Under Armour, Inc.: Form 10-Q for the period ended Jun 30, 2024

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, which include the revisions for the previously disclosed accounting corrections, and in our Annual Report on Form 10-K for Fiscal 2024, filed with the Securities Exchange Commission ("SEC") on May 29, 2024, 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 three months ended June 30, 2024 with the three months ended June 30, 2023, 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 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, our liquidity and use of capital resources, 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 2024. These factors include without limitation:

• changes in general economic or market conditions, including increasing inflation, that could affect overall consumer spending or our industry;
• 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);
• our ability to successfully execute our long-term strategies;
• our ability to effectively drive operational efficiency in our business;
• changes to the financial health of our customers;
• 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;
• our ability to successfully execute any potential restructuring plans and realize their expected benefits;
• 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 conflicts;
• the impact of global or regional public health emergencies on our industry and our business, financial condition and results of operations, including impacts on the global supply chain;
• 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 attract key talent and retain the services of our senior management and other key employees;
• our ability to effectively meet regulatory requirements and stakeholder expectations with sustainability and social matters;
• 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 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;
• our ability to remediate the material weaknesses discussed elsewhere in this Quarterly Report on Form 10-Q; and
• our potential exposure to and the financial impact of litigation and other proceedings, including those legal proceedings discussed elsewhere 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.

Quarterly Results

During the three months ended June 30, 2024, we continued to face a challenging retail environment, particularly in North America, that included lower demand in our wholesale channel, in addition to the impacts of proactive strategies to reduce discounting and promotional activity in our direct-to-consumer channel, particularly in e-commerce. We also faced a challenging retail environment in our Asia-Pacific region.

Financial highlights for three months ended June 30, 2024 as compared to three months ended June 30, 2023 include:

• Total net revenues decreased 10.1%.
• Within our channels, wholesale revenue decreased 8.3% and direct-to-consumer revenue decreased 11.8%.
• Within our product categories, apparel revenue decreased 8.1%, footwear revenue decreased 14.7%, and accessories revenue decreased 5.4%.
• Net revenue decreased 14.2% in North America, increased 0.1% in EMEA, decreased 10.1% in Asia-Pacific, and increased 15.6% in Latin America.
• Gross margin increased 110 basis points to 47.5%.
• Selling, general and administrative expenses increased 42.1% due to a $274 million increase in litigation expense, net of an insurance receivable, related to the settlement of the Class Action Securities litigation.

2025 Restructuring Plan

On May 15, 2024, our Board of Directors approved a restructuring plan designed to rebalance our cost base to further improve profitability and cash flow generation. In connection with this plan, we expect to incur total estimated pre-tax restructuring and related charges of approximately $70 million to $90 million during Fiscal 2025, primarily consisting of up to approximately:

• $50 million in cash-related charges, consisting of approximately $15 million in employee severance and benefits costs, and $35 million related to various transformational initiatives; and
• $40 million in non-cash charges consisting of approximately $7 million in employee severance and benefits costs and $33 million in facility, software and other asset-related charges and impairments.

The summary of the costs recorded during the three months ended June 30, 2024 as well as our current estimates of the amount expected to be incurred during the remainder of Fiscal 2025 in connection with the 2025 restructuring plan is as follows:

(In thousands)

(1) Estimated restructuring and related charges to be incurred reflect the high-end of the range of the estimated remaining charges expected to be incurred during Fiscal 2025 in connection with the 2025 restructuring plan.

Restructuring charges and recoveries require us to make certain judgments and estimates regarding the amount and timing as to when these charges or recoveries occur. The estimated liability could change subsequent to its recognition, requiring adjustments to the expense and the liability recorded. On a quarterly basis, we conduct an evaluation of the related liabilities and expenses and revises its assumptions and estimates as appropriate, as new or updated information becomes available.

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, results of operations 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 2024.

RESULTS OF OPERATIONS

During Fiscal 2024, we identified and corrected certain accounting errors, primarily related to cost of goods sold and selling, general and administrative expenses on the Consolidated Statement of Operations, as well as corresponding impacts to our other Consolidated Financial Statements. The impacts of these revisions were not material to our previously filed financial statements. Information presented in the tables below for the three months ended June 30, 2023 has been revised to reflect these corrections. See Note 1 of these Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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)

32

Revenues

Net revenues consist of net sales, license revenues, and revenues from digital subscriptions, digital advertising and other digital business opportunities. 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, subscription revenues from MMR and revenue from other digital business opportunities.

Net Sales

Net sales decreased by $125.4 million, or 9.8%, to $1,160.7 million during the three months ended June 30, 2024, from $1,286.1 million during the three months ended June 30, 2023. Apparel decreased primarily due to lower unit sales and unfavorable channel mix, partially offset by higher average selling prices. Footwear decreased primarily due to lower unit sales, partially offset by higher average selling prices. Accessories decreased primarily due to lower unit sales, partially offset by higher average selling prices. From a channel perspective, the decrease in net sales was due to a decrease in both wholesale and direct-to-consumer.

License Revenues

License revenues decreased by $3.4 million or 13.6%, to $21.7 million during the three months ended June 30, 2024, from $25.1 million during the three months ended June 30, 2023. This was primarily due to lower revenues from our licensing partners in North America and our Japanese licensee.

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 $17.5 million for the three months ended June 30, 2024 (three months ended June 30, 2023: $18.4 million).

Gross profit decreased by $48.8 million to $562.7 million during the three months ended June 30, 2024, as compared to $611.5 million during the three months ended June 30, 2023. Gross profit as a percentage of net revenues, or gross margin, increased to 47.5% from 46.4%. This increase in gross margin of 110 basis points was primarily driven by favorable impacts of approximately 170 basis points of pricing benefits from lower levels of discounting and promotions within our direct-to-consumer channel and approximately 40 basis points from supply chain benefits related to lower products costs and lower inventory reserves. These benefits were partially offset by unfavorable impacts of approximately 60 basis points from unfavorable regional and channel mix; and 50 basis points from changes in foreign currency.

We expect the trends listed above to continue through the remainder of Fiscal 2025, but to a lesser extent.

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)

Selling, general and administrative expenses increased by $248.2 million, or 42.1%, during three months ended June 30, 2024 as compared to three months ended June 30, 2023. Within selling, general and administrative expense:

• Marketing costs decreased $18.7 million or 13.3%, due to a reduction in marketing activities during the period. As a percentage of net revenues, marketing costs decreased to 10.3% from 10.6%.
• Other costs increased $266.9 million or 59.4%, primarily driven by higher litigation reserve in connection with the recently announced Memorandum of Understanding (the "MOU") with plaintiffs containing the material terms of a settlement resolving the Consolidated Securities Action as discussed in Note 10 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. Additionally, other costs increased due to transformational charges recorded in connection with the 2025 restructuring plan. See Note 13 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional details. As a percentage of net revenues, other costs increased to 60.5% from 34.1%.

As a percentage of net revenues, selling, general and administrative expenses increased to 70.7% during the three months ended June 30, 2024 as compared to 44.7% in during the three months ended June 30, 2023.

Restructuring Charges

On May 15, 2024, our Board of Directors approved a restructuring plan designed to rebalance our cost base to further improve profitability and cash flow generation. Restructuring charges within our operating expenses primarily consist of employee severance and benefit costs, various transformational initiatives and facility, software and other asset-related charges and impairments.

(In thousands)

Restructuring charges increased by $25.1 million during the three months ended June 30, 2024 compared to the three months ended June 30, 2023 primarily due to $10.3 million of employee related charges, $8.0 million of non-cash impairment charges and $6.7 million of other restructuring costs. See Note 13 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional details.

Interest Income (Expense), net

Interest income (expense), net is primarily comprised of interest income earned on our cash and cash equivalents, offset by interest incurred on our debt facilities. See Note 9 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional details.

(In thousands)

Interest income, net increased by $4.0 million to $2.3 million during the three months ended June 30, 2024. This was primarily due to an increase in interest income of $3.8 million, resulting from higher interest rates, and a decrease in interest expense of $0.2 million.

Other Income (Expense), net

Other income (expense), net generally 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 earn-out income recorded in connection with the sale of the MyFitnessPal platform and 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)

Other expense, net decreased by $3.3 million to $2.7 million during the three months ended June 30, 2024, primarily due to a net gain from on foreign currency hedges of $3.0 million.

Income Tax Expense (Benefit)

(In thousands)

Income tax expense increased $0.8 million to $5.1 million during the three months ended June 30, 2024 from income tax expense of $4.3 million during the three months ended June 30, 2023. For the three months ended June 30, 2024, our effective tax rate was (1.7)% compared to 29.4% for the three months ended June 30, 2023. The decrease in our effective tax rate was primarily driven by the proportion of earnings subject to tax in the U.S. as compared to foreign jurisdictions in each period and the Fiscal Year 2025 impact of U.S. losses on foreign earnings subject to tax in the United States.

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 such as 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.

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, subscription revenues from MMR and revenue from other digital business opportunities.

The decrease in total net revenues for the three months ended June 30, 2024, compared to the three months ended June 30, 2023, was driven by the following:

• Net revenues in our North America region decreased by $117.3 million, or 14.2%, to $709.3 million from $826.6 million. This was driven by a decrease in both our wholesale channel and our direct-to-consumer channel as well as a decrease in licensing revenues. Within our direct-to-consumer channel, net revenues decreased in both e-commerce and owned and operated retail stores.
• Net revenues in our EMEA region increased by $0.3 million, or 0.1%, to $226.9 million from $226.6 million. This was driven by an increase in our direct-to-consumer channel offset by a decrease in our wholesale channel. Within our direct-to-consumer channel, net revenues increased in owned and operated retail stores while e-commerce was flat.
• Net revenues in our Asia-Pacific region decreased by $20.4 million, or 10.1%, to $181.8 million from $202.2 million. This was driven by a decrease in both our direct-to-consumer channel and our wholesale channel. Within our direct-to-consumer channel, net revenues decreased in both e-commerce and owned and operated retail stores. 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 $8.7 million, or 15.6%, to $64.4 million from $55.7 million. This was driven by an increase in both our wholesale channel and our direct-to-consumer channel. Within our direct-to-consumer channel, net revenues increased in owned and operated retail stores while e-commerce was flat. 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 $4.5 million to $1.3 million from $5.7 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, subscription revenues from MMR and revenue from other digital business opportunities. Corporate Other also includes expenses related to our central supporting functions.

The decrease in total operating income for the three months ended June 30, 2024, compared to the three months ended June 30, 2023, was primarily driven by the following:

• Operating income in our North America region decreased by $12.8 million to $147.9 million from $160.7 million. This was primarily due to a decrease in gross profit, partially offset by lower marketing-related expenses and selling and distribution expenses. The decline in gross profit was primarily driven by lower net revenues as discussed above, partially offset by lower product input costs.
• Operating income in our EMEA region decreased by $9.3 million to $20.5 million from $29.8 million. This was primarily due to higher marketing-related expenses, partially offset by an increase in gross profit. The increase in gross profit was primarily driven by lower product input costs.
• Operating income in our Asia-Pacific region decreased by $5.5 million to $9.9 million from $15.4 million. This was primarily due to an decrease in gross profit, partially offset by lower marketing-related expenses and lower selling and distribution expenses. The decline in gross profit was primarily driven by lower net revenues as discussed above.
• Operating income in our Latin America region increased by $9.4 million to $15.2 million from $5.8 million. This was primarily due to an increase in gross profit. The increase in gross profit was primarily driven by higher net revenues as discussed above.
• Operating loss in our Corporate Other non-operating segment increased by $303.9 million to $493.2 million from $189.2 million. This was primarily due to higher litigation expense, net of insurance receivable, recorded in connection with the recently announced MOU with plaintiffs containing the material terms of a settlement resolving the Consolidated Securities Action as discussed in Note 10 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. In addition, restructuring charges increased as a result of charges incurred under the 2025 restructuring plan as discussed above.

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 June 30, 2024, we had approximately $884.6 million of cash and cash equivalents. In August 2024, we utilized a combination of our cash on hand and insurance receivables to fund the settlement of the Class Action litigation into an escrow account in accordance with the terms of the preliminary settlement agreement. See Note 10 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional details. 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 further described below, in May 2024, our Board of Directors authorized a new share repurchase program pursuant to which we are authorized to repurchase a total of $500 million of our Class C Common Stock through May 2027.

If there are unexpected material impacts to our business in future periods from global or regional public health emergencies or other global macroeconomic factors, 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.

Our Annual Report on Form 10-K for Fiscal 2024 noted that we will continue to permanently reinvest our non-U.S. subsidiaries’ cumulative undistributed earnings of $1.5 billion, as well as future earnings from our foreign subsidiaries, to fund international growth and operations. During the first quarter of Fiscal 2025, we evaluated the undistributed earnings of our foreign subsidiaries and determined to repatriate a portion of these earnings. In connection with this evaluation, we recognized approximately $500 million of prior and current year earnings that are no longer considered to be indefinitely reinvested. We expect to incur approximately $0.4 million of income tax expense, net of valuation allowances, related to the repatriation of these earnings. The remainder of our prior and current year undistributed foreign earnings will continue to be indefinitely reinvested to fund international growth and operations. As the majority of such earnings have been previously subject to U.S. federal tax, additional taxes due including currency gains or losses, capital gains, foreign withholding taxes, and U.S. federal and state taxes are not expected to be material.

Refer to our "Risk Factors" section included in Part I, Item 1A of our Annual Report on Form 10-K for Fiscal 2024.

Share Repurchase Program

On May 15, 2024, 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 through May 31, 2027. 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 June 30, 2024, we entered into a supplemental confirmation (the "May 2024 ASR Agreement") of an accelerated share repurchase transaction with Citigroup Global Markets Inc. ("Citigroup") to repurchase $40.0 million of our Class C Common Stock, and received a total of 5.9 million shares of Class C Common Stock from Citigroup, which were immediately retired. As a result, $40.9 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. Additionally, we accrued $0.2 million of excise tax in connection with the share repurchases completed during the three months ended June 30, 2024, which was recorded in other current liabilities in our Condensed Consolidated Balance Sheets as of June 30, 2024.

No shares were repurchased during the three months ended June 30, 2023, under our previously approved $500 million share repurchase program, which was completed in December 2023.

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)

Operating Activities

Cash flows from operating activities increased by $159.0 million, as compared to three months ended June 30, 2023, primarily driven by an increase from changes in working capital of $467.0 million, partially offset by a decrease in net income before the impact of non-cash items of $308.0 million.

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

• $367.1 million from changes in accrued expenses and other liabilities.
• $153.4 million from changes in accounts payable;
• $15.5 million from changes in customer refund liabilities; and
• $7.3 million from changes in accounts receivable;

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

• $24.7 million from changes in prepaid expenses and other current assets.
• $19.1 million from changes in income taxes payable and receivable, net;
• $17.6 million from changes in inventories;
• $14.9 million from changes in other non-current assets;

Investing Activities

Cash flows provided by investing activities decreased by $8.1 million, as compared to the three months ended June 30, 2023. This was primarily due to an increase in capital expenditures and a higher earn-out collected in connection with the sale of the MyFitnessPal platform.

Total capital expenditures during the three months ended June 30, 2024 were $45.7 million, or approximately 4% of net revenues, representing a $13.1 million increase from $32.6 million during the three months ended June 30, 2023. 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 three months ended June 30, 2024, we incurred capital expenditures of $36.5 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 two years to include investments incorporating sustainable and intelligent building design features into this facility.

Financing Activities

Cash flows used in financing activities increased by $127.0 million, as compared to the three months ended June 30, 2023. During the three months ended June 30, 2024, we repaid the $80.9 million aggregate principal amount of the Convertible Senior Notes outstanding using cash on hand. Additionally, we paid $40.0 million to repurchase shares of our Class C Common Stock through accelerated share repurchase transactions. No shares were repurchased during the three months ended June 30, 2023. 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"). Subsequent to quarter end, in July 2024, we entered into a fifth amendment to the credit agreement (the credit agreement as amended and the "amended credit agreement" or the "revolving credit facility"). The amended credit agreement provides for an aggregate $1.1 billion of revolving credit commitments comprised of two tranches: (i) one tranche of $50 million that has a term that ends on December 3, 2026, and (ii) a second tranche of $1.05 billion that has a term that ends on December 3, 2027, in each case with permitted extensions under certain circumstances. As of June 30, 2024 and March 31, 2024, 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 June 30, 2024, $4.2 million of letters of credit were outstanding (March 31, 2024: $4.2 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 June 30, 2024, we were in compliance with the applicable covenants. In July 2024, we entered into an amendment to the credit agreement to exclude from the definition of consolidated EBITDA certain charges related to the settlement of the Class Action Securities litigation described in Note 10 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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 implemented SOFR as the replacement for LIBOR as a benchmark interest rate for the U.S. dollar borrowings (and analogous benchmark rate replacements for borrowings in Yen, 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 or Japanese Yen) 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 June 30, 2024, the commitment fee was 17.5 basis points.

1.50% Convertible Senior Notes

On June 1, 2024, our previously outstanding $80.9 million aggregate principal amount of 1.50% convertible senior notes due 2024 (the "Convertible Senior Notes") matured. The Convertible Senior Notes bore 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. Upon maturity, we repaid the $80.9 million aggregate principal amount of the Convertible Senior Notes outstanding, plus $0.6 million of accrued interest, using cash on hand. No holders exercised their rights to convert prior to maturity.

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 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 2024, 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, 2024. For a discussion of our exposure to market risk, refer to Part II, Item 7A. of our Annual report on Form 10-K for Fiscal 2024.

Evaluation of Disclosure Controls and Procedures

Our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act of 1934, as amended (the “Exchange Act”)) are designed to ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act, is recorded, processed, summarized, and reported within the time periods specified in SEC 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. Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective due to the material weaknesses in our internal control over financial reporting described below.

Material Weaknesses in Internal Control Over Financial Reporting

As previously reported in the Company's Annual Report on Form 10-K for Fiscal 2024, we identified material weaknesses in our internal control over financial reporting. We did not design and maintain effective controls over certain aspects of the period-end financial reporting process, including the review and execution of certain balance sheet account reconciliations. Additionally, we did not design and maintain effective controls over the classification and presentation of general ledger accounts in the appropriate financial statement line items within the consolidated financial statements.

Although these material weaknesses did not result in a material misstatement of our consolidated financial statements, these material weaknesses resulted in immaterial errors in our consolidated interim and annual financial statements for Fiscal 2024, Fiscal 2023, the Transition Period and Fiscal 2021. Additionally, until we remediate these material weaknesses, they could result in material misstatements to our interim or annual consolidated financial statements that would not be prevented or detected on a timely basis.

Remediation Progress for the Material Weaknesses

With respect to the material weaknesses, management, under the oversight of the Audit Committee, is in the process of designing appropriate internal controls specific to the impacted areas. While we have taken steps to implement our remediation plan, these material weaknesses will not be considered fully remediated until we complete the design and implementation of the applicable controls, and they operate for a sufficient period of time and management has concluded through testing that the controls are operating effectively. We are committed to continuing to improve our internal control over financial reporting, and as we continue to evaluate and work to improve our internal control over financial reporting.

Changes in Internal Control Over Financial Reporting

As described above, we are taking steps to remediate the material weakness in our internal control over financial reporting. No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter ended June 30, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control 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 2024. 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.