DECKERS OUTDOOR CORPORATION The following discussion of our financial condition and results of operations should be read together with our condensed consolidated financial statements and the related notes, included in Part I, Item 1 of this Quarterly Report, and the audited consolidated financial statements included in Part II, Item 8 of our 2020 Annual Report. This section contains forward-looking statements that are based on our current expectations and reflect our plans, estimates, and anticipated future financial performance. These statements involve numerous risks and uncertainties. Our actual results may differ materially from those expressed or implied by these forward-looking statements as a result of many factors, including those set forth in Part II, Item 1A, "Risk Factors," and "Cautionary Note Regarding Forward-Looking Statements" in this Quarterly Report.
Overview
We are a global leader in designing, marketing, and distributing innovative footwear, apparel, and accessories developed for both everyday casual lifestyle use and high-performance activities. We market our products primarily under five proprietary brands: UGG, HOKA, Teva, Sanuk, and Koolaburra. We believe that our products are distinctive and appeal broadly to women, men, and children. We sell our products through quality domestic and international retailers, international distributors, and directly to our consumers both domestically and internationally through our DTC business, which is comprised of our retail stores and e-commerce websites. We seek to differentiate our brands and products by offering diverse lines that emphasize authenticity, functionality, quality, and comfort, and products tailored to a variety of activities, seasons, and demographic groups. All of our products are currently manufactured by independent third-party manufacturers.
Trends and Uncertainties Impacting Our Business
During early calendar year 2020, the COVID-19 pandemic (pandemic) spread
globally, including throughout the geographic regions in which we operate our
business, and in which our wholesale customers, retail stores, manufacturers,
and suppliers are located. As of the date of this Quarterly Report, there
continue to be widespread concerns about the ongoing impacts and disruptions
caused by the pandemic, including the potential for additional waves of the
pandemic which may vary by geographic region.
In response to the pandemic, many federal, state, local, and foreign governments
put in place, and others in the future may put in place, various orders and
restrictions in an attempt to control the spread and mitigate the impact of the
disease. These governmental restrictions, as well as other changes in consumer
behavior in response to the pandemic, have resulted in the closure of
businesses, increased unemployment rates, reduced consumer confidence, continued
"social distancing" restrictions, reduced tourist activity, work-from-home
policies, and other widespread changes that have led to significant uncertainty
and disruptions to businesses and financial markets. The overall impact of the
pandemic on our business and future results of operations continues to be highly
uncertain and subject to change, and we are not able to accurately predict the
magnitude or scope of such impacts at this time. However, we believe that the
actions we are taking to respond to the pandemic, combined with our strong
brands, diversified product portfolio, and favorable liquidity position, have
created an important foundation that will position us to emerge from this
pandemic operationally sound and poised for continued long-term growth.
Our business and the industry in which we operate continue to be impacted by
several important trends and uncertainties, including the pandemic, as follows:
Retail Environment
• As a result of various government orders and restrictions imposed in
connection with the pandemic, as well as changes in consumer
behavior in response, we closed many of our
company-owned-and-operated stores at the beginning of our first
fiscal quarter ended June 30, 2020 . However, approximately 95% of
our global retail stores were open for the entire second fiscal
quarter, although, in most cases, with limited capacity due to
enhanced health and safety protocols. We expect some retail store
closures for at least a portion of the third fiscal quarter based on
recently imposed governmental restrictions and local authority
mandates. In addition, given the ongoing and uncertain pandemic
conditions, including the potential for additional waves of the
pandemic and additional operating limitations based on expert agency
guidance, there is a risk of ongoing or additional retail store
closures and operating limitations.
23--------------------------------------------------------------------------------
Table of Contents
• We expect the scope of allowable retail activities and retail
consumer traffic patterns to vary by geographic region due to
restrictions imposed by governmental authorities and expert
agencies, the demand for our products and consumer response to the
pandemic, and the actual and expected regional impact of the
pandemic. In an attempt to mitigate the impact of operating our
retail stores at limited capacity, we have expanded the use of
technology at these locations, including the implementation of
mobile point-of-sales systems. However, notwithstanding these
efforts, we could experience decreased demand or capacity threshold
constraints at our retail stores during the holiday season due to
social distancing restrictions, limitations on staffing, or changes
in consumer behavior in response to the pandemic.
• We believe that many of our wholesale customers and retail partners
experienced retail store closures and re-openings similar to our
company-owned retail stores during the six months ended September
30, 2020 . Although many of our wholesale customers have reopened
their retail stores, we believe that many of these stores continue
to operate at limited capacity and could continue to experience
limited operations or additional closures depending on the future
impact of the pandemic.
E-Commerce Environment
• We operate our e-commerce business through various websites and
platforms, which have remained operational throughout the pandemic,
and we expect they will continue to remain operational. To help
drive digital conversion in Europe , we have recently expanded
consumer access and improved ease of use by offering additional
languages, currencies, and local payment types to our e-commerce
platform.
• Even prior to the retail store operating disruptionsresulting from
the pandemic, we observed a meaningful shift in the way consumers
shop for products and make purchasing decisions, evidenced by
significant and prolonged decreases in consumer retail store
activity as consumers accelerated their migration to online
shopping. These trends have been positively impacting the
performance of our e-commerce business, while creatingheadwinds for
our traditional retail business, as well as the retailbusinesses of
our wholesale customers and retail partners.
• During the six months ended September 30, 2020 , we observed strong
demand across all of our brands within our e-commerce business,
particularly within the UGG and HOKA brands. We also observed that
our wholesale customers with an established e-commerce presence,
experienced similarly strong demand trends, although such trends
vary from customer to customer. We continue to see demand for our
products, especially within the UGG and HOKA brands, from a number
of these wholesale customers as their sell-through of our products
remains strong within their e-commerce platforms. In future periods,
we do not expect the growth rate that our e-commerce business
experienced during the six months ended September 30, 2020 to
continue to occur or that our e-commerce business will be able to
offset a possible reduction in UGG brand sales within our wholesale
and retail businesses during peak season resulting from the impacts
of the pandemic.
• We expect our e-commerce business will continue to be a driver of
long-term growth, although the growth rate will beunpredictable and
may not be in line with our historical experience. Additionally, we
do not expect that the growth rate that our e-commerce business
experienced during the six months ended September 30, 2020 will
continue throughout the fiscal year. We believe the key factors
impacting the growth rate of our e-commerce business will include
consumer demand for our products, our ability to fulfill orders
through our limited distribution center operations, the scope and
duration of the pandemic, and the impact of the pandemic on
unemployment rates, consumer confidence, discretionaryspending, and
economic conditions.
Brand Strategy
• In response to the pandemic, we are exercising discipline by
focusing on key products that have achieved sustained success with
consumers, delaying product launches, and consolidating seasonal
collections.
• Our ongoing strategic efforts to reduce the impact ofseasonality on
our results of operations have had a meaningful positive impact on
the year-round performance of the HOKA and UGG brands.
24--------------------------------------------------------------------------------
Table of Contents
Although we expect to continue to focus on reducing the impact of seasonality through innovation and the expansion of our product offerings over the long-term, and while HOKA brand net sales continue to increase as a percentage of our aggregate net sales, given the magnitude of the UGG brand relative to our other brands, the effect of seasonality on our aggregate net sales and results of operations may continue to be significant. The uncertainty surrounding the effect of the pandemic on our historical seasonality trends makes it more difficult for us to predict future demand for our products and manage our manufacturing and inventory, especially as we approach the typical peak season for the UGG brand. • Within the UGG brand, we have experienced strong
sell-through of
certain product lines, such as the slipper category, as we believe
consumers are seeking out luxurious comfort in the current
work-from-home environment. In addition, the UGG brandcontinues to
experience success with counter-seasonal products, such as spring
and summer collections for Women's, Men's, and Kid's categories. The
brand is also having success attracting new and youngerconsumers.
However, the UGG brand is experiencing some softness within the
wholesale channel globally, in part due to the pandemic, but also
due to our marketplace reset strategy in Europe .
• Within the HOKA brand, we continue to see strong demandacross our
product offerings through both wholesale and DTC channels, which we
believe is being fueled by consumer demand for our products and an
even greater emphasis on running and outdoor exercise as consumers
seek to find healthy outlets during the pandemic. Thesignificant
growth of the HOKA brand's year-round performance product offerings
as a percentage of our aggregate net sales has had a meaningful
positive impact on our seasonality trends, as well as our overall
financial results. However, despite the recent growth and success of
the HOKA brand, the impacts of the pandemic may cause a lower growth
rate of HOKA brand sales in future periods than the growth rate we
have recently experienced.
• The Sanuk and Teva brands wholesale channel results ofoperations
during the six months ended September 30, 2020 experienced a
disproportionate negative impact from the pandemic as the highest
percentage of net sales for these brands typically occur during our
fourth fiscal quarter and first fiscal quarter. We are actively
monitoring the cost structures associated with these brands.
Supply Chain
• We maintain a network of strategic sourcing partners which includes
material vendors and third-party manufacturers. We experienced
certain capacity constraints within our sourcing network during the
six months ended September 30, 2020 , in addition to disruptions
related to travel restrictions between countries and production
facilities. While the effects of these disruptions have been
mitigated thus far, and we are not experiencing any major sourcing
or manufacturing disruptions at this time, it is possible that we
will experience disruptions to our supply chain in the future.
• Our Moreno Valley, California , distribution center (DC), as well as
our global third-party logistics providers (3PLs) andthird-party
carriers, remain open and continue to operate at reduced capacity
and with limited and modified operations due to increased safety
measures. These include inbound transportation such as ocean, air
and ports, as well as outbound transportation, including truck and
parcel. We are experiencing, and our 3PLs and third-party carriers
are experiencing, certain operational and logisticalchallenges as a
result of limited and modified operations, including challenges
associated with shipping higher quantities of product through our
e-commerce channel compared to prior periods, and a higher volume of
wholesale shipments as we approach the peak selling season for the
UGG brand. These impacts have had, and may continue to have, an
adverse effect on our results of operations. Additionally, in order
to promote the health and safety of our DC employees, we continue to
adhere to enhanced safety measures and protocols at our DC,
including strict social distancing requirements which is limiting
our personnel capacity, as well as heightened cleaning of the
facility in accordance with Center for Disease Control and
Prevention guidelines.
• We are working to mitigate the anticipated impact of limited and
modified operations on our peak selling season, including the
potential for loss of sales and reputational harm with wholesale
customers. These efforts include phasing certain wholesale shipments
earlier than in previous fiscal years, which
25--------------------------------------------------------------------------------
Table of Contents
could result in changes in the timing of the realization of net sales as
compared to prior periods. These efforts also include increasing throughput for
our e-commerce business due to higher expected volume compared to the prior
period, while prioritizing and potentially limiting certain operations within
our warehouse to accommodate social distancing and other employee safety
measures. However, we may be unsuccessful in these efforts, which could have a
negative impact on our results of operations in future periods.
• We are encountering challenges in attracting and retaining quality
candidates to staff our DC operations as we increasingly compete
with other companies with growing e-commerce operations. For
example, during the past two fiscal years, we havesignificantly
increased certain DC employee wages in an effort to attract and
retain talent. Although growing unemployment rates resulting from
the pandemic may result in a larger short-term pool of employee
candidates, we may face ongoing challenges with recruiting and
training employees as our competitors grow their e-commerce channels
and require additional warehouse and DC staff.
Omni-Channel Strategy
• We have implemented a product segmentation strategy, as well
as an
allocation strategy for the UGG brand's core Classicsfranchise in
the US wholesale marketplace. These strategies are designed to
assist us in controlling product inventory, reducing the impact of
discounts and closeouts on our sales and gross margins, and
increasing full-priced selling across our product offerings.
Similarly, we are implementing a multi-year marketplace reset
strategy in Europe to drive UGG brand heat and build afoundation of
diversified product acceptance. We expect the pandemic will delay or
mitigate the benefits we may receive from these strategies. In
addition, notwithstanding the implementation of thesestrategies, in
light of the current marketplace environment, we are approaching the
planning for the UGG brand's peak selling season with caution as we
expect it may be highly competitive and feature increased levels of
promotional activity relative to recent periods.
• As a result of changes in consumer purchasing behavior, we continue
to invest in and enhance our omni-channel strategy to bolster our
e-commerce capabilities and enable us to better engageexisting and
prospective consumers and expose them to our brands. Our strategy is
transforming the way we approach marketing, including through a
sustained focus on our targeted digital marketing efforts, as well
as localized marketing activations, authentic collaborations, and
product seeding to drive global brand heat. For example, we have
begun applying these transformation efforts in Europe and Asia to
drive UGG brand heat as we work to differentiate consumer
experiences across various consumer touch points as part of our
marketplace reset strategy. In addition, we have recently launched
international loyalty programs in our DTC business. Further, and in
response to the pandemic, we have enhanced our focus on adaptive
digital marketing, including virtual events and programs, as we seek
to target consumers within the work-from-home environment and
promote products that are desirable based on current consumer
preferences, working conditions, and lifestyle choices.
Liquidity
• We believe we are in a strong financial position to respond to the
disruptions and uncertainties caused by the pandemic.
Notwithstanding the challenging environment, as of September 30,
2020 , our cash and cash equivalents balance was $626,414 , and we had
available borrowings of $462,606 under our revolving credit
facilities, providing a strong liquidity position ofapproximately
$1,100,000 . We are currently in compliance with, and expect to remain in compliance, with all financial and non-financial covenants under our revolving credit facilities and mortgage. Refer to sections "Liquidity" and "Capital Resources" below, within this Part I, Item 2, for further information. • We did not repurchase any shares during the six months endedSeptember 30, 2020 . However, we may recommence repurchase activity under our stock repurchase programs in future periods at our discretion. • We are working closely with our wholesale customers, as well as our manufacturers and suppliers, to manage accounts receivable and accounts payable to maximize the availability of working capital as well as leveraging government relief packages that provide certain payroll tax credits and deferrals. 26
--------------------------------------------------------------------------------
Table of Contents Operating Expenses
• To mitigate the adverse impact the pandemic may have on our business
and operations, we expect to continue to manage expenses. In
particular, we have implemented a number of temporary measures to
reduce operating expenses during the six months ended
2020, including:
• restricting employee travel;
• canceling or postponing certain events, trainings, and conferences;
• converting meetings with current and prospective
customers to
a virtual platform;
• suspending hiring of certain non-essential employees and
annual salary increases;
• eliminating or deferring discretionary expenditures;
• seeking payment accommodations or deferrals; and
• furloughing certain retail employees while stores are closed.
• We also believe the significant changes we implemented in connection
with our previously completed restructuring and operating profit
improvement plans will help mitigate potential negative impacts on
our gross margins resulting from the pandemic.
Reportable Operating Segment Overview
Our six reportable operating segments include the worldwide wholesale operations of the UGG brand, HOKA brand, Teva brand, Sanuk brand, and Other brands, as well as DTC. Information reported to the CODM, who is our PEO, is organized into these reportable operating segments and is consistent with how the CODM evaluates our performance and allocates resources. UGG Brand. The UGG brand is one of the most iconic and recognized brands in our industry, which highlights our successful track record of building niche brands into lifestyle and fashion market leaders. With loyal consumers around the world, the UGG brand has proven to be a highly resilient line of premium footwear, apparel, and accessories with expanded product offerings and a growing global audience that appeals to women, men, and children.
We believe demand for UGG brand products will continue to be driven by the following:
• High consumer brand loyalty due to consistent delivery of
quality and
luxuriously comfortable footwear, apparel, and accessories.
• Diversification of our footwear product offerings, such as women's
spring and summer lines, as well as expanded category offerings for
men's, apparel, and accessories.
HOKA Brand. The HOKA brand is an authentic premium line of year-round
performance footwear and apparel that offers enhanced cushioning and inherent
stability with minimal weight. Originally designed for ultra-runners, the brand
now appeals to athletes around the world, regardless of activity. The HOKA brand
is quickly becoming a leading brand within run specialty wholesale accounts,
with strong marketing fueling both domestic and international sales growth. We
continue to build product extensions in trail and fitness.
We believe demand for HOKA brand products will continue to be driven by the following:
• Leading product innovation and key franchise management.
• Increased brand awareness through enhanced marketing activations.
• Category extensions in authentic performance footwear offerings.
Teva Brand . The Teva brand, which pioneered the sport sandal category, is born from the outdoors and rooted in adventure. The Teva brand is a global leader within the sport sandal and modern outdoor lifestyle categories by fueling the expression of freedom. The Teva brand's product offerings include sandals, shoes, and boots. Sanuk Brand. The Sanuk brand originated inSouthern California surf culture and has emerged into a lifestyle brand with a presence in the relaxed casual shoe and sandal categories. The Sanuk brand's use of unexpected materials and unconventional constructions, combined with its fun and playful branding, are key elements of the brand's identity. 27
--------------------------------------------------------------------------------
Table of Contents
Other Brands. Other brands currently consist of the Koolaburra by UGG brand. The Koolaburra brand is a casual footwear fashion line using sheepskin and other plush materials and is intended to target the value-oriented consumer in order to complement the UGG brand offering. Direct-to-Consumer. Our DTC business for all our brands is comprised of our retail stores and e-commerce websites which, in an omni-channel marketplace, are intertwined and interdependent. We believe many of our consumers interact with both our retail stores and websites before making purchasing decisions. Retail Business. Our retail stores are predominantly UGG brand concept stores and UGG brand outlet stores. Through our outlet stores, we sell some of our discontinued styles from prior seasons, full price in-line products, as well as products made specifically for the outlet stores. As ofSeptember 30, 2020 , we had a total of 141 global retail stores, which includes 72 concept stores and 69 outlet stores. Generally, we open retail store locations during the second or third fiscal quarters and consider closures of retail stores during the fourth fiscal quarter. We evaluate retail store closures based on store performance and timing of lease expirations and options. While we expect to identify additional stores for closure, we may simultaneously identify opportunities to open new stores in the future to further enhance our overall DTC business. We currently do not anticipate incurring material incremental retail store closure costs, primarily because any store closures we may pursue are expected to occur as retail store leases expire to avoid incurring potentially significant lease termination costs, as well as through conversions to partner retail stores, further discussed below. We will continue to evaluate our retail store fleet strategy in response to changes in consumer demand and retail store traffic patterns. Flagship Stores. Included in the total count of global concept stores are eight UGG brand flagship stores, which are lead concept stores in certain key markets and prominent locations designed to showcase the UGG brand products. Primarily located in major tourist locations, these stores are typically larger with broader product offerings and greater traffic than our general concept stores. The net sales for these stores are recorded in our DTC reportable operating segment. Shop-in-Shop Stores. Included in the total count of global concept stores are 26 shop-in-shop (SIS) stores, defined as concept stores for which we own the inventory and that are operated by us or non-employees within a department store, which we lease from the store owner by paying a percentage of SIS store sales. The net sales for these stores are recorded in our DTC reportable operating segment. Partner Retail Stores. We rely on partner retail stores for the UGG brand and Sanuk brand in certain markets. Partner retail stores are branded stores that are wholly-owned and operated by third-parties and not included in the total count of global retail stores. When a partner retail store is opened, or a store is converted into a partner retail store, the related net sales are recorded in either the UGG brand or Sanuk brand wholesale reportable operating segments, as applicable. E-Commerce Business. Our e-commerce business provides us with an opportunity to communicate a consistent brand message to consumers that is in line with our brands' promises, drives awareness of key brand initiatives, offers targeted information to specific consumer demographics, and drives consumers to our retail stores. As ofSeptember 30, 2020 , we operated our e-commerce business through company-owned websites and mobile platforms in 58 different countries, which increased from ten different countries disclosed in our 2020 Annual Report due to expansions inEurope .
Use of Non-GAAP Financial Measures
Throughout this Quarterly Report, we provide certain financial information on a
constant currency basis, excluding the effect of foreign currency exchange rate
fluctuations, which we disclose in addition to the financial measures calculated
and presented in accordance with US GAAP. We provide these non-GAAP financial
measures to provide information that may assist investors in understanding our
financial results and assessing our prospects for future performance. Constant
currency measures should not be considered in isolation as an alternative to US
dollar measures that reflect current period foreign currency exchange rates or
to other financial measures presented in accordance with US GAAP. We believe
evaluating certain financial and operating measures on a constant currency basis
is important as it excludes the impact of foreign currency exchange rate
fluctuations that are unrelated to, and may not be indicative of, our core
results of operations. However, the information included in this Quarterly
Report that is presented on a constant currency basis, as we present such
information, may not necessarily be comparable to similarly titled
28--------------------------------------------------------------------------------
Table of Contents
information presented by other companies, and may not be appropriate measures for comparing the performance of other companies relative to us. For example, in order to calculate our constant currency information, we calculate the current period financial information using the foreign currency exchange rates that were in effect during the previous comparable period, excluding the effects of foreign currency exchange rate hedges and re-measurements in the condensed consolidated financial statements. Further, we report comparable DTC sales on a constant currency basis for DTC operations that were open throughout the current and prior reporting periods, and we may adjust prior reporting periods to conform to current year accounting policies. These non-GAAP financial measures are not intended to represent and should not be considered to be more meaningful measures than, or alternatives to, measures of operating performance as determined in accordance with US GAAP.
Seasonality
Our business is seasonal, with the highest percentage of UGG and Koolaburra brand net sales occurring in the quarters endingSeptember 30th andDecember 31st and the highest percentage of Teva and Sanuk brand net sales occurring in the quarters endingMarch 31st andJune 30th . Net sales for the HOKA brand occur more evenly throughout the year reflecting the brand's year-round performance product offerings. Due to the magnitude of the UGG brand relative to our other brands, our aggregate net sales in the quarters endingSeptember 30th andDecember 31st have significantly exceeded our aggregate net sales in the quarters endingMarch 31st andJune 30th . As we continue to take steps to diversify and expand our product offerings by creating more year-round styles, and as net sales of the HOKA brand continue to increase as a percentage of our aggregate net sales, we expect the seasonality impacts to decrease over time. However, it is unclear whether seasonal impacts will be minimized or exaggerated in future periods as a result of the disruptions and uncertainties caused by the pandemic. 29
--------------------------------------------------------------------------------
Table of Contents
Results of Operations
Three Months Ended
Three Months Ended September 30,
2020 2019 Change
Amount % Amount % Amount %
Net sales $ 623,525 100.0 % $ 542,205 100.0 % $ 81,320 15.0 %
Cost of sales 304,548 48.8 269,181 49.6 (35,367 ) (13.1 )
Gross profit 318,977 51.2 273,024 50.4 45,953 16.8
Selling, general and
administrative expenses 190,373 30.6 175,893 32.4 (14,480 ) (8.2 )
Income from operations 128,604 20.6 97,131 18.0 31,473 32.4
Other expense (income),
net 640 0.1 (92 ) - (732 ) (795.7 )
Income before income
taxes 127,964 20.5 97,223 18.0 30,741 31.6
Income tax expense 26,410 4.2 19,413 3.6 (6,997 ) (36.0 )
Net income 101,554 16.3 77,810 14.4 23,744 30.5
Total other
comprehensive income
(loss), net of tax 5,595 0.9 (1,894 ) (0.4 ) 7,489 395.4
Comprehensive income $ 107,149 17.2 % $ 75,916 14.0 % $ 31,233 41.1 %
Net income per share
Basic $ 3.62 $ 2.73 $ 0.89
Diluted $ 3.58 $ 2.71 $ 0.87
Net Sales . The following table summarizes our net sales by location, and by
brand and channel:
Three Months Ended September 30,
2020 2019 Change
Amount Amount Amount %
Net sales by location
US $ 427,412 $ 357,971 $ 69,441 19.4 %
International 196,113 184,234 11,879 6.4
Total $ 623,525 $ 542,205 $ 81,320 15.0 %
Net sales by brand and channel
UGG brand
Wholesale $ 291,994 $ 332,020 $ (40,026 ) (12.1 )%
Direct-to-Consumer 123,083 72,856 50,227 68.9
Total 415,077 404,876 10,201 2.5
HOKA brand
Wholesale 108,117 60,959 47,158 77.4
Direct-to-Consumer 34,980 17,150 17,830 104.0
Total 143,097 78,109 64,988 83.2
Teva brand
Wholesale 17,746 17,091 655 3.8
Direct-to-Consumer 9,972 5,907 4,065 68.8
Total 27,718 22,998 4,720 20.5
30--------------------------------------------------------------------------------
Three Months Ended September 30,
2020 2019 Change
Amount Amount Amount %
Sanuk brand
Wholesale 6,085 8,166 (2,081 ) (25.5 )
Direct-to-Consumer 3,396 2,538 858 33.8
Total 9,481 10,704 (1,223 ) (11.4 )
Other brands
Wholesale 27,672 25,282 2,390 9.5
Direct-to-Consumer 480 236 244 103.4
Total 28,152 25,518 2,634 10.3
Total $ 623,525 $ 542,205 $ 81,320 15.0 %
Total Wholesale
$ 623,525 $ 542,205 $ 81,320 15.0 % Total net sales increased primarily due to higher HOKA brand wholesale sales and DTC sales across all brands, partially offset by lower UGG brand wholesale sales. Further, we experienced an increase of 19.6% in total volume of pairs sold to 11,000 from 9,200 compared to the prior period. On a constant currency basis, net sales increased by 14.1% compared to the prior period. Drivers of significant changes in net sales were as follows: • Wholesale net sales of the HOKA brand increased due to the
global
expansion of market share, primarily due to increased brand awareness
combined with key franchise updates and product launches during the
second fiscal quarter that were delayed from the first fiscal
quarter.
• Wholesale net sales of the UGG brand decreased primarily dueto lower
global sell-in of product. This was primarily driven by more
conservative purchasing from our global wholesale partners due to the
pandemic. International wholesale sales were also lower due to the
continued marketplace strategies in Europe and Asia . On aconstant
currency basis, wholesale net sales of the UGG brand decreased by
13.0%, compared to the prior period.
• DTC net sales increased due to higher e-commerce net salesacross all
brands, primarily for the UGG and HOKA brands. Comparable DTC net
sales for the 13 weeks ended September 27, 2020 increased by 86.2%,
compared to the same prior period, primarily due to global growth
through customer acquisition in our e-commerce business driven by an
acceleration of the shift in the way consumers shop forproducts as a
result of the pandemic.
• International sales, which are included in the reportableoperating
segment sales presented above, represented 31.5% and 34.0% of total
net sales for the three months ended September 30, 2020 and 2019,
respectively. The decrease in international net sales as apercentage
of total sales was primarily driven by higher domestic sales as a
percentage of worldwide sales due to higher e-commerce sales.
However, international net sales increased by 6.4% compared to the
prior period. The increase in international sales was primarily due
to higher net sales for the HOKA brand primarily in Europe and Asia ,
partially offset by lower net sales in the wholesale channel for the
UGG brand.
Gross Profit. Gross profit as a percentage of net sales, or gross margin,
increased to 51.2% from 50.4% compared to the prior period, primarily due to a
favorable channel mix resulting from increased penetration of DTC, favorable
brand mix for the HOKA brand, as well as favorable changes in foreign currency
exchange rates.
Selling, General and Administrative Expenses. The net increase in SG&A expenses, compared to the prior period, was primarily the result of:
• Increased variable advertising and promotion expenses of
approximately $8,900 , primarily due to regional marketingdevelopment
costs such as websites and other media.
31--------------------------------------------------------------------------------
• Increased payroll costs of approximately$6,500 , primarily due to higher warehousing costs and headcount. • Increased other variable net selling expenses of
approximately
$5,800 , including transaction fees and warehousing and shipping costs, primarily due to higher DTC sales and commissions. • Increased expenses for allowances for trade accounts
receivable of
approximately $2,600 , primarily due to an increase in bad debt
expense to account for the higher risk of wholesale customer payment
defaults resulting from the pandemic.
• Decreased variable operating expenses of approximately $4,500 ,
primarily due to lower travel expenses and professional fees.
• Decreased rent and occupancy expenses of approximately $3,000 ,
primarily due to lower retail store operating costs, including due to
a lower company-owned retail store count.
• Decreased foreign currency-related losses of $2,000 ,primarily driven
by favorable changes in foreign currency exchange rates for Asian and
European currencies.
Income from Operations. Income from operations by reportable operating segment
were as follows:
Three Months Ended September 30,
2020 2019 Change
Amount Amount Amount %
Income (loss) from operations
UGG brand wholesale $ 106,726 $ 135,663 $ (28,937 ) (21.3 )%
HOKA brand wholesale 33,826 14,054 19,772 140.7
Teva brand wholesale 4,762 3,523 1,239 35.2
Sanuk brand wholesale 1,139 238 901 378.6
Other brands wholesale 9,869 6,958 2,911 41.8
Direct-to-Consumer 43,284 2,935 40,349 1,374.8
Unallocated overhead costs (71,002 ) (66,240 ) (4,762 ) (7.2 )
Total $ 128,604 $ 97,131 $ 31,473 32.4 %
The increase in total income from operations, compared to the prior period, was
due to higher net sales at higher gross margins, primarily driven by our DTC
business and HOKA brand wholesale, partially offset by higher SG&A expenses.
Drivers of significant net changes in total income from operations, compared to
the prior period, are set forth below.
• The increase in income from operations of DTC was primarily due to
higher net sales at higher gross margins, partially offset by higher
variable marketing and selling expenses.
• The decrease in income from operations of UGG brand wholesale was due
to lower net sales at lower gross margins and higher bad debt
expense, partially offset by lower variable selling and marketing
expenses.
• The increase in income from operations of HOKA brandwholesale was
primarily due to higher net sales, partially offset by higher
variable marketing expenses.
• The increase in unallocated overhead costs was primarily due to
higher warehousing expenses, including for payroll and outside
services, partially offset by lower travel expenses and lower foreign
currency-related losses driven by favorable changes in foreign
currency exchange rates for all operational foreign currencies.
32
--------------------------------------------------------------------------------
Other Expense (Income), Net. The increase in total other expense, net, compared
to the prior period, was primarily due to a decrease in interest income driven
by lower average interest rates, partially offset by higher average invested
cash balances.
Income Tax Expense. Income tax expense and our effective income tax rate were as
follows:
Three Months Ended September 30,
2020 2019
Income tax expense $ 26,410 $ 19,413
Effective income tax rate 20.6 % 20.0 %
The increase in our effective income tax rate, compared to the prior period, was
primarily due to changes in the jurisdictional mix of worldwide income before
income taxes forecasted for the fiscal year ending March 31, 2021 , partially
offset by lower discrete tax expenses, primarily driven by reduced unrecognized
tax benefits recorded in the current period.
Foreign income before income taxes was $49,793 and $46,002 and worldwide income
before income taxes was $127,964 and $97,223 during the three months ended
September 30, 2020 and 2019, respectively. The decrease in foreign income before
income taxes, as a percentage of worldwide income before income taxes, compared
to the prior period, was primarily due to higher domestic sales as a percentage
of worldwide sales.
Refer to the section "Six Months Ended September 30, 2020 Compared to Six Months
Ended September 30, 2019 " within this Part I, Item 2, for further details on our
pre-tax earnings and effective income tax rate for the fiscal year ending March
31, 2021 .
Net Income. Net income increased, compared to the prior period, primarily due to
higher net sales at higher gross margins, partially offset by higher SG&A
expenses. Net income per share increased, compared to the prior period,
primarily due to higher net income, combined with lower weighted-average common
shares outstanding, driven by stock repurchases in prior periods.
Total Other Comprehensive Income (Loss), Net of Tax. Other comprehensive income,
net of tax, increased, compared to the prior period, primarily due to higher
foreign currency translation gains relating to changes to our net asset position
driven by favorable Asian and European foreign currency exchange rates,
partially offset by unrealized losses on cash flow hedges.
33--------------------------------------------------------------------------------
Table of Contents
Six Months Ended
Six Months Ended September 30,
2020 2019 Change
Amount % Amount % Amount %
Net sales $ 906,694 100.0 % $ 819,044 100.0 % $ 87,650 10.7 %
Cost of sales 445,151 49.1 416,001 50.8 (29,150 ) (7.0 )
Gross profit 461,543 50.9 403,043 49.2 58,500 14.5
Selling, general and
administrative expenses 340,638 37.6 337,329 41.2 (3,309 ) (1.0 )
Income from operations 120,905 13.3 65,714 8.0 55,191 84.0
Other expense (income),
net 1,013 0.1 (1,904 ) (0.3 ) (2,917 ) (153.2 )
Income before income
taxes 119,892 13.2 67,618 8.3 52,274 77.3
Income tax expense 26,311 2.9 9,159 1.2 (17,152 ) (187.3 )
Net income 93,581 10.3 58,459 7.1 35,122 60.1
Total other
comprehensive income
(loss), net of tax 6,601 0.7 (2,143 ) (0.2 ) 8,744 408.0
Comprehensive income $ 100,182 11.0 % $ 56,316 6.9 % $ 43,866 77.9 %
Net income per share
Basic $ 3.34 $ 2.03 $ 1.31
Diluted $ 3.30 $ 2.01 $ 1.29
Net Sales . The following table summarizes our net sales by location, and by
brand and channel:
Six Months Ended September 30,
2020 2019 Change
Amount Amount Amount %
Net sales by location
US $ 611,712 $ 525,266 $ 86,446 16.5 %
International 294,982 293,778 1,204 0.4
Total $ 906,694 $ 819,044 $ 87,650 10.7 %
Net sales by brand and channel
UGG brand
Wholesale $ 335,422 $ 417,420 $ (81,998 ) (19.6 )%
Direct-to-Consumer 204,395 125,986 78,409 62.2
Total 539,817 543,406 (3,589 ) (0.7 )
HOKA brand
Wholesale 178,736 124,965 53,771 43.0
Direct-to-Consumer 73,379 32,668 40,711 124.6
Total 252,115 157,633 94,482 59.9
Teva brand
Wholesale 39,157 47,922 (8,765 ) (18.3 )
Direct-to-Consumer 23,805 13,360 10,445 78.2
Total 62,962 61,282 1,680 2.7
Sanuk brand
Wholesale 13,313 22,773 (9,460 ) (41.5 )
Direct-to-Consumer 9,402 6,629 2,773 41.8
Total 22,715 29,402 (6,687 ) (22.7 )
34--------------------------------------------------------------------------------
Table of Contents
Six Months Ended September 30,
2020 2019 Change
Amount Amount Amount %
Other brands
Wholesale 28,307 27,009 1,298 4.8
Direct-to-Consumer 778 312 466 149.4
Total 29,085 27,321 1,764 6.5
Total $ 906,694 $ 819,044 $ 87,650 10.7 %
Total Wholesale
$ 906,694 $ 819,044 $ 87,650 10.7 % Total net sales increased primarily due to higher HOKA brand wholesale sales and DTC sales across all brands, partially offset by lower UGG brand wholesale sales. Further, we experienced an increase of 7.8% in total volume of pairs sold to 16,500 from 15,300 compared to the prior period. On a constant currency basis, net sales increased by 10.3%, compared to the prior period. Drivers of significant changes in net sales were as follows: • Wholesale net sales of the UGG brand decreased primarily due to lower global sell-in of product, primarily driven by pandemic related sales losses resulting from decreased store traffic and more
conservative
purchasing from our global wholesale partners. International
wholesale sales were also lower due to the continued marketplace
strategies in Europe and Asia . On a constant currency basis,
wholesale net sales of the UGG brand decreased by 20.3%, compared to
the prior period.
• Wholesale net sales of the HOKA brand increased due to global
expansion of market share, primarily due to increased brandawareness
combined with key franchise updates and new product launches.
• Wholesale net sales of the Teva and Sanuk brands decreasedprimarily
due to the pandemic related sales losses during the firstfiscal
quarter causing decreased store traffic for our wholesalecustomers
during the respective brands' peak sell-in period.
• DTC net sales increased due to higher e-commerce net salesacross all
brands, primarily for the UGG and HOKA brands, partially offset by
negative impacts from company-owned retail store closuresduring the
first fiscal quarter related to the pandemic. Due to themeaningful
disruption of our retail store base during the first fiscal quarter,
we are not reporting a comparable DTC net sales metric for the six
months ended September 30, 2020 .
• International net sales, which are included in the reportable
operating segment net sales presented above, represented 32.5% and
35.9% of total net sales for the six months ended September 30, 2020
and 2019, respectively. The decrease in international net sales as a
percentage of total sales was primarily driven by higher domestic
sales as a percentage of worldwide sales due to highere-commerce
sales. However, international net sales increased by 0.4%, compared
to the prior period, primarily due to higher net sales for the HOKA
brand primarily in Europe and Asia , mostly offset by the lower net
sales in the wholesale channel for the UGG brand.
Gross Profit. Gross profit as a percentage of net sales, or gross margin,
increased to 50.9% from 49.2%, compared to the prior period, primarily due to a
favorable channel mix resulting from increased penetration of DTC as well as
favorable brand mix for the HOKA brand.
Selling, General and Administrative Expenses. The net increase in SG&A expenses, compared to the prior period, was primarily the result of the following:
• Increased expenses for allowances for trade accounts
receivable of
approximately $6,500 , primarily due to an increase in bad debt
expense to account for the higher risk of wholesale customer payment
defaults resulting from the pandemic.
35--------------------------------------------------------------------------------
Table of Contents
• Increased other variable net selling expenses of
approximately
$5,700 , including transaction fees and warehousing and shipping costs, primarily due to higher DTC sales and commissions. • Increased variable advertising and promotion expenses of approximately$5,600 , primarily due to regional marketing
development
costs such as websites and other media.
• Increased payroll costs of approximately $4,100 , primarily due to
higher warehousing costs and headcount.
• Increased impairments of operating lease and fixed assets of
approximately $2,700 due to early store closures.
• Decreased variable operating expenses of approximately
primarily due to lower travel expenses and professional fees.
• Decreased rent and occupancy expenses of approximately
primarily due to lower retail store operating costs, including due to
a lower company-owned retail store count.
• Decreased foreign currency-related losses of $2,600 ,primarily driven
by favorable changes in foreign currency exchange rates for Asian and
European currencies.
• Decreased depreciation and amortization expenses ofapproximately
$1,000 , primarily due to certain property and equipment and intangible assets being fully amortized during the current period. Income from Operations. Income from operations by reportable operating segment was as follows: Six Months Ended September 30, 2020 2019 Change Amount Amount Amount % Income (loss) from operations UGG brand wholesale$ 102,991 $ 145,104 $ (42,113 ) (29.0 )% HOKA brand wholesale 51,061 25,412 25,649 100.9 Teva brand wholesale 8,964 11,839 (2,875 ) (24.3 ) Sanuk brand wholesale 1,627 2,173 (546 ) (25.1 ) Other brands wholesale 8,599 7,090 1,509 21.3 Direct-to-Consumer 74,311 (1,637 ) 75,948 4,639.5 Unallocated overhead costs (126,648 ) (124,267 ) (2,381 ) (1.9 ) Total$ 120,905 $ 65,714 $ 55,191 84.0 % The increase in total income from operations, compared to the prior period, was due to higher net sales at higher gross margins, primarily driven by our DTC business and HOKA brand wholesale, partially offset by higher SG&A expenses. Drivers of significant net changes in total income from operations, compared to the prior period, were as follows: • The increase in income from our DTC business was primarily due to higher net sales at higher gross margins, as well as lower company-owned retail store operating costs primarily due to closures in the first fiscal quarter related to the pandemic, partially offset by higher variable marketing and selling expenses. • The decrease in income from operations of UGG brand wholesale was due to lower net sales at lower gross margins and higher bad debt expense, partially offset by lower variable selling and marketing expenses. • The increase in income from operations of HOKA brand
wholesale was
due to higher net sales, partially offset by lower gross margins.
36--------------------------------------------------------------------------------
Table of Contents
• The increase in unallocated overhead costs was primarily due
to
higher warehousing expenses, including for payroll and outside
services, partially offset by lower travel expenses andprofessional
costs, as well as lower foreign currency-related losses driven by
favorable changes in foreign currency exchange rates for all
operational foreign currencies.
Other Expense (Income), Net. The increase in total other expense, net, compared
to the prior period, was primarily due to a decrease in interest income driven
by lower average interest rates, partially offset by higher average invested
cash balances.
Income Tax Expense. Income tax expense and our effective income tax rate were as
follows:
Six Months Ended September 30,
2020 2019
Income tax expense $ 26,311 $ 9,159
Effective income tax rate 21.9 % 13.5 %
The increase in our effective income tax rate, compared to the prior period, was
primarily due to changes in the jurisdictional mix of worldwide income before
income taxes forecasted for the fiscal year ending March 31, 2021 as well as a
reduced tax benefit during the six months ended September 30, 2020 , compared to
the prior period, which recognized an increased tax benefit for the favorable
settlement of a state income tax audit. These impacts were partially offset by
reduced unrecognized tax benefits recorded for a prior year tax position in the
current period.
Foreign income before income taxes was $49,797 and $47,309 and worldwide income
before income taxes was $119,892 and $67,618 during the six months ended
September 30, 2020 and 2019, respectively. The decrease in foreign income before
income taxes as a percentage of worldwide income before income taxes, compared
to the prior period, was primarily due to higher domestic sales as a percentage
of worldwide sales. For the six months ended September 30, 2020 and 2019, we did
not generate significant pre-tax earnings from any countries which do not impose
a corporate income tax.
We expect our foreign income or loss before income taxes, as well as our
effective income tax rate, will continue to fluctuate from period to period
based on several factors, including the impact of our global product sourcing
organization, our actual results of operations from sales generated in domestic
and foreign markets, and changes in domestic and foreign tax laws (or in the
application or interpretation of those laws). Over the long-term, we believe the
continuing evolution and expansion of our brands, our continuing strategy of
enhancing product diversification, and the expected growth from our
international DTC business will result in increases in foreign income before
income taxes, both in absolute terms and as a percentage of worldwide income or
loss before income taxes. In addition, we believe our effective income tax rate
will be impacted by our actual foreign income or loss before income taxes
relative to our actual worldwide income or loss before income taxes in future
periods.
Net Income. Net income increased, compared to the prior period, primarily due to
higher net sales at higher gross margins, partially offset by higher SG&A
expenses. Net income per share increased, compared to the prior period,
primarily due to higher net income, combined with lower weighted-average common
shares outstanding, driven by stock repurchases in prior periods.
Total Other Comprehensive Income (Loss), Net of Tax. Other comprehensive income,
net of tax, increased, compared to the prior period, primarily due to higher
foreign currency translation gains relating to changes to our net asset position
driven by favorable Chinese and European foreign currency exchange rates,
partially offset by unrealized losses on cash flow hedges.
37--------------------------------------------------------------------------------
Table of Contents
Liquidity
We finance our working capital and operating requirements using a combination of our cash and cash equivalents balances, cash provided from ongoing operating activities, and, to a lesser extent, available borrowings under our revolving credit facilities. Our working capital requirements begin when we purchase raw materials and inventories and continue until we ultimately collect the resulting trade accounts receivable. Given the historical seasonality of our business, our working capital requirements fluctuate significantly throughout the fiscal year, and we are required to utilize available cash to build inventory levels during certain quarters in our fiscal year to support higher selling seasons. Although we expect to continue to focus on reducing the impact of seasonality over the long-term, the effect of seasonality on our aggregate net sales and results of operations may continue to be significant. While we are subject to uncertainty surrounding the pandemic, we believe our cash and cash equivalents balances, cash provided from ongoing operating activities, and available borrowings under our revolving credit facilities, will provide sufficient liquidity to enable us to meet our working capital requirements and timely service our debt obligations for at least the next 12 months. During the six months endedSeptember 30, 2020 , no cash and cash equivalents were repatriated. As ofSeptember 30, 2020 , we had$190,278 of cash and cash equivalents outside the US, a portion of which may be subject to additional foreign withholding taxes if it were to be repatriated. We continue to evaluate our cash repatriation strategy and we currently anticipate repatriating current and future unremitted earnings of non-US subsidiaries, to the extent they have been and will be subject to US tax, if such cash is not required to fund ongoing foreign operations. Our cash repatriation strategy, and by extension, our liquidity, may be impacted by several additional considerations, which include clarifications of or changes to the Tax Reform Act and our actual earnings for current and future fiscal periods. We continue to evaluate our capital allocation strategy and to consider further opportunities to utilize our global cash resources in a way that will profitably grow our business, meet our strategic objectives, and drive stockholder value, including by potentially repurchasing additional shares of our common stock. As ofSeptember 30, 2020 , the aggregate remaining approved amount under our stock repurchase programs was$159,807 . Our stock repurchase programs do not obligate us to acquire any amount of common stock and may be suspended at any time at our discretion. We did not repurchase any shares during the six months endedSeptember 30, 2020 . However, we may recommence repurchases in future periods. Our liquidity may be further impacted by additional factors, including our results of operations, the strength of our brands, impacts of seasonality and weather conditions, our ability to respond to changes in consumer preferences and tastes, the timing of capital expenditures and lease payments, our ability to collect our trade accounts receivables in a timely manner and effectively manage our inventories, our ability to respond to the impacts and disruptions caused by the pandemic, and our ability to respond to economic, political, and legislative developments. Furthermore, we may require additional cash resources due to changes in business conditions, strategic initiatives, or stock repurchase strategy, a national or global economic recession, or other future developments, including any investments or acquisitions we may decide to pursue, although we do not have any present commitments with respect to any such investments or acquisitions. If our existing sources of liquidity are insufficient to satisfy our working capital requirements, we may seek to borrow under our revolving credit facilities, seek new or modified borrowing arrangements, or sell additional debt or equity securities. The sale of convertible debt or equity securities could result in additional dilution to our stockholders, and equity securities may have rights or preferences that are superior to those of our existing stockholders. The incurrence of additional indebtedness would result in additional debt service obligations, as well as covenants that would restrict our operations and further encumber our assets. In addition, there can be no assurance that any additional financing will be available on acceptable terms, if at all. Capital Resources Primary Credit Facility. Our Primary Credit Facility provides for a five-year,$400,000 unsecured revolving credit facility, and contains a$25,000 sublimit for the issuance of letters of credit. As ofSeptember 30, 2020 , we had no outstanding balance, outstanding letters of credit of$549 , and available borrowings of$399,451 under our Primary Credit Facility. 38
--------------------------------------------------------------------------------
Table of Contents
China Credit Facility. Our China Credit Facility is an uncommitted revolving line of credit of up toCNY 300,000 , or$44,083 . As ofSeptember 30, 2020 , we had an outstanding balance of$9,311 , outstanding bank guarantees of$29 , and available borrowings of$34,743 under our China Credit Facility. Japan Credit Facility. Our Japan Credit Facility is an uncommitted revolving line of credit of up toJPY 3,000,000 , or$28,412 . As ofSeptember 30, 2020 , we had no outstanding balance and available borrowings of$28,412 under ourJapan Credit Facility. Mortgage. As ofSeptember 30, 2020 , we had an outstanding principal balance under the mortgage, secured by the property on which our corporate headquarters is located, of$30,592 . The loan will mature and require a balloon payment in the amount of$23,695 , in addition to any then-outstanding balance, onJuly 1, 2029 .
Debt Covenants. As of
Refer to Note 6, "Revolving Credit Facilities and Mortgage Payable," of our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report, for further information on our revolving credit facilities and our mortgage.
Cash Flows
The following table summarizes our cash flows for the periods presented:
Six Months Ended September 30,
2020 2019 Change
Amount Amount Amount %
Net cash used in operating
activities $ (15,961 ) $ (216,156 ) $ 200,195 92.6 %
Net cash used in investing
activities (13,284 ) (14,704 ) 1,420 9.7
Net cash provided by (used in)
financing activities 3,816 (179,403 ) 183,219 102.1
Operating Activities. Our primary source of liquidity is net cash provided by
operating activities, which is primarily driven by our net income or loss, other
cash receipts and expenditure adjustments, and changes in working capital. The
decrease in net cash used in operating activities during the six months ended
September 30, 2020 , compared to the prior period, was primarily due to a net
positive change in operating assets and liabilities of $155,648 and in net
income after non-cash adjustments of $44,547 . The changes in operating assets
and liabilities were primarily due to net positive changes in inventories, net,
accrued expenses, incomes taxes payable, and trade accounts receivable, net,
partially offset by a net negative change in trade accounts payable. The
positive change in inventories, net, made up a majority of the net positive
change in operating assets and liabilities, which was driven by lower inventory
buys due to more disciplined purchasing that focused on key products in response
to the COVID-19 pandemic.
Investing Activities. The decrease in net cash used in investing activities
during the six months ended
Financing Activities. The increase in net cash provided by financing activities during the six months endedSeptember 30, 2020 , compared to the prior period, was primarily due to no stock repurchases occurring in the current period.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
39--------------------------------------------------------------------------------
Table of Contents
Contractual Obligations
In the ordinary course of our business, we (or our affiliates, manufacturers, factories, or other agents, as applicable) enter into contracts requiring unconditional minimum purchase commitments of sheepskin and leather that we must make on or before a specified target date. In the event that we do not purchase such minimum commitments by the applicable target dates, we would be required to make additional deposits towards the purchase of the remaining minimum commitments. Such additional deposits would then be returned as we purchase the remaining minimum commitments, as these purchase commitment contracts typically do not permit net settlement. During the six months endedSeptember 30, 2020 , we experienced lower purchases due to the delay or deferral of product manufacturing in response to the pandemic, including a more conservative purchasing strategy pursued by us and our wholesale partners. As a result, we negotiated a deferral of additional deposit payments, which represent remaining minimum commitments under expired sheepskin supply agreements. We currently expect these additional deposit payments to be made during the first quarter of fiscal year 2022. As ofSeptember 30, 2020 , the remaining minimum purchase commitment under these expired agreements was approximately$48,000 . However, this amount is expected to decrease to between approximately$25,000 to$35,000 as ofApril 1, 2021 , as we purchase and use the remaining minimum commitments.
Except as described above, there were no material changes outside the ordinary course of business to the contractual obligations and other commitments disclosed in our 2020 Annual Report.
Critical Accounting Policies and Estimates
Management must make certain estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements. Management bases these estimates and assumptions upon historical experience, existing and known circumstances, authoritative accounting pronouncements, and other factors that management believes to be reasonable. In addition, we have considered the potential impact of the COVID-19 pandemic on our business and operations. Although the full impact of the pandemic is unknown and cannot be reasonably estimated, we believe we have made appropriate accounting estimates and assumptions based on the facts and circumstances available as of the reporting date. However, actual results could differ materially from these estimates and assumptions, which may result in material effects to our financial condition, results of operations, and liquidity. Refer to section "Use of Estimates" within Note 1, "General," of our condensed consolidated financial statements, in Part I, Item 1 of this Quarterly Report, for a summary of applicable key estimates and assumptions.
There have been no material changes to the critical accounting policies disclosed in our 2020 Annual Report.
© Edgar Online, source
