Crocs, Inc.: Form 10-Q for the period ended Mar 31, 2026

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 all. We strive to be the world leader in innovative casual footwear for all, 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 continue to operate in an environment where consumers are feeling the effects of elevated interest rates, inflation, and future expected price increases, among other things, and as a result, there is more pressure on discretionary spending. Given this, our wholesale partners are also acting cautiously. In addition, geopolitical tensions have increased across the globe and are having an adverse impact on the global economy. Most recently, the conflict in the Middle East has caused, and may continue to cause, a reduction in our revenues for several of our distributor markets and an increase in the costs of raw materials and transportation associated with elevated oil prices. Furthermore, the United States (“U.S.”) has imposed tariffs on foreign imports from multiple countries, including, most relevant to us, a 10% tariff on all imports from Vietnam, China, Indonesia, India, and Cambodia, respectively. On February 20, 2026, the United States Supreme Court ruled the President did not have the requisite authority to impose tariffs under the International Emergency Economic Powers Act (IEEPA). On March 4, 2026, the Court of International Trade ordered U.S. Customs and Border Protection to begin the refund process for all importers who were subject to IEEPA duties. While the timing remains uncertain, we currently estimate that we are eligible to receive approximately $70 million in refunds related to these tariffs. At this time, it remains unclear what additional actions, if any, will be taken by the U.S. or other governments with respect to international trade agreements, the imposition of additional tariffs on goods imported into the U.S., tax policy related to international commerce, increased export control, sanctions and investment restrictions, trade matters, war, or foreign policy in general. We are continuing to monitor developments with respect to these policy changes and proposals.
• We are prioritizing returning to growth in North America for both brands, while making progress on our long-term strategic initiatives. Specifically for the Crocs Brand, we believe this will be driven by product innovation, diversification within key product categories, including growth within our sandals business, and ultimately prioritizing stricter segmentation and pricing discipline across the marketplace. For the HEYDUDE Brand, we are focused on refining our marketing toward our target consumers, focusing on our core product offering, and refreshing the marketplace. For both brands, scaling digital capabilities continues to be a priority.
• Our liquidity position remains strong with $130.9 million in cash and cash equivalents and $849.9 million in available borrowing capacity as of March 31, 2026. Our total borrowings were $1.3 billion as of March 31, 2026. We also resumed our share repurchase program in April 2026, repurchasing $73.6 million of our common stock through April 23, 2026.

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.

Key Performance Indicators

Management utilizes the key performance metrics of gross margin and operating margin to gauge the Company’s operational efficiency and market competitiveness, identify trends, formulate financial projections, and make strategic decisions. Management continuously monitors and analyzes these metrics in an effort to ensure we remain agile, competitive, and aligned with our long-term growth objectives. The titles and/or definitions of certain of these metrics may vary from company to company. As a result, our calculation of certain of these metrics may not be comparable to similarly titled metrics used by other companies.

Gross Margin

Gross margin is defined as gross profit divided by revenues. Management uses this metric and believes it is useful for investors because it provides insights into profitability, cost management, and pricing strategy.

Operating Margin

Operating margin is defined as income from operations divided by revenues. Management uses this metric and believes it is useful for investors because it provides a comprehensive view of profitability from its core business operations, excluding the effects of financing and tax considerations.

First Quarter 2026 Financial and Operational Highlights

Revenues were $921.5 million for the first quarter of 2026, a 1.7% decrease compared to the first quarter of 2025. The decrease was due to the net effects of: (i) lower unit sales volume in both brands, which resulted in a decrease in revenues of $67.9 million, or 7.2%; (ii) higher average selling price on a constant currency basis (“ASP”) driven by both brands, which increased revenues by $30.3 million, or 3.2%; and (iii) net favorable changes in exchange rates, which increased revenues by $21.7 million, or 2.3%.

The following were significant developments affecting our businesses and capital structure during the three months ended March 31, 2026:

• Crocs Brand revenues increased by 0.8%, or decreased by 1.9% on a constant currency basis, compared to the same period in 2025. HEYDUDE Brand revenues decreased 12.3%, or 13.2% on a constant currency basis, compared to the same period in 2025.
• Gross margin was 56.8%, a decrease of 100 basis points from last year’s first quarter, primarily due to unfavorable duties for both brands, as a result of the aforementioned incremental tariffs, and unfavorable product mix for both brands.
• Selling, general and administrative expenses (“SG&A”) were $322.1 million compared to $318.6 million in the first quarter of 2025, primarily due to higher costs in the direct-to-consumer (“DTC”) channel driven by the Crocs Brand and impairment charges related to HEYDUDE leasehold improvement assets, partially offset by reduced marketing costs for the HEYDUDE Brand. As a percent of revenues, SG&A increased to 35.0% of revenues compared to 34.0% of revenues in the first quarter of 2025.
• Income from operations decreased to $200.8 million from $223.0 million in last year’s first quarter. Net income was $137.6 million, or $2.71 per diluted share, compared to $160.1 million, or $2.83 per diluted share, in last year’s first quarter.

Results of Operations

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

(1) Changes for gross margin and operating margin are shown in basis points (“bp”).

Revenues By Channel

(in thousands)

(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.

Revenues. In the three months ended March 31, 2026, revenues decreased compared to the same period in 2025, primarily due to lower volume of $67.9 million, or 7.2%, driven by both brands. The overall decrease in revenues was partially offset by higher ASP of $30.3 million, or 3.2%, driven by favorable channel mix in both brands. Net favorable foreign currency fluctuations of $21.7 million, or 2.3%, primarily in the Euro, also increased revenues.

Gross margin. Gross margin decreased in the three months ended March 31, 2026, to 56.8% compared to 57.8% in the same period in 2025, primarily due to incremental duties of 100 basis points, unfavorable product mix of 80 basis points partially offset by increased pricing for the Crocs Brand of 40 basis points and favorable brand mix of 30 basis points.

Selling, general and administrative expenses. SG&A increased $3.5 million, or 1.1%, in the three months ended March 31, 2026, compared to the same period in 2025, primarily due to higher DTC costs of $7.9 million, driven by rent expense as a result of investments in the channel as well as variable sales costs. Impairment charges of $3.3 million related to HEYDUDE leasehold improvement assets also contributed to the increase. The overall increase in SG&A was partially offset by decreases of $5.3 million in marketing costs and net decreases in other costs of $2.4 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 March 31, 2026, we recognized realized and unrealized net foreign currency losses of $1.6 million compared to gains of $4.9 million during the three months ended March 31, 2025.

Interest expense. Interest expense during the three months ended March 31, 2026, decreased $2.3 million, or 10.1%, compared to the three months ended March 31, 2025. The decrease in interest expense for the three months ended March 31, 2026, was due to lower outstanding borrowings and lower weighted average interest rates on the Term Loan B Facility (as defined herein) and the Revolving Facility (as defined herein) in the current year.

Income tax expense. During the three months ended March 31, 2026, income tax expense decreased $3.5 million compared to the same period in 2025. The effective tax rate for the three months ended March 31, 2026, was 23.1% compared to an effective tax rate of 21.9% for the same period in 2025, an increase of 120 basis points. This increase in the effective tax rate was primarily driven by a shift in the mix of our domestic and foreign earnings. Our effective income tax rate, for each period presented, also differs from the federal U.S. statutory rate due to differences in income tax rates between U.S. and foreign jurisdictions.

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)

(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.

Crocs Brand

Revenues. Crocs Brand revenues increased in the three months ended March 31, 2026, compared to the same period in 2025, primarily due to higher ASP, driven by favorable channel mix, and net favorable foreign currency fluctuations, primarily in the Euro. The overall increase was partially offset by lower volume.

Income from Operations. Income from operations for our Crocs Brand segment was $253.2 million for the three months ended March 31, 2026, a decrease of $20.5 million, or 7.5%, compared to the same period in 2025. Gross margin was 59.5%, a decrease of 120 basis points, primarily due to unfavorable duties and unfavorable product mix, partially offset by increased pricing in certain regions.

SG&A for our Crocs Brand segment increased $14.3 million, or 7.6%, during the three months ended March 31, 2026, compared to the same period in 2025. This increase was primarily due to higher costs in the DTC channel, including investment in the channel and variable costs, and increased investments in marketing.

HEYDUDE Brand

Revenues. For the three months ended March 31, 2026, HEYDUDE Brand revenues decreased compared to the same period in 2025, primarily due to lower volume. The overall decrease in revenues was partially offset by higher ASP, primarily due to favorable channel mix and reduced discounting.

Income from Operations. Income from operations for the HEYDUDE segment was $16.0 million for the three months ended March 31, 2026, a decrease of $7.2 million, or 31.0%, compared to income from operations in the same period in 2025. Gross margin was 43.9%, a decrease of 270 basis points, primarily due to unfavorable product mix and channel mix, partially offset by higher ASP, driven by decreased discounting.

SG&A for the HEYDUDE Brand segment decreased $7.0 million, or 11.9%, during the three months ended March 31, 2026, compared to the same period in 2025. This decrease was primarily due to reduced costs for both fixed and variable marketing, partially offset by impairment charges related to HEYDUDE leasehold improvement assets, as described above.

Enterprise Corporate

During the three months ended March 31, 2026, total net costs within ‘Enterprise corporate’ decreased $5.6 million, or 7.5%, compared to the same period in 2025. This decrease was primarily due to cost savings as a result of operational workforce reductions.

Store Locations

As of March 31, 2026, we had 446 company-operated retail locations for the Crocs Brand, inclusive of 201 retail locations in North America and 245 retail locations internationally. As of March 31, 2026, we had 75 company-operated retail locations for the HEYDUDE Brand. As of March 31, 2025, we had 393 company-operated retail locations for the Crocs Brand, inclusive of 187 retail locations in North America and 206 retail locations internationally. As of March 31, 2025, we had 54 company-operated retail locations for the HEYDUDE Brand.

Financial Condition, Capital Resources, and Liquidity

Liquidity

Our liquidity position as of March 31, 2026, was:

(in thousands)

As of March 31, 2026, we had $130.9 million in cash and cash equivalents and up to $849.9 million of available borrowings, including $840.4 million of remaining borrowing availability under the Revolving Facility (as defined below) and $9.4 million of remaining borrowing availability under the Citibank Facility (as defined below). As of March 31, 2026, 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.

In April 2026, we resumed our share repurchase program, repurchasing 0.8 million shares of our common stock at a cost of $73.6 million, including commissions, through April 23, 2026. Following these repurchases, $673.2 million of share repurchase authorization remained available for future repurchases.

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 and Cash Equivalents

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, 2026, 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, 2026, we held $113.4 million of our total $130.9 million in cash and cash equivalents 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 $113.4 million, an insignificant amount is currently restricted by local laws or otherwise.

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 $1.0 billion, 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, inclusive of a 0.10% SOFR adjustment, 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 three-month interest periods, inclusive of a 0.10% SOFR adjustment. 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 3.25 to 1.00 (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, 2026, we were in compliance with all financial covenants under the Credit Agreement.

As of March 31, 2026, the total commitments available from the lenders under the Revolving Facility were $1.0 billion. At March 31, 2026, we had $159.0 million in outstanding borrowings and $0.6 million in outstanding letters of credit under the Revolving Facility, which reduces amounts available for borrowing under the Revolving Facility. As of March 31, 2026, and December 31, 2025, we had $840.4 million and $937.4 million, respectively, of available borrowing capacity under the Revolving Facility, which matures in November 2027.

Term Loan B Facility

On February 17, 2022, the Company entered into a credit agreement (the “Original Term Loan B Credit Agreement”) with Citibank, N.A., as administrative agent and lender, which was amended on August 8, 2023, (the “August 2023 Amendment”) and on February 13, 2024 (the “February 2024 Amendment”). The Original Term Loan B Credit Agreement, as amended by the August 2023 Amendment and the February 2024 Amendment, is referred to herein as the “Term Loan B Credit Agreement.”

The Original Term Loan B Credit Agreement provided for an aggregate term loan B facility in the principal amount of $2.0 billion. Prior to the February 2024 Amendment, the outstanding balance was $820.0 million. Among other things, the February 2024 Amendment provided for a new $820.0 million tranche of term loans (the “2024 Refinancing Term Loans” and, such facility, the "Term Loan B Facility"), to refinance the then-outstanding principal balance. The 2024 Refinancing Term Loans are 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 Term Loan B 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.

Pursuant to the reduced interest rate margins applicable to the 2024 Refinancing Term Loans, each term loan borrowing which is an alternate base rate borrowing bears interest at a rate per annum equal to the Alternate Base Rate (as defined in the Term Loan B Credit Agreement), plus 1.25%. Each term loan borrowing which is a term SOFR 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 2.25%.

As of March 31, 2026, the Term Loan B Facility was fully drawn with no remaining borrowing capacity, and we had $500.0 million in outstanding principal on the Term Loan B Facility.

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, 2026, we were in compliance with all financial covenants under the Term Loan B Credit Agreement.

Asia Revolving Credit Facility

During the three months ended March 31, 2026, we had one revolving credit facility in Asia 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, 2026, we had borrowings outstanding of $5.6 million on the Citibank Facility, which were repaid in April 2026. As of December 31, 2025, we had no borrowings outstanding 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 has 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 also had 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 could have redeemed 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 could have redeemed 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, 2026, we were in compliance with all financial covenants under the Notes.

Cash Flows

(in thousands)

Operating Activities. Cash used in operating activities consists of net income adjusted for non-cash items and changes in working capital. Cash used in operating activities increased $13.7 million for the three months ended March 31, 2026, compared to the three months ended March 31, 2025, driven by lower net income, adjusted for non-cash items, of $19.6 million, partially offset by increases in operating assets and liabilities of $5.9 million, primarily due to the change in prepaid expenses, accounts receivable, and accounts payable, accrued expenses, and other liabilities.

Investing Activities. There was a $2.6 million increase in cash used in investing activities for the three months ended March 31, 2026, compared to the three months ended March 31, 2025. This was due to an increase in purchases of property, equipment, and software.

Financing Activities. Cash provided by financing activities increased by $34.3 million in the three months ended March 31, 2026, compared to the three months ended March 31, 2025. The increase in cash provided by financing activities was primarily due to a decrease of $60.9 million in repurchases of common stock. There were other increases in cash provided of $0.9 million. The overall increase in cash provided by financing activities was partially offset by a decrease in proceeds from borrowings of $16.5 million and an increase in repayments of $11.0 million.

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, 2025, other than borrowings and repayments on the Revolving Facility.

Off-Balance Sheet Arrangements

We had no material off-balance sheet arrangements as of March 31, 2026, 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 our 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.

Impairment of Goodwill and Indefinite-Lived Intangible Assets

We evaluate the carrying value of our indefinite-lived intangible assets and goodwill at least annually or when an interim triggering event has occurred indicating potential impairment. During the three months ended March 31, 2026, there were no triggering events for the HEYDUDE Brand indefinite-lived intangible assets (which consists solely of the HEYDUDE trademark) (the “trademark”) and the HEYDUDE Brand reporting unit (the “reporting unit”) goodwill. Certain factors, such as failure to achieve forecasted revenue growth rates, EBITDA, or increases in the discount rates, have the potential to create variances in the estimated fair values of our goodwill and indefinite-lived intangible assets that could result in impairment charges in future periods

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, 2025, and Note 1 — Basis of Presentation and Summary of Significant Accounting Policies 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, 2025.

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.

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, 2026, we had borrowings with a face value of $1.4 billion, comprised of the Notes, which carry a fixed rate, the Term Loan B Facility, and borrowings under our Revolving Facility and Citibank Facility. We also had $0.6 million in outstanding letters of credit under our Revolving Facility as of March 31, 2026. As of December 31, 2025, we had long-term borrowings with a face value of $1.3 billion and $0.6 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, Revolving Facility, and our Citibank Facility would increase our interest expense over the next twelve months by $6.6 million based on the balances outstanding for these borrowings as of March 31, 2026.

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, 2026, by $4.6 million and $1.9 million, respectively. This analysis does not account for transactional fluctuations in accounts, such as those driven by purchasing power, which is defined as purchasing foreign goods in the U.S. Dollar but recognizing the cost in foreign currencies. 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, 2026, the U.S. Dollar notional value of our total derivatives was $135.1 million. The fair value of these contracts at March 31, 2026, was an insignificant asset.

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, 2026, 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 $11.4 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, 2026, and 2025.

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, 2026. 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, 2026, 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

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, 2026, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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, 2025.