Under Armour, Inc.: Form 10-Q for the period ended Sep 30, 2023

The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to help readers understand our results of operations and financial condition, and is provided as a supplement to, and should be read in conjunction with, our Condensed Consolidated Financial Statements and the accompanying Notes to our Condensed Consolidated Financial Statements under Part I, Item 1 of this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for Fiscal 2023, filed with the Securities Exchange Commission ("SEC") on May 24, 2023, under the captions "Business" and "Risk Factors".

This Quarterly Report on Form 10-Q, including this MD&A, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 21E of the U.S. Securities Exchange Act of 1934, as amended (the Exchange Act), and Section 27A of the U.S. Securities Act of 1933, as amended ("the Securities Act"), and is subject to the safe harbors created by those sections. All statements other than statements of historical facts are statements that could be deemed forward-looking statements. See "Forward Looking Statements."

All dollar and percentage comparisons made herein refer to the three and six months ended September 30, 2023 compared with the three and six months ended September 30, 2022, unless otherwise noted.

FORWARD-LOOKING STATEMENTS

Some of the statements contained in this Quarterly Report on Form 10-Q, including this MD&A, constitute forward-looking statements. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts, such as statements regarding our share repurchase program, our future financial condition or results of operations, our prospects and strategies for future growth, expectations regarding promotional activities, freight, product cost pressures and foreign currency impacts, the impact of global economic conditions and inflation on our results of operations, the development and introduction of new products, the implementation of our marketing and branding strategies, the future benefits and opportunities from significant investments and the impact of litigation or other proceedings. In many cases, you can identify forward-looking statements by terms such as "may," "will," "could," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "outlook," "potential" or the negative of these terms or other comparable terminology.

The forward-looking statements contained in this Quarterly Report on Form 10-Q reflect our current views about future events and are subject to risks, uncertainties, assumptions and changes in circumstances that may cause events or our actual activities or results to differ significantly from those expressed in any forward-looking statement. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future events, results, actions, levels of activity, performance or achievements. Readers are cautioned not to place undue reliance on these forward-looking statements. A number of important factors could cause actual results to differ materially from those indicated by these forward-looking statements, including, but not limited to, those factors described in "Risk Factors" and MD&A herein and in our Annual Report on Form 10-K for Fiscal 2023. These factors include without limitation:

• changes in general economic or market conditions, including increasing inflation, that could affect overall consumer spending or our industry;
• the impact of the COVID-19 pandemic on our industry and our business, financial condition and results of operations, including recent impacts on the global supply chain;
• failure of our suppliers, manufacturers or logistics providers to produce or deliver our products in a timely or cost-effective manner;
• labor or other disruptions at ports or our suppliers or manufacturers;
• increased competition causing us to lose market share or reduce the prices of our products or to increase our marketing efforts significantly;
• fluctuations in the costs of raw materials and commodities we use in our products and our supply chain (including labor);
• changes to the financial health of our customers;
• our ability to successfully execute our long-term strategies;
• our ability to effectively drive operational efficiency in our business;
• our ability to effectively develop and launch new, innovative and updated products;
• our ability to accurately forecast consumer shopping and engagement preferences and consumer demand for our products and manage our inventory in response to changing demands;
• loss of key customers, suppliers or manufacturers;
• our ability to further expand our business globally and to drive brand awareness and consumer acceptance of our products in other countries;
• our ability to manage the increasingly complex operations of our global business;
• the impact of global events beyond our control, including military conflict;
• our ability to successfully manage or realize expected results from significant transactions and investments;
• our ability to effectively market and maintain a positive brand image;
• our ability to effectively meet the expectations of our stakeholders with respect to environmental, social and governance practices;
• the availability, integration and effective operation of information systems and other technology, as well as any potential interruption of such systems or technology;
• any disruptions, delays or deficiencies in the design, implementation or application of our global operating and financial reporting information technology system;
• our ability to attract key talent and retain the services of our senior management and other key employees;
• our ability to access capital and financing required to manage our business on terms acceptable to us;
• our ability to accurately anticipate and respond to seasonal or quarterly fluctuations in our operating results;
• risks related to foreign currency exchange rate fluctuations;
• our ability to comply with existing trade and other regulations, and the potential impact of new trade, tariff and tax regulations on our profitability;
• risks related to data security or privacy breaches; and
• our potential exposure to litigation and other proceedings, including those discussed in this Quarterly Report on Form 10-Q.

The forward-looking statements contained in this Quarterly Report on Form 10-Q reflect our views and assumptions only as of the date of this Quarterly Report on Form 10-Q. We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.

OVERVIEW

We are a leading developer, marketer, and distributor of branded performance apparel, footwear, and accessories. Our brand's moisture-wicking fabrications are engineered in various designs and styles for wear in nearly every climate to provide a performance alternative to traditional products. Our products are sold worldwide and worn by athletes at all levels, from youth to professional, on playing fields around the globe, and by consumers with active lifestyles.

Strategically and operationally, we remain focused on driving premium brand-right growth and improved profitability. We plan to continue to grow our business over the long term through increased sales of our apparel, footwear and accessories; growth in our direct-to-consumer sales channel; and expansion of our wholesale distribution. We believe that achievement of our long-term growth objectives depends, in part, on our ability to execute strategic initiatives in key areas including our wholesale, footwear, women’s and direct-to-consumer businesses. Additionally, our digital strategy is focused on supporting these long-term objectives, emphasizing connection and engagement with our consumers through multiple digital touchpoints.

During the first half of Fiscal 2024, we faced a challenging retail environment, particularly in North America, that included higher promotions and discounting related to industry-wide elevated inventory balances as well as lower demand in our wholesale channel.

Quarterly Results

Financial highlights for the three months ended September 30, 2023 as compared to the three months ended September 30, 2022 include:

• Total net revenues decreased 0.5%.
• Within our channels, wholesale revenue decreased 0.9% and direct-to-consumer revenue increased 3.2%.
• Within our product categories, apparel revenue increased 3.1%, footwear revenue decreased 6.6%, and accessories revenue increased 2.5%.
• Net revenue decreased 2.0% in North America, increased 9.3% in Europe, Middle East and Africa ("EMEA"), increased 2.8% in Asia-Pacific, and decreased 7.7% in Latin America.
• Gross margin increased 260 basis points to 48.0%.
• Selling, general and administrative expenses increased 2.0%.

Effects of Inflation and Other Global Events

Macroeconomic factors, such as inflationary pressures and fluctuations in foreign currency exchange rates, have and may continue to impact our business. We continue to monitor these factors and the potential impacts they may have on our financial results, including product input costs, freight costs and consumer discretionary spending and therefore consumer demand for our products. We also continue to monitor the broader impacts of conflicts around the world on the economy, including its effect on inflationary pressures and the price of oil globally.

See "Risk Factors—Economic and Industry Risks—Our business depends on consumer purchases of discretionary items, which can be negatively impacted during an economic downturn or periods of inflation. This could materially impact our sales, profitability and financial condition"; "—Fluctuations in the cost of raw materials and commodities we use in our products and costs related to our supply chain could negatively affect our operating results"; "—Our financial results and ability to grow our business may be negatively impacted by global events beyond our control"; and "—Financial Risks—Our financial results could be adversely impacted by currency exchange rate fluctuations" included in Item 1A of our Annual Report on Form 10-K for Fiscal 2023.

Additionally, the COVID-19 pandemic has in prior periods caused, and a resurgence could cause, disruption and volatility in our business and in the businesses of our wholesale customers, licensing partners, suppliers, logistics providers and vendors. For a more complete discussion of the COVID-19 related risks facing our business, refer to our "Risk Factors" section included in Item 1A of our Annual Report on Form 10-K for Fiscal 2023.

RESULTS OF OPERATIONS

The following tables set forth key components of our results of operations for the periods indicated, both in dollars and as a percentage of net revenues:

(In thousands)

Revenues

Net revenues consist of net sales, license revenues, and revenues from digital subscriptions, other digital business opportunities and advertising. Net sales consist of sales from apparel, footwear and accessories products. Our license revenues primarily consist of fees paid to us by licensees in exchange for the use of our trademarks on their products. The following tables summarize net revenues by product category and distribution channel for the periods indicated:

(In thousands)

(1) Corporate Other primarily includes foreign currency hedge gains and losses related to revenues generated by entities within our operating segments but managed through our central foreign exchange risk management program, as well as subscription revenues from MMR and revenue from other digital business opportunities.

Net Sales

Net sales increased by $10.3 million, or 0.7%, to $1,535.6 million during the three months ended September 30, 2023 from $1,525.3 million during the three months ended September 30, 2022. Apparel increased primarily due to higher average selling prices, partially offset by lower unit sales. Footwear decreased primarily due to lower unit sales, partially offset by higher average selling prices. Accessories increased primarily due to higher average selling prices and the impact of foreign exchange rates, partially offset by lower unit sales. From a channel perspective, the increase in net sales was due to an increase in direct-to-consumer, partially offset by a decrease in wholesale.

Net sales decreased by $16.0 million, or 0.6%, to $2,821.8 million during the six months ended September 30, 2023 from $2,837.8 million during the six months ended September 30, 2022. Apparel decreased primarily due to lower unit sales, partially offset by higher average selling prices and favorable channel and regional mix. Footwear decreased primarily due to lower unit sales, partially offset by higher average selling prices. Accessories increased primarily due to higher average selling prices, partially offset by lower unit sales. From a channel perspective, the decrease in net sales was due to a decrease in wholesale, partially offset by an increase in direct-to-consumer.

License Revenues

License revenues decreased by $4.5 million or 13.5%, to $28.6 million during the three months ended September 30, 2023, from $33.1 million during the three months ended September 30, 2022. This was primarily due to lower revenues from our licensing partners in the North America region and from our Japanese licensee.

License revenues decreased by $7.5 million or 12.3%, to $53.7 million during the six months ended September 30, 2023, from $61.3 million during the six months ended September 30, 2022. This was primarily due to lower revenues from our Japanese licensee and from our licensing partners in the North America region.

Gross Profit

Cost of goods sold consists primarily of product costs, inbound freight and duty costs, outbound freight costs, handling costs to make products floor-ready to customer specifications, royalty payments to endorsers based on a predetermined percentage of sales of selected products, and write downs for inventory obsolescence. In general, as a percentage of net revenues, we expect cost of goods sold associated with our apparel and accessories to be lower than that of our footwear. A limited portion of cost of goods sold is associated with digital subscription and advertising revenues, primarily website hosting costs, and no cost of goods sold is associated with our license revenues.

We include outbound freight costs associated with shipping goods to customers as cost of goods sold; however, we include the majority of outbound handling costs as a component of selling, general and administrative expenses. As a result, our gross profit may not be comparable to that of other companies that include outbound handling costs in their cost of goods sold. Outbound handling costs include costs associated with preparing goods to ship to customers and certain costs to operate our distribution facilities. These costs were $20.7 million and $39.1 million for the three and six months ended September 30, 2023 (three and six months ended September 30, 2022: $20.2 million and $38.1 million, respectively).

Gross profit increased by $38.2 million to $752.0 million during the three months ended September 30, 2023, as compared to $713.8 million during the three months ended September 30, 2022. Gross profit as a percentage of net revenues, or gross margin, increased to 48.0% from 45.4%. This increase in gross margin of 260 basis points was primarily driven by positive impacts of approximately:

• 410 basis points from supply chain benefits, mainly due to lower freight costs.

These positive impacts were partially offset by negative impacts of approximately:

• 120 basis points from unfavorable pricing due to deep discounts in our sales to the off-price channel;
• 20 basis points from unfavorable channel mix related to a higher percentage of off-price sales; and
• 10 basis points from changes in foreign currency.

Gross profit increased by $15.7 million to $1,359.7 million during the six months ended September 30, 2023, as compared to $1,344.0 million during the six months ended September 30, 2022. Gross profit as a percentage of net revenues, or gross margin, increased to 47.2% from 46.0%. This increase in gross margin of 120 basis points was primarily driven by positive impacts of approximately:

• 370 basis points from supply chain benefits, mainly due to lower freight costs.

This was partially offset by negative impacts of approximately:

• 200 basis points from higher promotional activity within our direct-to-consumer channel and unfavorable pricing of sales to the off-price channel;
• 40 basis points from changes in foreign currency; and
• 10 basis points from unfavorable regional mix.

We expect discounting and promotional activities to continue to negatively impact our gross margin in the near term.

Selling, General and Administrative Expenses

Our selling, general and administrative expenses consist of costs related to marketing, selling, product innovation and supply chain, and corporate services. We consolidate our selling, general and administrative expenses into two primary categories: marketing and other. The other category is the sum of our selling, product innovation and supply chain, and corporate services categories. The marketing category consists primarily of sports and brand marketing, media, and retail presentation. Sports and brand marketing includes professional, club and collegiate sponsorship agreements, individual athlete and influencer agreements, and providing and selling products directly to teams and individual athletes. Media includes digital, broadcast, and print media outlets, including social and mobile media. Retail presentation includes sales displays and concept shops and depreciation expense specific to our in-store fixture programs. Our marketing costs are an important driver of our growth.

(In thousands)

32

Selling, general and administrative expenses increased by $11.8 million, or 2.0%, during the three months ended September 30, 2023 as compared to the three months ended September 30, 2022. Within selling, general and administrative expense:

• Marketing costs increased $11.5 million or 8.0%, due to an increase in marketing activities during the period. As a percentage of net revenues, marketing costs increased to 9.9% from 9.1%.
• Other costs increased $0.3 million or 0.1%, primarily driven by higher non-salaried wages and facility related expenses, partially offset by lower legal expenses resulting from an accrual in the prior year for certain ongoing legal proceedings, and lower consulting expenses. As a percentage of net revenues, other costs increased to 28.8% from 28.6%.

As a percentage of net revenues, selling, general and administrative expenses increased to 38.7% during the three months ended September 30, 2023 as compared to 37.8% during the three months ended September 30, 2022.

Selling, general and administrative expenses increased by $2.9 million, or 0.2%, during the six months ended September 30, 2023 as compared to the six months ended September 30, 2022. Within selling, general and administrative expense:

• Marketing costs decreased $2.4 million or 0.8%, due to a reduction in marketing activities during the period. As a percentage of net revenues, marketing costs remained flat at 10.2%.
• Other costs increased $5.3 million or 0.6%, primarily driven by higher salaries, facility related expenses and distribution and selling expenses, partially offset by lower legal expenses resulting from an accrual in the prior year for certain ongoing legal proceedings, consulting expenses and non-salaried wages. As a percentage of net revenues, other costs increased to 31.2% from 30.6%.

As a percentage of net revenues, selling, general and administrative expenses increased to 41.4% during the six months ended September 30, 2023 as compared to 40.7% during the six months ended September 30, 2022.

Interest Expense, net

Interest expense, net is primarily comprised of interest incurred on our debt facilities, offset by interest income earned on our cash and cash equivalents.

(In thousands)

Interest expense, net decreased by $3.2 million to $0.4 million during the three months ended September 30, 2023. This was due to an increase in interest income of $2.1 million, resulting from higher interest rates, and a decrease in interest expense of $1.0 million. See Note 9 to our Condensed Consolidated Financial Statements.

Interest expense, net decreased by $7.6 million to $2.0 million during the six months ended September 30, 2023. This was due to an increase in interest income of $5.7 million, resulting from higher interest rates, and a decrease in interest expense of $1.9 million. See Note 9 to our Condensed Consolidated Financial Statements.

Other Income (Expense), net

Other income (expense), net primarily consists of unrealized and realized gains and losses on our foreign currency derivative financial instruments, and unrealized and realized gains and losses on adjustments that arise from fluctuations in foreign currency exchange rates relating to transactions generated by our international subsidiaries. Other income (expense), net also includes rent expense relating to lease assets held solely for sublet purposes, primarily the lease related to our New York City, 5th Avenue location.

(In thousands)

33

Other expense, net increased by $0.7 million to $6.4 million during the three months ended September 30, 2023. This was primarily due to an increase in losses on foreign currency hedges of $1.4 million, partially offset by a net gain from changes in foreign currency exchange rates of $0.7 million.

Other expense, net decreased by $7.2 million to $12.8 million during the six months ended September 30, 2023. This was primarily due to a decrease in losses from changes in foreign currency exchange rates of $5.7 million and on foreign currency hedges of $0.3 million.

Income Tax Expense (Benefit)

(In thousands)

Income tax expense increased $7.2 million to $29.5 million during the three months ended September 30, 2023 from income tax expense of $22.3 million during the three months ended September 30, 2022. For the three months ended September 30, 2023, our effective tax rate was 21.2% compared to 20.2% for the same period in the prior fiscal year. The change in our effective tax rate was primarily driven by a discrete reserve for an uncertain tax position recorded during the three months ended September 30, 2023, mostly offset by an increase in valuation allowance releases.

Income tax expense increased $5.6 million to $33.5 million during the six months ended September 30, 2023 from income tax expense of $27.9 million during the six months ended September 30 ,2022. For the six months ended September 30, 2023, our effective tax rate was 22.0% compared to 22.4% for the same period in the prior fiscal year. The change in our effective tax rate was primarily driven by a discrete reserve for an uncertain tax position recorded during the six months ended September 30, 2023, mostly offset by an increase in valuation allowance releases.

SEGMENT RESULTS OF OPERATIONS

Our operating segments are based on how our Chief Operating Decision Maker ("CODM") makes decisions about allocating resources and assessing performance. Our segments are defined by geographic regions, including North America, EMEA, Asia-Pacific, and Latin America.

We exclude certain corporate items from our segment profitability measures. We report these items within Corporate Other, which is designed to provide increased transparency and comparability of our operating segments' performance. Corporate Other consists primarily of (i) operating results related to our MMR platforms and other digital business opportunities; (ii) general and administrative expenses not allocated to an operating segment, including expenses associated with centrally managed departments which include global marketing, global IT, global supply chain and innovation, and other corporate support functions; (iii) restructuring and restructuring related charges, if any; and (iv) certain foreign currency hedge gains and losses.

The net revenues and operating income (loss) associated with our segments are summarized in the following tables.

Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

Net Revenues

(In thousands)

(1) Corporate Other primarily includes foreign currency hedge gains and losses related to revenues generated by entities within our operating segments but managed through our central foreign exchange risk management program, as well as subscription revenues from MMR and revenue from other digital business opportunities.

The decrease in total net revenues for the three months ended September 30, 2023, compared to the three months ended September 30, 2022, was driven by the following:

• Net revenues in our North America region decreased by $20.4 million, or 2.0%, to $991.4 million from $1,011.8 million. This was driven by a decrease in both our wholesale channel and our direct-to-consumer channel as well as decrease in licensing revenues. Within our direct-to-consumer channel, net revenues were lower due to a decrease in e-commerce sales and owned and operated retail store sales.
• Net revenues in our EMEA region increased by $24.4 million, or 9.3%, to $287.1 million from $262.7 million. This was driven by an increase in both our direct-to-consumer channel and wholesale channel. Within our direct-to-consumer channel, net revenues increased in both owned and operated retail store sales and e-commerce sales. Net revenues in our EMEA region were also positively impacted by changes in foreign exchange rates.
• Net revenues in our Asia-Pacific region increased by $6.3 million, or 2.8%, to $232.1 million from $225.7 million. This was driven by an increase in both our wholesale channel and our direct-to-consumer channel. Within our direct-to-consumer channel, the increase in net revenues was due to an increase in owned and operated retail store sales, partially offset by a decrease in e-commerce sales. Our direct-to-consumer channel was negatively impacted by the COVID-19 related restrictions during the three months ended September 30, 2022, which included temporary closures of our owned and operated stores and distribution centers in China. Net revenues in our Asia-Pacific region were also negatively impacted by changes in foreign exchange rates.
• Net revenues in our Latin America region decreased by $4.5 million, or 7.7%, to $53.7 million from $58.2 million. This was primarily driven by a decrease in our wholesale channel, partially offset by an increase in our direct-to-consumer channel. Within our direct-to-consumer channel, net revenues increased in owned and operated retail store sales and e-commerce sales. Net revenues in our Latin America region were also positively impacted by changes in foreign exchange rates.
• Net revenues in our Corporate Other non-operating segment decreased by $13.0 million to $2.5 million from $15.5 million. This was primarily driven by lower foreign currency hedge gains related to revenues generated by entities within our operating segments.

Operating Income (Loss)

(In thousands)

(1) Corporate Other primarily includes foreign currency hedge gains and losses related to revenues generated by entities within our operating segments but managed through our central foreign exchange risk management program, as well as subscription revenues from MMR and revenue from other digital business opportunities. Corporate Other also includes expenses related to our central supporting functions.

The increase in total operating income for three months ended September 30, 2023, compared to the three months ended September 30, 2022, was primarily driven by the following:

• Operating income in our North America region increased by $6.3 million to $215.5 million from $209.2 million. This was primarily due to lower marketing-related expenses and lower distribution and selling expenses, partially offset by a decrease in gross profit. The decline in gross profit was driven by lower net revenues as discussed above, partially offset by lower freight costs.
• Operating income in our EMEA region increased by $4.8 million to $40.7 million from $35.9 million. This was primarily due to an increase in gross profit, partially offset by higher marketing related expenses. The increase in gross profit was driven by higher net revenues as discussed above and lower freight costs.
• Operating income in our Asia-Pacific region increased by $8.5 million to $54.6 million from $46.1 million. This was primarily due to an increase in gross profit, driven by higher net revenues as discussed above, and lower marketing-related expenses.
• Operating income in our Latin America region increased by $6.5 million to $13.6 million from $7.2 million. This was primarily due to an increase in gross profit, partially offset by an increase in selling and distribution expenses and marketing expenses. The increase in gross profit was driven by lower freight costs, partially offset by lower net revenues as discussed above.
• Operating loss in our Corporate Other non-operating segment decreased by $0.4 million to $178.6 million from $179.0 million. This was primarily due to lower legal expenses resulting from an accrual in the prior year for certain ongoing legal proceedings, partially offset by net losses arising from foreign currency hedges.

Six Months Ended September 30, 2023 Compared to Six Months Ended September 30, 2022

Net Revenues

(In thousands)

(1) Corporate Other primarily includes foreign currency hedge gains and losses related to revenues generated by entities within our operating segments but managed through our central foreign exchange risk management program, as well as subscription revenues from MMR and revenue from other digital business opportunities.

The decrease in total net revenues for the six months ended September 30, 2023, compared to the six months ended September 30, 2022, was driven by the following:

• Net revenues in our North America region decreased by $103.1 million, or 5.4%, to $1,818.0 million from $1,921.2 million. This was driven by a decrease in both our wholesale channel and our direct-to-consumer channel. Within our direct-to-consumer channel, net revenues were lower due to a decrease in both owned and operated retail store sales and e-commerce sales.
• Net revenues in our EMEA region increased by $45.9 million, or 9.8%, to $513.7 million from $467.9 million. This was primarily driven by an increase in both our direct-to-consumer channel and our wholesale channel. Within our direct-to-consumer channel, net revenues increased in both owned and operated retail store sales and e-commerce sales. Net revenues in our EMEA region were also positively impacted by changes in foreign exchange rates.
• Net revenues in our Asia-Pacific region increased by $31.9 million, or 7.9%, to $434.3 million from $402.4 million. This was driven by an increase in both our direct-to-consumer channel and our wholesale channel. Within our direct-to-consumer channel, net revenues increased in both owned and operated retail store sales and e-commerce sales. Our direct-to-consumer channel was negatively impacted by the COVID-19 related restrictions during the six months ended September 30, 2022, which included temporary closures of our owned and operated stores and distribution centers in China. Net revenues in our Asia-Pacific region were also negatively impacted by changes in foreign exchange rates.
• Net revenues in our Latin America region increased by $1.8 million, or 1.7%, to $109.4 million from $107.6 million. This was primarily driven by an increase in our direct-to-consumer channel, partially offset by a decrease in our wholesale channel. Within our direct-to-consumer channel, net revenues increased in both owned and operated retail store sales and e-commerce sales. Net revenues in our Latin America region were also positively impacted by changes in foreign exchange rates.
• Net revenues in our Corporate Other non-operating segment decreased by $15.7 million to $8.2 million from $23.9 million. This was primarily driven by lower foreign currency hedge gains related to revenues generated by entities within our operating segments.

Operating Income (Loss)

(In thousands)

(1) Corporate Other primarily includes foreign currency hedge gains and losses related to revenues generated by entities within our operating segments but managed through our central foreign exchange risk management program, as well as subscription revenues from MMR and revenue from other digital business opportunities. Corporate Other also includes expenses related to our central supporting functions.

The increase in total operating income for six months ended September 30, 2023, compared to the six months ended September 30, 2022, was primarily driven by the following:

• Operating income in our North America region decreased by $25.6 million to $373.5 million from $399.1 million. This was primarily due to a decline in gross profit, partially offset by lower marketing-related expenses and lower non-salaried wages. The decline in gross profit was driven by lower net revenues as discussed above and increased promotions and discounting, partially offset by lower product input and freight costs.
• Operating income in our EMEA region increased by $17.6 million to $71.6 million from $54.1 million. This was primarily due to an increase in gross profit, partially offset by an increase in marketing related expenses. The increase in gross profit was driven by higher net revenues as discussed above and lower freight costs.
• Operating income in our Asia-Pacific region increased by $3.9 million to $70.0 million from $66.1 million. This was primarily due to an increase in gross profit, driven by higher net revenues as discussed above, partially offset by higher facilities related expenses.
• Operating income in our Latin America region increased by $6.0 million to $19.4 million from $13.4 million. This was primarily due to an increase in gross profit, partially offset by higher selling and distribution costs and higher marketing-related expenses. The increase in gross profit was driven by lower freight costs, and higher net revenues as discussed above.
• Operating loss in our Corporate Other non-operating segment decreased by $10.9 million to $367.9 million from $378.8 million. This was primarily due to lower legal expenses resulting from an accrual in the prior year for certain ongoing legal proceedings, and lower consulting expenses, partially offset by an increase in salaries expense and net losses arising from foreign currency hedges.

LIQUIDITY AND CAPITAL RESOURCES

Our cash requirements have principally been for working capital and capital expenditures. We fund our working capital, primarily inventory, and capital investments from cash flows from operating activities, cash and cash equivalents on hand, and borrowings available under our credit and long-term debt facilities. Our working capital requirements generally reflect the seasonality in our business as we historically recognize the majority of our net revenues in the last two quarters of the calendar year. Our capital investments have generally included expanding our in-store fixture and branded concept shop program, improvements and expansion of our distribution and corporate facilities, including construction of our new global headquarters, leasehold improvements to our Brand and Factory House stores, and investment and improvements in information technology systems. Our inventory strategy is focused on continuing to meet consumer demand while improving our inventory efficiency over the long term by putting systems and processes in place to improve our inventory management. These systems and processes are designed to improve our forecasting and supply planning capabilities. In addition, we strive to enhance our inventory performance by focusing on adding discipline around product purchasing, reducing production lead time and improving planning and execution for selling excess inventory through our Factory House stores and other liquidation channels.

As of September 30, 2023, we had approximately $655.9 million of cash and cash equivalents. We believe our cash and cash equivalents on hand, cash from operations, our ability to reduce our expenditures as needed, borrowings available to us under our amended credit agreement, our ability to access the capital markets, and other financing alternatives are adequate to meet our liquidity needs and capital expenditure requirements for at least the next twelve months. In addition, from time to time, based on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors and subject to compliance with applicable laws and regulations, we may seek to utilize cash on hand, borrowings or raise capital to retire, repurchase or redeem our debt securities, repay debt, repurchase shares of our common stock or otherwise enter into similar transactions to support our capital structure and business or utilize excess cash flow on a strategic basis. For example, as described below, in February 2022, our Board of Directors authorized the repurchase of up to $500 million of our Class C Common Stock over the following two years, and, as of September 30, 2023, we have repurchased a total of $475 million of our Class C Common Stock through accelerated share repurchase transactions.

If there are unexpected material impacts to our business in future periods from COVID-19 or other global macroeconomic factors and we need to raise or conserve additional cash to fund our operations, we may consider additional alternatives, including further reducing our expenditures, changing our investment strategies, reducing compensation costs, including through temporary reductions in pay and layoffs, limiting certain marketing and capital expenditures, and negotiating, extending or delaying payment terms with our customers and vendors. In addition, we may seek alternative sources of liquidity, including but not limited to, accessing the capital markets, sale leaseback transactions or other sales of assets, or other alternative financing measures. However, instability in, or tightening of the capital markets, could adversely affect our ability to access the capital markets on terms acceptable to us or at all. Although we believe we have adequate sources of liquidity over the long term, a prolonged or more severe economic recession, inflationary pressure, or a slow recovery could adversely affect our business and liquidity and could require us to take certain of the liquidity preserving actions described above.

Refer to our "Risk Factors" section included in Item 1A of our Annual Report on Form 10-K for Fiscal 2023.

Share Repurchase Program

On February 23, 2022, our Board of Directors authorized us to repurchase up to $500 million (exclusive of fees and commissions) of outstanding shares of our Class C Common Stock over the following two years. The Class C Common Stock may be repurchased from time to time at prevailing prices in the open market, through plans designed to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, via private purchases through forward, derivative, accelerated share repurchase transactions or otherwise, subject to applicable regulatory restrictions on volume, pricing and timing. The timing and amount of any repurchases will depend on market conditions, our financial condition, results of operations, liquidity and other factors.

During the three months ended September 30, 2023, the Company entered into a supplemental confirmation (the "August 2023 ASR Agreement") of an accelerated share repurchase transaction with JPMorgan Chase Bank, National Association ("JPMC") to repurchase $50.0 million of the Company's Class C Common Stock, and received a total of 7.6 million shares of Class C Common Stock from JPMC, which were immediately retired. As a result, $51.3 million was recorded to retained earnings to reflect the difference between the market price of the Class C Common Stock repurchased and its par value. No shares were repurchased under the share repurchase program during the three months ended June 30, 2023.

During the three and six months ended September 30, 2022, pursuant to the previously disclosed accelerated share repurchase transactions, we repurchased 3.2 million and 9.9 million shares of Class C Common Stock, respectively, which were immediately retired.

As of September 30, 2023, we have repurchased a total of $475 million or 42.5 million outstanding shares of our Class C Common Stock under the share repurchase program.

Cash Flows

The following table presents the major components of our cash flows provided by and used in operating, investing and financing activities for the periods presented:

(In thousands)

38

Operating Activities

Cash flows from operating activities increased by $66.7 million, as compared to the six months ended September 30, 2022, primarily driven by an increase in net income before the impact of non-cash items of $40.0 million and an increase from changes in working capital of $26.7 million.

The changes in working capital were due to the following inflows:

• $300.1 million from changes in inventories;
• $86.6 million from changes in other non-current assets;
• $37.6 million from changes in accounts receivable; and
• $4.6 million from changes in prepaid expenses and other current assets.

These inflows were partially offset by the following working capital outflows:

• $287.5 million from changes in accounts payable;
• $94.8 million from changes in accrued expenses and other liabilities;
• $14.1 million from changes in income taxes payable and receivable, net; and
• $5.8 million from changes in customer refund liabilities.

Investing Activities

Cash flows used in investing activities decreased by $19.7 million, as compared to the six months ended September 30, 2022. This was primarily due to a higher earnout collected in connection with the sale of the MyFitnessPal platform and a decrease in capital expenditures.

Total capital expenditures during the six months ended September 30, 2023 were $84.1 million, or approximately 3% of net revenues, representing a $9.7 million decrease from $93.9 million during the six months ended September 30, 2022. Our long-term operating principle for capital expenditures is to spend between 3% and 5% of annual net revenues as we invest in our global direct-to-consumer, e-Commerce and digital businesses, information technology systems, distribution centers and our global offices, including our new global headquarters in the Baltimore Peninsula, an area of Baltimore, Maryland. During the six months ended September 30, 2023, we incurred capital expenditures of $40.3 million relating to the construction of our new global headquarters. As previously disclosed, our plans for our new headquarters have been designed in line with our long-term sustainability strategy and include a commitment to reduce greenhouse gas emissions and increase sourcing of renewable electricity in our owned and operated facilities. We expect a portion of our capital expenditures over the next few years to include investments incorporating sustainable and intelligent building design features into this facility.

Financing Activities

Cash flows used in financing activities increased by $1.7 million, as compared to the six months ended September 30, 2022. This was primarily due to an increase in employee taxes paid for shares withheld for income taxes. Additionally, during both the six months ended September 30, 2022 and 2023, we paid $50.0 million to repurchase shares of our Class C Common Stock through accelerated share repurchase transactions. For more details, see discussion above under "Share Repurchase Program".

Capital Resources

Credit Facility

On March 8, 2019, we entered into an amended and restated credit agreement by and among us, as borrower, JPMorgan Chase Bank, N.A., as administrative agent, and the other lenders and arrangers party thereto (the "credit agreement"). In May 2020, May 2021 and December 2021, we entered into the first, second and third amendments to the credit agreement, respectively (the credit agreement as amended and the "amended credit agreement" or the "revolving credit facility"). The amended credit agreement provides for revolving credit commitments of $1.1 billion and has a term that ends on December 3, 2026, with permitted extensions under certain circumstances. As of September 30, 2023 and March 31, 2023, there were no amounts outstanding under the revolving credit facility.

At our request and a lender's consent, commitments under the amended credit agreement may be increased by up to $300.0 million in aggregate, subject to certain conditions as set forth in the amended credit agreement. Incremental borrowings are uncommitted and the availability thereof will depend on market conditions at the time we seek to incur such borrowings.

Borrowings, if any, under the revolving credit facility have maturities of less than one year. Up to $50.0 million of the facility may be used for the issuance of letters of credit. As of September 30, 2023, there was $4.3 million of letters of credit outstanding (March 31, 2023: $4.4 million).

Our obligations under the amended credit agreement are guaranteed by certain domestic significant subsidiaries of Under Armour, Inc., subject to customary exceptions (the "subsidiary guarantors") and primarily secured by a first-priority security interest in substantially all of the assets of Under Armour, Inc. and the subsidiary guarantors, excluding real property, capital stock in and debt of subsidiaries of Under Armour, Inc. holding certain real property and other customary exceptions. The amended credit agreement provides for the permanent fall away of guarantees and collateral upon our achievement of investment grade rating from two rating agencies.

The amended credit agreement contains negative covenants that, subject to significant exceptions, limit our ability to, among other things: incur additional secured and unsecured indebtedness; pledge the assets as security; make investments, loans, advances, guarantees and acquisitions (including investments in and loans to non-guarantor subsidiaries); undergo fundamental changes; sell assets outside the ordinary course of business; enter into transactions with affiliates; and make restricted payments.

We are also required to maintain a ratio of consolidated EBITDA, to consolidated interest expense of not less than 3.50 to 1.0 (the "interest coverage covenant") and we are not permitted to allow the ratio of consolidated total indebtedness to consolidated EBITDA to be greater than 3.25 to 1.0 (the "leverage covenant"), as described in more detail in the amended credit agreement. As of September 30, 2023, we were in compliance with the applicable covenants.

In addition, the amended credit agreement contains events of default that are customary for a facility of this nature, and includes a cross default provision whereby an event of default under other material indebtedness, as defined in the amended credit agreement, will be considered an event of default under the amended credit agreement.

The amended credit agreement implements SOFR as the replacement of LIBOR as a benchmark interest rate for the U.S. dollar borrowings (and analogous benchmark rate replacements for borrowings in Yen, Canadian dollars, Pound Sterling and Euro). Borrowings under the amended credit agreement bear interest at a rate per annum equal to, at our option, either (a) an alternate base rate (for borrowings in U.S. dollars), (b) a term rate (for borrowings in U.S. dollars, Euros, Japanese Yen or Canadian dollars) or (c) a "risk free" rate (for borrowings in U.S. dollars or Pounds Sterling), plus in each case an applicable margin. The applicable margin for loans will be adjusted by reference to a grid (the "pricing grid") based on the leverage ratio of consolidated total indebtedness to consolidated EBITDA and ranges between 1.00% to 1.75% (or, in the case of alternate base rate loans 0.00% to 0.75%). We will also pay a commitment fee determined in accordance with the pricing grid on the average daily unused amount of the revolving credit facility and certain fees with respect to letters of credit. As of September 30, 2023, the commitment fee was 17.5 basis points.

1.50% Convertible Senior Notes

We have approximately $80.9 million aggregate principal amount of 1.50% convertible senior notes due 2024 (the "Convertible Senior Notes") outstanding as of September 30, 2023, which were issued in May 2020. The Convertible Senior Notes bear interest at the fixed rate of 1.50% per annum, payable semiannually in arrears on June 1 and December 1 of each year, beginning December 1, 2020. The Convertible Senior Notes will mature on June 1, 2024, unless earlier converted in accordance with their terms, redeemed in accordance with their terms or repurchased.

The Convertible Senior Notes are not secured and are not guaranteed by any of our subsidiaries. The indenture governing the Convertible Senior Notes does not contain any financial or operating covenants or restrictions on the payments of dividends, the incurrence of indebtedness or the issuance or repurchase of securities by us or any of our subsidiaries.

The Convertible Senior Notes are convertible into cash, shares of our Class C Common Stock or a combination of cash and shares of Class C Common Stock, at our election, as described further below. The initial conversion rate is 101.8589 shares of our Class C Common Stock per $1,000 principal amount of Convertible Senior Notes (equivalent to an initial conversion price of approximately $9.82 per share of Class C Common Stock), subject to adjustment if certain events occur. Prior to the close of business on the business day immediately preceding January 1, 2024, holders may (at their option) convert their Convertible Senior Notes only upon satisfaction of one or more of the following conditions:

• during any calendar quarter commencing after the calendar quarter ended on September 30, 2020 (and only during such calendar quarter), if the last reported sale price of our Class C Common Stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;
• during the five business day period after any five consecutive trading day period (the "measurement period") in which the trading price per $1,000 principal amount of Convertible Senior Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our Class C Common Stock and the conversion rate on each such trading day;
• upon the occurrence of specified corporate events or distributions on our Class C Common Stock; or
• if we call any Convertible Senior Notes for redemption prior to the close of business on the business day immediately preceding January 1, 2024.

On or after January 1, 2024, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their Convertible Senior Notes at the conversion rate at any time irrespective of the foregoing conditions.

Beginning on December 6, 2022, we may redeem for cash all or any part of the Convertible Senior Notes, at our option, if the last reported sale price of our Class C Common Stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption at a redemption price equal to 100% of the aggregate principal amount of the Convertible Senior Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

If we undergo a fundamental change (as defined in the indenture governing the Convertible Senior Notes) prior to the maturity date, subject to certain conditions, holders may require us to repurchase for cash all or any portion of their Convertible Senior Notes in principal amounts of $1,000 or an integral multiple thereof at a price which will be equal to 100% of the aggregate principal amount of the Convertible Senior Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

Concurrently with the offering of the Convertible Senior Notes, we entered into privately negotiated capped call transactions with JPMorgan Chase Bank, National Association, HSBC Bank USA, National Association, and Citibank, N.A. (the "option counterparties"). The capped call transactions are expected generally to reduce potential dilution to our Class C Common Stock upon any conversion of Convertible Senior Notes and/or offset any cash payments we are required to make in excess of the aggregate principal amount of converted Convertible Senior Notes upon any conversion thereof, as the case may be, with such reduction and/or offset subject to a cap based on the cap price. The cap price of the capped call transactions is initially $13.4750 per share of our Class C Common Stock, representing a premium of 75% above the last reported sale price of our Class C Common Stock on May 21, 2020, and is subject to certain adjustments under the terms of the capped call transactions.

3.250% Senior Notes

In June 2016, we issued $600.0 million aggregate principal amount of 3.250% senior unsecured notes due June 15, 2026 (the "Senior Notes"). The proceeds were used to pay down amounts outstanding under the revolving credit facility, at the time. The Senior Notes bear interest at the fixed rate of 3.250% per annum, payable semi-annually on June 15 and December 15 beginning December 15, 2016. Prior to March 15, 2026 (three months prior to the maturity date of the Notes), we may redeem some or all of the Senior Notes at any time or from time to time at a redemption price equal to the greater of 100% of the principal amount of the Senior Notes to be redeemed or a "make-whole" amount applicable to such Senior Notes as described in the indenture governing the Senior Notes, plus accrued and unpaid interest to, but excluding, the redemption date.

The indenture governing the Senior Notes contains covenants, including limitations that restrict our ability and the ability of certain of our subsidiaries to create or incur secured indebtedness and enter into sale and leaseback transactions and our ability to consolidate, merge or transfer all or substantially all of our properties or assets to another person, in each case subject to material exceptions described in the indenture.

CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS

Our Condensed Consolidated Financial Statements have been prepared in accordance with U.S. GAAP. To prepare these financial statements, we must make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as well as the disclosures of contingent assets and liabilities. Our estimates are often based on complex judgments, probabilities and assumptions that management believes to be reasonable, but that are inherently uncertain and unpredictable. It is also possible that other professionals, applying reasonable judgment to the same facts and circumstances, could develop and support a range of alternative estimated amounts. Actual results could be significantly different from these estimates.

Refer to Note 2 of our Consolidated Financial Statements, included in our Annual Report on Form 10-K for Fiscal 2023, for a summary of our significant accounting policies and our assessment of recently issued accounting standards.

There have been no significant changes to our market risk since March 31, 2023. For a discussion of our exposure to market risk, refer to Item 7A. of our Annual report on Form 10-K for Fiscal 2023.

Evaluation of Disclosure Controls and Procedures

Our management has evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective in ensuring that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner and (2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls

We have assessed the impact on changes to our internal controls over financial reporting, and conclude that there have been no changes in our internal control over financial reporting, as defined in Exchange Act Rules 13a-15(f) and 15d-15(f), during the most recent fiscal quarter that have materially affected, or that are reasonably likely to materially affect our internal controls over financial reporting.

Our results of operations and financial condition could be adversely affected by numerous risks. In addition to the other information in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors discussed in Part I, Item 1A, "Risk Factors" in our Annual Report on Form 10-K for Fiscal 2023. These are not the only risks and uncertainties facing us. Additional risks not currently known to us or that we currently believe are immaterial may also negatively impact our business, financial condition, results of operations and future prospects.