# Crocs, Inc.: Form 10-Q for the period ended Mar 31, 2023

- Company: [Crocs, Inc.](/companies/crox.md) (CIK 1334036)
- Form: 10-Q
- Filed: 2023-04-27
- Accepted by EDGAR: Apr 27, 2023, 13:32 ET
- Period: 2023-03-31
- Accession: 0001334036-23-000059
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1334036/000133403623000059/crox-20230331.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1334036/000133403623000059/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-01-01 to 2023-03-31 | $884.2m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-01-01 to 2023-03-31 | $407.8m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-01-01 to 2023-03-31 | $476.4m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2023-01-01 to 2023-03-31 | $241.4m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-01-01 to 2023-03-31 | $234.9m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-01-01 to 2023-03-31 | $42.6m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-01-01 to 2023-03-31 | $42.2m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-01-01 to 2023-03-31 | $149.5m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-01-01 to 2023-03-31 | $2.39 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-01-01 to 2023-03-31 | $2.42 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-01-01 to 2023-03-31 | 62,629,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2023-01-01 to 2023-03-31 | $9.9m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2023-01-01 to 2023-03-31 | $27.6m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-03-31 | $125.7m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-03-31 | $1.11bn | us-gaap:AssetsCurrent |
| Total assets | at 2023-03-31 | $4.60bn | us-gaap:Assets |
| Current liabilities | at 2023-03-31 | $634.4m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-03-31 | $3.63bn | us-gaap:Liabilities |
| Long-term debt | at 2023-03-31 | $2.25bn | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2023-03-31 | $33.0m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2023-03-31 | $968.5m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 45,317 characters.

### Business Overview

Crocs, Inc. and our consolidated subsidiaries (collectively the “Company,” “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:

- We acquired HEYDUDE in February 2022. In the year since acquisition, we have penetrated top Crocs Brand wholesale accounts, hired an experienced leadership team, and made significant progress on integration. We have seen early signs of success in introducing new product styles and we continue to learn what resonates with the consumer. We also have expanded the HEYDUDE Brand internationally, specifically in Europe, where we plan to test in a few direct markets, including the United Kingdom, Germany, and the Netherlands, as well as a few distributor markets. Our two main integration efforts for HEYDUDE in 2023 are the construction of a new distribution center in Las Vegas, Nevada and the implementation of a new Enterprise Resource Planning system, both of which are planned to be completed by the end of the year.
- While overall we have seen evidence as to the underlying strength and growth potential of both the Crocs and HEYDUDE brands, we remain cautious relative to consumer confidence, particularly in Western markets, in the midst of macroeconomic pressures, including the costs of basic necessities and other goods, levels of employment, salaries and wage rates, and consumer perception of economic conditions. As a result, we anticipate declining traffic patterns throughout the year, as consumer purchasing patterns may be influenced by consumers’ disposable income. However, amidst a more challenging economic landscape, we believe we are well positioned to gain market share.
- Foreign currency fluctuations resulting in a stronger U.S. Dollar (“USD”) 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 USD also results in costs for foreign goods purchased in USD but recognized in foreign currencies (“purchasing power”) that are unfavorable.
- We paid down $41.4 million of net borrowings, reducing total borrowings to $2.28 billion as of March 31, 2023.

### 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.

### First Quarter 2023 Financial and Operational Highlights

Revenues were $884.2 million for the first quarter of 2023, a 33.9% increase compared to the first quarter of 2022. The increase was due to the net effects of: (i) higher unit sales volumes, driven in part by operating HEYDUDE for a full quarter in 2023 compared to the Partial Period (as defined below) in 2022, as well as greater demand for both brands, which increased revenues by $250.1 million, or 37.8%; (ii) unfavorable changes in exchange rates, which decreased revenues by $15.3 million, or 2.3%; and (iii) lower average selling price on a constant currency basis (“ASP”), which decreased revenues by $10.8 million, or 1.6%, driven primarily by operating HEYDUDE for a full quarter in 2023, which includes a higher percentage of end-of-season clearance activity in the first half of the quarter. This decrease was offset in part by higher ASPs for the Crocs Brand.

The following were significant developments affecting our businesses and capital structure during the three months ended March 31, 2023:

- We grew revenues in all reportable operating segments and channels. The increase in revenues was driven in part by operating HEYDUDE for a full quarter in 2023 compared to the partial period from the acquisition date of February 17, 2022 through March 31, 2022 (the “Partial Period”). For the Crocs Brand, the increase in revenues was led by our Asia Pacific segment, which grew revenues by 46.1%, or 54.8% on a constant currency basis, compared to the first quarter of 2022. Our EMEALA segment grew revenues by 21.2%, or 25.1% on a constant currency basis, and our North America segment grew revenues by 10.0%, or 10.3% on a constant currency basis.
- We sold 30.7 million pairs of shoes for the Crocs Brand in the first quarter of 2023, an increase of 19.7% from the first quarter of 2022. We sold 8.9 million pairs of shoes for the HEYDUDE Brand in the first quarter of 2023, an increase of 124.4% compared to the Partial Period in 2022.
- Gross margin was 53.9%, an increase of 470 basis points from last year’s first quarter. This was in part due to higher air freight incurred in the prior year due to supply chain disruptions, as well as 420 basis points from adjustments in the prior year to the fair value of HEYDUDE inventory costs upon acquisition. This was offset in part by a more normalized end-of-season clearance in our North America segment and HEYDUDE segment, the latter of which was driven by operating HEYDUDE during first half of the quarter in 2023 compared to the Partial Period in 2022.
- Selling, general and administrative expenses (“SG&A”) was $241.4 million compared to $206.2 million in the first quarter of 2022, as a result of investments in marketing and talent in both brands and incremental operating costs associated with investments made in the HEYDUDE Brand over the last year since acquisition, offset in part by HEYDUDE acquisition-related costs in 2022 that did not recur in 2023. As a percent of revenues, SG&A decreased to 27.3% of revenues compared to 31.2% of revenues in the first quarter of 2022, mostly due to prior year costs associated with the acquisition of HEYDUDE that did not recur in the current year.
- Income from operations increased to $234.9 million from $118.7 million in last year’s first quarter. Net income was $149.5 million, or $2.39 per diluted share, compared to $72.8 million, or $1.19 per diluted share, in last year’s first quarter.

### Results of Operations

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

|  | Three Months Ended March 31, 2023 | 2022 | % Change Favorable (Unfavorable) |
| --- | ---: | ---: | ---: |
| Revenues | $884,166 | $660,148 | 33.9% |
| Cost of sales | 407,796 | 335,224 | (21.6)% |
| Gross profit | 476,370 | 324,924 | 46.6% |
| Selling, general and administrative expenses | 241,442 | 206,247 | (17.1)% |
| Income from operations | 234,928 | 118,677 | 98.0% |
| Foreign currency gains (losses), net | (403) | 480 | (184.0)% |
| Interest income | 171 | 102 | 67.6% |
| Interest expense | (42,637) | (19,252) | (121.5)% |
| Other expense, net | (293) | (947) | 69.1% |
| Income before income taxes | 191,766 | 99,060 | 93.6% |
| Income tax expense | 42,223 | 26,300 | (60.5)% |
| Net income | $149,543 | $72,760 | 105.5% |
| Net income per common share: |  |  |  |
| Basic | $2.42 | $1.22 | 98.4% |
| Diluted | $2.39 | $1.19 | 100.8% |
| Gross margin (1) | 53.9% | 49.2% | 470 bp |
| Operating margin (1) | 26.6% | 18.0% | 860 bp |
| Footwear unit sales: |  |  |  |
| Crocs Brand | 30,652 | 25,615 | 19.7% |
| HEYDUDE Brand (3) | 8,928 | 3,979 | 124.4% |
| Average footwear selling price - nominal basis (2): |  |  |  |
| Crocs Brand | $21.00 | $21.10 | (0.5)% |
| HEYDUDE Brand (3) | $26.36 | $28.90 | (8.8)% |

(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 three months ended March 31, 2022 represent results during the Partial Period.

### Revenues By Channel

*(in thousands)*

| Crocs Brand: | Three Months Ended March 31, 2023 | Favorable (Unfavorable) 2022 | % Change Q1 2023-2022 | Constant Currency % Change (1) Q1 2023-2022 |
| --- | ---: | ---: | ---: | ---: |
| Wholesale | $410,563 | $344,258 | 19.3% | 22.4% |
| Direct-to-consumer | 238,215 | 200,967 | 18.5% | 20.3% |
| Total Crocs Brand | 648,778 | 545,225 | 19.0% | 21.6% |
| HEYDUDE Brand (2): |  |  |  |  |
| Wholesale | 167,863 | 86,919 | 93.1% | 94.3% |
| Direct-to-consumer | 67,525 | 28,004 | 141.1% | 141.1% |
| Total HEYDUDE Brand | 235,388 | 114,923 | 104.8% | 105.7% |
| Total consolidated revenues (2) | $884,166 | $660,148 | 33.9% | 36.2% |

(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 three months ended March 31, 2022 represent results during the Partial Period.

The primary drivers of changes in revenue were:

*(in thousands)*

|  | Three Months Ended March 31, 2023 vs. 2022 (1) Volume $ Change | % Change | Price (2) $ Change | % Change | Foreign Exchange $ Change | % Change | Total $ Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Total revenues | $250,137 | 37.8% | $(10,770) | (1.6)% | $(15,349) | (2.3)% | $224,018 | 33.9% |

(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 total revenues include a comparison of HEYDUDE results for the three months ended March 31, 2023 to results during the Partial Period in 2022.

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

***Revenues.*** In the three months ended March 31, 2023, revenues increased compared to the same period in 2022. This was primarily due to higher volume, driven in part by operating HEYDUDE for a full quarter in 2023 compared to the Partial Period in 2022, as well as greater demand for both brands. This was offset in part by unfavorable foreign currency changes, most significantly in the Euro, Korean Won, and Japanese Yen, and lower ASP, primarily resulting from operating HEYDUDE for a full quarter in 2023, which includes a higher percentage of end-of-season clearance activity in the first half of the quarter.

***Cost of sales.*** In the three months ended March 31, 2023, compared to the same period in 2022, cost of sales increased $72.6 million, or 21.6%. This was driven by higher volumes of $148.4 million, or 44.2%, offset in part by lower average cost per unit on a constant currency basis (“AUC”) of $67.3 million, or 20.1%, which was a result of higher air freight incurred in the prior year as part of our initiative to combat supply chain disruptions, offset in part by higher product cost and unfavorable product mix. Fluctuations in foreign currency also decreased cost of sales by $8.5 million, or 2.5%. In the three months ended March 31, 2023 and 2022, respectively, cost of sales includes $105.1 million and $97.0 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 distribution centers to wholesale partners, retail stores and end customers.

***Gross profit.*** Gross margin increased in the three months ended March 31, 2023 to 53.9% compared to 49.2% in the same period in 2022. This was in part due to higher air freight incurred in the prior year, as well as 420 basis points from adjustments in the prior year to the fair value of HEYDUDE inventory costs upon acquisition, offset in part by lower ASPs, as described above.

Gross profit increased $151.4 million, or 46.6%, due to higher volumes of $101.7 million, or 31.3%, and the net impact of lower AUC and lower ASP of $56.6 million, or 17.4%. This was partially offset by unfavorable foreign currency changes of $6.8 million, or 2.1%.

***Selling, general and administrative expenses.*** SG&A expenses increased $35.2 million, or 17.1%, in the three months ended March 31, 2023 compared to the same period in 2022. This is primarily due to investments in marketing and talent of $20.1 million and $15.4 million, respectively, as well as costs associated with the discontinuation of an information technology project of $4.1 million. There were also increases in other net costs, including variable costs associated with higher revenues, information technology costs, and duplicate rent for our corporate headquarters, of $14.9 million. These increases were partially offset by $19.3 million lower costs in 2023 associated with the prior year HEYDUDE acquisition and integration.

***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 March 31, 2023, 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 March 31, 2022.

***Income tax expense.*** During the three months ended March 31, 2023, income tax expense increased $15.9 million compared to the same period in 2022. The effective tax rate for the three months ended March 31, 2023 was 22.0% compared to an effective tax rate of 26.5% for the same period in 2022, a 4.5% decrease. This decrease in the effective 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.

### 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 March 31, 2023 | Favorable (Unfavorable) 2022 | % Change Q1 2023-2022 | Constant Currency % Change (1) Q1 2023-2022 |
| --- | ---: | ---: | ---: | ---: |
| North America | $351,308 | $319,450 | 10.0% | 10.3% |
| Asia Pacific | 140,002 | 95,847 | 46.1% | 54.8% |
| EMEALA | 157,467 | 129,921 | 21.2% | 25.1% |
| Brand corporate | 1 | 7 | (85.7)% | (85.7)% |
| Crocs Brand revenues | 648,778 | 545,225 | 19.0% | 21.6% |
| HEYDUDE Brand revenues (2) | 235,388 | 114,923 | 104.8% | 105.7% |
| Total consolidated revenues | $884,166 | $660,148 | 33.9% | 36.2% |
| Income from operations: |  |  |  |  |
| North America | $127,783 | $129,611 | (1.4)% | (1.2)% |
| Asia Pacific | 56,605 | 30,106 | 88.0% | 96.4% |
| EMEALA | 65,776 | 34,927 | 88.3% | 90.1% |
| Brand corporate | (32,157) | (30,709) | (4.7)% | (5.5)% |
| Crocs Brand income from operations | 218,007 | 163,935 | 33.0% | 34.9% |
| HEYDUDE Brand income from operations (2) | 76,620 | 15,658 | 389.3% | 392.5% |
| Enterprise corporate | (59,699) | (60,916) | 2.0% | 2.0% |
| Total consolidated income from operations | $234,928 | $118,677 | 98.0% | 101.1% |

(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) 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 three months ended March 31, 2022 represent results during the Partial Period.

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

*(in thousands)*

| Segment Revenues: Crocs Brand: | Three Months Ended March 31, 2023 vs. 2022 Volume $ Change | % Change | Price (1) $ Change | % Change | Foreign Exchange $ Change | % Change | Total $ Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| North America | $42,644 | 13.4% | $(9,820) | (3.1)% | $(966) | (0.3)% | $31,858 | 10.0% |
| Asia Pacific | 31,571 | 32.9% | 20,919 | 21.9% | (8,335) | (8.7)% | 44,155 | 46.1% |
| EMEALA | 24,576 | 18.9% | 8,009 | 6.2% | (5,039) | (3.9)% | 27,546 | 21.2% |
| HEYDUDE Brand (2) | 151,352 | 131.7% | (29,878) | (26.0)% | (1,009) | (0.9)% | 120,465 | 104.8% |
| Total segment revenues | $250,143 | 37.8% | $(10,770) | (1.6)% | $(15,349) | (2.3)% | $224,024 | 33.9% |

(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 HEYDUDE Brand represent a comparison of results for the three months ended March 31, 2023 to results during the Partial Period in 2022.

### Crocs Brand

### North America Operating Segment

***Revenues.*** North America revenues increased in the three months ended March 31, 2023 compared to the same period in 2022, due primarily to higher volumes, driven by both channels. This increase was offset in part by lower ASP as a result of more normalized end-of-season clearance activity.

***Income from Operations.*** Income from operations for our North America segment was $127.8 million for the three months ended March 31, 2023, a decrease of $1.8 million, or 1.4%, compared to the same period in 2022. Gross profit increased by $7.5 million, or 4.0%, compared to prior year, mostly as a result of higher volume of 12.5%.

SG&A for our North America segment increased $9.3 million, or 16.1%, during the three months ended March 31, 2023 compared to the same period in 2022. This increase was primarily due to higher compensation cost as a result of higher wages for hourly employees and higher variable expenses related to higher revenues in the DTC channel.

### Asia Pacific Operating Segment

***Revenues.*** Revenues in our Asia Pacific segment increased 46.1% in the three months ended March 31, 2023 compared to the same period in 2022, and was up in all countries in the region, driven by growth in China, in part as a result of the relief of COVID-19 restrictions, and Australia, as well as continued growth in South Korea and strong distributor growth in Southeast Asia. Higher ASP contributed to higher revenues as well, mostly as a result of less discounting in the current quarter. These increases were partially offset by unfavorable foreign currency changes, most significantly in the Korean Won and Japanese Yen.

***Income from Operations.*** Income from operations for the Asia Pacific segment was $56.6 million for the three months ended March 31, 2023, an increase of $26.5 million, or 88.0%, compared to the same period in 2022. Gross profit increased by $31.7 million, or 57.0%, as a result of higher volumes and higher ASP, as described above, offset in part by unfavorable foreign currency changes.

SG&A for our Asia Pacific segment increased $5.2 million, or 20.5%, during the three months ended March 31, 2023 compared to the same period in 2022, primarily due to investments in marketing and increased variable rent associated with higher revenues.

### EMEALA Operating Segment

***Revenues.*** Revenues increased in the EMEALA segment in the three months ended March 31, 2023 compared to the same period in 2022, primarily as a result of increased volume. Higher ASPs also increased revenues due to increased pricing. Changes in foreign currency, primarily in the Euro, decreased revenues.

***Income from Operations.*** Income from operations for the EMEALA segment was $65.8 million for the three months ended March 31, 2023, an increase of $30.8 million, or 88.3%, compared to the same period in 2022. Gross profit increased $28.1 million, or 47.9%, mostly as a result of a combination of higher ASPs, as described above, and lower AUCs as a result of prior year air freight costs incurred as part of our initiative to combat supply chain disruptions. Increased volume also contributed to higher gross profit. These increases were offset in part by unfavorable foreign currency fluctuations.

SG&A for our EMEALA segment decreased $2.7 million, or 11.6%, during the three months ended March 31, 2023 compared to the same period in 2022. This decrease was primarily due to a prior year reserve for unrecoverable receivables in Russia due to the war in Ukraine. This was offset in part by an investment in marketing.

### Crocs Brand Corporate

During the three months ended March 31, 2023, total net costs within ‘Brand corporate’ increased $1.4 million, or 4.7%, compared to the same period in 2022, due to investments in brand marketing.

### HEYDUDE Brand

***Revenues.*** For the three months ended March 31, 2023, revenues increased compared to the Partial Period in 2022. The majority of this increase was due to higher volume, driven primarily by operating HEYDUDE for a full quarter in 2023 compared to 2022, but also due to higher demand compared to the pro forma quarter ended March 31, 2022 (as described in more detail in Note 14 — 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). Partially offsetting this increase were lower ASP, primarily due to operating HEYDUDE for a full quarter in 2023, which includes a higher percentage of end-of-season clearance activity in the first half of the quarter, compared to the Partial Period in 2022.

***Income from Operations.*** Income from operations for the HEYDUDE segment was $76.6 million for the three months ended March 31, 2023, an increase of $61.0 million, or 389.3%, compared to the Partial Period in 2022. Gross profit increased $87.2 million, or 295.9%, in part due to prior year adjustments of $27.9 million to the fair value of inventory costs upon close of the acquisition and in part due to higher volumes, as described above. Foreign currency fluctuations slightly offset these increases.

SG&A for the HEYDUDE Brand segment increased $26.2 million, or 189.9%, compared to the Partial Period in 2022. This is primarily due to investments in marketing and talent made over the past year since the acquisition in February 2022.

### Enterprise Corporate

During the three months ended March 31, 2023, total net costs within ‘Enterprise corporate’ decreased $1.2 million, or 2.0%, compared to the same period in 2022. This decrease was primarily due to lower costs in 2023 associated with the prior year HEYDUDE acquisition and integration, offset in part by increases in compensation costs from a larger investment in talent and increases from costs associated with the discontinuation of an information technology project.

### Store Locations and Digital Sales Percentage

The tables below illustrate the overall change in the number of our company-operated retail locations by reportable operating segment for the three months ended March 31, 2023:

| Company-operated retail locations: | December 31, 2022 | Opened | Closed | March 31, 2023 |
| --- | ---: | ---: | ---: | ---: |
| North America | 171 | 1 | — | 172 |
| Asia Pacific | 151 | 2 | 1 | 152 |
| EMEALA | 18 | — | 3 | 15 |
| Total Crocs Brand | 340 | 3 | 4 | 339 |
| HEYDUDE Brand | 5 | 3 | — | 8 |
| Total | 345 | 6 | 4 | 347 |

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 March 31, 2023 | 2022 |
| --- | ---: | ---: |
| Crocs Brand | 30.1% | 32.8% |
| HEYDUDE Brand (1) | 30.1% | 25.9% |
| Total | 30.1% | 31.6% |

(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 three months ended March 31, 2022 represent results during the Partial Period.

Direct-to-consumer (“DTC”) comparable sales were as follows:

| Direct-to-consumer comparable sales: (2) | Constant Currency (1) Three Months Ended March 31, 2023 | 2022 |
| --- | ---: | ---: |
| Crocs Brand | 19.2% | 16.6% |
| HEYDUDE Brand (3) | 40.6% | 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) We acquired HEYDUDE on February 17, 2022 and, as a result, added the HEYDUDE Brand as a new operating segment. As such, in the three months ended March 31, 2022, we did not disclose DTC comparable sales for the HEYDUDE Brand.

### Financial Condition, Capital Resources, and Liquidity

### Liquidity

Our liquidity position as of March 31, 2023 was:

*(in thousands)*

|  | March 31, 2023 |
| --- | ---: |
| Cash and cash equivalents | $125,687 |
| Available borrowings | 550,719 |

As of March 31, 2023, we had $125.7 million in cash and cash equivalents and up to $550.7 million of available borrowings, including $548.7 million of remaining borrowing availability under the Revolving Facility (as defined below) and $2.0 million of remaining borrowing availability under the Asia revolving facilities. As of March 31, 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.

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 March 31, 2023 without incurring additional U.S. federal income taxes. In some countries, repatriation of certain foreign balances is restricted by local laws. These limitations may affect our ability to fully utilize our cash resources for needs in the U.S. or other countries and could adversely affect our liquidity. As of March 31, 2023, we held $84.2 million of our total $125.7 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. Of the $84.2 million, $4.4 million could potentially be restricted by local laws.

### Senior Revolving Credit Facility

In July 2019, the Company and certain of its subsidiaries (the “Borrowers”) entered into a Second Amended and Restated Credit Agreement (as amended, the “Credit Agreement”), with the lenders named therein and PNC Bank, National Association, as a lender and administrative agent for the lenders. Since that time, we have amended the Credit Agreement, which, as amended to date, provides for a revolving credit facility of $750.0 million, which can be increased by an additional $250.0 million subject to certain conditions (the “Revolving Facility”). Borrowings under the Credit Agreement bear interest at a variable interest rate based on (A) a Base Rate (defined as the highest of (i) the Overnight Bank Funding Rate (as defined in the Credit Agreement), plus 0.25%, (ii) the Prime Rate (as defined in the Credit Agreement), and (iii) the Daily Simple SOFR (as defined in the Credit Agreement), plus 1.00%), plus an applicable margin ranging from 0.25% to 0.875% based on our leverage ratio or 1.35% to 1.975% for the Daily Simple SOFR based on the leverage ratio, or (B) the Term SOFR Rate (as defined in the Credit Agreement), plus an applicable margin ranging from 1.35% to 1.975% based on our leverage ratio for one-month interest periods and 1.40% to 2.025% based on our leverage ratio for three month interest periods. Borrowings under the Credit Agreement are secured by all of the assets of the Borrowers and guaranteed by certain other subsidiaries of the Borrowers.

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

As of March 31, 2023, the total commitments available from the lenders under the Revolving Facility were $750.0 million. At March 31, 2023, we had $200.0 million in outstanding borrowings and $1.3 million in outstanding letters of credit under the Revolving Facility, which reduces amounts available for borrowing under the Revolving Facility. As of March 31, 2023 and December 31, 2022, we had $548.7 million and $748.7 million, respectively, of available borrowing capacity under the Revolving Facility, which matures November 2027.

### Term Loan B Facility

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

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

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

Outstanding principal under the Term Loan B Facility is payable on the last business day of each March, June, September and December, in a quarterly aggregate principal amount of $5.0 million. Quarterly aggregate principal payments began on June 30, 2022, with the remaining principal amount due on February 17, 2029, the maturity date. As of March 31, 2023, we had $1,425.0 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 March 31, 2023, we were in compliance with all financial covenants under the Term Loan B Credit Agreement.

### Asia Revolving Credit Facilities

During the three months ended March 31, 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 matured in January 2023 and provided up to 10.0 million RMB, or $1.5 million using current exchange rates 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 $15.0 million.

As of March 31, 2023, we had borrowings outstanding of $13.0 million on the Citibank Facility, which are due between May 2023 and September 2023. As of December 31, 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.

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 March 31, 2023, we were in compliance with all financial covenants under the Notes.

### Cash Flows

*(in thousands)*

|  | Three Months Ended March 31, 2023 | 2022 | $ Change Favorable (Unfavorable) | % Change |
| --- | ---: | ---: | ---: | ---: |
| Cash provided by (used in) operating activities | $9,931 | $(68,765) | $78,696 | 114.4% |
| Cash used in investing activities | (27,581) | (2,071,466) | 2,043,885 | 98.7% |
| Cash provided by (used in) financing activities | (52,306) | 2,099,484 | (2,151,790) | (102.5)% |
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | 4,000 | (810) | 4,810 | 593.8% |
| Net change in cash, cash equivalents, and restricted cash | $(65,956) | $(41,557) | $(24,399) | (58.7)% |

***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 increased $78.7 million for the three months ended March 31, 2023 compared to the three months ended March 31, 2022, driven by higher net income, adjusted for non-cash items, of $75.9 million and increases in operating assets and liabilities of $2.8 million, primarily due to inventory.

***Investing Activities.*** There was a $2,043.9 million decrease in cash used in investing activities for the three months ended March 31, 2023 compared to the three months ended March 31, 2022. The decrease is primarily due to the cash paid for the acquisition, net of cash acquired, in the three months ended March 31, 2022 that did not recur in the current year. Refer to Note 14 — 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 decreased by $2,151.8 million in the three months ended March 31, 2023 compared to the three months ended March 31, 2022. The decrease was primarily due to a decrease of $2,025.5 million in proceeds from borrowings, which includes borrowings under the Term Loan B Facility of $2.0 billion used to fund the acquisition of HEYDUDE in part during the three months ended March 31, 2022 that did not recur in the current year. Additionally, there was an increase of $171.0 million in repayments of borrowings, an increase of $4.1 million in repurchases of common stock for tax withholding, and a decrease in cash provided by financing activities of $0.1 million. The overall decrease was offset by a $48.9 million decrease in deferred debt issuance 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, 2022, other than (i) borrowings and repayments on the Term Loan B Facility, Revolving Facility, and Asia revolving credit facilities and (ii) future lease payments of approximately $111 million through 2033, as described in Note 4 — 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 March 31, 2023, other than certain purchase commitments, which are described in Note 12 — 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.

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, 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, 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.

## Market risk

As filed, 4,853 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 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 March 31, 2023, we had borrowings with a face value of $2,338.0 million, comprised of the Notes, which carry a fixed rate, the Term Loan B Facility, and borrowings under our Revolving Facility and Asia revolving credit facilities. We also had $1.3 million in outstanding letters of credit under our Revolving Facility as of March 31, 2023. As of December 31, 2022, we had long-term borrowings with a face value of $2,379.3 million and $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 $4.2 million for the three months ended March 31, 2023.

### 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 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 March 31, 2023 by $3.3 million and $1.3 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.

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 foreign exchange contracts to buy or sell various foreign currencies. Changes in the fair value of these forward contracts are recognized in earnings in the period that the changes occur or in the period in which the hedged transaction affects earnings for derivatives classified as non-hedged or hedged, respectively, as defined in Note 6 — Derivative Financial Instruments in the accompanying notes to the condensed consolidated financial statements included in Part I - Item 1. *Financial Statements* of this Quarterly Report on Form 10-Q. As of March 31, 2023, the U.S. Dollar notional value of our outstanding foreign currency forward exchange contracts was approximately $144.3 million. The fair value of these contracts at March 31, 2023 was an asset of $0.3 million and a liability of $0.5 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 March 31, 2023, a 10% appreciation in the value of the U.S. Dollar would result in a net increase in the fair value of our derivative portfolio of approximately $0.2 million.

See Part I - Item 2. *Management’s Discussion and Analysis of Financial Condition and Results of Operations* of this Quarterly Report on Form 10-Q for a discussion of the impact of the change in foreign exchange rates on our U.S. Dollar condensed consolidated statements of income for the three months ended March 31, 2023 and 2022.

## Controls and procedures

As filed, 2,015 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 March 31, 2023. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 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

In the three months ended March 31, 2022, we closed the Acquisition, as discussed in Note 14 — Acquisition of HEYDUDE, and as such, we are in the process of integrating HEYDUDE into our overall internal control over financial reporting and will include HEYDUDE in Management’s Evaluation of Disclosure Controls and Procedures for the year ending December 31, 2023. This process may result in changes to our internal control over financial reporting. There were no changes in our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) during the three months ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 137 characters.

There have been no material changes to the risk factors contained in our Annual Report on Form 10-K for the year ended December 31, 2022.

Filed Apr 27, 2023.
Source: SEC EDGAR, the filing index for accession 0001334036-23-000059. Last ingested by Listed: Nov 6, 2026, 18:01 ET. No prices; not investment advice.