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 September 30, ~~2022~~2023

☐ 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 October ~~27, 2022,~~26, 2023, Crocs, Inc. had ~~61,744,934~~60,566,623 shares of its common stock, par value $0.001 per share, outstanding.

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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 percent~~the 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 and inflation~~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, ~~2021~~2022 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.

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Crocs, Inc.

Table of Contents to the Quarterly Report on Form 10-Q

For the Quarterly Period Ended September 30, ~~2022~~2023

Table of Contents

PART I — Financial Information

ITEM 1. Financial Statements

CROCS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF ~~OPERATIONS~~INCOME

(UNAUDITED)

(in thousands, except per share data)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Revenues	Revenues	$	985,094	$	625,919	$	2,609,823	$	1,726,790	Revenues	$	1,045,717	$	985,094	$	3,002,250	$	2,609,823
Cost of sales	Cost of sales	443,792		226,123		1,245,864		678,594		Cost of sales	464,081		443,792		1,322,937		1,245,864
Gross profit	Gross profit	541,302		399,796		1,363,959		1,048,196		Gross profit	581,636		541,302		1,679,313		1,363,959
Selling, general and administrative expenses	Selling, general and administrative expenses	277,239		196,728		733,255		525,120		Selling, general and administrative expenses	307,784		277,239		852,044		733,255
Income from operations	Income from operations	264,063		203,068		630,704		523,076		Income from operations	273,852		264,063		827,269		630,704
Foreign currency gains (losses), net		(393)		537		(1,115)		(84)
Foreign currency losses, net										Foreign currency losses, net	(1,770)		(393)		(1,622)		(1,115)
Interest income	Interest income	31		615		219		713		Interest income	506		31		1,225		219
Interest expense	Interest expense	(34,142)		(6,486)		(86,357)		(12,830)		Interest expense	(39,207)		(34,142)		(124,907)		(86,357)
Other income (expense), net	Other income (expense), net	16		2		(512)		15		Other income (expense), net	24		16		448		(512)
Income before income taxes	Income before income taxes	229,575		197,736		542,939		510,890		Income before income taxes	233,405		229,575		702,413		542,939
Income tax expense (benefit)		60,226		44,247		140,515		(59,951)
Income tax expense										Income tax expense	56,380		60,226		163,433		140,515
Net income	Net income	$	169,349	$	153,489	$	402,424	$	570,841	Net income	$	177,025	$	169,349	$	538,980	$	402,424
Net income per common share:	Net income per common share:									Net income per common share:
Basic	Basic	$	2.75	$	2.47	$	6.59	$	8.96	Basic	$	2.90	$	2.75	$	8.74	$	6.59
Diluted	Diluted	$	2.72	$	2.42	$	6.51	$	8.79	Diluted	$	2.87	$	2.72	$	8.65	$	6.51
Weighted average common shares outstanding:	Weighted average common shares outstanding:									Weighted average common shares outstanding:
Basic	Basic	61,693		62,033		61,042		63,695		Basic	61,143		61,693		61,670		61,042
Diluted	Diluted	62,367		63,324		61,840		64,937		Diluted	61,615		62,367		62,280		61,840

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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CROCS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

(in thousands)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Net income	Net income	$	169,349	$	153,489	$	402,424	$	570,841	Net income	$	177,025	$	169,349	$	538,980	$	402,424
Other comprehensive income (loss), net of tax:	Other comprehensive income (loss), net of tax:									Other comprehensive income (loss), net of tax:
Derivatives designated as hedging instruments:	Derivatives designated as hedging instruments:									Derivatives designated as hedging instruments:
Unrealized gains (losses) on derivative instruments	Unrealized gains (losses) on derivative instruments	568		—		568		—		Unrealized gains (losses) on derivative instruments	(363)		568		(519)		568

Reclassification adjustment for realized (gains) losses on derivative instruments										Reclassification adjustment for realized (gains) losses on derivative instruments	247		—		847		—
Net increase (decrease) from derivatives designated as hedging instruments	Net increase (decrease) from derivatives designated as hedging instruments	568		—		568		—		Net increase (decrease) from derivatives designated as hedging instruments	(116)		568		328		568
Foreign currency translation losses, net	Foreign currency translation losses, net	(34,285)		(12,867)		(70,788)		(20,053)		Foreign currency translation losses, net	(17,564)		(34,285)		(12,421)		(70,788)

Total comprehensive income, net of tax	Total comprehensive income, net of tax	$	135,632	$	140,622	$	332,204	$	550,788	Total comprehensive income, net of tax	$	159,345	$	135,632	$	526,887	$	332,204

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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CROCS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in thousands, except share and par value amounts)


		September 30, 2022		December 31, 2021			September 30, 2023		December 31, 2022
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	142,971	$	213,197	Cash and cash equivalents	$	127,320	$	191,629
Restricted cash - current	Restricted cash - current	2		65		Restricted cash - current	2		2
Accounts receivable, net of allowances of $31,039 and $20,715, respectively		397,657		182,629
Accounts receivable, net of allowances of $27,305 and $24,493, respectively						Accounts receivable, net of allowances of $27,305 and $24,493, respectively	391,207		295,594
Inventories	Inventories	513,748		213,520		Inventories	390,163		471,551
Income taxes receivable	Income taxes receivable	2,464		22,301		Income taxes receivable	3,047		14,752
Other receivables	Other receivables	23,560		12,252		Other receivables	23,419		18,842
Prepaid expenses and other assets	Prepaid expenses and other assets	42,770		22,605		Prepaid expenses and other assets	44,024		33,605
Total current assets	Total current assets	1,123,172		666,569		Total current assets	979,182		1,025,975
Property and equipment, net of accumulated depreciation and amortization of $91,037 and $83,745, respectively		163,374		108,398
Intangible assets, net of accumulated amortization of $121,717 and $108,167, respectively		1,802,576		28,802
Property and equipment, net						Property and equipment, net	223,061		181,529
Intangible assets, net of accumulated amortization of $142,661 and $125,014, respectively						Intangible assets, net of accumulated amortization of $142,661 and $125,014, respectively	1,793,704		1,800,167
Goodwill	Goodwill	714,380		1,600		Goodwill	711,885		714,814
Deferred tax assets, net	Deferred tax assets, net	481,897		567,201		Deferred tax assets, net	527,678		528,278
Restricted cash	Restricted cash	2,980		3,663		Restricted cash	3,707		3,254
Right-of-use assets	Right-of-use assets	248,548		160,768		Right-of-use assets	313,608		239,905
Other assets	Other assets	6,241		8,067		Other assets	28,539		7,875
Total assets	Total assets	$	4,543,168	$	1,545,068	Total assets	$	4,581,364	$	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	$	190,097	$	162,145	Accounts payable	$	209,890	$	230,821
Accrued expenses and other liabilities	Accrued expenses and other liabilities	228,971		166,887		Accrued expenses and other liabilities	248,160		239,424
Income taxes payable	Income taxes payable	76,990		16,279		Income taxes payable	108,716		89,211
Current borrowings	Current borrowings	20,000		—		Current borrowings	20,000		24,362
Current operating lease liabilities	Current operating lease liabilities	55,102		42,932		Current operating lease liabilities	61,111		57,456
Total current liabilities	Total current liabilities	571,160		388,243		Total current liabilities	647,877		641,274
Deferred tax liabilities, net	Deferred tax liabilities, net	312,813		—		Deferred tax liabilities, net	299,296		302,030
Long-term income taxes payable	Long-term income taxes payable	204,769		219,744		Long-term income taxes payable	226,006		224,837
Long-term borrowings	Long-term borrowings	2,595,767		771,390		Long-term borrowings	1,918,668		2,298,027
Long-term operating lease liabilities	Long-term operating lease liabilities	225,395		149,237		Long-term operating lease liabilities	286,910		215,119
Other liabilities	Other liabilities	2,462		2,372		Other liabilities	2,349		2,579
Total liabilities	Total liabilities	3,912,366		1,530,986		Total liabilities	3,381,106		3,683,866
Commitments and contingencies	Commitments and contingencies					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, 109.5 million and 105.9 million issued, 61.7 million and 58.3 million outstanding, respectively		109		106
Treasury stock, at cost, 47.7 million and 47.6 million shares, respectively		(1,695,463)		(1,684,262)

Common stock, par value $0.001 per share, 250.0 million shares authorized, 110.0 million and 109.5 million issued, 60.8 million and 61.7 million outstanding, respectively						Common stock, par value $0.001 per share, 250.0 million shares authorized, 110.0 million and 109.5 million issued, 60.8 million and 61.7 million outstanding, respectively	110		110
Treasury stock, at cost, 49.3 million and 47.7 million shares, respectively						Treasury stock, at cost, 49.3 million and 47.7 million shares, respectively	(1,863,567)		(1,695,501)
Additional paid-in capital	Additional paid-in capital	791,750		496,036		Additional paid-in capital	821,120		797,614
Retained earnings	Retained earnings	1,681,464		1,279,040		Retained earnings	2,358,179		1,819,199
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(147,058)		(76,838)		Accumulated other comprehensive loss	(115,584)		(103,491)
Total stockholders’ equity	Total stockholders’ equity	630,802		14,082		Total stockholders’ equity	1,200,258		817,931
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	4,543,168	$	1,545,068	Total liabilities and stockholders’ equity	$	4,581,364	$	4,501,797

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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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 June 30, 2022		61,627	$	109	47,667	$	(1,690,780)			$	783,862						$	1,512,115			$	(113,341)		$	491,965
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
Share-based compensation	Share-based compensation	—	—		—	—		7,888				—			—				7,888			Share-based compensation	—			—			—	—		7,655			—			—			7,655
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	118	—		62	(4,683)		—				—			—				(4,683)			Exercises of stock options, issuance of restricted stock awards, and vests of restricted stock units, net of shares withheld for taxes	102			—			52	(5,398)		(1)			—			—			(5,399)

Repurchases of common stock, including excise tax																						Repurchases of common stock, including excise tax	(1,391)			—			1,391	(151,033)		—			—			—			(151,033)

Net income	Net income	—	—		—	—		—				169,349			—				169,349			Net income	—			—			—	—		—			177,025			—			177,025
Other comprehensive loss	Other comprehensive loss	—	—		—	—		—				—			(33,717)				(33,717)			Other comprehensive loss	—			—			—	—		—			—			(17,680)			(17,680)
Balance at September 30, 2022		61,745	$	109	47,729	$	(1,695,463)	$	791,750			$	1,681,464		$	(147,058)			$	630,802
Balance at September 30, 2023																						Balance at September 30, 2023	60,778			$	110		49,268	$	(1,863,567)	$	821,120		$	2,358,179		$	(115,584)		$	1,200,258


		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 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
Share-based compensation	Share-based compensation	—	—		—	—		10,591				—			—				10,591			Share-based compensation	—			—			—	—		7,888			—			—			7,888
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	174	—		52	(7,146)		—				—			—				(7,146)			Exercises of stock options, issuance of restricted stock awards, and vests of restricted stock units, net of shares withheld for taxes	118			—			62	(4,683)		—			—			—			(4,683)
Repurchases of common stock		(1,055)	—		1,055	(150,000)		—				—			—				(150,000)

Net income	Net income	—	—		—	—		—				153,489			—				153,489			Net income	—			—			—	—		—			169,349			—			169,349
Other comprehensive loss	Other comprehensive loss	—	—		—	—		—				—			(12,867)				(12,867)			Other comprehensive loss	—			—			—	—		—			—			(33,717)			(33,717)
Balance at September 30, 2021		61,501	$	106	44,390	$	(1,236,003)	$	540,948			$	1,124,187		$	(76,407)			$	352,831
Balance at September 30, 2022																						Balance at September 30, 2022	61,745			$	109		47,729	$	(1,695,463)	$	791,750		$	1,681,464		$	(147,058)		$	630,802

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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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 December 31, 2021		58,330	$	106	47,583	$	(1,684,262)			$	496,036						$	1,279,040			$	(76,838)		$	14,082
Balance at December 31, 2022																						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	Share-based compensation	—	—		—	—		25,463				—			—				25,463			Share-based compensation	—			—			—	—		23,507			—			—			23,507
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	563	—		146	(11,201)		(142)				—			—				(11,343)			Exercises of stock options, issuance of restricted stock awards, and vests of restricted stock units, net of shares withheld for taxes	420			—			147	(17,033)		(1)			—			—			(17,034)
Repurchases of common stock, including excise tax																						Repurchases of common stock, including excise tax	(1,391)			—			1,391	(151,033)		—			—			—			(151,033)

Share issuance at Acquisition		2,852	3		—	—		270,393				—			—				270,396
Net income	Net income	—	—		—	—		—				402,424			—				402,424			Net income	—			—			—	—		—			538,980			—			538,980
Other comprehensive loss	Other comprehensive loss	—	—		—	—		—				—			(70,220)				(70,220)			Other comprehensive loss	—			—			—	—		—			—			(12,093)			(12,093)
Balance at September 30, 2022		61,745	$	109	47,729	$	(1,695,463)	$	791,750			$	1,681,464		$	(147,058)			$	630,802
Balance at September 30, 2023																						Balance at September 30, 2023	60,778			$	110		49,268	$	(1,863,567)	$	821,120		$	2,358,179		$	(115,584)		$	1,200,258


		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	—	—		—	—		29,939				—			—				29,939			Share-based compensation	—			—			—	—		25,463			—			—			25,463
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	702	1		201	(18,766)		236				—			—				(18,529)			Exercises of stock options, issuance of restricted stock awards, and vests of restricted stock units, net of shares withheld for taxes	563			—			146	(11,201)		(142)			—			—			(11,343)
Repurchases of common stock		(5,057)	—		5,057	(528,388)		28,388				—			—				(500,000)
Share issuance at Acquisition																						Share issuance at Acquisition	2,852			3			—	—		270,393			—			—			270,396

Net income	Net income	—	—		—	—		—				570,841			—				570,841			Net income	—			—			—	—		—			402,424			—			402,424
Other comprehensive loss	Other comprehensive loss	—	—		—	—		—				—			(20,053)				(20,053)			Other comprehensive loss	—			—			—	—		—			—			(70,220)			(70,220)
Balance at September 30, 2021		61,501	$	106	44,390	$	(1,236,003)	$	540,948			$	1,124,187		$	(76,407)			$	352,831
Balance at September 30, 2022																						Balance at September 30, 2022	61,745			$	109		47,729	$	(1,695,463)	$	791,750		$	1,681,464		$	(147,058)		$	630,802

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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CROCS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)

Nine Months Ended September 30,
2022 2021
Cash flows from operating activities:
Net income $ 402,424 $ 570,841
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 26,498 23,832
Operating lease cost 47,945 44,067
Share-based compensation 25,463 29,939
Deferred income taxes — (176,873)
Other non-cash items (1)
12,568 (2,672)
Changes in operating assets and liabilities, net of acquired assets and assumed liabilities:
Accounts receivable (166,864) (80,981)
Inventories (139,682) (41,193)
Prepaid expenses and other assets (1)
(20,526) (9,936)
Accounts payable, accrued expenses and other liabilities 51,608 30,997
Right-of-use assets and operating lease liabilities (45,824) (37,723)
Income taxes (1)
53,075 4,867
Cash provided by operating activities 246,685 355,165
Cash flows from investing activities:
Purchases of property, equipment, and software (89,588) (35,758)
Acquisition of HEYDUDE, net of cash acquired (2,046,881) —
Other (1)
(20) (9)
Cash used in investing activities (2,136,489) (35,767)
Cash flows from financing activities:
Proceeds from notes issuance — 700,000
Proceeds from borrowings 2,240,677 170,000
Repayments of borrowings (350,285) (350,000)
Deferred debt issuance costs (51,395) (14,491)
Repurchases of common stock — (500,000)
Repurchases of common stock for tax withholding (11,439) (18,766)
Other 95 237
Cash provided by (used in) financing activities 1,827,653 (13,020)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash (8,821) (3,907)
Net change in cash, cash equivalents, and restricted cash (70,972) 302,471
Cash, cash equivalents, and restricted cash—beginning of period 216,925 139,273
Cash, cash equivalents, and restricted cash—end of period $ 145,953 $ 441,744
Non-Cash Investing and Financing Activities:
Accrued purchases of property, equipment, and software $ 80,098 $ 13,061
Share issuance at Acquisition 270,396 —

~~(1)~~ ~~Amounts for the nine months ended September 30, 2021 have been reclassified to conform to current period presentation.~~


	Nine Months Ended September 30,
	2023		2022
Cash flows from operating activities:
Net income	$	538,980	$	402,424
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	40,531		26,498
Operating lease cost	56,880		47,945


Share-based compensation	23,507		25,463

Other non-cash items	7,411		12,568
Changes in operating assets and liabilities, net of acquired assets and assumed liabilities:
Accounts receivable	(99,912)		(166,864)
Inventories	77,915		(139,682)
Prepaid expenses and other assets	(30,714)		(20,526)
Accounts payable, accrued expenses and other liabilities	(4,935)		51,608
Right-of-use assets and operating lease liabilities	(54,287)		(45,824)
Income taxes	25,350		53,075
Cash provided by operating activities	580,726		246,685
Cash flows from investing activities:
Purchases of property, equipment, and software	(86,378)		(89,588)

Acquisition of HEYDUDE, net of cash acquired	—		(2,046,881)
Other	(90)		(20)
Cash used in investing activities	(86,468)		(2,136,489)
Cash flows from financing activities:

Proceeds from borrowings	214,634		2,240,677
Repayments of borrowings	(603,703)		(350,285)
Deferred debt issuance costs	(1,736)		(51,395)
Repurchases of common stock	(150,013)		—
Repurchases of common stock for tax withholding	(17,034)		(11,439)
Other	—		95
Cash provided by (used in) financing activities	(557,852)		1,827,653
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(262)		(8,821)
Net change in cash, cash equivalents, and restricted cash	(63,856)		(70,972)
Cash, cash equivalents, and restricted cash—beginning of period	194,885		216,925
Cash, cash equivalents, and restricted cash—end of period	$	131,029	$	145,953

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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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 casual 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 1514 — 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, ~~2021~~2022 (“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 nine months ended September 30, ~~2022,~~2023, other than with respect to the new accounting pronouncements adopted as described in Note 2 — Recent Accounting Pronouncements, our accounting policy for hedged derivatives as described in Note 7 — Derivative Financial Instruments, and our business combination policy as described in Note 17 — Acquisition of HEYDUDE.Pronouncements.

Reclassifications

We have reclassified certain amounts ~~on the condensed consolidated statements of cash flows,~~ in Note 4 — Accrued Expenses and Other Liabilities ~~and in Note 15 — 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 17 — 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.

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Condensed Consolidated Statements of Cash Flows - Supplemental Disclosures


	Nine Months Ended September 30,
	2023		2022
	(in thousands)
Cash paid for interest	$	125,130	$	89,080
Cash paid for income taxes	141,393		89,306
Cash paid for operating leases	53,679		45,192

Non-Cash Investing and Financing Activities:
Right-of-use assets obtained in exchange for operating lease liabilities, net of terminations	$	122,534	$	96,292
Accrued purchases of property, equipment, and software (1)	9,445		6,341
Share issuance at Acquisition (2)	—		270,396

(1) In the three months ended September 30, 2023, management identified an error in its quarterly condensed consolidated statement of cash flows for the nine months ended September 30, 2022 of $73.8 million within the amount reported in ‘Accrued purchases of property, equipment, and software.’ This amount represents noncash investing activity and had no impact on cash flows from operating, investing, or financing activities. We have corrected this amount here for the nine months ended September 30, 2022. Management has evaluated the materiality of this error from quantitative and qualitative perspectives and concluded the error was not material to the prior period.

(2) 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

Income Taxes

The CHIPS and Science Act of 2022 ~~(CHIPS)~~(“CHIPS”) and the Inflation Reduction Act ~~(IRA)~~ of 2022 (“IRA”) were signed into law ~~by President Biden~~ on August 9, 2022 and August 16, 2022, respectively. The legislation introduces new options for monetizing certain credits, a corporate alternative minimum tax, and a stock repurchase excise tax. The corporate alternative minimum tax and stock repurchase excise tax were effective as of January 1, 2023 and are the main provisions that are applicable to us. The Company is currently ~~evaluating~~monitoring the impact of both the CHIPS and IRA but ~~at present~~ does not expect that ~~the~~ any of the provisions included in these acts would result in a material impact to our deferred tax assets, liabilities, or income taxes payable.

~~Business Combinations~~

~~In October 2021,~~ Additionally, we resumed our share repurchase program in July 2023. As such, we began recognizing an accrual for the FASB issued new guidance primarily related to the accounting for contract assets and liabilities from contracts with customers in a business combination. The standard will be effective for annual reporting periods beginning after December 31, 2022, including interim reporting periods within those periods, with early adoption permitted. On January 1, 2022, we early adopted this guidance on a prospective basis. The adoptionstock repurchase excise tax, which did not have a material impact on our consolidated financial ~~statements.~~position.

New Accounting Pronouncement Not Yet Adopted

~~New~~Pillar 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 September 30, ~~2022~~2023 are not expected to have a material impact on our condensed consolidated financial statements.

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3. PROPERTY AND EQUIPMENT, NET

‘Property and equipment, net’ consists of the following:


		September 30, 2022		December 31, 2021			September 30, 2023		December 31, 2022
		(in thousands)					(in thousands)
Machinery and equipment						Machinery and equipment	$	161,627	$	146,821
Leasehold improvements	Leasehold improvements	$	66,532	$	64,625	Leasehold improvements	92,825		76,363
Machinery and equipment		126,451		53,976
Construction-in-progress						Construction-in-progress	54,931		28,699
Furniture, fixtures, and other	Furniture, fixtures, and other	36,151		20,210		Furniture, fixtures, and other	32,377		26,782
Construction-in-progress		25,277		53,332
Property and equipment	Property and equipment	254,411		192,143		Property and equipment	341,760		278,665
Less: Accumulated depreciation and amortization	Less: Accumulated depreciation and amortization	(91,037)		(83,745)		Less: Accumulated depreciation and amortization	(118,699)		(97,136)
Property and equipment, net	Property and equipment, net	$	163,374	$	108,398	Property and equipment, net	$	223,061	$	181,529

4. ACCRUED EXPENSES AND OTHER LIABILITIES

Amounts reported in ‘Accrued expenses and other liabilities’ in the condensed consolidated balance sheets were:


		September 30, 2022		December 31, 2021			September 30, 2023		December 31, 2022
		(in thousands)					(in thousands)
Accrued compensation and benefits	Accrued compensation and benefits	$	53,008	$	62,945	Accrued compensation and benefits	$	60,150	$	55,474
Professional services	Professional services	48,293		33,997		Professional services	62,958		45,351
Fulfillment, freight, and duties	Fulfillment, freight, and duties	46,340		15,629		Fulfillment, freight, and duties	29,797		41,646
Return liabilities						Return liabilities	24,946		27,651
Sales/use and value added taxes payable	Sales/use and value added taxes payable	21,714		13,049		Sales/use and value added taxes payable	26,736		27,249
Return liabilities		18,185		10,342
Royalties payable and deferred revenue						Royalties payable and deferred revenue	12,297		10,528
Accrued rent and occupancy	Accrued rent and occupancy	8,641		7,431		Accrued rent and occupancy	8,724		8,972
Royalties payable and deferred revenue		8,699		7,425

Accrued legal fees (1)	Accrued legal fees (1)	4,541		5,872		Accrued legal fees (1)	4,251		2,602
Other (1)	Other (1)	19,550		10,197		Other (1)	18,301		19,951
Total accrued expenses and other liabilities	Total accrued expenses and other liabilities	$	228,971	$	166,887	Total accrued expenses and other liabilities	$	248,160	$	239,424

(1) Amounts as of December 31, ~~2021~~2022 have been reclassified to conform to current period presentation.

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5. LEASES

Right-of-Use Assets and Operating Lease Liabilities

Amounts reported in the condensed consolidated balance sheets were:


		September 30, 2022		December 31, 2021			September 30, 2023		December 31, 2022
		(in thousands)					(in thousands)
Assets:	Assets:					Assets:
Right-of-use assets	Right-of-use assets	$	248,548	$	160,768	Right-of-use assets	$	313,608	$	239,905
Liabilities:	Liabilities:					Liabilities:
Current operating lease liabilities	Current operating lease liabilities	$	55,102	$	42,932	Current operating lease liabilities	$	61,111	$	57,456
Long-term operating lease liabilities	Long-term operating lease liabilities	225,395		149,237		Long-term operating lease liabilities	286,910		215,119
Total operating lease liabilities	Total operating lease liabilities	$	280,497	$	192,169	Total operating lease liabilities	$	348,021	$	272,575

We expect to move from our current corporate headquarters in the three months ended December 31, 2023. As of September 30, 2023, we estimated impairment losses of up to a maximum of approximately $16 million to our right-of-use-asset and property and equipment associated with our current corporate headquarters to be recognized in the three months ended December 31, 2023. This estimate is subject to change in the near term.

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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 ~~operations~~income were:

Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
(in thousands)
Operating lease cost $ 17,058 $ 14,309 $ 47,945 $ 44,067
Short-term lease cost 2,490 2,095 7,493 5,499
Variable lease cost 12,161 10,568 28,726 24,875
Total lease costs $ 31,709 $ 26,972 $ 84,164 $ 74,441

~~Other information related to leases, including supplemental cash flow information, consists of:~~
Nine Months Ended September 30,
2022 2021
(in thousands)
Cash paid for operating leases $ 45,192 $ 46,345
Right-of-use assets obtained in exchange for operating lease liabilities 96,292 52,145


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
	(in thousands)
Operating lease cost	$	20,288	$	17,058	$	56,880	$	47,945
Short-term lease cost	3,102		2,490		10,336		7,493
Variable lease cost	15,130		12,161		35,248		28,726
Total lease costs	$	38,520	$	31,709	$	102,464	$	84,164

The weighted average remaining lease term and discount rate related to our lease liabilities as of September 30, ~~2022~~2023 were 7.2 years and ~~3.6%~~5.5%, respectively. As of September 30, ~~2021,~~2022, the weighted average remaining lease term and discount rate related to our lease liabilities were ~~7.1~~7.2 years and ~~3.9%~~3.6%, respectively.

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Maturities

The maturities of our operating lease liabilities were:

As of
September 30, 2022
(in thousands)
2022 (remainder of year) $ 11,809
2023 61,580
2024 47,943
2025 36,329
2026 31,275
Thereafter 133,028
Total future minimum lease payments 321,964
Less: imputed interest (41,467)
Total operating lease liabilities $ 280,497

~~Leases That Have Not Yet Commenced~~

As of September 30, 2022, 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 $75 million.


	As of September 30, 2023
	(in thousands)
2023 (remainder of year)	$	13,269
2024	76,434
2025	60,750
2026	52,309
2027	45,767
Thereafter	179,532
Total future minimum lease payments	428,061
Less: imputed interest	(80,040)
Total operating lease liabilities	$	348,021

6. 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 September 30, ~~2022~~2023 and December 31, ~~2021.~~2022. The fair values of our derivative instruments were an insignificant ~~asset~~liability at September 30, ~~2022~~2023 and an insignificant asset and insignificant liability at December 31, ~~2021.~~2022. See Note 7 — 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 nine months ended September 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 8 — 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 ~~values~~value of our ~~revolving credit facilities approximate their~~Revolving Facility (as defined below) approximates its carrying ~~values~~value at

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September 30, ~~2022~~2023 and December 31, ~~2021~~2022 based on interest rates currently available to us for similar borrowings. The carrying value and fair value of our borrowing instruments as of September 30, ~~2022~~2023 and December 31, ~~2021~~2022 were:

September 30, 2022 December 31, 2021
Carrying Value Fair Value Carrying Value Fair Value
(in thousands)
Term Loan B Facility $ 1,975,000 $ 1,856,500 $ — $ —
2029 Notes 350,000 275,844 350,000 346,281
2031 Notes 350,000 267,750 350,000 341,250
Revolving credit facilities — — 85,000 85,000


	September 30, 2023				December 31, 2022
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(in thousands)
Term Loan B Facility	$	1,090,000	$	1,094,088	$	1,675,000	$	1,642,547
2029 Notes	350,000		290,210		350,000		297,596
2031 Notes	350,000		270,643		350,000		284,240
Revolving Facility	200,000		200,000		—		—

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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.

7. DERIVATIVE FINANCIAL INSTRUMENTS

We transact business in various foreign ~~countries~~entities 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 September 30, ~~2022~~2023 or December 31, ~~2021.~~2022.

Our derivative instruments ~~and cash flow hedges~~ are recorded at fair value as a derivative asset or liability in the condensed consolidated balance sheets within either ‘Prepaid expenses and other assets’ or ‘Accrued expenses and other liabilities’ at September 30, ~~2022~~2023 and December 31, ~~2021.~~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 ~~forecasted~~ 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 gains (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.’

As of September 30, ~~2022,~~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 and~~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 ~~described in the following section.~~

~~Cash Flow Hedges~~ of ~~Foreign Exchange Risk~~

September 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 ~~U.S. Dollars~~USD for their fair value at or close to their settlement date. We may

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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 ~~operations,~~income, which is consistent with the nature of the hedged transaction. During the three and nine months ended September 30, ~~2022,~~2023, there ~~were no gains or losses reclassified~~was a gain of $0.3 million and loss of $0.5 million, respectively, recognized due to reclassification from ‘Accumulated other comprehensive loss’ to ‘Revenues’ or ‘Cost of ~~sales.’~~sales’ related to our hedged derivatives. During the next twelve months, we estimate that a loss of approximately ~~$0.6~~less than $0.1 million will be reclassified to ~~the~~our condensed consolidated statement of ~~operations.~~

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~~Results of Derivative Activities~~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:


		September 30, 2022				December 31, 2021					September 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:									Non-hedged derivatives:
Forward foreign currency exchange contracts	Forward foreign currency exchange contracts	$	1,368	$	(1,226)	$	724	$	(938)	Forward foreign currency exchange contracts	$	3,159	$	(3,626)	$	345	$	(360)
Netting of counterparty contracts		(1,226)		1,226		(724)		724
Foreign currency forward contract derivatives		142		—		—		(214)

Hedged derivatives:	Hedged derivatives:									Hedged derivatives:
Cash flow foreign currency contracts	Cash flow foreign currency contracts	568		—		—		—		Cash flow foreign currency contracts	5		(30)		348		(1,116)
Total derivatives										Total derivatives	3,164		(3,656)		693		(1,476)
Netting of counterparty contracts	Netting of counterparty contracts	—		—		—		—		Netting of counterparty contracts	(3,164)		3,164		(345)		345
Cash flow foreign currency contract derivatives		568		—		—		—
Total derivatives		$	710	$	—	$	—	$	(214)

Total derivatives, net of counterparty contracts										Total derivatives, net of counterparty contracts	$	—	$	(492)	$	348	$	(1,131)

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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.


		September 30, 2022				December 31, 2021					September 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:									Non-hedged derivatives:
Singapore Dollar	Singapore Dollar	$	67,673	$	(1,226)	$	43,723	$	(296)	Singapore Dollar	$	48,296	$	(1,652)	$	26,760	$	207
Indian Rupee										Indian Rupee	15,517		104		24,945		(10)
South Korean Won	South Korean Won	19,635		646		14,201		(112)		South Korean Won	16,823		1,094		18,403		(320)
Indian Rupee		21,590		484		10,379		(86)
British Pound Sterling	British Pound Sterling	17,513		49		25,795		104		British Pound Sterling	22,702		1,380		14,509		128
Japanese Yen	Japanese Yen	9,528		75		12,910		80		Japanese Yen	5,407		370		8,953		9
Euro	Euro	6,119		114		21,198		162		Euro	32,684		(1,919)		5,068		(29)
Other currencies	Other currencies	—		—		19,481		(66)		Other currencies	2,735		156		—		—
Total non-hedged derivatives	Total non-hedged derivatives	142,058		142		147,687		(214)		Total non-hedged derivatives	144,164		(467)		98,638		(15)
Hedged derivatives:	Hedged derivatives:									Hedged derivatives:
Euro	Euro	12,800		113		—		—		Euro	10,143		5		51,914		(360)
British Pound Sterling										British Pound Sterling	4,874		(17)		23,025		235
South Korean Won	South Korean Won	8,860		271		—		—		South Korean Won	2,317		(1)		12,285		(756)
Indian Rupee	Indian Rupee	6,960		138		—		—		Indian Rupee	3,770		(12)		7,203		113
British Pound Sterling		6,812		46		—		—
Total hedged derivatives	Total hedged derivatives	35,432		568		—		—		Total hedged derivatives	21,104		(25)		94,427		(768)
Total derivatives	Total derivatives	$	177,490	$	710	$	147,687	$	(214)	Total derivatives	$	165,268	$	(492)	$	193,065	$	(783)

Latest maturity date, non-hedged derivatives	Latest maturity date, non-hedged derivatives	December 2022				January 2022				Latest maturity date, non-hedged derivatives	October 2023				April 2023
Latest maturity date, hedged derivatives	Latest maturity date, hedged derivatives	June 2023				N/A				Latest maturity date, hedged derivatives	December 2023				June 2023

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Amounts reported in ‘Foreign currency ~~gains (losses),~~losses, net’ in the condensed consolidated statements of ~~operations~~income include both realized and unrealized gains (losses) from foreign currency transactions and derivative contracts and were:

Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
(in thousands)
Non-hedged derivatives:
Foreign currency transaction gains (losses) $ (2,126) $ 493 $ (6,178) $ 148
Foreign currency forward exchange contracts gains 1,733 44 5,063 (232)
Foreign currency gains (losses), net $ (393) $ 537 $ (1,115) $ (84)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
	(in thousands)
Non-hedged derivatives:
Foreign currency transaction losses	$	(781)	$	(2,126)	$	(1,150)	$	(6,178)
Foreign currency forward exchange contracts gains (losses)	(989)		1,733		(472)		5,063
Foreign currency losses, net	$	(1,770)	$	(393)	$	(1,622)	$	(1,115)

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8. BORROWINGS

Our long-term borrowings were as follows:


		Maturity	Stated Interest Rate		Effective Interest Rate		September 30, 2022		December 31, 2021			Maturity	Stated Interest Rate		Effective Interest Rate		September 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					1,975,000		—		Term Loan B Facility	2029					1,090,000		1,675,000
Revolving credit facilities							—		85,000
Revolving Facility											Revolving Facility						200,000		—
Total face value of long-term borrowings	Total face value of long-term borrowings						2,675,000		785,000		Total face value of long-term borrowings						1,990,000		2,375,000
Less:	Less:										Less:
Unamortized issuance costs	Unamortized issuance costs						59,233		13,610		Unamortized issuance costs						51,332		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						$	2,595,767	$	771,390	Total long-term borrowings						$	1,918,668	$	2,298,027

(1) Represents the current portion of the borrowings onunder the Term Loan B facility.

At September 30, ~~2022~~2023 and December 31, ~~2021, $2.1~~2022, $3.2 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.

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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 September 30, ~~2022,~~2023, we were in compliance with all financial covenants under the Credit Agreement.

As of September 30, ~~2022,~~2023, the total commitments available from the lenders under the Revolving Facility were ~~$600.0~~$750.0 million. At September 30, ~~2022,~~2023, we had no$200.0 million in outstanding borrowings 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 September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, we had ~~$599.7~~$548.7 million and ~~$414.7~~$748.7 million, respectively, of available borrowing capacity under the Revolving ~~Facility.~~Facility, which matures November 2027.

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Term Loan B Facility

On February 17, 2022, the Company entered into a credit agreement (the ~~“Term~~“Original 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~~Acquisition, which was amended (the "Amendment") on August 8, 2023 (the Original Term Loan B Credit Agreement, ~~provides~~as amended by the Amendment, the “Term Loan B Credit Agreement”).

The Original Term Loan B Credit Agreement provided for an aggregate term loan B facility in the principal amount of $2.0 billion. Among other things, the Amendment provided for a new $1.18 billion tranche of term loans (the ~~“Term~~“2023 Refinancing Term Loans” and, such facility, the "Term Loan B ~~Facility”~~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~~Pursuant to the reduced interest rate margins applicable to the 2023 Refinancing Term Loans, 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%~~2.00%. 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%~~3.00%.

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. The 2023 Refinancing Term Loans replaced and refinanced all outstanding term loans under the Original Term Loan B Credit Agreement. As of September 30, ~~2022,~~2023, we had ~~$1,975~~$1,090.0 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 September 30, ~~2022,~~2023, we were in compliance with all financial covenants under the Term Loan B Credit Agreement.

Asia Revolving Credit Facilities

During the nine months ended September 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 ~~provides~~matured in January 2023 and provided up to 10.0 million RMB, or ~~$1.4~~$1.5 million atusing current exchange rates ~~and matures in~~as 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.

WeAs of September 30, 2023, we had no borrowings outstanding ~~under our Asia revolving facilities at September 30, 2022 or~~on the Citibank Facility. As of December 31, ~~2021.~~2022, we had no outstanding borrowings on the CMBC Facility, and we had borrowings outstanding of $4.3 million on the Citibank 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.

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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

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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 September 30, ~~2022,~~2023, we were in compliance with all financial covenants under the Notes.

9. COMMON STOCK REPURCHASE PROGRAM

During the three and nine months ended September 30, 2023, we repurchased 1.4 million shares of our common stock at a cost of $150.0 million, including commissions. As of September 30, 2023, we also have recorded an accrual for the stock repurchase excise tax, which is reported in ‘Accrued expenses and other liabilities’ and ‘Treasury stock’ in our condensed consolidated balance sheet. During the three and nine months ended September 30, 2022, we did not repurchase any shares of our common stock.

During the three months ended September 30, 2021, we repurchased 1.1 million shares of our common stock at a cost of $150.0 million, including commissions. During the nine months ended September 30, 2021, we repurchased 5.1 million shares of our common stock at an aggregate cost of $500.0 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 September 30, ~~2022,~~2023, we had remaining authorization to repurchase ~~approximately $1,050.0~~$900.0 million of our common stock, subject to restrictions under our Indentures, Credit Agreement, and Term Loan B Credit Agreement.

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10. REVENUES

Revenues by channel and brand were:

~~Third Quarter~~


	Three Months Ended September 30, 2023
	Crocs Brand		HEYDUDE Brand		Total
	(in thousands)
Channel:
Wholesale	$	369,177	$	146,501	$	515,678
Direct-to-consumer	429,592		100,447		530,039
Total revenues	$	798,769	$	246,948	$	1,045,717


	Three Months Ended September 30, 2022
	Crocs Brand		HEYDUDE Brand		Total
	(in thousands)
Channel:
Wholesale	$	353,304	$	181,768	$	535,072
Direct-to-consumer	362,403		87,619		450,022
Total revenues	$	715,707	$	269,387	$	985,094

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Three Months Ended September 30, 2021
Crocs Brand HEYDUDE Brand Total
(in thousands)
Channel:
Wholesale $ 309,611 $ — $ 309,611
Direct-to-consumer 316,308 — 316,308
Total revenues $ 625,919 $ — $ 625,919

~~Year to Date~~


		Nine Months Ended September 30, 2022							Nine Months Ended September 30, 2023
		Crocs Brand		HEYDUDE Brand		Total			Crocs Brand		HEYDUDE Brand		Total
		(in thousands)							(in thousands)
Channel:	Channel:							Channel:
Wholesale	Wholesale	$	1,090,073	$	431,186	$	1,521,259	Wholesale	$	1,187,081	$	463,189	$	1,650,270
Direct-to-consumer	Direct-to-consumer	903,075		185,489		1,088,564		Direct-to-consumer	1,093,416		258,564		1,351,980

Total revenues	Total revenues	$	1,993,148	$	616,675	$	2,609,823	Total revenues	$	2,280,497	$	721,753	$	3,002,250


		Nine Months Ended September 30, 2021							Nine Months Ended September 30, 2022
		Crocs Brand		HEYDUDE Brand		Total			Crocs Brand		HEYDUDE Brand		Total
		(in thousands)							(in thousands)
Channel:	Channel:							Channel:
Wholesale	Wholesale	$	906,978	$	—	$	906,978	Wholesale	$	1,090,073	$	431,186	$	1,521,259
Direct-to-consumer	Direct-to-consumer	819,812		—		819,812		Direct-to-consumer	903,075		185,489		1,088,564

Total revenues	Total revenues	$	1,726,790	$	—	$	1,726,790	Total revenues	$	1,993,148	$	616,675	$	2,609,823

For information on revenues by reportable operating segment, see Note 1514 — Operating Segments and Geographic Information.

11. ~~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.

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~~Share-based compensation expense reported in our condensed consolidated statements of operations was:~~

Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
(in thousands)
Cost of sales $ 114 $ 147 $ 378 $ 384
Selling, general and administrative expenses 7,774 10,444 25,085 29,555
Total share-based compensation expense $ 7,888 $ 10,591 $ 25,463 $ 29,939

~~12.~~ INCOME TAXES

Income tax expense and effective tax rates were:


		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended September 30,						Nine Months Ended September 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	$	229,575		$	197,736		$	542,939		$	510,890		Income before income taxes	$	233,405		$	229,575		$	702,413		$	542,939
Income tax expense (benefit)		60,226			44,247			140,515			(59,951)
Income tax expense														Income tax expense	56,380			60,226			163,433			140,515
Effective tax rate	Effective tax rate	26.2		%	22.4		%	25.9		%	(11.7		%)	Effective tax rate	24.2		%	26.2		%	23.3		%	25.9		%

The ~~increase~~decrease in the effective tax rate for the three months ended September 30, ~~2022~~2023, compared to the same period in ~~2021,~~2022, was primarily driven by a shift in the ~~prior year release~~mix of ~~valuation allowances.~~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 due to differences in income tax rates between U.S. and foreign jurisdictions. We had unrecognized tax benefits of ~~$200.0~~$218.4 million and ~~$218.4~~$219.4 million at September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively, and we do not expect any significant changes in tax benefits in the next twelve months.

During the nine months ended September 30, ~~2022,~~2023, income tax expense increased ~~$200.5~~$22.9 million compared to the same period in ~~2021.~~2022. The effective tax rate for the nine months ended September 30, ~~2022~~2023 was ~~25.9%~~23.3% compared to an effective tax rate of ~~(11.7)%~~25.9% for the same period in ~~2021,~~2022, a ~~37.6% increase.~~2.6% decrease. This ~~increase~~decrease in the effective tax rate was primarily driven by a shift in the ~~prior year release~~mix of ~~valuation allowances.~~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.

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~~13.~~12. EARNINGS PER SHARE

Basic and diluted earnings per common share (“EPS”) for the ~~three and~~ nine months ended September 30, ~~2022~~2023 and ~~2021~~2022 were:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2023		2022		2023		2022
		(in thousands, except per share data)									(in thousands, except per share data)
Numerator:	Numerator:									Numerator:
Net income	Net income	$	169,349	$	153,489	$	402,424	$	570,841	Net income	$	177,025	$	169,349	$	538,980	$	402,424
Denominator:	Denominator:									Denominator:
Weighted average common shares outstanding - basic	Weighted average common shares outstanding - basic	61,693		62,033		61,042		63,695		Weighted average common shares outstanding - basic	61,143		61,693		61,670		61,042
Plus: Dilutive effect of stock options and unvested restricted stock units	Plus: Dilutive effect of stock options and unvested restricted stock units	674		1,291		798		1,242		Plus: Dilutive effect of stock options and unvested restricted stock units	472		674		610		798
Weighted average common shares outstanding - diluted	Weighted average common shares outstanding - diluted	62,367		63,324		61,840		64,937		Weighted average common shares outstanding - diluted	61,615		62,367		62,280		61,840

Net income per common share:	Net income per common share:									Net income per common share:
Basic	Basic	$	2.75	$	2.47	$	6.59	$	8.96	Basic	$	2.90	$	2.75	$	8.74	$	6.59
Diluted	Diluted	$	2.72	$	2.42	$	6.51	$	8.79	Diluted	$	2.87	$	2.72	$	8.65	$	6.51

In the three and nine months ended September 30, ~~2022~~2023 and ~~2021,~~2022, an insignificant number of outstanding shares issued under share-based compensation awards were anti-dilutive and, therefore, excluded from the calculation of diluted EPS.

~~14.~~13. COMMITMENTS AND CONTINGENCIES

Purchase Commitments

As of September 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 ~~$331.9~~$276.4 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 16 — Legal Proceedings for further details regarding potential loss contingencies related~~We are also subject to ~~government tax audits~~litigation 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 $2.7 million within ‘Accrued expenses and other ~~current legal proceedings.~~liabilities’ in the condensed consolidated balance sheet as of September 30, 2023. As we are able, we estimate reasonably possible losses or a range of reasonably possible losses. As of September 30, 2023, we estimated that reasonably possible losses associated with these claims and other disputes could potentially exceed amounts accrued by $0.7 million.

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~~15.~~14. OPERATING SEGMENTS AND GEOGRAPHIC INFORMATION

~~Crocs, Inc. has~~We have four reportable operating segments. For the Crocs Brand, we have three 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, our~~Our 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, apparel, 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.

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The following tables set forth information related to reportable operating segments:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2023		2022		2023		2022
		(in thousands)									(in thousands)
Revenues:	Revenues:									Revenues:
North America (1)		$	445,327	$	437,746	$	1,187,713	$	1,098,165
North America										North America	$	480,744	$	445,327	$	1,306,609	$	1,187,713
Asia Pacific	Asia Pacific	138,450		83,645		383,187		293,071		Asia Pacific	175,199		138,450		513,459		383,187
EMEALA (1)		131,929		104,503		422,226		335,481
Brand corporate (2)		1		25		22		73
EMEALA										EMEALA	142,826		131,929		460,429		422,226
Brand corporate										Brand corporate	—		1		—		22
Total Crocs Brand	Total Crocs Brand	715,707		625,919		1,993,148		1,726,790		Total Crocs Brand	798,769		715,707		2,280,497		1,993,148
HEYDUDE Brand ~~(3)~~(1)	HEYDUDE Brand ~~(3)~~(1)	269,387		—		616,675		—		HEYDUDE Brand ~~(3)~~(1)	246,948		269,387		721,753		616,675
Total consolidated revenues	Total consolidated revenues	$	985,094	$	625,919	$	2,609,823	$	1,726,790	Total consolidated revenues	$	1,045,717	$	985,094	$	3,002,250	$	2,609,823
Income from operations:	Income from operations:									Income from operations:
North America ~~(1)~~	North America ~~(1)~~	$	191,438	$	224,118	$	498,413	$	524,991	North America ~~(1)~~	$	218,018	$	191,438	$	560,358	$	498,413
Asia Pacific	Asia Pacific	40,286		16,361		121,823		70,492		Asia Pacific	69,762		40,286		203,203		121,823
EMEALA ~~(1)~~	EMEALA ~~(1)~~	40,506		35,721		128,819		117,128		EMEALA ~~(1)~~	49,939		40,506		176,844		128,819
Brand corporate ~~(2)~~	Brand corporate ~~(2)~~	(36,896)		(27,992)		(95,864)		(69,393)		Brand corporate ~~(2)~~	(40,263)		(36,896)		(107,260)		(95,864)
Total Crocs Brand	Total Crocs Brand	235,334		248,208		653,191		643,218		Total Crocs Brand	297,456		235,334		833,145		653,191
HEYDUDE Brand ~~(3)~~(1)	HEYDUDE Brand ~~(3)~~(1)	79,056		—		136,381		—		HEYDUDE Brand ~~(3)~~(1)	31,776		79,056		173,905		136,381
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)~~	(50,327)		(45,140)		(158,868)		(120,142)		Enterprise corporate ~~(2)~~	(55,380)		(50,327)		(179,781)		(158,868)
Income from operations	Income from operations	264,063		203,068		630,704		523,076		Income from operations	273,852		264,063		827,269		630,704
Foreign currency gains (losses), net		(393)		537		(1,115)		(84)
Foreign currency losses, net										Foreign currency losses, net	(1,770)		(393)		(1,622)		(1,115)
Interest income	Interest income	31		615		219		713		Interest income	506		31		1,225		219
Interest expense	Interest expense	(34,142)		(6,486)		(86,357)		(12,830)		Interest expense	(39,207)		(34,142)		(124,907)		(86,357)
Other income (expense), net	Other income (expense), net	16		2		(512)		15		Other income (expense), net	24		16		448		(512)
Income before income taxes	Income before income taxes	$	229,575	$	197,736	$	542,939	$	510,890	Income before income taxes	$	233,405	$	229,575	$	702,413	$	542,939

Depreciation and amortization:	Depreciation and amortization:									Depreciation and amortization:
North America (1)		$	2,705	$	3,035	$	7,514	$	4,766
North America										North America	$	6,394	$	2,705	$	15,179	$	7,514
Asia Pacific	Asia Pacific	508		449		1,528		1,061		Asia Pacific	696		508		1,995		1,528
EMEALA (1)		746		698		2,166		1,064
Brand corporate (2)		164		135		529		5,610
EMEALA										EMEALA	1,416		746		3,997		2,166
Brand corporate										Brand corporate	186		164		2,057		529
Total Crocs Brand	Total Crocs Brand	4,123		4,317		11,737		12,501		Total Crocs Brand	8,692		4,123		23,228		11,737
HEYDUDE Brand ~~(3)~~(1)	HEYDUDE Brand ~~(3)~~(1)	3,500		—		8,750		—		HEYDUDE Brand ~~(3)~~(1)	3,919		3,500		10,987		8,750

Enterprise corporate ~~(2)~~	Enterprise corporate ~~(2)~~	2,121		3,766		6,011		11,331		Enterprise corporate ~~(2)~~	2,140		2,121		6,316		6,011
Total consolidated depreciation and amortization	Total consolidated depreciation and amortization	$	9,744	$	8,083	$	26,498	$	23,832	Total consolidated depreciation and amortization	$	14,751	$	9,744	$	40,531	$	26,498

(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 nine months ended September 30, 2021 have been revised to conform to current period presentation. Refer to Part I - Item I. ~~Financial Statements~~ ~~in our Quarterly Report on Form 10-Q for the period ended June 30, 2022 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 nine months ended September 30, 2021 have been revised to conform to current period presentation.

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~~Refer to Part I - Item I.~~ ~~Financial Statements~~ ~~in our Quarterly Report on Form 10-Q for the period ended June 30, 2022 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 nine months ended September 30, 2022 represent results during the partial period beginning ~~on the Acquisition Date~~February 17, 2022 through September 30, ~~2022, and there are no comparative amounts for the three and nine months ended September 30, 2021.~~2022.

~~16. 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 September 30, 2022. As we are able, we estimate reasonably possible losses or a range of reasonably possible losses. As of September 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.

~~17.~~15. 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 ~~allows~~has allowed us to diversify and expand our business by adding a second brand to the Crocs, Inc. portfolio.

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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 ~~are~~were 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 be~~have been released from the lock-up. ~~As of September 30, 2022, the~~The purchase price paid to the sellers ~~has been 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 become~~became 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 $616.7 million and income from operations of $136.4 million from the Acquisition Date through September 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.

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The following table summarizes the ~~preliminary~~final 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~~(1)~~	68,698
Inventories~~(2)~~	155,773
Prepaid expenses and other assets	~~2,977~~7,880
Intangible assets	1,780,000
Goodwill~~(1)~~	~~713,001~~710,034
Right-of-use assets	2,844
Accounts payable	~~(28,388)~~(30,017)
Accrued expenses and other liabilities~~(2)~~	~~(18,553)~~(18,860)
Income taxes payable	(30,572)
Long-term deferred tax liability	(312,656)
Long-term income taxes payable	(13,004)
Operating lease liabilities	(2,843)
Net assets acquired	$	2,323,509

~~(1)~~ ~~Includes a valuation adjustment that decreased accounts receivable, net by $0.3 million and increased goodwill by $0.3 million during the three months ended September 30, 2022.~~

~~(2)~~ ~~Includes a valuation adjustment that decreased inventories by $20.2 million and decreased accrued expenses by $20.2 million during the three months ended September 30, 2022.~~

~~The purchase price allocation for the Acquisition is preliminary. Valuation by management~~

Table 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.Contents

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 ~~$713.0~~$710.0 million at September 30, ~~2022~~2023 includes an aggregate adjustment of ~~$72.5~~$3.3 million recorded in the ~~nine~~three months ended ~~September 30, 2022~~March 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.

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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, which will be released to~~sellers. As of September 30, 2023, a substantial portion of the ~~sellers, less any amounts that have been released to compensate the Company as provided~~Escrow Amount remained in the ~~SPA, after~~escrow account in connection with claims that were noticed prior to the date that iswas 18 months after the Acquisition ~~Date. No liabilities have been recorded related to~~Date but not yet resolved by that date, as provided in the ~~Escrow Amount.~~SPA. 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 ~~nine months~~year ended ~~September 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 nine months ended September 30, 2023, no Acquisition-related costs were recognized. During the nine months ended September 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 nine months ended September 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 September 30,				Nine Months Ended September 30,					Three Months Ended September 30,		Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2022
		(in thousands)									(in thousands)
Revenues	Revenues	$	985,094	$	770,101	$	2,700,129	$	2,103,117	Revenues	$	985,094	$	2,700,129
Net income	Net income	169,349		174,771		472,071		516,463		Net income	169,349		472,071

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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:

•~~On February 17, 2022, (the “Acquisition Date”),~~We are operating with greater uncertainty than when we ~~acquired (the “Acquisition”) 100%~~started the year with persistent inflation, higher interest rates, and escalating geopolitical tensions across the globe, among other things. While consumer spending was resilient during the back-to-school season, we saw a pronounced shift during the last month of the ~~equity~~quarter, and we are taking a cautious approach to the holiday season. We are focused on making the right decisions for the health of our brands, maintaining tight inventory control, and investing in initiatives to support durable long-term growth.

•The Crocs Brand continues to deliver strong revenue growth after building clog, sandal, and brand relevance across the globe over the last several years. Our strong product and marketing efforts continue to deliver newness and excitement to current brand fans. Asia, which is a ~~privately-owned casual footwear brand business (“HEYDUDE”), pursuant~~strategic initiative for the Crocs Brand, continues to ~~a securities purchase agreement (the “SPA”) entered into on December 22, 2021. HEYDUDE is engaged~~show growth, particularly in the business of distributing and selling casual footwear, including footwear under the brand name “HEYDUDE.” The Acquisition has enabled us to further diversify our product portfolio under two brands. China.

•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 17 — Acquisition ofacquired HEYDUDE in February 2022. Since the ~~accompanying notes~~closing of the acquisition, we have acquired new customers, gained share in strategic wholesale accounts, and improved brand awareness. We have also started 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 for~~expand the HEYDUDE Brand ~~herein represent~~internationally, specifically in Europe, where we have begun testing in a few direct markets, including the ~~partial period beginning~~United Kingdom, Germany, and the Netherlands, as well as a few distributor markets. While we still anticipate annual revenue growth for the brand on a reported basis 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 more cautious order patterns from several of our wholesale partners in the current year based on the ~~Acquisition Date through~~overall macro-economic outlook. Additionally, to prioritize long-term marketplace health, we made a conscious decision in September ~~30, 2022 (the “Partial Period”).~~to stop price matching against grey market sellers on Amazon. While we expect this to have a negative impact on revenues initially, we believe this move will protect the brand and better position us in the market in 2024.

•~~Global inflation, elevated interest rates, global industry-wide logistics challenges, and foreign currency fluctuations resulting~~We expect to move from our current corporate headquarters in a stronger U.S. Dollar, have impacted, and we expect will continue to impact, our business, contributing to, among other things, incremental freight costs, increased wages, particularly in our distribution centers, and increased raw materials costs. A stronger U.S. Dollar also results in costs for foreign goods purchased in U.S. Dollars but recognized in foreign currencies (“purchasing power”) that are unfavorable.the three months ended December 31, 2023. As of September 30, ~~2022,~~2023, we have ~~concluded~~estimated impairment losses of up to a maximum of approximately $16 million to our ~~2022 $75~~right-of-use-asset and property and equipment associated with our current corporate headquarters to be recognized in the three months ended December 31, 2023. This estimate is subject to change in the near term.

•Our liquidity position remains strong with $127.3 million ~~air freight program initiated~~in cash and cash equivalents and $563.7 million in available borrowing capacity as ~~a result~~ of ~~partial COVID-19-related factory closures in Vietnam at the end of 2021.~~September 30, 2023. In the nine months ended September 30, ~~2022,~~2023, we ~~incurred air freight costs~~paid down $389.1 million of ~~approximately $67~~net borrowings, reducing total borrowings to $1.94 billion as of September 30, 2023. We also resumed our share repurchase program in July 2023, repurchasing $150.0 million of our ~~$75 million plan, which has helped mitigate supply delays as a result of Vietnam closures. At September 30, 2022, our inventories balance was $513.7 million. While~~common stock during the majority of the total increase in inventories of 141.8% over September 30, 2021 was due to the addition of the HEYDUDE Brand in the first quarter of 2022, inventories for the Crocs Brand were also up 52.6% compared to the prior year. Throughout 2021 and into the first half of 2022, inventories were historically lean across the footwear industry as a result of factory closures and other supply chain delays, as described above. However, in recent months, elevated inventory levels have caused the industry, including us, to become more promotional. This is particularly true in North America. We expect these challenges to remain fluid as macroeconomic and inflationary pressures continue and foreign exchange rates fluctuate.

•To support the long-term growth of both brands we plan to continue to maintain our efficient selling, general and administrative expenses (“SG&A”) structure, while continuing investments in certain key areas, including marketing, digital commerce, and talent. We also believe our ability 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.quarter.

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.

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Third Quarter ~~2022~~2023 Financial and Operational Highlights

Revenues were ~~$985.1~~$1,045.7 million for the third quarter of ~~2022,~~2023, a ~~57.4%~~6.2% increase compared to the third quarter of ~~2021.~~2022. The increase was due to the net effects of: (i) ~~the addition of HEYDUDE Brand revenues of $269.4 million as~~higher average selling price on a ~~result of the Acquisition,~~constant currency basis (“ASP”), which increased revenues by ~~43.1%; (ii) higher~~$68.4 million, or 6.9%, driven primarily by product mix, less discounting and increased pricing, and channel mix for the Crocs Brand, ~~unit sales volumes,~~partially offset by increased discounting for the HEYDUDE Brand; (ii) favorable changes in exchange rates, which increased revenues by ~~$131.0~~$4.3 million, or ~~20.9%~~0.5%; and (iii) ~~unfavorable changes~~lower unit sales volume in ~~exchange rates for the Crocs Brand,~~both brands, which decreased revenues by ~~$34.9~~$12.1 million, or ~~5.6%; and (iv) lower Crocs Brand average selling prices, driven primarily by increased promotions in our North America segment, which in total decreased revenues by $6.2 million, or 1.0%~~1.2%.

The following were significant developments affecting our businesses and capital structure during the three months ended September 30, ~~2022:~~2023:

•We ~~acquired HEYDUDE on February 17, 2022, which contributed revenues of $269.4 million in the three months ended September 30, 2022. This represented 27.3% of~~grew revenues in the ~~quarter. The HEYDUDE Brand became a new reportable operating segment as of the Acquisition Date.~~

•~~We grew~~ Crocs Brand, ~~revenues, despite significant foreign currency headwinds~~in both the direct-to-consumer (“DTC”) channel and ~~supply chain challenges. This~~wholesale channel. Revenues also grew 14.6% in the DTC channel for the HEYDUDE Brand. For the Crocs Brand, the overall increase of 11.6% in revenues was led by our Asia Pacific segment, which grew revenues by ~~65.5%~~26.5%, or ~~82.3%~~28.6% on a constant currency basis. Our EMEALA segment also increased by 8.3%, or 2.7% on a constant currency basis, and our North America segment grew revenues by 8.0%, or 8.2% on a constant currency basis, compared to the third quarter of ~~2021. Our EMEALA segment grew~~2022. HEYDUDE Brand revenues decreased 8.3%, primarily driven by ~~26.2%, or 45.6%~~the impact of increased discounting in the DTC channel on ~~a constant currency basis, and our North America segment revenues grew by 1.7%, or 1.8% on a constant currency basis.~~revenues. Lower volume also contributed to the decrease in the HEYDUDE Brand revenues.

•~~Footwear units~~We sold 29.0 million pairs of shoes for the Crocs Brand in the third quarter of ~~2022 were 30.3 million pairs worldwide, an increase~~2023, a decrease of ~~19.2%~~4.3% from the third quarter of ~~2021.~~2022. This decrease is due in large part to the termination of our relationship with a significant distributor in our EMEALA segment in the previous quarter. We sold ~~9.2~~8.3 million pairs of shoes for the HEYDUDE Brand in the third quarter of 2023, a decrease of 10.7% compared to the third quarter of 2022. This decrease is described in further detail in the ‘HEYDUDE Brand’ section below.

•Gross margin was ~~54.9%~~55.6%, ~~a decrease~~an increase of ~~900~~70 basis points from last year’s third quarter. ~~Gross margin~~This was in part due to lower freight costs, partially due to higher air freight incurred in the prior year, and lower promotional activity for the Crocs ~~Brand~~Brand. This was 57.3%, a decrease of 660 basis points from last year’s third quarter, as a result of ongoing global inflation, which negatively impacted material and freight costs, higher distribution and logistics costs due to continued supply chain challenges, and unfavorable purchasing power. Increased promotional activityoffset by lower margins in ~~our North America segment also contributed to the gross margin decrease, while higher pricing across all segments partially offset these declines. Gross margin for~~ the HEYDUDE Brand, ~~was 48.8%, representing~~driven by higher product costs, primarily due to distribution costs associated with the ~~continued effect of unfavorable pre-acquisition freight contracts on inventory costs, which are recognized in gross margin as inventory is sold, and higher inventory storage costs as we work~~move to ~~expand~~our new HEYDUDE distribution ~~centers to support a larger business.~~center in Las Vegas, Nevada.

•Selling, general and administrative expenses (“SG~~&A was $277.2~~&A”) were $307.8 million compared to ~~$196.7~~$277.2 million in the third quarter of ~~2021,~~2022, as a result of an increase in marketing expense and investments in ~~headcount and marketing as we continue to grow the business, and incremental operating costs associated with operating the HEYDUDE Brand.~~talent in both brands. As a percent of revenues, SG&A ~~decreased~~increased to ~~28.1%~~29.4% of revenues compared to ~~31.4%~~28.1% of revenues in the third quarter of ~~2021, as we leverage our cost structure with the addition of the HEYDUDE Brand and as we leverage revenue growth in both the Crocs and HEYDUDE Brands.~~2022.

•Income from operations increased to ~~$264.1~~$273.9 million from ~~$203.1~~$264.1 million in last year’s third quarter. Net income was ~~$169.3~~$177.0 million, or ~~$2.72~~$2.87 per diluted share, compared to ~~$153.5~~$169.3 million, or ~~$2.42~~$2.72 per diluted share, in last year’s third quarter.

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Results of Operations


		Three Months Ended September 30,						Nine Months Ended September 30,							% Change Favorable (Unfavorable)					Three Months Ended September 30,						Nine Months Ended September 30,								% Change Favorable (Unfavorable)

		2022			2021									2022						2021			Q3 2022-2021			YTD 2022-2021			2023				2022			2023			2022	Q3 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	$	985,094		$	625,919		$	2,609,823		$	1,726,790			57.4	%	51.1	%	Revenues	$	1,045,717		$	985,094		$	3,002,250			$	2,609,823			6.2	%		15.0	%
Cost of sales	Cost of sales	443,792			226,123			1,245,864			678,594				(96.3)	%	(83.6)	%	Cost of sales	464,081			443,792			1,322,937				1,245,864				(4.6)	%		(6.2)	%
Gross profit	Gross profit	541,302			399,796			1,363,959			1,048,196				35.4	%	30.1	%	Gross profit	581,636			541,302			1,679,313				1,363,959				7.5	%		23.1	%
Selling, general and administrative expenses	Selling, general and administrative expenses	277,239			196,728			733,255			525,120				(40.9)	%	(39.6)	%	Selling, general and administrative expenses	307,784			277,239			852,044				733,255				(11.0)	%		(16.2)	%
Income from operations	Income from operations	264,063			203,068			630,704			523,076				30.0	%	20.6	%	Income from operations	273,852			264,063			827,269				630,704				3.7	%		31.2	%
Foreign currency gains (losses), net		(393)			537			(1,115)			(84)				(173.2)	%	(1,227.4)	%
Foreign currency losses, net																			Foreign currency losses, net	(1,770)			(393)			(1,622)				(1,115)				(350.4)	%		(45.5)	%
Interest income	Interest income	31			615			219			713				(95.0)	%	(69.3)	%	Interest income	506			31			1,225				219				1,532.3	%		459.4	%
Interest expense	Interest expense	(34,142)			(6,486)			(86,357)			(12,830)				(426.4)	%	(573.1)	%	Interest expense	(39,207)			(34,142)			(124,907)				(86,357)				(14.8)	%		(44.6)	%
Other income (expense), net	Other income (expense), net	16			2			(512)			15				700.0	%	(3,513.3)	%	Other income (expense), net	24			16			448				(512)				50.0	%		187.5	%
Income before income taxes	Income before income taxes	229,575			197,736			542,939			510,890				16.1	%	6.3	%	Income before income taxes	233,405			229,575			702,413				542,939				1.7	%		29.4	%
Income tax expense (benefit)		60,226			44,247			140,515			(59,951)				(36.1)	%	(334.4)	%
Income tax expense																			Income tax expense	56,380			60,226			163,433				140,515				6.4	%		(16.3)	%
Net income	Net income	$	169,349		$	153,489		$	402,424		$	570,841			10.3	%	(29.5)	%	Net income	$	177,025		$	169,349		$	538,980			$	402,424			4.5	%		33.9	%
Net income per common share:	Net income per common share:																		Net income per common share:
Basic	Basic	$	2.75		$	2.47		$	6.59		$	8.96			11.3	%	(26.5)	%	Basic	$	2.90		$	2.75		$	8.74			$	6.59			5.5	%		32.6	%
Diluted	Diluted	$	2.72		$	2.42		$	6.51		$	8.79			12.4	%	(25.9)	%	Diluted	$	2.87		$	2.72		$	8.65			$	6.51			5.5	%		32.9	%

Gross margin (1)	Gross margin (1)	54.9		%	63.9		%	52.3		%	60.7		%		(900)	bp	(840)	bp	Gross margin (1)	55.6		%	54.9		%	55.9		%		52.3		%		70	bp		360	bp
Operating margin (1)	Operating margin (1)	26.8		%	32.4		%	24.2		%	30.3		%		(560)	bp	(610)	bp	Operating margin (1)	26.2		%	26.8		%	27.6		%		24.2		%		(60)	bp		340	bp
Footwear unit sales:	Footwear unit sales:																		Footwear unit sales:
Crocs Brand	Crocs Brand	30,292			25,410			88,304			80,402				19.2	%	9.8	%	Crocs Brand	29,001			30,292			92,628				88,304				(4.3)	%		4.9	%
HEYDUDE Brand (3)	HEYDUDE Brand (3)	9,167			—			21,232			—				—	%	—	%	HEYDUDE Brand (3)	8,321			9,317			25,541				21,423				(10.7)	%		19.2	%
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	$	23.33		$	24.42		$	22.34		$	21.30			(4.5)	%	4.9	%	Crocs Brand	$	27.25		$	23.33		$	24.38			$	22.34			16.8	%		9.1	%
HEYDUDE Brand (3)	HEYDUDE Brand (3)	$	29.39		$	—		$	29.04		$	—			—	%	—	%	HEYDUDE Brand (3)	$	29.68		$	28.91		$	28.26			$	28.79			2.7	%		(1.8)	%

(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 and, as a result, added the HEYDUDE Brand as a new operating segment. Therefore, the amounts shown above for the nine months ended September 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 nine months ended September 30, ~~2021.~~2022 as a result of a calculation update.

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Revenues By Channel


		Three Months Ended September 30,					Nine Months Ended September 30,					% Change						Constant Currency % Change (1)						Three Months Ended September 30,				Nine Months Ended September 30,					% Change						Constant Currency % Change (1)
						Favorable (Unfavorable)													Favorable (Unfavorable)
				2022							2021			2022			2021			Q3 2022-2021			YTD 2022-2021					Q3 2022-2021		YTD 2022-2021		2023			2022			2023			2022			Q3 2023-2022	YTD 2023-2022	Q3 2023-2022	YTD 2023-2022
		(in thousands)																							(in thousands)
Crocs Brand:	Crocs Brand:																						Crocs Brand:
Wholesale	Wholesale	$	353,304	$	309,611		$	1,090,073	$	906,978		14.1	%		20.2	%		21.8	%		26.7	%	Wholesale	$	369,177	$	353,304	$	1,187,081	$	1,090,073		4.5	%		8.9	%		3.6	%		9.9	%
Direct-to-consumer	Direct-to-consumer	362,403		316,308			903,075		819,812			14.6	%		10.2	%		18.1	%		13.1	%	Direct-to-consumer	429,592		362,403		1,093,416		903,075			18.5	%		21.1	%		18.4	%		22.0	%
Total Crocs Brand	Total Crocs Brand	715,707		625,919			1,993,148		1,726,790			14.3	%		15.4	%		19.9	%		20.2	%	Total Crocs Brand	798,769		715,707		2,280,497		1,993,148			11.6	%		14.4	%		11.1	%		15.3	%
HEYDUDE Brand (2):	HEYDUDE Brand (2):																						HEYDUDE Brand (2):
Wholesale	Wholesale	181,768		—			431,186		—			—	%		—	%		—	%		—	%	Wholesale	146,501		181,768		463,189		431,186			(19.4)	%		7.4	%		(19.7)	%		7.5	%
Direct-to-consumer	Direct-to-consumer	87,619		—			185,489		—			—	%		—	%		—	%		—	%	Direct-to-consumer	100,447		87,619		258,564		185,489			14.6	%		39.4	%		14.6	%		39.4	%
Total HEYDUDE Brand	Total HEYDUDE Brand	269,387		—			616,675		—			—	%		—	%		—	%		—	%	Total HEYDUDE Brand	246,948		269,387		721,753		616,675			(8.3)	%		17.0	%		(8.5)	%		17.0	%
Total consolidated revenues (2)	Total consolidated revenues (2)	$	985,094	$	625,919		$	2,609,823	$	1,726,790		57.4	%		51.1	%		63.0	%		55.9	%	Total consolidated revenues (2)	$	1,045,717	$	985,094	$	3,002,250	$	2,609,823		6.2	%		15.0	%		5.8	%		15.7	%

(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” above for more information.

(2) 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 nine months ended September 30, 2022 represent results during the Partial ~~Period,~~Period.

The primary drivers of changes in revenue were:


	Three Months Ended September 30, 2023 vs. 2022
	Volume				Price (1)				Foreign Exchange				Total
	$ Change		% Change		$ Change		% Change		$ Change		% Change		$ Change		% Change
	(in thousands)
Total revenues	$	(12,130)	(1.2)	%	$	68,425	6.9	%	$	4,328	0.5	%	$	60,623	6.2	%

(1) The change due to price is based on the change in ASP, as defined earlier in this section.


	Nine Months Ended September 30, 2023 vs. 2022 (1)
	Volume				Price (2)				Foreign Exchange				Total
	$ Change		% Change		$ Change		% Change		$ Change		% Change		$ Change		% Change
	(in thousands)
Total revenues	$	323,688	12.4	%	$	87,798	3.4	%	$	(19,059)	(0.8)	%	$	392,427	15.0	%

(1) We acquired HEYDUDE on February 17, 2022 and, ~~there are no comparative~~as 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~~ nine months ended September 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 September 30, ~~2022,~~2023, revenues increased compared to the same period in ~~2021.~~2022. This was ~~driven by the addition of HEYDUDE Brand revenues of $269.4 million and~~primarily due to higher ~~volume~~ASP in the Crocs Brand, largely due to a combination of ~~$131.0 million, or 20.9%, as a result of volume increases in all segments. Partially offsetting these increases were unfavorable foreign currency changes, most significantly~~product mix, less discounting and increased pricing, and channel mix, partially offset by lower ASP in the ~~Euro, which decreased Crocs~~HEYDUDE Brand ~~revenues by $34.9 million, or 5.6%, and lower average selling price on a constant currency basis (“ASP”) in the Crocs Brand of $6.2 million, or 1.0%,~~ as a result of more discounting than prior year. While our HEYDUDE Brand ASP of $29.68, as shown in the table above, increased 2.7% over the third quarter of 2022, this is a basic average and ~~promotional activity, primarily~~is not adjusted for channel dynamics. Looking at channel dynamics, pricing pressure was the largest contributor to the brand’s revenue decline. Favorable foreign currency fluctuations, most significantly in the Euro, also increased revenues. The overall increase was offset in part by lower volume in both brands. For the Crocs Brand, volume decreased in our ~~North America segment.~~distributor markets due in large part to the termination of our relationship with a significant distributor in our EMEALA segment in the previous quarter after finding evidence of product diversion to the gray market outside of its approved territories. For the HEYDUDE Brand, volume decreased due to higher volumes in the prior year as a result of rapid

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expansion to strategic wholesale customers and more cautious order patterns from several of our wholesale partners in the current year.

Revenues also increased in the nine months ended September 30, 2023, primarily due to higher volume. The higher volume was driven in part by greater demand for the Crocs Brand and in part by operating HEYDUDE for a full nine months in 2023 compared to the partial period from the acquisition date of February 17, 2022 ~~driven by (i) the addition of HEYDUDE Brand revenues of $616.7 million during the Partial Period, (ii) higher~~through September 30, 2022 (the “Partial Period”). Higher ASP in the Crocs Brand, ~~of $175.3 million, or 10.2%,~~primarily due to increased pricing, was partially offset by lower ASP in the HEYDUDE Brand as a result of increased ~~pricing in all regions, offset in part by more~~ promotions and ~~(iii) higher volume in all Crocs Brand segments of $173.2 million, or 10.0%, led by our EMEALA and Asia Pacific segments.~~discounting. Unfavorable foreign currency fluctuations, most significantly in the ~~Euro~~Chinese Yuan and Korean Won, also decreased ~~Crocs Brand revenues by $82.2 million, or 4.8%.~~revenues.

Cost of sales. In the three months ended September 30, ~~2022,~~2023, compared to the same period in ~~2021, HEYDUDE contributed to the majority of the increase in~~2022, cost of sales ~~which was in line with its contributions to revenue. Additionally, higher volume in the Crocs Brand~~ increased ~~cost of sales by $51.1~~$20.3 million, or ~~22.6%~~4.6%. ~~Higher~~This was primarily driven by higher average cost per unit on a constant currency basis (“AUC”) ~~in the Crocs Brand~~ of ~~$46.0~~$34.6 million, or ~~20.3%~~7.8%, ~~was mostly~~primarily due to ~~higher material~~increased distribution costs associated with the move to our new HEYDUDE distribution center in Las Vegas, Nevada and ~~distribution~~increased product costs for the HEYDUDE Brand. This increase was partially offset by lower volume of $9.1 million, or 2.0%, and ~~logistics costs, driven by inflation impacts and air freight used to mitigate supply challenges, as well as unfavorable purchasing power. Fluctuations in~~favorable foreign currency ~~decreased~~fluctuations of $5.2 million, or 1.2%. In the three months ended September 30, 2023 and 2022, respectively, cost of sales ~~by $17.4~~includes $148.1 million ~~or 7.7%.~~and $103.3 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 nine months ended September 30, ~~2022,~~2023, compared to the same period in ~~2021,~~2022, cost of sales increased $77.1 million, or 6.2%, due to higher volume of $148.3 million, or 11.9%. This increase was offset in part due to lower AUC of $49.4 million, or 4.0%, primarily due to prior year adjustments of $62.2 million to the ~~addition~~fair value of inventory costs upon close of the acquisition of HEYDUDE, ~~which had~~partially offset by increased distribution costs associated with the move to our new HEYDUDE distribution center in Las Vegas, Nevada. 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 $141.1by $21.9 million, or ~~20.8%, resulted mostly~~1.7%. In the nine months ended September 30, 2023 and 2022, respectively, cost of sales includes $376.0 million and $326.0 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 material~~distribution centers to wholesale partners, retail stores and distribution and logistics costs, driven by inflation and the use of air freight, as well as unfavorable purchasing power, and volume in the Crocs Brand was higher by $82.1 million, or 12.1%. These increases were partially offset by decreases as a result of foreign currency changes in the Crocs Brand of $37.5 million, or 5.5%.end customers.

Gross profit. Gross margin ~~decreased~~increased in the three months ended September 30, ~~2022~~2023 to ~~54.9%~~55.6% compared to ~~63.9%~~54.9% in the same period in ~~2021. Gross margin~~2022. This was primarily due to lower freight costs, partially due to higher air freight incurred in the prior year, and lower promotional activity for the Crocs Brand, ~~was 57.3% compared to 63.9%~~offset in ~~the same period in 2021, driven mostly~~part by higher ~~material~~distribution costs and freight costs due to global inflation and supply chain challenges, which have caused us to use more expensive shipping methods, and unfavorable purchasing power, as well as increased promotions, particularly in our North America segment. Gross marginproduct cost for the HEYDUDE ~~Brand was 48.8%, representing the continued effect of unfavorable pre-~~Brand.

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acquisition freight contracts on inventory costs, which are recognized in gross margin as inventory is sold, and higher inventory storage costs as we work to expand HEYDUDE distribution centers to support a larger business.

Gross profit increased ~~$141.5~~$40.3 million, or ~~35.4%~~7.5%, ~~mostly~~in the three months ended September 30, 2023 compared to the same period in 2022, due to ~~the addition of the HEYDUDE Brand. Additionally, gross profit increased in the Crocs Brand as a result of higher volume of $79.8 million, or 20.0%. These increases were partially offset by~~ the net impact of ~~lower~~higher ASP and higher AUC, as described above, of ~~$52.2~~$33.9 million, or ~~13.1% and unfavorable~~6.3%, favorable foreign currency changes ~~for the Crocs Brand~~ of ~~$17.6~~$9.5 million, or ~~4.4%~~1.8%. Lower volume of $3.1 million, or 0.6% slightly decreased gross profit.

Gross margin in the nine months ended September 30, ~~2022~~2023 was ~~52.3%~~55.9% compared to ~~60.7%~~52.3% in ~~2021. Gross margin for the Crocs Brand~~2022. This was ~~56.7% compared to 60.7%~~due in ~~2021, due primarily~~part to higher ~~material and~~air freight ~~costs,~~incurred in the prior year as ~~described above, and unfavorable purchasing power, offset in part by higher pricing. Gross margin for the HEYDUDE Brand was 38.3%, which is inclusive of an approximately 1,010~~well as 240 basis points ~~unfavorable impact~~ from ~~a non-cash step-up~~adjustments in the prior year related to the fair value of ~~acquired HEYDUDE inventory to fair value. This gross margin also represents the continued effect of unfavorable pre-acquisition freight contracts on~~ inventory costs ~~which are recognized in gross margin as inventory is sold, and higher inventory storage costs as we work to expand HEYDUDE distribution centers to support a larger business.~~upon close of the acquisition of HEYDUDE.

Gross profit increased ~~$315.8~~$315.4 million, or ~~30.1%~~23.1%, in the nine months ended September 30, 2023 compared to the same period in 2022, primarily as a result of ~~the addition~~higher volume of ~~the HEYDUDE Brand, which contributed to the majority of the increase, as well as increases in the Crocs Brand due to~~$175.4 million, or 12.9%, and the net impact of ~~both~~ higher ASP and lower AUC, as described above, of ~~$34.2~~$137.2 million, or ~~3.3%, and higher volumes of $91.2 million, or 8.7%~~10.0%. ~~These were offset by unfavorable~~Favorable foreign currency changes ~~in the Crocs Brand~~ of ~~$44.7~~$2.8 million, or ~~4.3%.~~0.2%, also contributed to the increase in gross profit.

Selling, general and administrative expenses. SG&A ~~expenses~~ increased ~~$80.5~~$30.5 million, or ~~40.9%~~11.0%, in the three months ended September 30, ~~2022~~2023 compared to the same period in ~~2021.~~2022. This ~~was~~is in part due to higher compensation expense of $16.7 million primarily associated with an ~~increase~~investment in ~~marketing costs of $35.1 million, mostly for investments in the HEYDUDE Brand.~~talent. There was also an increase in ~~sales commissions~~marketing expenses of ~~$9.9~~$9.1 million ~~due primarily to HEYDUDE, which used more costly external sales representatives prior to the Acquisition Date. We are currently~~and an increase in ~~the process~~facilities of ~~transitioning off of this model. Higher professional services~~$5.0 million. Additionally, there was a $5.9 million increase in other costs, ~~of $9.7 million were due to~~including variable costs associated with ~~revenue growth and~~ higher ~~legal~~revenues. The overall increase was partially offset by $6.2 million of lower costs in part from the ongoing defense of our intellectual property. An increase in compensation expense of $7.4 million was driven by investments in employee headcount, including employees associated with HEYDUDE, offset in part by lower variable compensation. There was also an increase in facilities expense of $4.4 million driven in part by duplicate rent costs associated with our upcoming headquarters move and in part to variable rent associated with revenue growth. Other net costs, including costs2023, primarily associated with the ~~integration of~~prior year HEYDUDE ~~and information technology costs, increased SG&A by $14.0 million.~~integration.

SG&A expenses increased ~~$208.1~~$118.8 million, or ~~39.6%~~16.2%, during the nine months ended September 30, ~~2022~~2023 compared to the same period in ~~2021. We have continued~~2022. There were higher compensation costs of $46.7 million, primarily associated with an investment in talent. There were also higher marketing costs of $41.7 million as we continue to invest in marketing to fuel growth, with an increase of $66.9 million to SG&A, primarily associated with investments in marketing in the Crocs Brand, including for our digital business, as well as investments in marketing for our new HEYDUDE Brand during the Partial Period. Additionally, costs of $33.2 millionmostly associated with the ~~Acquisition~~HEYDUDE Brand. Various other costs, including variable costs associated with higher revenues and ~~related integration, including consulting, legal, statutory, and accounting fees, contributed to the increase. Other~~information

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technology costs, also increased SG&A by $61.6 million. These increases ~~in compensation costs of $25.9 million~~ were ~~due primarily to increased employee headcount as we have grown the Company over the last year,~~ offset in part by ~~lower variable compensation. Increases in professional services costs~~$31.2 million of ~~$24.1 million were due to variable costs associated with revenue growth and higher legal~~lower costs in part from the ongoing defense of our intellectual property. There was an increase in sales commissions of $21.9 million, due mostly to HEYDUDE, which used more costly external representatives prior to the Acquisition, and an increase in facilities expenses of $11.2 million driven primarily by lease exit costs and penalties2023 associated with the ~~continued shutdown of our direct operations in Russia~~prior year HEYDUDE acquisition and duplicate rent costs associated with our upcoming headquarters move. There were net increases in other costs, including information technology, depreciation and amortization, and travel and related costs, of $24.9 million.integration.

Foreign currency ~~gains (losses),~~losses, net. Foreign currency ~~gains (losses),~~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 September 30, ~~2022,~~2023, we recognized realized and unrealized net foreign currency losses of ~~$0.4~~$1.8 million compared to ~~gains~~losses of ~~$0.5~~$0.4 million during the three months ended September 30, ~~2021.~~ 2022.

During the nine months ended September 30, ~~2022,~~2023, we recognized realized and unrealized net foreign currency losses of ~~$1.1~~$1.6 million compared to losses of ~~$0.1~~$1.1 million during the nine months ended September 30, ~~2021.~~2022.

Income tax ~~expense (benefit).~~expense. During the three months ended September 30, ~~2022,~~2023, income tax expense ~~increased $16.0~~decreased $3.8 million compared to the same period in ~~2021.~~2022. The effective tax rate for the three months ended September 30, ~~2022~~2023 was ~~26.2%~~24.2% compared to an effective tax rate of ~~22.4%~~26.2% for the same period in ~~2021,~~2022, a ~~3.8% increase.~~2.0% decrease. This ~~increase~~decrease in the effective tax rate was primarily driven by ~~the prior year release of valuation allowances.~~

~~Table of Contents~~

During the nine months ended September 30, 2022, income tax expense increased $200.5 million compared to the same period in 2021. The effective tax rate for the nine months ended September 30, 2022 was 25.9% compared to an effective tax rate of (11.7)% for the same period in 2021, a ~~37.6% increase. This increase~~shift in the ~~effective rate was primarily driven by~~mix of the ~~prior year release of valuation allowances.~~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.

During the nine months ended September 30, 2023, income tax expense increased $22.9 million compared to the same period in 2022. The effective tax rate for the nine months ended September 30, 2023 was 23.3% compared to an effective tax rate of 25.9% for the same period in 2022, a 2.6% decrease. This decrease in the effective tax rate was primarily driven by a shift in the 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 due differences in income tax rates between U.S. and foreign jurisdictions.

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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 September 30,					Nine Months Ended September 30,					% Change						Constant Currency % Change (1)						Three Months Ended September 30,				Nine Months Ended September 30,					% Change						Constant Currency % Change (1)
						Favorable (Unfavorable)													Favorable (Unfavorable)
				2022							2021			2022			2021			Q3 2022-2021			YTD 2022-2021					Q3 2022-2021		YTD 2022-2021		2023			2022			2023			2022			Q3 2023-2022	YTD 2023-2022	Q3 2023-2022	YTD 2023-2022
		(in thousands)																							(in thousands)
Revenues:	Revenues:																						Revenues:
North America ~~(2)~~	North America ~~(2)~~	$	445,327	$	437,746		$	1,187,713	$	1,098,165		1.7	%		8.2	%		1.8	%		8.3	%	North America ~~(2)~~	$	480,744	$	445,327	$	1,306,609	$	1,187,713		8.0	%		10.0	%		8.2	%		10.3	%
Asia Pacific	Asia Pacific	138,450		83,645			383,187		293,071			65.5	%		30.7	%		82.3	%		41.6	%	Asia Pacific	175,199		138,450		513,459		383,187			26.5	%		34.0	%		28.6	%		39.2	%
EMEALA ~~(2)~~	EMEALA ~~(2)~~	131,929		104,503			422,226		335,481			26.2	%		25.9	%		45.6	%		40.4	%	EMEALA ~~(2)~~	142,826		131,929		460,429		422,226			8.3	%		9.0	%		2.7	%		8.0	%
Brand corporate ~~(3)~~	Brand corporate ~~(3)~~	1		25			22		73			(96.0)	%		(69.9)	%		(96.0)	%		(69.9)	%	Brand corporate ~~(3)~~	—		1		—		22			(100.0)	%		(100.0)	%		(100.0)	%		(100.0)	%
Crocs Brand revenues	Crocs Brand revenues	715,707		625,919			1,993,148		1,726,790			14.3	%		15.4	%		19.9	%		20.2	%	Crocs Brand revenues	798,769		715,707		2,280,497		1,993,148			11.6	%		14.4	%		11.1	%		15.3	%
HEYDUDE Brand revenues ~~(4)~~(2)	HEYDUDE Brand revenues ~~(4)~~(2)	269,387		—			616,675		—			—	%		—	%		—	%		—	%	HEYDUDE Brand revenues ~~(4)~~(2)	246,948		269,387		721,753		616,675			(8.3)	%		17.0	%		(8.5)	%		17.0	%
Total consolidated revenues	Total consolidated revenues	$	985,094	$	625,919		$	2,609,823	$	1,726,790		57.4	%		51.1	%		63.0	%		55.9	%	Total consolidated revenues	$	1,045,717	$	985,094	$	3,002,250	$	2,609,823		6.2	%		15.0	%		5.8	%		15.7	%

Income from operations:	Income from operations:																						Income from operations:
North America ~~(2)~~	North America ~~(2)~~	$	191,438	$	224,118		$	498,413	$	524,991		(14.6)	%		(5.1)	%		(14.4)	%		(4.9)	%	North America ~~(2)~~	$	218,018	$	191,438	$	560,358	$	498,413		13.9	%		12.4	%		14.0	%		12.6	%
Asia Pacific	Asia Pacific	40,286		16,361			121,823		70,492			146.2	%		72.8	%		167.9	%		89.3	%	Asia Pacific	69,762		40,286		203,203		121,823			73.2	%		66.8	%		66.6	%		67.1	%
EMEALA ~~(2)~~	EMEALA ~~(2)~~	40,506		35,721			128,819		117,128			13.4	%		10.0	%		31.1	%		22.1	%	EMEALA ~~(2)~~	49,939		40,506		176,844		128,819			23.3	%		37.3	%		7.7	%		30.4	%
Brand corporate ~~(3)~~	Brand corporate ~~(3)~~	(36,896)		(27,992)			(95,864)		(69,393)			(31.8)	%		(38.1)	%		(33.6)	%		(39.8)	%	Brand corporate ~~(3)~~	(40,263)		(36,896)		(107,260)		(95,864)			(9.1)	%		(11.9)	%		(8.7)	%		(11.9)	%
Crocs Brand income from operations	Crocs Brand income from operations	235,334		248,208			653,191		643,218			(5.2)	%		1.6	%		(1.3)	%		5.6	%	Crocs Brand income from operations	297,456		235,334		833,145		653,191			26.4	%		27.5	%		22.7	%		26.3	%
HEYDUDE Brand income from operations ~~(4)~~(2)	HEYDUDE Brand income from operations ~~(4)~~(2)	79,056		—			136,381		—			—	%		—	%		—	%		—	%	HEYDUDE Brand income from operations ~~(4)~~(2)	31,776		79,056		173,905		136,381			(59.8)	%		27.5	%		(60.0)	%		27.7	%
Enterprise corporate ~~(3)~~	Enterprise corporate ~~(3)~~	(50,327)		(45,140)			(158,868)		(120,142)			(11.5)	%		(32.2)	%		(11.5)	%		(32.2)	%	Enterprise corporate ~~(3)~~	(55,380)		(50,327)		(179,781)		(158,868)			(10.0)	%		(13.2)	%		(10.0)	%		(13.2)	%
Total consolidated income from operations	Total consolidated income from operations	$	264,063	$	203,068		$	630,704	$	523,076		30.0	%		20.6	%		34.8	%		25.5	%	Total consolidated income from operations	$	273,852	$	264,063	$	827,269	$	630,704		3.7	%		31.2	%		0.3	%		30.0	%

(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 nine months ended September 30, 2021 have been revised to conform to current period presentation. Refer to Part I - Item I. ~~Financial Statements~~ ~~in our Quarterly Report on Form 10-Q for the period ended June 30, 2022 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 15 — 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 nine months ended September 30, 2021 have been revised to conform to current period presentation. Refer to Part I - Item I. ~~Financial Statements~~ ~~in our Quarterly Report on Form 10-Q for the period ended June 30, 2022 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 nine months ended September 30, 2022 represent results during the Partial ~~Period, and there are no comparative amounts for the three and nine months ended September 30, 2021.~~Period.

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The primary drivers of changes in revenues by operating segment were:


		Three Months Ended September 30, 2022 vs. 2021																	Three Months Ended September 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	$	51,882	11.8	%	$	(43,663)	(10.0)	%	$	(638)	(0.1)	%	$	7,581	1.7	%	North America	$	3,374	0.8	%	$	32,822	7.4	%	$	(779)	(0.2)	%	$	35,417	8.0	%
Asia Pacific	Asia Pacific	51,113		61.1	%	17,721		21.2	%	(14,029)		(16.8)	%	54,805		65.5	%	Asia Pacific	4,466		3.1	%	35,237		25.5	%	(2,954)		(2.1)	%	36,749		26.5	%
EMEALA	EMEALA	27,982		26.8	%	19,705		18.8	%	(20,261)		(19.4)	%	27,426		26.2	%	EMEALA	(16,551)		(12.5)	%	19,996		15.2	%	7,452		5.6	%	10,897		8.3	%
HEYDUDE Brand ~~(2)~~	HEYDUDE Brand ~~(2)~~	—		—	%	—		—	%	—		—	%	—		—	%	HEYDUDE Brand ~~(2)~~	(3,418)		(1.3)	%	(19,630)		(7.3)	%	609		0.3	%	(22,439)		(8.3)	%
Total segment revenues	Total segment revenues	$	130,977	20.9	%	$	(6,237)	(1.0)	%	$	(34,928)	(5.6)	%	$	89,812	14.3	%	Total segment revenues	$	(12,129)	(1.3)	%	$	68,425	6.9	%	$	4,328	0.6	%	$	60,624	6.2	%

(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, as a result, added the HEYDUDE Brand as a new operating segment. Therefore, there are no comparative amounts for the three months ended September 30, 2021.


		Nine Months Ended September 30, 2022 vs. 2021																	Nine Months Ended September 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	$	29,536	2.7	%	$	61,402	5.6	%	$	(1,390)	(0.1)	%	$	89,548	8.2	%	North America	$	117,972	9.9	%	$	4,116	0.4	%	$	(3,192)	(0.3)	%	$	118,896	10.0	%
Asia Pacific	Asia Pacific	69,200		23.6	%	52,924		18.0	%	(32,008)		(10.9)	%	90,116		30.7	%	Asia Pacific	57,771		15.1	%	92,412		24.1	%	(19,911)		(5.2)	%	130,272		34.0	%
EMEALA	EMEALA	74,547		22.2	%	60,975		18.2	%	(48,777)		(14.5)	%	86,745		25.9	%	EMEALA	(27,443)		(6.5)	%	61,333		14.5	%	4,313		1.0	%	38,203		9.0	%
HEYDUDE Brand (2)	HEYDUDE Brand (2)	—		—	%	—		—	%	—		—	%	—		—	%	HEYDUDE Brand (2)	175,410		28.4	%	(70,063)		(11.4)	%	(269)		—	%	105,078		17.0	%
Total segment revenues	Total segment revenues	$	173,283	10.0	%	$	175,301	10.2	%	$	(82,175)	(4.8)	%	$	266,409	15.4	%	Total segment revenues	$	323,710	12.4	%	$	87,798	3.4	%	$	(19,059)	(0.8)	%	$	392,449	15.0	%

(1) The change due to price for revenues is based on ASP, as defined earlier in this section.

Crocs Brand

North America Operating Segment

Revenues. Despite a declining U.S. footwear market, North America revenues increased in the three months ended September 30, ~~2022~~2023 compared to the same period in ~~2021,~~2022. This was due primarily to higher ~~volumes, offset in part by lower~~ ASP as a result of ~~increased promotional activity. Foreign currency changes~~product mix, a decrease in discounting, and channel mix. Increases in volume in our DTC channel were ~~relatively flat during the quarter,~~partially offset by decreases in volume in our wholesale channel as a result of strategic shifts in our distribution model with ~~slight decreases due to changes in the Canadian Dollar.~~Amazon.

The increase in North America revenues in the nine months ended September 30, ~~2022~~2023 compared to the same period in ~~2021,~~2022 is primarily due to an increase in volume, driven by both channels, and higher ASP ~~from higher pricing, offset~~primarily as a result of product mix, a decrease in ~~part by increased~~ promotional activity, ~~in the third quarter, while volumes increased, primarily in DTC. Changes in the Canadian Dollar also slightly decreased revenues.~~and channel mix.

Income from Operations. Income from operations for our North America segment was ~~$191.4~~$218.0 million for the three months ended September 30, ~~2022, a decrease~~2023, an increase of ~~$32.7~~$26.6 million, or ~~14.6%~~13.9%, compared to the same period in ~~2021.~~2022. Gross profit ~~decreased~~increased by ~~$25.3~~$41.0 million, or ~~8.6%~~15.2%, compared to prior year, primarily due to lower ASP driven by increased promotional activity and higher AUC driven by higher material costs, due in part to inflation, offset in part by favorable channel mix. Volume was up 13.7%, while foreign currency impacts were relatively flat.

~~Table of Contents~~

~~SG&A for our North America segment increased $7.4 million, or 10.3%, during the three months ended September 30, 2022 compared to the same period in 2021. Compensation cost increased $2.5 million~~mostly as a result of ~~investments~~higher ASP. Higher volume, particularly in employee headcount, facilities expense increased $1.5 million, services costs, including variable costs associated with higher revenues, increased $1.3 million, and marketing costs increased $1.2 million. Other net costs increased by $0.9 million.

~~During~~ the ~~nine months ended September 30, 2022, income from operations for our North America segment was $498.4 million, a decrease of $26.6 million, or 5.1%, compared~~DTC channel, also contributed to the ~~same period~~increase in 2021. Gross profit increased $5.6 million, or 0.8%, primarily due to higher volumes of $26.5 million, or 3.8%, partially offset by higher AUC, due to higher material and freight costs, that outpaced higher ASP, due to higher pricing, of $19.7 million, or 2.8%. Unfavorable foreign currency changes also partially offset the increase due to higher volumes.gross profit.

SG&A for our North America segment increased ~~$32.2~~$14.4 million, or ~~17.5%~~18.2%, during the three months ended September 30, 2023 compared to the same period in 2022. This increase was primarily due to higher compensation costs as a result of higher wages for hourly employees and higher variable expenses related to higher revenues in the DTC channel.

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During the nine months ended September 30, 2023, income from operations for our North America segment was $560.4 million, an increase of $61.9 million, or 12.4%, compared to the same period in 2022. Gross profit increased $93.1 million, or 13.0%, primarily due to higher volume and lower AUC, primarily as a result of lower freight costs, partially due to higher air freight incurred in the prior year.

SG&A for our North America segment increased $31.2 million, or 14.5%, during the nine months ended September 30, ~~2022~~2023 compared to the same period in ~~2021, due to an increase in marketing costs of $12.4 million to fuel revenue growth and invest in digital marketing and higher compensation of $8.8 million~~2022, primarily due to ~~investments in employee headcount, including retail labor, which also had~~higher compensation costs as a result of higher wages ~~in 2022 compared~~for hourly employees and higher variable expenses related to ~~2021. Facilities costs increased $3.3 million, and services costs, including variable costs associated with~~ higher revenues ~~increased $2.8 million. Other net costs increased by $4.9 million.~~in the DTC channel.

Asia Pacific Operating Segment

Revenues. ~~Increases in revenues~~Revenues in our Asia Pacific segment ~~led the Crocs Brand~~increased 26.5% in the three months ended September 30, ~~2022~~2023 compared to the same period in ~~2021, largely~~2022, and was up in most countries in the region, driven by growth in Australia and China, in part as a result of ~~higher volume, leading to broad-based~~the relaxation of COVID-19 restrictions in China. Additionally, there was notable growth in ~~the region,~~South Korea and Southeast Asia. The increase in revenues is largely due to higher ASP, primarily with distributors in Southeast Asia, which benefited from COVID-19 re-openings and the partial return of tourism to the region over prior year, as well as in India and South Korea. ASPs were also up in the region as a result of ~~higher~~increased pricing, less discounting, and ~~favorable product mix, offset in part by unfavorable channel mix towards wholesale. These increases were~~an increased share of charms compared to the prior year. The overall increase was partially offset by unfavorable foreign currency changes, ~~in all currencies in the region,~~ most significantly in the ~~Korean Won and Japanese Yen.~~Chinese Yuan.

Revenues in our Asia Pacific segment increased in the nine months ended September 30, ~~2022~~2023 compared to the same period in ~~2021,~~2022, as a result of ~~volume increases and~~ ASP increases, as a result of less discounting and increased pricing, and ~~fewer promotions. Significant unfavorable~~volume increases due to increased consumer demand. Unfavorable foreign currency fluctuations in ~~all~~most currencies, but most significantly the Chinese Yuan and Korean Won, partially offset ASP and volume increases.

Income from Operations. Income from operations for the Asia Pacific segment was ~~$40.3~~$69.8 million for the three months ended September 30, ~~2022,~~2023, an increase of ~~$23.9~~$29.5 million, or ~~146.2%~~73.2%, compared to the same period in ~~2021.~~2022. Gross profit increased by ~~$30.7~~$35.8 million, or ~~58.6%~~43.1%, ~~primarily~~ as a result of ~~52.2%~~ higher ~~volumes,~~ASP, as ~~well as higher ASP. These increases were partially offset by unfavorable~~described above. Higher volume and favorable foreign currency changes ~~of 15.3%.~~also contributed to the increase in gross profit.

SG&A for our Asia Pacific segment increased ~~$6.8~~$6.3 million, or ~~18.8%~~14.8%, during the three months ended September 30, ~~2022~~2023 compared to the same period in ~~2021,~~2022, primarily due to ~~higher marketing costs of $2.7 million, mostly driven by the COVID-19-related closures during the second quarter, which delayed our marketing investment into the third quarter. Facilities expense~~ increased ~~$1.5 million as a result of~~ variable ~~rent~~expenses associated with higher ~~revenues, while other net costs increased $2.6 million.~~revenues.

Income from operations for the Asia Pacific segment was ~~$121.8~~$203.2 million for the nine months ended September 30, ~~2022,~~2023, an increase of ~~$51.3~~$81.4 million, or ~~72.8%~~66.8%, compared to the same period in ~~2021.~~2022. Gross profit increased by ~~$58.8~~$105.8 million, or ~~33.7%~~45.4%, primarily due to higher ~~ASPs,~~ASP, as described above, offset partially by higher ~~AUCs, as a result of price increases, decreased promotional activity, and unfavorable purchasing power, which led to a net increase to gross profit of 24.7%.~~AUC. Higher ~~volumes~~volume also increased gross profit, ~~by 20.8%, but~~while changes in foreign currency slightly offset these ~~increases by 11.8%.~~increases.

SG&A for our Asia Pacific segment increased ~~$7.5~~$24.4 million, or ~~7.2%~~21.9%, in the nine months ended September 30, ~~2022~~2023 compared to the same period in ~~2021,~~2022, mostly due to ~~higher facilities costs of $2.9 million~~increased variable expenses associated with higher ~~retail~~ revenues and ~~increased~~ investments in ~~employee headcount of $2.7 million. There were also higher other net costs of $1.9 million.~~marketing.

EMEALA Operating Segment

Revenues. Revenues increased in the EMEALA segment in the three months ended September 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 Russia~~2022, primarily as a result of higher ASPs, favorable foreign currency changes, primarily in the ~~Ukraine war. This performance was driven~~Euro, largely offset by decreased volume. Both the increased ASP and lower volume ~~with growth particularly strong in our distributor markets, and increased ASPs, driven by increased prices and product mix, offset~~are due in part ~~by unfavorable channel mix.~~

~~Table~~to the termination of ~~Contents~~a relationship with a significant distributor in Africa after finding evidence of product diversion to the gray market outside of its approved territories.

During the nine months ended September 30, ~~2022,~~2023, EMEALA revenues increased compared to the same period in ~~2021,~~2022, due to ~~increased volume, as well as~~ higher ASP, favorable foreign currency changes, primarily in ~~our wholesale channel,~~the Euro, offset by decreased volume. Both the increased ASP and lower volume are due in part byto the termination of a relationship with a significant ~~unfavorable foreign currency fluctuations~~distributor in ~~the Euro.~~Africa, as described above.

Income from Operations. Income from operations for the EMEALA segment was ~~$40.5~~$49.9 million for the three months ended September 30, ~~2022,~~2023, an increase of ~~$4.8~~$9.4 million, or ~~13.4%~~23.3%, compared to the same period in ~~2021.~~2022. Gross profit increased ~~$5.9~~$14.3 million, or ~~10.6%~~23.4%, mostly as a result of higher ~~volume of 23.9%. Additionally, gains in~~ ASP, ~~due to increased pricing and decreased promotions were largely~~as described above, offset partially by higher AUC ~~as a result of unfavorable purchasing power and~~driven by product mix. Favorable foreign currency fluctuations, mainly in the Euro, also increased ~~material and freight costs, leading to a net increase in~~ gross ~~profit of 3.3%.~~profit. These increases were offset in part by ~~unfavorable changes in foreign currency of $9.2 million, or 16.6%.~~decreased volume.

SG&A for our EMEALA segment increased ~~$1.1~~$4.9 million, or ~~5.4%~~23.6%, during the three months ended September 30, ~~2022~~2023 compared to the same period in ~~2021. Marketing investments increased $1.3 million, while other net costs decreased $0.2 million.~~2022, primarily due to an investment in marketing.

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Income from operations for the EMEALA segment was ~~$128.8~~$176.8 million for the nine months ended September 30, ~~2022,~~2023, an increase of ~~$11.7~~$48.0 million, or ~~10.0%~~37.3%, compared to the same period in ~~2021.~~2022. Gross profit increased ~~$23.1~~$55.4 million, or ~~13.4%~~28.3%, primarily due to higher sales volumes of $35.5 million, or 20.6%, and increases in ASP that outpaced increases in AUC of $10.7 million, or 6.2%, as a result of price increases, offset in part by higher material and freight costs and unfavorable purchasing power. NegativeASPs. Favorable foreign currency changes ~~primarily in~~also increased gross profit while lower volume partially offset the ~~Euro, led to decreases of 13.4%.~~overall increase.

SG&A for our EMEALA segment increased ~~$11.4~~$7.4 million, or ~~20.6%~~11.1%, during the nine months ended September 30, ~~2022~~2023 compared to the same period in ~~2021.~~2022. This was primarily due to an increase in marketing costs and variable costs associated with higher revenues, partially offset by various costs associated with the ~~continued~~prior year shutdown of our direct operations in Russia ~~including severance and lease exit costs and penalties, of $5.8 million. Marketing costs, including investments~~that did not recur in ~~digital marketing, increased $5.1 million. There were also other net cost increases of $0.5 million.~~the current year.

Crocs Brand Corporate

During the three months ended September 30, ~~2022,~~2023, total net costs within ‘Brand corporate’ increased ~~$8.9~~$3.4 million, or ~~31.8%~~9.1%, compared to the same period in ~~2021, due to a larger investment in marketing of $3.0 million, an increase in compensation costs of $2.5 million, and an increase in other net costs, including contract labor, of $3.4 million.~~2022.

During the nine months ended September 30, ~~2022,~~2023, total net costs within ‘Brand corporate’ increased ~~$26.5~~$11.4 million, or ~~38.1%~~11.9%, compared to the same period in ~~2021,~~2022, due in part to ~~higher compensation costs of $7.6 million as a result of increased headcount, higher services costs, including consulting and contract labor, of $3.8 million, a larger investment~~investments in ~~marketing of $3.0 million, and higher information technology costs of $2.1 million. Other net costs increased by $10.0 million.~~brand marketing.

HEYDUDE Brand

Revenues. For the three months ended September 30, 2023, revenues decreased compared to 2022. The decrease was primarily related to lower ASP, driven by increased discounting in the DTC channel. While our ASP of $29.68, as shown in the table within the ‘Results of Operations’ section above, increased 2.7% over the third quarter of 2022, this is a basic average and is not adjusted for channel dynamics. Looking at channel dynamics, pricing pressure was the largest contributor to the brand’s revenue decline. The decrease in revenues ~~attributable~~was also driven by a decrease in volume due to ~~HEYDUDE were $269.4 million, with~~higher volumes in the ~~majority~~prior year as a result of ~~revenues attributable~~rapid expansion to strategic wholesale customers and more cautious order patterns from several of our wholesale ~~channel at approximately 67%. Overall, we sold 9.2 million pairs of shoes during~~partners in the ~~quarter. Income from operations during the quarter was $79.1 million and included SG&A costs comprised primarily of marketing, sales commissions, and compensation expense.~~current year.

~~For~~During the nine months ended September 30, 2023, revenues increased compared to the Partial Period ~~revenues attributable~~in 2022, primarily due to higher volume, driven in part by operating HEYDUDE ~~were $616.7 million, with the majority of revenues attributable~~for a full nine months in 2023 compared to 2022. Partially offsetting this increase was lower ASP driven by increased promotions, primarily in our wholesale channel at approximately 70%. Overall, we sold 21.2 million pairs of shoes during the Partial Period. Income from operations during the Partial Period was $136.4 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, compensation expense, and depreciation and amortization expense.DTC channel.

~~Refer~~Income from Operations. Income from operations for the HEYDUDE segment was $31.8 million for the three months ended September 30, 2023, a decrease of $47.3 million, or 59.8%, compared to ~~Note 17 — Acquisition of~~2022. Gross profit decreased $43.5 million, or 33.1%, due primarily to higher AUC, primarily due to lower ASP, as described above, increased distribution costs associated with the move to our new HEYDUDE distribution center 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 information regarding the Acquisition.~~Las Vegas, Nevada and increased product costs.

32SG&A for the HEYDUDE Brand segment increased $3.8 million, or 7.2%, during the three months ended September 30, 2023 compared to the same period in 2022. This increase was primarily due to investments in talent made over the past year since the acquisition in February 2022.

~~Table~~

Income from operations for the HEYDUDE segment was $173.9 million for the nine months ended September 30, 2023, an increase of ~~Contents~~$37.5 million, or 27.5%, compared to the Partial Period in 2022. Gross profit increased $81.0 million, or 34.3%, primarily due to higher volume, as described above. This increase was offset in part due to lower ASP, as described above, which was partially offset by lower AUC, primarily driven by prior year adjustments to the fair value of inventory costs upon close of the acquisition that did not recur in the current year.

SG&A for the HEYDUDE Brand segment increased $43.5 million, or 43.5%, during the nine months ended September 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 as well as an increase in store-related costs as a result of launching outlet retail stores in the current year.

Enterprise Corporate

During the three months ended September 30, ~~2022,~~2023, total net costs within ‘Enterprise corporate’ increased ~~$5.2~~$5.1 million, or ~~11.5%~~10.0%, compared to the same period in ~~2021.~~2022. This increase was primarily due to increases in ~~various~~compensation costs ~~including services, facilities, and information technology costs, of $8.0 million, and~~from a larger investment in talent, offset in part by prior year statutory costs associated with the HEYDUDE acquisition of $4.7 million, mostly offset by decreased compensation costs of $5.2 million, due to lower variable compensation, and decreases in other costs, including depreciation and amortization, of $2.3 million.acquisition.

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During the nine months ended September 30, ~~2022,~~2023, total net costs within ‘Enterprise corporate’ increased ~~$38.7~~$20.9 million, or ~~32.2%~~13.2%, compared to the same period in ~~2021.~~2022. This was primarily due to ~~costs associated with the acquisition and integration of HEYDUDE, including consulting, legal, statutory, and accounting fees, among others, of $33.2 million. There were also~~ increases in ~~other~~compensation costs, professional services costs, ~~of $8.4 million,~~ information technology costs, ~~of $4.3 million, facilities costs, including duplicate rent for our new corporate headquarters, of $4.1 million,~~ and ~~other net costs of $1.8 million.~~building costs. These increases were offset in part by lower ~~compensation~~ costs ~~of $7.8 million primarily due to lower variable compensation~~in 2023 associated with the prior year HEYDUDE acquisition and ~~lower depreciation and amortization of $5.3 million.~~integration.

~~Crocs Brand~~

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 nine months ended September 30, ~~2022:~~2023:


		June 30, 2022	Opened	Closed	September 30, 2022		June 30, 2023	Opened	Closed	September 30, 2023
Company-operated retail locations:	Company-operated retail locations:					Company-operated retail locations:

North America	North America	175	3	—	178	North America	175	—	2	173
Asia Pacific	Asia Pacific	152	3	2	153	Asia Pacific	156	2	1	157
EMEALA	EMEALA	41	—	19	22	EMEALA	15	2	—	17
Total Crocs Brand						Total Crocs Brand	346	4	3	347
HEYDUDE Brand						HEYDUDE Brand	9	2	—	11
Total	Total	368	6	21	353	Total	355	6	3	358


		December 31, 2021	Opened	Closed	September 30, 2022		December 31, 2022	Opened	Closed	September 30, 2023

Company-operated retail locations:	Company-operated retail locations:					Company-operated retail locations:
North America	North America	173	5	—	178	North America	171	4	2	173
Asia Pacific	Asia Pacific	153	5	5	153	Asia Pacific	151	10	4	157
EMEALA	EMEALA	47	1	26	22	EMEALA	18	2	3	17
Total Crocs Brand						Total Crocs Brand	340	16	9	347
HEYDUDE Brand						HEYDUDE Brand	5	6	—	11
Total	Total	373	11	31	353	Total	345	22	9	358

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 September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 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	37.4	%	36.8	%	36.0	%	35.5	%	Crocs Brand	35.9	%	37.4	%	34.9	%	36.0	%
HEYDUDE Brand (1)	HEYDUDE Brand (1)	35.9	%	—	%	32.4	%	—	%	HEYDUDE Brand (1)	41.6	%	35.9	%	37.9	%	32.4	%
Total ~~(2)~~	Total ~~(2)~~	37.0	%	36.8	%	35.2	%	35.5	%	Total ~~(2)~~	37.3	%	37.0	%	35.6	%	35.2	%

(1) 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 nine months ended September 30, 2022 represent results during the Partial ~~Period, and there are no comparative amounts for the three and nine months ended September 30, 2021.~~

~~(2)~~ ~~For the three and nine months ended September 30, 2021, the digital sales as a percent of total revenues represents the Crocs Brand only. See footnote (1) above.~~Period.

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Direct-to-consumer (“DTC”) comparable sales ~~for the Crocs Brand are~~were as follows:


		Constant Currency (1)							Constant Currency (1)
		Three Months Ended September 30,			Nine Months Ended September 30,				Three Months Ended September 30,				Nine Months Ended September 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)~~	18.2	%	N/A	13.6	%	N/A	Crocs Brand ~~(3)~~	15.3	%	18.2	%	18.4	%	13.6	%
HEYDUDE Brand (3)								HEYDUDE Brand (3)	8.1	%	N/A		16.5	%	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 nine months ended September 30, ~~2021, as a result of the COVID-19 pandemic’s impact on 2020 sales~~2022, 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 September 30, ~~2022~~2023 was:


	September 30, ~~2022~~2023
	(in thousands)
Cash and cash equivalents	$	~~142,971~~127,320
Available borrowings	~~611,080~~563,689

As of September 30, ~~2022,~~2023, we had ~~$143.0~~$127.3 million in cash and cash equivalents and up to ~~$611.1~~$563.7 million of available borrowings, including ~~$599.7~~$548.7 million of remaining borrowing availability under the Revolving Facility (as defined below) and ~~$11.4~~$15.0 million of remaining borrowing availability under the Asia revolving facilities. As of September 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 the remainder of 2022, we plan to continue to use excess cash generated by our operations to begin to repay our outstanding debt, and, as such,resumed our share repurchase ~~program remains suspended.~~program. Our capital allocation priorities will remain flexible between 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, global economic conditions, and the pace of sustainable growth in our markets, among other things, could each impact our business and liquidity.

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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 September 30, ~~2022~~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

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affect our liquidity. As of September 30, ~~2022,~~2023, we held ~~$100.9~~$72.5 million of our total ~~$143.0~~$127.3 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 of~~Of the ~~$100.9~~$72.5 million, ~~held in international locations is not limited~~$3.0 million could potentially be restricted by local ~~regulations.~~laws.

Senior Revolving Credit Facility

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 September 30, ~~2022,~~2023, we were in compliance with all financial covenants under the Credit Agreement.

Term Loan B Facility

~~The~~Acquisition, which was amended (the "Amendment") on August 8, 2023 (the Original Term Loan B Credit Agreement, ~~provides~~as amended by the Amendment, the “Term Loan B Credit Agreement”).

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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%~~3.00%.

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Asia Revolving Credit Facilities

Senior Notes Issuances

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restricted payments; declare or pay dividends or other payments; incur liens; enter into certain types of transactions with the

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Company’s affiliates; and consolidate or merge with or into other companies. As of September 30, ~~2022,~~2023, we were in compliance with all financial covenants under the Notes.

Cash Flows


		Nine Months Ended September 30,				$ Change		% Change			Nine Months Ended September 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	$	246,685	$	355,165	$	(108,480)	(30.5)	%	Cash provided by operating activities	$	580,726	$	246,685	$	334,041	135.4	%
Cash used in investing activities	Cash used in investing activities	(2,136,489)		(35,767)		(2,100,722)		(5,873.4)	%	Cash used in investing activities	(86,468)		(2,136,489)		2,050,021		96.0	%
Cash provided by (used in) financing activities	Cash provided by (used in) financing activities	1,827,653		(13,020)		1,840,673		14,137.3	%	Cash provided by (used in) financing activities	(557,852)		1,827,653		(2,385,505)		(130.5)	%
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(8,821)		(3,907)		(4,914)		(125.8)	%	Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(262)		(8,821)		8,559		97.0	%
Net change in cash, cash equivalents, and restricted cash	Net change in cash, cash equivalents, and restricted cash	$	(70,972)	$	302,471	$	(373,443)	(123.5)	%	Net change in cash, cash equivalents, and restricted cash	$	(63,856)	$	(70,972)	$	7,116	10.0	%

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 $108.5~~increased $334.0 million for the nine months ended September 30, ~~2022~~2023 compared to the nine months ended September 30, ~~2021,~~2022, driven ~~by decreases in operating assets and liabilities of $134.2 million, primarily due to accounts receivable, net and inventory, partially offset~~ by higher net income, adjusted for non-cash items, of ~~$25.8 million.~~$152.4 million and increases in operating assets and liabilities of $181.6 million, primarily due to lower inventories.

Investing Activities. There was a ~~$2,100.7~~$2,050.0 million ~~increase~~decrease in cash used in investing activities for the nine months ended September 30, ~~2022~~2023 compared to the nine months ended September 30, ~~2021.~~2022. The ~~increase~~decrease is primarily due to the ~~Cash Consideration~~cash paid for the ~~Acquisition,~~acquisition, net of cash ~~acquired.~~acquired, in the nine months ended September 30, 2022 that did not recur in the current year. Refer to Note 1715 — 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 ~~increased~~decreased by ~~$1,840.7~~$2,385.5 million in the nine months ended September 30, ~~2022~~2023 compared to the nine months ended September 30, ~~2021.~~2022. The ~~increase~~decrease was primarily due to ~~an increase~~a decrease of ~~$2,070.7~~$2,026.1 million in proceeds from borrowings, which includes borrowings under the Term Loan B Facility of $2.0 billion used to fund the ~~Revolving Facility, and~~acquisition of HEYDUDE in part during the ~~Asia revolving facilities.~~nine months ended September 30, 2022 that did not recur in the current year. Additionally, ~~a decrease~~there was an increase of ~~$500.0~~$253.4 million in repayments of borrowings, an increase of $150.0 million in repurchases of common stock, ~~and a decrease~~an increase of ~~$7.3~~$5.6 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 ~~increase~~decrease was offset by a ~~$700.0~~$49.7 million decrease ~~in proceeds from the Notes issuances that occurred in the nine months ended September 30, 2021 that did not recur in the current period, a $36.9 million increase~~ in deferred debt issuance ~~costs, primarily related to the Term Loan B Facility. We also had an increase of $0.3 million in repayments of borrowings 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 Facilities, (ii) borrowings and repayments under the Term Loan B Facility, which we entered into in the nine months ended September 30, 2022, and (iii) future lease payments of approximately $75 million through 2033, as described in Note 5 — Leases 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.~~revolving credit facilities.

Off-Balance Sheet Arrangements

We had no material off-balance sheet arrangements as of September 30, ~~2022,~~2023, other than certain purchase commitments, which are described in Note 1413 — 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.

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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 nine months ended September 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 specialist 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 17 — 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, ~~2021~~2022 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.

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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 September 30, ~~2022,~~2023, we had borrowings with a face value of ~~$2,675.0~~$1,990.0 million, comprised of the Notes, which carry a fixed rate, ~~and~~ the Term Loan B Facility, and borrowings under our Revolving Facility. We also had ~~$0.3~~$1.3 million in outstanding letters of credit under our Revolving Facility as of September 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 ~~$5.4~~$3.4 million and ~~$13.0~~$11.6 million for the three and nine months ended September 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 ~~operations~~income 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 September 30, ~~2022~~2023 by ~~$2.9~~$5.9 million and ~~$0.4~~$1.1 million, respectively. ~~For~~During the nine months ended September 30, ~~2022,~~2023, 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 by ~~$8.5~~$17.7 million and ~~$1.8~~$4.2 million, respectively. This analysis does not account for transactional fluctuations in accounts, such as those driven by purchasing power, which is defined as ~~defined~~purchasing foreign goods in ~~“Known or Anticipated Trends”~~the U.S. Dollar but recognizing the cost 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.~~foreign currencies. 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 7 — 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 September 30, ~~2022,~~2023, the U.S. Dollar notional value of our outstanding foreign currency forward exchange contracts was approximately ~~$177.5~~$165.3 million. The ~~net~~ fair value of these contracts at September 30, ~~2022~~2023 was an ~~asset of $0.7 million.~~ insignificant 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 September 30, ~~2022,~~2023, a 10% appreciation in the value of the U.S. Dollar would result in a net ~~increase~~decrease in the fair value of our derivative portfolio of approximately ~~$0.9~~$1.1 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 ~~operations~~income for the ~~three and~~ nine months ended September 30, ~~2022~~2023 and ~~2021.~~2022.

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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 September 30, 2022. During the nine months ended September 30, 2022, we closed the Acquisition, as discussed in Note 17 — 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~~2023. 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 27.3% and 23.6% of our total revenues for the three and nine months ended September 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 September 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 ~~are~~closed the Acquisition, as discussed in Note 15 — Acquisition of HEYDUDE, and as such, internal controls over the ~~process of integrating~~ HEYDUDE ~~into our overall internal control over~~ financial ~~reporting~~processes have been integrated and will ~~include HEYDUDE~~be included in Management’s Evaluation of Disclosure Controls and Procedures for the year ending 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 nine months ended September 30, 2022, including determining the fair value of the assets acquired and liabilities assumed. Except as described above, thereThere were no other changes in our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) during the three ~~or nine~~ months ended September 30, ~~2022~~2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II — Other Information

ITEM 1. Legal Proceedings

A discussion of legal matters is found in Note 1613 — ~~Legal Proceedings~~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.

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 our~~to 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 and macro financial impacts resulting from the exclusion of Russian financial institutions from the global banking system, 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.

~~Changes in global economic conditions, including, but not limited~~

ITEM 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities


Issuer Purchases of Equity Securities
Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)	Maximum Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs (1)
July 1 - 31, 2023	986,504	$	111.51	986,504	$	940,015,076


August 1 - 31, 2023	404,495	98.91		404,495	900,015,149
September 1 - 30, 2023	—	—		—	900,015,149


Total	1,390,999	$	107.85	1,390,999	$	900,015,149

(1) On April 23, 2021, the Board approved and authorized a program to ~~those driven by inflation, may adversely affect consumer spending and the financial health~~repurchase up to $1.0 billion of our ~~customers~~common stock. Additionally, on September 23, 2021, the Board approved an increase of $1.0 billion to our share repurchase authorization. As of September 30, 2023, approximately $900.0 million remained available for repurchase under our share repurchase authorization. The number, price, structure and ~~others with whom we do business, which may adversely affect~~timing of the repurchases, if any, will be at our ~~financial condition, results of operations, and cash resources.~~

~~Uncertainty about current~~sole discretion and future ~~global economic~~repurchases will be evaluated by us depending on market conditions, ~~may cause consumers, wholesalers, and retailers to defer purchases or cancel purchase orders for~~liquidity needs, restrictions under our products in response to tighter credit, decreased cash availability, and weakened consumer confidence. Our financial success is sensitive to changes in general economic conditions, both globally and in specific markets, that may adversely affect the demand for our products including recessionary economic cycles, higher interest rates, higher fueldebt arrangements, and other energy costs, inflation, increases in commodity prices, higher levels of unemployment, higher consumer debt levels, higher tax rates and other changes in tax laws, public health issues like the COVID-19 pandemic, or other economic factors, certain of which effects we have experienced thus far in 2022 and currently expect to continue to experience in 2023. If global economic and financial market conditions deteriorate, or remain weak, for an extended period of time, the following factors, among others, could have a material adverse effect on our business and financial results:

•~~Changes in foreign currency exchange rates relative to the USD could have a material impact on our reported financial results, such as~~factors. Share repurchases may be made in the ~~quarter ended September 30, 2022.~~

•~~Slower consumer spending may result~~open market or in ~~our inability~~privately negotiated transactions. The repurchase authorization does not have an expiration date and does not oblige us to maintain or increase our sales to new and existing customers, cause reduced product orders or product order delays or cancellations from wholesale accounts that are directly impacted by fluctuations in the broader economy, difficulties managing inventories, higher discounts, and lower product margins.

•~~If consumer demand for our products declines, we may not be able to profitably operate existing retail stores, due to higher fixed costs of the retail business.~~

•A decrease in credit available to our wholesale or distributor customers, product suppliers and other service providers, or financial institutions that are counterparties to our Revolving Facility or derivative instruments may result in credit pressures, other financial difficulties, or insolvency for these parties, with a potential adverse impact on our business, our financial results, or our ability to obtain future financing.

~~Table of Contents~~

•If our wholesale customers experience diminished liquidity, we may experience a reduction in product orders, an increase in customer order cancellations, and/or the need to extend customer payment terms, which could lead to larger balances and delayed collectionacquire any particular amount of our ~~accounts receivable, reduced cash flows, greater expenses for collection efforts, and increased risk of nonpayment of our accounts receivable.~~

•~~If our manufacturers~~common stock. The Board may suspend, modify, or other parties in our supply chain experience diminished liquidity, and as a result are unable to fulfill their obligations to us, we may be unable to provide our customers with our products in a timely manner, resulting in lost sales opportunities or a deterioration in our customer relationships.

•~~If we are unable to mitigate~~terminate the impact of supply chain constraints and inflationary pressure through price increases or other measures, our results of operations and financial condition could be negatively impacted. Furthermore, even if we are able to raise the prices of our products, consumers might react negatively to such price increases, which could have a material adverse effect on, among other things, our brand, reputation, and sales.repurchase program at any time without prior notice.

ITEM 5. Other Information

~~The Federal Reserve recently raised interest rates multiple times~~

In the three months ended September 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 response to concerns about inflation and it may raise them again. Higher interest rates, coupled with reduced government spending and volatility in financial markets may also increase economic uncertainty and negatively affect consumer spending. Similarly, the ongoing war between Russia and Ukraine has created extreme volatility in the global capital markets and is expected to continue to have further global economic consequences, including disruptionsItem 408(a) of ~~the global supply chain and energy markets. See “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~~.” Any such volatility and disruptions may adversely affect our business or the third parties on whom we rely. If the equity and credit markets deteriorate, including as a result of political unrest or war, it may make any necessary debt or equity financing more difficult to obtain in a timely manner or on favorable terms, more costly or more dilutive. Increased inflation rates have already, and may continue to, adversely affect us by increasing our costs, including labor and employee benefit costs. In addition, higher inflation and macro turmoil and uncertainty could also adversely affect our customers, which could reduce demand for our products.Regulation S-K.

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ITEM 6. Exhibits


Exhibit Number						Description
3.1						Restated Certificate of Incorporation of Crocs, Inc. (incorporated herein by reference to Exhibit 4.1 to Crocs, Inc.’s Registration Statement on Form S-8, filed on March 9, 2006).

3.2						Certificate of Amendment to Restated Certificate of Incorporation of Crocs, Inc. (incorporated herein by reference to Exhibit 3.1 to Crocs, Inc.’s Current Report on Form 8-K, filed on July 12, 2007).

3.3						Amended and Restated Bylaws of Crocs, Inc. (incorporated herein by reference to Exhibit 4.2 to Crocs, Inc.’s Registration Statement on Form S-8, filed on March 9, 2006).

3.4						Certificate of Designations of Series A Convertible Preferred Stock of Crocs, Inc. (incorporated herein by reference to Exhibit 3.1 to Crocs, Inc.’s Current Report on Form 8-K, filed on January 27, 2014).

4.1						Specimen Common Stock Certificate (incorporated herein by reference to Exhibit 4.2 to Crocs, Inc.’s Registration Statement on Form S-1/A, filed on January 19, 2006).

10.1*						Refinancing Amendment, dated as of August 8, 2023, by and among Crocs, Inc., a Delaware corporation, the subsidiary guarantors party thereto, Citibank, N.A., as administrative agent, and each of the lenders party thereto (incorporated herein by reference to Exhibit 10.1 to Crocs, Inc.'s Current Report on Form 8-K, filed on August 8, 2023).

31.1†						Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act.

31.2†						Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes- Oxley Act.

32+						Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act.

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).

* Certain schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company hereby undertakes to supplementally furnish copies of any omitted schedules and exhibits to the Securities and Exchange Commission upon request.

† Filed herewith.

+ Furnished herewith.

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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: November ~~3, 2022~~2, 2023

By:

/s/ Anne Mehlman

Name:

Anne Mehlman

Title:

Executive Vice President and Chief Financial Officer

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PART I — Financial Information

Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Statements of ~~Operations~~Income	1
	Condensed Consolidated Statements of Comprehensive Income	2
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Stockholders’ Equity	4
	Condensed Consolidated Statements of Cash Flows	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2423
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39
Item 4.	Controls and Procedures	40

PART II — Other Information		41

Item 1.	Legal Proceedings	41
Item 1A.	Risk Factors	41
Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities	41
Item 5.	Other Information	41
Item 6.	Exhibits	4342
Signatures		4443


	As of September 30, 2022
	(in thousands)
2022 (remainder of year)	$	11,809
2023	61,580
2024	47,943
2025	36,329
2026	31,275
Thereafter	133,028
Total future minimum lease payments	321,964
Less: imputed interest	(41,467)
Total operating lease liabilities	$	280,497


	Three Months Ended September 30, 2021
	Crocs Brand		HEYDUDE Brand		Total
	(in thousands)
Channel:
Wholesale	$	309,611	$	—	$	309,611
Direct-to-consumer	316,308		—		316,308
Total revenues	$	625,919	$	—	$	625,919