfill our commitments under these agreements in the normal course of business, and as such, no liability has been recorded.
Other
We are regularly subject to, and are currently undergoing, audits by various tax authorities in the United States and several foreign jurisdictions, including customs duties, import, and other taxes for prior tax years.
During our normal course of business, we may make certain indemnities, commitments, and guarantees under which we may be required to make payments. We cannot determine a range of estimated future payments and have not recorded any liability for indemnities, commitments, and guarantees in the accompanying condensed consolidated balance sheets.
See Note 15 — Legal Proceedings for further details regarding potential loss contingencies relatedWe are also subject to government tax auditslitigation from time to time in the ordinary course of business, including employment, intellectual property, and product liability claims. Other than as set forth below, we are not party to any other pending legal proceedings that we believe would reasonably have a material adverse impact on our business, financial results, and cash flows.
For all claims and disputes, we have accrued estimated losses of $2.5 million within ‘Accrued expenses and other current legal proceedings.liabilities’ in the condensed consolidated balance sheet as of June 30, 2023. As we are able, we estimate reasonably possible losses or a range of reasonably possible losses. As of June 30, 2023, we estimated that reasonably possible losses associated with these claims and other disputes could potentially exceed amounts accrued by an insignificant amount.
14.13. OPERATING SEGMENTS AND GEOGRAPHIC INFORMATION
Crocs, Inc. has 4We have four reportable operating segments. For the Crocs Brand, we have 3three reportable operating segments based on the geographic nature of our operations: North America, Asia Pacific, and EMEALA. Beginning in the three months ended March 31, 2022, ourOur HEYDUDE Brand is also became a reportable segment on the Acquisition Date.operating segment. Each of the reportable operating segments derives its revenues from the sale of footwear and accessories to external customers.
Additionally, Crocs ‘Brand corporate’ costs represent operating expense that includes product creation, design, and marketing expenses centrally managed for the Crocs Brand, as well as certain royalty income. Crocs Brand corporate costs are included within the Crocs Brand for presentation purposes to align with the way management views the Company. ‘Enterprise corporate’ costs include global corporate costs associated with both brands, including legal, information technology, human resources, and finance, as well as costs associated with global digital operations.
Each segment’s performance is evaluated based on segment results without allocating Brand corporate or Enterprise corporate expenses. Segment profits or losses include adjustments to eliminate inter-segment sales. Reconciling items between segment income from operations and income from operations consist of unallocated brand and enterprise corporate and other expenses, as well as inter-segment eliminations.
We do not report asset information by segment because that information is not used to evaluate performance or allocate resources between segments.
The following tables set forth information related to reportable operating segments: | | | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
| | (in thousands) | | (in thousands) |
Revenues: | Revenues: | | Revenues: | |
North America (1) | $ | 422,936 | | | $ | 393,152 | | | $ | 742,386 | | | $ | 660,419 | | |
North America | | North America | $ | 474,558 | | | $ | 422,936 | | | $ | 825,866 | | | $ | 742,386 | |
Asia Pacific | Asia Pacific | 148,889 | | | 126,834 | | | 244,737 | | | 209,426 | | Asia Pacific | 198,257 | | | 148,889 | | | 338,259 | | | 244,737 | |
EMEALA (1) | 160,377 | | | 120,778 | | | 290,297 | | | 230,978 | | |
Brand corporate (2) | 14 | | | 9 | | | 21 | | | 48 | | |
EMEALA | | EMEALA | 160,135 | | | 160,377 | | | 317,602 | | | 290,297 | |
Brand corporate | | Brand corporate | — | | | 14 | | | 1 | | | 21 | |
Total Crocs Brand | Total Crocs Brand | 732,216 | | | 640,773 | | | 1,277,441 | | | 1,100,871 | | Total Crocs Brand | 832,950 | | | 732,216 | | | 1,481,728 | | | 1,277,441 | |
HEYDUDE Brand (3)(1) | HEYDUDE Brand (3)(1) | 232,365 | | | — | | | 347,288 | | | — | | HEYDUDE Brand (3)(1) | 239,417 | | | 232,365 | | | 474,805 | | | 347,288 | |
Total consolidated revenues | Total consolidated revenues | $ | 964,581 | | | $ | 640,773 | | | $ | 1,624,729 | | | $ | 1,100,871 | | Total consolidated revenues | $ | 1,072,367 | | | $ | 964,581 | | | $ | 1,956,533 | | | $ | 1,624,729 | |
Income from operations: | Income from operations: | | | | | | | | Income from operations: | | | | | | | |
North America (1) | North America (1) | $ | 177,363 | | | $ | 188,180 | | | $ | 306,974 | | | $ | 300,873 | | North America (1) | $ | 214,557 | | | $ | 177,363 | | | $ | 342,340 | | | $ | 306,974 | |
Asia Pacific | Asia Pacific | 51,432 | | | 32,016 | | | 81,537 | | | 54,131 | | Asia Pacific | 76,837 | | | 51,432 | | | 133,442 | | | 81,537 | |
EMEALA (1) | EMEALA (1) | 53,385 | | | 41,388 | | | 88,314 | | | 81,407 | | EMEALA (1) | 61,129 | | | 53,385 | | | 126,905 | | | 88,314 | |
Brand corporate (2) | Brand corporate (2) | (28,259) | | | (21,393) | | | (58,968) | | | (41,401) | | Brand corporate (2) | (34,839) | | | (28,259) | | | (66,996) | | | (58,968) | |
Total Crocs Brand | Total Crocs Brand | 253,921 | | | 240,191 | | | 417,857 | | | 395,010 | | Total Crocs Brand | 317,684 | | | 253,921 | | | 535,691 | | | 417,857 | |
HEYDUDE Brand (3)(1) | HEYDUDE Brand (3)(1) | 41,666 | | | — | | | 57,324 | | | — | | HEYDUDE Brand (3)(1) | 65,509 | | | 41,666 | | | 142,129 | | | 57,324 | |
Reconciliation of total segment income from operations to income before income taxes: | Reconciliation of total segment income from operations to income before income taxes: | | | | | Reconciliation of total segment income from operations to income before income taxes: | | | | |
| Enterprise corporate (2) | Enterprise corporate (2) | (47,623) | | | (44,869) | | | (108,540) | | | (75,002) | | Enterprise corporate (2) | (64,704) | | | (47,623) | | | (124,403) | | | (108,540) | |
Income from operations | Income from operations | 247,964 | | | 195,322 | | | 366,641 | | | 320,008 | | Income from operations | 318,489 | | | 247,964 | | | 553,417 | | | 366,641 | |
Foreign currency losses, net | (1,202) | | | (117) | | | (722) | | | (621) | | |
Foreign currency gains (losses), net | | Foreign currency gains (losses), net | 551 | | | (1,202) | | | 148 | | | (722) | |
Interest income | Interest income | 86 | | | 71 | | | 188 | | | 98 | | Interest income | 548 | | | 86 | | | 719 | | | 188 | |
Interest expense | Interest expense | (32,963) | | | (4,712) | | | (52,215) | | | (6,344) | | Interest expense | (43,063) | | | (32,963) | | | (85,700) | | | (52,215) | |
Other income (expense), net | Other income (expense), net | 419 | | | 2 | | | (528) | | | 13 | | Other income (expense), net | 717 | | | 419 | | | 424 | | | (528) | |
Income before income taxes | Income before income taxes | $ | 214,304 | | | $ | 190,566 | | | $ | 313,364 | | | $ | 313,154 | | Income before income taxes | $ | 277,242 | | | $ | 214,304 | | | $ | 469,008 | | | $ | 313,364 | |
| Depreciation and amortization: | Depreciation and amortization: | | Depreciation and amortization: | |
North America (1) | $ | 2,589 | | | $ | 806 | | | $ | 4,809 | | | $ | 1,731 | | |
North America | | North America | $ | 4,418 | | | $ | 2,589 | | | $ | 8,785 | | | $ | 4,809 | |
Asia Pacific | Asia Pacific | 497 | | | 325 | | | 1,020 | | | 612 | | Asia Pacific | 669 | | | 497 | | | 1,299 | | | 1,020 | |
EMEALA (1) | 696 | | | 182 | | | 1,420 | | | 366 | | |
Brand corporate (2) | 179 | | | 2,726 | | | 365 | | | 5,475 | | |
EMEALA | | EMEALA | 1,351 | | | 696 | | | 2,581 | | | 1,420 | |
Brand corporate | | Brand corporate | 661 | | | 179 | | | 1,871 | | | 365 | |
Total Crocs Brand | Total Crocs Brand | 3,961 | | | 4,039 | | | 7,614 | | | 8,184 | | Total Crocs Brand | 7,099 | | | 3,961 | | | 14,536 | | | 7,614 | |
HEYDUDE Brand (3)(1) | HEYDUDE Brand (3)(1) | 2,806 | | | — | | | 5,250 | | | — | | HEYDUDE Brand (3)(1) | 3,562 | | | 2,806 | | | 7,068 | | | 5,250 | |
| Enterprise corporate (2) | Enterprise corporate (2) | 2,092 | | | 3,656 | | | 3,890 | | | 7,565 | | Enterprise corporate (2) | 1,983 | | | 2,092 | | | 4,176 | | | 3,890 | |
Total consolidated depreciation and amortization | Total consolidated depreciation and amortization | $ | 8,859 | | | $ | 7,695 | | | $ | 16,754 | | | $ | 15,749 | | Total consolidated depreciation and amortization | $ | 12,644 | | | $ | 8,859 | | | $ | 25,780 | | | $ | 16,754 | |
(1) In the first quarter of 2022, certain revenues and expenses associated with our Latin America businesses previously reported in our ‘Americas’ segment were shifted into the ‘EMEA’ segment to better align with how we manage our distributor business. To reflect this change, we renamed our ‘Americas’ segment to ‘North America’ and renamed our ‘EMEA’ segment to ‘EMEALA.’ As a result of these changes, the previously reported amounts for revenues, income from operations, and depreciation and amortization for the three and six months ended June 30, 2021 have been revised to conform to current period presentation. See the ‘Impacts of segment composition change’ table below for more information.
(2) In the first quarter of 2022, as a result of the Acquisition, all costs previously reported in “Unallocated corporate and other” were recast between ‘Brand corporate’ costs associated with the Crocs Brand and ‘Enterprise corporate’ costs, each of which is defined in the section preceding the above table. As a result of these changes, the previously reported amounts for income from operations and depreciation
and amortization for the three and six months ended June 30, 2021 have been revised to conform to current period presentation. See the ‘Impacts of brand vs. enterprise recast’ table below for more information.
(3) We acquired HEYDUDE on February 17, 2022 and in connection therewith added the HEYDUDE Brand as a new operating segment. Therefore, the amounts shown above for the six months ended June 30, 2022 represent results during the partial period beginning on the Acquisition DateFebruary 17, 2022 through June 30, 2022, and there are no comparative amounts for the three and six months ended June 30, 2021.2022.
Impact to Second Quarter 2021, Third Quarter 2021, full year 2021, and full year 2020 of segment composition changes:
Impacts of segment composition change associated with Latin America:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Second Quarter 2021 | | Third Quarter 2021 | | | | |
| Three Months Ended June 30, 2021 | | Six Months Ended June 30, 2021 | | Three Months Ended September 30, 2021 | | Nine Months Ended September 30, 2021 | | Year Ended December 31, 2021 | | Year Ended December 31, 2020 |
| (in thousands) |
Impact on revenues: | | | | | | | | | | | |
Americas (now “North America”) | $ | (12,528) | | | $ | (21,670) | | | $ | (18,162) | | | $ | (39,832) | | | $ | (53,121) | | | $ | (31,073) | |
EMEA (now “EMEALA”) | 12,528 | | | 21,670 | | | 18,162 | | | 39,832 | | | 53,121 | | | 31,073 | |
| | | | | | | | | | | |
Impact on income from operations: | | | | | | | | | | | |
Americas (now “North America”) | $ | (4,601) | | | $ | (7,975) | | | $ | (8,714) | | | $ | (16,689) | | | $ | (22,587) | | | $ | (9,599) | |
EMEA (now “EMEALA”) | 4,601 | | | 7,975 | | | 8,714 | | | 16,689 | | | 22,587 | | | 9,599 | |
| | | | | | | | | | | |
Impact on depreciation and amortization: | | | | | | | | | | | |
Americas (now “North America”) | $ | (19) | | | $ | (37) | | | $ | (20) | | | $ | (57) | | | $ | (78) | | | $ | (75) | |
EMEA (now “EMEALA”) | 19 | | | $ | 37 | | | 20 | | | 57 | | | 78 | | | 75 | |
Impacts of brand vs. enterprise recast:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Second Quarter 2021 | | Third Quarter 2021 | | | | |
| Three Months Ended June 30, 2021 | | Six Months Ended June 30, 2021 | | Three Months Ended September 30, 2021 | | Nine Months Ended September 30, 2021 | | Year Ended December 31, 2021 | | Year Ended December 31, 2020 |
| (in thousands) |
Impacts on income from operations: | | | | | | | | | | | |
Brand corporate | $ | (21,393) | | | $ | (41,401) | | | $ | (27,992) | | | $ | (69,393) | | | $ | (100,391) | | | $ | (92,833) | |
Enterprise corporate | (44,869) | | | (75,002) | | | (45,140) | | | (120,142) | | | (178,330) | | | (115,299) | |
| | | | | | | | | | | |
Unallocated corporate and other | 66,262 | | | 116,403 | | | 73,132 | | | 189,535 | | | 278,721 | | | 208,132 | |
| | | | | | | | | | | |
Impacts on depreciation and amortization: | | | | | | | | | | | |
Brand corporate | $ | 2,726 | | | $ | 5,475 | | | $ | 135 | | | $ | 5,610 | | | $ | 5,827 | | | $ | 8,473 | |
Enterprise corporate | 3,656 | | | 7,565 | | | 3,766 | | | 11,331 | | | 15,045 | | | 13,750 | |
| | | | | | | | | | | |
Unallocated corporate and other | (6,382) | | | (13,040) | | | (3,901) | | | (16,941) | | | (20,872) | | | (22,223) | |
15. LEGAL PROCEEDINGS
For legal claims and disputes, we have accrued insignificant estimated losses within ‘Accrued expenses and other liabilities’ in the condensed consolidated balance sheet as of June 30, 2022. As we are able, we estimate reasonably possible losses or a range of reasonably possible losses. As of June 30, 2022, we estimated that reasonably possible losses associated with these claims and other disputes could potentially exceed amounts accrued by an insignificant amount.
Although we are subject to other litigation from time to time in the ordinary course of business, including employment, intellectual property, and product liability claims, we are not party to any other pending legal proceedings that we believe would reasonably have a material adverse impact on our business, financial results, and cash flows.
16.14. ACQUISITION OF HEYDUDE
On February 17, 2022, (the “Acquisition Date”), we acquired 100% of the equity of HEYDUDE, pursuant to the SPA. HEYDUDE is engaged in the business of distributing and selling casual footwear under the brand name “HEYDUDE.” The Acquisition allowshas allowed us to diversify and expand our business by adding a second brand to the Crocs, Inc. portfolio.
The aggregate preliminary purchase price at the closing of the Acquisition was $2.3 billion. We paid aggregate consideration of $2.05 billion in cash (the “Cash Consideration”), subject to adjustment based on, among other things, the cash, indebtedness, transaction expenses, and working capital of the companies comprising HEYDUDE and their respective subsidiaries as of the Acquisition Date, and issued 2,852,280 shares of the Company’s common stock to one of the sellers (the “Equity Consideration Shares”). The Equity Consideration Shares arewere subject to a lock-up period beginning on the Acquisition Date, and continuing to, and including, the date that is 12 months after the Acquisition Date, provided that (a) on the date that is six months after the Acquisition Date, 50%which has since expired so all of the Equity Consideration Shares will be released from the lock-up, and (b) on the date that is twelve months after the Acquisition Date, the remaining 50% of the Equity Consideration Shares will behave been released from the lock-up. In the three months ended June 30, 2022, theThe purchase price paid to the sellers was finalized.is final.
The Cash Consideration was financed via the Company’s entry into the $2.0 billion Term Loan B Facility and $50.0 million of borrowings under the Revolving Facility. As a result of the Acquisition, HEYDUDE has becomebecame wholly owned by Crocs.Crocs, Inc. Accordingly, the results of HEYDUDE are included in our condensed consolidated financial statements from the Acquisition Date and are reported in the HEYDUDE Brand operating segment. HEYDUDE contributed revenue of $347.3 million and income from operations of $57.3 million from the Acquisition Date through June 30, 2022.
Purchase Price Allocation
The Acquisition was accounted for in accordance with the ASC Topic 805 Business Combinations. As a result, we have applied acquisition accounting, which requires, among other things, that the assets acquired and liabilities assumed be recognized at their estimated fair values as of the Acquisition Date. For certain assets and liabilities, those fair values were consistent with historical carrying values. The fair value of inventory was determined using both a market approach and a cost approach.With respect to intangible assets, the estimated fair value was based on the Multi Period Excess Earnings approach for the trademark and the distributor method for the customer relationships. These models used primarily Level 2 and Level 3 inputs, including an estimate of future revenues, future cash flows, and discount rates.
The following table summarizes the preliminaryfinal allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed on the Acquisition Date:
| | | | | | |
| February 17, 2022 | |
| (in thousands) | |
Cash and cash equivalents | $ | 6,232 | | |
Accounts receivable, net | 69,03168,698 | | |
Inventories(1) | 176,000155,773 | | |
Prepaid expenses and other assets | 2,9777,880 | | |
Intangible assets(2) | 1,780,000 | | |
Goodwill(3) | 712,668710,034 | | |
Right-of-use assets | 2,844 | | |
Accounts payable | (28,388)(30,017) | | |
Accrued expenses and other liabilities(4) | (38,780)(18,860) | | |
Income taxes payable(5) | (30,572) | | |
Long-term deferred tax liability(5) | (312,656) | | |
Long-term income taxes payable(5) | (13,004) | | |
Operating lease liabilities | (2,843) | | |
Net assets acquired(6) | $ | 2,323,509 | | |
(1) Includes an increase of $4.7 million due to a valuation adjustment during the three months ended June 30, 2022.
(2) Includes a decrease of $90.0 million due to a valuation adjustment during the three months ended June 30, 2022 related to customer relationships.
(3) During the three months ended June 30, 2022, goodwill increased $72.2 million, $65.6 million of which relates to the valuation and tax adjustments described in footnotes (1), (2), (4), and (5), and $6.6 million of which relates to a working capital adjustment, as described in footnote (6).
(4) Includes a net decrease of $0.8 million made during the three months ended June 30, 2022, comprised of a valuation adjustment of $1.5 million related to the acquired loyalty program and a tax adjustment of $0.7 million.
(5) Includes the impact of tax adjustments: a decrease of $2.4 million to income taxes payable, a decrease of $17.1 million to long-term deferred tax liability, and an increase of $0.6 million to long-term income taxes payable.
(6) During the three months ended June 30, 2022, the purchase price consideration was increased by $6.6 million associated with a working capital adjustment.
The purchase consideration for the Acquisition is preliminary. Valuation by management of certain assets and liabilities, is still in process, and therefore, the actual fair values may vary significantly from these preliminary estimates. Final valuations are expected to be completed within one year of the Acquisition Date.
Intangible Assets
The components of intangible assets acquired in connection with the Acquisition were as follows:
| | | | | | | | | | | |
| Weighted-Average Useful Life | Amortization Method | Estimated Fair Value |
| | | (in thousands) |
Customer relationships | 15 | Straight-line | $ | 210,000 | |
Trademark | Indefinite | — | 1,570,000 | |
Total intangible assets | | | $ | 1,780,000 | |
As a result of the increase in fair value of the identifiable intangible assets, the deferred tax liability was increased by $309.4 million at the Acquisition Date.
Goodwill
The excess of the purchase price over the fair value of the acquired business's net assets represents goodwill. The goodwill amount of $712.7$710.0 million at June 30, 20222023 includes an aggregate adjustment of $72.2$3.3 million recorded in the three months ended June 30, 2022March 31, 2023 as a result of changes to preliminary valuation estimates and a working capital adjustment. estimates. The purchase price allocation was finalized during the three months ended March 31, 2023.
Goodwill largely consists of the acquired workforce and economies of scale resulting from the Acquisition. The total goodwill amount acquired was assigned to the HEYDUDE operating segment. None of the goodwill will be deductible for income tax purposes.
Escrow and Holdback Amounts
Additionally, $125.0 million of the Cash Consideration (the “Escrow Amount”) was placed in an escrow account to partially secure the indemnification obligations of the sellers, whichsellers. The Escrow Amount will be released to the sellers after the date that is 18 months after the Acquisition Date, less any amounts that have been released to compensate the Company as provided in the SPA, afterand any amounts for claims that were noticed prior to the date that is 18 months after the Acquisition Date. No liabilities haveDate but not yet resolved by that date, as provided in the SPA. As of June 30, 2023, certain receivables had been recorded related to the Escrow Amount. Further, $8.5 million of the Cash Consideration (the “Adjustment Holdback Amount”) was held back and retained as security (but not as the sole source of recovery) for any downward adjustments to the purchase price made in accordance with the SPA. During the three monthsyear ended June 30,December 31, 2022, the Adjustment Holdback Amount was paid to the sellers.
Acquisition-related Costs
Costs incurred to complete the Acquisition are expensed as incurred and included in ‘Selling, general, and administrative expenses’ in our condensed consolidated statement of operations.income. During the six months ended June 30, 2023, no Acquisition-related costs were recognized. During the six months ended June 30, 2022, there were approximately $20.6 million of Acquisition-related costs were recognized. These costs represent legal, professional, and transaction fees.
Unaudited Pro Forma Information
The following unaudited pro forma financial information for the three and six months ended June 30, 2022 and 2021 combines the historical results of Crocs and HEYDUDE, assuming that the companies were combined as of January 1, 2021 and include business combination accounting effects from the Acquisition, including amortization charges from acquired intangible assets, adjustments to the fair value of inventory, interest expense on the financing transactions used to fund the Acquisition, and Acquisition-related transaction costs and tax-related effects. The pro forma information as presented below is for informational purposes only and is not indicative of the results of operations that would have been achieved if the Acquisition had taken place on January 1, 2021.
| | | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended June 30, | Six Months Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2022 |
| | (in thousands) | | (in thousands) |
Revenues | Revenues | $ | 964,558 | | | $ | 759,417 | | | $ | 1,715,035 | | | $ | 1,333,016 | | Revenues | $ | 964,558 | | | $ | 1,715,035 | |
Net income | Net income | 187,630 | | | 334,980 | | | 302,722 | | | 341,692 | | Net income | 187,630 | | | 302,722 | |
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Business Overview
Crocs, Inc. and our consolidated subsidiaries (collectively the “Company,” “Crocs,” “we,” “us,” or “our”) are engaged in the design, development, worldwide marketing, distribution, and sale of casual lifestyle footwear and accessories for women, men, and children. We strive to be the world leader in innovative casual footwear for women, men, and children, combining comfort and style with a value that consumers want.
Known or Anticipated Trends
Based on our recent operating results and current perspectives on our operating environment, we anticipate certain trends will continue to impact our operating results:
•OnWe acquired HEYDUDE in February 17, 2022, (the “Acquisition Date”), we acquired (the “Acquisition”) 100% of the equity of a privately-owned casual footwear brand business (“HEYDUDE”), pursuant to a securities purchase agreement (the “SPA”) entered into on December 22, 2021. HEYDUDE is engaged in the business of distributing and selling casual footwear, including footwear under the brand name “HEYDUDE.” On the Acquisition Date, we purchased all of the issued and outstanding equity securities of HEYDUDE. The aggregate preliminary purchase price at2022. Since the closing of the Acquisition was $2.3 billion.acquisition, we have acquired new customers and gained share in strategic wholesale accounts. We paid aggregate consideration of $2.05 billion in cash (the “Cash Consideration”), subject to adjustment based on, among other things, the cash, indebtedness, transaction expenses, and working capital of the companies comprising HEYDUDE and their respective subsidiaries as of the Acquisition Date, and issued 2,852,280 shares of our common stock to one of the sellers, which shares are subject to a lock-up. The Cash Consideration was financed via our entry into the $2.0 billion Term Loan B Facility (as defined below) and $50.0 million of borrowings under our Revolving Facility (as defined below). The Acquisition has enabled us to further diversify our product portfolio under two brands. We intend to leverage our global presence, innovative marketing, and scale infrastructure to grow HEYDUDE and to create significant shareholder value. For more information on the Acquisition, refer to Note 16 — Acquisition of HEYDUDE in the accompanying notes to the condensed consolidated financial statements included in Part I - Item 1. Financial Statements of this Quarterly Report on Form 10-Q. The results reported forhave also expanded the HEYDUDE Brand herein representinternationally, specifically in Europe, where we have begun testing in a few direct markets, including the partial period beginningUnited Kingdom, Germany, and the Netherlands, as well as a few distributor markets. Additionally, we continue to make progress towards our two main integration efforts for HEYDUDE in 2023, the construction of a new distribution center in Las Vegas, Nevada and the implementation of a new Enterprise Resource Planning (“ERP”) system. While we still anticipate annual revenue growth for the brand compared to the prior year, we are seeing some headwinds from non-comparable sales due to rapid expansion to U.S. strategic customers in 2022 and the discontinuation of relationships with smaller customers, a more cautious wholesale partner based on the Acquisition Date through June 30, 2022 (the “Partial Period”).overall market outlook, and constrained distribution capabilities as a result of our ERP and warehouse transition.
•To supportWhile overall we have seen evidence as to the long-termunderlying strength and growth potential of both the Crocs and HEYDUDE brands, we planremain cautious relative to continue leveraging selling, general and administrative expenses (“SG&A”) asconsumer confidence. However, amidst a percent of revenues, while maintaining investments in certain key areas, including marketing and digital commerce. We alsomore challenging economic landscape, we believe our abilitywe are well positioned to leverage Supply Chain, Information Technology, Finance, HR, and Legal resources across both brands will allow us to manage SG&A effectively in the future.gain market share.
•Global industry-wide logistics challenges, global inflation, and foreignForeign currency fluctuations resulting in a stronger U.S. Dollar (“USD”) have impacted, and we expect will continue to impact, our business, contributing to, incremental freightamong other things, increased cost of sales. A stronger USD also results in costs increased wages, particularlyfor foreign goods purchased in our distribution centers,USD but recognized in foreign currencies (“purchasing power”) that are unfavorable.
•Our liquidity position remains strong with $166.2 million in cash and increased raw materials costs. Partial COVID-19-related closurescash equivalents and $563.7 million in Vietnam in the first quarteravailable borrowing capacity as of 2022 and in China in the second quarter of 2022 also negatively impacted our supply chain.June 30, 2023. In the six months ended June 30, 2022,2023, we incurred air freight costspaid down $299.1 million of approximately $57net borrowings, reducing total borrowings to $2.03 billion as of June 30, 2023. We also resumed our share repurchase program in July 2023, repurchasing $50.0 million of our $75 million plan for 2022, which has helped mitigate supply delays as a result of Vietnam closures. We expect the situation to remain fluid as COVID-19 break-out rates, including any deterioration in circumstances related to COVID-19 variants, and foreign exchange rates fluctuate, and inflationary pressure continues.
•Our inventories balance at June 30, 2022 was $501.5 million. Similar to the rest of the industry, our in-transit inventory levels remain elevated as a result of longer transit times. Additionally, inventories in the U.S. are higher as a result of a slower than anticipated growth rate in the country.common stock.
Use of Non-GAAP Financial Measures
In addition to financial measures presented on the basis of accounting principles generally accepted in the United States of America (“U.S. GAAP”), we present certain information related to our results of operations through “constant currency,” which is a non-GAAP financial measure and should be viewed as a supplement to our results of operations and presentation of reportable segments under U.S. GAAP. Constant currency represents current period results that have been retranslated using prior year average foreign exchange rates for the comparative period to enhance the visibility of the underlying business trends, excluding the impact of foreign currency exchange rates on reported amounts.
Management uses constant currency to assist in comparing business trends from period to period on a consistent basis in communications with the Board, stockholders, analysts, and investors concerning our financial performance. We believe constant currency is useful to investors and other users of our condensed consolidated financial statements as an additional tool to evaluate operating performance and trends. Investors should not consider constant currency in isolation from, or as a substitute for, financial information prepared in accordance with U.S. GAAP.
Second Quarter 20222023 Financial and Operational Highlights
Revenues were $964.6$1,072.4 million for the second quarter of 2022, a 50.5%2023, an 11.2% increase compared to the second quarter of 2021.2022. The increase was due to the net effects of: (i) the addition of HEYDUDE Brand revenues of $232.4 million as a result of the Acquisition,higher unit sales volume in both brands, which increased revenues by 36.3%$92.1 million, or 9.5%; (ii) higher Crocs Brand average selling prices, driven primarily by higher pricing,price on a constant currency basis (“ASP”), which increased revenues by $65.3$23.7 million, or 10.2%; (iii) higher2.5%, driven primarily by increased pricing and favorable channel mix for the Crocs Brand, unit sales volumes, whichpartially offset by increased revenues by $58.7 million, or 9.2%;promotions for the HEYDUDE Brand; and (iv)(iii) unfavorable changes in exchange rates, for the Crocs Brand, which decreased revenues by $32.6$8.0 million, or 5.1%0.8%.
The following were significant developments affecting our businesses and capital structure during the three months ended June 30, 2022:2023:
•We acquired HEYDUDE on February 17, 2022, which added revenues of $232.4 million in the three months ended June 30, 2022. This represented 24.1% ofgrew revenues in both brands, with the quarter. The HEYDUDE Brand became a new reportable operating segment as oflargest gains over prior year in our direct-to-consumer (“DTC”) channel. For the Acquisition Date.
•We grew Crocs Brand, revenues, despite significant foreign currency headwinds and COVID-19 related shutdowns impacting our supply chainthe increase in China. Thisrevenues was led by our EMEALAAsia Pacific segment, which grew revenues by 32.8%33.2%, or 48.4% on a constant currency basis. Our North America segment revenues grew by 7.6%, or 7.8%39.0% on a constant currency basis, whileand our Asia PacificNorth America segment, which grew revenues grew by 17.4%12.2%, or 27.6%12.5% on a constant currency basis, compared to the second quarter of 2021.2022. Revenues for our EMEALA segment slightly decreased by 0.2%, or 1.4% on a constant currency basis. HEYDUDE Brand revenues increased 3.0%.
•Footwear unitsWe sold 33.0 million pairs of shoes for the Crocs Brand in the second quarter of 2022 were 32.4 million pairs worldwide,2023, an increase of 3.3 million1.8% from the second quarter of 2021.2022. We sold 8.18.3 million pairs of shoes for the HEYDUDE Brand in the second quarter of 2023, an increase of 3.6% compared to the second quarter of 2022.
•Gross margin was 51.6%57.9%, a decreasean increase of 1,010630 basis points from last year’s second quarter. Gross margin forThis was in part due to higher air freight incurred in the Crocs Brand was 57.7%, a decrease of 400prior year due to supply chain disruptions, as well as 360 basis points from last year’s second quarter, as a resultadjustments in the prior year to the fair value of higher freightinventory costs due to continued supply chain challenges and ongoing global inflation, which also impacts material costs, offset in part by higher pricing and product mix. Gross margin forupon the HEYDUDE Brand was 32.4%. This was lower thanclose of the Crocs Brand as a resultacquisition of unfavorable channel mix and higher freight rates, as we work to leverage Crocs Brand freight contracts for the HEYDUDE Brand. The HEYDUDE gross margin is also inclusive of an approximately 1,470 basis points unfavorable impact from a non-cash step-up of acquired HEYDUDE inventory to fair value.HEYDUDE.
•Selling, general and administrative expenses (“SG&A&A”) was $249.8$302.8 million compared to $199.9$249.8 million in the second quarter of 2021,2022, as a result of investments in headcounttalent in both brands and an increase in marketing as we continue to grow the business, costs related to the integration of HEYDUDE, and incremental operating costs associated with operating the HEYDUDE Brand.expense. As a percent of revenues, SG&A decreasedincreased to 25.9%28.2% of revenues compared to 31.2%25.9% of revenues in the second quarter of 2021, largely driven by the HEYDUDE Brand, which carried lower SG&A costs as a percentage of revenue than the Crocs Brand, as well as continued SG&A rate improvement in the Crocs Brand compared to the same period in 2021.2022.
•Income from operations increased to $248.0$318.5 million from $195.3$248.0 million in last year’s second quarter. Net income was $160.3$212.4 million, or $2.58$3.39 per diluted share, compared to $319.0$160.3 million, or $4.93$2.58 per diluted share, in last year’s second quarter.
Results of Operations | | | Three Months Ended June 30, | | Six Months Ended June 30, | | % Change Favorable (Unfavorable) | | Three Months Ended June 30, | | Six Months Ended June 30, | | % Change Favorable (Unfavorable) |
| | | 2022 | | 2021 | | 2022 | | 2021 | | Q2 2022-2021 | | YTD 2022-2021 | | 2023 | | 2022 | | 2023 | | 2022 | | Q2 2023-2022 | | YTD 2023-2022 |
| | (in thousands, except per share, margin, and average selling price data) | | (in thousands, except per share, margin, and average selling price data) |
Revenues | Revenues | $ | 964,581 | | | $ | 640,773 | | | $ | 1,624,729 | | | $ | 1,100,871 | | | 50.5 | % | | 47.6 | % | Revenues | $ | 1,072,367 | | | $ | 964,581 | | | $ | 1,956,533 | | | $ | 1,624,729 | | | 11.2 | % | | 20.4 | % |
Cost of sales | Cost of sales | 466,848 | | | 245,592 | | | 802,072 | | | 452,471 | | | (90.1) | % | | (77.3) | % | Cost of sales | 451,060 | | | 466,848 | | | 858,856 | | | 802,072 | | | 3.4 | % | | (7.1) | % |
Gross profit | Gross profit | 497,733 | | | 395,181 | | | 822,657 | | | 648,400 | | | 26.0 | % | | 26.9 | % | Gross profit | 621,307 | | | 497,733 | | | 1,097,677 | | | 822,657 | | | 24.8 | % | | 33.4 | % |
Selling, general and administrative expenses | Selling, general and administrative expenses | 249,769 | | | 199,859 | | | 456,016 | | | 328,392 | | | (25.0) | % | | (38.9) | % | Selling, general and administrative expenses | 302,818 | | | 249,769 | | | 544,260 | | | 456,016 | | | (21.2) | % | | (19.4) | % |
Income from operations | Income from operations | 247,964 | | | 195,322 | | | 366,641 | | | 320,008 | | | 27.0 | % | | 14.6 | % | Income from operations | 318,489 | | | 247,964 | | | 553,417 | | | 366,641 | | | 28.4 | % | | 50.9 | % |
Foreign currency losses, net | (1,202) | | | (117) | | | (722) | | | (621) | | | (927.4) | % | | (16.3) | % | |
Foreign currency gains (losses), net | | Foreign currency gains (losses), net | 551 | | | (1,202) | | | 148 | | | (722) | | | 145.8 | % | | 120.5 | % |
Interest income | Interest income | 86 | | | 71 | | | 188 | | | 98 | | | 21.1 | % | | 91.8 | % | Interest income | 548 | | | 86 | | | 719 | | | 188 | | | 537.2 | % | | 282.4 | % |
Interest expense | Interest expense | (32,963) | | | (4,712) | | | (52,215) | | | (6,344) | | | (599.6) | % | | (723.1) | % | Interest expense | (43,063) | | | (32,963) | | | (85,700) | | | (52,215) | | | (30.6) | % | | (64.1) | % |
Other income (expense), net | Other income (expense), net | 419 | | | 2 | | | (528) | | | 13 | | | 20,850.0 | % | | (4,161.5) | % | Other income (expense), net | 717 | | | 419 | | | 424 | | | (528) | | | 71.1 | % | | 180.3 | % |
Income before income taxes | Income before income taxes | 214,304 | | | 190,566 | | | 313,364 | | | 313,154 | | | 12.5 | % | | 0.1 | % | Income before income taxes | 277,242 | | | 214,304 | | | 469,008 | | | 313,364 | | | 29.4 | % | | 49.7 | % |
Income tax expense (benefit) | 53,989 | | | (128,388) | | | 80,289 | | | (104,198) | | | (142.1) | % | | (177.1) | % | |
Income tax expense | | Income tax expense | 64,830 | | | 53,989 | | | 107,053 | | | 80,289 | | | (20.1) | % | | (33.3) | % |
Net income | Net income | $ | 160,315 | | | $ | 318,954 | | | $ | 233,075 | | | $ | 417,352 | | | (49.7) | % | | (44.2) | % | Net income | $ | 212,412 | | | $ | 160,315 | | | $ | 361,955 | | | $ | 233,075 | | | 32.5 | % | | 55.3 | % |
Net income per common share: | Net income per common share: | | | | | | | | | Net income per common share: | | | | | | | | |
Basic | Basic | $ | 2.60 | | | $ | 5.02 | | | $ | 3.84 | | | $ | 6.47 | | | (48.2) | % | | (40.6) | % | Basic | $ | 3.42 | | | $ | 2.60 | | | $ | 5.84 | | | $ | 3.84 | | | 31.5 | % | | 52.1 | % |
Diluted | Diluted | $ | 2.58 | | | $ | 4.93 | | | $ | 3.79 | | | $ | 6.35 | | | (47.7) | % | | (40.3) | % | Diluted | $ | 3.39 | | | $ | 2.58 | | | $ | 5.78 | | | $ | 3.79 | | | 31.4 | % | | 52.5 | % |
| Gross margin (1) | Gross margin (1) | 51.6 | % | | 61.7 | % | | 50.6 | % | | 58.9 | % | | (1,010) | bp | | (830) | bp | Gross margin (1) | 57.9 | % | | 51.6 | % | | 56.1 | % | | 50.6 | % | | 630 | bp | | 550 | bp |
Operating margin (1) | Operating margin (1) | 25.7 | % | | 30.5 | % | | 22.6 | % | | 29.1 | % | | (480) | bp | | (650) | bp | Operating margin (1) | 29.7 | % | | 25.7 | % | | 28.3 | % | | 22.6 | % | | 400 | bp | | 570 | bp |
Footwear unit sales: | Footwear unit sales: | | Footwear unit sales: | |
Crocs Brand | Crocs Brand | 32,396 | | | 29,085 | | | 58,011 | | | 54,992 | | | 11.4 | % | | 5.5 | % | Crocs Brand | 32,975 | | | 32,396 | | | 63,627 | | | 58,011 | | | 1.8 | % | | 9.7 | % |
HEYDUDE Brand (3) | HEYDUDE Brand (3) | 8,086 | | | — | | | 12,065 | | | — | | | — | % | | — | % | HEYDUDE Brand (3) | 8,290 | | | 8,002 | | | 17,220 | | | 12,106 | | | 3.6 | % | | 42.2 | % |
Average footwear selling price - nominal basis (2): | Average footwear selling price - nominal basis (2): | | Average footwear selling price - nominal basis (2): | |
Crocs Brand | Crocs Brand | $ | 22.39 | | | $ | 21.84 | | | $ | 21.82 | | | $ | 19.86 | | | 2.5 | % | | 9.9 | % | Crocs Brand | $ | 25.01 | | | $ | 22.39 | | | $ | 23.08 | | | $ | 21.82 | | | 11.7 | % | | 5.8 | % |
HEYDUDE Brand (3) | HEYDUDE Brand (3) | $ | 28.74 | | | $ | — | | | $ | 28.78 | | | $ | — | | | — | % | | — | % | HEYDUDE Brand (3) | $ | 28.88 | | | $ | 29.04 | | | $ | 27.57 | | | $ | 28.69 | | | (0.6) | % | | (3.9) | % |
(1) Changes for gross margin and operating margin are shown in basis points (“bp”).
(2) Average footwear selling price is calculated as footwear and charms revenues divided by footwear units, as applicable.
(3) We acquired HEYDUDE on February 17, 2022.2022 and, as a result, added the HEYDUDE Brand as a new operating segment. Therefore, the amounts shown above for the six months ended June 30, 2022 represent results during the Partial Period, as defined below. Additionally, ‘Footwear unit sales’ and there are no comparative amounts‘Average footwear selling price - nominal basis’ for the HEYDUDE Brand have been revised by an immaterial amount in the three and six months ended June 30, 2021.2022 as a result of a calculation update.
Revenues By Channel
| | | Three Months Ended June 30, | | Six Months Ended June 30, | | % Change | | Constant Currency % Change (1) | | Three Months Ended June 30, | | Six Months Ended June 30, | | % Change | | Constant Currency % Change (1) |
| | Favorable (Unfavorable) | | Favorable (Unfavorable) |
| | 2022 | | 2021 | | 2022 | | 2021 | | Q2 2022-2021 | | YTD 2022-2021 | | Q2 2022-2021 | | YTD 2022-2021 | | 2023 | | 2022 | | 2023 | | 2022 | | Q2 2023-2022 | | YTD 2023-2022 | | Q2 2023-2022 | | YTD 2023-2022 |
| | (in thousands) | | (in thousands) |
Crocs Brand: | Crocs Brand: | | | | | | | | | | Crocs Brand: | | | | | | | | | |
Wholesale | Wholesale | $ | 392,511 | | | $ | 307,327 | | | $ | 736,768 | | | $ | 597,366 | | | 27.7 | % | | 23.3 | % | | 35.2 | % | | 29.2 | % | Wholesale | $ | 407,342 | | | $ | 392,511 | | | $ | 817,905 | | | $ | 736,768 | | | 3.8 | % | | 11.0 | % | | 4.6 | % | | 12.9 | % |
Direct-to-consumer | Direct-to-consumer | 339,705 | | | 333,446 | | | 540,673 | | | 503,505 | | | 1.9 | % | | 7.4 | % | | 4.8 | % | | 9.8 | % | Direct-to-consumer | 425,608 | | | 339,705 | | | 663,823 | | | 540,673 | | | 25.3 | % | | 22.8 | % | | 26.8 | % | | 24.4 | % |
Total Crocs Brand | Total Crocs Brand | 732,216 | | | 640,773 | | | 1,277,441 | | | 1,100,871 | | | 14.3 | % | | 16.0 | % | | 19.4 | % | | 20.3 | % | Total Crocs Brand | 832,950 | | | 732,216 | | | 1,481,728 | | | 1,277,441 | | | 13.8 | % | | 16.0 | % | | 14.9 | % | | 17.8 | % |
HEYDUDE Brand (2): | HEYDUDE Brand (2): | | | | | HEYDUDE Brand (2): | | | | |
Wholesale | Wholesale | 162,499 | | | — | | | 249,418 | | | — | | | — | % | | — | % | | — | % | | — | % | Wholesale | 148,825 | | | 162,499 | | | 316,688 | | | 249,418 | | | (8.4) | % | | 27.0 | % | | (8.5) | % | | 27.4 | % |
Direct-to-consumer | Direct-to-consumer | 69,866 | | | — | | | 97,870 | | | — | | | — | % | | — | % | | — | % | | — | % | Direct-to-consumer | 90,592 | | | 69,866 | | | 158,117 | | | 97,870 | | | 29.7 | % | | 61.6 | % | | 29.7 | % | | 61.6 | % |
Total HEYDUDE Brand | Total HEYDUDE Brand | 232,365 | | | — | | | 347,288 | | | — | | | — | % | | — | % | | — | % | | — | % | Total HEYDUDE Brand | 239,417 | | | 232,365 | | | 474,805 | | | 347,288 | | | 3.0 | % | | 36.7 | % | | 2.9 | % | | 36.9 | % |
Total consolidated revenues (2) | Total consolidated revenues (2) | $ | 964,581 | | | $ | 640,773 | | | $ | 1,624,729 | | | $ | 1,100,871 | | | 50.5 | % | | 47.6 | % | | 55.6 | % | | 51.9 | % | Total consolidated revenues (2) | $ | 1,072,367 | | | $ | 964,581 | | | $ | 1,956,533 | | | $ | 1,624,729 | | | 11.2 | % | | 20.4 | % | | 12.0 | % | | 21.8 | % |
|
(1) Reflects year over year change as if the current period results were in constant currency, which is a non-GAAP financial measure. See ‘Reconciliation“Use of GAAP Measures to Non-GAAP Measures’Financial Measures” above for more information.
(2) We acquired HEYDUDE on February 17, 2022.2022 and, as a result, added the HEYDUDE Brand as a new operating segment. Therefore, the amounts shown above for the six months ended June 30, 2022 represent results during the Partial Period,Period.
The primary drivers of changes in revenue were:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2023 vs. 2022 |
| Volume | | Price (1) | | Foreign Exchange | | Total |
| $ Change | | % Change | | $ Change | | % Change | | $ Change | | % Change | | $ Change | | % Change |
| (in thousands) |
Total revenues | $ | 92,142 | | | 9.5 | % | | $ | 23,672 | | | 2.5 | % | | $ | (8,028) | | | (0.8) | % | | $ | 107,786 | | | 11.2 | % |
(1) The change due to price is based on the change in ASP, as defined earlier in this section.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2023 vs. 2022 (1) |
| Volume | | Price (2) | | Foreign Exchange | | Total |
| $ Change | | % Change | | $ Change | | % Change | | $ Change | | % Change | | $ Change | | % Change |
| (in thousands) |
Total revenues | $ | 340,413 | | | 21.0 | % | | $ | 14,768 | | | 0.9 | % | | $ | (23,377) | | | (1.5) | % | | $ | 331,804 | | | 20.4 | % |
(1) We acquired HEYDUDE on February 17, 2022 and, there are no comparativeas a result, added the HEYDUDE Brand as a new operating segment. Therefore, the amounts shown above for total revenues include a comparison of HEYDUDE results for the three and six months ended June 30, 2021.2023 to results during the Partial Period in 2022.
(2) The change due to price is based on the change in ASP.
Revenues. In the three months ended June 30, 2022,2023, revenues increased compared to the same period in 2021.2022. This was driven by (i) the addition of HEYDUDE Brand revenues of $232.4 million, (ii)primarily due to higher average selling price on a constant currency basis (“ASP”)volume in both brands. Higher ASP in the Crocs Brand, of $65.3 million, or 10.2%,primarily due to increased pricing and favorable channel mix, was partially offset by lower ASP in the HEYDUDE Brand as a result of increased pricing, offset in part by unfavorable channel mix, and (iii) higher volume in the Crocs Brand of $58.7 million, or 9.2%, primarily in our Asia Pacific and EMEALA segments. Revenue increased despite unfavorablepromotions. Unfavorable foreign currency headwinds,fluctuations, most significantly in the EuroChinese Yuan and South Korean Won, whichslightly decreased Crocs Brand revenues by $32.6 million, or 5.1%.revenues.
Revenues also increased in the six months ended June 30, 2022,2023, driven by (i)higher volume, driven in part by greater demand for both brands and driven in part by operating HEYDUDE for a full six months in 2023 compared to the additionpartial period from the acquisition date of HEYDUDE Brand revenues of $347.3 million during the Partial Period, (ii) higherFebruary 17, 2022 through June 30, 2022 (the “Partial Period”). Higher ASP in the Crocs Brand, of $174.1 million, or 15.8%, as a result ofprimarily due to increased pricing, in all regions, and (iii) higher volume in the Crocs Brand of $49.8 million, or 4.5%, led by our Asia Pacific and EMEALA segments, offset in part by higher promotions, was partially offset by lower volumesASP in the HEYDUDE Brand as a
result of increased promotions. Unfavorable foreign currency fluctuations, most significantly in the Euro andSouth Korean Won, Chinese Yuan, and Japanese Yen, decreased Crocs Brand revenues by $47.2 million, or 4.3%.revenues.
Cost of sales. HEYDUDE contributed to the majority of the increase in cost of sales, which was in line with its contributions to revenue, and was inclusive of a $34.3 million due to a non-cash step-up of acquired HEYDUDE inventory to fair value. Additionally, inIn the three months ended June 30, 2022,2023, compared to the same period in 2021, higher2022, cost of sales decreased $15.8 million, or 3.4%. This was primarily driven by lower average cost per unit on a constant currency basis (“AUC”) in the Crocs Brand of $44.9$39.6 million, or 18.3%8.5%, was driven mostly by higher materialprimarily due to prior year adjustments of $34.3 million to the fair value of inventory costs upon close of the acquisition of HEYDUDE, and freight costs, driven by inflation impacts as well as air freight used to mitigate supply challenges, and unfavorable purchasing power as a result offavorable foreign currency fluctuations.fluctuations of $8.2 million, or 1.8%. Higher volume in the Crocs Brand of $32.6 million, or 13.3%, also contributed to higher cost of sales, while fluctuations in foreign currency decreasedincreased cost of sales by $13.4$32.0 million, or 5.5%6.9%. In the three months ended June 30, 2023 and 2022, respectively, cost of sales includes $122.8 million and $125.6 million of distribution expenses primarily related to receiving, inspecting, warehousing, and packaging product in owned and third-party warehouses, combined with transportation costs associated with delivering products from distribution centers to wholesale partners, retail stores and end customers.
In the six months ended June 30, 2022,2023, compared to the same period in 2021,2022, cost of sales increased $56.8 million, or 7.1%, due to higher volume of $173.3 million, or 21.6%, offset in part by lower AUC of $99.8 million, or 12.4%, primarily due to prior year adjustments of $62.3 million to the additionfair value of HEYDUDE, which hadinventory costs upon close of the acquisition of HEYDUDE. Favorable foreign currency fluctuations decreased cost of sales in the Partial Period that were in line with its contributions to revenues discussed above, and were inclusive of a $62.3 million non-cash step-up of acquired HEYDUDE inventory to fair value. Higher AUC in the Crocs Brand of $94.1by $16.7 million, or 20.8%, resulted mostly2.1%. In the six months ended June 30, 2023 and 2022, respectively, cost of sales includes $228.0 million and $222.6 million of distribution expenses primarily related to receiving, inspecting, warehousing, and packaging product in owned and third-party warehouses, combined with transportation costs associated with delivering products from higher materialdistribution centers to wholesale partners, retail stores and freight costs, driven by inflation and the use of air freight, and higher volume in the Crocs Brand of $32.0 million, or 7.1%. These increases were partially offset by decreases as a result of foreign currency changes in the Crocs Brand of $20.2 million, or 4.5%.end customers.
Gross profit. Gross margin decreasedincreased in the three months ended June 30, 20222023 to 51.6%,57.9% compared to 61.7%51.6% in the same period in 2021. Gross margin for the Crocs Brand2022. This was 57.7%, comparedin part due to 61.7%higher air freight incurred in the same period in 2021, driven mostly by higher freight costs due to supply chain challenges, which have caused us to use more expensive shipping methods, suchprior year, as air freight, and the impact of global inflation on our supply chain. We have been able to partially mitigate higher AUC with better sales performancewell as a result of higher ASPs, as described above, and favorable product mix. Gross margin for the HEYDUDE Brand was 32.4%, a lower rate than the Crocs Brand as a result of a unfavorable channel mix and higher freight rates, as we
work to leverage Crocs Brand freight contracts for the HEYDUDE Brand. The HEYDUDE gross margin is also inclusive of an approximately 1,470360 basis points unfavorable impact from a non-cash step-upadjustments in the prior year to the fair value of acquired HEYDUDE inventory to fair value.costs upon close of the acquisition of HEYDUDE.
Gross profit increased $102.6$123.6 million, or 26.0%24.8%, mostlyin the three months ended June 30, 2023 compared to the same period in 2022, due to the additionhigher volumes of the HEYDUDE Brand. Additionally, gross profit increased in the Crocs Brand as a result of higher volume of $26.1$60.2 million, or 6.6%12.1%, and the net impact of lower AUC and higher ASP, and higher AUCas described above, of $20.4$63.2 million, or 5.2%12.7%. This was partially offset by insignificant unfavorable foreign currency changes for the Crocs Brand of $19.1 million, or 4.9%. The HEYDUDE Brand contributed to the remainder of the increase.changes.
Gross margin in the six months ended June 30, 20222023 was 50.6%56.1% compared to 58.9%50.6% in 2021. Gross margin for the Crocs Brand2022. This was 56.3%, compared to 58.9% in 2021, due primarily to higher freight costs, as described above, offset in part by higher pricing and product mix. Gross margin for the HEYDUDE Brand was 30.2%, a lower rate than the Crocs Brand, due to unfavorable channel mix and higher freight rates, as we work to leverage Crocs Brand freight contracts for the HEYDUDE Brand. The HEYDUDE gross margin is also inclusive of an approximately 1,790380 basis points unfavorable impact from a non-cash step-upadjustments in the prior year to the fair value of acquiredinventory costs upon close of the acquisition of HEYDUDE, inventory to fair value.as well as higher air freight incurred in the prior year.
Gross profit increased $174.3$275.0 million, or 26.9%33.4%, in the six months ended June 30, 2023 compared to the same period in 2022, primarily as a result of the additionhigher volume of the HEYDUDE Brand, which contributed to over half of the increase, as well as increases in the Crocs Brand due to$167.1 million, or 20.3%, and the net impact of bothlower AUC and higher ASP, and AUCas described above, of $80.0$114.6 million, or 12.3%, and higher volumes of $17.8 million, or 2.8%13.9%. These wereThis was partially offset by unfavorable foreign currency changes in the Crocs Brand of $27.1$6.7 million, or 4.2%0.8%.
Selling, general and administrative expenses. SG&A expenses increased $49.9$53.0 million, or 25.0%21.2%, in the three months ended June 30, 20222023 compared to the same period in 2021.2022. This wasis in part due to an increase in marketing costshigher compensation expense of $16.2$13.9 million the vast majority of which relates to both variable marketing, including variable marketingprimarily associated with HEYDUDE, and additional investmentsan investment in our digital business.talent. There was also an increase in professional services costsmarketing expenses of $10.7$12.5 million due in part to the integration of HEYDUDE, and an increase in sales commissions of $7.6 million, due mostly to HEYDUDE, which used more costly external sales representatives prior to the Acquisition Date. An increase in compensationbad debt expense of $7.1$7.3 million, was driven by investments in employee headcount, including employees associated with HEYDUDE, variable labor costs in distribution centers and retail stores associated with revenue growth. Additionally, this increase includes severance costsprimarily related to prior year collections on previously reserved receivables in Russia that did not recur in the continued shutdown of our direct operations in Russia. Therecurrent year. Additionally, there was also an increase of $19.3 million in facilities expense of $4.4 million driven primarily by lease exitother costs, and penalties associated with the continued shutdown of our direct operations in Russia and duplicate rentincluding variable costs associated with our upcoming headquarters move. Other net costs, includinghigher revenues, information technology costs, increased $3.9 million.and professional services fees.
SG&A expenses increased $127.6$88.2 million, or 38.9%19.4%, during the six months ended June 30, 20222023 compared to the same period in 2021.2022. We have continued to invest in marketing to fuel growth, with an increase of $31.9$32.6 million to SG&A, primarilymostly associated with investments in marketing in the HEYDUDE Brand. Additionally, there were higher compensation costs of $30.7 million associated with variable marketingexpenses related to higher revenues in the DTC channel and investmentsan investment in our digital business. Additionally,talent. Various other costs, of $26.3 million associated with the Acquisitionincluding legal, information technology costs, and related integration, including consulting, legal, and accounting fees, as well as compensation-related costs associated with the integration, contributed to the increase. Other increases in compensation costs of $18.0 million were due to increased employee headcount as we have grown the Company over the last year. Increases in professional services costs of $15.0 million were due to variable costs associated with revenue growth, supply chain projects, and higher legal costs associatedrevenues, also increased SG&A by $50.0 million. These increases were offset in part by $25.1 million of lower costs in 2023 associated with ongoing defense of our intellectual property. There was an increase in sales commissions of $12.0 million, due mostly tothe prior year HEYDUDE which used more costly external representatives prior to the Acquisition,acquisition and were net increases in other costs, including facilities expense and information technology costs, of $24.4 million.integration.
Foreign currency losses,gains (losses), net. Foreign currency losses,gains (losses), net, consist of realized and unrealized foreign currency gains and losses from the remeasurement and settlement of monetary assets and liabilities denominated in non-functional currencies as well as realized and unrealized gains and losses on foreign currency derivative instruments. During the three months ended June 30, 2022,2023, we recognized realized and unrealized net foreign currency lossesgains of $1.2$0.6 million compared to losses of $0.1$1.2 million during the three months ended June 30, 2021. 2022.
During the six months ended June 30, 2022,2023, we recognized realized and unrealized net foreign currency lossesgains of $0.7$0.1 million compared to losses of $0.6$0.7 million during the six months ended June 30, 2021.2022.
Income tax expense (benefit).expense. During the three months ended June 30, 2022,2023, income tax expense increased $182.4$10.8 million compared to the same period in 2021.2022. The effective tax rate for the three months ended June 30, 20222023 was 25.2%23.4% compared to an effective tax rate of (67.4)%25.2% for the same period in 2021,2022, a 92.6% increase.1.8% decrease. This increasedecrease in the effective tax rate was primarily driven by a shift in the prior year releasemix of valuation allowances resulting from the enactment of a tax law change.Company's domestic and foreign earnings. Our effective income tax rate, for each period presented, also differs from the federal U.S. statutory rate due to differences in income tax rates between U.S. and foreign jurisdictions.
During the six months ended June 30, 2022,2023, income tax expense increased $184.5$26.8 million compared to the same period in 2021.2022. The effective tax rate for the six months ended June 30, 20222023 was 25.6%22.8% compared to an effective tax rate of (33.3)%25.6% for the same period in 2021,2022, a 58.9% increase.2.8% decrease. This increasedecrease in the effective tax rate was primarily driven primarily by the prior year realization of deferred tax assets which were subject to a valuation allowance which did not reoccurshift in the current year.mix of the Company's domestic and foreign earnings. Our effective income tax rate, for each period presented, also differs from the federal U.S. statutory rate primarily due to differences in income tax rates between U.S. and foreign jurisdictions.
Reportable Operating Segments
The following table sets forth information related to our reportable operating segments, including a comparison of revenues and operating income by segment:
| | | Three Months Ended June 30, | | Six Months Ended June 30, | | % Change | | Constant Currency % Change (1) | | Three Months Ended June 30, | | Six Months Ended June 30, | | % Change | | Constant Currency % Change (1) |
| | Favorable (Unfavorable) | | Favorable (Unfavorable) |
| | 2022 | | 2021 | | 2022 | | 2021 | | Q2 2022-2021 | | YTD 2022-2021 | | Q2 2022-2021 | | YTD 2022-2021 | | 2023 | | 2022 | | 2023 | | 2022 | | Q2 2023-2022 | | YTD 2023-2022 | | Q2 2023-2022 | | YTD 2023-2022 |
| | (in thousands) | | | | (in thousands) | | |
Revenues: | Revenues: | | | | | | | | | Revenues: | | | | | | | | |
North America (2) | North America (2) | $ | 422,936 | | | $ | 393,152 | | | $ | 742,386 | | | $ | 660,419 | | | 7.6 | % | | 12.4 | % | | 7.8 | % | | 12.5 | % | North America (2) | $ | 474,558 | | | $ | 422,936 | | | $ | 825,866 | | | $ | 742,386 | | | 12.2 | % | | 11.2 | % | | 12.5 | % | | 11.5 | % |
Asia Pacific | Asia Pacific | 148,889 | | | 126,834 | | | 244,737 | | | 209,426 | | | 17.4 | % | | 16.9 | % | | 27.6 | % | | 25.5 | % | Asia Pacific | 198,257 | | | 148,889 | | | 338,259 | | | 244,737 | | | 33.2 | % | | 38.2 | % | | 39.0 | % | | 45.1 | % |
EMEALA (2) | EMEALA (2) | 160,377 | | | 120,778 | | | 290,297 | | | 230,978 | | | 32.8 | % | | 25.7 | % | | 48.4 | % | | 38.0 | % | EMEALA (2) | 160,135 | | | 160,377 | | | 317,602 | | | 290,297 | | | (0.2) | % | | 9.4 | % | | (1.4) | % | | 10.5 | % |
Brand corporate (3) | Brand corporate (3) | 14 | | | 9 | | | 21 | | | 48 | | | 55.6 | % | | (56.3) | % | | 55.6 | % | | (56.3) | % | Brand corporate (3) | — | | | 14 | | | 1 | | | 21 | | | (100.0) | % | | (95.2) | % | | (100.0) | % | | (95.2) | % |
Crocs Brand revenues | Crocs Brand revenues | 732,216 | | | 640,773 | | | 1,277,441 | | | 1,100,871 | | | 14.3 | % | | 16.0 | % | | 19.4 | % | | 20.3 | % | Crocs Brand revenues | 832,950 | | | 732,216 | | | 1,481,728 | | | 1,277,441 | | | 13.8 | % | | 16.0 | % | | 14.9 | % | | 17.8 | % |
HEYDUDE Brand revenues (4)(2) | HEYDUDE Brand revenues (4)(2) | 232,365 | | | — | | | 347,288 | | | — | | | — | % | | — | % | | — | % | | — | % | HEYDUDE Brand revenues (4)(2) | 239,417 | | | 232,365 | | | 474,805 | | | 347,288 | | | 3.0 | % | | 36.7 | % | | 2.9 | % | | 36.9 | % |
Total consolidated revenues | Total consolidated revenues | $ | 964,581 | | | $ | 640,773 | | | $ | 1,624,729 | | | $ | 1,100,871 | | | 50.5 | % | | 47.6 | % | | 55.6 | % | | 51.9 | % | Total consolidated revenues | $ | 1,072,367 | | | $ | 964,581 | | | $ | 1,956,533 | | | $ | 1,624,729 | | | 11.2 | % | | 20.4 | % | | 12.0 | % | | 21.8 | % |
| Income from operations: | Income from operations: | | | | | | Income from operations: | | | | | |
North America (2) | North America (2) | $ | 177,363 | | | $ | 188,180 | | | $ | 306,974 | | | $ | 300,873 | | | (5.7) | % | | 2.0 | % | | (5.4) | % | | 2.2 | % | North America (2) | $ | 214,557 | | | $ | 177,363 | | | $ | 342,340 | | | $ | 306,974 | | | 21.0 | % | | 11.5 | % | | 21.3 | % | | 11.7 | % |
Asia Pacific | Asia Pacific | 51,432 | | | 32,016 | | | 81,537 | | | 54,131 | | | 60.6 | % | | 50.6 | % | | 77.3 | % | | 65.5 | % | Asia Pacific | 76,837 | | | 51,432 | | | 133,442 | | | 81,537 | | | 49.4 | % | | 63.7 | % | | 50.3 | % | | 67.4 | % |
EMEALA (2) | EMEALA (2) | 53,385 | | | 41,388 | | | 88,314 | | | 81,407 | | | 29.0 | % | | 8.5 | % | | 46.9 | % | | 18.2 | % | EMEALA (2) | 61,129 | | | 53,385 | | | 126,905 | | | 88,314 | | | 14.5 | % | | 43.7 | % | | 8.5 | % | | 40.8 | % |
Brand corporate (3) | Brand corporate (3) | (28,259) | | | (21,393) | | | (58,968) | | | (41,401) | | | (32.1) | % | | (42.4) | % | | (33.8) | % | | (44.1) | % | Brand corporate (3) | (34,839) | | | (28,259) | | | (66,996) | | | (58,968) | | | (23.3) | % | | (13.6) | % | | (23.0) | % | | (13.8) | % |
Crocs Brand income from operations | Crocs Brand income from operations | 253,921 | | | 240,191 | | | 417,857 | | | 395,010 | | | 5.7 | % | | 5.8 | % | | 11.1 | % | | 9.8 | % | Crocs Brand income from operations | 317,684 | | | 253,921 | | | 535,691 | | | 417,857 | | | 25.1 | % | | 28.2 | % | | 24.2 | % | | 28.4 | % |
HEYDUDE Brand income from operations (4)(2) | HEYDUDE Brand income from operations (4)(2) | 41,666 | | | — | | | 57,324 | | | — | | | — | % | | — | % | | — | % | | — | % | HEYDUDE Brand income from operations (4)(2) | 65,509 | | | 41,666 | | | 142,129 | | | 57,324 | | | 57.2 | % | | 147.9 | % | | 57.0 | % | | 148.6 | % |
Enterprise corporate (3) | Enterprise corporate (3) | (47,623) | | | (44,869) | | | (108,540) | | | (75,002) | | | (6.1) | % | | (44.7) | % | | (6.1) | % | | (44.7) | % | Enterprise corporate (3) | (64,704) | | | (47,623) | | | (124,403) | | | (108,540) | | | (35.9) | % | | (14.6) | % | | (35.9) | % | | (14.6) | % |
Total consolidated income from operations | Total consolidated income from operations | $ | 247,964 | | | $ | 195,322 | | | $ | 366,641 | | | $ | 320,008 | | | 27.0 | % | | 14.6 | % | | 33.6 | % | | 19.6 | % | Total consolidated income from operations | $ | 318,489 | | | $ | 247,964 | | | $ | 553,417 | | | $ | 366,641 | | | 28.4 | % | | 50.9 | % | | 27.5 | % | | 51.3 | % |
(1) Reflects year over year change as if the current period results were in constant currency, which is a non-GAAP financial measure. See “Use of Non-GAAP Financial Measures” for more information.
(2) In the first quarter of 2022, certain revenues and expenses associated with our Latin America businesses previously reported in our ‘Americas’ segment were shifted into the ‘EMEA’ segment. To reflect this change, we renamed our ‘Americas’ segment to ‘North America’ and renamed our ‘EMEA’ segment to ‘EMEALA.’ As a result of these changes, the previously reported amounts for revenues and income from operations for the three and six months ended June 30, 2021 have been revised to conform to current period presentation. See the ‘Impacts of segment composition change’ table below for more information.
(3) In the first quarter of 2022, as a result of the Acquisition, all costs previously reported in “Unallocated corporate and other” were recast between ‘Brand corporate’ costs associated with the Crocs Brand and ‘Enterprise corporate’ costs, each of which is defined in Note 14 — Operating Segments and Geographic Information in the accompanying notes to the condensed consolidated financial statements included in Part I - Item 1. Financial Statements of this Quarterly Report on Form 10-Q. As a result of these changes, the previously reported amounts for income from operations for the three and six months ended June 30, 2021 have been revised to conform to current period presentation. See the ‘Impacts of brand vs. enterprise recast’ table below for more information.
(4)We acquired HEYDUDE on February 17, 2022 and, as a result, added the HEYDUDE Brand as a new operating segment. Therefore, the amounts shown above for the six months ended June 30, 2022 represent results during the Partial Period, and there are no comparative amounts for the three and six months ended June 30, 2021.Period.
Impacts of segment composition change associated with Latin America:
| | | | | | | | | | | |
| Three Months Ended June 30, 2021 | | Six Months Ended June 30, 2021 |
| (in thousands) |
Impact on revenues: | | | |
Americas (now “North America”) | $ | (12,528) | | | $ | (21,670) | |
EMEA (now “EMEALA”) | 12,528 | | | 21,670 | |
| | | |
Impact on income from operations: | | | |
Americas (now “North America”) | $ | (4,601) | | | $ | (7,975) | |
EMEA (now “EMEALA”) | 4,601 | | | 7,975 | |
Impacts of brand vs. enterprise recast:
| | | | | | | | | | | |
| Three Months Ended June 30, 2021 | | Six Months Ended June 30, 2021 |
| (in thousands) |
Impacts on income from operations: | | | |
Brand corporate | $ | (21,393) | | | $ | (41,401) | |
Enterprise corporate | (44,869) | | | (75,002) | |
| | | |
Unallocated corporate and other | 66,262 | | | 116,403 | |
The primary drivers of changes in revenues by operating segment were:
| | | Three Months Ended June 30, 2022 vs. 2021 | | Three Months Ended June 30, 2023 vs. 2022 |
| | Volume | | Price (1) | | Foreign Exchange | | Total | | Volume | | Price (1) | | Foreign Exchange | | Total |
| | $ Change | | % Change | | $ Change | | % Change | | $ Change | | % Change | | $ Change | | % Change | | $ Change | | % Change | | $ Change | | % Change | | $ Change | | % Change | | $ Change | | % Change |
| | (in thousands) | | (in thousands) |
Segment Revenues: | Segment Revenues: | | Segment Revenues: | |
Crocs Brand: | Crocs Brand: | | Crocs Brand: | |
North America | North America | $ | (230) | | | — | % | | $ | 30,752 | | | 7.8 | % | | $ | (738) | | | (0.2) | % | | $ | 29,784 | | | 7.6 | % | North America | $ | 72,765 | | | 17.2 | % | | $ | (19,696) | | | (4.7) | % | | $ | (1,447) | | | (0.3) | % | | $ | 51,622 | | | 12.2 | % |
Asia Pacific | Asia Pacific | 14,343 | | | 11.3 | % | | 20,681 | | | 16.3 | % | | (12,969) | | | (10.2) | % | | 22,055 | | | 17.4 | % | Asia Pacific | 22,015 | | | 14.8 | % | | 35,975 | | | 24.2 | % | | (8,622) | | | (5.8) | % | | 49,368 | | | 33.2 | % |
EMEALA | EMEALA | 44,577 | | | 36.9 | % | | 13,898 | | | 11.5 | % | | (18,876) | | | (15.6) | % | | 39,599 | | | 32.8 | % | EMEALA | (34,093) | | | (21.3) | % | | 31,951 | | | 19.9 | % | | 1,900 | | | 1.2 | % | | (242) | | | (0.2) | % |
HEYDUDE Brand (2) | HEYDUDE Brand (2) | — | | | — | % | | — | | | — | % | | — | | | — | % | | — | | | — | % | HEYDUDE Brand (2) | 31,469 | | | 13.5 | % | | (24,558) | | | (10.6) | % | | 141 | | | 0.1 | % | | 7,052 | | | 3.0 | % |
Total segment revenues | Total segment revenues | $ | 58,690 | | | 9.2 | % | | $ | 65,331 | | | 10.2 | % | | $ | (32,583) | | | (5.1) | % | | $ | 91,438 | | | 14.3 | % | Total segment revenues | $ | 92,156 | | | 9.5 | % | | $ | 23,672 | | | 2.5 | % | | $ | (8,028) | | | (0.8) | % | | $ | 107,800 | | | 11.2 | % |
(1) The change due to price for revenues is based on ASP, as defined earlier in this section.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2023 vs. 2022 |
| Volume | | Price (1) | | Foreign Exchange | | Total |
| $ Change | | % Change | | $ Change | | % Change | | $ Change | | % Change | | $ Change | | % Change |
| (in thousands) |
Segment Revenues: | | | | | | | | | | | | | | | |
Crocs Brand: | | | | | | | | | | | | | | | |
North America | $ | 116,820 | | | 15.7 | % | | $ | (30,927) | | | (4.2) | % | | $ | (2,413) | | | (0.3) | % | | $ | 83,480 | | | 11.2 | % |
Asia Pacific | 53,046 | | | 21.7 | % | | 57,433 | | | 23.5 | % | | (16,957) | | | (7.0) | % | | 93,522 | | | 38.2 | % |
EMEALA | (11,309) | | | (3.9) | % | | 41,753 | | | 14.4 | % | | (3,139) | | | (1.1) | % | | 27,305 | | | 9.4 | % |
HEYDUDE Brand (2) | 181,876 | | | 52.4 | % | | (53,491) | | | (15.4) | % | | (868) | | | (0.3) | % | | 127,517 | | | 36.7 | % |
Total segment revenues | $ | 340,433 | | | 21.0 | % | | $ | 14,768 | | | 0.9 | % | | $ | (23,377) | | | (1.5) | % | | $ | 331,824 | | | 20.4 | % |
(1) The change due to price for revenues is based on ASP, as defined earlier in this section.
(2) We acquired HEYDUDE on February 17, 2022 and, added the HEYDUDE Brand as a new operating segment. Therefore, there are no comparative amounts for the three months ended June 30, 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2022 vs. 2021 |
| Volume | | Price (1) | | Foreign Exchange | | Total |
| $ Change | | % Change | | $ Change | | % Change | | $ Change | | % Change | | $ Change | | % Change |
| (in thousands) |
Segment Revenues: | | | | | | | | | | | | | | | |
Crocs Brand: | | | | | | | | | | | | | | | |
North America | $ | (17,574) | | | (2.7) | % | | $ | 100,294 | | | 15.2 | % | | $ | (753) | | | (0.1) | % | | $ | 81,967 | | | 12.4 | % |
Asia Pacific | 20,266 | | | 9.7 | % | | 33,023 | | | 15.8 | % | | (17,978) | | | (8.6) | % | | 35,311 | | | 16.9 | % |
EMEALA | 47,098 | | | 20.4 | % | | 40,737 | | | 17.6 | % | | (28,516) | | | (12.3) | % | | 59,319 | | | 25.7 | % |
HEYDUDE Brand (2) | — | | | — | % | | — | | | — | % | | — | | | — | % | | — | | | — | % |
Total segment revenues | $ | 49,790 | | | 4.5 | % | | $ | 174,054 | | | 15.8 | % | | $ | (47,247) | | | (4.3) | % | | $ | 176,597 | | | 16.0 | % |
(1) The change due to price for revenues is based on ASP, as defined earlier in this section.
(2) We acquired HEYDUDE on February 17, 2022 andresult, added the HEYDUDE Brand as a new operating segment. Therefore, the amounts shown above for the six months ended June 30, 2022 represent results during the Partial Period, and there are no comparative amounts for the six months ended June 30, 2021.Period.
Crocs Brand
North America Operating Segment
Revenues. North America revenues increased in the three months ended June 30, 2022,2023 compared to the same period in 2021,2022, due primarily to higher volumes, driven by higherboth channels, as we gained market share in a declining U.S. footwear market. This increase was offset in part by lower ASP as a result of price increases. Volumean increase in promotions and foreign currency changes were relatively flat during the quarter.unfavorable product mix.
The increase in North America revenues in the six months ended June 30, 2022,2023 compared to the same period in 2021, was most significantly2022 is primarily due to higheran increase in volumes, driven by both channels, partially offset by lower ASP due to higher pricing, while volumes decreased, primarily as a result of an increase in wholesale. Changes in the Canadian Dollar also slightly decreased revenues.promotions.
Income from Operations. Income from operations for our North America segment was $177.4$214.6 million for the three months ended June 30, 2022, a decrease2023, an increase of $10.8$37.2 million, or 5.7%21.0%, compared to the same period in 2021.2022. Gross profit was relatively flat with a $0.5increased by $44.7 million, or 0.2%17.4%, increase compared to prior year. Unfavorable foreign currency changes andyear, mostly as a result of higher volume. Lower AUC also contributed to higher gross profit as a result of prior year air freight costs duethat did not recur in part to inflation, partiallythe current year, somewhat offset a volume benefit to gross profit.by product mix.
SG&A for our North America segment increased $11.3$7.5 million, or 16.8%9.5%, during the three months ended June 30, 20222023 compared to the same period in 2021. Compensation cost increased $3.5 million as a result of investments2022. This increase was primarily due to higher variable expenses, including compensation costs, related to higher revenues in employee headcount, including retail labor, which also had higher wages for the full quarter in 2022 compared to 2021. Marketing costsDTC channel.
increased by $3.5 million, bad debt expense increased by $1.6 million as a result of prior year collections on previously reserved bad debt which reduced SG&A in the comparative period, and other net costs increased by $2.7 million.
During the six months ended June 30, 2022.2023, income from operations for our North America segment was $307.0$342.3 million, an increase of $6.1$35.4 million, or 2.0%11.5%, compared to the same period in 2021.2022. Gross profit increased $30.9$52.1 million, or 7.5%11.8%, primarily due to higher volumes. This was partially offset by a decrease due to lower ASP, from price increasesdue to increased promotions and product mix, that outpaced higher AUC due to higher material and freight costs, including air freight used to combat supply chain disruptions, of $40.9 million, or 9.9%. Lower volumes of $9.3 million, or 2.2%, and unfavorable foreign currency changes partially offset this increase.cost savings in the current year.
SG&A for our North America segment increased $24.8$16.7 million, or 22.2%12.3%, during the six months ended June 30, 20222023 compared to the same period in 2021,2022, primarily due to an increase in marketingvariable expenses, including compensation costs, of $11.2 millionrelated to fuel revenue growth and continue our investmenthigher revenues in digital marketing while operating in a higher cost environment and higher compensation of $6.3 million primarily due to investments in employee headcount, including retail labor, which also had higher wages in 2022 compared to 2021. Bad debt expense increased by $2.0 million as a result of prior year collections on previously reserved bad debt, while other net costs, including facilities expense and services costs, increased by $5.3 million.the DTC channel.
Asia Pacific Operating Segment
Revenues.Revenues in our Asia Pacific revenuessegment increased 33.2% in the three months ended June 30, 2022,2023 compared to the same period in 2021,2022, and was up in most countries in the region, driven by growth in China, in part as a result of the relaxation of COVID-19 restrictions, and Australia, as well as growth in Southeast Asia, Japan, and South Korea. Higher ASP also contributed to higher ASPrevenues, primarily as a result of higher pricing and less discounting offset in part by unfavorable channel mix, and higher volume, primarily in India and with distributors in Southeast Asia, which benefited from COVID-19 re-openings and the partial return of tourism to the region over prior year. This was offset in part by lower DTC volumes as a result of COVID-19 lockdowns in China that impacted distribution in the current quarter. These increases were partially offset by significant unfavorable foreign currency changes, in all currenciesmost significantly in the region.Chinese Yuan and Korean Won.
Revenues in our Asia Pacific segment increased in the six months ended June 30, 2022,2023 compared to the same period in 2021,2022, as a result of ASP increases, as a result of increased pricing and fewer promotions,less discounting, and volume increases. Unfavorable foreign currency fluctuations in allmost currencies, but most significantly the Korean Won, and Japanese Yen, partially offset ASP and volume increases.
Income from Operations. Income from operations for the Asia Pacific segment was $51.4$76.8 million for the three months ended June 30, 2022,2023, an increase of $19.4$25.4 million, or 60.6%49.4%, compared to the same period in 2021.2022. Gross profit increased by $16.8$38.3 million, or 21.6%40.5%, as a result of higher ASP, as described above, and higher volumes, partially offset by unfavorable purchasing power impacting inventory costs and foreign currency translation changes.
SG&A for our Asia Pacific segment decreased $2.6increased $12.9 million, or 5.7%29.8%, during the three months ended June 30, 2022,2023 compared to the same period in 2021,2022, primarily due to lower marketing costs of $3.0 million as a result of delayed investment driven by the COVID-19 impact on China factories during the second quarter. This was offset in part byincreased variable expenses associated with higher other net costs, including facilities expense, of $0.4 million.revenues.
Income from operations for the Asia Pacific segment was $81.5$133.4 million for the six months ended June 30, 2022,2023, an increase of $27.4$51.9 million, or 50.6%63.7%, compared to the same period in 2021.2022. Gross profit increased by $28.2$70.0 million, or 23.1%46.6%, primarily due to higher ASPs of 25.0% from increased price increases and decreased promotional activity,ASP, as described above, offset partially offset by unfavorable purchasing power as a result of foreign currency changes. Volumeshigher AUC. Higher volume also increased gross profit, by 8.4%. Changesbut changes in foreign currency partially offset these increases by 10.3%.increases.
SG&A for our Asia Pacific segment increased $0.8$18.1 million, or 1.1%26.3%, in the six months ended June 30, 20222023 compared to the same period in 2021,2022, mostly due to increased investments in employee headcount of $1.7 million and higher facilities costs of $1.3 millionvariable expenses associated with higher retail revenues offsetand investments in part by lower marketing costs of $2.0 million, mostly as a result of delayed investment driven by the COVID-19 impact on China factories during the second quarter. There were also lower other net costs of $0.2 million.marketing.
EMEALA Operating Segment
Revenues. TheRevenues slightly decreased in the EMEALA segment led the increase in overall revenues in the three months ended June 30, 2022,2023 compared to the same period in 2021, despite significant unfavorable currency headwinds due to fluctuations in the Euro and the shutdown of our direct operations in Russia2022, primarily as a result of the Ukraine war. This performance was driven by increaseddecreased volume with growth particularly strong in our distributor markets and increased ASPs, driven by increased prices and product mix, offsetdue in part to the termination of our relationship with a significant distributor in Africa after finding evidence of product diversion to the gray market outside of its approved territories. This decrease was partially offset by unfavorablehigher ASPs, primarily due to increased pricing and fewer promotions, as well as favorable channel mix.mix associated with lower distributor revenue, as described above. Favorable changes in foreign currency, primarily in the Euro, also increased revenues.
During the six months ended June 30, 2022,2023, EMEALA revenues increased compared to the same period in 2021, primarily2022, due to increased volume andhigher ASP, primarily in our wholesale channel, offset in part by decreased volume, both of which are in part related to the termination of a relationship with a significant unfavorabledistributor in Africa, as described above. ASPs were also higher due to increased pricing and fewer promotions. Unfavorable foreign currency fluctuations in the Euro.Euro and Argentine Peso decreased revenues.
Income from Operations. Income from operations for the EMEALA segment was $53.4$61.1 million for the three months ended June 30, 2022,2023, an increase of $12.0$7.7 million, or 29.0%14.5%, compared to the same period in 2021.2022. Gross profit increased $13.6$13.0 million, or 21.9%17.2%, mostly as a result of higher volume of $20.7 million, or 33.3%. GainsASP, as described above. Favorable foreign currency fluctuations, mainly in ASP due tothe Euro, also increased pricing and decreased promotions were partially offset by higher AUC as a result of increased freight costs, mostly due to increased air freight, and unfavorable purchasing power, leading to a net increase in gross profit of $2.4 million, or 4.0%.profit. These increases were offset in part by unfavorable changes in foreign currency of $9.5 million, or 15.4%.decreased volume.
SG&A for our EMEALA segment increased $1.6$5.3 million, or 7.8%23.6%, during the three months ended June 30, 2022,2023 compared to the same period in 2021. Marketing investments increased $2.3 million, primarily in digital marketing. Various costs associated with the continued shutdown of our direct operations in Russia, including severance and lease exit costs and penalties, increased SG&A $7.3 million. These increases were partially offset by a decrease in bad debt expense of $5.7 million,2022, primarily due to prior year collections on previously reserved receivables in Russia. Other net costs decreased SG&A by $2.3 million.Russia that did not recur in the current year.
Income from operations for the EMEALA segment was $88.3$126.9 million for the six months ended June 30, 2022,2023, an increase of $6.9$38.6 million, or 8.5%43.7%, compared to the same period in 2021.2022. Gross profit increased $17.2$41.1 million, or 14.7%30.6%, primarily due to higher sales volumes of $22.5 million, or 19.3%, and increases in ASP that outpaced increases in AUC of $8.6 million, or 7.3%, as a result of price increases, offset in part by higher freight costs and unfavorable purchasing power. Negative currency changes, primarily in the Euro, led to decreases of 11.9%.ASPs.
SG&A for our EMEALA segment increased $10.3$2.5 million, or 29.0%5.4%, during the six months ended June 30, 2022,2023 compared to the same period in 2021. Marketing investments,2022. This was primarily due to an increase in digital marketing increased $3.8 million, whilecosts, offset by decreases due to various costs associated with the continuedprior year shutdown of our direct operations in Russia including severance and lease exit costs and penalties, increased SG&A $7.3 million. Other net cost decreases of $0.8 million partially offset these increases.that did not recur in the current year.
Crocs Brand Corporate
During the three months ended June 30, 2022,2023, total net costs within ‘Brand corporate’ increased $6.9$6.6 million, or 32.1%23.3%, compared to the same period in 2021,2022, due primarily to an increaseinvestments in compensation costs of $1.6 million, information technology costs of $1.4 million, services costs of $1.2 million, and other net costs of $2.7 million.brand marketing.
During the six months ended June 30, 2022,2023, total net costs within ‘Brand corporate’ increased $17.6$8.0 million, or 42.4%13.6%, compared to the same period in 2021,2022, due primarily to higher compensation costs of $5.2 million as a result of increased headcount, higher services costs of $2.9 million, and higher information technology costs of $2.3 million. Other net costs increased by $7.2 million.investments in brand marketing.
HEYDUDE Brand
Revenues. For the three months ended June 30, 2022,2023, revenues attributableincreased compared to HEYDUDE were $232.4 million, with the2022. The majority of revenues attributablethis increase was due to higher volume, partially offset by lower ASP driven by increased promotions, primarily in our wholesaleDTC channel, at approximately 70%. Overall, we sold 8.1 million pairs of shoesand gray market pressures from sales by unauthorized resellers, particularly in the HEYDUDE Brand during the quarter. Income from operations during the quarter was $41.7 million and included a $34.3 million non-cash step-up of acquired HEYDUDE inventory to fair value and SG&A costs comprised primarily of marketing, sales commissions, and compensation expense.online marketplaces.
ForDuring the six months ended June 30, 2023, revenues increased compared to the Partial Period revenues attributablein 2022, primarily due to higher volume, driven in part by operating HEYDUDE were $347.3 million, with the majority of revenues attributablefor a full six months in 2023 compared to 2022, but also due to higher demand. Partially offsetting this increase was lower ASP driven by increased promotions, primarily in our wholesale channel at approximately 72%. Overall, we sold 12.1 million pairs of shoes in the HEYDUDE Brand during the Partial Period. Income from operations during the Partial Period was $57.3 million and included a $62.3 million non-cash step-up of acquired HEYDUDE inventory to fair value and SG&A costs comprised primarily of marketing, sales commissions, and compensation expense.DTC channel.
ReferIncome from Operations. Income from operations for the HEYDUDE segment was $65.5 million for the three months ended June 30, 2023, an increase of $23.8 million, or 57.2%, compared to Note 16 — Acquisition2022. Gross profit increased $37.4 million, or 49.6%, due in part to prior year adjustments of HEYDUDE in the accompanying notes$34.3 million to the condensed consolidated financial statements includedfair value of inventory costs upon close of the acquisition and in Part I - Item 1. Financial Statements of this Quarterly Report on Form 10-Q for additional information regarding the Acquisition.part due to higher volume, partially offset by lower ASP, as described above.
32SG&A for the HEYDUDE Brand segment increased $13.6 million, or 40.2%, during the three months ended June 30, 2023 compared to the same period in 2022. This is primarily due to investments in marketing and talent made over the past year since the acquisition in February 2022.
Income from operations for the HEYDUDE segment was $142.1 million for the six months ended June 30, 2023, an increase of Contents$84.8 million, or 147.9%, compared to the Partial Period in 2022. Gross profit increased $124.5 million, or 118.8%, in part due to higher volume, as described above, and in part due to prior year adjustments of $62.3 million to the fair value of inventory costs upon close of the acquisition. These increases were offset partially by lower ASP, as described above.
SG&A for the HEYDUDE Brand segment increased $39.7 million, or 83.7%, during the six months ended June 30, 2023 compared to the Partial Period in 2022. This is primarily due to investments in marketing and talent made over the past year since the acquisition in February 2022.
Enterprise Corporate
During the three months ended June 30, 2022,2023, total net costs within ‘Enterprise corporate’ increased $2.8$17.1 million, or 6.1%35.9%, compared to the same period in 2021,2022. This increase was primarily due to an increaseincreases in compensation costs from a larger investment in talent and increased professional services costs, of $5.6 million, primarily related to consultingoffset in part by lower costs in 2023 associated with the integration ofprior year HEYDUDE into our business. There was also $2.2 million higher information technologyacquisition and other net costs. These increases were offset by lower compensation costs of $5.0 million primarily due to lower variable compensation.integration.
During the six months ended June 30, 2022,2023, total net costs within ‘Enterprise corporate’ increased $33.5$15.9 million, or 44.7%14.6%, compared to the same period in 2021.2022. This was primarily due to increases in compensation costs, professional services costs, information technology costs, and costs associated with the acquisition and integrationdiscontinuation of HEYDUDE, including consulting, legal, and accounting fees, among others, of $26.3 million. There were also higher other professional services costs of $6.1 million, higheran information technology costs of $3.0 million, and higher other net costs of $4.9 million.project. These increases were offset in part by lower depreciationcosts in 2023 associated with the prior year HEYDUDE acquisition and amortization of $3.7 million and lower compensation costs of $3.1 million primarily due to lower variable compensation.integration.
Store Locations and Digital Sales Percentage
The tables below illustrate the overall change in the number of our Crocs Brand company-operated retail locations by reportable operating segment for the three and six months ended June 30, 2022:2023:
| | | March 31, 2022 | | Opened | | Closed | | June 30, 2022 | | March 31, 2023 | | Opened | | Closed | | June 30, 2023 |
Company-operated retail locations: | Company-operated retail locations: | | | | | | | | Company-operated retail locations: | | | | | | | |
| North America | North America | 175 | | | — | | | — | | | 175 | | North America | 172 | | | 3 | | | — | | | 175 | |
Asia Pacific | Asia Pacific | 153 | | | 1 | | | 2 | | | 152 | | Asia Pacific | 152 | | | 6 | | | 2 | | | 156 | |
EMEALA | EMEALA | 44 | | | — | | | 3 | | | 41 | | EMEALA | 15 | | | — | | | — | | | 15 | |
Total Crocs Brand | | Total Crocs Brand | 339 | | | 9 | | | 2 | | | 346 | |
HEYDUDE Brand | | HEYDUDE Brand | 8 | | | 1 | | | — | | | 9 | |
Total | Total | 372 | | | 1 | | | 5 | | | 368 | | Total | 347 | | | 10 | | | 2 | | | 355 | |
| | | December 31, 2021 | | Opened | | Closed | | June 30, 2022 | | December 31, 2022 | | Opened | | Closed | | June 30, 2023 |
| Company-operated retail locations: | Company-operated retail locations: | | | | | | | | Company-operated retail locations: | | | | | | | |
North America | North America | 173 | | | 2 | | | — | | | 175 | | North America | 171 | | | 4 | | | — | | | 175 | |
Asia Pacific | Asia Pacific | 153 | | | 2 | | | 3 | | | 152 | | Asia Pacific | 151 | | | 8 | | | 3 | | | 156 | |
EMEALA | EMEALA | 47 | | | 1 | | | 7 | | | 41 | | EMEALA | 18 | | | — | | | 3 | | | 15 | |
Total Crocs Brand | | Total Crocs Brand | 340 | | | 12 | | | 6 | | | 346 | |
HEYDUDE Brand | | HEYDUDE Brand | 5 | | | 4 | | | — | | | 9 | |
Total | Total | 373 | | | 5 | | | 10 | | | 368 | | Total | 345 | | | 16 | | | 6 | | | 355 | |
Digital sales, which includes sales through our company-owned websites, third party marketplaces, and e-tailers (which are reported in our wholesale channel), as a percent of total revenues, by operating segment were:
| | | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
Digital sales as a percent of total revenues: | Digital sales as a percent of total revenues: | | | | | | | | Digital sales as a percent of total revenues: | | | | | | | |
Crocs Brand | Crocs Brand | 37.2 | % | | 36.4 | % | | 35.3 | % | | 34.7 | % | Crocs Brand | 37.7 | % | | 37.2 | % | | 34.4 | % | | 35.3 | % |
HEYDUDE Brand (1) | HEYDUDE Brand (1) | 31.5 | % | | — | % | | 29.6 | % | | — | % | HEYDUDE Brand (1) | 41.8 | % | | 31.5 | % | | 36.0 | % | | 29.6 | % |
Total (2) | Total (2) | 35.8 | % | | 36.4 | % | | 34.1 | % | | 34.7 | % | Total (2) | 38.6 | % | | 35.8 | % | | 34.8 | % | | 34.1 | % |
(1) We acquired HEYDUDE on February 17, 2022.2022 and, as a result, added the HEYDUDE Brand as a new operating segment. Therefore, the amounts shown above for the six months ended June 30, 2022 represent results during the Partial Period, and there are no comparative amounts for the three and six months ended June 30, 2021.
(2) For the three and six months ended June 30, 2021, the digital sales as a percent of total revenues represents the Crocs Brand.Period.
Direct-to-consumer (“DTC”) comparable sales for the Crocs Brand arewere as follows:
| | | Constant Currency (1) | | Constant Currency (1) |
| | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
Direct-to-consumer comparable sales: (2) | Direct-to-consumer comparable sales: (2) | | | | | | | | Direct-to-consumer comparable sales: (2) | | | | | | | |
| Crocs Brand (3) | Crocs Brand (3) | 7.5 | % | | N/A | | 10.7 | % | | N/A | Crocs Brand (3) | 19.5 | % | | 7.5 | % | | 20.5 | % | | 10.7 | % |
HEYDUDE Brand (3) | | HEYDUDE Brand (3) | 20.2 | % | | N/A | | 24.7 | % | | N/A |
(1) Reflects period over period change on a constant currency basis, which is a non-GAAP financial measure. See “Use of Non-GAAP Financial Measures” for more information.
(2) Comparable store status, as included in the DTC comparable sales figures above, is determined on a monthly basis. Comparable store sales include the revenues of stores that have been in operation for more than twelve months. Stores in which selling square footage has changed more than 15% as a result of a remodel, expansion, or reduction are excluded until the thirteenth month in which they have comparable prior year sales. Temporarily closed stores are excluded from the comparable store sales calculation during the month of closure and in the same month in the following year. Location closures in excess of three months are excluded until the thirteenth month post re-opening. E-commerce comparable revenues are based on same site sales period over period. E-commerce sites that are temporarily offline or unable to transact or fulfill orders (“site disruption”) are excluded from the comparable sales calculation during the month of site disruption and in the same month in the following year. E-commerce site disruptions in excess of three months are excluded until the thirteenth month after the site has re-opened.
(3) InWe acquired HEYDUDE on February 17, 2022 and, as a result, added the HEYDUDE Brand as a new operating segment. As such, in the three and six months ended June 30, 2021, as a result of the COVID-19 pandemic’s impact on 2020 sales2022, we did not disclose DTC comparable sales as they were not meaningful.for the HEYDUDE Brand.
Financial Condition, Capital Resources, and Liquidity
Liquidity
Our liquidity position as of June 30, 20222023 was:
| | | | | |
| June 30, 20222023 |
| (in thousands) |
Cash and cash equivalents | $ | 187,352166,235 | |
Available borrowings | 475,806563,689 | |
As of June 30, 2022,2023, we had $187.4$166.2 million in cash and cash equivalents and up to $475.8$563.7 million of available borrowings, including $469.7$548.7 million of remaining borrowing availability under the Revolving Facility (as defined below) and $6.1$15.0 million of remaining borrowing availability under the Asia revolving facilities (as defined below).facilities. As of June 30, 2022,2023, the Term Loan B Facility (as defined below) was fully drawn and there was no available borrowing capacity. We believe that cash flows from operations, our cash and cash equivalents on hand, and available borrowings under our Revolving Facility will be sufficient to meet our ongoing liquidity needs and capital expenditure requirements for at least the next twelve months.
We completed the Acquisition on February 17, 2022. The consideration for the Acquisition was comprised of $2.05 billion in cash and 2,852,280 of Crocs shares. To finance a portion of the Cash Consideration,In July 2023, we entered into the $2.0 billion Term Loan B Facility and borrowed $50.0 million under our Revolving Facility. In 2022, we plan to use excess cash generated by our operations to begin to repay our outstanding debt, and, as such, we have suspendedresumed our share repurchase program. We continue to plan to methodically balance debt repayment and share repurchases as we approach our long-term net leverage targets.
Additional future financing may be necessary to fund our operations and there can be no assurance that, if needed, we will be able to secure additional debt or equity financing on terms acceptable to us or at all. Although we believe we have adequate sources of liquidity over the long term, the success of our operations, the global economic outlook,conditions, and the pace of sustainable growth in our markets, among other things, could each impact our business and liquidity.
Repatriation of Cash
As a global business, we have cash balances in various countries and amounts are denominated in various currencies. Fluctuations in foreign currency exchange rates impact our results of operations and cash positions. Future fluctuations in foreign currencies may have a material impact on our cash flows and capital resources. Cash balances held in foreign countries may have additional restrictions and covenants associated with them which could adversely impact our liquidity and our ability to timely access and transfer cash balances between entities.
All of the cash held outside of the U.S. could be repatriated to the U.S. as of June 30, 2023 without incurring additional U.S. federal income taxes. In some countries, repatriation of certain foreign balances is restricted by local laws. These limitations may affect our ability to fully utilize our cash resources for needs in the U.S. or other countries and could adversely affect our
All of the cash held outside of the U.S. as of June 30, 2022 could be repatriated to the U.S. without incurring additional U.S. federal income taxes.liquidity. As of June 30, 2022,2023, we held $109.0$101.6 million of our total $187.4$166.2 million in cash in international locations. This cash is primarily used for the ongoing operations of the business in the locations in which the cash is held. The repatriation ofOf the $109.0$101.6 million, held in international locations is not limited$3.2 million could potentially be restricted by local regulations.laws.
Senior Revolving Credit Facility
In July 2019, the Company and certain of its subsidiaries (the “Borrowers”) entered into a Second Amended and Restated Credit Agreement (as amended, the “Credit Agreement”), with the lenders named therein and PNC Bank, National Association, as a lender and administrative agent for the lenders. In February 2022,Since that time, we have amended the Credit Agreement, which, as amended to date, provides for a revolving credit facility of $600.0$750.0 million, which can be increased by an additional $400.0$250.0 million subject to certain conditions (the “Revolving Facility”). Borrowings under the Credit Agreement bear interest at a variable interest rate based on (A) a Base Rate (defined as the highest of (i) the Overnight Bank Funding Rate (as defined in the Credit Agreement), plus 0.25%, (ii) the Prime Rate (as defined in the Credit Agreement), and (iii) the Daily Simple SOFR (as defined in the Credit Agreement), plus 1.00%), plus an applicable margin ranging from 0.25% to 0.875% based on our leverage ratio or 1.35% to 1.975% for the Daily Simple SOFR based on the leverage ratio, or (B) the Term SOFR Rate (as defined in the Credit Agreement), plus an applicable margin ranging from 1.35% to 1.975% based on our leverage ratio for one-month interest periods and 1.40% to 2.025% based on our leverage ratio for three month interest periods. Borrowings under the Credit Agreement are secured by all of the assets of the Borrowers and guaranteed by certain other subsidiaries of the Borrowers.
The Credit Agreement requires us to maintain a minimum interest coverage ratio of 3.00 to 1.00, and a maximum leverage ratio of (i) 4.00 to 1.00 from the quarter ended March 31, 2022 through, and including, the quarter ending December 31, 2023, (ii) 3.75 to 1.00 for the quarter ending March 31, 2024, (iii) 3.50 to 1.00 for the quarter ending June 30, 2024, and (iv) 3.25 to 1.00 for the quarter ending September 30, 2024 and thereafter (subject to adjustment in certain circumstances). The Credit Agreement permits, among other things, (i) stock repurchases subject to certain restrictions, including after giving effect to such stock repurchases, the maximum leverage ratio does not exceed certain levels; and (ii) certain acquisitions so long as there is borrowing availability under the Credit Agreement of at least $40.0 million. As of June 30, 2022,2023, we were in compliance with all financial covenants under the Credit Agreement.
As of June 30, 2022,2023, the total commitments available from the lenders under the Revolving Facility were $600.0$750.0 million. At June 30, 2022,2023, we had $130.0$200.0 million in outstanding borrowings which are due when the Revolving Facility matures in July 2024, and $0.3$1.3 million in outstanding letters of credit under the Revolving Facility, which reduces amounts available for borrowing under the Revolving Facility. As of June 30, 20222023 and December 31, 2021,2022, we had $469.7$548.7 million and $414.7$748.7 million, respectively, of available borrowing capacity under the Revolving Facility.Facility, which matures November 2027.
Term Loan B Facility
On February 17, 2022, the Company entered into a credit agreement (the “Term Loan B Credit Agreement”) with Citibank, N.A., as administrative agent and lender, to among other things, finance a portion of the cash consideration for the Acquisition.
The Term Loan B Credit Agreement provides for an aggregate term loan B facility in the principal amount of $2.0 billion (the “Term Loan B Facility”), which is secured by substantially all of the Company’s and each subsidiary guarantor’s assets on a pari passu basis with their obligations arising from the Credit Agreement and is scheduled to mature on February 17, 2029, subject to certain exceptions set forth in the Term Loan B Credit Agreement. Additionally, subject to certain conditions, including, without limitation, satisfying certain leverage ratios, the Company may, at any time, on one or more occasions, add one or more new classes of term facilities and/or increase the principal amount of the loans of any existing class by requesting one or more incremental term facilities.
Each term loan borrowing which is an alternate base rate borrowing bears interest at a rate per annum equal to the Alternate Base Rate (as defined in the Term Loan B Credit Agreement), plus 2.50%. Each term loan borrowing which is a term benchmark borrowing bears interest at a rate per annum equal to the Adjusted Term SOFR Rate (as defined in the Term Loan B Credit Agreement) plus 3.50%.
Outstanding principal under the Term Loan B Facility is payable on the last business day of each March, June, September and December, in a quarterly aggregate principal amount of $5.0 million. Quarterly aggregate principal payments began on June 30,
2022, with the remaining principal amount due on February 17, 2029, the maturity date. As of June 30, 2022,2023, we had $1,995.0$1,180.0 million in outstanding principal and the Term Loan B Facility was fully drawn with no remaining borrowing capacity.
The Term Loan B Credit Agreement also contains customary affirmative and negative covenants, incurrence financial covenants, representations and warranties, events of default and other provisions. As of June 30, 2022,2023, we were in compliance with all financial covenants under the Term Loan B Credit Agreement.
Asia Revolving Credit Facilities
During the six months ended June 30, 2022,2023, we had two revolving credit facilities in Asia, the revolving credit facility with China Merchants Bank Company Limited, Shanghai Branch (the “CMBC Facility”), which providesmatured in January 2023 and provided up to 10.0 million RMB, or $1.5 million atusing current exchange rates and matures inas of January 2023, and the revolving credit facility with Citibank (China) Company Limited, Shanghai Branch (the “Citibank Facility”), which, as amended, provides up to an equivalent of $10.0$15.0 million.
As of June 30, 2023, we had no borrowings outstanding on the Citibank Facility. As of December 31, 2022, we had no outstanding borrowings on the CMBC Facility, and we had borrowings outstanding of $0.5 million on the CMBC Facility, which are due in September 2022 and borrowings outstanding of $4.9$4.3 million on the Citibank Facility, which are due at various dates within the third quarter of 2022. We had no borrowings under our Asia revolving facilities during the year ended December 31, 2021 or outstanding at December 31, 2021.Facility.
Senior Notes Issuances
In March 2021, the Company completed the issuance and sale of $350.0 million aggregate principal amount of 4.250% Senior Notes due March 15, 2029 (the “2029 Notes”), pursuant to the indenture related thereto (as amended and/or supplemented to date, the “2029 Notes Indenture”). Additionally, in August 2021, the Company completed the issuance and sale of $350.0 million aggregate principal amount of 4.125% Senior Notes due August 15, 2031 (the “2031 Notes”), pursuant to the indenture related thereto (as amended and/or supplemented to date, “the 2031 Notes Indenture” and, together with the 2029 Notes Indenture, the “Indentures” and, each, an “Indenture”). Interest on each of the 2029 Notes and the 2031 Notes (collectively, the “Notes”) is payable semi-annually.
The Company will have the option to redeem all or any portion of the 2029 Notes, at once or over time, at any time on or after March 15, 2024, at a redemption price equal to 100% of the principal amount thereof, plus a premium declining ratably on an annual basis to par and accrued and unpaid interest, if any, to, but excluding, the date of redemption. The Company will also have the option to redeem some or all of the 2029 Notes at any time before March 15, 2024 at a redemption price of 100% of the principal amount to be redeemed, plus a “make-whole” premium and accrued and unpaid interest, if any, to, but excluding, the date of redemption. In addition, at any time before March 15, 2024, the Company may redeem up to 40% of the aggregate principal amount of the 2029 Notes at a redemption price of 104.250% of the principal amount with the proceeds from certain equity issuances, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption.
The Company will have the option to redeem all or any portion of the 2031 Notes, at once or over time, at any time on or after August 15, 2026, at a redemption price equal to 100% of the principal amount thereof, plus a premium declining ratably on an annual basis to par and accrued and unpaid interest, if any, to, but excluding, the date of redemption. The Company will also have the option to redeem some or all of the 2031 Notes at any time before August 15, 2026 at a redemption price of 100% of the principal amount to be redeemed, plus a “make-whole” premium and accrued and unpaid interest, if any, to, but excluding, the date of redemption. In addition, at any time before August 15, 2024, the Company may redeem up to 40% of the aggregate principal amount of the 2031 Notes at a redemption price of 104.125% of the principal amount with the proceeds from certain equity issuances, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption.
The Notes rank pari passu in right of payment with all of the Company’s existing and future senior debt, including the Credit Agreement, and are senior in right of payment to any of the Company’s future debt that is, by its term, expressly subordinated in right of payment to the Notes. The Notes are unconditionally guaranteed by each of the Company’s restricted subsidiaries that is a borrower or guarantor under the Credit Agreement and by each of the Company’s wholly-owned restricted subsidiaries that guarantees any debt of the Company or any guarantor under any syndicated credit facility or capital markets debt in an aggregate principal amount in excess of $25.0 million.
The Indentures contain covenants that, among other things, limit the ability of the Company and its restricted subsidiaries to incur additional debt or issue certain preferred stock; pay dividends or repurchase or redeem capital stock or make other restricted payments; declare or pay dividends or other payments; incur liens; enter into certain types of transactions with the Company’s affiliates; and consolidate or merge with or into other companies. As of June 30, 2022,2023, we were in compliance with all financial covenants under the Notes.
Cash Flows
| | | Six Months Ended June 30, | | $ Change | | % Change | | Six Months Ended June 30, | | $ Change | | % Change |
| | 2022 | | 2021 | | Favorable (Unfavorable) | | 2023 | | 2022 | | Favorable (Unfavorable) |
| | (in thousands) | | | (in thousands) | |
Cash provided by operating activities | Cash provided by operating activities | $ | 84,744 | | | $ | 242,366 | | | $ | (157,622) | | | (65.0) | % | Cash provided by operating activities | $ | 330,613 | | | $ | 84,744 | | | $ | 245,869 | | | 290.1 | % |
Cash used in investing activities | Cash used in investing activities | (2,097,029) | | | (21,323) | | | (2,075,706) | | | (9,734.6) | % | Cash used in investing activities | (51,645) | | | (2,097,029) | | | 2,045,384 | | | 97.5 | % |
Cash provided by (used in) financing activities | Cash provided by (used in) financing activities | 1,987,621 | | | (155,344) | | | 2,142,965 | | | 1,379.5 | % | Cash provided by (used in) financing activities | (311,317) | | | 1,987,621 | | | (2,298,938) | | | (115.7) | % |
Effect of exchange rate changes on cash, cash equivalents, and restricted cash | Effect of exchange rate changes on cash, cash equivalents, and restricted cash | (1,690) | | | (1,793) | | | 103 | | | 5.7 | % | Effect of exchange rate changes on cash, cash equivalents, and restricted cash | 7,049 | | | (1,690) | | | 8,739 | | | 517.1 | % |
Net change in cash, cash equivalents, and restricted cash | Net change in cash, cash equivalents, and restricted cash | $ | (26,354) | | | $ | 63,906 | | | $ | (90,260) | | | (141.2) | % | Net change in cash, cash equivalents, and restricted cash | $ | (25,300) | | | $ | (26,354) | | | $ | 1,054 | | | 4.0 | % |
Operating Activities. Cash provided by operating activities consists of net income adjusted for noncash items and changes in working capital. Cash provided by operating activities decreased $157.6increased $245.9 million for the six months ended June 30, 20222023 compared to the six months ended June 30, 2021,2022, driven by decreases in operating assets and liabilities of $158.7 million, primarily due to accounts receivable, net and inventory, partially offset by higher net income, adjusted for non-cash items, of $1.1 million.$135.6 million and increases in operating assets and liabilities of $110.3 million, primarily due to inventory.
Investing Activities. There was a $2,075.7$2,045.4 million increasedecrease in cash used in investing activities for the six months ended June 30, 20222023 compared to the six months ended June 30, 2021.2022. The increasedecrease is primarily due to the Cash Considerationcash paid for the Acquisition,acquisition, net of cash acquired.acquired, in the six months ended June 30, 2022 that did not recur in the current year. Refer to Note 1614 — Acquisition of HEYDUDE in the accompanying notes to the condensed consolidated financial statements included in Part I - Item 1. Financial Statements of this Quarterly Report on Form 10-Q.
Financing Activities. Cash provided by financing activities increaseddecreased by $2,143.0$2,298.9 million in the six months ended June 30, 20222023 compared to the six months ended June 30, 2021.2022. The increasedecrease was primarily due to an increasea decrease of $2,070.7$2,026.0 million in proceeds from borrowings, which includes borrowings under the Term Loan B Facility Revolving Facility, andof $2.0 billion used to fund the Asia revolving facilities.acquisition of HEYDUDE in part during the six months ended June 30, 2022 that did not recur in the current year. Additionally, we had a decreasethere was an increase of $110.0$318.7 million in repayments of borrowings, a decreasean increase of $350.0 million in repurchases of common stock, and a decrease of $4.8$4.9 million in repurchases of common stock for tax withholding.withholding, and a decrease in cash provided by financing activities of $0.1 million. The overall increasedecrease was offset by a $350.0$50.8 million decrease in proceeds from the 2029 Notes issuance that occurred in the six months ended June 30, 2021 that did not recur in the current period, a $42.4 million increase in deferred debt issuance costs, primarily related to the Term Loan B Facility, and a $0.1 million increase in other cash used in financing activities.costs.
Contractual Obligations
There have been no significant changes to the contractual obligations reported in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021,2022, other than (i) borrowings and repayments on the Term Loan B Facility, Revolving Facility, and Asia Facilitiesrevolving credit facilities and (ii) borrowingsfuture lease payments of $2.0 billion under the Term Loan B Facility, which we entered intoapproximately $111 million through 2033, as described in Note 4 — Leases in the six months ended June 30, 2022.accompanying notes to the condensed consolidated financial statements included in Part I - Item 1. Financial Statements of this Quarterly Report on Form 10-Q.
Off-Balance Sheet Arrangements
We had no material off-balance sheet arrangements as of June 30, 2022,2023, other than certain purchase commitments, which are described in Note 1312 — Commitments and Contingencies in the accompanying notes to the condensed consolidated financial statements included in Part I - Item 1. Financial Statements of this Quarterly Report on Form 10-Q.
Critical Accounting Policies and Estimates
The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, sales, and expenses, and related disclosure of contingent assets and liabilities. We evaluate our assumptions and estimates on an on-going basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
Business Combinations
We account for business combinations using the acquisition method of accounting, which requires that once control is obtained, all the assets acquired and liabilities assumed are recorded at their respective fair values at the date of acquisition. Contingent consideration, if any, is included within the purchase price and is recognized at its fair value on the acquisition date. We allocate the purchase price of acquired businesses to the tangible assets, intangible assets, and contingent consideration based upon internal estimates of cash flows and consideration and/or the report of a third-party valuation expert, and this requires a significant amount of management judgment. The determination of fair values of identifiable assets and liabilities as well as contingent consideration requires estimates and the use of valuation techniques when market value is not readily available. During the measurement period, which is up to one year from the acquisition date, adjustments to the assets acquired and liabilities assumed may be recorded, with the corresponding offset to goodwill.
During the six months ended June 30, 2022, we acquired HEYDUDE. The aggregate closing price of the Acquisition was $2.3 billion. The fair value of the acquired assets was determined by a third-party valuation specialist. The fair value of inventory was determined using a market approach and a cost approach, the replacement cost method. These methods were reconciled in order to allocate profit and expenses to measure the inventory value created by a seller. For the trademark, the third-party valuation team used the Multi Period Excess Earnings approach and for customer relationships, the valuation team used the distributor method.
Deferred taxes associated with estimated fair value adjustments reflect an estimated tax rate applicable to the acquiree. Deferred tax has been calculated based on the fair value adjustments of inventories and intangible assets using the tax rates for US and HK entities. This determination is preliminary and subject to change based upon the final determination of the fair value of the acquired assets and assumed liabilities of the acquiree.
The fair values of all the other assets and liabilities noted are equal to their carrying values due to the nature of the specific asset or liability. Refer to Note 16 — Acquisition of HEYDUDE in the accompanying notes to the condensed consolidated financial statements included in Part I - Item 1. Financial Statements of this Quarterly Report on Form 10-Q for additional details on the Acquisition.
For a complete discussion of our critical accounting policies and estimates, please refer to our Annual Report on Form 10-K for the year ended December 31, 20212022 and Note 2 — Recent Accounting Pronouncements in the accompanying notes to the condensed consolidated financial statements included in Part I - Item 1. Financial Statements of this Quarterly Report on Form 10-Q. There have been no other significant changes in our critical accounting policies or their application since December 31, 2021.2022.
Recent Accounting Pronouncements
See Note 2 — Recent Accounting Pronouncements in the accompanying notes to the condensed consolidated financial statements included in Part I - Item 1. Financial Statements of this Quarterly Report on Form 10-Q for a description of recently adopted accounting pronouncements and issued accounting pronouncements that we believe may have an impact on our condensed consolidated financial statements when adopted.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
We centrally manage our debt and investment portfolios considering investment opportunities and risks, tax consequences, and overall financing strategies. Our exposure to market risk includes interest rate fluctuations in connection with our Revolving Facility and certain financial instruments.
Borrowings under our Term Loan B Facility and Revolving Facility bear interest at a variable rate and are therefore subject to risk based upon prevailing market interest rates. Interest rates fluctuate as a result of many factors, including governmental monetary and tax policies, domestic and international economic and political considerations, and other factors that are beyond our control.
As of June 30, 2022,2023, we had borrowings with a face value of $2,830.4$2,080.0 million, comprised of the Notes, which carry a fixed rate, the Term Loan B Facility, and borrowings under theour Revolving Facility and Asia revolving facilities.Facility. We also had $0.3$1.3 million in outstanding letters of credit under our Revolving Facility as of June 30, 2022.2023. As of December 31, 2021,2022, we had long-term borrowings with a face value of $785.0$2,379.3 million and $0.3$1.3 million in outstanding letters of credit under our Revolving Facility.
A hypothetical increase of 1% in the interest rate on the variable rate borrowings under our Term Loan B Facility and Revolving Facility would have increased interest expense by $5.6$4.0 million and $7.6$8.2 million for the three and six months ended June 30, 2022,2023, respectively.
Foreign Currency Exchange Risk
Changes in exchange rates have a direct effect on our reported U.S. Dollar condensed consolidated financial statements because we translate the operating results and financial position of our international subsidiaries to U.S. Dollars using current period exchange rates. Specifically, we translate the statements of operationsincome of our foreign subsidiaries into the U.S. Dollar reporting currency using exchange rates in effect during each reporting period. As a result, comparisons of reported results between reporting periods may be impacted significantly due to differences in the exchange rates in effect at the time such exchange rates are used to translate the operating results of our international subsidiaries.
An increase of 1% of the value of the U.S. Dollar relative to foreign currencies when translating our financial results would have decreased our revenues and income before taxes during the three months ended June 30, 20222023 by $3.2$6.3 million and $0.9$0.8 million, respectively. During the six months ended June 30, 2022,2023, an increase of 1% of the value of the U.S. Dollar relative to foreign currencies would have decreased our revenues and income before taxes by $5.6$11.7 million and $1.4$2.8 million, respectively. This analysis does not account for transactional fluctuations in accounts, such as those driven by purchasing power, as defined in “Known or Anticipated Trends” in Part I - Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Quarterly Report on Form 10-Q. The volatility of the exchange rates is dependent on many factors that cannot be forecasted with reliable accuracy.
WeIn order to manage exposure to fluctuations in foreign currency and to reduce the volatility in earnings caused by fluctuations in foreign exchange rates, we may enter into forward foreign exchange contracts to buy or sell various foreign currencies to selectively protect against volatility in the value of non-functional currency denominated monetary assets and liabilities.currencies. Changes in the fair value of these forward contracts are recognized in earnings in the period that the changes occur.occur or in the period in which the hedged transaction affects earnings for derivatives classified as non-hedged or hedged, respectively, as defined in Note 6 — Derivative Financial Instruments in the accompanying notes to the condensed consolidated financial statements included in Part I - Item 1. Financial Statements of this Quarterly Report on Form 10-Q. As of June 30, 2022,2023, the U.S. Dollar notional value of our outstanding foreign currency forward exchange contracts was approximately $152.7$148.8 million. The net fair value of these contracts at June 30, 20222023 was an insignificant asset of $0.2 million. and liability.
We perform a sensitivity analysis to determine the effects that market risk exposures may have on the fair values of our foreign currency forward exchange contracts. To perform the sensitivity analysis, we assess the risk of changes in fair values from the effect of hypothetical changes in foreign currency exchange rates. This analysis assumes a like movement by the foreign currencies in our hedge portfolio against the U.S. Dollar. As of June 30, 2022,2023, a 10% appreciation in the value of the U.S. Dollar would result in a net increase in the fair value of our derivative portfolio of approximately $0.8$0.2 million.
See Part I - Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Quarterly Report on Form 10-Q for a discussion of the impact of the change in foreign exchange rates on our U.S. Dollar condensed consolidated statements of operationsincome for the three and six months ended June 30, 20222023 and 2021.2022.
ITEM 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures as such item is defined under Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”) as of June 30, 2022. During the six months ended June 30, 2022, we closed the Acquisition, as discussed in Note 16 — Acquisition of HEYDUDE in the accompanying notes to the condensed consolidated financial statements included in Part I - Item 1. Financial Statements of this Quarterly Report2023. Based on Form 10-Q. As such, the scope of our assessment of the effectiveness of our disclosure controls and procedures did not include internal controls over financial reporting at HEYDUDE. HEYDUDE revenues represented approximately 24.1% and 21.4% of our total revenues for the three and six months ended June 30, 2022, respectively. This exclusion is consistent with the Securities and Exchange Commission (the “SEC”) staff's guidance that an assessment of a recently acquired business may be omitted from the scope of our assessment of the effectiveness of disclosure controls and procedures that are also part of internal control over financial reporting in the year of acquisition.
Based upon that this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2022,2023, to provide reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management necessarily applies its judgment in assessing the costs and benefits of such controls and procedures that, by their nature, can only provide reasonable assurance regarding management’s control objectives.
Changes in Internal Control over Financial Reporting
As noted above,In the three months ended March 31, 2022, we closed the Acquisition, as discussed in Note 14 — Acquisition of HEYDUDE, and as such, we are in the process of integrating HEYDUDE into our overall internal control over financial reporting and will include HEYDUDE in Management’s Evaluation of Disclosure Controls and Procedures for the year endedending December 31, 2023. This process may result in addition or changes to our internal control over financial reporting. In addition, as a result of the Acquisition, we have implemented new processes and controls over accounting for an acquisition during the six months ended June 30, 2022, including determining the fair value of the assets acquired and liabilities assumed. Except as described herein, thereThere were no changes in our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) during the three or six months ended June 30, 20222023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II — Other Information
ITEM 1. Legal Proceedings
A discussion of legal matters is found in Note 1512 — Legal ProceedingsCommitments and Contingencies in the accompanying notes to the condensed consolidated financial statements included in Part I - Item 1. Financial Statements of this Quarterly Report on Form 10-Q.
ITEM 1A. Risk Factors
You should carefully consider the factors discussed in Part I - Item 1A. Risk Factors in our Annual Report, which could materially affect our business, financial condition, cash flows, or future results. Except as set forth below, thereThere have been no material changes in ourto the risk factors included in our Annual Report.
The ongoing war between Russia and Ukraine could cause further disruptions in the global economy as well as a negative impact on our business, financial condition and results of operations.
The ongoing war between Russia and Ukraine has adversely affected the global economy, resulted in heightened economic sanctions against Russia from the United States, the United Kingdom, the European Union, and the international community and could result in geopolitical instability. As a result of the ongoing war between Russia and Ukraine, we have stopped DTC business operations in Russia. Even though revenues from Russia represented less than 3% of our consolidated revenues in 2021, the impact of these government measures and our continued withdrawal of the business, as well as retaliatory actions taken by Russia and the United States and foreign government bodies has caused a negative impact to the global economy, driving increases to the cost of transportation, energy and supplies, which have had, and could continue to have, a material adverse effect on our business, financial condition, results of operations, supply chain, intellectual property, partners, customers or employees and may expose us to adverse legal proceedings in Russia in the future. Further escalation of geopolitical tensions related to the war between Russia and Ukraine, including increased trade barriers or restrictions on global trade, could result in, among other things, broader impacts that expand into other markets, cyberattacks, supply chain and logistics disruptions, lower consumer demand, and changes to foreign exchange rates and financial markets, any of which may adversely affect our business and supply chain. In addition, the effects of the ongoing war between Russia and Ukraine could heighten many of our known risks described in Part I, Item 1A, “Risk Factors”contained in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 16, 2022.
ITEM 5. Other Information
In the three months ended June 30, 2023, no directors or officers adopted or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
ITEM 6. Exhibits
| | | | | | | | |
Exhibit Number | | Description |
3.1 | | |
| | |
3.2 | | |
| | |
3.3 | | |
| | |
3.4 | | |
| | |
4.1 | | |
| | |
31.1† | | |
| | |
31.2† | | |
| | |
32+ | | |
| | |
101.INS† | | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
| | |
101.SCH† | | XBRL Taxonomy Extension Schema Document. |
| | |
101.CAL† | | XBRL Taxonomy Extension Calculation Linkbase Document. |
| | |
101.DEF† | | XBRL Taxonomy Extension Definition Linkbase Document. |
| | |
101.LAB† | | XBRL Taxonomy Extension Label Linkbase Document. |
| | |
101.PRE† | | XBRL Taxonomy Extension Presentation Linkbase Document. |
| | |
104 | | Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101). |
† Filed herewith.
+ Furnished herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | | | | | | | |
| | CROCS, INC. |
| | | |
Date: August 4, 2022July 27, 2023 | | By: | /s/ Anne Mehlman |
| | | Name: | Anne Mehlman |
| | | Title: | Executive Vice President and Chief Financial Officer |