# Crocs, Inc.: Form 10-Q for the period ended Sep 30, 2022

- Company: [Crocs, Inc.](/companies/crox.md) (CIK 1334036)
- Form: 10-Q
- Filed: 2022-11-03
- Accepted by EDGAR: Nov 3, 2022, 10:53 ET
- Period: 2022-09-30
- Accession: 0001334036-22-000169
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1334036/000133403622000169/crox-20220930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1334036/000133403622000169/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-07-01 to 2022-09-30 | $985.1m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2022-01-01 to 2022-09-30 | $2.61bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2022-07-01 to 2022-09-30 | $443.8m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2022-01-01 to 2022-09-30 | $1.25bn | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2022-07-01 to 2022-09-30 | $541.3m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2022-01-01 to 2022-09-30 | $1.36bn | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2022-07-01 to 2022-09-30 | $277.2m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2022-01-01 to 2022-09-30 | $733.3m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2022-07-01 to 2022-09-30 | $264.1m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2022-01-01 to 2022-09-30 | $630.7m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2022-07-01 to 2022-09-30 | $34.1m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2022-01-01 to 2022-09-30 | $86.4m | us-gaap:InterestExpense |
| Income tax | 3 months, 2022-07-01 to 2022-09-30 | $60.2m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2022-01-01 to 2022-09-30 | $140.5m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2022-07-01 to 2022-09-30 | $169.3m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2022-01-01 to 2022-09-30 | $402.4m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2022-07-01 to 2022-09-30 | $2.72 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2022-01-01 to 2022-09-30 | $6.51 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2022-07-01 to 2022-09-30 | $2.75 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2022-01-01 to 2022-09-30 | $6.59 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2022-07-01 to 2022-09-30 | 62,367,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2022-01-01 to 2022-09-30 | 61,840,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2022-01-01 to 2022-09-30 | $246.7m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2022-01-01 to 2022-09-30 | $89.6m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 9 months, 2022-01-01 to 2022-09-30 | $0 | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2022-09-30 | $143.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2022-09-30 | $1.12bn | us-gaap:AssetsCurrent |
| Total assets | at 2022-09-30 | $4.54bn | us-gaap:Assets |
| Current liabilities | at 2022-09-30 | $571.2m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2022-09-30 | $3.91bn | us-gaap:Liabilities |
| Long-term debt | at 2022-09-30 | $2.60bn | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2022-09-30 | $20.0m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2022-09-30 | $630.8m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 65,895 characters.

### 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 acquired (the “Acquisition”) 100% of the equity of a privately-owned casual footwear brand business (“HEYDUDE”), pursuant to a securities purchase agreement (the “SPA”) entered into on December 22, 2021. HEYDUDE is engaged in the business of distributing and selling casual footwear, including footwear under the brand name “HEYDUDE.” The Acquisition has enabled us to further diversify our product portfolio under two brands. We intend to leverage our global presence, innovative marketing, and scale infrastructure to grow HEYDUDE and to create significant shareholder value. For more information on the Acquisition, refer to Note 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. The results reported for the HEYDUDE Brand herein represent the partial period beginning on the Acquisition Date through September 30, 2022 (the “Partial Period”).
- Global inflation, elevated interest rates, global industry-wide logistics challenges, and foreign currency fluctuations resulting 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. As of September 30, 2022, we have concluded our 2022 $75 million air freight program initiated as a result of partial COVID-19-related factory closures in Vietnam at the end of 2021. In the nine months ended September 30, 2022, we incurred air freight costs of approximately $67 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 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.

### 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.

### Third Quarter 2022 Financial and Operational Highlights

Revenues were $985.1 million for the third quarter of 2022, a 57.4% increase compared to the third quarter of 2021. The increase was due to the net effects of: (i) the addition of HEYDUDE Brand revenues of $269.4 million as a result of the Acquisition, which increased revenues by 43.1%; (ii) higher Crocs Brand unit sales volumes, which increased revenues by $131.0 million, or 20.9%; (iii) unfavorable changes in exchange rates for the Crocs Brand, which decreased revenues by $34.9 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%.

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

- 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 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 and supply chain challenges. This was led by our Asia Pacific segment, which grew revenues by 65.5%, or 82.3% on a constant currency basis, compared to the third quarter of 2021. Our EMEALA segment grew revenues by 26.2%, or 45.6% on a constant currency basis, and our North America segment revenues grew by 1.7%, or 1.8% on a constant currency basis.
- Footwear units sold for the Crocs Brand in the third quarter of 2022 were 30.3 million pairs worldwide, an increase of 19.2% from the third quarter of 2021. We sold 9.2 million pairs of shoes for the HEYDUDE Brand in the third quarter of 2022.
- Gross margin was 54.9%, a decrease of 900 basis points from last year’s third quarter. Gross margin for the Crocs Brand 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 activity 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 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.
- SG&A was $277.2 million compared to $196.7 million in the third quarter of 2021, as a result of investments in headcount and marketing as we continue to grow the business, and incremental operating costs associated with operating the HEYDUDE Brand. As a percent of revenues, SG&A decreased to 28.1% of revenues compared to 31.4% 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.
- Income from operations increased to $264.1 million from $203.1 million in last year’s third quarter. Net income was $169.3 million, or $2.72 per diluted share, compared to $153.5 million, or $2.42 per diluted share, in last year’s third quarter.

### Results of Operations

*(in thousands, except per share, margin, and average selling price data)*

|  | Three Months Ended September 30, 2022 | 2021 | Nine Months Ended September 30, 2022 | 2021 | % Change Favorable (Unfavorable) Q3 2022-2021 | YTD 2022-2021 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Revenues | $985,094 | $625,919 | $2,609,823 | $1,726,790 | 57.4% | 51.1% |
| Cost of sales | 443,792 | 226,123 | 1,245,864 | 678,594 | (96.3)% | (83.6)% |
| Gross profit | 541,302 | 399,796 | 1,363,959 | 1,048,196 | 35.4% | 30.1% |
| Selling, general and administrative expenses | 277,239 | 196,728 | 733,255 | 525,120 | (40.9)% | (39.6)% |
| Income from operations | 264,063 | 203,068 | 630,704 | 523,076 | 30.0% | 20.6% |
| Foreign currency gains (losses), net | (393) | 537 | (1,115) | (84) | (173.2)% | (1,227.4)% |
| Interest income | 31 | 615 | 219 | 713 | (95.0)% | (69.3)% |
| Interest expense | (34,142) | (6,486) | (86,357) | (12,830) | (426.4)% | (573.1)% |
| Other income (expense), net | 16 | 2 | (512) | 15 | 700.0% | (3,513.3)% |
| Income before income taxes | 229,575 | 197,736 | 542,939 | 510,890 | 16.1% | 6.3% |
| Income tax expense (benefit) | 60,226 | 44,247 | 140,515 | (59,951) | (36.1)% | (334.4)% |
| Net income | $169,349 | $153,489 | $402,424 | $570,841 | 10.3% | (29.5)% |
| Net income per common share: |  |  |  |  |  |  |
| Basic | $2.75 | $2.47 | $6.59 | $8.96 | 11.3% | (26.5)% |
| Diluted | $2.72 | $2.42 | $6.51 | $8.79 | 12.4% | (25.9)% |
| Gross margin (1) | 54.9% | 63.9% | 52.3% | 60.7% | (900) bp | (840) bp |
| Operating margin (1) | 26.8% | 32.4% | 24.2% | 30.3% | (560) bp | (610) bp |
| Footwear unit sales: |  |  |  |  |  |  |
| Crocs Brand | 30,292 | 25,410 | 88,304 | 80,402 | 19.2% | 9.8% |
| HEYDUDE Brand (3) | 9,167 | — | 21,232 | — | —% | —% |
| Average footwear selling price - nominal basis (2): |  |  |  |  |  |  |
| Crocs Brand | $23.33 | $24.42 | $22.34 | $21.30 | (4.5)% | 4.9% |
| HEYDUDE Brand (3) | $29.39 | $— | $29.04 | $— | —% | —% |

(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, and there are no comparative amounts for the three and nine months ended September 30, 2021.

### Revenues By Channel

*(in thousands)*

| Crocs Brand: | Three Months Ended September 30, 2022 | Favorable (Unfavorable) 2021 | Nine Months Ended September 30, 2022 | 2021 | % Change Q3 2022-2021 | YTD 2022-2021 | Constant Currency % Change (1) Q3 2022-2021 | YTD 2022-2021 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Wholesale | $353,304 | $309,611 | $1,090,073 | $906,978 | 14.1% | 20.2% | 21.8% | 26.7% |
| Direct-to-consumer | 362,403 | 316,308 | 903,075 | 819,812 | 14.6% | 10.2% | 18.1% | 13.1% |
| Total Crocs Brand | 715,707 | 625,919 | 1,993,148 | 1,726,790 | 14.3% | 15.4% | 19.9% | 20.2% |
| HEYDUDE Brand (2): |  |  |  |  |  |  |  |  |
| Wholesale | 181,768 | — | 431,186 | — | —% | —% | —% | —% |
| Direct-to-consumer | 87,619 | — | 185,489 | — | —% | —% | —% | —% |
| Total HEYDUDE Brand | 269,387 | — | 616,675 | — | —% | —% | —% | —% |
| Total consolidated revenues (2) | $985,094 | $625,919 | $2,609,823 | $1,726,790 | 57.4% | 51.1% | 63.0% | 55.9% |

(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, and there are no comparative amounts for the three and nine months ended September 30, 2021.

***Revenues.*** In the three months ended September 30, 2022, revenues increased compared to the same period in 2021. This was driven by the addition of HEYDUDE Brand revenues of $269.4 million and higher volume in the Crocs Brand 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 in the Euro, which decreased Crocs 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 and promotional activity, primarily in our North America segment.

Revenues also increased in the nine months ended September 30, 2022, driven by (i) the addition of HEYDUDE Brand revenues of $616.7 million during the Partial Period, (ii) higher ASP in the Crocs Brand of $175.3 million, or 10.2%, 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. Unfavorable foreign currency fluctuations, most significantly in the Euro and Korean Won, decreased Crocs Brand revenues by $82.2 million, or 4.8%.

***Cost of sales.*** In the three months ended September 30, 2022, compared to the same period in 2021, HEYDUDE contributed to the majority of the increase in 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 million, or 22.6%. Higher average cost per unit on a constant currency basis (“AUC”) in the Crocs Brand of $46.0 million, or 20.3%, was mostly due to higher material and distribution and logistics costs, driven by inflation impacts and air freight used to mitigate supply challenges, as well as unfavorable purchasing power. Fluctuations in foreign currency decreased cost of sales by $17.4 million, or 7.7%.

In the nine months ended September 30, 2022, compared to the same period in 2021, cost of sales increased due to the addition of HEYDUDE, which had 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 $141.1 million, or 20.8%, resulted mostly from higher material 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%.

***Gross profit.*** Gross margin decreased in the three months ended September 30, 2022 to 54.9% compared to 63.9% in the same period in 2021. Gross margin for the Crocs Brand was 57.3% compared to 63.9% in the same period in 2021, driven mostly by higher material 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 margin for the HEYDUDE Brand was 48.8%, representing 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.

Gross profit increased $141.5 million, or 35.4%, mostly 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 ASP and higher AUC of $52.2 million, or 13.1% and unfavorable foreign currency changes for the Crocs Brand of $17.6 million, or 4.4%.

Gross margin in the nine months ended September 30, 2022 was 52.3% compared to 60.7% in 2021. Gross margin for the Crocs Brand was 56.7% compared to 60.7% in 2021, due primarily to higher material and freight costs, 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 basis points unfavorable impact from a non-cash step-up 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.

Gross profit increased $315.8 million, or 30.1%, as a result of the addition of the HEYDUDE Brand, which contributed to the majority of the increase, as well as increases in the Crocs Brand due to the net impact of both higher ASP and AUC of $34.2 million, or 3.3%, and higher volumes of $91.2 million, or 8.7%. These were offset by unfavorable foreign currency changes in the Crocs Brand of $44.7 million, or 4.3%.

***Selling, general and administrative expenses.*** SG&A expenses increased $80.5 million, or 40.9%, in the three months ended September 30, 2022 compared to the same period in 2021. This was due to an increase in marketing costs of $35.1 million, mostly for investments in the HEYDUDE Brand. There was also an increase in sales commissions of $9.9 million, due primarily to HEYDUDE, which used more costly external sales representatives prior to the Acquisition Date. We are currently in the process of transitioning off of this model. Higher professional services costs of $9.7 million were due to variable costs associated with revenue growth and higher legal 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 costs associated with the integration of HEYDUDE and information technology costs, increased SG&A by $14.0 million.

SG&A expenses increased $208.1 million, or 39.6%, during the nine months ended September 30, 2022 compared to the same period in 2021. We have continued 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 million associated with the Acquisition and related integration, including consulting, legal, statutory, and accounting fees, contributed to the increase. Other 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 of $24.1 million were due to variable costs associated with revenue growth and higher legal 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 penalties associated with the continued shutdown of our direct operations in Russia 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.

***Foreign currency gains (losses), net.*** Foreign currency gains (losses), net, consist of realized and unrealized foreign currency gains and losses from the remeasurement and settlement of monetary assets and liabilities denominated in non-functional currencies as well as realized and unrealized gains and losses on foreign currency derivative instruments. During the three months ended September 30, 2022, we recognized realized and unrealized net foreign currency losses of $0.4 million compared to gains of $0.5 million during the three months ended September 30, 2021. During the nine months ended September 30, 2022, we recognized realized and unrealized net foreign currency losses of $1.1 million compared to losses of $0.1 million during the nine months ended September 30, 2021.

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

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 in the effective rate was primarily driven by the prior year release of valuation allowances. Our effective income tax rate, for each period presented, also differs from the federal U.S. statutory rate primarily due to differences in income tax rates between U.S. and foreign jurisdictions.

### Reportable Operating Segments

The following table sets forth information related to our reportable operating segments, including a comparison of revenues and operating income by segment:

*(in thousands)*

| Revenues: | Three Months Ended September 30, 2022 | Favorable (Unfavorable) 2021 | Nine Months Ended September 30, 2022 | 2021 | % Change Q3 2022-2021 | YTD 2022-2021 | Constant Currency % Change (1) Q3 2022-2021 | YTD 2022-2021 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| North America (2) | $445,327 | $437,746 | $1,187,713 | $1,098,165 | 1.7% | 8.2% | 1.8% | 8.3% |
| Asia Pacific | 138,450 | 83,645 | 383,187 | 293,071 | 65.5% | 30.7% | 82.3% | 41.6% |
| EMEALA (2) | 131,929 | 104,503 | 422,226 | 335,481 | 26.2% | 25.9% | 45.6% | 40.4% |
| Brand corporate (3) | 1 | 25 | 22 | 73 | (96.0)% | (69.9)% | (96.0)% | (69.9)% |
| Crocs Brand revenues | 715,707 | 625,919 | 1,993,148 | 1,726,790 | 14.3% | 15.4% | 19.9% | 20.2% |
| HEYDUDE Brand revenues (4) | 269,387 | — | 616,675 | — | —% | —% | —% | —% |
| Total consolidated revenues | $985,094 | $625,919 | $2,609,823 | $1,726,790 | 57.4% | 51.1% | 63.0% | 55.9% |
| Income from operations: |  |  |  |  |  |  |  |  |
| North America (2) | $191,438 | $224,118 | $498,413 | $524,991 | (14.6)% | (5.1)% | (14.4)% | (4.9)% |
| Asia Pacific | 40,286 | 16,361 | 121,823 | 70,492 | 146.2% | 72.8% | 167.9% | 89.3% |
| EMEALA (2) | 40,506 | 35,721 | 128,819 | 117,128 | 13.4% | 10.0% | 31.1% | 22.1% |
| Brand corporate (3) | (36,896) | (27,992) | (95,864) | (69,393) | (31.8)% | (38.1)% | (33.6)% | (39.8)% |
| Crocs Brand income from operations | 235,334 | 248,208 | 653,191 | 643,218 | (5.2)% | 1.6% | (1.3)% | 5.6% |
| HEYDUDE Brand income from operations (4) | 79,056 | — | 136,381 | — | —% | —% | —% | —% |
| Enterprise corporate (3) | (50,327) | (45,140) | (158,868) | (120,142) | (11.5)% | (32.2)% | (11.5)% | (32.2)% |
| Total consolidated income from operations | $264,063 | $203,068 | $630,704 | $523,076 | 30.0% | 20.6% | 34.8% | 25.5% |

(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.

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

*(in thousands)*

| Segment Revenues: Crocs Brand: | Three Months Ended September 30, 2022 vs. 2021 Volume $ Change | % Change | Price (1) $ Change | % Change | Foreign Exchange $ Change | % Change | Total $ Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| North America | $51,882 | 11.8% | $(43,663) | (10.0)% | $(638) | (0.1)% | $7,581 | 1.7% |
| Asia Pacific | 51,113 | 61.1% | 17,721 | 21.2% | (14,029) | (16.8)% | 54,805 | 65.5% |
| EMEALA | 27,982 | 26.8% | 19,705 | 18.8% | (20,261) | (19.4)% | 27,426 | 26.2% |
| HEYDUDE Brand (2) | — | —% | — | —% | — | —% | — | —% |
| Total segment revenues | $130,977 | 20.9% | $(6,237) | (1.0)% | $(34,928) | (5.6)% | $89,812 | 14.3% |

(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.

*(in thousands)*

| Segment Revenues: Crocs Brand: | Nine Months Ended September 30, 2022 vs. 2021 Volume $ Change | % Change | Price (1) $ Change | % Change | Foreign Exchange $ Change | % Change | Total $ Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| North America | $29,536 | 2.7% | $61,402 | 5.6% | $(1,390) | (0.1)% | $89,548 | 8.2% |
| Asia Pacific | 69,200 | 23.6% | 52,924 | 18.0% | (32,008) | (10.9)% | 90,116 | 30.7% |
| EMEALA | 74,547 | 22.2% | 60,975 | 18.2% | (48,777) | (14.5)% | 86,745 | 25.9% |
| HEYDUDE Brand (2) | — | —% | — | —% | — | —% | — | —% |
| Total segment revenues | $173,283 | 10.0% | $175,301 | 10.2% | $(82,175) | (4.8)% | $266,409 | 15.4% |

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

(2) We acquired HEYDUDE on February 17, 2022 and, 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 nine months ended September 30, 2021.

### Crocs Brand

### North America Operating Segment

***Revenues.*** North America revenues increased in the three months ended September 30, 2022 compared to the same period in 2021, due to higher volumes, offset in part by lower ASP as a result of increased promotional activity. Foreign currency changes were relatively flat during the quarter, with slight decreases due to changes in the Canadian Dollar.

The increase in North America revenues in the nine months ended September 30, 2022 compared to the same period in 2021, due to higher ASP from higher pricing, offset 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.

***Income from Operations.*** Income from operations for our North America segment was $191.4 million for the three months ended September 30, 2022, a decrease of $32.7 million, or 14.6%, compared to the same period in 2021. Gross profit decreased by $25.3 million, or 8.6%, 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.

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 as a result of investments 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 to the same period 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.

SG&A for our North America segment increased $32.2 million, or 17.5%, during the nine months ended September 30, 2022 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 primarily due to investments in employee headcount, including retail labor, which also had higher wages in 2022 compared 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.

### Asia Pacific Operating Segment

***Revenues.*** Increases in revenues in our Asia Pacific segment led the Crocs Brand in the three months ended September 30, 2022 compared to the same period in 2021, largely as a result of higher volume, leading to broad-based growth in the region, 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 pricing, less discounting, and favorable product mix, offset in part by unfavorable channel mix towards wholesale. These increases were partially offset by unfavorable foreign currency changes in all currencies in the region, most significantly in the Korean Won and Japanese Yen.

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

***Income from Operations.*** Income from operations for the Asia Pacific segment was $40.3 million for the three months ended September 30, 2022, an increase of $23.9 million, or 146.2%, compared to the same period in 2021. Gross profit increased by $30.7 million, or 58.6%, primarily as a result of 52.2% higher volumes, as well as higher ASP. These increases were partially offset by unfavorable foreign currency changes of 15.3%.

SG&A for our Asia Pacific segment increased $6.8 million, or 18.8%, during the three months ended September 30, 2022 compared to the same period in 2021, 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 associated with higher revenues, while other net costs increased $2.6 million.

Income from operations for the Asia Pacific segment was $121.8 million for the nine months ended September 30, 2022, an increase of $51.3 million, or 72.8%, compared to the same period in 2021. Gross profit increased by $58.8 million, or 33.7%, due to higher ASPs, 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%. Higher volumes also increased gross profit by 20.8%, but changes in foreign currency offset these increases by 11.8%.

SG&A for our Asia Pacific segment increased $7.5 million, or 7.2%, in the nine months ended September 30, 2022 compared to the same period in 2021, mostly due to higher facilities costs of $2.9 million 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.

### EMEALA Operating Segment

***Revenues.*** Revenues increased in the EMEALA segment in the three months ended September 30, 2022 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 as a result of the Ukraine war. This performance was driven by increased volume, with growth particularly strong in our distributor markets, and increased ASPs, driven by increased prices and product mix, offset in part by unfavorable channel mix.

During the nine months ended September 30, 2022, EMEALA revenues increased compared to the same period in 2021, due to increased volume, as well as higher ASP, primarily in our wholesale channel, offset in part by significant unfavorable foreign currency fluctuations in the Euro.

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

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

Income from operations for the EMEALA segment was $128.8 million for the nine months ended September 30, 2022, an increase of $11.7 million, or 10.0%, compared to the same period in 2021. Gross profit increased $23.1 million, or 13.4%, 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. Negative currency changes, primarily in the Euro, led to decreases of 13.4%.

SG&A for our EMEALA segment increased $11.4 million, or 20.6%, during the nine months ended September 30, 2022 compared to the same period in 2021. This was primarily due to various costs associated with the continued shutdown of our direct operations in Russia, including severance and lease exit costs and penalties, of $5.8 million. Marketing costs, including investments in digital marketing, increased $5.1 million. There were also other net cost increases of $0.5 million.

### Crocs Brand Corporate

During the three months ended September 30, 2022, total net costs within ‘Brand corporate’ increased $8.9 million, or 31.8%, 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.

During the nine months ended September 30, 2022, total net costs within ‘Brand corporate’ increased $26.5 million, or 38.1%, compared to the same period in 2021, due 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 in marketing of $3.0 million, and higher information technology costs of $2.1 million. Other net costs increased by $10.0 million.

### HEYDUDE Brand

For the three months ended September 30, 2022, revenues attributable to HEYDUDE were $269.4 million, with the majority of revenues attributable to our wholesale channel at approximately 67%. Overall, we sold 9.2 million pairs of shoes during 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.

For the Partial Period, revenues attributable to HEYDUDE were $616.7 million, with the majority of revenues attributable to 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.

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 information regarding the Acquisition.

### Enterprise Corporate

During the three months ended September 30, 2022, total net costs within ‘Enterprise corporate’ increased $5.2 million, or 11.5%, compared to the same period in 2021. This was primarily due to increases in various costs, including services, facilities, and information technology costs, of $8.0 million, and 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.

During the nine months ended September 30, 2022, total net costs within ‘Enterprise corporate’ increased $38.7 million, or 32.2%, compared to the same period in 2021. 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 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. These increases were offset in part by lower compensation costs of $7.8 million primarily due to lower variable compensation and lower depreciation and amortization of $5.3 million.

### 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:

| Company-operated retail locations: | June 30, 2022 | Opened | Closed | September 30, 2022 |
| --- | ---: | ---: | ---: | ---: |
| North America | 175 | 3 | — | 178 |
| Asia Pacific | 152 | 3 | 2 | 153 |
| EMEALA | 41 | — | 19 | 22 |
| Total | 368 | 6 | 21 | 353 |

| Company-operated retail locations: | December 31, 2021 | Opened | Closed | September 30, 2022 |
| --- | ---: | ---: | ---: | ---: |
| North America | 173 | 5 | — | 178 |
| Asia Pacific | 153 | 5 | 5 | 153 |
| EMEALA | 47 | 1 | 26 | 22 |
| Total | 373 | 11 | 31 | 353 |

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:

| Digital sales as a percent of total revenues: | Three Months Ended September 30, 2022 | 2021 | Nine Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| Crocs Brand | 37.4% | 36.8% | 36.0% | 35.5% |
| HEYDUDE Brand (1) | 35.9% | —% | 32.4% | —% |
| Total (2) | 37.0% | 36.8% | 35.2% | 35.5% |

(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.

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

| Direct-to-consumer comparable sales: (2) | Constant Currency (1) Three Months Ended September 30, 2022 | 2021 | Nine Months Ended September 30, 2022 | 2021 |
| --- | ---: | --- | ---: | --- |
| Crocs Brand (3) | 18.2% | N/A | 13.6% | 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) In the three and nine months ended September 30, 2021, as a result of the COVID-19 pandemic’s impact on 2020 sales we did not disclose DTC comparable sales, as they were not meaningful.

### Financial Condition, Capital Resources, and Liquidity

### Liquidity

Our liquidity position as of September 30, 2022 was:

*(in thousands)*

|  | September 30, 2022 |
| --- | ---: |
| Cash and cash equivalents | $142,971 |
| Available borrowings | 611,080 |

As of September 30, 2022, we had $143.0 million in cash and cash equivalents and up to $611.1 million of available borrowings, including $599.7 million of remaining borrowing availability under the Revolving Facility (as defined below) and $11.4 million of remaining borrowing availability under the Asia revolving facilities. As of September 30, 2022, 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, 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, our share repurchase program remains suspended.

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.

### 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 without incurring additional U.S. federal income taxes. As of September 30, 2022, we held $100.9 million of our total $143.0 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 the $100.9 million, held in international locations is not limited by local regulations.

### 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, we amended the Credit Agreement, which, as amended to date, provides for a revolving credit facility of $600.0 million, which can be increased by an additional $400.0 million subject to certain conditions (the “Revolving Facility”). Borrowings under the Credit Agreement bear interest at a variable interest rate based on (A) a Base Rate (defined as the highest of (i) the Overnight Bank Funding Rate (as defined in the Credit Agreement), plus 0.25%, (ii) the Prime Rate (as defined in the Credit Agreement), and (iii) the Daily Simple SOFR (as defined in the Credit Agreement), plus 1.00%), plus an applicable margin ranging from 0.25% to 0.875% based on our leverage ratio or 1.35% to 1.975% for the Daily Simple SOFR based on the leverage ratio, or (B) the Term SOFR Rate (as defined in the Credit Agreement), plus an applicable margin ranging from 1.35% to 1.975% based on our leverage ratio for one-month interest periods and 1.40% to 2.025% based on our leverage ratio for three month interest periods. Borrowings under the Credit Agreement are secured by all of the assets of the Borrowers and guaranteed by certain other subsidiaries of the Borrowers.

The Credit Agreement requires us to maintain a minimum interest coverage ratio of 3.00 to 1.00, and a maximum leverage ratio of (i) 4.00 to 1.00 from the quarter ended March 31, 2022 through, and including, the quarter ending December 31, 2023, (ii) 3.75 to 1.00 for the quarter ending March 31, 2024, (iii) 3.50 to 1.00 for the quarter ending June 30, 2024, and (iv) 3.25 to 1.00 for the quarter ending September 30, 2024 and thereafter (subject to adjustment in certain circumstances). The Credit Agreement permits, among other things, (i) stock repurchases subject to certain restrictions, including after giving effect to such stock repurchases, the maximum leverage ratio does not exceed certain levels; and (ii) certain acquisitions so long as there is borrowing availability under the Credit Agreement of at least $40.0 million. As of September 30, 2022, we were in compliance with all financial covenants under the Credit Agreement.

As of September 30, 2022, the total commitments available from the lenders under the Revolving Facility were $600.0 million. At September 30, 2022, we had no outstanding borrowings and $0.3 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 and December 31, 2021, we had $599.7 million and $414.7 million, respectively, of available borrowing capacity under the Revolving Facility.

### Term Loan B Facility

On February 17, 2022, the Company entered into a credit agreement (the “Term Loan B Credit Agreement”) with Citibank, N.A., as administrative agent and lender, to among other things, finance a portion of the cash consideration for the Acquisition.

The Term Loan B Credit Agreement provides for an aggregate term loan B facility in the principal amount of $2.0 billion (the “Term Loan B Facility”), which is secured by substantially all of the Company’s and each subsidiary guarantor’s assets on a pari passu basis with their obligations arising from the Credit Agreement and is scheduled to mature on February 17, 2029, subject to certain exceptions set forth in the Term Loan B Credit Agreement. Additionally, subject to certain conditions, including, without limitation, satisfying certain leverage ratios, the Company may, at any time, on one or more occasions, add one or more new classes of term facilities and/or increase the principal amount of the loans of any existing class by requesting one or more incremental term facilities.

Each term loan borrowing which is an alternate base rate borrowing bears interest at a rate per annum equal to the Alternate Base Rate (as defined in the Term Loan B Credit Agreement), plus 2.50%. Each term loan borrowing which is a term benchmark borrowing bears interest at a rate per annum equal to the Adjusted Term SOFR Rate (as defined in the Term Loan B Credit Agreement) plus 3.50%.

Outstanding principal under the Term Loan B Facility is payable on the last business day of each March, June, September and December, in a quarterly aggregate principal amount of $5.0 million. Quarterly aggregate principal payments began on June 30, 2022, with the remaining principal amount due on February 17, 2029, the maturity date. As of September 30, 2022, we had $1,975 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, 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, 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 up to 10.0 million RMB, or $1.4 million at current exchange rates, and matures in January 2023, and the revolving credit facility with Citibank (China) Company Limited, Shanghai Branch (the “Citibank Facility”), which provides up to an equivalent of $10.0 million.

We had no borrowings outstanding under our Asia revolving facilities at September 30, 2022 or December 31, 2021.

### Senior Notes Issuances

In March 2021, the Company completed the issuance and sale of $350.0 million aggregate principal amount of 4.250% Senior Notes due March 15, 2029 (the “2029 Notes”), pursuant to the indenture related thereto (as amended and/or supplemented to date, the “2029 Notes Indenture”). Additionally, in August 2021, the Company completed the issuance and sale of $350.0 million aggregate principal amount of 4.125% Senior Notes due August 15, 2031 (the “2031 Notes”), pursuant to the indenture related thereto (as amended and/or supplemented to date, “the 2031 Notes Indenture” and, together with the 2029 Notes Indenture, the “Indentures” and, each, an “Indenture”). Interest on each of the 2029 Notes and the 2031 Notes (collectively, the “Notes”) is payable semi-annually.

The Company will have the option to redeem all or any portion of the 2029 Notes, at once or over time, at any time on or after March 15, 2024, at a redemption price equal to 100% of the principal amount thereof, plus a premium declining ratably on an annual basis to par and accrued and unpaid interest, if any, to, but excluding, the date of redemption. The Company will also have the option to redeem some or all of the 2029 Notes at any time before March 15, 2024 at a redemption price of 100% of the principal amount to be redeemed, plus a “make-whole” premium and accrued and unpaid interest, if any, to, but excluding, the date of redemption. In addition, at any time before March 15, 2024, the Company may redeem up to 40% of the aggregate principal amount of the 2029 Notes at a redemption price of 104.250% of the principal amount with the proceeds from certain equity issuances, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption.

The Company will have the option to redeem all or any portion of the 2031 Notes, at once or over time, at any time on or after August 15, 2026, at a redemption price equal to 100% of the principal amount thereof, plus a premium declining ratably on an annual basis to par and accrued and unpaid interest, if any, to, but excluding, the date of redemption. The Company will also have the option to redeem some or all of the 2031 Notes at any time before August 15, 2026 at a redemption price of 100% of the principal amount to be redeemed, plus a “make-whole” premium and accrued and unpaid interest, if any, to, but excluding, the date of redemption. In addition, at any time before August 15, 2024, the Company may redeem up to 40% of the aggregate principal amount of the 2031 Notes at a redemption price of 104.125% of the principal amount with the proceeds from certain equity issuances, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption.

The Notes rank pari passu in right of payment with all of the Company’s existing and future senior debt, including the Credit Agreement, and are senior in right of payment to any of the Company’s future debt that is, by its term, expressly subordinated in right of payment to the Notes. The Notes are unconditionally guaranteed by each of the Company’s restricted subsidiaries that is a borrower or guarantor under the Credit Agreement and by each of the Company’s wholly-owned restricted subsidiaries that guarantees any debt of the Company or any guarantor under any syndicated credit facility or capital markets debt in an aggregate principal amount in excess of $25.0 million.

The Indentures contain covenants that, among other things, limit the ability of the Company and its restricted subsidiaries to incur additional debt or issue certain preferred stock; pay dividends or repurchase or redeem capital stock or make other restricted payments; declare or pay dividends or other payments; incur liens; enter into certain types of transactions with the

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

### Cash Flows

*(in thousands)*

|  | Nine Months Ended September 30, 2022 | 2021 | $ Change Favorable (Unfavorable) | % Change |
| --- | ---: | ---: | ---: | ---: |
| Cash provided by operating activities | $246,685 | $355,165 | $(108,480) | (30.5)% |
| Cash used in investing activities | (2,136,489) | (35,767) | (2,100,722) | (5,873.4)% |
| Cash provided by (used in) financing activities | 1,827,653 | (13,020) | 1,840,673 | 14,137.3% |
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | (8,821) | (3,907) | (4,914) | (125.8)% |
| Net change in cash, cash equivalents, and restricted cash | $(70,972) | $302,471 | $(373,443) | (123.5)% |

***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 million for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, 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.

***Investing Activities.*** There was a $2,100.7 million increase in cash used in investing activities for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. The increase is primarily due to the Cash Consideration for the Acquisition, net of cash acquired. 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.

***Financing Activities.*** Cash provided by financing activities increased by $1,840.7 million in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. The increase was primarily due to an increase of $2,070.7 million in proceeds from borrowings, which includes borrowings under the Term Loan B Facility, the Revolving Facility, and the Asia revolving facilities. Additionally, a decrease of $500.0 million in repurchases of common stock and a decrease of $7.3 million in repurchases of common stock for tax withholding. The overall increase was offset by a $700.0 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.

### 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, other than (i) borrowings and repayments on the 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.

### Off-Balance Sheet Arrangements

We had no material off-balance sheet arrangements as of September 30, 2022, other than certain purchase commitments, which are described in Note 14 — Commitments and Contingencies in the accompanying notes to the condensed consolidated financial statements included in Part I - Item 1. *Financial Statements* of this Quarterly Report on Form 10-Q.

### Critical Accounting Policies and Estimates

The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, sales, and expenses, and related disclosure of contingent assets and liabilities. We evaluate our assumptions and estimates on an on-going basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

### Business Combinations

We account for business combinations using the acquisition method of accounting, which requires that once control is obtained, all the assets acquired and liabilities assumed are recorded at their respective fair values at the date of acquisition. Contingent consideration, if any, is included within the purchase price and is recognized at its fair value on the acquisition date. We allocate the purchase price of acquired businesses to the tangible assets, intangible assets, and contingent consideration based upon internal estimates of cash flows and consideration and/or the report of a third-party valuation expert, and this requires a significant amount of management judgment. The determination of fair values of identifiable assets and liabilities as well as contingent consideration requires estimates and the use of valuation techniques when market value is not readily available. During the measurement period, which is up to one year from the acquisition date, adjustments to the assets acquired and liabilities assumed may be recorded, with the corresponding offset to goodwill.

During the 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 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.

### 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.

## Market risk

As filed, 4,684 characters.

### 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 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, we had borrowings with a face value of $2,675.0 million, comprised of the Notes, which carry a fixed rate, and the Term Loan B Facility. We also had $0.3 million in outstanding letters of credit under our Revolving Facility as of September 30, 2022. As of December 31, 2021, we had long-term borrowings with a face value of $785.0 million and $0.3 million in outstanding letters of credit under our Revolving Facility.

A hypothetical increase of 1% in the interest rate on the borrowings under our Term Loan B Facility and Revolving Facility would have increased interest expense by $5.4 million and $13.0 million for the three and nine months ended September 30, 2022, 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 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 by $2.9 million and $0.4 million, respectively. For the nine months ended September 30, 2022, 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 million and $1.8 million, respectively. This analysis does not account for transactional fluctuations in accounts, such as those driven by purchasing power, as defined in “Known or Anticipated Trends” in Part I - Item 2. *Management’s Discussion and Analysis of Financial Condition and Results of Operations* of this Quarterly Report on Form 10-Q. The volatility of the exchange rates is dependent on many factors that cannot be forecasted with reliable accuracy.

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. Changes in the fair value of these forward contracts are recognized in earnings in the period that the changes occur. As of September 30, 2022, the U.S. Dollar notional value of our outstanding foreign currency forward exchange contracts was approximately $177.5 million. The net fair value of these contracts at September 30, 2022 was an asset of $0.7 million.

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, a 10% appreciation in the value of the U.S. Dollar would result in a net increase in the fair value of our derivative portfolio of approximately $0.9 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 for the three and nine months ended September 30, 2022 and 2021.

## Controls and procedures

As filed, 3,194 characters.

### 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 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, 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, we are in the process of integrating HEYDUDE into our overall internal control over financial reporting and will include HEYDUDE in Management’s Evaluation of Disclosure Controls and Procedures for the year 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, there were no 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 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 7,599 characters.

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, there have been no material changes in our 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” 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 to, those driven by inflation, may adversely affect consumer spending and the financial health of our customers and others with whom we do business, which may adversely affect our financial condition, results of operations, and cash resources.***

Uncertainty about current and future global economic conditions may cause consumers, wholesalers, and retailers to defer purchases or cancel purchase orders for 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 fuel 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 in the quarter ended September 30, 2022.
- Slower consumer spending may result in our inability 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.
- 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 collection of our accounts receivable, reduced cash flows, greater expenses for collection efforts, and increased risk of nonpayment of our accounts receivable.
- If our manufacturers 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 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.

The Federal Reserve recently raised interest rates multiple times 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 disruptions 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.

Filed Nov 3, 2022.
Source: SEC EDGAR, the filing index for accession 0001334036-22-000169. Last ingested by Listed: Nov 6, 2026, 18:01 ET. No prices; not investment advice.