F-1/A 1 d175570df1a.htm F-1/A F-1/A
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As filed with the Securities and Exchange Commission on September 7, 2021

Registration No. 333-258998

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

AMENDMENT NO. 1

TO

FORM F-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

On Holding AG

(Exact name of Registrant as specified in its charter)

 

 

Not Applicable

(Translation of Registrant’s name into English)

 

 

 

Switzerland   3021   NOT APPLICABLE
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)

Pfingstweidstrasse 106 8005 Zürich

Switzerland +41 44 225 15 55

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

 

 

Cogency Global Inc.

122 East 42nd Street, 18th Floor

New York, NY 10168

+1 800 221-0102

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Deanna L. Kirkpatrick

Michael Kaplan

Yasin Keshvargar
Davis Polk & Wardwell LLP
450 Lexington Avenue
New York, NY 10017

+1 212 450-4000

 

Stephan Erni

Patrick Schleiffer

Lenz & Staehelin

Brandschenkestrasse 24

CH-8027 Zurich

Switzerland

+41 58 450 80 00

 

Dieter Gericke

Homburger AG

Hardstrasse 201

CH-8005 Zürich

Switzerland

+41 43 222 10 00

  

Philip J. Boeckman

Nicholas A. Dorsey

Cravath, Swaine & Moore LLP

825 Eighth Avenue

New York, NY 10019

+1 212 474-1000

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933.

Emerging growth company  ☒

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of each class of
securities to be registered
 

Amount

to be

registered(1)

  Proposed
maximum
aggregate
offering price
per unit(2)
 

Proposed
maximum
aggregate

offering price(3)

  Amount of
registration fee(4)

Class A ordinary shares, par value CHF 0.10 per share

  35,765,000   $20.00   $715,300,000   $78,039.23

 

 

(1)

Includes 4,665,000 additional ordinary shares granted pursuant to the underwriters’ over-allotment option.

(2)

Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(a) under the Securities Act of 1933, as amended.

(3)

Includes the estimated offering price of the 4,665,000 additional ordinary shares granted pursuant to the underwriters’ over-allotment option.

(4)

Of this amount, $10,910 was previously paid.

 

 

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Commission, acting pursuant to such Section 8(a), may determine.

 

 

 


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The information in this prospectus is not complete and may be changed. We and the selling shareholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION

PRELIMINARY PROSPECTUS DATED SEPTEMBER 7, 2021

PROSPECTUS

31,100,000 Shares

 

 

LOGO

On Holding AG

Class A Ordinary Shares

 

 

We are offering 25,442,391 Class A ordinary shares, CHF 0.10 par value, of On Holding AG and the selling shareholders identified in this prospectus are offering an additional 5,657,609 Class A ordinary shares of On Holding AG. The underwriters may also purchase up to 3,815,734 Class A ordinary shares from us and up to 849,266 Class A ordinary shares from the selling shareholders within 30 days to cover over-allotments, if any.

We have two classes of authorized ordinary shares: Class A ordinary shares and Class B voting rights shares. Class A ordinary shares and Class B voting rights shares are identical, except with respect to par value (based on which entitlements to dividends and other distributions are calculated), voting power, conversion and transfer rights. Class A ordinary shares have a par value of CHF 0.10 and Class B voting rights shares have a par value of CHF 0.01, and as a result, on a capital-invested basis, each Class B voting rights share has ten times the voting power of each Class A ordinary share. The Class B voting rights shares are subject to transfer restrictions and mandatory conversion into Class A ordinary shares upon the occurrence of certain events, including upon the occurrence of (i) certain “general sunset” events, including such time that (a) the extended founder team (as defined below) ceases to hold at least 65% of the aggregate number of Class B voting rights shares held by them immediately following this offering; or (b) fewer than two members of the extended founder team continue to hold Class B voting rights shares; and (ii) certain “individual sunset” events, including, but not limited to, such time that (x) an individual member of the extended founder team ceases to hold at least 65% of the number of Class B voting rights shares held by such individual immediately following this offering; and (y) a member of the extended founder team is no longer acting as a member of the executive committee of the Company or serving in an advisory role with the Company or its controlled affiliates, subject, in the case of the “individual sunset” events, to the right of first refusal of the other members of the extended founder team to purchase such shares. See “Description of Share Capital and Articles of Association—Ordinary Shares.” All of the Class B voting rights shares will be beneficially owned by David Allemann, Olivier Bernhard, Caspar Coppetti, Martin Hoffmann and Marc Maurer (our “extended founder team”). Accordingly, following this offering, our extended founder team will control shares representing 59.4% of the total voting power of our shares, assuming no exercise of the underwriters’ option to purchase Class A ordinary shares. Accordingly, our extended founder team will be able to significantly influence any action requiring the approval of shareholders, including the election of our board of directors, the adoption of amendments to our Amended and Restated Articles of Association and any significant corporate transaction.

We expect that the initial public offering price will be between $18.00 and $20.00 per Class A ordinary share.

We have applied to list our Class A ordinary shares on the New York Stock Exchange, or NYSE, under the symbol “ONON.” Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

We are an “emerging growth company” under the US federal securities laws and will be subject to reduced public company reporting requirements. Additionally, following the offering, we will be a “controlled company” within the meaning of the corporate governance standards of the NYSE and as such may rely on available exemptions from certain corporate governance requirements. Investing in our Class A ordinary shares involves risks. See “Risk Factors” beginning on page 25 of this prospectus.

 

     Per Class A
ordinary share
     Total  

Public offering price

   $                    $                

Underwriting discounts and commissions(1)

   $        $    

Proceeds, before expenses, to us

   $        $    

Proceeds, before expenses, to the selling shareholders

     

 

(1)

We have agreed to reimburse the underwriters for certain expenses in connection with this offering. See “Underwriting” for a description of all compensation payable to the underwriters. The underwriters expect to deliver the Class A ordinary shares against payment in New York, New York on or about                , 2021.

 

 

 

Goldman Sachs & Co. LLC   Morgan Stanley   J.P. Morgan
Allen & Company LLC   UBS Investment Bank   Credit Suisse
Baird   Stifel   Telsey Advisory Group

The date of this prospectus is                 , 2021.

 


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LOGO

Our Story On was born in the Swiss alps with one goal: to revolutionize the sensation of running. It’s all based on one radical idea. Soft landings followed by explosive take-offs. Or, as we call it, running on clouds.


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LOGO


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LOGO


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LOGO


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LOGO

Our mission Ignite the Human Spirit through Movement.


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LOGO

The Explorer Spirit


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LOGO

The Athlete Spirit


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LOGO

The Team Spirit


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LOGO

The Survivor Spirit


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LOGO

The Positive Spirit


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TABLE OF CONTENTS

 

     Page  

Cautionary Statement Regarding Forward-Looking Statements

     vi  

Summary

     1  

The Offering

     17  

Summary Financial and Other Information

     21  

Risk Factors

     25  

Use of Proceeds

     70  

Dividend Policy

     71  

Capitalization

     72  

Dilution

     73  

Partners’ Letter

     76  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     80  

Business

     109  

Management

     129  

Principal and Selling Shareholders

     140  

Related Party Transactions

     144  

Description of Share Capital and Articles of Association

     146  

Comparison of Swiss Corporate Law and U.S. Corporate Law

     161  

Ordinary Shares Eligible for Future Sale

     170  

Taxation

     173  

Underwriting

     181  

Expenses of the Offering

     197  

Legal Matters

     198  

Experts

     198  

Enforcement of Judgments

     199  

Where You Can Find More Information

     200  

Index to Financial Statements

     F-1  

Through and including                , 2021 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

 

 

Neither we, the selling shareholders nor the underwriters have authorized anyone to provide any information or to make any representations other than that contained in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we may have referred you. We, the selling shareholders and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We, the selling shareholders and the underwriters have not authorized any other person to provide you with different or additional information. Neither we, the selling shareholders nor the underwriters are making an offer to sell the Class A ordinary shares in any jurisdiction where the offer or sale is not permitted. This offering is being made in the United States and elsewhere solely on the basis of the information contained in this prospectus. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus, regardless of the time of delivery of this prospectus or any sale of the Class A ordinary shares. Our business, financial condition, results of operations and prospects may have changed since the date on the front cover of this prospectus.

For investors outside the United States: Neither we, the selling shareholders nor the underwriters have done anything that would permit this offering or the possession or distribution of this prospectus in any jurisdiction

 

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where action for those purposes is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, this offering of Class A ordinary shares and the distribution of this prospectus outside the United States.

 

 

We are a corporation incorporated in accordance with Swiss law. Under the rules of the U.S. Securities and Exchange Commission (the “SEC”) we are currently eligible for treatment as a “foreign private issuer.” As a foreign private issuer, we will not be required to file periodic reports and financial statements with the SEC as frequently or as promptly as domestic registrants whose securities are registered under the Securities Exchange Act of 1934, as amended, or the Exchange Act. Moreover, a number of our directors and executive officers are not residents of the United States, and all or a substantial portion of the assets of such persons are located outside the United States. As a result, it may not be possible for investors to effect service of process within the United States upon us or upon such persons or to enforce against them judgments obtained in U.S. courts, including judgments in actions predicated upon the civil liability provisions of the federal securities laws of the United States. We have been advised by our Swiss counsel that there is doubt as to the enforceability in Switzerland of original actions, or in actions for enforcement of judgments of U.S. courts, of civil liabilities to the extent solely predicated upon the federal and state securities laws of the United States. See “Enforcement of Judgments” for additional information.

 

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PRESENTATION OF FINANCIAL AND OTHER INFORMATION

Certain Definitions

Unless otherwise indicated or the context otherwise requires, all references in this prospectus to “On,” “On Holding AG,” the “Company,” “we,” “our,” “ours,” “us” or similar terms refer to On Holding AG, together with its subsidiaries. References to our “extended founder team” or our “executive officers” are to (i) our “co-founders,” which consists of (a) our co-founders and executive co-chairmen, David Allemann and Caspar Coppetti, and (b) our co-founder and executive director Olivier Bernhard, (ii) our chief financial officer and co-chief executive officer, Martin Hoffmann, and (iii) our co-chief executive officer, Marc Maurer. References to the “selling shareholders” are to David Allemann, Olivier Bernhard, Caspar Coppetti, Martin Hoffmann and Marc Maurer.

All references to “U.S. dollars,” “dollars” or “$” are to the U.S. dollar. All references to “CHF” or “Swiss franc” are to the legal currency of Switzerland. In this prospectus, amounts that are converted from CHF to U.S. dollars are converted at an exchange rate of $1.08 per CHF, the exchange rate as of June 30, 2021.

Financial Statements

We maintain our books and records in Swiss francs and prepare our consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”).

The financial information contained in this prospectus includes our consolidated financial statements as of and for the years ended December 31, 2020 and 2019, which have been audited by PricewaterhouseCoopers AG, as stated in their report included elsewhere in this prospectus. In this prospectus, we present certain financial information for periods prior to 2019. Such information is derived from our financial statements for the applicable periods that are not included in this prospectus. In addition, the information for net sales prior to 2018 has been derived from the consolidated financial statements of On Holding AG for the years ended December 31, 2012 to 2017 and from the financial statements of On AG for the years ended December 31, 2010 to 2011, each prepared in accordance with Swiss Code of Obligations (“Swiss GAAP”). There are no significant differences in net sales recognized under Swiss GAAP and IFRS. Net sales for the years ended December 31, 2010 and 2011 have been derived from On AG’s historical financial statements for such periods as On Holding AG was formed subsequent to such periods.

Our fiscal year ends December 31. Our financial information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements, including the notes thereto, included elsewhere in this prospectus.

Basis of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Non-IFRS Measures

We use Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income, Adjusted EPS, Adjusted Diluted EPS and Net Working Capital, which are non-IFRS measures, in this prospectus. A non-IFRS measure is generally defined as one that purports to measure financial performance but excludes or includes amounts that would not be so adjusted in the most comparable IFRS measure. We calculate Adjusted EBITDA as net income / (loss), adjusted to exclude: (i) income tax expense, (ii) financial income, (iii) financial expenses, (iv) foreign exchange result, (v) depreciation and amortization, (vi) share-based compensation expense and (vii) transaction costs related to this offering. We calculate Adjusted EBITDA Margin as Adjusted EBITDA divided by our net sales. We calculate Adjusted Net Income as net income / (loss), adjusted to exclude: (i) share-based compensation expense and (ii) transaction costs related to this offering, and to include the tax effect of the

 

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adjustments. We calculate Adjusted EPS as Adjusted Net Income divided by the weighted average number of ordinary shares outstanding during the period. We calculate Adjusted Diluted EPS as Adjusted Net Income divided by the weighted average number of ordinary shares outstanding during the period on a fully diluted basis. We calculate Net Working Capital as trade receivables, plus inventories, minus trade payables. We believe that Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income, Adjusted EPS, Adjusted Diluted EPS and Net Working Capital, when taken together with our financial results presented in accordance with IFRS, provides meaningful supplemental information regarding our operating performance and facilitates internal comparisons of our historical operating performance on a more consistent basis by excluding certain items that may not be indicative of our business, results of operations or outlook. In particular, we believe that the use of Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income, Adjusted EPS, Adjusted Diluted EPS and Net Working Capital is helpful to our investors as it is a measure used by management in assessing the health of our business and evaluating our operating performance, as well as for internal planning and forecasting purposes.

You should not consider Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income, Adjusted EPS, Adjusted Diluted EPS or Net Working Capital either in isolation or as substitutes for analyzing our results as reported under IFRS. Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income, Adjusted EPS, Adjusted Diluted EPS and Net Working Capital are presented for supplemental informational purposes only, have limitations as an analytical tool and should not be considered in isolation or as a substitute for financial information presented in accordance with IFRS. Some of these limitations include that: (i) Adjusted EBITDA does not properly reflect capital commitments to be paid in the future; (ii) although depreciation and amortization are non-cash charges, the underlying assets may need to be replaced and Adjusted EBITDA and Adjusted EBITDA Margin do not reflect these capital expenditures; (iii) such measures do not consider the impact of share-based compensation expense; (iv) Adjusted EBITDA does not reflect other non-operating income or expenses, including net financial result; and (v) Adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us. Additionally, our calculation of Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income, Adjusted EPS, Adjusted Diluted EPS and Net Working Capital may be different from the calculations used by other companies for similarly titled measures, including our competitors, and therefore may not be comparable to those of other companies. For reconciliations of Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income, Adjusted EPS, Adjusted Diluted EPS and Net Working Capital to the most directly comparable IFRS measure, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-IFRS Measures.”

Rounding

We have made rounding adjustments to some of the figures included in this prospectus. Accordingly, numerical figures shown as totals in some tables may not be an arithmetic aggregation of the figures that preceded them. With respect to financial information set out in this prospectus, a dash (“—”) signifies that the relevant figure is not available or not applicable, while a zero (“0.0”) signifies that the relevant figure is available but is or has been rounded to zero.

Market Share and Other Information

Market data and certain industry forecast data used in this prospectus were obtained from internal reports and studies, where appropriate, as well as estimates, market research, publicly available information (including information available from the United States Securities and Exchange Commission website) and industry publications, including Euromonitor International. Industry publications generally state that the information they include has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. Similarly, internal reports and studies, estimates and market research, which we believe to be reliable and accurately extracted by us for use in this prospectus, have not been independently verified. However, we believe such data is accurate and agree that we are responsible for the accurate extraction of such information from such sources and its correct reproduction in this prospectus.

 

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References to “Net Promoter Score,” or “NPS,” refer to our net promoter score, which is a percentage, expressed as a numerical value up to a maximum value of 100, that we use to gauge customer satisfaction. Net Promoter Score reflects responses to the following question on a scale of zero to ten: “How likely are you to recommend On to your family and friends?” Responses of 9 or 10 are considered “promoters,” responses of 7 or 8 are considered neutral or “passives,” and responses of 6 or less are considered “detractors.” We then subtract the number of respondents who are detractors from the number of respondents who are promoters and divide that number by the total number of respondents. Our methodology of calculating Net Promoter Score reflects responses from customers who purchase products from us as well as individuals who visit our website and choose to respond to the survey question. Net Promotor Score gives no weight to customers who decline to answer the survey question. We believe this method is substantially consistent with how businesses across our industry and other industries typically calculate their NPS.

Trademarks and Trade Names

We own various trademark registrations and applications, and unregistered trademarks, including On, On Running, Run On Clouds, CloudTec, Speedboard, Helion, Missiongrip, Cyclon, Cloud, Cloudflow, Cloudswift, Cloud X, Cloudstratus, Cloudrock, Cloud Terry and Cloudnova, among others, and our other registered and common law trade names, trademarks and service marks, including our corporate logo. Solely for convenience, some of the trademarks, service marks and trade names referred to in this prospectus are listed without the ® and symbols, but we will assert, to the fullest extent under applicable law, rights to such trademarks, service marks and trade names.

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains statements that constitute forward-looking statements. Many of the forward-looking statements contained in this prospectus can be identified by the use of forward-looking words such as “anticipate,” “believe,” “could,” “expect,” “should,” “plan,” “intend,” “estimate” and “potential,” among others.

Forward-looking statements appear in a number of places in this prospectus and include, but are not limited to, statements regarding our intent, belief or current expectations. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. Such statements are subject to risks and uncertainties, and actual results may differ materially from those expressed or implied in the forward-looking statements due to various factors, including, but not limited to, those identified under the section entitled “Risk Factors” in this prospectus. These risks and uncertainties include factors relating to:

 

   

the strength of our brand;

 

   

our ability to continue to innovate and meet consumer expectations;

 

   

our ability to implement our growth strategy;

 

   

changes in consumer tastes and preferences;

 

   

our generation of net losses in the past and potentially in the future;

 

   

our ability to compete and conduct our business in the future;

 

   

our ability to connect with our consumer base;

 

   

health epidemics, pandemics and similar outbreaks, including the COVID-19 pandemic;

 

   

general economic, political, demographic and business conditions worldwide;

 

   

the success of operating initiatives, including advertising and promotional efforts and new product and concept development by us and our competitors;

 

   

our ability to strengthen our direct-to-consumer (“DTC”) channel;

 

   

our third-party suppliers, manufacturers and other partners, including their financial stability and our ability to find suitable partners to implement our growth strategy;

 

   

the availability of qualified personnel and the ability to retain such personnel, including our extended founder team;

 

   

our ability to accurately forecast demand for our products and manage product manufacturing decisions;

 

   

our ability to distribute products through our wholesale channel;

 

   

changes in commodity, material, labor, distribution and other operating costs;

 

   

our international operations;

 

   

our ability to protect our intellectual property and defend against allegations of violations of third-party intellectual property by us;

 

   

security breaches and other disruptions to our IT systems;

 

   

our reliance on complex IT systems;

 

   

changes in government regulation and tax matters;

 

   

other factors that may affect our financial condition, liquidity and results of operations;

 

   

our expectations regarding the time during which we will be an emerging growth company under the JOBS Act and a foreign private issuer; and

 

   

other risk factors discussed under “Risk Factors.”

 

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Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update them in light of new information or future developments or to release publicly any revisions to these statements in order to reflect later events or circumstances or to reflect the occurrence of unanticipated events.

 

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LOGO

 

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SUMMARY

This summary highlights information contained elsewhere in this prospectus. This summary may not contain all the information that may be important to you, and we urge you to read this entire prospectus carefully, including the “Risk Factors,” “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections and our consolidated financial statements and notes to those statements, included elsewhere in this prospectus, before deciding to invest in our Class A ordinary shares.

Overview

Our Mission

On was born in the Swiss Alps with one goal: to revolutionize the sensation of running based on the radical idea of soft landings followed by explosive take-offs. Or, as we call it, running on clouds.

Innovation is at the core of On’s foundation and we focus our efforts on three main areas: performance, design and impact. We aspire to increase performance for athletes and everyday consumers by applying smart, distinct and sustainability-focused designs to our products.

We believe evolving consumer preferences towards more active, healthier lifestyles and the casualization of fashion are the primary drivers of growth in today’s approximately $300 billion global sportswear industry. We believe our ethos and capabilities position On to benefit from these secular shifts.

Our team culture is built around five core values or, as we call them, spirits: explorer, athlete, team, survivor, and positive spirit. These five spirits guide us in our approach to making a positive contribution in the right way. For ourselves. For runners. And for our planet. We believe how we do things is just as important as what we do.

As a brand built around encouraging and supporting movement, we believe that it is the human spirit, not just the human body, that drives people to dream the big idea and move to make that dream a reality. Everything we do at On is designed to deliver on our mission:

To ignite the human spirit through movement.

Our History: Born in the Swiss Alps

As a professional athlete, three-time World Champion and six-time Ironman Champion, Olivier Bernhard devoted himself to creating a running shoe that would give him the perfect running sensation. Olivier’s quest gave rise to the symbiosis of running experience and engineering expertise that would become On’s CloudTec technology. Dozens of prototypes were developed, but the basic concept – cushioned landing, explosive take-off – remained paramount throughout. It was this unique running sensation that convinced Olivier’s friends Caspar Coppetti and David Allemann to join Olivier in his quest. Together with Olivier, they formally established On in Zürich, Switzerland in January 2010.

Just a month after the company was founded, early On prototypes won the ISPO Brand New Award, one of the most important prizes for innovation in sport. Test runners were enthusiastic and spoke of running on clouds. In July 2010, the first specialty running stores carried On shoes on their shelves.

From these humble beginnings in Zürich, On set out in 2010 with a big ambition: to change the world of running for professionals and amateur runners alike. As On started to gain traction in several key markets, the


 

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three co-founders brought on Marc Maurer and Martin Hoffmann as equal partners in 2013 to scale and professionalize the business. Together, we have built a distinct culture that empowers the On team to make decisions and foster innovation, allowing On to rapidly scale while retaining the entrepreneurial mindset of a startup. We believe this partnership approach to leadership has been an integral part of On’s success over the past decade, and we expect it to continue.

Our Present: Achieving Global Scale

On is a premium performance sports brand rooted in technology, design and impact that has built a passionate global community of fans across more than 60 countries. We have a selective wholesale presence in approximately 8,100 premium retail doors globally and we generated 37.7% and 36.6% of our net sales in 2020 and the six-month period ended June 30, 2021, respectively, through our direct-to-consumer (“DTC”) channel, which is primarily driven by our website.

We believe we are one of the fastest-growing scaled athletic sports companies in the world, having grown our net sales at an 85% compound annual growth rate (“CAGR”) from inception through 2020 to CHF 425.3 million for the year ended December 31, 2020. Our growth has continued in 2021, with net sales growing by 84.6% to CHF 315.5 million for the six-month period ended June 30, 2021 compared to the six-month period ended June 30, 2020. We focus on providing a premium product experience to customers wherever they are, and our brand resonates with our loyal customers around the world. As a Swiss company with a small home market, we opted to expand globally from the very beginning, and today we have a fast-growing presence across a number of international markets including, among others, Germany (first entered in 2011), the United States (2013), Japan (2013), China (2018) and Brazil (2018). We believe this global presence within the large global footwear and apparel market positions us well for future growth.

We believe our Swiss heritage and our focus on innovating at the cutting edge of performance, design and impact differentiates us from other sports brands. We are committed to creating premium products that deliver strong performance. Our relentless culture of innovation has driven us to repeatedly introduce numerous groundbreaking technologies such as CloudTec (2010), purpose-engineered Speedboard (2013), Lightweight Trail Missiongrip (2016), ultra-lightweight yet versatile running apparel (2016), Helion Superfoam (2019) as well as Embedded CloudTec (2019) and the Invisible CloudTec (2020). These innovations are designed to change the experience of running and create continuous excitement for our fans as we bring new products to market.

The exceptional performance, comfort and design of On footwear and sports apparel has led runners and a broader set of consumers to adopt On’s products in their everyday lives. We have supported their strong demand by creating performance products for an active lifestyle and exploration of nature and trails. Our Performance All Day range of products fuses function and aesthetics and includes “The Roger” franchise, which has been developed with Roger Federer after he joined On as an active co-entrepreneur in 2019 and investor. While developing a competition tennis shoe with Roger, he suggested extending On’s patented technology to a tennis sneaker family to re-invent how age-old tennis sneakers are made. This is enriching our performance product offering and we believe Roger’s perspectives and insights as a professional athlete will help improve our product development, marketing and fan experiences. Our Performance Outdoor products embrace a new approach to taking on the mountains: light and fast, with shoes and outdoor apparel engineered to free you from the weight and bulk of traditional outdoor gear.

Athletes know that it takes significant effort to make performance look effortless. The On apparel range includes ultralight and stretchable fabrics, intelligently engineered key details and a style designed equally for the track and the street. Our “Essentials” range includes the running jacket, running shorts, sweatpants and other items that are versatile enough to be worn during running, exploring or simply during all-day activities, which is why we believe they are favored by our fans and continue to drive repeat purchases.


 

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All our products are engineered in Switzerland, and our in-house research and development teams work on the innovation, engineering, design, and testing of our products. With our heritage in the Alps, making a positive environmental impact has been a core value for our business since inception. On aims to minimize the environmental footprint of all our activities, with a special focus on using preferred materials, carbon dioxide (“CO2”) reduction and life-cycle circularity. In 2020, we announced Cyclon, our first 100% recyclable shoe, which is only available through an innovative monthly subscription model. Through its groundbreaking design and subscription model, Cyclon has already won the 2021 ISPO Award for Product of the Year and Sustainability Achievement.

On is built on authenticity as our loyal following of professional athletes has inspired amateur runners and other fans to join the On community, which is growing larger every day. This community is full of passion, whether in a running club, a weekend jog, a trip to the coffee shop or competing at the highest levels of athletic competition. Our Net Promoter Score (“NPS”) of 66 is among the highest of all consumer facing brands surveyed, and more than 75% of customers recommend On to their friends.

Our distribution strategy seeks to meet runners wherever they are. At the time of our founding, we first started selling in specialty running stores where discerning runners discovered On and became committed fans of our brand. Over time, we expanded our product range and broadened the range of our distribution partners. Today, our products are present in some of the most reputable outdoor, fashion and lifestyle retailers in the world, in addition to specialty running stores. In 2020 and the six-month period ended June 30, 2021, our wholesale channel accounted for 62.3% and 63.4% of our net sales, respectively. With our community and brand awareness growing globally, we organically started to scale our DTC channel through on-running.com over the last 9 years. DTC sales have increased significantly. Our DTC channel, which includes our e-commerce sites, a recently opened flagship retail store in New York City and four smaller format retail stores in China, generated 37.7% and 36.6% of our net sales in 2020 and the six-month period ended June 30, 2021, respectively. Through our DTC channel, we create an immersive customer experience from educational product innovation content to inspirational storytelling. Through these initiatives, we believe that we build deeper customer connection and loyalty and learn from data, while also realizing attractive margins.

Recent Financial Performance

We believe the power of our business model and our ability to profitably scale our operations is reflected in our financial performance. In 2020, we had net sales of CHF 425.3 million, gross margin of 54.3%, gross profit of CHF 231.1 million, net loss of CHF 27.5 million, Adjusted EBITDA Margin of 11.7% and Adjusted EBITDA of CHF 49.8 million. In the six-month period ended June 30, 2021, we had net sales of CHF 315.5 million, gross margin of 59.3%, gross profit of CHF 187.2 million, net income of CHF 3.8 million, Adjusted EBITDA Margin of 15.0% and Adjusted EBITDA of CHF 47.3 million.

We grew our net sales at a 66% CAGR from 2018 to 2020, had net income of CHF 5.5 million in 2018 compared to net loss of CHF 27.5 million in 2020 and Adjusted EBITDA grew at a 74% CAGR from 2018 to 2020, while our gross margin remained flat from 54.2% and 54.3%, respectively, and Adjusted EBITDA Margin expanded from 10.8% to 11.7%, respectively, over the same period. We grew our net sales at a 62.6% CAGR from the six-month period ended June 30, 2019 to the six-month period ended June 30, 2021 and had net income of CHF 8.2 million in the six-month period ended June 30, 2019 compared to net income of CHF 3.8 million in the six-month period ended June 30, 2021, while our Adjusted EBITDA grew at a 70.3% CAGR from the six-month period ended June 30, 2019 to the six-month period ended June 30, 2021. In addition, our gross margin grew from 52.9% to 59.3%, and our Adjusted EBITDA Margin expanded from 13.7% to 15.0%, in each case, over the same period.


 

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Selected Financial and Operational Data: 2018-2020 and Six-Month Period Ended June 30, 2021 (millions of CHF)

 

 

LOGO

Adjusted EBITDA and Adjusted EBITDA Margin are non-IFRS measures and should not be considered in isolation or as a substitute for other financial measures calculated and presented in accordance with IFRS, including net income / (loss). For the six-month period ended June 30, 2021, we had net income of CHF 3.8 million. For 2020 and 2019, we had a net loss of CHF 27.5 million and CHF 1.5 million, respectively. For 2018, we had net income of CHF 5.5 million.

For additional information regarding Adjusted EBITDA and Adjusted EBITDA Margin, which are non-IFRS measures, including a reconciliation of these non-IFRS measures to net income / (loss), see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-IFRS Measures.”

For a discussion of our historical net losses and the associated risks, please refer to “Risk Factors—Risks Related to Our Business, Business Strategy and Industry—We have generated net losses in the past and may incur net losses in the future” on page 29 of this prospectus.

Our Competitive Strengths

We believe that the following strengths are central to the power of our brand and business model:

In-house Innovation Fuels Portfolio of High Performance Products

From its founding, On’s objective has been to revolutionize the sensation of running. Transforming how we experience one of the most basic skills of the human body required a radical approach to innovation. We focus our innovation efforts on the areas of performance, design and impact, as we aspire to increase performance for athletes and consumers, apply smarter design thinking to our products and create the path to a more sustainable future.


 

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In 2010, we introduced our innovative, patented technology, CloudTec, to the world. Since then, we have continuously innovated to create a wide portfolio of award-winning products and proprietary technologies. We pioneered the use of flex plates in all of our shoes as early as 2010. In 2013, we introduced the first injection molded, purpose-engineered Speedboard to transition impact forces into explosive push-offs. We introduced the Cloud model with the Zero-Gravity outsole in 2014 to offer an ultralight product. We then developed Missiongrip in 2016 to bring On to the trails and outdoors and also introduced the Hybrid Short and Lightweight Jacket, our first versatile, ultra-lightweight running apparel with advanced fabrics. In 2019, we introduced the Helion superfoam to add even better cushioning to our shoes without compromising performance. With the introduction of the Cloudstratus in 2019 and the patented sequential CloudTec solution, we once again provided additional cushioning for runners seeking added support. In 2020 we launched the Cloudboom with an optimized carbon infused Speedboard to power our professional athletes and competitive runners. In the same year, with the launch of The Roger franchise, we established that CloudTec can be engineered for lateral movements and to be completely invisible without losing On’s innovative walking and running sensation.

Our in-house research and development team includes a talented team of sports scientists, engineers, material experts and designers who work out of the On Labs in Zurich and Ho-Chi-Minh City. We aim to deliver a constant stream of innovations inspired by the product vision of the On team, the needs of our world-class athletes, customer feedback and advances in materials and manufacturing technologies. We also partner with leading universities, such as the Swiss Federal Institute of Technology and the Fraunhofer Institute, and with innovative suppliers to co-develop new technologies and introduce them to market. These innovations and the performance they deliver have established On as a trusted brand for world-class athletes, amateur runners and customers looking for performance-infused footwear, sportswear and accessories.

At On, we aim to give each product a special advantage by including performance-enhancing technology, such as bringing running technology into street sneakers or adding stretch and running-grade breathability to a hiking jacket. On products have an iconic design and are versatile to use, as we synergistically combine engineering solutions with a minimalist Swiss design aesthetic. We believe our relentless focus on innovation, design and Swiss quality leads to advanced products that allow us to maintain premium price points and encourage repeat purchases among our customers.

Authentic, Premium Global Sports Brand

The On brand is defined by innovation and a belief that sports and movement ignite and elevate the human spirit.

Our roots in Zurich, near the Swiss Alps, gave On and our team a special appreciation for the outdoors, nature and movement from the very beginning. Additionally, the relatively small domestic Swiss market drove On’s early quest for international expansion. On’s Swiss heritage is strongly reflected in many aspects of the brand, from the Swiss-engineered technology and design to the focus on impact and the global profile that the brand has already achieved.

We have been privileged to receive very early support from a global team of world-renowned athletes and brand ambassadors who continue to showcase the advances in our innovation through their exceptional performances on some of the sports world’s largest stages. Whether it is Nicola Spirig who won the Olympic Triathlon silver medal in 2016 or Javier Gomez Noya who became the Triathlon World Champion Long Distance in 2019, athletes who push their limits trust our brand.

More recently, the On Athletics Club (“OAC”), a partnership between On and a team of eight world class runners, was formed for the purpose of supporting athletes in their quest to become champions. The needs of these athletes spur our innovation and development of products that reinforce the foundation of our brand.


 

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On’s early success came from word-of-mouth recommendations, and we have continued to develop storytelling through the rapidly growing digital channels, social networking media and public relations, which has proven to be a more authentic and effective brand marketing strategy than traditional advertising. On our journey, we have formed a deep connection with our global community through inspirational stories, immersive event series, feature-length award-winning films, educational retail experiences and thoughtful user interface. We believe our deep connection with our customers is evidenced by their love for the brand, level of engagement and loyalty, which are among the highest in the industry. Along the way, we have hired more than 100 talented creative team members who are passionate about storytelling and work closely with our athletes, engineers and product designers to bring the performance and experience of our products to life. This is why performance, engineering, design and creativity form an inseparable bond at Team On. Over the last few years, this has driven significant attention to the On brand with stories featured on the sports front page of The New York Times, digital broadcasts that have more than half a million fans tuning in live and queues of sneaker fans building in front of tastemaker doors in New York, Tokyo and Shanghai.

Global Community of Loyal Fans

On is a beloved running brand with a global community of millions. The foundation of our community is our relationship with our runners that range from marathoners to weekend joggers. Our global initiative to host events for local run crews has further empowered our loyal fans to become advocates of our brand, and we have hosted 132 events in 2019. Our customers’ affinity for our products is demonstrated by the fact that 43% of our customers own more than one pair of On shoes and 75% have recommended On to somebody else. Our fans are highly engaged through social media as well, with 3.5% of our users on Instagram acting on our posts.

Despite being founded just over ten years ago, On has significant global reach with 49% of our 2020 net sales to customers in North America, 44% to customers in Europe, 5% to customers in Asia-Pacific and the remaining 2% to customers in the Rest of the World. In the six-month period ended June 30, 2021, 52% of our net sales were to customers in North America, 41% to customers in Europe, 6% to customers in Asia-Pacific and the remaining 1% to customers in the Rest of the World. We believe the On brand and our products resonate strongly with consumers globally, and we see very strong growth rates across our key markets. Compared to 2019 and despite the negative impact of the COVID-19 pandemic and a net loss of CHF 27.5 million in 2020 compared to a net loss of CHF 1.5 million in 2019, net sales growth in 2020 compared to 2019 was 46% in Europe, 86% in North America and 29% in Asia-Pacific. For the six-month period ended June 30, 2021, we had net income of CHF 3.8 million, compared to a net loss of CHF 33.1 million in the six-month period ended June 30, 2020, and net sales growth in the six-month period ended June 30, 2021 compared to the six-month period ended June 30, 2020 was 56% in Europe, 105% in North America and 154% in Asia-Pacific.

As our community has grown, we have successfully broadened our reach beyond running and trail athletes to outdoor enthusiasts, travel explorers and consumers with an active lifestyle. We believe our uncompromising approach to delivering an authentic and unmatched consumer experience resonates with a broad and diverse global consumer base that spans genders and generations. This global community is the driver of our “grassroots” marketing and the inspiration for our innovation.

Committed to Positive Impact

On is committed to growth from sustainable resource use. On has built an in-house team of experts which tracks the environmental footprint of all our activities through lifecycle analyses, identifies our largest levers for a positive impact and helps us set meaningful targets. We use recycled materials wherever available and work with our suppliers to create new opportunities to use circular or non-petrol- and non-food-chain-based materials. We have already made strong progress towards our goal of using 100% recycled polyester, 100% recycled polyamide and 100% organic certified natural materials by 2024.

We strive to create a majority of our products with a circular life cycle and are in the process of building up the logistics needed for an efficient back loop from consumers to our recycling partners. An important pilot


 

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project for circularity is Cyclon (currently available for pre-registration), our first high performance running shoe that is fully recyclable and made from over 50% bio-based materials. Cyclon will only be available as a subscription model to ensure we can reclaim and reuse the shoe’s materials. This represents a significant milestone in our long-term quest to create a “closed loop” system for our products. Cyclon’s CO2 footprint is 50% lower than an average On shoe and creates 90% less waste. We are currently introducing 100% recycled, FSC-certified cardboard packaging for footwear and 100% recycled HDPE plastic for apparel, further reducing waste.

We have committed to ambitious CO2 reduction targets that are approved by the Science Based Targets initiative (SBTi). All our top suppliers have committed to our Restricted Substance List (RSL) policy, which is aligned with the industry standard AFIRM Group and all our Tier 1 suppliers are publicly listed on our website.

Highly Complementary, Multi-Channel Distribution Strategy

We consider our DTC and wholesale channels highly complementary and brand-enhancing.

Our DTC channel, which represented 37.7% and 36.6% of our net sales for 2020 and the six-month period ended June 30, 2021, respectively, is primarily comprised of our own e-commerce platform, but also includes our platform on Tmall and JD.com in China, and the recently opened flagship store in New York City and four retail stores in China. We believe our e-commerce penetration is market-leading when compared to other leading global athletic footwear players. During 2020, our e-commerce platform recorded more than 60.4 million visits, representing a 136% increase compared to 2019. In the six-month period ended June 30, 2021, our e-commerce platform recorded more than 38.9 million visits, representing a 36.8% increase compared to the six-month period ended June 30, 2020. Our DTC channel is our fastest growing channel and has higher gross margins than our wholesale channel.

Our culture of innovation extends to the in-store experience. Our flagship store in New York City offers an explorative, immersive and tech-driven experience to customers. The store features a “Magic Wall” that scans shoppers’ running styles in real-time and cross-references the customer’s unique running attributes against a database of more than 50,000 runs to help them find the perfect On shoe for their running style and needs. We believe the innovation and personalization exemplified by this technology are core to our business and highly valued by our customers.

The wholesale channel accounted for 62.3% and 63.4% of our net sales for 2020 and the six-month period ended June 30, 2021, respectively, and we have built strong relationships with some of the most selective retailers in specialty running, outdoors, fashion and lifestyle. Notwithstanding our significant whitespace, our approach to wholesale expansion remains very disciplined, and we carefully select the best retail partners and distributors to represent our brand in a manner consistent with our ethos and premium positioning. As of June 30, 2021, our products are available at approximately 8,100 retail stores across more than 50 countries. More than 1,300 dedicated On shop-in-shops and brand corners allow consumers to have a physical interaction with our brand at wholesale doors. The majority of our wholesale partners are premium specialty stores that operate less than 5 retail stores and play an important role in establishing and reinforcing On’s credibility in their respective communities.

Adaptable, Data-Driven, Industry-Leading Operations in Place to Support Future Growth

From the very beginning, building a scalable and adaptable operating infrastructure was important to ensure that the right manufacturing, logistics and data capabilities were in place to efficiently support our future growth. Freight operations, warehousing and logistics are outsourced to trusted partners that we have worked with since our founding. Our manufacturing footprint is concentrated in South East Asia with most products originating in Vietnam. In 2020, 97% of our footwear was produced in Vietnam, while the remainder was produced in Indonesia, and in the six-month period ended June 30, 2021, all of our footwear products were produced in Vietnam. Trust, innovation, quality, lead times, flexibility, automation, social responsibility and impact have been our key focus areas in our longstanding partnerships with our footwear and apparel factories. Our in-house team in Vietnam works with our partners and ensures the quality of all the premium products that we design,


 

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innovate and develop. In 2020 and the six-month period ended June 30, 2021, approximately 63% and 38%, respectively, of our apparel and accessories products were manufactured in China, with the remainder being produced in Vietnam and Europe.

Given our belief that superior analytics will help us to make not only smarter but also more sustainable decisions, we have made early investments in an integrated, globally consistent, cloud based IT infrastructure that supports us to achieve profitable growth and manage the complexity of our business. Understanding global supply and demand patterns across our channels helps us to make informed, AI supported decisions, which helps us reduce overstock and produce exactly what our consumers want.

Positivity is one of our spirits, and therefore, we consider customer service a core competence. We believe our team delivers premium engagement with customers and builds relationships rather than just completing transactions. We have recently upgraded our enterprise resource planning (“ERP”) system to support our growth strategy, upgraded our dedicated CRM system to deliver integrated customer services and sales tools and expanded our warehousing and distribution coverage with automation.

Our adaptable supply chain, well established manufacturing and distribution partners and our global infrastructure allow us to seamlessly and rapidly scale our operations across diverse geographies and sales channels while ensuring delivery of superior quality products and services.

Partnership-Focused Leadership Model and Diverse Employee Base

Our co-founders, David Allemann, Olivier Bernhard and Caspar Coppetti, were industry outsiders when they set out to change the world of running. With passion and discipline, and together with our partners and Co-CEOs, Martin Hoffmann and Marc Maurer, we have grown On into a global brand with scalable operations and built a committed, high performing team.

Since our founding, we have leaned heavily on the core tenets of the team spirit and partnership. The unique leadership structure that we have honed over the last decade differs from a traditional hierarchical model and includes David Allemann and Caspar Coppetti as Executive Co-Chairmen, our innovation-leader Olivier Bernhard as Executive Board Member, Martin Hoffmann as CFO and Co-CEO and Marc Maurer as Co-CEO. They are surrounded by a team of 14 highly talented senior leaders globally with 6 female leaders in key roles. Every senior leader has an individual mission, and with this structure, the team benefits from a rigorous decision making process that leverages the full strengths and capabilities of a diverse team in running the global business.

We believe that building an inspiring and successful brand is only possible with a high performing team. Our five spirits empower the team to dream bigger and better and help us realize our ambitious aspirations. To achieve this, On views talent as a priority and we rely on a robust hiring process, which only accepts 1% of applicants, and we invest in employee development through bespoke programs. The diversity of our team is also a key priority as we aspire to positively impact the world. Our global team, including our senior leadership team, has almost an approximately equal gender split. On’s highest score in our recent engagement survey in April 2021 was for diversity and inclusion, which demonstrates our ability to create a culture of belonging, and we strive to maintain this in the future.

Our Growth Strategies

We intend to deliver continued growth in net sales and profitability by executing on the following growth strategies:

Grow Brand Awareness and our Community

We believe that powerful consumer trends will continue to expand the approximately $300 billion global sportswear industry and that our differentiated product offering and appeal to our loyal community will drive increasing market share. We believe our brand is globally recognized today, and we have significant


 

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opportunities to further grow our brand awareness and expand the size and breadth of our community. While we have meaningfully grown internationally over the past decade, our unaided brand awareness outside of Switzerland remains below established sportswear peers, providing us with a clear runway ahead.

Authenticity gained through word of mouth, recommendations from athletes, influencers, tastemakers and a global community of runners and explorers has proven extremely valuable in organically and credibly growing the On brand. To further drive our brand’s awareness now and in the future, our internal agency team will focus on the following strategies:

 

   

Digital and social media: With a fast growing social presence fueled by storytelling, athletes and both physical and digital live events, we have the ability to drive brand affinity through a large audience. Our high share of voice, which measures the number of mentions of our brand on social media sites as compared to our competitors in the running space, shows that our engaged global community members are active within our channels and also promote On to their own audiences, sharing tips and offering advice to enhance the community experience.

 

   

Athlete advocacy: There is no better validation for our products than professional athletes trusting our shoes in the most demanding settings. Olympians and World Champions in track and field embrace our products and proudly display them on the world stage. At the same time, our athletes create opportunities for core sporting storytelling that create public relations opportunities for cultural impact.

 

   

Grassroots: The ‘Try On’ experience has proven a useful tool for us to show the benefit of our products and truth in our performance claims. By creating globally owned event series such as our 5k run crew ‘Squad Races’ or our yearly ‘Run Your Local Mountain’, we have invited thousands of broadly active runners to test and discover our brand. By further developing and adding new formats, we plan to reach and grow our community even further.

Our internal agency team collaborates across the business to ensure we are integrated directly into decision making for premium product storytelling, new innovative services, authentic community growth and shareable moments. At its heart, our marketing philosophy is simply to work with those who love our product, which we believe supports our high marketing efficiency and authenticity.

Expand our Geographic Footprint Through Controlled, Multi-channel Growth

We are in a growth phase in almost all of our international markets and we believe we have opportunities for continued market share gains. While we have generated net losses in recent years, we have achieved significant net sales growth historically as we have entered new markets. For example, On entered the United States in 2013 and has grown net sales to CHF 202 million in 2020 and CHF 157 million in the six-month period ended June 30, 2021. In our home market Switzerland, we have grown net sales to CHF 52 million in 2020 and CHF 27 million in the six-month period ended June 30, 2021. We entered China in 2018 and grew our net sales in the region by 199% from CHF 1.8 million in 2019 to CHF 5.5 million in 2020. We have continued to grow our net sales across these international markets for the six-month period ended June 30, 2021, with China accounting for CHF 8 million of net sales during that period.

We believe that pioneering a true multi-channel strategy will ultimately lead to superior outcomes, lower cost of customer acquisition and higher customer retention and repeat purchases. Our wholesale and our DTC channels are mutually beneficial to each other because we always put the customer first. We ask ourselves which customers we want to attract and what is the best and most efficient acquisition channel to deliver a superior experience to these customers. We then aim to deliver that superior experience wherever the customer decides to shop, whether online or in a physical store.

We intend to continue to grow our global footprint by tapping into new customer segments without compromising our premium customer experience across our wholesale and DTC channels:

 

   

Wholesale channel expansion: We intend to take a measured approach to attract new customers and enter new markets through selected retail partners that are complementary to our brand. We started


 

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with the run specialty channel and then selectively expanded to additional premium retail partners to reach a broader audience, building on the initial momentum and brand halo gained by our presence in specialty stores.

 

   

Additional doors: We believe there is significant room to enter additional premium doors in less mature but also in many of our established markets by tapping into new customer segments. We have consciously been selective with door expansion, and emphasized being present at more premium doors.

 

   

Higher sales per door: We believe that by delivering a superior On brand experience at our wholesale partners (in an online and offline environment), we still have room to increase our sales per door. Furthermore, we aim to work with our partners in a very integrated way, including planning assortments and inventory and ensuring that we have the right product assortment in the corresponding channel for the respective consumer.

 

   

DTC channel expansion: The second pillar to the multi-channel growth is our DTC channel, both digital and physical, which we believe enables greater consumer engagement and offers an optimal environment to showcase our brand. We believe that this customer experience will lead to a continued increased share of our DTC channel in the long term, while the short term share continues to depend on the duration and impact of the COVID-19 pandemic and the consumer behavior in the immediate post COVID-19 periods. Our DTC business represented 37.7% and 36.6% of our net sales in 2020 and the six-month period ended June 30, 2021, respectively.

 

   

Digital: Our scaled DTC e-commerce business represented approximately 0.9 million active customers in 2020. We believe that we have ample opportunity to not only acquire new customers, but also drive repeat purchases. Knowing our customers and being able to provide them a superior experience over time is key. Historically, we have achieved growth in our digital channel thanks to our capability to achieve superior returns on our advertising spend and a healthy balance between organic and inorganic expansion. We will continue to strive for strong growth to further enhance our digital experience.

 

   

Physical: We plan to selectively build physical stores to showcase our brand and products, which we believe will further strengthen our local community, reach global travelers and create additional brand visibility. Our stores will be designed to create an enriching customer experience through technology and personalized customer service. We opened our first flagship retail location in New York City in 2020, and our intention is to have a very selective presence with flagship locations in key cities around the globe. We believe retail stores will be a key growth pillar in China. We currently operate four mall-based mono-brand stores in Shanghai and Chengdu and are preparing to open additional similar-format stores in China in 2021. We primarily target premium shopping locations in major cities where we are able to directly connect with customers who we believe will connect with On. We believe that our multi-channel approach will create a synergetic uplift for physical and digital DTC sales.

Leverage Innovation Leadership to Broaden Product Portfolio

We founded On with a view of making movement more effortless and comfortable. Since our founding in 2010, we have expanded our focus beyond runners and their shoes. Our innovation teams are including Swiss engineered technology in our products that can be worn while running, exploring or simply during all-day activities. We believe we can leverage our expertise in running to improve the functionality of products in adjacent lifestyles, including fitness, everyday use, outdoors and most recently tennis, and to broaden our product portfolio from footwear to apparel and accessories. While we expect to always be deeply rooted in running, consumers around the world have shown an interest in our other products, significantly increasing On’s total addressable market.


 

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Continue to Drive Operational Excellence

As we scale our business, we plan to continue leveraging our brand and powerful business model to drive operational efficiencies and improved financial and operating performance in the following ways:

 

   

Insourcing of product development and Vietnam-European Union Free Trade Agreement. In 2020, On successfully completed the insourcing of product development from an external sourcing agent. Consequently, all products purchased as of 2021 are no longer subject to a sourcing fee. As of August 2020, On benefits from the newly established free trade agreement between the EU and Vietnam. The full impact is expected to materialize in 2021, and we expect a continued positive impact on our margins going forward.

 

   

Strong channel profitability and mix. We intend to expand our DTC channel in high-value markets that can support the profitable rollout of e-commerce and select retail stores. We believe this will allow us to maintain our high levels of gross margin in our e-commerce led DTC channel.

 

   

Conversion of distributor markets. As of June 30, 2021, On worked with distribution partners in 25 countries. As we grow, we expect to transition some of those distributor markets to a direct retail distribution system, which will allow us to more efficiently and profoundly influence the customer experience.

 

   

Operating Leverage. We have invested ahead of our growth in all areas of the business and have built highly scalable business processes, including design and manufacturing, multi-channel distribution and corporate infrastructure. As we continue our growth trajectory, we expect to realize economies of scale. At the same time, we plan to continue to invest into all areas of the business as part of our geographical and product expansion.

Looking toward the future, we believe that these initiatives will provide a robust foundation for growth and position us to continue capturing market share.

Risk Factors Summary

Investing in our Class A ordinary shares involves risk. The risks described in “Risk Factors” in this prospectus may cause us to not realize the full benefits of our strengths or may cause us to be unable to successfully execute all or part of our growth strategy. Some of the more significant risks include the following:

Risks Related to Our Business, Business Strategy and Industry

 

   

Our business depends on the strength of our premium brand, and if we are not able to maintain and enhance our brand, our results of operations may be adversely impacted.

 

   

We may receive negative publicity if we do not meet expectations of transparency with respect to our business practices, which could harm our brand image. Additionally, if our independent contract manufacturers or other suppliers fail to implement socially and environmentally responsible business practices or fail to comply with applicable laws and regulations or our applicable guidelines, we may be subject to fines, penalties or litigation and our brand image could also be harmed due to negative publicity.

 

   

We rely on technical innovation, unique designs and high-quality products to compete in the market for our products. If we fail to continue to innovate and provide consumers with design features and new technologies that meet their expectations, we may not be able to generate sufficient consumer interest in our athletic and technical footwear, apparel and accessories to remain competitive.

 

   

We may not be able to successfully implement our growth strategies on a timely basis or at all. Additionally, implementation of these plans may divert our operational, managerial and administrative resources, which could harm our competitive position and results of operations.


 

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Because our business is highly concentrated on a single, discretionary product category, namely footwear, apparel and accessories, we are vulnerable to changes in consumer preferences that could harm our sales, profitability and financial condition.

 

   

Sales of footwear, apparel and accessories may not continue to increase, and this could impair our ability to innovate and grow our business.

 

   

We have generated net losses in the past and may incur net losses in the future.

 

   

We operate in a highly competitive market and the size and resources of some of our competitors may allow them to impose pricing pressures or compete more effectively than we can, resulting in a loss of our market share and a decrease in our net sales and profitability.

 

   

Competitors have and will likely continue to attempt to imitate our premium products and technology and divert sales.

 

   

Our plans to innovate and expand our product offerings may not be successful, and implementation of these plans may divert our operational, managerial and administrative resources, which could harm our competitive position and reduce our net sales and profitability.

Risks Related to our Operations, Distribution Network and Suppliers

 

   

We have grown rapidly in recent years and we have limited operating experience at our current scale of operations. If we are unable to manage our operations at our current size or to manage any future growth effectively, our brand image and financial performance may suffer.

 

   

Our growth strategy involves the continued expansion of our DTC channel, including our own retail stores and e-commerce platform, which may present risks and challenges with which we have limited experience.

 

   

Our financial success may be impacted by the strength of our relationships with our retail partners and is dependent on the success of these retail partners.

 

   

We could experience significant disruptions in supply from our current or future sources.

 

   

Our success is substantially dependent on the continued service of our senior management.

 

   

If we are unable to attract, assimilate and retain new team members, we may not be able to grow or successfully operate our business.

 

   

Our business or our results of operations could be harmed if we or our retail partners are unable to accurately forecast demand for our products or if we are unsuccessful at managing product manufacturing decisions.

Risks Related to Our Intellectual Property and Information Technology

 

   

If we are unable to obtain, maintain, protect and enforce our intellectual property rights for the products we develop, or if the scope of our intellectual property protection is not sufficiently broad, others may be able to develop and commercialize products substantially similar to ours, and our business may be adversely affected.

 

   

Third parties may initiate legal proceedings alleging that we are infringing, misappropriating or otherwise violating their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on our business, financial condition and results of operations.


 

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We license intellectual property rights from third-party owners. If we fail to comply with our obligations in any current or future agreements under which we license intellectual property rights from third parties or otherwise experience disruptions to our business relationships with our licensors, we could lose license rights that are important to our business.

 

   

A security breach or other disruption to our information technology (“IT”) systems could result in the loss, theft, misuse, unauthorized disclosure, or unauthorized access of customer, supplier, or sensitive company information or could disrupt our operations, which could damage our relationships with customers, suppliers or employees, expose us to litigation or regulatory proceedings, or harm our reputation, any of which could materially adversely affect our business, financial condition or results of operations.

 

   

Changes in laws or regulations relating to data privacy and security, or any actual or perceived failure by us to comply with such laws and regulations, or contractual or other obligations relating to data privacy and security, could lead to government enforcement actions (which could include civil or criminal penalties), private litigation or adverse publicity and could have a material adverse effect on our reputation, results of operations, financial condition and cash flows.

 

   

We rely on a large number of complex IT systems. The integration of these IT systems may not be successful. Any failure to operate, maintain and upgrade our IT systems may materially and adversely affect our operations.

Risks Related to Our Financial, Accounting and Tax Matters

 

   

We plan to primarily use cash from operations to finance our growth strategy, but may need to raise additional capital that may be required to grow our business, which we may not be able to raise on terms acceptable to us or at all.

 

   

We will incur significant expenses and devote other significant resources and management time as a result of being a public company, which may negatively impact our financial performance and could cause our results of operations and financial condition to suffer.

 

   

Our financial results may be adversely affected if substantial investments in businesses and operations fail to produce expected returns.

 

   

If our estimates or judgments relating to our critical accounting policies prove to be incorrect, our operating results could be adversely affected.

 

   

We identified a material weakness in our internal control over financial reporting, and any failure to maintain effective internal control over financial reporting could harm us.

 

   

Failure to maintain adequate financial and management processes and controls could lead to errors in our financial reporting, which could harm our business and cause a decline in our share price.

 

   

Fluctuations in foreign currency exchange rates could harm our net sales, results of operations and the price of our Class A ordinary shares.

 

   

We could be subject to changes in tax laws, tax regulations and tax treaties, including their interpretation and application, in Switzerland, the United States or any other country in which we operate, which could result in additional tax liabilities or increased volatility in our effective tax rate.

 

   

If we are a “passive foreign investment company,” or a PFIC, in the year of the offering or in any future year, a U.S. shareholder may be subject to adverse U.S. federal income tax consequences.


 

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Risks Related to Legal and Regulatory Compliance

 

   

Changes to trade policies, tariffs and import/export regulations in the United States, EU and other jurisdictions, or our failure to comply with such regulations, may have a material adverse effect on our reputation, business, financial condition and results of operations.

 

   

Our marketing programs, e-commerce initiatives and use of customer information are governed by an evolving set of laws and enforcement trends and unfavorable changes in those laws or trends, or our failure to comply with existing or future laws, could substantially harm our business and results of operations.

 

   

We may become involved in legal or regulatory proceedings and audits.

Risks Related to Our Class A Ordinary Shares and the Offering

 

   

The dual class structure of our shares and the existing ownership of Class B voting rights shares by our extended founder team have the effect of concentrating voting control with our extended founder team for the foreseeable future, which will limit or preclude your ability to influence corporate matters.

 

   

Our dual class structure may depress the trading price of our Class A ordinary shares.

 

   

There is no existing market for our Class A ordinary shares, and we do not know whether one will develop to provide you with adequate liquidity. If our share price fluctuates after this offering, you could lose a significant part of your investment.

Corporate Structure

A simplified organizational chart showing certain legal entities within our corporate structure is set forth below (all subsidiaries are, directly or indirectly, 100% owned by On Holding AG):

 

 

LOGO

Corporate Information

We were incorporated as a corporation (Aktiengesellschaft) under the laws of Switzerland on September 28, 2012. We are registered in the commercial register of the Canton of Zurich under company number CHE-137.374.435. Our principal executive offices are located at Pfingstweidstrasse 106, 8005 Zürich, Switzerland. Our telephone number at this address is +41 44 225 15 77.

Investors should contact us for any inquiries through the address and telephone number of our principal executive office. Our principal website is www.on-running.com. The information contained on our website is not a part of this prospectus.


 

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Share Capital Reorganization

Immediately prior to the completion of this offering, our issued and outstanding share capital consists of 245,740,000 Class A ordinary shares and 345,437,500 Class B voting rights shares, after giving effect to (i) an increase of the par value of each of our Class A ordinary shares and Class B voting rights shares from (x) CHF 10 par value per share to CHF 125 par value per share and (y) CHF 1 par value per share to CHF 12.50 par value per share, respectively, by converting capital reserves into share capital (the “Par Value Increase”) and (ii) a 1:1,250 share split of all issued shares (and outstanding awards under our equity incentive plans) resulting in a par value per share for our Class A ordinary shares and Class B voting rights shares of CHF 0.1 and 0.01, respectively (the “Share Split” and, together with the Par Value Increase, the “Share Capital Reorganization”), which was effected on August 19, 2021. In addition to the Share Capital Reorganization, we issued 25,000,000 Class A ordinary shares that are held by the Company in treasury and therefore are not outstanding. See “Description of Share Capital and Articles of Associations—Share Capital.”

Implications of Being an Emerging Growth Company

As a company with less than $1.07 billion in net sales during our last fiscal year, we qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other requirements compared to those that are otherwise applicable generally to public companies. These provisions include:

 

   

a requirement to have only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations disclosure in this registration statement;

 

   

an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002; and

 

   

to the extent that we no longer qualify as a foreign private issuer, (i) reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and (ii) exemptions from the requirements of holding a non-binding advisory vote on executive compensation, including golden parachute compensation.

We may take advantage of these provisions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than $1.07 billion in annual net sales, have more than $700 million in market value of our Class A ordinary shares held by non-affiliates, or issue more than $1.07 billion of non-convertible debt over a three-year period. We may choose to take advantage of some but not all of these reduced requirements. We have taken advantage of certain of these reduced reporting requirements in this prospectus, and we may elect to do so in future filings and if we do, the information that we provide shareholders may be different than you might get from other public companies in which you hold equity.

While the JOBS Act permits an “emerging growth company” like us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies, this transition period is only available to emerging growth companies that report their financial statements under U.S. generally accepted accounting principles (“U.S. GAAP”), or in the case of foreign private issuers, reconcile their home country GAAP financial statements to U.S. GAAP. As a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required or permitted by the International Accounting Standards Board.

Implications of Being a Foreign Private Issuer

We are also considered a “foreign private issuer.” Accordingly, upon consummation of this offering, we will report under the Exchange Act as a non-U.S. company with foreign private issuer status. This means that, even


 

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after we no longer qualify as an emerging growth company, as long as we qualify as a foreign private issuer under the Exchange Act, we will be exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies, including:

 

   

the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act;

 

   

the sections of the Exchange Act requiring insiders to file public reports of their share ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and

 

   

the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial and other specified information, or current reports on Form 8-K, upon the occurrence of specified significant events.

We may take advantage of these exemptions until such time as we are no longer a foreign private issuer. We would cease to be a foreign private issuer at such time as more than 50% of our outstanding voting securities are held by U.S. residents and any of the following three circumstances applies: (i) the majority of our executive officers or directors are U.S. citizens or residents, (ii) more than 50% of our assets are located in the United States or (iii) our business is administered principally in the United States.

In this prospectus, we have taken advantage of certain of the reduced reporting requirements as a result of being an emerging growth company and a foreign private issuer. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold equity securities.

Implications of Being a Controlled Company

After the completion of this offering, our extended founder team will control a majority of the combined voting power of our outstanding ordinary shares. As a result, we will be a “controlled company” within the meaning of the NYSE corporate governance rules. Under the NYSE corporate governance standards, a company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance standards, including (i) the requirement that a majority of the board of directors consist of independent directors, (ii) the requirement that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities and (iii) the requirement that our director nominations be made, or recommended to our full board of directors, by our independent directors or by a nominations committee that consists entirely of independent directors and that we adopt a written charter or board resolution addressing the nominations process. We may take advantage of certain of these exemptions, and, as a result, you may not have the same protections afforded to shareholders of companies that are subject to all of the NYSE corporate governance requirements. In the event that we cease to be a “controlled company,” we will be required to comply with these provisions within the transition periods specified in the NYSE corporate governance rules.


 

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THE OFFERING

This summary highlights information presented in greater detail elsewhere in this prospectus. This summary is not complete and does not contain all the information you should consider before investing in our Class A ordinary shares. You should carefully read this entire prospectus before investing in our Class A ordinary shares including “Risk Factors” and our consolidated financial statements.

 

Issuer

On Holding AG

 

Class A ordinary shares offered by us

We are offering 25,442,391 Class A ordinary shares.

 

Class A ordinary shares offered by the selling shareholders

The selling shareholders are offering 5,657,609 Class A ordinary shares.

 

Over-allotment option

We have granted the underwriters the right to purchase up to an additional 3,815,734 Class A ordinary shares from us and the selling shareholders have granted the underwriters the right to purchase up to an additional 849,266 Class A ordinary shares from them, in each case within 30 days of the date of this prospectus, to cover over-allotments, if any, in connection with the offering.

 

Class A ordinary shares to be outstanding after this offering

271,182,391 shares (274,998,125 shares if the underwriters’ over-allotment option is exercised in full).

 

Class B voting rights shares to be outstanding after this offering

345,437,500 shares.

 

Use of proceeds

We estimate that the net proceeds to us from the offering will be approximately $448.6 million. The principal purposes of this offering are to increase our capitalization and financial flexibility, create a public market for our Class A ordinary shares and facilitate our future access to the capital markets. As of the date of this prospectus, we cannot specify with certainty all of the particular uses for the net proceeds to us from this offering. However, we currently intend to use the net proceeds we receive from this offering for general corporate purposes, including working capital, operating expenses, and capital expenditures.

 

  We will not receive any of the proceeds from the sale of the Class A ordinary shares by the selling shareholders.

 

Voting rights

We have two classes of shares: Class A ordinary shares and Class B voting rights shares. Class A ordinary shares and Class B voting rights shares are identical, except with respect to par value (based on which entitlements to dividends and other distributions are calculated), voting power, conversion and transfer rights. Class A ordinary shares have a par value of CHF 0.10 and Class B voting rights shares have a par value of CHF 0.01, and as a result, on a capital-invested basis, each Class B voting rights share has ten times the voting power of each Class A ordinary share.

 

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  All of the Class B voting rights shares will be beneficially owned by our extended founder team. Immediately following the closing of this offering, our extended founder team will beneficially own shares representing 59.4% of the combined voting power of our outstanding shares (assuming no exercise of the underwriters’ over-allotment option). As a result, our extended founder team will be able to control the outcome of substantially all matters submitted to a vote of our shareholders, including the election of directors, amendments to our charter and mergers or other business combinations.

 

Class B voting rights shares conversion rights

Subject to the terms and conditions of our articles of association as well as a shareholders’ agreement among the Company and our extended founder team, Class B voting rights shares may only be held by our extended founder team or trusts, non-profit or other corporations or partnerships controlled by them (a “founder family entity”). Class B voting rights shares are subject to transfer restrictions contained in the Company’s articles of association and described in more detail under “Description of Share Capital and Articles of Association—Ordinary Shares.” Prior to any transfer of Class B voting rights shares to any person that is neither member of the extended founder team nor a founder family entity, the members of the extended founder team are required to vote for the conversion of such Class B voting rights shares to Class A ordinary shares. In addition, the members of the extended founder team are required to vote for the conversion of all Class B voting rights shares into Class A ordinary shares on a ten-for-one basis upon the occurrence of certain events, namely, upon the occurrence of (i) certain “general sunset” events, including such time that (a) the extended founder team ceases to hold at least 65% of the aggregate number of Class B voting rights shares held by them immediately following this offering; or (b) fewer than two members of the extended founder team continue to hold Class B voting rights shares; and (ii) certain “individual sunset” events, including but not limited to, such time that (x) an individual member of the extended founder team ceases to hold at least 65% of the number of Class B voting rights shares held by such individual immediately following this offering; and (y) a member of the extended founder team is no longer acting as a member of the executive committee of the Company or serving in an advisory role with the Company or its controlled affiliates, subject, in the case of the “individual sunset” events, to the right of first refusal of the other members of the extended founder team to purchase such shares. See “Description of Share Capital and Articles of Association—Ordinary Shares.”

 

Listing

We have applied to list our Class A ordinary shares on the NYSE under the symbol “ONON.”

 

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Dividend policy

The amount of any distributions will depend on many factors, such as our results of operations, financial condition, cash requirements, prospects and other factors deemed relevant by our board of directors and shareholders.

 

Directed share program

At our request, the underwriters have reserved up to 5.0% of the Class A ordinary shares offered by this prospectus for sale, at the initial public offering price, to certain of our directors and officers, employees, business partners, retail partners and related persons. Except for reserved shares purchased by our executive officers and directors, these reserved Class A ordinary shares will not be subject to the lock-up restrictions described elsewhere in this prospectus. The number of Class A ordinary shares available for sale to the general public will be reduced to the extent these persons purchase such reserved Class A ordinary shares. Any reserved Class A ordinary shares that are not so purchased will be offered by the underwriters to the general public on the same basis as the other Class A ordinary shares offered by this prospectus. See “Underwriting—Directed Share Program.”

 

Risk factors

See “Risk Factors” and the other information included in this prospectus for a discussion of factors you should consider before deciding to invest in our Class A ordinary shares.

Unless otherwise indicated, historical share and per-share information contained in this prospectus does not give effect to the Share Capital Reorganization. In addition, except as otherwise noted, all information contained in this prospectus assumes:

 

   

no exercise of the option granted to the underwriters to purchase up to 4,665,000 additional Class A ordinary shares to cover over-allotments, if any, in connection with the offering;

 

   

an initial public offering price of $19.00 per Class A ordinary share, which is the midpoint of the price range set forth on the cover page of this prospectus;

 

   

no purchase of Class A ordinary shares in this offering by directors, officers or existing shareholders (including pursuant to such person’s participation in our Directed Share Program); and

 

   

no exercise of our outstanding options (as set forth below).

The number of Class A ordinary shares and Class B voting rights shares that will be outstanding after this offering gives effect to the Share Capital Reorganization and is based on 245,740,000 Class A ordinary shares outstanding as of August 19, 2021 and 345,437,500 Class B voting rights shares outstanding as of August 19, 2021, and excludes:

 

   

865,000 Class A ordinary shares issuable on the exercise of outstanding options under our 2018 LTIP, with a weighted-average exercise price of CHF 2.97 per share (or $3.23 per share);

 

   

1,911,250 Class A ordinary shares that are issuable upon settlement of outstanding options under our 2018 LTPP, which have previously vested;

 

   

607,500 Class A ordinary shares issuable on the exercise of outstanding options under our 2020 LTIP for which the vesting condition will be satisfied no later than 75 days after the date of this offering subject to such participant’s continued employment on the date of this offering, with a weighted-average exercise price of CHF 7.14 per share (or $7.76 per share);


 

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542,500 Class A ordinary shares that are issuable upon settlement of outstanding options under our 2018 LTPP, for which the vesting conditions have not been satisfied;

 

   

1,207,500 Class A ordinary shares that are issuable upon settlement of outstanding phantom awards under our 2018 OEPP for which we expect the vesting condition will be satisfied no later than 75 days after the date of this offering subject to such participant’s continued employment on the date of this offering and which will automatically convert into Class A ordinary shares at such time;

 

   

10,552,670 Class B voting rights shares and 5,502,146 Class A ordinary shares issuable on the exercise of options that we expect to grant under our 2020 LTIP no later than 75 days after the date of this offering subject to such participant’s continued employment on the date of this offering, which will vest at the time of grant, and which have a weighted-average exercise price of CHF 0.71 per share (or $ 0.77 per share) and CHF 7.46 per share (or $8.11 per share), respectively;

 

   

890,852 Class A ordinary shares to be issued under the Founders Plan (as defined herein) to certain employees who are not eligible to receive grants under our existing equity incentive plans (the “Founder Grants”), (based on an assumed initial offering price of $19.00 per share, which is the midpoint of the estimated price range set forth on the cover page of this prospectus of the estimated offering price range set forth on the cover page of this prospectus); and

 

   

5,259,830 Class B voting rights shares and 2,948,742 Class A ordinary shares reserved for issuance under our 2020 LTIP, after taking into account the issuances described above, as more fully described in the section titled “Management—Equity Incentive Plans.”


 

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SUMMARY FINANCIAL AND OTHER INFORMATION

The summary consolidated income statement data for the years ended December 31, 2020 and 2019 are derived from our audited consolidated financial statements included elsewhere in this prospectus.

The summary consolidated financial data as of June 30, 2021 and for the six-month periods ended June 30, 2021 and 2020 have been derived from the unaudited consolidated interim financial statements for On Holding AG and subsidiaries included elsewhere in this prospectus, which in the opinion of our management, includes all adjustments necessary to present fairly our results of operations and financial condition at the date and for the periods presented. Our historical results are not necessarily indicative of the results of operations that you should expect for the year ended December 31, 2021 or any other period.

We maintain our books and records in Swiss francs and prepare our consolidated financial statements in accordance with IFRS.

This financial information should be read in conjunction with “Presentation of Financial and Other Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements, including the notes thereto, included elsewhere in this prospectus.

 

    For the Six-Month Period
Ended June 30,
    For the Years Ended
December 31,
 
          2021                 2020                 2020                 2019        
    (thousands of CHF, except for per share amounts)  

Consolidated income statements data:

       

Net sales

    315,454       170,918       425,295       267,120  

Cost of sales

    (128,275     (74,914     (194,190     (124,003
 

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    187,179       96,004       231,105       143,117  

Selling, general and administrative expenses

    (174,700     (125,319     (248,199     (137,428
 

 

 

   

 

 

   

 

 

   

 

 

 

Operating result

    12,480       (29,315     (17,094     5,689  

Financial income

    12       13       27       47  

Financial expenses

    (1,543     (465     (940     (697

Foreign exchange result

    2,299       (643     (6,434     (1,893
 

 

 

   

 

 

   

 

 

   

 

 

 

(Loss)/Income before taxes

    13,248       (30,410     (24,441     3,147  
 

 

 

   

 

 

   

 

 

   

 

 

 

Income taxes

    (9,490     (2,642     (3,083     (4,620
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income / (loss)

    3,759       (33,052     (27,524     (1,473
 

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per share

       

Basic Class A (CHF)

    16.72       (159.43     (129.50     (7.87

Diluted Class A (CHF)

    16.57       (159.43     (129.50     (7.87

Pro forma earnings per share(1)

       

Basic Class A (CHF)

    0.01       (0.13     (0.10     (0.01

Diluted Class A (CHF)

    0.01       (0.13     (0.10     (0.01

 

     As of June 30, 2021  
     Actual      As Adjusted(2)(3)  
     (thousands of CHF)  

Consolidated balance sheet data:

     

Cash and cash equivalents

     106,649        519,658  

Working capital(4)

     195,233        608,242  

Total assets

     635,694        1,048,703  

Total shareholders’ equity

     268,565        684,489  

 

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(1)

Pro forma amounts give effect to the Share Capital Reorganization. The weighted-average number of shares used to compute pro forma basic earnings per share for the six-month periods ended June 30, 2021 and June 30, 2020 was 267,513,347 and 259,147,500, respectively. The weighted-average number of shares used to compute pro forma basic earnings per share for the years ended December 31, 2020 and December 31, 2019 was 265,685,000 and 233,957,500, respectively. The weighted-average number of shares used to compute pro forma diluted earnings per share for the six-month periods ended June 30, 2021 and June 30, 2020 was 269,978,156 and 267,064,703, respectively. The weighted-average number of shares used to compute pro forma diluted earnings per share for the years ended December 31, 2020 and December 31, 2019 was 274,448,750 and 237,732,500, respectively.

(2)

As adjusted amounts give effect to the issuance and sale of 25,442,391 Class A ordinary shares by us in the offering at an assumed initial public offering price of $19.00 per Class A ordinary share, the midpoint of the range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and offering expenses payable by us, as set forth under “Use of Proceeds.” See “Use of Proceeds” and “Capitalization.”

(3)

A $1.00 increase (decrease) in the assumed initial public offering price of $19.00 per Class A ordinary share, the midpoint of the estimated price range set forth on the cover page of this prospectus, would increase (decrease) each of as adjusted cash and cash equivalents, working capital, total assets, and shareholders’ equity by $24.0 million (CHF 22.1 million), assuming that the number of Class A ordinary shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions. Similarly, each increase (decrease) of 1,000,000 in the number of Class A ordinary shares offered by us would increase (decrease) each of as adjusted cash and cash equivalents, working capital, total assets and shareholders’ equity by $17.9 million (CHF 16.5 million), assuming the assumed initial public offering price of $19.00 per Class A ordinary share remains the same, and after deducting the estimated underwriting discounts and commissions.

(4)

Working capital is defined as current assets less current liabilities.

 

     For the Six-Month Period
Ended June 30,
    For the Years Ended
December 31,
 
     2021     2020     2020     2019  
     (thousands of CHF, except for percentages and
per share amounts)
 

Key Operating and Financial Metrics(4)

        

Net income / (loss)

     3,759       (33,052     (27,524     (1,473

Operating result

     12,480       (29,315     (17,094     5,689  

Adjusted EBITDA(5)(6)

     47,299       15,975       49,762       29,869  

Adjusted EBITDA Margin(5)(7)

     15.0     9.3     11.7     11.2

Adjusted Net Income(5)(8)

     27,791       (5,763     22,828       16,771  

Basic EPS Class A (CHF)(9)

     16.72       (159.43     (129.50     (7.87

Diluted EPS Class A (CHF)(9)

     16.57       (159.43     (129.50     (7.87

Pro Forma Basic EPS Class A (CHF)(1)(9)

     0.01       (0.13     (0.10     (0.01

Pro Forma Diluted EPS Class A (CHF)(1)(9)

     0.01       (0.13     (0.10     (0.01

Adjusted EPS Class A (CHF)(5)(10)

     123.63       (27.80     107.40       89.60  

Adjusted Diluted EPS Class A (CHF)(5)(11)

     122.51       (26.97     103.97       88.18  

Pro Forma Adjusted EPS Class A (CHF)(1)(5)(9)

     0.10       (0.02     0.09       0.07  

Pro Forma Adjusted Diluted EPS Class A (CHF)(1)(5)(11)

     0.10       (0.02     0.08       0.07  

 

     As of  
     June 30, 2021      December 31, 2020      December 31, 2019  
     (thousands of CHF)  

Net Working Capital(5)(12)

     155,503        112,966        69,547  

 

(5)

See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-IFRS Measures” included elsewhere in this prospectus for our definitions of these metrics and reconciliations to the nearest non-IFRS measure.


 

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(6)

We calculate Adjusted EBITDA as net income / (loss), adjusted to exclude: (i) income tax expense, (ii) financial income, (iii) financial expenses, (iv) foreign exchange result, (v) depreciation and amortization, (vi) share-based compensation expense and (vii) transaction costs related to this offering. Adjusted EBITDA is a financial measure which is not calculated in accordance with IFRS. See section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-IFRS Measures” for more information, including the limitations of such measure and a reconciliation of Adjusted EBITDA to net income / (loss) for the periods presented.

(7)

We calculate Adjusted EBITDA Margin as Adjusted EBITDA divided by our net sales. Adjusted EBITDA Margin is a financial measure which is not calculated in accordance with IFRS. See section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-IFRS Measures” for more information, including the limitations of such measure and a reconciliation of Adjusted EBITDA Margin to net income / (loss) for the periods presented.

(8)

We calculate Adjusted Net Income as net income / (loss), adjusted to exclude: (i) share-based compensation expense and (ii) transaction costs related to this offering, and to include the tax effect of the adjustments. Adjusted Net Income is a financial measure which is not calculated in accordance with IFRS. See section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-IFRS Measures” for more information, including the limitations of such measure and a reconciliation of Adjusted Net Income to net income / (loss) for the periods presented.

(9)

Our basic and diluted share counts for the periods presented are the same; potential ordinary shares to be issued upon exercise of options are excluded from the diluted earnings per share calculation as their effect was antidilutive.

(10)

We calculate Adjusted EPS as Adjusted Net Income divided by the weighted average number of ordinary shares outstanding during the period. Adjusted EPS is a financial measure which is not calculated in accordance with IFRS. See section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-IFRS Measures” for more information, including the limitations of such measure and a calculation of Adjusted EPS for the periods presented.

(11)

We calculate Adjusted Diluted EPS as Adjusted Net Income divided by the weighted average number of ordinary shares outstanding during the period on a fully diluted basis. Adjusted Diluted EPS is a financial measure which is not calculated in accordance with IFRS. See section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-IFRS Measures” for more information, including the limitations of such measure and a calculation of Adjusted Diluted EPS for the periods presented.

(12)

We calculate Net Working Capital as trade receivables, plus inventories, minus trade payables. Net Working Capital is a financial measure which is not calculated in accordance with IFRS. See section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-IFRS Measures” for more information, including the limitations of such measure and a calculation of Net Working Capital for the periods presented.


 

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LOGO

 

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RISK FACTORS

You should carefully consider the risks and uncertainties described below and the other information in this prospectus before making an investment in our Class A ordinary shares. Our business, financial condition or results of operations could be materially and adversely affected if any of these risks occurs, and as a result, the market price of our Class A ordinary shares could decline and you could lose all or part of your investment.

This prospectus also contains forward-looking statements that involve risks and uncertainties. See “Cautionary Statement Regarding Forward-Looking Statements.” Our actual results could differ materially and adversely from those anticipated in these forward-looking statements as a result of certain factors, including the risks facing our company or investments worldwide described below and elsewhere in this prospectus.

Risks Related to Our Business, Business Strategy and Industry

Our business depends on the strength of our premium brand, and if we are not able to maintain and enhance our brand, our results of operations may be adversely impacted.

The “On” name, our claims (such as “Running on Clouds”), our product or technical-related trademarks (such as “Cloud,” “Cloudsurfer,” “Cloudswift,” and “CloudTec,” among others), our designs and technical patents (such as the “Speedboard”) and our premium performance brand image are integral to our business, and to the implementation of our strategies for expanding our business. We believe that the brand image we have cultivated has significantly contributed to the success of our business and is critical to maintaining and expanding our customer base. Maintaining and enhancing our premium brand may require us to make substantial investments in areas such as product design, intellectual property (such as patents and trademarks), marketing, operations, community relations, employee training and our wholesale and DTC channels, such as investments in additional distribution partnerships, the opening of new physical and e-commerce stores and other e-commerce projects, and these investments may not be successful.

We anticipate that, as our business expands into new markets and new product categories, maintaining and enhancing our brand may become difficult and require expending significant resources. If these or similar efforts in the future are not successful, our brand may be adversely impacted. Even if such efforts are commercially successful, they may dilute our image in our core running market. Conversely, as we penetrate these new markets and our brand becomes more widely available, it could potentially detract from the appeal stemming from the relative novelty and scarcity of our brand. Our brand may be adversely affected if our public image or reputation is tarnished by negative publicity, which may occur due to quality issues relating to our production in China or Vietnam, or our use of certain raw materials or product-related environmental concerns. Furthermore, our exposure to social media platforms may accelerate and aggravate such negative publicity. In addition, ineffective marketing, product diversion to unauthorized distribution channels, product defects, counterfeit products, unfair labor practices and failure or legal limitations to protect the intellectual property rights in our brand are some of the potential threats to the strength of our brand, and those and other factors could diminish consumer confidence in us. Maintaining and enhancing our brand will depend largely on our ability to be a leader in premium performance footwear, the apparel and accessories industry and to continue to offer a range of high-quality products to our customers, which we may not execute successfully. Any of these factors could harm our sales, profitability, financial condition or the price of our Class A ordinary shares.

A key element of our growth strategy is innovation, product development and expansion of our product offerings into new product categories. However, we may be unsuccessful in designing products that meet our customers’ expectations for our brand or that are attractive to new customers. If we are unable to anticipate customer preferences or industry changes, or if we are unable to modify our products on a timely basis or expand effectively into new product categories, we may lose customers. As of June 30, 2021, our products are available at approximately 8,100 retail stores across more than 50 countries. As we expand into new geographic markets, consumers in these new markets may be less compelled by our brand image and may not be willing to pay a

 

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higher price to purchase our premium functional products as compared to traditional footwear, apparel and accessories. Our operating results would also suffer if our investments and innovations do not anticipate the needs of our customers, are not appropriately timed with market opportunities or are not effectively brought to market.

We may receive negative publicity if we do not meet expectations of transparency with respect to our business practices, which could harm our brand image. Additionally, if our independent contract manufacturers or other suppliers fail to implement socially and environmentally responsible business practices or fail to comply with applicable laws and regulations or our guidelines, we may be subject to fines, penalties or litigation and our brand image could also be harmed due to negative publicity.

Our core values, which include developing high-quality products in a socially and environmentally responsible manner, are an important component of our brand image, which makes our reputation sensitive to allegations of unethical or improper business practices, whether real or perceived. Parties active in promoting ethical business practices, in addition to evaluating the substance of companies’ practices, also often scrutinize companies’ transparency as to such practices and the policies and procedures they use to ensure compliance by their suppliers and other business partners. Prior to this offering, we have been a private company, and so do not have extensive experience in assembling and disclosing information on such matters as required for public companies or as may be expected by such parties. Moreover, we do not expect as a general matter to publicly disclose information that we deem competitively sensitive, except as required by law. If we do not meet the transparency standards expected by parties active in promoting ethical business practices, we may be subject to negative publicity, regardless of whether the actual labor and other business practices adhered to by us and our independent manufacturers satisfy substantive expectations of ethical business practices. In addition, we may fail to, or only partially, achieve our sustainability and environmental commitments, which could also result in negative publicity. Such negative publicity could be accelerated through social media channels and harm our reputation, brand image, business, results of operations, financial condition and the price of our Class A ordinary shares.

While we are conscious and strategic with our choices of our business partners and require, as part of our supply contract, compliance with our Supplier Code of Conduct and our standards, we do not control our manufacturing suppliers or their business practices. Accordingly, we cannot guarantee their compliance with our guidelines or applicable laws. A failure by our suppliers to comply with such requirements could, in turn, lead to reduced sales by us as the result of recalls or adverse consumer reactions, damage to our brand or cause us to seek alternative suppliers, which could increase our costs and result in delayed delivery of our products, product shortages or other disruptions of our operations.

In addition, certain jurisdictions in which we sell have various regulations related to manufacturing processes and the chemical content of our products, including their component parts. Monitoring compliance by our contract manufacturing and other suppliers is complex, and we are reliant on their compliance reporting in order to comply with regulations applicable to our products. We may be subject to investigations, enforcement proceedings or claims arising from our supplier’s actual or alleged noncompliance with regulations and statutes and/or to claims relating to alleged personal injury, such as California’s Proposition 65. The expectations of NGOs, consumers or any other third parties regarding social and environmentally responsible business practices continually evolve and may be substantially more demanding than applicable legal requirements. Socially and environmentally responsible business practices are also driven in part by legal and political developments and by diverse groups active in publicizing and organizing public responses to perceived ethical shortcomings, which can quickly lead to negative publicity and boycotts. Accordingly, we cannot predict how such regulations or expectations might develop in the future and cannot be certain that our guidelines or current practices would satisfy all parties who are active in monitoring our products or other business practices worldwide. Our exposure on social media platforms may accelerate and aggravate such negative publicity and boycott risks not only related to potential non-compliance, but also related to geopolitical developments and related controversial public discussions, such as the current discussions regarding brands sourcing their products from China, which NGOs

 

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and others requesting to boycott due to China’s handling of minorities. Also, China has previously placed pressure and obstacles on international companies who criticize Chinese politics, and may continue to do so in the future. A failure by our suppliers to comply with such requirements could, in turn, lead to reduced sales by us as the result of recalls or adverse consumer reactions, damage to our brand or cause us to seek alternative suppliers, which could increase our costs and result in delayed delivery of our products, product shortages or other disruptions of our operations.

We rely on technical innovation, unique designs and high-quality products to compete in the market for our products. If we fail to continue to innovate and provide consumers with design features and new technologies that meet their expectations, we may not be able to generate sufficient consumer interest in our athletic and technical footwear, apparel and accessories to remain competitive.

Innovation is at the core of our business, and we must continue to invest in research and development in connection with the innovation, patents and design of our footwear, apparel and accessories in order to attract and retain consumers. If we are unable to anticipate consumer preferences or industry changes, or if we are unable to modify our products on a timely basis, we may lose customers or become subject to greater pricing pressures. Our operating results would also suffer if our innovations and designs do not respond to the needs and demands of our customers, are not appropriately timed with market opportunities or are not effectively brought to market. Any failure on our part to innovate and design new products or modify existing products will harm our brand image and could result in a decrease in our net sales and an increase in our inventory levels. In addition, we may not be able to generate sufficient consumer interest in our athletic and technical apparel and accessories to remain competitive.

In particular, technical innovation, our unique designs and quality control in the design and manufacturing process of athletic and technical footwear, apparel and accessories is essential to the commercial success of our products. Research and development play a key role in technical innovation. We rely upon specialists in the fields of biomechanics, chemistry, exercise physiology, engineering, digital technologies, industrial design, sustainability and related fields, as well as research and advisory boards made up of athletes, coaches, trainers, equipment managers, orthopedists, podiatrists and other experts to develop and test our performance products. While we strive to produce products that help to enhance athletic performance and maximize comfort, consumer demand for our products could decline, if we fail to introduce technical innovation in our products. In addition, if we experience problems with the quality of our products, we may incur substantial expense to remedy the problems and loss of consumer confidence and loyalty, which could negatively impact our business, results of operations, financial condition and the price of our Class A ordinary shares.

We may not be able to successfully implement our growth strategies on a timely basis or at all. Additionally, implementation of these plans may divert our operational, managerial and administrative resources, which could harm our competitive position and results of operations.

Our future success depends, in large part, on our ability to implement our growth strategies, including expanding our product offerings to earn more share of customers’ closets, continuing to engage in customer acquisition and retention efforts that drive long-term customer relationships and continuing to grow our business. Our ability to implement these growth strategies depends, among other things, on our ability to:

 

   

manage our risks associated with regard to third-party distribution and expand our product offerings;

 

   

increase our brand recognition by effectively implementing our multi-channel strategy alongside our network of retail relationships without compromising our premium customer experience;

 

   

increase customer engagement with our digital platforms;

 

   

leverage our investments in our human capital and operational infrastructure to drive traffic and customer acquisition;

 

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expand and diversify our wholesale channel and accelerate partnerships with digital pure play retailers; and

 

   

enter into distribution and other strategic arrangements with potential distributors of our products in order to better influence customer experience at better cost efficiency.

We may not be able to successfully implement our growth strategies and may need to change them. If we fail to implement our growth strategies or if we invest resources in a growth strategy that ultimately proves unsuccessful, our business, results of operations, financial condition and the price of our Class A ordinary shares may be materially and adversely affected.

Because our business is highly concentrated on a single, discretionary product category, namely footwear, apparel and accessories, we are vulnerable to changes in consumer preferences that could harm our sales, profitability and financial condition.

Our business is not currently diversified and consists primarily of designing and distributing footwear, apparel and accessories. In 2020, our main product category across all seasons, our footwear, was made up of over 30 styles and comprised a significant majority of our sales. Consumer preferences often change rapidly, and demand for our products is substantially dependent on our ability to attract customers who are willing to pay a higher price for our premium products. We believe there are a number of factors that may affect the demand for our products, including:

 

   

brand loyalty;

 

   

consumer perceptions of, and preferences for, our products and brands, including as a result of evolving ethical or social standards;

 

   

seasonality;

 

   

consumer acceptance of our new and existing products, including our ability to develop new products that address the needs and preferences of new consumers;

 

   

consumer demand for products of our competitors;

 

   

publicity, including social media, related to us, our products, our brands, our marketing campaigns and our celebrity endorsers;

 

   

the extent to which consumers view certain of our products as substitutes for other products we manufacture;

 

   

the life cycle of our products and consumer replenishment behavior;

 

   

changes in consumer confidence and buying patterns, and other factors that impact discretionary income and spending;

 

   

legislation restricting our ability to use certain materials in our products;

 

   

changes in general economic, political, and market conditions; and

 

   

pandemics or other outbreaks of illness or disease, such as the COVID-19 pandemic.

 

   

Any future shifts in consumer preferences away from retail spending for footwear, apparel and accessories would also have a material adverse effect on our business, results of operations, financial condition and the price of our Class A ordinary shares.

In addition, we believe that continued increases in sales of footwear, apparel and accessories will largely depend on customers continuing to demand technical superiority from their premium products. If the number of customers demanding footwear, apparel and accessories does not continue to increase, or if our customers are not convinced that our footwear, apparel and accessories are more functional, stylish or technically superior than other footwear, apparel and accessories alternatives, we may not achieve the level of sales necessary to support new growth platforms and our ability to grow our business will be severely impaired.

 

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Sales of footwear, apparel and accessories may not continue to increase, and this could impair our ability to innovate and grow our business.

We believe that continued increases in sales of footwear, apparel and accessories will largely depend on customers continuing to demand footwear, apparel and accessories designed for specific athletic pursuits such as running. If the number of customers demanding footwear, apparel and accessories does not continue to increase, the trend of increased focus on health and wellness or the associated growth in exercise subsides, the appeal of high-technology footwear, apparel and accessories diminishes, the style of our athletic and technical footwear, apparel and accessories falls out of fashion with customers or customers engaging in athletic pursuits are not convinced that our footwear, apparel and accessories are a better choice than traditional alternatives, our ability to innovate and grow our business will be severely impaired, and our business, results of operations, financial condition and the price of our Class A ordinary shares may be adversely impacted.

We have generated net losses in the past and may incur net losses in the future.

For the years ended December 31, 2020 and 2019, we generated net losses of CHF 27.5 million and CHF 1.5 million, respectively. For the six-month periods ended June 30, 2021 and 2020, we generated net income of CHF 3.8 million and net losses of CHF 33.1 million, respectively. We will need to generate and sustain increased net sales and net income levels in future periods in order to increase profitability, and, even if we do, we may not be able to maintain or increase our level of profitability over the long term. We intend to continue to expend significant funds to grow our business, and we may not be able to increase our net sales enough to offset our higher operating expenses. We may incur significant losses in the future for a number of reasons, including the other risks described in this prospectus, and unforeseen expenses, difficulties, complications and delays, and other unknown events. If we are unable to achieve or sustain profitability, our business, results of operations, financial condition and the price of our Class A ordinary shares may be adversely impacted.

We operate in a highly competitive market and the size and resources of some of our competitors may allow them to impose pricing pressures or compete more effectively than we can, resulting in a loss of our market share and a decrease in our net sales and profitability.

The market for footwear, apparel and accessories is highly fragmented and extremely competitive. We compete directly against wholesalers and direct retailers of footwear, apparel and accessories. Because of the fragmented nature of the marketplace, we also compete with other apparel sellers, including those who do not specialize in footwear, apparel and accessories. Many of our competitors have significant competitive advantages, including longer operating histories, larger and broader customer bases, more established relationships with a broader set of suppliers, greater brand recognition and greater financial, technological and engineering resources, research and development, store development, marketing, distribution and other resources than we do. We may face intense pressure with respect to competition for key customer accounts and distribution channels. Because of the highly competitive nature of our industry, we may face increased pressure from our competitors to lower our prices for our products, which may adversely impact consumer demand for our products, our brand image, our realized margins, our net sales and results of operations. Furthermore, we believe that our key customers face intense competition from other department stores, sporting goods stores, retail specialty stores, and online retailers, among others, which could negatively impact the financial stability of their businesses and their ability to conduct business with us. These factors may result in a loss of our market share, a decrease in our net sales and profitability or negative impacts to our business, results of operations, financial condition and the price of our Class A ordinary shares.

Competitors have and will likely continue to attempt to imitate our premium products and technology and divert sales.

As our business has expanded, our competitors have imitated, and will likely continue to imitate, our premium product designs and branding, which could harm our business, results of operations, financial condition and the price of our Class A ordinary shares. Also, any theft, piracy or leaking, such as through industrial espionage, of our technologies, materials or trade secrets could cause harm to our brand and business. Competitors who flood the market with products seeking to imitate our products could divert sales and dilute the

 

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value of our brand. Continued sales of competing products by our competitors could harm our brand and adversely impact our business, financial condition and results of operations. While we rely on a variety of intellectual property laws and procedures to protect our competitive position, intellectual property protection has its limitations. For more information, please see “—Risks Related to Our Intellectual Property and Information Technology—If we are unable to obtain, maintain, protect and enforce our intellectual property rights for the products we develop, or if the scope of our intellectual property protection is not sufficiently broad, others may be able to develop and commercialize products substantially similar to ours, and our business may be adversely affected.”

Our plans to innovate and expand our product offerings may not be successful, and implementation of these plans may divert our operational, managerial and administrative resources, which could harm our competitive position and reduce our net sales and profitability.

In addition to our DTC strategy and the expansion of our geographic footprint, we plan to grow our business by innovating and expanding our product offerings. The principal risks to our ability to successfully carry out our plans to expand our product offering include:

 

   

if our expanded product offerings fail to maintain and enhance our distinctive brand identity and premium quality, our brand image may be diminished, and our sales may decrease;

 

   

our innovations, such as the subscription-based sales model we are introducing with our Cyclon footwear, may fail to be financially viable or may not be well received by our customers or the market;

 

   

implementation of our plans may divert management’s attention from other aspects of our business and place a strain on our management, operational and financial resources, as well as our information systems; and

 

   

incorporation of novel materials or features into our footwear, apparel and accessories may not be accepted by our customers or may be considered inferior to similar products offered by our competitors.

Moreover, our ability to successfully carry out our plans to expand our product offerings may be affected by economic and competitive conditions, changes in consumer spending patterns and changes in consumer preferences and styles. These plans could be abandoned, could cost more than anticipated, could impact the quality of our products and could divert resources from other areas of our business, any of which could negatively impact our competitive position, reduce our net sales and profitability or negatively impact the price of our Class A ordinary shares.

Our limited operating experience and brand recognition in new markets may limit our expansion strategy and cause our business and growth to suffer.

Our future growth depends, to a considerable extent, on our efforts to expand our markets and also on our success in entering new markets throughout the world that we deem attractive. While our headquarters are in Switzerland, we sell our footwear, apparel and accessories globally. For the year ended December 31, 2020, 49%, 44% and 5% of our sales were to customers in North America, Europe and Asia, respectively. For the six-month period ended June 30, 2021, 52%, 41% and 6% of our sales were to customers in North America, Europe and Asia, respectively. We also have limited experience with regulatory environments and market practices outside of Europe and the United States, and cannot guarantee that we will be able to penetrate or successfully operate in any such markets. In connection with our initial expansion efforts, especially in the United States, we have encountered increased costs of operations resulting from higher customs and payroll expenses and from new and different business requirements generally. In connection with our continued expansion efforts throughout the world, we have encountered, and expect to continue to encounter, a number of obstacles including cultural and linguistic differences, differences in regulatory environments and market practices, difficulties in keeping abreast of market, business and technical developments and foreign customers’

 

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tastes and preferences, as well as differences in employee expectations and working culture. We may also encounter difficulty expanding into new markets throughout the world because of limited brand recognition leading to delayed acceptance of our athletic and technical footwear, apparel and accessories by customers in these new markets. In particular, we have no assurance that our grassroots marketing efforts will prove successful outside of the geographic regions in which they have been used in Europe and the United States. The expansion into new markets may also present competitive, merchandising, forecasting and distribution challenges that are different from or more severe than those we currently face. Failure to develop new markets globally or disappointing growth outside of such markets may harm our business, results of operations, financial condition or the price of our Class A ordinary shares.

If our grassroots marketing efforts are not successful our business, results of operations and financial condition could be harmed. Additionally, the costs and return on our investments for our sports marketing sponsorships may become more challenging and this could impact the value of our brand image.

We rely principally on grassroots marketing efforts to advertise our brand. These efforts include working with select premium brand partners, such as our co-entrepreneur, Roger Federer, and local athletes chosen by us, who we refer to as our ambassadors. Our ambassadors assist us by introducing our brand and culture to the communities around our stores. Our grassroots marketing efforts must be tailored to each particular market, which may require substantial ongoing attention and resources. For instance, we must successfully identify suitable ambassadors in each of our new and existing markets. Our future growth and profitability and the vibrancy of our premium brand, particularly among running communities, will depend in part upon the effectiveness and efficiency of these grassroots marketing efforts.

An element of our marketing strategy has been to create a link in the consumer market between our products and professional and Olympic athletes, such as with Roger Federer and various triathletes around the world, and we face additional risks as a result. If we lose our celebrity endorsers, or if our celebrity endorsers engage in activities that damage our reputation (whether actual or perceived), our brand and our business could be adversely impacted. We have also developed sponsorship agreements with a variety of athletes. However, as competition in the footwear, apparel and accessories industry has increased, the costs associated with athlete sponsorships, including the costs of obtaining and retaining these sponsorships and agreements, have varied and at times increased greatly. If we are unable to maintain our current association with athletes, or to do so at a reasonable cost, we could lose the reputational benefit associated with such partnerships, and we may be required to modify and substantially increase our marketing investments. In addition, because certain sporting events, including the New York City Marathon, the 2021 Olympics and other premier athletic events, were largely cancelled or delayed due to the COVID-19 pandemic in 2020 and 2021, and future plans for these events remain uncertain, we may not realize the expected benefits of these relationships. Moreover, a failure to continue to correctly identify promising public figures to use and endorse our products or a failure to enter into cost-effective endorsement arrangements with prominent public figures could adversely affect our brand, sales and profitability.

Because we have not historically made extensive use of traditional advertising channels, such as print or television advertisements, to build our brand, if our grassroots marketing efforts or sports marketing sponsorships are not successful, there may be no immediately available alternative marketing channel for us to build awareness of our products in a manner that will be successful. This may impair our ability to successfully integrate new stores into the surrounding communities, to expand into new markets at all or to maintain the strength or distinctiveness of our brand in our existing markets. In addition, if our grassroots marketing efforts are unsuccessful and we are required to use traditional advertising channels in our overall marketing strategy, then we will incur additional expense associated with the transition to and operation of a traditional advertising channel, and we may not have the financial or other resources needed to do so successfully. Failure to successfully market our products and brand in new and existing markets could harm our premium brand, business, results of operations, financial condition and the price of our Class A ordinary shares.

 

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If we fail to adequately continue to connect with our consumer base, it could have a material adverse effect on our business, results of operations and financial condition.

Our marketing and promotional programs, by focusing on the premium experience our products provide, are important in capturing the interest of consumers and attracting them to our products and encouraging purchases by consumers. If we fail to successfully develop and implement marketing, advertising and promotional strategies in new and existing markets, we may be unable to achieve and maintain brand awareness and consumer traffic to our sites or stores may be reduced.

We believe that much of the growth in our customer base to date has originated from our marketing strategy, including social media and other digital marketing efforts. For example, we maintain Facebook, Instagram, Twitter, WeChat, Weibo and YouTube accounts. If we are unable to cost-effectively use social media platforms as marketing tools, our ability to acquire new customers and our business and financial condition may suffer. Unauthorized or inappropriate use of our social media channels could result in harmful publicity or negative consumer experiences, which could have an adverse impact on the effectiveness of our marketing in these channels. In addition, substantial negative commentary by others on social media platforms could have an adverse impact on our ability to successfully connect with consumers. In addition, if our customers believe we have failed to live up to our stated goals (whether real or perceived), including those related to ESG matters, they may use social media platforms to cause reputational damage to our brand and business. Furthermore, as laws and regulations rapidly evolve to govern the use of these platforms, the failure by us, our employees or third parties acting at our direction to comply with applicable laws and regulations could subject us to regulatory investigations, lawsuits, including class actions, liability, fines or other penalties. Moreover, if digital advertising platforms increase advertising expenses or change their policies in a manner that is inconsistent with our marketing strategy, our expenses may increase and the effectiveness of our digital advertising strategy may be diminished, and our growth through our DTC channels may be harmed as a result. Furthermore, an increase in the use of social media platforms for product promotion and marketing may cause an increase in our burden to monitor compliance of such platforms, and increase the risk that such materials could contain problematic product or marketing claims in violation of applicable regulations. These and other risks could adversely affect our business, results of operations, financial condition and the price of our Class A ordinary shares.

We may be adversely affected by the financial health of our retail partners and customers.

We extend credit to our retail partners based on an assessment of a customer’s financial condition, generally without requiring collateral. To assist in the scheduling of production and the shipping of our products, we offer certain customers the opportunity to place orders five to six months ahead of delivery under our futures ordering program. These advance orders may be canceled under certain conditions, and the risk of cancellation may increase when dealing with financially unstable retailers or retailers struggling with economic uncertainty. In the past, some customers have experienced financial difficulties, including bankruptcies, which have had an adverse effect on our sales, our ability to collect on receivables and our financial condition. In addition, we and our retail partners could face risks from a decline in the overall level of consumer retail spending, and a weak retail environment could impact customer traffic in the stores of our retail partners and also adversely affect our net sales. Moreover, traditional brick-and-mortar retail channels have experienced low growth or declines in recent years and recent trends have increased permanent and temporary store closures. Recent years have also seen shifts in consumer preferences and purchasing practices, which may increase the difficulty for us to retain and grow our customer base. If and when the retail economy weakens or as consumer behavior shifts, retailers may be more cautious with orders. A slowing or changing economy in our key markets could adversely affect the financial health of our customers, which in turn could have an adverse effect on our results of operations and financial condition. In addition, product sales are dependent in part on high-quality merchandising and an appealing retail environment to attract consumers, which requires continuing investments by retailers. Retailers that experience financial difficulties may fail to make such investments or delay them, resulting in lower sales and orders for our products.

 

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The COVID-19 pandemic and related government, private sector, and individual consumer responsive actions have adversely affected, and may continue to adversely affect our business operations, the operations of our suppliers and other business partners, store traffic, employee availability, and our financial condition, liquidity and cash flow.

The outbreak of the COVID-19 pandemic has been declared a pandemic by the World Health Organization and has spread across the globe. Related government and private sector responsive actions have significantly affected our business operations and those of our suppliers and other business partners, and will likely continue to do so for the foreseeable future.

We have in the past and we continue to be adversely impacted by business disruptions related to COVID-19, including disruptions to sourcing, our supply chain, our manufacturing facilities and our distribution facilities. For example, in 2020, the COVID-19 pandemic caused operations in certain of our suppliers’ facilities to be disrupted or temporarily suspended, certain of our warehouses to experience disruptions or operate at reduced capacity, and further caused us to delay our plans to expand our footwear supplier base beyond Vietnam. In addition, the recent surge of COVID-19 cases in certain countries, such as Vietnam where 97% of our footwear was produced in 2020 and a number of our suppliers’ manufacturing facilities are located, has resulted in ongoing mandatory closures of such facilities, as well as significant impediments to local freight operations due to restrictive measures introduced by the Vietnamese government and, as a result, disruptions to our supply chain and business operations. There is no assurance as to when these mandatory closures or freight disruptions will cease, and even if they do, additional restrictions could arise in the future. We expect that these disruptions will continue to adversely impact our business, financial condition and results of operations for the remainder of 2021 and 2022.

The effects of the COVID-19 pandemic have also negatively impacted many of our business partners, such as the retail stores and distributers that sell our products, and are likely to continue to adversely impact some or all of such partners for the foreseeable future. Any of the foregoing could lead to their or our financial distress or bankruptcy. Moreover, the negative implications of COVID-19, including from responses to the pandemic, may not be predictable and may negatively impact our business and operations, including in ways that we do not currently anticipate. For example, certain unemployment programs instituted by governments caused our operations to experience a workforce shortage and increased costs, and similar unpredictable results of COVID-19 may cause adverse changes to our business, financial condition, results of operation and the price of our Class A ordinary shares.

The spread of COVID-19 has caused public health officials to impose restrictions and recommend precautions to mitigate the spread of the virus, especially when congregating in heavily populated areas, such as malls and fitness centers. Throughout 2020, a majority of our retail partners closed stores. At other locations, including our first flagship store in New York City which we opened in December 2020, we have implemented precautionary measures in line with guidance from local authorities. These measures include restrictions such as limitations on the number of guests allowed in our stores at any single time, minimum physical distancing requirements and limited operating hours. We do not know how the measures recommended by local authorities or implemented by us may change over time or what the duration of these restrictions will be. There is significant uncertainty regarding what the results of operations of our stores will be.

Further resurgences in COVID-19 cases could cause additional restrictions, including temporarily closing all or some of our or our retailers’ stores again. There is uncertainty over the impact of COVID-19 on the U.S., Swiss, and global economies, consumer willingness to visit stores, malls, and fitness centers and employee willingness to staff stores once they reopen. There is also uncertainty regarding potential long-term changes to consumer shopping behavior and preferences and whether consumer demand will recover when restrictions are lifted.

There is a wide range of possible outcomes regarding the nature and timing of events related to the COVID-19 pandemic. Developments, including the ultimate geographic spread and duration of the pandemic, the

 

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extent and duration of a resurgence, if any, new information concerning the severity of the COVID-19 virus, the effectiveness and intensity of measures to contain the COVID-19 virus, the availability and effectiveness of vaccines for the COVID-19 virus and the economic impact of the pandemic and the reactions to it, could have a significant adverse effect on our business, cash flows from operations and our liquidity. The extent of these developments and the related impacts are highly uncertain, and many are outside our control. Additionally, the COVID-19 pandemic could increase the magnitude of many of the other risks described in this prospectus and may have other material adverse effects on our operations that we are not currently able to predict. If our business and the markets in which we operate experience a prolonged occurrence of adverse public health conditions, such as COVID-19, it could materially adversely affect our business, financial condition, results of operations and the price of our Class A ordinary shares.

A downturn in the economy may affect consumer purchases of discretionary items, which could materially harm our sales, profitability and financial condition.

Many factors affect the level of consumer spending for discretionary items such as our footwear, apparel and accessories. These factors include general business conditions, interest and tax rates, the availability of consumer credit and consumer confidence in future economic conditions. Consumer purchases of discretionary items, such as our premium footwear, apparel and accessories, tend to decline during recessionary periods when disposable income is lower, and during such periods consumers may tend to choose less costly products and turn away from our premium products. Due to our limited operating history, we have not experienced a recessionary period and can therefore not predict the effect on our sales and profitability of a downturn in the economy. However, a downturn in the economy in markets in which we sell our products may materially harm our sales, business, results of operations, financial condition and the price of our Class A ordinary shares.

Our ability to attract customers to our stores and premium products depends heavily on successfully locating our stores in suitable locations and any impairment of a store location, including any decrease in customer traffic, could cause our net sales, business and results of operations to be less than expected and adversely affect our financial condition and the price of our Class A ordinary shares.

Our approach to identifying locations for our stores and premium products typically favors street locations and lifestyle centers. As a result, our stores are typically located near retailers or fitness facilities that we believe are consistent with our customers’ lifestyle choices. Our net sales, business and results of operations at these stores are derived, in part, from the volume of foot traffic in these locations. Store locations may become unsuitable due to, and our sales volume, customer traffic and profitability generally may be harmed by, among other things:

 

   

economic downturns in a particular area;

 

   

competition from nearby retailers selling athletic apparel;

 

   

changing consumer demographics in a particular market;

 

   

changing lifestyle choices of consumers in a particular market; and

 

   

the closing or decline in popularity of other businesses located near our store, including as a result of the COVID-19 pandemic.

Changes in areas around our store locations that result in reductions in customer foot traffic or otherwise render the locations unsuitable could cause our sales, business and results of operations to be less than expected. While we currently sell our products through a limited number of stores that are owned and operated by us, we plan to open additional stores in the future. If our net sales, business and results of operations through stores owned and operated by us increase in the future, the risks described above may be exacerbated and may adversely affect our financial condition and the price of our Class A ordinary shares.

 

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Risks Related to our Operations, Distribution Network and Suppliers

We have grown rapidly in recent years and we have limited operating experience at our current scale of operations. If we are unable to manage our operations at our current size or to manage any future growth effectively, our brand image and financial performance may suffer.

We have expanded our operations rapidly since our inception in 2010 and we have limited operating experience at our current size. We opened the first store with our retail partners in Switzerland in 2010 and the first store through retail partners in the United States in 2013. The first retail store owned and operated by us opened in late 2019 in China, followed by our flagship location in New York City in 2020. We have experienced substantial growth in our net sales from our inception through 2020. We expect our net sales growth rate to slow as the number of new stores that carry our products in the future declines relative to our larger retailer base. Our substantial growth to date has placed a significant strain on our management systems and resources. If our operations continue to grow, of which there can be no assurance, we will be required to continue to expand our sales and marketing, product development and distribution functions, to upgrade our management information systems and other processes, and to obtain more space for our expanding administrative support and other headquarters personnel. Moreover, our new innovations may require either new or different infrastructure, different relationships or processes. Our continued growth could increase the strain on our resources, and we could experience serious operating difficulties, including difficulties in hiring, training and managing an increasing number of employees, difficulties in obtaining sufficient raw materials and manufacturing capacity to produce our products, and delays in production and shipments. These difficulties would likely result in the erosion of our brand image and lead to a decrease in net sales, income from operations and the price of our Class A ordinary shares.

Our growth strategy involves the continued expansion of our DTC channel, including our own retail stores and e-commerce platform, which may present risks and challenges with which we have limited experience.

Our business involves distributing products on a wholesale basis for resale through our retail partners and also includes a multi-channel experience, including physical and online retail stores that are owned and operated by us. Growing our e-commerce platforms and the number of physical stores owned by us is essential to our growth strategy, as is innovation and expanding our product offerings available through these channels. However, we have limited operating experience executing this strategy, given the first retail store owned and operated by us opened only in late 2019 for the first time in China, followed by our flagship location in New York City in 2020. Our DTC channel continues to represent an increasing percentage of our net sales, which may expose us to other risks, including those relating to continue to grow brand awareness. This strategy has, and will continue to require significant investment in cross-functional operations and management focus, along with investment in supporting technologies and retail store spaces. If we are unable to provide a convenient and consistent experience for our customers, our ability to compete and our results of operations could be adversely affected. In addition, if our e-commerce website design does not appeal to our customers, function reliably and conveniently or maintain the privacy and security of customer data, or if we are unable to consistently meet our brand promise to our customers, we may experience a loss of customer confidence or lost sales, including as a result of losing repeat customers, or be exposed to fraudulent purchases, cyberattacks or other issues which could adversely affect our reputation and results of operations.

We currently operate our online store in over 60 countries, which are serviced by our wholesale channel as well, and are planning to expand our e-commerce platform to other geographies. Existing and additional countries may impose different and evolving laws governing the operation and marketing of e-commerce websites, as well as the collection, storage and use of information on consumers interacting with those websites. We may incur additional costs and operational challenges in complying with these laws, and differences in these laws may cause us to operate our businesses differently in different territories. If so, we may incur additional costs and may not fully realize the investment in our international expansion. We are also exposed to the risk of fraudulent domains or websites pretending to sell our products, when they are in reality phishing sites or imitator domains, and we might be unable to stop those sites from operating in due time, or permanently due to regulatory or factual constraints.

 

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Our financial success may be impacted by the strength of our relationships with our retail partners and is dependent on the success of these retail partners.

Our financial success is dependent on our retail partners continuing to carry our products and the success of these partners. A substantial amount of our sales are made through our retail partners, either directly or indirectly, who may decide to emphasize products from our competitors, to redeploy their retail floor space to other product categories, or to take other actions that reduce their purchases of our products. We do not have long-term contracts with any of our retail partners, and sales to our retail partners are generally on an order-by-order basis and are subject to rights of cancellation and rescheduling by the partner. If we cannot fill our retail partners’ orders in a timely manner, the sales of our products and our relationships with those partners may suffer, and this could have a material adverse effect on our ability to grow our product lines and our results of operations.

Although we believe that our business relationships with our retail partners are satisfactory, we cannot assure you that these business relationships will continue to generate satisfactory sales in the future. If any of our major retail partners experiences a significant downturn in their business or fails to remain committed to our products or brand, then these partners may reduce or discontinue purchases from us, which could adversely impact our business.

Many of our retail partners compete with each other, and if they perceive that we are offering their competitors better pricing and support, they may reduce purchases of our products. In addition, we compete directly with our retail partners by selling our products to consumers through our DTC channel. If our retail partners believe that our DTC channel diverts sales from their stores, this may weaken our relationships with our partners and cause them to reduce purchases of our products. In addition, if we fail to accurately identify the needs of our partners, our partners fail to accept new products or product line expansions or attribute premium value to our new or existing products or product line expansions relative to competing products or if we fail to obtain shelf space from our retail partners (whether by our competitors introducing new products or otherwise), our sales, business, results of operations and financial condition may be adversely impacted.

We could experience significant disruptions in supply from our current or future sources.

We have agreements with our suppliers that are on a purchase order basis and typically rely on inventory forecasts to help determine our quantities for purchase orders. We are highly dependent upon our suppliers, several of them being the sole source for certain components of our footwear and apparel and various of our suppliers being concentrated in a single country. There can be no assurance that there will not be a disruption in the supply of fabrics, other subcomponents or raw materials from current sources or, in the event of a disruption, that we would be able to locate alternative suppliers of materials of comparable quality at an acceptable price, or at all. Identifying a suitable supplier is a resource-intensive process that requires us to become satisfied with their quality control, responsiveness and service, financial stability and labor and other ethical practices. Any delays, interruption or increased costs in the supply of fabric and other subcomponents or manufacture of our products could have an adverse effect on our ability to meet customer demand for our products and result in lower net sales and operating income both in the short and long term, which could in turn negatively impact our business, financial condition and the price of our Class A ordinary shares.

Our success is substantially dependent on the continued service of our senior management.

Our success is substantially dependent on the continued service of our senior management, including our co-founders David Allemann, Olivier Bernhard and Caspar Coppetti and our co-CEOs Marc Maurer and Martin Hoffmann. The loss of the services of our senior management could make it more difficult to successfully operate our business and achieve our business goals. We also may be unable to retain existing management, technical, sales and client support personnel that are critical to our success, which could harm our customer and employee relationships, result in loss of key information, expertise or know-how or cause us to incur unanticipated recruitment, training and other costs, which could in turn harm our business, operating results, financial condition and the price of our Class A ordinary shares.

 

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Laws and regulations on executive compensation, including legislation in our home country, Switzerland, may restrict our ability to attract, motivate and retain the required level of qualified personnel. In Switzerland, legislation affecting public companies is in force that, among other things, (i) imposes an annual binding shareholders’ “say on pay” vote with respect to the compensation of our executive committee and board of directors, (ii) generally prohibits severance, advances, transaction premiums and similar payments to members of our executive committee and board of directors, and (iii) requires companies to specify certain compensation-related matters in their articles of association, thus requiring them to be approved by a shareholders’ vote.

We have not obtained key man life insurance policies on any members of our senior management team. As a result, we would not be protected against the associated financial loss if we were to lose the services of members of our senior management team.

If we are unable to attract, assimilate and retain new team members, we may not be able to grow or successfully operate our business.

Our success has largely been the result of significant contributions by our employees and team members, including members of our current senior management and product design teams. However, to be successful in continuing to grow our business, we will need to continue to attract, assimilate, retain and motivate highly talented individuals with a diverse range of skills and experience. Competition for employees in our industry is intense and we have from time-to-time experienced difficulty in attracting the personnel necessary to support the growth of our business, and we may experience similar difficulties in the future. Moreover, we have experienced challenges obtaining work permits for potential employees, including in Switzerland and the EU, which have continued following the United Kingdom’s withdrawal from the EU (“Brexit”), and this trend may continue. These problems could be further exacerbated as we embark on our strategy of significantly expanding our business in the United States and elsewhere over the next few years. In addition, if we fail to mitigate labor disputes, fail to properly hire and dismiss employees as needed or fail to comply with labor laws, which differ by location and jurisdiction and are rapidly changing, our risk of litigation may increase, which would cause us to incur additional costs. If we are unable to attract, assimilate and retain additional employees with the necessary skills, we may not be able to grow or successfully operate our business, and our business, results of operation, financial condition and the price of our Class A common stock might be harmed.

Our business or our results of operations could be harmed if we or our retail partners are unable to accurately forecast demand for our products or if we are unsuccessful at managing product manufacturing decisions.

To ensure adequate inventory supply, we and our retail partners forecast inventory needs, which are subject to seasonal and quarterly variations, and are subject to variation as a result of broader economic and social trends. Like our competitors, we have an extended design, development, manufacturing and logistics process, which involves the initial design and development of our products, the purchase of raw materials, the accumulation of inventories, the subsequent sale of the inventories, and the collection of the resulting accounts receivable. This production cycle requires us to incur significant expenses relating to the design, development, manufacturing, distributing and marketing of our products, including product development costs for new products, in advance of the realization of any net sales from the sale of our products, and results in significant liquidity requirements and working capital fluctuations throughout our fiscal year. Because the production cycle typically involves long lead times, which requires us to make manufacturing decisions several months in advance of an anticipated purchasing decision by the consumer, it is challenging for us to estimate and manage our inventory and working capital requirements. If we fail to accurately forecast demand or our inventory and working capital requirements, we may experience excess inventory levels or a shortage of product to deliver to our retail partners and through our DTC channels. In addition, our retail partners may fail to accurately forecast the demand for our products and may purchase an insufficient amount of our products or may accumulate excess inventory, each of which could negatively impact our business, brand and results of operations.

If we underestimate the demand for our products, we may not be able to produce products to meet our retail partner requirements, and this could result in delays in the shipment of our products and our failure to satisfy

 

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demand, as well as damage to our reputation and retail partner relationships. If our retail partners underestimate the demand for our products, they may not have enough products on hand to satisfy demand in a timely fashion and sales opportunities may be lost. If we or our retail partners overestimate the demand for our products, we or our retail partners could face inventory levels in excess of demand, which could result in inventory write-downs or write-offs and the sale of excess inventory at discounted prices, which would harm our gross margins and our brand management efforts. In addition, these and other factors, including failures to accurately predict the level of demand for our products, could cause a decline in net sales and harm our business, operating results, financial condition and the price of our Class A ordinary shares.

We may not be able to successfully open new store locations in a timely manner, if at all, which could harm our results of operations.

Our growth will depend in part on our ability to successfully open and operate new stores owned by us or convince third-parties to sell our premium products on our behalf. Our ability to successfully open and operate new stores depends on many factors, including, among others, our ability to:

 

   

identify suitable store locations, the availability of which is outside of our control;

 

   

negotiate acceptable lease terms, including desired tenant improvement allowances;

 

   

hire, train and retain store personnel and field management;

 

   

assimilate new store personnel and field management into our corporate culture and spirits;

 

   

source sufficient inventory levels; and

 

   

successfully integrate new stores into our existing operations and information technology systems.

Successful new store openings may also be affected by our ability to initiate our grassroots marketing efforts in advance of opening stores in geographies we had not previously operated in. We typically rely on our grassroots marketing efforts to build awareness of our brand and demand for our products. Our grassroots marketing efforts are often lengthy and must be tailored to each new market based on our emerging understanding of the market. Accordingly, there can be no assurance that we will be able to successfully implement our grassroots marketing efforts in a particular market in a timely manner, if at all. Additionally, we may be unsuccessful in identifying new markets where our footwear, apparel and accessories and other products and brand image will be accepted or the performance of our stores will be considered successful. Furthermore, we will encounter pre-operating costs and we may encounter initial losses while new stores commence operations.

We have only opened one flagship store owned and operating by us to date, namely our location in New York City which was opened in 2020, and we also own and operate a handful of mall-based stores in China. We plan to open a number of other stores owned and operated by us in the near future. We expect that we will incur additional capital expenditures to open additional stores owned and operated by us in the future, which may be significant. We have limited experience opening our own stores, and there can be no assurance that we will be able to open additional stores successfully. In addition, our new stores will not be immediately profitable, and we will incur losses until these stores become profitable. There can be no assurance that we will open the planned number of new stores in 2021 or thereafter, or that our estimates regarding the associated costs will be accurate. Any failure to successfully open and operate new stores would harm our business, results of operations, financial condition and the price of our Class A ordinary shares.

Problems with our distribution system, including our partners’ ability to scale warehouse and factory operations, could harm our ability to meet customer expectations, manage inventory, complete sales and achieve objectives for operating efficiencies.

We rely on distribution facilities in Australia, Brazil, Canada, China, Japan, the United States, Luxembourg, Switzerland and the United Kingdom, all of which are operated by third-party vendors, for substantially all of our

 

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product distribution. Our contracts for these facilities expire at various times beginning in 2023, and we may be unable to successfully renegotiate such agreements on terms attractive to us. In addition, we may be unable to terminate such contracts at our convenience. There can be no assurance that we will be able to enter into other contracts for distribution centers on acceptable terms, which could disrupt our operations. Our distribution facilities include computer controlled and automated equipment, and their operations are complicated and may be subject to a number of risks related to security or computer viruses, the proper operation of software and hardware, electronic or power interruptions or other system failures. In addition, because substantially all of our products are distributed from these distribution centers, our operations could also be interrupted by labor difficulties, or by floods, fires or other natural disasters or force majeure events. Moreover, some of our distribution centers experienced temporary closures due to COVID-19 in 2020, and certain of our wholesale channel customers closed their operations as well. In addition, in 2020 certain of our warehouses experienced a shortage of labor and increased labor costs as a result of the financial incentives provided by the government in response to COVID-19, which encouraged employees to forgo their employment opportunities with us. In addition, the property damage, business interruption and other insurance policies held by us may not adequately protect us from the adverse effects that could result from significant disruptions to our business and distribution system, such as the long-term loss of customers or an erosion of our brand image. In addition, our distribution capacity is dependent on the timely performance of services by third parties, including the shipment of our products to and from our distribution facilities around the globe, including in Europe, Asia and the United States. If we encounter problems with our distribution system, our ability to meet customer expectations, manage inventory, complete sales, achieve objectives for operating efficiencies and the price of our Class A ordinary shares could be harmed.

Fluctuations in the cost of raw materials and commodities we use in our products and our supply chain could negatively affect our operating results.

The fabrics and other subcomponents used by our suppliers and manufacturers are made of raw materials, including virgin and recycled petrol-based and bio-based polyester, polyamide and ethylene vinyl acetate, rubber and organic cotton. Significant raw material price fluctuations, such as oil prices, or shortages in such raw materials could adversely impact our cost of goods sold. We are also subject to risks from price fluctuations due to our storage capacity restrictions at our warehouses for the raw materials that our suppliers and manufacturers use for production. In addition, all our manufacturers are subject to government regulations related to wage rates, and therefore the labor costs to produce our products may fluctuate. The cost of transporting our products for distribution and sale is also subject to fluctuation due in large part to the price of oil, but such costs are also exposed to geopolitical and climate change issues that may disrupt our and global supply chains. Because most of our products are manufactured abroad, our products must be transported by third parties over large geographical distances and an increase in the price of oil can significantly increase costs. Manufacturing delays or unexpected transportation delays can also cause us to rely more heavily on airfreight to achieve timely delivery to our customers, which significantly increases freight costs and impacts our carbon-dioxide reduction targets negatively. Price fluctuations, raw material inventory capacity restrictions and extended lead times in our supply chains reduce our ability to react to variances in our inventory forecasts and limit our operational flexibility. Our goal to reduce the carbon dioxide-footprint of our company may cause us to forgo airfreight transport completely, or may result in increased freight and transportation costs. In addition, any disruptions or reductions of our shipments made through airfreight may increase shipment times. Any of these fluctuations may increase our cost of products and have an adverse effect on our profit margins, business, results of operations, financial condition and the price of our Class A ordinary shares.

Our international operations involve inherent risks which could result in harm to our business.

Virtually all of our athletic and premium footwear, apparel and accessories are manufactured outside of the United States, and the majority of our products are sold outside of the United States. Accordingly, we are subject to the risks generally associated with global trade and doing business abroad, which include foreign laws and regulations, varying consumer preferences across geographic regions, political unrest, disruptions or delays in

 

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cross-border shipments and changes in economic conditions in countries in which our products are manufactured or where we sell products. This includes, for example, the uncertainty surrounding the effect of Brexit, including changes to the legal and regulatory framework that apply to the United Kingdom and its relationship with the EU, as well as new and proposed changes affecting tax laws and trade policy in the United States and elsewhere, as further described below under “—Risks Related to Our Financial, Accounting and Tax Matters—We could be subject to changes in tax laws, tax regulations and tax treaties, including their interpretation and application, in Switzerland, the United States or any other country in which we operate, which could result in additional tax liabilities or increased volatility in our effective tax rate” and “—Risks Related to Legal and Regulatory Compliance—Changes to trade policies, tariffs and import/export regulations in the United States, EU and other jurisdictions, or our failure to comply with such regulations, may have a material adverse effect on our reputation, business, financial condition and results of operations.” There could be legislative actions limiting outsourcing manufacturing and production activities to foreign jurisdictions, including through tariffs or penalties on goods manufactured outside the United States, which may require us to change the way we conduct business and adversely affect our business, results of operations, financial condition and the price of our Class A ordinary shares.

In addition, disease outbreaks, including the current COVID-19 pandemic, terrorist acts and political or military conflict have increased the risks of doing business abroad. These factors, among others, could affect our ability to manufacture products or procure materials, our ability to import products, our ability to sell products in international markets and our cost of doing business. If any of these or other factors make the conduct of business in a particular country undesirable or impractical, our business and financial results could be adversely affected. In addition, many of our imported products are subject to duties, tariffs or quotas that affect the cost and quantity of various types of goods imported into the United States and other countries. Any country in which our products are produced or sold may eliminate, adjust or impose new quotas, duties, tariffs, safeguard measures, anti-dumping duties, cargo restrictions to prevent terrorism, restrictions on the transfer of currency, climate change legislation, product safety regulations or other charges or restrictions, any of which could have an adverse effect on our business, results of operations, financial condition and the price of our Class A ordinary shares.

Furthermore, we are subject to the U.S. Foreign Corrupt Practices Act as well as the anti-corruption laws of other countries in which we operate. Although we implement policies and procedures designed to promote compliance with these laws, our employees, contractors and agents, as well as those companies to which we outsource certain of our business operations, may take actions in violation of our policies or such laws. Any such violation could result in sanctions or other penalties and have an adverse effect on our reputation, business, results of operations, financial condition and the price of our Class A ordinary shares.

We distribute our products to customers directly from the factory and through distribution centers located throughout the world. Our ability to meet customer expectations, manage inventory, complete sales and achieve objectives for operating efficiencies and growth, depends on the proper operation of our distribution facilities, the development or expansion of additional distribution capabilities and the timely performance of services by third parties, including those involved in shipping product to and from our distribution facilities. In addition, our property damage, business interruption and other insurance policies may not adequately protect us from adverse effects caused by significant disruptions to our distribution facilities. Any negative impacts to our distribution facilities could result in an adverse effect on our business, results of operations, financial condition and the price of our Class A ordinary shares.

Political uncertainty could have a material adverse effect on our business, results of operation and financial condition.

As a prominent Swiss brand, geopolitical events that involve Switzerland may have an impact on our business and share price. In addition, our brand and Swiss heritage may be detrimental to the company in the context of geopolitical disputes aimed at Switzerland or actors or situations with significant actual or perceived connection to Switzerland. We sell a significant portion of our products to customers outside of Switzerland and

 

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changes, potential changes or uncertainties in regulatory and economic conditions or laws and policies governing foreign trade, manufacturing, and development and investment in the territories and countries where we operate, could adversely affect our business and consolidated financial statements.

We are subject to risks associated with leasing retail and distribution, office and warehouse space subject to long-term and non-cancelable leases.

We lease all of our stores under operating leases and our inability to secure appropriate real estate or lease terms could impact our ability to grow. Our leases generally have initial terms of between five and ten years, and generally can be extended in five-year increments, if at all. We generally cannot unilaterally terminate these leases at an earlier time. If an existing or new store is not profitable, and we decide to close it, we may nonetheless be committed to perform our obligations under the applicable lease including, among other things, paying the base rent for the balance of the lease term. Similarly, we may be committed to perform our obligations under the applicable leases even if current locations of our stores become unattractive as demographic patterns change, or if we have to close stores due to governmental orders in connection with the COVID-19 pandemic. We also have long-term leases for office space and retail distribution locations that we are not currently using at full capacity due to the COVID-19 pandemic and the increased numbers of employees working remotely. If the current remote working trend extends beyond the end of the pandemic, we may be committed to perform our obligations under our leases for office space and distribution locations that we do not need, which may adversely affect our financial condition. Moreover, as our operations expand, we may be unable to find additional office space to accommodate our needs. In addition, as each of our leases expire, we may fail to negotiate renewals, either on commercially acceptable terms or at all, which could require us to close stores in desirable locations. We also lease all of our distribution centers and our inability to secure appropriate real estate or lease terms could impact our ability to deliver our products to the market.

The operations of many of our suppliers and third-party manufacturers are subject to additional risks that are beyond our control and that could harm our business, financial condition and results of operations.

Almost all of our manufacturing and raw material suppliers are located outside the United States. In addition, we work with select third-party distributors, especially in the initial stages of expansion for highly complicated products and in new markets, and because we ultimately do not control those third parties, we are subject to additional risks at a results of such relationships. In 2020, 97% of our footwear was produced in Vietnam, while the remainder was produced in Indonesia, and in the six-month period ended June 30, 2021, all of our footwear products were produced in Vietnam. Moreover, in 2020 and the six-month period ended June 30, 2021, approximately 63% and 38%, respectively, of our apparel and accessories products were manufactured in China, with the remainder being produced in Vietnam and Europe. All of our products are manufactured by third party manufacturers. As a result of our international suppliers, we are subject to risks associated with doing business in multiple jurisdictions, including:

 

   

political unrest, terrorism, labor disputes and economic instability resulting in the disruption of trade from foreign countries in which our products are manufactured;

 

   

consumer boycotts due to ethical, environmental or political issues in certain countries we do business with, such as for example, human rights and labor concerns in Asia, or product-related environmental concerns;

 

   

compliance with existing and new laws and regulations, including those relating to labor conditions and workplace safety, environmental protection, chemical regulation, quality and safety standards, imports, duties, taxes and other charges on imports, as well as trade restrictions and restrictions on currency exchange or the transfer of funds;

 

   

reduced protection for intellectual property rights, including patent and trademark protection, in some countries;

 

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disruptions or delays in shipments, such as the ship accident in the Suez Canal that disrupted container shipments and supply chains globally; and

 

   

changes in local economic conditions in countries where our manufacturers, suppliers or customers are located.

We also face risks from potential employment shortages for our supply operations as potential employees in certain geographies, including Vietnam, pursue opportunities outside of our and our suppliers’ industries. Any potential employment shortages may increase costs for our supplier and manufacturing partners and may limit our ability to scale our warehouse and factory operations efficiently. Increased costs in production may limit our profitability and may adversely impact our business, results of operations and financial condition.

These and other factors beyond our control could interrupt our suppliers’ production in offshore facilities, influence the ability of our suppliers to export our products cost-effectively or at all and inhibit our suppliers’ ability to procure certain materials, any of which could harm our business, financial condition, results of operations and the price of our Class A ordinary shares.

We rely on third-party suppliers to provide fabrics and other subcomponents for and to produce our footwear, apparel and accessories, and we have limited control over them and may not be able to obtain quality products on a timely basis or in sufficient quantity.

We do not manufacture our products or the raw materials and rely instead on third-party suppliers and contract manufacturers. Many of the specialty fabrics used in our products are technically advanced textile products developed by third parties and may be available, in the short-term, from only one or a very limited number of sources. For example, our engineered warp knitting textiles, which are included in many of our products, are supplied to the manufacturers we use by a few major producers in Vietnam, such as Paiho Group. In 2020, all of our products were produced by twelve manufacturing suppliers. In addition, all of our footwear products are currently manufactured in Vietnam, and some of our apparel styles are purchased from only a single manufacturer. These factors increase the risk of supply disruption, and our efforts to expand our supplier base may fail or be delayed. For example, while we intended to commence footwear production in Indonesia in 2020, this project was temporarily postponed due to COVID-19.

If we experience significant increased demand, or need to replace an existing manufacturer, there can be no assurance that additional supplies of fabrics, other subcomponents or raw materials or additional manufacturing capacity will be available when required on terms that are acceptable to us, or at all, or that any supplier or manufacturer would allocate sufficient capacity to us in order to meet our requirements or fill our orders in a timely manner. We allocate production orders among our suppliers based on the contractor’s capability, capacity and cost, but there is no assurance that we will be able to utilize capable contractors that have capacity at reasonable costs. Even if we are able to expand existing or find new manufacturing or fabric and other subcomponent sources, we may encounter delays in production and added costs as a result of the time it takes to train our suppliers and manufacturers in our methods, products and quality control standards. Delays related to supplier changes could also arise due to an increase in shipping times if new suppliers are located farther away from our markets or from other participants in our supply chain. Any delays, interruption or increased costs in the supply of fabric and other subcomponents or manufacturing of our products could have an adverse effect on our ability to meet customer demand for our products and result in lower net sales and income from operations, both in the short and long term. For example, the accident in the Suez Canal in 2021 delayed our shipments, caused a loss of containers and goods in maritime transportation, and further increased our freight costs due to global freight congestion and container shortage.

In addition, there can be no assurance that our suppliers and manufacturers will continue to provide fabrics, other subcomponents and raw materials or manufacture products that are consistent with our standards. We have occasionally received, and may in the future continue to receive, shipments of products that fail to conform to our

 

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quality control standards. In that event, unless we are able to obtain replacement products in a timely manner, we risk the loss of net sales resulting from the inability to sell those products and related increased administrative and shipping costs.

We may fail to find suitable partners to expand outside the United States and the EU and this may cause our growth strategy to suffer and may harm our net sales and results of operations.

As part of our growth strategy, we plan to expand our distribution network and sales of our products into new locations outside of the United States and the EU. Our successful expansion and operation of new stores outside the United States and the EU will depend on our ability to find suitable partners and to successfully implement and manage joint relationships. We have distribution agreements with 25 partners distributing to 40 markets, with Sport Alliance International Spa. (Italy), AW Sports S.A. DE C.V. (Mexico), ING Sports (Israel), SAT Sp. z.o.o. (Poland) and Sportmanship (Sweden) being the biggest contributors to our business in 2020. Failure to find sufficient or capable partners in a particular geographic regions may delay the rollout of our products in that area. If we are unable to find suitable partners through distribution relationships, our growth strategy will suffer and our net sales, results of operations and the price of our Class A ordinary shares could be harmed.

Extreme weather conditions and natural disasters could negatively impact our operating results and financial condition.

Extreme weather conditions in the areas in which our retail stores, suppliers, manufacturers, customers, distribution centers, headquarters and vendors are located could adversely affect our operating results and financial condition. Moreover, natural disasters such as earthquakes, hurricanes and tsunamis, whether occurring in the United States or abroad, and their related consequences and effects, including energy shortages and public health issues, have in the past temporarily disrupted, and could in the future disrupt, our operations, the operations of our vendors, manufacturers and other suppliers or have in the past and could result in economic instability that may negatively impact our operating results and financial condition. In particular, if a natural disaster were to occur in an area in which we or our suppliers, manufacturers, customers, distribution centers and vendors are located, our continued success would depend, in part, on the safety and availability of the relevant personnel and facilities and proper functioning of our or third parties’ computer, telecommunication and other systems and operations. In addition, a severe weather event could have an adverse impact on consumer spending, which could in turn result in a decrease in sales of our products. Further, climate change may increase both the frequency and severity of extreme weather conditions and natural disasters, which may affect our business operations, either in a particular region or globally, as well as the activities of our third-party vendors and other suppliers, manufacturers and customers. In addition, the physical changes prompted by climate change could result in changes in regulations or consumer preferences, which could in turn affect our business, operating results and financial condition. Further, if we are unable to find alternative suppliers, replace capacity at key manufacturing or distribution locations or quickly repair damage to our IT systems or supply systems, we could be late in delivering, or be unable to deliver, products to our customers. These events could result in reputational damage, lost sales, cancellation charges or markdowns, all of which could have an adverse effect on our business, results of operations, financial condition and the price of our Class A ordinary shares.

Risks Related to our Intellectual Property and Information Technology

If we are unable to obtain, maintain, protect and enforce our intellectual property rights for the products we develop, or if the scope of our intellectual property protection is not sufficiently broad, others may be able to develop and commercialize products substantially similar to ours, and our business may be adversely affected.

Our intellectual property is an essential asset of our business. Failure to adequately protect our intellectual property rights could result in our competitors offering similar products, potentially resulting in the loss of our competitive advantage and a decrease in our net sales, which would adversely affect our business prospects,

 

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financial condition and results of operations. We place considerable emphasis on technological innovation, including our proprietary CloudTec and Speedboard technologies. A large portion of our net sales for the year ended December 31, 2020 was attributable to our CloudTec product platform. We rely on a combination of intellectual property rights, such as patents, trademarks, design rights, trade secrets and domain names, in addition to confidentiality procedures and contractual provisions to establish, maintain, protect and enforce our rights in our brand, technologies, proprietary information and processes.

For example, we rely heavily upon our trademarks and related domain names and distinctive logos to market our premium brand and to build and maintain brand loyalty and recognition. Without adequate protection for our trademarks and trade names, we will not be able to build name recognition in our markets of interest and our business may be adversely affected. Effective trademark protection may not be available or may not be sought in every country in which our products are made available, and contractual disputes may affect the use of marks governed by private contract. Our registered or unregistered trademarks or trade names may be challenged, infringed, circumvented, declared generic or determined to be dilutive of or infringing on other trademarks, or may lapse. Further, at times, competitors may adopt trade names or trademarks similar to ours, thereby impeding our ability to build brand identity and possibly leading to market confusion. In addition, there could be potential trade name or trademark infringement claims brought by owners of other trademarks or trademarks that incorporate variations of our registered or unregistered trademarks or trade names. We have in the past entered, and may in the future enter, into trademark co-existence agreements to settle such claims. Such agreements may restrict the ways in which we are permitted to obtain, maintain, protect and enforce certain trademark rights. Over the long term, if we are unable to establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively and our business may be adversely affected. Similarly, not every variation of a domain name may be available or be registered, even if available. The occurrence of any of these events could result in the erosion of our brand and limit our ability to market our brand using our various domain names, as well as impede our ability to effectively compete against competitors with similar products or technologies.

Additionally, we rely on patent laws for the protection of our Sole, CloudTec, upper, Speedboard and lacing technologies. Any patents that may issue in the future from our pending or future patent applications may not provide us with competitive advantages, may be of limited territorial reach and may be held invalid or unenforceable if successfully challenged by third parties, which may lead to increased competition to our business, which could have a material adverse effect on our business, financial condition, results of operations and prospects. Certain of our patents are due to expire in the near future, and as our patents expire, the scope of our patent protection will be reduced for certain of our patented technology in those jurisdictions where such protection has existed, which may reduce or eliminate any competitive advantage afforded by our patent portfolio for products utilizing the protected technology or application in those jurisdictions. Additionally, certain of our patents are limited to certain jurisdictions and do not cover all of our key markets. As a result, our patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours. Furthermore, the issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and we may become party to adversarial proceedings regarding our patent portfolio or the patents of third parties. Such proceedings could include supplemental examination or contested post-grant proceedings such as review, reexamination, interference or derivation proceedings challenging our patent rights. It is also possible that third parties, including our competitors, may obtain patents relating to technologies that overlap or compete with our technology. If third parties obtain patent protection with respect to such technologies, they may assert that our technology infringes their patents and seek to charge us a licensing fee or otherwise preclude the use of certain of our technologies.

Any successful third-party challenge to our patents could result in the unenforceability or invalidity of such patents, which may lead to increased competition to our business, which could harm our business. In addition, if the breadth or strength of protection provided by our patents and patent applications is threatened, regardless of the outcome, it could dissuade companies from collaborating with us to license, develop or commercialize current or future products.

 

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We also rely on agreements under which we contract to own, or license rights to use, intellectual property developed by employees, contractors and other third parties. While we seek to enter into agreements with all of our employees who develop intellectual property during their employment to assign the rights in such intellectual property to us, we may fail to enter into such agreements with all relevant employees, such agreements may be breached or may not be self-executing, and we may be subject to claims that our employees have misappropriated the trade secrets or other intellectual property or proprietary rights of their former employers or other third parties.

In addition, while we generally enter into confidentiality, intellectual property assignment and non-compete agreements with our employees and third parties, as applicable, to protect our trade secrets, know-how, business strategy and other proprietary information, such confidentiality agreements could be breached and our proprietary information could be disclosed, and we may not be able to obtain adequate remedies for such breaches. These agreements also may not provide meaningful protection for our trade secrets and know-how related to our products in the event of unauthorized use or disclosure or other breaches of the agreements, and we may not be able to prevent such unauthorized disclosure, which could adversely impact our ability to establish or maintain a competitive advantage in the market. If we are required to assert our rights against such parties, it could result in significant cost and distraction. Depending on the parties involved in such a breach, the available remedies may not provide adequate compensation for the value of the proprietary information disclosed to a third party.

We cannot guarantee that our efforts to obtain and maintain intellectual property rights are adequate, that we have secured, or will be able to secure, appropriate permissions or protections for all of the intellectual property rights we use or rely on. Furthermore, even if we are able to obtain any intellectual property rights, any such intellectual property rights may be challenged, invalidated, circumvented, infringed, misappropriated or otherwise violated. Any challenge to our intellectual property rights could result in them being narrowed in scope or declared invalid or unenforceable. In addition, other parties may also independently develop products and technologies that are substantially similar or superior to ours and we may not be able to stop such parties from using such independently developed products or technologies from competing with us. If we fail to obtain and maintain our intellectual property rights adequately, we may lose an important advantage in the markets in which we compete.

Intellectual property rights in certain elements of our products and manufacturing technology are owned or controlled by our suppliers and are generally not unique to us. Our ability to obtain intellectual property protection for our products is therefore limited. As a result, our current and future competitors are able to manufacture and sell products with performance characteristics, designs and styling similar to our products. Because many of our competitors have significantly greater financial, distribution, marketing, and other resources than we do, they may be able to manufacture and sell products based on ours at lower prices than we can. If our competitors sell products similar to ours at lower prices, our financial results could suffer.

Our intellectual property rights and the enforcement or defense of such rights may be affected by developments or uncertainty in laws and regulations relating to intellectual property rights. Some of our brands, trademarks and logos might not be sufficiently distinctive for robust legal protection. Moreover, many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, design rights, trademarks, trade secrets and other intellectual property protection, which could make it difficult for us to stop the infringement, misappropriation or other violation of our intellectual property or marketing of competing products in violation of our intellectual property rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us.

 

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We also may be forced to bring claims against third parties to determine the ownership of what we regard as our intellectual property or to enforce our intellectual property against its infringement, misappropriation or other violations by third parties. However, the measures we take to protect our intellectual property from unauthorized use by others may not be effective and there can be no assurance that our intellectual property rights will be sufficient to protect against others offering products that are substantially similar or superior to ours and that compete with our business. In intellectual property-related proceedings in court or before patent, trademark and copyright agencies, the defendant could claim that our asserted intellectual property is invalid or unenforceable and the court may agree that our asserted intellectual property is invalid or unenforceable, in which case we could lose valuable intellectual property rights. The outcome following such intellectual property-related proceedings is often unpredictable. In addition, even if we are successful in enforcing our intellectual property against third parties, the damages or other remedies awarded, if any, may not be commercially meaningful. Regardless of whether any such proceedings are resolved in our favor, such proceedings could cause us to incur significant expenses and could distract our personnel from their normal responsibilities. In addition, if the strength of our intellectual property portfolio is threatened, regardless of the outcome, it could dissuade others from collaborating with us to license intellectual property, or develop or commercialize current or future products. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.

Over time we may increase our investment in protecting our intellectual property through additional patent, trademark and other intellectual property filings, which could be expensive and time consuming. Effective patent, trademark, trade secret, design right, copyright and other intellectual property protection is expensive to develop and maintain, both in terms of initial and ongoing registration requirements and the costs of defending our rights. Even so, these measures may not be sufficient to offer us meaningful protection. Furthermore, monitoring unauthorized use of our intellectual property is difficult and costly. From time to time, we seek to analyze our competitors’ products, and may in the future seek to enforce our rights against potential infringement, misappropriation or other violation. However, the steps we have taken to protect our intellectual property rights may not be adequate to prevent infringement, misappropriation or other violations of our intellectual property. We may not be able to detect unauthorized use of, or take appropriate steps to enforce, our intellectual property rights, or pursue all counterfeiters who may seek to benefit from our brand. Any inability to meaningfully protect our intellectual property rights could result in harm to our ability to compete and reduce demand for our products. Moreover, our failure to develop and properly manage new intellectual property could adversely affect our market positions, business opportunities and the price of our Class A ordinary shares.

Third parties may initiate legal proceedings alleging that we are infringing, misappropriating or otherwise violating their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on our business, financial condition and results of operations.

Our commercial success depends on our avoiding infringement, misappropriation or other violations of the intellectual property rights of third parties. As we face increasing competition, and to the extent we gain greater public recognition, the possibility of intellectual property rights claims against us grows. Any claim or litigation alleging that we have infringed, misappropriated or otherwise violated intellectual property rights of third parties, with or without merit, and whether or not settled out of court or determined in our favor, could be time consuming and costly to address and resolve, and could divert the time and attention of our management and technical personnel. Such claims may be made by third parties seeking to obtain a competitive advantage, including non-practicing entities with no relevant product sales, and, therefore, our own issued and pending patents, registered designs, registered trademarks and other intellectual property rights may provide little or no deterrence to these rights holders in bringing intellectual property rights claims against us. Additionally, some third parties have substantially greater human and financial resources than we do and are able to sustain the costs and workload of complex intellectual property litigation to a greater degree and for longer periods of time than we could. The outcome of any litigation is inherently uncertain, and there can be no assurances that favorable final outcomes will be obtained in all cases. In addition, third parties may seek, and we may become subject to,

 

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preliminary or provisional rulings in the course of any such litigation, including potential preliminary injunctions requiring us to change our products or even cease the commercialization of our products entirely.

We may decide to settle such lawsuits and disputes on terms that are unfavorable to us. Similarly, if any litigation to which we are a party is resolved adversely, we may be subject to an unfavorable judgment that may not be reversed upon appeal, including being subject to a permanent injunction and being required to pay substantial monetary damages, including treble damages and attorneys’ fees, if we are found to have willfully infringed a party’s intellectual property rights. The terms of such a settlement or judgment may require us to cease some or all of our operations or pay substantial amounts to the other party. Even if we have an agreement to indemnify us against such costs, the indemnifying party may be unable or unwilling to uphold its contractual obligations. Further, our liability insurance may not cover potential claims of this type adequately or at all. In addition, we may have to seek a license to continue practices found to be in violation of a third party’s rights. If we are required, or choose to enter into royalty or licensing arrangements, such arrangements may not be available on reasonable terms, or at all, and may significantly increase our operating costs and expenses. Such arrangements may also only be available on a non-exclusive basis, such that third parties, including our competitors, could have access to use the same intellectual property to compete with us. We may also have to redesign our products so they do not infringe, misappropriate or otherwise violate third-party intellectual property rights, which may not be possible or may require substantial monetary expenditures and time, during which our products may not be available for commercialization or use. If we cannot redesign our products in a non-infringing manner or obtain a license for any allegedly infringing aspect of our business, we would be forced to limit our products and may be unable to compete effectively.

In addition, in any intellectual property proceeding against us or that we assert against a third party, there could be public announcements of the results of hearings, motions or other interim proceedings or developments, and if securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of our Class A ordinary shares. Such litigation or proceedings could substantially increase our expenses and reduce the resources available for development activities or any future sales, marketing or distribution activities. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. Any of the foregoing, and any unfavorable resolution of such disputes and litigation, could have an adverse effect on our business, financial condition, results of operations and prospects.

We license intellectual property rights from third-party owners. If we fail to comply with our obligations in any current or future agreements under which we license intellectual property rights from third parties or otherwise experience disruptions to our business relationships with our licensors, we could lose license rights that are important to our business.

We are and may become party to license agreements with third parties to obtain the rights to certain brands or to allow commercialization of our products. Such agreements may impose numerous obligations, such as development, payment, royalty, sublicensing, insurance, enforcement and other obligations on us in order to maintain the licenses. In spite of our best efforts, our licensors might conclude that we have materially breached such license agreements and might therefore terminate the license agreements, thereby removing or limiting our ability to use certain brands or develop and commercialize products covered by these license agreements. For example, we do not own “THE ROGER” brand and are dependent on a license from Tenro AG for certain trademarks and other rights related to Roger Federer’s name, image and likeness. If our license agreement with Tenro AG were to terminate for any reason, we may be required to cease the development, advertisement, promotion and sale of certain of our products. Any termination of our licenses could result in the loss of significant rights and could harm our ability to commercialize our products, which could have a material adverse effect on our sales, profitability or financial condition.

 

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Disputes may also arise between us and our licensors regarding intellectual property subject to a license agreement, including:

 

   

the scope of rights granted under the license agreement and other interpretation-related issues;

 

   

our compliance with reporting, financial or other obligations under the license agreement;

 

   

the amounts of royalties or other payments due under the license agreement;

 

   

whether and the extent to which we infringe, misappropriate or otherwise violate intellectual property rights of the licensor that are not subject to the license agreement;

 

   

our right to sublicense applicable rights to third parties;

 

   

our right to transfer or assign the license; and

 

   

the ownership of intellectual property and know-how resulting from the joint creation or use of intellectual property by our future licensors and us and our partners.

If we do not prevail in such disputes, we may lose any or all of our rights under such license agreements, experience significant delays in the development and commercialization of our products and technologies, or incur liability for damages, any of which could have a material adverse effect on our business prospects, financial condition and results of operations. In addition, we may seek to obtain additional licenses from our licensors, and, in connection with obtaining such licenses, we may agree to amend our existing licenses in a manner that may be more favorable to the applicable licensor, including by agreeing to terms that could enable third parties, including our competitors, to receive licenses to a portion of the intellectual property that is subject to our existing licenses and to compete with our products.

In addition, the agreements under which we may license intellectual property from third parties are likely to be complex, and certain provisions in such agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow what we believe to be the scope of our rights to the relevant intellectual property, or increase what we believe to be our financial or other obligations under the relevant agreement, either of which could have a material adverse effect on our sales, business, financial condition or results of operations. Moreover, if disputes over intellectual property that we license from third parties prevent or impair our ability to maintain our license agreements on acceptable terms, we may be unable to successfully commercialize the affected products, which could have a material adverse effect on our sales, business, financial conditions or results of operations.

A security breach or other disruption to our information technology (“IT”) systems could result in the loss, theft, misuse, unauthorized disclosure, or unauthorized access of customer, supplier, or sensitive company information or could disrupt our operations, which could damage our relationships with customers, suppliers or employees, expose us to litigation or regulatory proceedings, or harm our reputation, any of which could materially adversely affect our business, financial condition or results of operations.

Our business involves the storage and transmission of a significant amount of personal, confidential, and sensitive information, including the personal information of our customers and employees, credit card information, information relating to customer preferences, and our proprietary financial, operational and strategic information. The protection of this information is vitally important to us as the loss, theft, misuse, unauthorized disclosure, or unauthorized access of such information could lead to significant reputational or competitive harm, result in litigation involving us or our business partners, expose us to regulatory proceedings, and cause us to incur substantial liabilities, fines, penalties, or expenses. As a result, we believe our future success and growth depends, in part, on the ability of our key business processes and systems, including our IT and global communication systems, to prevent the theft, loss, misuse, unauthorized disclosure, or unauthorized access of this personal, confidential, and sensitive information, and to respond quickly and effectively if data security incidents do occur.

The frequency, intensity, and sophistication of cyber-attacks, ransom-ware attacks, and other data security incidents has significantly increased in recent years and, as with many other businesses, we have experienced,

 

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and are continually at risk of being subject to, such attacks and incidents. Due to the increased risk of these types of attacks and incidents, we expend significant resources on IT and data security tools, measures, and processes designed to protect our IT systems, as well as the personal, confidential, or sensitive information stored on or transmitted through those systems, and to ensure an effective response to any cyber-attack or data security incident. Despite the implementation of preventative and detective security controls, our IT systems are vulnerable to damage or interruption from a variety of sources, including telecommunications or network failures or interruptions, system malfunction, natural disasters, epidemics, malicious human acts, terrorism and war. Our ability to effectively manage and maintain our inventory and to ship products to customers on a timely basis depends significantly on the reliability of our IT systems. We also use these systems to process financial information and results of operations for internal reporting purposes and to comply with regulatory financial reporting, legal and tax requirements. IT systems provided by third parties, such as Microsoft and Salesforce, may also be difficult to integrate with other tools due to their complexity, resulting in high data inconsistency and incompatibility.

Our IT systems are additionally vulnerable to physical or electronic break-ins, security breaches from inadvertent or intentional actions by our employees, third-party service providers, contractors, consultants, business partners, and/or other third parties, from cyber-attacks by malicious third parties (including the deployment of harmful malware, ransomware, denial-of-service attacks, social engineering, and other means to affect service reliability and threaten the confidentiality, integrity, and availability of information), or other data security incidents. These risks may be exacerbated in the remote work environment. In addition, because the techniques used to obtain unauthorized access to IT systems are constantly evolving and becoming more sophisticated, may not be recognized until launched, and can originate from a wide variety of sources, including outside groups such as external service providers, organized crime affiliates, terrorist organizations, or hostile foreign governments or agencies, we may be unable to anticipate all types of security threats or implement adequate preventive measures in response.

Cyber-attacks or data security incidents could remain undetected for an extended period, which could potentially result in significant harm to our systems, as well as unauthorized access to the information stored on and transmitted by our systems. Even when a security breach is detected, the full extent of the breach may not be determined immediately. The costs to us to mitigate network security problems, bugs, viruses, worms, malicious software programs and security vulnerabilities could be significant and, while we have implemented security measures to protect our systems, our efforts to address these problems may not be successful. Further, despite our security efforts and training, our employees may purposefully or inadvertently cause security breaches that could harm our systems or result in the unauthorized disclosure of or access to information. Any measures we do take to prevent security breaches, whether caused by employees or third parties, have the potential to limit our ability to complete sales or ship products to our customers, harm relationships with our suppliers, or restrict our ability to meet our customers’ expectations with respect to their online or retail shopping experience.

A cyber-attack or other data security incident could result in the significant and protracted disruption of our business such that:

 

   

critical business systems become inoperable or require a significant amount of time or cost to restore;

 

   

key personnel are unable to perform their duties or communicate with employees, customers or third-party partners;

 

   

it results in the loss, theft, misuse, unauthorized disclosure or unauthorized access of customer, supplier or company information;

 

   

we are prevented from accessing information necessary to conduct our business;

 

   

we are required to make unanticipated investments in equipment, technology or security measures;

 

   

customers cannot access our e-commerce websites and customer orders may not be received or fulfilled;

 

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we become subject to return fraud schemes, reselling schemes and imposter sites schemes; or

 

   

we become subject to other unanticipated liabilities, costs or claims.

If any of these events were to occur, it could have a material adverse effect on our financial condition and results of operations and result in harm to our reputation and the price of our Class A ordinary shares. Furthermore, we do not currently maintain a disaster recovery or business continuity plan to address such disruptions and we may not be able to adequately continue our business or return to operability within a reasonable period of time in the case of such an occurrence. Recovery of our IT systems may be additionally hampered where we have outsourced the operation of IT and data storage to third parties.

In addition, if a cyber-attack or other data incident results in the loss, theft, misuse, unauthorized disclosure, or unauthorized access of personal, confidential, or sensitive information belonging to our customers, suppliers, or employees, it could put us at a competitive disadvantage, result in the deterioration of our customers’ confidence in our brand, cause our suppliers to reconsider their relationship with our company or impose more onerous contractual provisions and subject us to potential litigation, liability, fines and penalties. For example, we could be subject to regulatory or other actions pursuant to domestic and international privacy laws, including regulations such as the California Consumer Privacy Act (“CCPA”), the General Data Protection Regulation (“GDPR”) in the EU and Swiss data protection laws. This could result in costly investigations and litigation, civil or criminal penalties, operational changes, and negative publicity that could adversely affect our reputation, as well as our results of operations and financial condition. For more information regarding risks related to our data privacy and security practices, see “—Changes in laws or regulations relating to data privacy and security, or any actual or perceived failure by us to comply with such laws and regulations, or contractual or other obligations relating to data privacy and security, could lead to government enforcement actions (which could include civil or criminal penalties), private litigation or adverse publicity and could have a material adverse effect on our reputation, results of operations, financial condition and cash flows.”

We do not currently maintain separate cybersecurity insurance, and any insurance we may maintain now or in the future against risks associated with cyber-attacks and data incidents may be insufficient to cover all losses and would not, in any event, remedy damage to our reputation. In addition, we may face difficulties in recovering any losses from a provider and any losses we recover may be lower than we initially expect.

We are also reliant on the security practices of our third-party service providers, which may be outside of our direct control. The services provided by these third parties are subject to the same risk of outages, other failures and security breaches described above. If these third parties fail to adhere to adequate security practices, or experience a breach of their systems, the data of our employees, customers and business associates may be improperly accessed, used or disclosed. In addition, our providers have broad discretion to change and interpret the terms of service and other policies with respect to us, and those actions may be unfavorable to our business operations. Our providers may also take actions beyond our control that could harm our business, including discontinuing or limiting our access to one or more services, increasing pricing terms, terminating or seeking to terminate our contractual relationship altogether, or altering how we are able to process data in a way that is unfavorable or costly to us. Although we expect that we could obtain similar services from other third parties, if our arrangements with our current providers were terminated, we could experience interruptions in our business, as well as delays and additional expenses in arranging for alternative cloud infrastructure services. Any loss or interruption to our IT systems or the services provided by third parties could adversely affect our business, financial condition and results of operations.

 

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Changes in laws or regulations relating to data privacy and security, or any actual or perceived failure by us to comply with such laws and regulations, or contractual or other obligations relating to data privacy and security, could lead to government enforcement actions (which could include civil or criminal penalties), private litigation or adverse publicity and could have a material adverse effect on our reputation, results of operations, financial condition and cash flows.

We are, and may increasingly become, subject to various laws, directives, industry standards and regulations, as well as contractual obligations, relating to data privacy and security in the jurisdictions in which we operate. The regulatory environment related to data privacy and security is increasingly rigorous, with new and constantly changing requirements applicable to our business, and enforcement practices are likely to remain uncertain for the foreseeable future. These laws and regulations may be interpreted and applied differently over time and from jurisdiction to jurisdiction, and it is possible that they will be interpreted and applied in ways that may have a material adverse effect on our results of operations, financial condition and cash flows.

In the United States, various federal and state regulators, including governmental agencies like the Consumer Financial Protection Bureau and the Federal Trade Commission, have adopted, or are considering adopting, laws and regulations concerning personal information and data security and have prioritized privacy and information security violations for enforcement actions. Certain state laws may be more stringent or broader in scope, or offer greater individual rights, with respect to personal information than federal, international or other state laws, and such laws may differ from each other, all of which may complicate compliance efforts. For example, the CCPA, which increases privacy rights for California residents and imposes obligations on companies that process their personal information, went into effect on January 1, 2020. Among other things, the CCPA requires covered companies to provide new disclosures to California consumers and provide such consumers new data protection and privacy rights, including the ability to opt out of certain data-sharing arrangements of personal information, and the ability to access and delete personal information. The CCPA provides for civil penalties for violations, as well as a private right of action for certain data breaches that result in the loss of personal information. This private right of action may increase the likelihood of, and risks associated with, data breach litigation. Furthermore, in November 2020, California voters passed the California Privacy Rights Act of 2020 (“CPRA”). Effective beginning January 1, 2023, the CPRA imposes additional obligations on companies covered by the legislation and will significantly modify the CCPA, including by expanding California residents’ rights with respect to certain sensitive personal information. The CPRA also creates a new state agency that will be vested with authority to implement and enforce the CCPA and CPRA. Additionally, on March 2, 2021, the Virginia Consumer Data Protection Act (“CDPA”) was signed into law. The CDPA becomes effective beginning January 1, 2023, and contains provisions that require businesses to conduct data protection assessments in certain circumstances, and that require opt-in consent from consumers to process certain sensitive personal information. Other states plan to pass data privacy laws that are similar to the CCPA, CPRA, CDPA and GDPR (described below), further complicating the legal landscape. In addition, laws in all 50 states in the United States require businesses to provide notice to consumers (and, in some cases, to regulators) whose personal information has been accessed or acquired as a result of a data breach. State laws are changing rapidly and there is discussion in Congress of a new comprehensive federal data privacy law to which we would become subject if it is enacted, which may add additional complexity, variation in requirements, restrictions and potential legal risks, require additional investment of resources in compliance programs, impact strategies and the availability of previously useful data and could result in increased compliance costs or changes in business practices and policies.

We are also subject to international laws, regulations and standards in many jurisdictions, which apply broadly to the collection, use, retention, security, disclosure, transfer and other processing of personal information. For example, the GDPR, which became effective in May 2018, greatly increased the European Commission’s jurisdictional reach of its laws and adds a broad array of requirements for handling personal data. EU member states are tasked under the GDPR to enact, and have enacted, certain implementing legislation that adds to or further interprets the GDPR requirements and potentially extends our obligations and potential liability for failing to meet such obligations. The GDPR, together with national legislation, regulations and guidelines of

 

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the EU member states and the United Kingdom governing the processing of personal data, imposes strict obligations and restrictions on the ability to collect, use, retain, protect, disclose, transfer and otherwise process personal data. In particular, the GDPR includes obligations and restrictions concerning data transparency and consent, the overall rights of individuals to whom the personal data relates, the transfer of personal data out of the European Economic Area (“EEA”) or the United Kingdom, security breach notifications and the security and confidentiality of personal data. The GDPR authorizes fines for certain violations of up to 4% of global annual net sales or €20 million, whichever is greater. Recent legal developments in the EU have created further complexity and uncertainty regarding transfers of personal data from the EEA and the United Kingdom to the United States. Most recently, in July 2020, the Court of Justice of the European Union (“CJEU”) invalidated the EU-U.S. Privacy Shield Framework (“Privacy Shield”) under which personal data could be transferred from the EEA to the United States. While the CJEU upheld the adequacy of standard contractual clauses, a standard form of contract approved by the European Commission as an adequate personal data transfer mechanism and potential alternative to the Privacy Shield, it made clear that reliance on them alone may not necessarily be sufficient in all circumstances. Further, the United Kingdom’s decision to leave the EU has created uncertainty with regard to data protection regulation in the United Kingdom. As of January 1, 2021, we are also subject to the UK GDPR and UK Data Protection Act of 2018, which retains the GDPR in the United Kingdom’s national law. These recent developments will require us to review and amend the legal mechanisms by which we make or receive personal data transfers. As supervisory authorities issue further guidance on personal data export mechanisms, including circumstances where the standard contractual clauses and other mechanisms cannot be used, or start taking enforcement action, we could suffer additional costs, complaints or regulatory investigations or fines, or if we are otherwise unable to transfer personal data between and among countries and regions in which we operate, it could affect the manner in which we do business, the geographical location or segregation of our relevant operations, and could adversely affect our financial results.

The Swiss Federal Act on Data Protection, or DPA, also applies to the collection and processing of personal data by companies located in Switzerland, or in certain circumstances, by companies located outside of Switzerland. The DPA has been revised and adopted by the Swiss Parliament, and the revised version and its revised ordinances are expected to enter into force in 2022. This revised law may lead to an increase in our costs of compliance, risk of noncompliance and penalties for noncompliance.

All of these evolving compliance and operational requirements impose significant costs, such as costs related to organizational changes, implementing additional protection technologies, training associates and engaging consultants, which are likely to increase over time. In addition, such requirements may require us to modify our data processing practices and policies, distract management or divert resources from other initiatives and projects, all of which could have a material adverse effect on our results of operations, financial condition and cash flows. Any failure or perceived failure by us to comply with any applicable federal, state or similar foreign laws and regulations relating to data privacy and security could result in damage to our reputation and our relationship with our customers, as well as proceedings or litigation by governmental agencies or customers, including class action privacy litigation in certain jurisdictions, which could subject us to significant fines, sanctions, awards, penalties or judgments, any of which could result in costly investigations and litigation, civil or criminal penalties, operational changes, and negative publicity that could adversely affect our reputation, as well as our results of operations and financial condition.

We rely on a large number of complex IT systems. The integration of these IT systems may not be successful. Any failure to operate, maintain and upgrade our IT systems may materially and adversely affect our operations.

It is critical to our success that retailers, consumers and potential new customers within the countries we operate in are able to access our online services at all times. We operate on a combination of shared and individual, central or local IT systems and solutions. Any failure of either central or local IT systems and functions may disrupt the efficiency and functioning of all our operations. Updates or changes in the software or hardware technology may lead to failures of communication between our platforms and customers in the course

 

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of the order transmission or other processes. We therefore rely on a large number of IT systems, such as local network and internet coverage, to manage the entire process, from the placing of and payment for orders online by customers to the receipt of and confirmation of those orders by our backend systems, which creates significant complexity and negatively affects our ability to scale our business and realize cost savings. We intend to integrate our local systems into a few single IT systems but there is no assurance that the integrations will work smoothly and yield the expected benefits. Furthermore, we have started a project to migrate our systems administrative software to Microsoft D365 and plan to migrate to new Salesforce software. There can be no assurance that such migration will take place within the expected timeframe and budget and that it will be successful.

We have made substantial investments into the development of our IT systems, which form the back bone of our business operations. Due to the complexity of these IT systems, we cannot rule out that they may cause or contribute to failures in the order transmission process or may prove less efficient than anticipated. In addition, a failure of any individual network carrier, IT system or IT provider would impact our ability to receive and transmit orders or to accept payment for orders. The efficient operation and scalability of our own IT systems and third-party IT systems is therefore critical to maintain operations.

We have previously experienced service disruptions, and in the future, we may experience further service disruptions, outages, or other performance problems due to a variety of factors, including infrastructure changes, human or software errors, capacity constraints due to an overwhelming number of users accessing our platform simultaneously, and fraud, denial-of-service attacks or cyber-attacks. In some instances, we may not be able to identify the cause or causes of these performance problems within an acceptable period of time. It may become increasingly difficult to maintain and improve the availability of our platform, especially during peak usage times and as customer traffic increases. If our online marketplace is unavailable when users attempt to access it or does not load as quickly as customers expect, they may seek other services, and may not return to our online marketplace as often in the future, or at all. This would harm our ability to attract customers and decrease the frequency with which customers use our online marketplace. We expect to continue to make significant investments to maintain and improve the availability of our online marketplace and to enable rapid releases of new products. To the extent that we do not effectively address capacity constraints, respond adequately to service disruptions, upgrade our systems as needed or continually develop our technology and network architecture to accommodate actual and anticipated changes in technology, our business, results of operations and the price of our Class A ordinary shares would be harmed.

The materialization of any of the risks described above could have a material adverse effect on our assets, financial condition, cash flows and results of operations.

Risks Related to Our Financial, Accounting and Tax Matters

We plan to primarily use cash from operations to finance our growth strategy, but may need to raise additional capital that may be required to grow our business, which we may not be able to raise on terms acceptable to us or at all.

While we intend to primarily finance our growth through the cash flows generated by our operations, we may need to seek additional capital, potentially through debt or equity financings, to fund our growth. We cannot assure you that we will be able to raise needed cash on terms acceptable to us or at all. Financings may be on terms that are dilutive or potentially dilutive to our shareholders, and the prices at which new investors would be willing to purchase our securities may be lower than the price per share of our Class A ordinary shares sold in this offering. The holders of new securities may also have rights, preferences or privileges which are senior to those of existing holders of ordinary shares, including the Class A ordinary shares sold in this offering. If we raise additional capital through the sale of equity or convertible debt securities, you and our existing shareholders may experience substantial dilution, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a holder of our Class A ordinary shares. If new sources of financing are

 

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required, but are insufficient or unavailable, we will be required to modify our growth and operating plans based on available funding, if any, which would harm our profitability, business, results of operation, financial condition and the price of our Class A ordinary shares.

We will incur significant expenses and devote other significant resources and management time as a result of being a public company, which may negatively impact our financial performance and could cause our results of operations and financial condition to suffer.

We will incur significant legal, accounting, insurance and other expenses as a result of being a public company. The rules implemented by the SEC, and by the NYSE, and the securities regulators in Switzerland have required changes in corporate governance practices of public companies. We expect that compliance with these laws, rules and regulations and the move from a private to a public company will substantially increase our expenses, including our legal, accounting and information technology costs and expenses, and make some activities more time consuming and costly, and these new obligations will require attention from our senior management and could divert their attention away from the day-to-day management of our business. We also expect these laws, rules and regulations and the move from a private to a public company to make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. Due to increased risks and exposure it may be more difficult for us to attract and retain qualified persons to serve on our board of directors or as officers. As a result of the foregoing, we expect a substantial increase in legal, accounting, insurance and certain other expenses in the future, which will negatively impact our financial performance and could cause our results of operations and financial condition to suffer. Furthermore, if we are unable to satisfy our obligations as a public company, we could be subject to delisting of our Class A ordinary shares, fines, sanctions and other regulatory action and potentially civil litigation, which could adversely impact our business, results of operation, financial condition and the price of our Class A ordinary shares.

Our financial results may be adversely affected if substantial investments in businesses and operations fail to produce expected returns.

From time to time, we may invest in technology, business infrastructure, new businesses, product offering and manufacturing innovation and expansion of existing businesses, such as our DTC operations, which require substantial cash investments and management attention. We believe cost-effective investments are essential to business growth and profitability; however, significant investments are subject to typical risks and uncertainties inherent in developing a new business or expanding an existing business. The failure of any significant investment to provide expected returns or profitability could adversely impact our financial results and results of operation, and divert our management’s attention from more profitable business operations.

If our estimates or judgments relating to our critical accounting policies prove to be incorrect, our operating results could be adversely affected.

The preparation of financial statements in conformity with IFRS accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances at the time of the estimate, as provided in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities and equity, and the amount of net sales and expenses that are not readily apparent from other sources. Significant assumptions and estimates used in preparing our consolidated financial statements include those related to revenue recognition, trade receivables allowance, leases, intangible assets, share-based compensation, employee benefits, provisions and taxes. Our operating results may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our operating results to fall below the expectations of securities analysts and investors, resulting in a decline in the price of our Class A ordinary shares.

 

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We identified a material weakness in our internal control over financial reporting, and any failure to maintain effective internal control over financial reporting could harm us.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with IFRS. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected and corrected on a timely basis.

We identified a material weakness in our internal control over financial reporting in connection with the preparation of our financial statements for the year ended December 31, 2020, relating to the ineffective design of controls to address segregation of certain accounting duties within our financial reporting function, including the absence of functionality within our legacy ERP systems to require the review of journal entries, and certain reconciliations for which a formal review process had not been established. We have concluded that this material weakness occurred because, prior to this offering, we were a private company and did not have the necessary systems, business processes, and related internal controls to satisfy the accounting and financial reporting requirements of a public company. We plan to undertake the following steps to address this material weakness:

 

   

implement a new ERP system; and

 

   

engage external advisors to assist in the implementation of processes and controls to better identify and manage segregation of duties risks.

We may incur significant costs in connection with remediating this material weakness. Neither we nor our independent registered public accounting firm have tested the effectiveness of our internal control over financial reporting and we cannot assure you that we will be able to successfully remediate the material weakness described above. Even if we successfully remediate such material weakness, we cannot assure you that we will not suffer from this or other material weaknesses in the future.

Failure to maintain adequate financial and management processes and controls could lead to errors in our financial reporting, which could harm our business and cause a decline in our share price.

Reporting obligations as a public company and our anticipated growth have placed and are likely to continue to place a considerable strain on our financial and management systems, processes and controls, as well as on our personnel. In addition, following our first year as a public company, we will be required to document and test our internal controls over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act so that our management can certify the effectiveness of our internal controls. As a result, we will be required to continue to improve our financial and managerial controls, reporting systems and procedures, to incur substantial expenses to test our systems and to make such improvements and to hire additional personnel. If our management is unable to certify the effectiveness of our internal controls or if additional material weaknesses in our internal controls are identified, we could be subject to regulatory scrutiny and a loss of public confidence, which could harm our business and cause a decline in the price of our Class A ordinary shares. In addition, if we do not maintain adequate financial and management personnel, processes and controls, we may not be able to accurately report our financial performance on a timely basis, which could cause a decline in the price of our Class A ordinary shares and harm our ability to raise capital. Failure to accurately report our financial performance on a timely basis could also jeopardize our continued listing on the NYSE or any other exchange on which our Class A ordinary shares may be listed. Delisting of our Class A ordinary shares from any exchange would reduce the liquidity of the market for our Class A ordinary shares, which would reduce the price of our Class A ordinary shares and increase the volatility of our share price.

A control system, no matter how well designed and implemented, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the

 

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fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues within an organization are detected. If we cannot provide reliable financial reports or prevent fraud, our reputation and operating results could be materially adversely affected, which could also cause investors to lose confidence in our reported financial information, which in turn could result in a reduction in the trading price of our Class A ordinary shares.

Fluctuations in foreign currency exchange rates could harm our net sales, results of operations and the price of our Class A ordinary shares.

The presentation currency for our consolidated financial statements is the Swiss franc. Because we recognize net sales in the United States in U.S. dollars, if the U.S. dollar weakens against the Swiss franc, it would have a negative impact on our net sales and operating results upon translation of those results into Swiss francs for the purposes of financial statement consolidation. We may face similar risks in other foreign jurisdictions where sales are recognized in foreign currencies such as Euro and others. Although we engage in short-term hedging transactions for a large portion of our foreign currency-denominated cash flows to mitigate foreign exchange risks, depending upon changes in future currency rates, such gains or losses could have a significant, and potentially adverse, effect on our results of operations. Foreign exchange variations (including the value of the Swiss franc relative to the U.S. dollar) have been significant in the past and current foreign exchange rates may not be indicative of future exchange rates.

Our earnings per share are reported in Swiss francs, and accordingly may be translated into U.S. dollars by analysts or our investors. As a result, the value of an investment in our Class A ordinary shares to a U.S. shareholder will fluctuate as the U.S. dollar rises and falls against the Swiss franc. Our decision to declare a dividend depends on results of operations reported in Swiss francs. As a result, U.S. and other shareholders seeking U.S. dollar total returns, including increases in the price of our Class A ordinary shares and dividends paid, are subject to foreign exchange risk as the U.S. dollar rises and falls against the Swiss franc.

We could be subject to changes in tax laws, tax regulations and tax treaties, including their interpretation and application, in Switzerland, the United States or any other country in which we operate, which could result in additional tax liabilities or increased volatility in our effective tax rate.

We are subject to the tax laws in Switzerland, the United States and numerous other jurisdictions. Current economic and political conditions make tax laws, tax regulations and tax treaties, including their interpretation and application, in any jurisdiction subject to significant change. We earn a substantial portion of our income in countries around the world and are subject to the tax laws of those jurisdictions. A number of the jurisdictions in which we operate have recently reformed or changed their tax laws, regulations and tax treaties, such as the anti-tax avoidance directive adopted by the member states of the EU, and many jurisdictions are considering other proposals to reform or change their tax laws, regulations and tax treaties, including minimum tax and tax-avoidance proposals being considered in connection with the OECD’s project on base erosion and profit shifting, and proposals in the United States that would, among other things, increase the corporate tax rate from 21% to 28%. The adoption or implementation of these proposals could significantly impact how we are taxed on our earnings from operations in these jurisdictions. Although we cannot predict whether or in what form these proposals will be adopted, several of the proposals considered, if enacted into law, could have an adverse impact on our income tax expense and cash flows. Portions of our operations are subject to a reduced tax rate or are free of tax under various tax holidays and rulings. We also utilize tax rulings and other agreements to obtain certainty in treatment of certain tax matters. These holidays and rulings expire in whole or in part from time to time and may be extended when certain conditions are met or terminated if certain conditions are not met. The impact of any changes in conditions would be the loss of certainty in treatment thus potentially impacting our effective income tax rate.

In addition, due to the Swiss corporate tax law reform that took effect on January 1, 2020, all Swiss cantons, including the Canton of Zurich, have abolished previously existing cantonal tax privileges. Therefore, since

 

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January 1, 2020, we are subject to standard cantonal taxation. The standard effective corporate tax rate in Zurich, Canton of Zurich, may change from time to time. The standard combined (federal, cantonal, municipal) effective corporate income tax rate, except for dividend income for which we could claim a participation exemption, for 2021 in Zurich, Canton of Zurich, will be approximately 19.7%.

Adverse outcomes resulting from examination of our income or other tax returns could adversely affect our results of operations and financial condition.

We are subject to the examination of our tax returns by tax authorities in Switzerland, the United States and numerous other jurisdictions. We regularly assess the likelihood of an adverse outcome resulting from these examinations to determine the adequacy of its provision for income taxes. Although we believe our tax provisions are adequate, the final determination of tax audits and any related disputes could be materially different from our historical income tax provisions and accruals. The results of audits or related disputes could have an adverse effect on our financial statements for the period or periods for which the applicable final determinations are made. For example, we and our subsidiaries are engaged in a number of intercompany transactions across multiple tax jurisdictions. Although we believe that our transfer pricing policies and positions are correct under current law and we have clearly reflected the economics of these transactions and the proper local transfer pricing documentation is in place, tax authorities may propose and sustain adjustments that could result in changes that may result in material additional tax liabilities and impact our mix of earnings in countries with differing statutory tax rates. These factors could have a negative impact on our business, results of operation, financial condition and the price of our Class A ordinary shares.

If we are a “passive foreign investment company,” or a PFIC, in the year of the offering or in any future year, a U.S. shareholder may be subject to adverse U.S. federal income tax consequences.

Under the Internal Revenue Code of 1986, as amended, or the Code, we will be a PFIC for any taxable year in which, after the application of certain look-through rules with respect to our subsidiaries, either (i) 75% or more of our gross income consists of passive income or (ii) 50% or more of the average quarterly value of our assets consists of assets that produce, or are held for the production of, passive income (including cash). Passive income includes, among other things, dividends, interest, certain non-active rents and royalties, and capital gains. Based on the expected market price of our Class A ordinary shares following this offering and the composition of our income and assets, including goodwill, we do not expect to be a PFIC for our 2021 taxable year or in the foreseeable future. However, the determination of whether we are a PFIC is a fact-intensive determination that must be made on an annual basis applying principles and methodologies that are in some circumstances unclear, and whether we will be a PFIC in 2021 or any future taxable year is uncertain in several respects. Moreover, our PFIC status for any taxable year will depend on the composition of our income and assets and the value of our assets from time to time (which may be determined, in part, by reference to the market price of our Class A ordinary shares, which may fluctuate substantially over time). Accordingly, there can be no assurance that we will not be a PFIC for any taxable year, and our U.S. counsel expresses no opinion with respect to our PFIC status, or with respect to our expectations regarding our PFIC status in 2021 or any future taxable year.

Certain adverse U.S. federal income tax consequences could apply to U.S. investors if we are treated as a PFIC for any taxable year during which such investors hold our Class A ordinary shares. For further discussion, see “Taxation—Material U.S. Federal Income Tax Considerations for U.S. Holders.”

Risks Related to Legal and Regulatory Compliance

Changes to trade policies, tariffs and import/export regulations in the United States, EU and other jurisdictions, or our failure to comply with such regulations, may have a material adverse effect on our reputation, business, financial condition and results of operations.

Changes in U.S., EU or international social, political, regulatory and economic conditions could impact our business, financial condition, results of operations and the price of our Class A ordinary shares. In particular,

 

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political and economic instability, geopolitical conflicts, political unrest, civil strife, terrorist activity, acts of war, public corruption, expropriation and other economic or political uncertainties in the United States or internationally could interrupt and negatively affect the sale of our products or other business operations. Any negative sentiment toward the United States, Switzerland or toward any country where we operate, sell or have our products manufactured as a result of any such changes could also adversely affect our business.

In addition, changes in laws and policies governing foreign trade, manufacturing, development and investment in the territories or countries where we currently sell our products or conduct our business could adversely affect our business. The previous U.S. presidential administration instituted or proposed changes in trade policies that include the negotiation or termination of trade agreements, the imposition of higher tariffs on imports into the United States, economic sanctions on individuals, corporations or countries, and other government regulations affecting trade between the United States and other countries where we conduct our business. Brexit may also adversely impact our business, including through additional duties on the importation of our products into the United Kingdom from the EU or through shipping delays. It may be time consuming and expensive for us to alter our business operations in order to adapt to or comply with any such changes.

Changes or proposed changes in the trade policies of the United States, the European Economic Area or any of its member states or other jurisdictions may result in restrictions and economic disincentives on international trade. Tariffs and other changes in U.S. and other trade policies have in the past and could in the future trigger retaliatory actions by affected countries, and certain foreign governments have instituted or are considering imposing retaliatory measures on certain U.S. goods. Further, any emerging protectionist or nationalist trends either in the United States, the European Economic Area or any of its member states or in other countries could affect the trade environment. We, similar to many other multinational corporations, do a significant amount of business that would be impacted by changes to the trade policies of the United States and other countries (including governmental action related to tariffs, international trade agreements, or economic sanctions). Such changes have the potential to adversely impact the U.S. economy or certain sectors thereof or the economy of another country in which we conduct operations, our industry and the global demand for our products, and as a result, could have negative impact on our business, financial condition, results of operations and the price of our Class A ordinary shares.

Our marketing programs, e-commerce initiatives and use of customer information are governed by an evolving set of laws and enforcement trends and unfavorable changes in those laws or trends, or our failure to comply with existing or future laws, could substantially harm our business and results of operations.

We collect, process, maintain and use data, including sensitive information on individuals, available to us through online activities and other customer interactions in our business. Our current and future marketing programs may depend on our ability to collect, maintain and use this information, and our ability to do so is subject to evolving international, U.S., Swiss, EU and other laws and enforcement trends. We strive to comply with all applicable laws and other legal obligations relating to privacy, data protection and customer protection, including those relating to the use of data for marketing purposes. It is possible, however, that these requirements may be interpreted and applied belatedly or in a manner that is inconsistent from one jurisdiction to another, may conflict with other rules, may conflict with our practices or fail to be observed by our employees or business partners. If so, we may suffer damage to our reputation and be subject to proceedings or actions against us by governmental entities or others. Any such proceeding or action could hurt our reputation, force us to spend significant amounts to defend our practices, distract our management or otherwise have an adverse effect on our business.

Certain of our marketing practices rely upon e-mail to communicate with consumers on our behalf. We may face risk if our use of e-mail is found to violate applicable laws. We post our privacy policy and practices concerning the use and disclosure of user data on our websites. Any failure by us to comply with our posted privacy policy or other privacy-related laws and regulations could result in proceedings that could potentially harm our business. In addition, as data privacy and marketing laws change, we may run late on implementation,

 

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or incur additional costs to ensure we remain in compliance. If applicable data privacy and marketing laws become more restrictive at the international, federal or state levels, our compliance costs may increase, our ability to effectively engage customers through personalized marketing may decrease, our investment in our e-commerce platform may not be fully realized, our opportunities for growth may be curtailed by our compliance burden and our potential reputational harm or liability for security breaches may increase.

We may become involved in legal or regulatory proceedings and audits.

Our business requires compliance with many laws and regulations, including, but not limited to, labor and employment, product safety, labelling, sales and other taxes, customs, and consumer protection laws and ordinances that regulate our industry generally or govern the production, importation, promotion and sale of merchandise, and the operation of warehouse facilities. For example, various jurisdictions worldwide have laws and regulations that aim to protect consumers, including by prohibiting advertising or marketing practices that may be deemed misleading or deceptive. Failure to comply with any laws or regulations could subject us to lawsuits and other proceedings, and could also lead to damage awards, fines and penalties. We may become involved in a number of legal proceedings and audits, including, but not limited to, government and agency investigations, and consumer, employment, tort and other litigation. In addition, we could become subject to potential antitrust claims, which may relate to anti-competitive behavior, pricing pressures on our distribution partners or other allegations. The outcome of some of these legal proceedings, audits and other contingencies could require us to take, or refrain from taking, actions that could harm our operations or require us to pay substantial amounts of money, harming our financial condition. Additionally, defending against these lawsuits and proceedings may be necessary, which could result in substantial costs and diversion of management’s attention and resources, harming our financial condition. There can be no assurance that any pending or future legal or regulatory proceedings and audits will not harm our business, financial condition, reputation, results of operations and the price of our Class A ordinary shares.

Risks Related to Our Class A Ordinary Shares and the Offering

The dual class structure of our shares and the existing ownership of Class B voting rights shares by our extended founder team have the effect of concentrating voting control with our extended founder team for the foreseeable future, which will limit or preclude your ability to influence corporate matters.

While each of our shares carries one vote in our general meeting of shareholders, irrespective of the par value of the shares, our Class A ordinary shares, which are the shares being offered in this offering, have a par value of CHF 0.10 and Class B voting rights shares have a par value of CHF 0.01. As a result, on a capital-invested basis, each Class B voting rights share has ten times the voting power of each Class A ordinary share. Given the increased voting power of our Class B voting rights shares, members of our extended founder team, who are our only Class B shareholders, will hold approximately 59.4% of total combined voting power of our outstanding shares following the completion of this offering (assuming no exercise of the underwriters’ over-allotment option). In addition, entitlements to dividends and other distributions are also calculated based on par value. As a result of our dual class ownership structure, our extended founder team will be able to exert control over our management and affairs and over matters requiring shareholder approval, including the election of directors and mergers, and indirectly over acquisitions, asset sales and other significant corporate transactions. Further, our extended founder team will own shares representing approximately 18.5% of the economic interest of our outstanding shares following this offering and, together with our other executive officers, directors and their affiliates, will own shares representing approximately 50.8% of the economic interest and 75.5% of total combined voting power of our outstanding shares following this offering (in each case, assuming no exercise of the underwriters’ over-allotment option). Because of the 10-to-1 voting ratio between the Class B voting rights shares and Class A ordinary shares on a capital-invested basis, the holders of Class B voting rights shares collectively will continue to control a majority of the total combined voting power of our outstanding shares and therefore be able to control a substantial number of matters submitted to our shareholders for approval, so long as the outstanding Class B voting rights shares represent at least 50% of the total voting power of our shares. In

 

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addition, the members of our extended founder team entered into a shareholders’ agreement giving them a right of first refusal to purchase shares of Class B voting rights shares that are intended to be sold or transferred by other members of our extended founder team, subject to certain exceptions. This concentrated control will limit your ability to influence corporate matters for the foreseeable future. For example, our extended founder team will be able to control elections of directors, dividend payments and other distributions, and certain amendments of our articles of association, for the foreseeable future. Additionally, the holders of our Class B voting right shares may cause us, through the election of the directors, to make strategic decisions or pursue acquisitions that could involve risks to you, are contrary to your expectations or may not be aligned with your interests. This control may materially adversely affect the market price of our Class A ordinary shares. See “Description of Share Capital and Articles of Association—Share Capital—Share Class Structure” and “Description of Share Capital and Articles of Association—Shareholders’ Agreement.”

Our dual class structure may depress the trading price of our Class A ordinary shares.

Our dual class structure may result in a lower or more volatile market price of our Class A ordinary shares or in adverse publicity or other adverse consequences. For example, certain index providers have announced restrictions on including companies with dual or multiple class share structures in certain of their indexes. S&P Dow Jones, MSCI and FTSE Russell have announced changes to their eligibility criteria for inclusion of shares of public companies on certain indices, including the S&P 500. These changes exclude companies with multiple classes of ordinary shares from being added to these indices. In addition, several stockholder advisory firms have announced their opposition to the use of dual or multiple class structures. As a result, the dual class structure of our shares may prevent the inclusion of our Class A ordinary shares in these indices and mutual funds, exchange-traded funds and other investment vehicles that attempt to passively track these indices will not invest in our stock. Our dual-class structure may cause stockholder advisory firms to publish negative commentary about our corporate governance practices or otherwise seek to cause us to change our capital structure. Any such exclusion from indices could result in a less active trading market for our Class A ordinary shares and depress the valuations of publicly traded companies excluded from the indices compared to those of similar companies that are included. Any actions or publications by stockholder advisory firms critical of our corporate governance practices or capital structure could also adversely affect the value of our Class A ordinary shares.

There is no existing market for our Class A ordinary shares, and we do not know whether one will develop to provide you with adequate liquidity. If our share price fluctuates after this offering, you could lose a significant part of your investment.

Prior to this offering, there has not been a public market for our Class A ordinary shares. If an active trading market does not develop, you may have difficulty selling any of our Class A ordinary shares that you buy. We cannot predict the extent to which investor interest in our company will lead to the development of an active trading market on the NYSE, or otherwise or how liquid that market might become. The initial public offering price for the Class A ordinary shares will be determined by negotiations between us, the selling shareholders and the underwriters and may not be indicative of prices that will prevail in the open market following this offering. Consequently, you may not be able to sell our Class A ordinary shares at prices equal to or greater than the price paid by you in this offering. In addition to the risks described above, the market price of our Class A ordinary shares may be influenced by many factors, some of which are beyond our control, including:

 

   

the failure of financial analysts to cover our Class A ordinary shares after this offering or changes in financial estimates by analysts;

 

   

actual or anticipated variations in our operating results;

 

   

changes in financial estimates by financial analysts, or any failure by us to meet or exceed any of these estimates, or changes in the recommendations of any financial analysts that elect to follow our Class A ordinary shares or the shares of our competitors;

 

   

announcements by us or our competitors of significant contracts or acquisitions;

 

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technological innovations by us or our competitors;

 

   

future sales of our shares; and

 

   

investor perceptions of us and the industries in which we operate.

In addition, the stock market in general has experienced substantial price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of particular companies affected. These broad market and industry factors may materially harm the market price of our Class A ordinary shares, regardless of our operating performance. In the past, following periods of volatility in the market price of certain companies’ securities, securities class action litigation has been instituted against these companies. This litigation, if instituted against us, could adversely affect our financial condition or results of operations. If a market for our Class A ordinary shares does not develop or is not maintained, the liquidity and price of our Class A ordinary shares could be seriously adversely affected.

As a foreign private issuer and “controlled company” within the meaning of the NYSE corporate governance rules, we are permitted to, and we will, rely on exemptions from certain of the NYSE corporate governance standards, including the requirement that a majority of our board of directors consist of independent directors. Our reliance on such exemptions may afford less protection to holders of our Class A ordinary shares.

The corporate governance rules of the NYSE require listed companies to have, among other things, a majority of independent directors and independent director oversight of executive compensation, nomination of directors and corporate governance matters. As a foreign private issuer, we are permitted to, and we will, follow home country practice in lieu of the above requirements. As long as we rely on the foreign private issuer exemption to certain of the NYSE corporate governance standards, a majority of the directors on our board of directors are not required to be independent directors, our compensation committee is not required to be composed entirely of independent directors and director nominations are not required to be made, or recommended to our full board of directors, by our independent directors or by a nominations committee that consists entirely of independent directors. Therefore, our board of directors’ approach to governance may be different from that of a board of directors consisting of a majority of independent directors, and, as a result, the management oversight of our company may be more limited than if we were subject to all of the NYSE corporate governance standards. We are also subject to certain reduced disclosure obligations as a result of being a foreign private issuer. As such, investors will not have access to the same information as for similar companies that are not foreign private issuers.

In the event we no longer qualify as a foreign private issuer, we intend to rely on the “controlled company” exemption under the NYSE corporate governance rules. A “controlled company” under the NYSE corporate governance rules is a company of which more than 50% of the voting power is held by an individual, group or another company. Following this offering, our extended founder team will control a majority of the combined voting power of our outstanding shares, making us a “controlled company” within the meaning of the NYSE corporate governance rules. As a controlled company, we would be eligible to, and, in the event we no longer qualify as a foreign private issuer, we intend to, elect not to comply with certain requirements of the NYSE corporate governance standards, including (i) the requirement that a majority of the board of directors consist of independent directors, (ii) the requirement that we have a compensation committee that is composed entirely of independent directors and (iii) the requirement that our director nominations be made, or recommended to our full board of directors, by our independent directors or by a nominations committee that consists entirely of independent directors.

Accordingly, our shareholders will not have the same protection afforded to shareholders of companies that are subject to all of the NYSE corporate governance standards, and the ability of our independent directors to influence our business policies and affairs may be reduced.

 

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We may lose our foreign private issuer status, which would then require us to comply with the Exchange Act’s domestic reporting regime and cause us to incur significant legal, accounting and other expenses.

We qualify as a foreign private issuer and therefore we are not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act applicable to U.S. domestic issuers. We may no longer be a foreign private issuer as soon as June 30, 2022 (the end of our second fiscal quarter in the fiscal year after this offering), which would require us to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act applicable to U.S. domestic issuers, as of January 1, 2023. In order to maintain our current status as a foreign private issuer, either (a) a majority of our outstanding voting securities must be either directly or indirectly owned of record by nonresidents of the United States or (b)(i) a majority of our executive officers or directors may not be United States citizens or residents, (ii) more than 50% of our assets cannot be located in the United States and (iii) our business must be administered principally outside the United States. If we lose this status, we would be required to comply with the Exchange Act reporting and other requirements applicable to U.S. domestic issuers, which are more detailed and extensive than the requirements for foreign private issuers, and would require us to present our financial statements in accordance with U.S. GAAP, which could be time consuming and costly. We may also be required to make changes in our corporate governance practices in accordance with various SEC and stock exchange rules. The regulatory and compliance costs to us under U.S. securities laws if we are required to comply with the reporting requirements applicable to a U.S. domestic issuer may be significantly higher than the cost we would incur as a foreign private issuer. As a result, we expect that a loss of foreign private issuer status would increase our legal and financial compliance costs and would make some activities highly time consuming and costly. We also expect that if we were required to comply with the rules and regulations applicable to U.S. domestic issuers, it would be more difficult and expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These rules and regulations could also make it more difficult for us to attract and retain qualified members of our board of directors.

We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our Class A ordinary shares less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act, and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act. We cannot predict if investors will find our Class A ordinary shares less attractive because we will rely on these exemptions. If some investors find our Class A ordinary shares less attractive as a result, there may be a less active trading market for our Class A ordinary shares and our share price may be more volatile.

In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (the “Securities Act”) for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. However, this transition period is only applicable under U.S. GAAP. As a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required or permitted by the International Accounting Standards Board.

In addition, for as long as we are an “emerging growth company” under the recently enacted JOBS Act, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act. We could be an emerging growth company for up to five years. See “Summary — Implications of Being an Emerging Growth Company.” Furthermore, after the date we are no longer an emerging growth company, our independent registered public accounting firm will only be required to attest to the effectiveness of our internal control over financial reporting depending on our market capitalization. Even if our management concludes that our internal controls over

 

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financial reporting are effective, our independent registered public accounting firm may still decline to attest to our management’s assessment or may issue a report that is qualified if it is not satisfied with our controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us. In addition, in connection with the implementation of the necessary procedures and practices related to internal control over financial reporting, we may identify deficiencies that we may not be able to remediate in time to meet the deadline imposed by the Sarbanes-Oxley Act for compliance with the requirements of Section 404. Failure to comply with Section 404 could subject us to regulatory scrutiny and sanctions, impair our ability to raise capital, cause investors to lose confidence in the accuracy and completeness of our financial reports and negatively affect our share price.

We will have broad discretion in the use of the net proceeds to us from this offering and may not use them effectively.

We will have broad discretion in the application of the net proceeds to us from this offering, including for any of the purposes described in the section titled “Use of Proceeds,” and you will not have the opportunity as part of your investment decision to assess whether the net proceeds are being used appropriately. Because of the number and variability of factors that will determine our use of the net proceeds from this offering, our ultimate use may vary substantially from our currently intended use. Investors will need to rely upon the judgment of our management with respect to the use of proceeds. Pending use, we may invest the net proceeds from this offering in short-term, investment-grade, interest-bearing securities, such as money market accounts, certificates of deposit, commercial paper, and sovereign debt that may not generate a high yield for our shareholders. We may use a portion of the net proceeds to acquire complementary businesses, products, services, or technologies. At this time, we do not have agreements or commitments to enter into any material acquisitions. If we do not use the net proceeds that we receive in this offering effectively, our business, financial condition, results of operations, and prospects could be harmed and the market price of our Class A ordinary shares could decline.

Future sales of our Class A ordinary shares in the public market could cause the market price of our Class A ordinary shares to decline.

Sales of a substantial number of our Class A ordinary shares in the public market following the completion of this offering, or the perception that these sales might occur, could depress the market price of our Class A ordinary shares and could impair our ability to raise capital through the sale of additional equity securities. Many of our existing equity holders have substantial unrecognized gains on the value of the equity they hold based upon the price of this offering, and therefore they may take steps to sell their shares or otherwise secure the unrecognized gains on those shares. We are unable to predict the timing of or the effect that such sales may have on the prevailing market price of our Class A ordinary shares. All of the Class A ordinary shares sold in this offering will be freely tradable without restrictions or further registration under the Securities Act of 1933, as amended, or the Securities Act, except for any shares held by our affiliates as defined in Rule 144 under the Securities Act, or Rule 144.

We, and all of our directors and executive officers, as well as certain other security holders, who collectively own substantially all of our Class A ordinary shares, Class B voting rights shares and securities exercisable for, or convertible into, our Class A ordinary shares outstanding immediately on the closing of this offering, are subject to lock-up agreements with the underwriters or agreements among our pre-IPO shareholders with market stand-off provisions pursuant to which they have agreed that they will not, and will not publicly disclose an intention to, subject to certain exceptions, during the period beginning on the date of this prospectus and ending on the Final Lock-Up Expiration Date (as described below) (such period, the “restricted period”), offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any of our shares, any options or warrants to purchase any of our shares or any securities convertible into or exchangeable for or that represent the right to receive our Class A ordinary shares or enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of our Class A ordinary shares; provided that Goldman Sachs & Co. LLC and Morgan Stanley & Co. LLC on behalf of the

 

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underwriters may release any of the securities subject to these agreements at any time, subject to the applicable notice requirements. In addition, the lock-up agreements are subject to a number of exceptions. These agreements are further described in the sections titled “Ordinary Shares Eligible for Future Sale” and “Underwriting.”

Notwithstanding the foregoing, such restricted period may be terminated earlier as follows:

 

  (a)

if (i) the Company has furnished quarterly earnings (which shall not include “flash” numbers or preliminary, partial earnings) on a Form 6-K for the first quarter following the most recent period for which financial statements are included in this prospectus (the date of such furnishing, the “First Earnings Date”), and (ii) the last reported closing price of the Class A ordinary shares on the NYSE (the “Closing Price”) is at least 30% greater than the initial public offering price per share set forth on the cover page of this prospectus (the “IPO Price”) for any 10 out of the 15 consecutive trading days ending on or after the First Earnings Date, including the last day of such 15-day trading period (the “Measurement Period”), then 10% of the holder’s Class A ordinary shares subject to the lock-up agreement with the underwriters, which percentage shall be calculated based on the number of Class A ordinary shares held by the holder as of the last day of the Measurement Period, will be automatically released from such restrictions (the “Early Lock-Up Expiration”) immediately prior to the opening of trading on the NYSE on the third trading day following the end of the Measurement Period (the “Early Lock-Up Expiration Date”); provided that, in the case of an Early Lock-Up Expiration, we shall announce by press release through a major news service, or on a Form 6-K, the Early Lock-Up Expiration Date at least two business days prior to the opening of trading on such Early Lock-Up Expiration Date; and

 

  (b)

following the earlier of (i) the third trading day after the Company has furnished or filed quarterly earnings (which shall not include “flash” numbers or preliminary, partial earnings) on a Form 6-K or Form 20-F for the second quarter following the most recent period for which financial statements are included in this prospectus and (ii) the 181st day after the date of this prospectus (the earlier of such dates, the “Final Lock-Up Expiration Date”), all of the holder’s Class A ordinary shares that remain subject to the lock-up agreement with the underwriters will be automatically released from the applicable restrictions immediately prior to the opening of trading on the NYSE on the Final Lock-Up Expiration Date; provided that the Final Lock-Up Expiration Date shall in no case be prior to the 161st day after the date of the Prospectus; and provided further that, in the event that the Final Lock-Up Expiration Date is a date other than the 181st day following the date of this prospectus, we shall announce by press release through a major news service, or on a Form 6-K, the Final Lock-Up Expiration Date at least two business days prior to the opening of trading on such Final Lock-Up Expiration Date.

Furthermore, if an Early Lock-Up Expiration Date will occur during or within five trading days of the start of a regularly scheduled “black-out” period under the Company’s insider trading policy (or similar period when trading is not permitted by insiders under the Company’s insider trading policy) (a “Blackout Period”), the Early Lock-Up Expiration Date will instead be the second trading day after the end of such Blackout Period. Under the insider trading policy we will adopt in connection with this offering, our Blackout Period will typically begin on the eighth calendar day of the last month of the then current fiscal quarter and end prior to the open of trading on the day following the release of earnings for such fiscal quarter.

After the expiration of such lock-up agreements or market stand-off provisions, or if such restrictions are waived, if these shareholders sell substantial amounts of Class A ordinary shares in the public market or if the market perceives that such sales may occur, the market price of our Class A ordinary shares and our ability to raise capital through an issue of equity securities in the future could be adversely affected.

Certain of our shareholders have granted a security interest in at least some of our shares beneficially owned by them to secure payments of indebtedness incurred to finance the payment of the exercise price of their equity

 

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interests. Pursuant to such arrangements, approximately 13.9 million Class A ordinary shares and 130.6 million Class B voting rights shares have been pledged by certain members of our extended founder team, after giving effect to the Share Capital Reorganization. In the event of a default under any such debt, the secured parties may foreclose upon any and all shares pledged to them, the occurrence of which may result in the sale of substantial amounts of our Class A ordinary shares in the public market, which could adversely affect the market price of our Class A ordinary shares.

In addition, after giving effect to the Share Capital Reorganization, there will be 10,984,248 Class A ordinary shares issuable upon the exercise of outstanding equity instruments following the completion of this offering and the granting of certain other equity awards following this offering as described elsewhere in this prospectus. We intend to register all of the Class A ordinary shares issuable upon exercise of outstanding equity instruments and other equity incentives we may grant in the future, for public resale under the Securities Act. The Class A ordinary shares will become eligible for sale in the public market to the extent such equity instruments are exercised, subject to the lock-up agreements and market stand-off provisions described above, including the exceptions thereto, and compliance with applicable securities laws.

You will experience immediate and substantial dilution in the net tangible book value of the Class A ordinary shares you purchase in this offering.

The initial public offering price of our Class A ordinary shares will be substantially higher than the as adjusted net tangible book value per ordinary share immediately after this offering. If you purchase Class A ordinary shares in this offering, you will suffer immediate dilution of $16.80 per share, or $16.61 per share if the underwriters exercise their over-allotment option in full, representing the difference between our pro forma as adjusted net tangible book value per share as of June 30, 2021 after giving effect to the sale of Class A ordinary shares in this offering and the assumed public offering price of $19.00 per share, the midpoint of the price range set forth on the cover page of this prospectus. See the section titled “Dilution.”

We do not intend to pay dividends for the foreseeable future and, as a result, your ability to achieve a return on your investment will depend on appreciation in the price of our Class A ordinary shares.

We have never declared or paid any cash dividends on our share capital, and we do not intend to pay any cash dividends in the foreseeable future. Any future proposals at our shareholders’ meeting to pay dividends in the future will be at the discretion of our board of directors after taking into account various factors, including our business prospects, cash requirements, financial performance and new product development and subject to approval by the general meeting of shareholders. In addition, payment of future dividends is subject to certain limitations pursuant to Swiss law. See “Description of Share Capital and Articles of Association.” Accordingly, you may need to rely on sales of our Class A ordinary shares after price appreciation, which may never occur, as the only way to realize any future gains on your investment.

If securities analysts do not publish research or reports about our business or if they publish negative evaluations of our Class A ordinary shares, the price of our Class A ordinary shares could decline.

The trading market for our Class A ordinary shares will rely in part on the research and reports that industry or securities analysts publish about us or our business. We do not currently have and may never obtain research coverage by industry or securities analysts. If no or few analysts commence coverage of us, the trading price of our Class A ordinary shares would likely decrease. Even if we do obtain analyst coverage, if one or more of the analysts covering our business downgrade their evaluations of our Class A ordinary shares, the price of our Class A ordinary shares could decline. If one or more of these analysts cease to cover our Class A ordinary shares, we could lose visibility in the market for our stock, which in turn could cause the price of our Class A ordinary shares to decline.

The registration of share capital increases in the commercial register may be blocked and the shareholders’ resolutions regarding the ordinary and authorized share capital increases may be challenged.

On August 19, 2021, our shareholders approved the ordinary share capital increase and the creation of authorized share capital necessary to source the ordinary shares to be sold in this offering. The execution of the

 

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share capital increases by our board of directors and the related filings will be made prior to the completion of this offering and, with regard to the Class A ordinary shares to be issued upon any exercise of the underwriters’ option to purchase additional Class A ordinary shares (if any), upon exercise of such option. The issuance of new Class A ordinary shares will become effective upon registration in the commercial register. As with all share capital increases in Switzerland, the shareholders’ resolutions regarding such share capital increases may be challenged in court within two months after such shareholders’ meeting and/or the registration of the capital increases in the commercial register may be blocked temporarily by a preliminary injunction or permanently by order of a competent court. Either action would prevent or delay the completion of this offering.

We are a Swiss corporation. The rights of our shareholders may be different from the rights of shareholders in companies governed by the laws of U.S. jurisdictions.

We are a Swiss corporation. Our corporate affairs are governed by our articles of association and by the laws governing companies, including listed companies, incorporated in Switzerland. The rights of our shareholders and the responsibilities of members of our board of directors may be different from the rights and obligations of shareholders and directors of companies governed by the laws of the United States. In the performance of its duties, our board of directors is required by Swiss law to consider the interests of our Company, and may also have regard to the interests of our shareholders, our employees and other stakeholders, in all cases with due observation of the principles of reasonableness and fairness. It is possible that some of these parties will have interests that are different from, or in addition to, your interests as a shareholder. Swiss corporate law limits the ability of our shareholders to challenge in court resolutions made or other actions taken by our board of directors.

Our shareholders generally are not permitted to file a suit to reverse a decision or an action taken by our board of directors, but are instead only permitted to seek damages for breaches of fiduciary duty. As a matter of Swiss law, shareholder claims against a member of our board of directors for breach of fiduciary duty would have to be brought in the competent courts in Zurich, Switzerland, or where the relevant member of our board of directors is domiciled. In addition, under Swiss law, any claims by our shareholders against us must be brought exclusively in the competent courts in Zurich, Switzerland. U.S.-style class actions and derivative actions are not available under Swiss law. A further summary of applicable Swiss corporate law is included in this prospectus, see “Description of Share Capital and Articles of Association” and “Comparison of Swiss Corporate Law and U.S. Corporate Law.” There can be no assurance that Swiss law will not change in the future, the occurrence of which could adversely affect the rights of our shareholders, or that Swiss law will protect our shareholders in a similar fashion as under U.S. corporate law principles.

On June 19, 2020, the Swiss Parliament approved legislation that will modernize certain aspects of Swiss corporate law. The new legislation, which will alter the rights of shareholders under Swiss law, is currently not expected to come into force before 2023 (with certain transitional periods as provided for therein). There can be no assurance that Swiss law will not again change in the future, which could adversely affect the rights of our shareholders. See “Description of Share Capital and Articles of Association” for further information on these changes.

Our shares are not listed in Switzerland, our home jurisdiction. As a result, our shareholders will not benefit from certain provisions of Swiss law that are designed to protect shareholders in a public takeover offer or a change-of-control transaction.

Because our Class A ordinary shares will be listed exclusively on the NYSE and not in Switzerland, our shareholders will not benefit from the protection afforded by certain provisions of Swiss law that are designed to protect shareholders in the event of a public takeover offer or a change-of-control transaction. For example, Article 120 of the Swiss Financial Market Infrastructure Act and its implementing provisions require investors to disclose their interest in our company if they reach, exceed or fall below certain ownership thresholds. Similarly, the Swiss takeover regime imposes a duty on any person or group of persons who acquires more than one-third of

 

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a company’s voting rights to make a mandatory offer for all of the company’s outstanding listed equity securities. In addition, the Swiss takeover regime imposes certain restrictions and obligations on bidders in a voluntary public takeover offer that are designed to protect shareholders. However, these protections are applicable only to issuers that list their equity securities in Switzerland, and because our Class A ordinary shares will be listed exclusively on the NYSE, they will not be applicable to us. Furthermore, since Swiss law restricts our ability to implement rights plans or U.S.-style “poison pills,” our ability to resist an unsolicited takeover attempt or to protect minority shareholders in the event of a change-of-control transaction may be limited. Therefore, our shareholders may not be protected to the same degree in a public takeover offer or a change-of-control transaction as are shareholders in a Swiss company listed in Switzerland.

Our status as a Swiss corporation means that our shareholders have certain rights that may limit our flexibility to raise capital, issue dividends and otherwise manage ongoing capital needs.

Swiss law reserves for approval by shareholders certain corporate actions over which a board of directors would have authority in certain other jurisdictions. For example, the payment of dividends and cancellation of treasury shares must be approved by shareholders. Swiss law also requires that our shareholders themselves resolve to, or authorize our board of directors to, increase our share capital. While our shareholders may authorize share capital that can be issued by our board of directors without additional shareholder approval, Swiss law limits this authorization to 50% of the share capital registered in the commercial register at the time of the authorization. The authorization, furthermore, has a limited duration of up to two years and must be renewed by the shareholders from time to time thereafter in order to be available for capital raises. Additionally, subject to specified exceptions, including exceptions explicitly described in our articles of association, Swiss law grants pre-emptive rights to existing shareholders to subscribe for new issuances of shares, which may be limited or withdrawn only under certain limited conditions. Swiss law also does not provide the same amount of flexibility in the various rights and regulations that can attach to different categories of shares as do the laws of some other jurisdictions. These Swiss law requirements relating to our capital management may limit our flexibility, and situations may arise where greater flexibility would have provided benefits to our shareholders. See “Description of Share Capital and Articles of Association” and “Comparison of Swiss Corporate Law and U.S. Corporate Law.”

Shareholders outside of the United States may not be able to exercise pre-emptive rights in future issuances of equity or other securities that are convertible into equity.

Under Swiss corporate law, shareholders may receive certain pre-emptive rights to subscribe on a pro-rata basis for issuances of equity securities or other securities that are convertible into equity securities. Due to the laws and regulations in certain jurisdictions, however, shareholders who are not residents of the United States may not be able to exercise such rights unless the Company takes action to register or otherwise qualify the rights offering, including, for example, by complying with prospectus requirements under the laws of that jurisdiction. There can be no assurance that the Company will take any action to register or otherwise qualify an offering of subscription rights or shares under the laws of any jurisdiction other than the United States where the offering of such rights is restricted. If shareholders in such jurisdictions were unable to exercise their subscription rights, their ownership in the Company would be diluted.

U.S. shareholders may not be able to obtain judgments or enforce civil liabilities against us or our executive officers or our board of directors.

We are a corporation organized and incorporated under the laws of Switzerland with registered office and domicile in Zurich, Switzerland, and the majority of our assets are located within Switzerland. Moreover, a number of our directors and executive officers are not residents of the United States, and all or a substantial portion of the assets of such persons are or may be located outside the United States. As a result, investors may not be able to effect service of process within the United States upon the Company or upon such persons, or to enforce judgments obtained against the Company or such persons in U.S. courts, including judgments in actions

 

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predicated upon the civil liability provisions of the federal securities laws of the United States. There is doubt that a lawsuit based upon United States federal or state securities laws could be brought in an original action in Switzerland and that a judgment of a U.S. court based upon United States securities laws would be enforced in Switzerland.

The United States and Switzerland currently do not have a treaty providing for the reciprocal recognition and enforcement of judgments, other than arbitration awards, in civil and commercial matters. Consequently, a final judgment for payment given by a court in the United States, whether or not predicated solely upon U.S. securities laws, may not be enforceable in Switzerland, see the sections of this prospectus entitled “Enforcement of Judgments.”

 

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LOGO

 

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USE OF PROCEEDS

We expect to receive total estimated net proceeds of approximately $448.6 million, based on the midpoint of the range set forth on the cover page of this prospectus after deducting estimated underwriting discounts and commissions and expenses of the offering that are payable by us. Each $1.00 increase (decrease) in the public offering price per ordinary share would increase (decrease) our net proceeds, after deducting estimated underwriting discounts and commissions and expenses, by $24.0 million. Similarly, each increase (decrease) of 1,000,000 Class A ordinary shares offered by us would increase (decrease) the net proceeds to us from this offering by approximately $17.9 million, assuming the assumed initial public offering price of $19.00 per share remains the same, and after deducting estimated underwriting discounts and commissions. We will not receive any of the proceeds from the sale of the Class A ordinary shares by the selling shareholders.

The principal purposes of this offering are to increase our capitalization and financial flexibility, create a public market for our Class A ordinary shares and facilitate our future access to the capital markets. As of the date of this prospectus, we cannot specify with certainty all of the particular uses for the net proceeds to us from this offering. However, we currently intend to use the net proceeds we receive from this offering for general corporate purposes, including working capital, operating expenses, and capital expenditures.

 

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DIVIDEND POLICY

We currently intend to retain all available funds and future earnings, if any, to fund the development and expansion of our business, and we do not anticipate paying any cash dividends in the foreseeable future. Any future proposals at our shareholders’ meeting regarding the declaration and payment of dividends, if any, will be at the discretion of our board of directors and will depend on then-existing conditions, including our financial condition, results of operation, contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant.

 

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CAPITALIZATION

The table below sets forth our cash and cash equivalents and total shareholders’ equity as of June 30, 2021:

 

   

on an actual basis;

 

   

on a pro forma basis to give effect to the Share Capital Reorganization; and

 

   

on a pro forma as adjusted basis to give effect to the pro forma adjustments identified above and our sale of the Class A ordinary shares in the offering, and the receipt of approximately $448.6 million in estimated net proceeds, assuming an offering price of $19.00 per share (the midpoint of the range set forth on the cover of this prospectus), after deduction of the underwriting discounts and commissions and estimated offering expenses payable by us in connection with the offering, and the use of proceeds therefrom.

Investors should read this table in conjunction with our consolidated financial statements included in this prospectus.

 

     As of June 30, 2021  
     Actual      Pro Forma      Pro Forma
As Adjusted
 
     (thousands of CHF)  

Cash and cash equivalents

     106,649        106,649        519,658  
  

 

 

    

 

 

    

 

 

 

Share capital

        

Class A ordinary shares, CHF 10 par value, 196,592 outstanding actual; CHF 0.10 par value, 245,740,000 issued and outstanding pro forma and 271,182,391 issued and outstanding pro forma as adjusted

     1,966        24,574        27,118  

Class B voting rights shares, CHF 1 par value, 276,350 outstanding actual; CHF 0.01 par value, 345,437,500 issued and outstanding pro forma and 345,437,500 issued and outstanding pro forma as adjusted

     276        3,454        3,454  

Capital reserves

     296,827        271,041        688,406  

Other reserves

     (3,886      (3,886      (3,886

Accumulated losses

     (26,618      (26,618      (30,603
  

 

 

    

 

 

    

 

 

 

Total shareholders’ equity

     268,565        268,565        684,489  
  

 

 

    

 

 

    

 

 

 

Total capitalization

     268,565        268,565        684,489  
  

 

 

    

 

 

    

 

 

 

A $1.00 increase (decrease) in the assumed initial public offering price of $19.00 per Class A ordinary share, the midpoint of the estimated price range set forth on the cover page of this prospectus, would increase (decrease) each of our pro forma as adjusted cash and cash equivalents, capital reserves and total shareholders’ equity by $24.0 million (CHF 22.1 million), assuming the number of Class A ordinary shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions. Similarly, each increase (decrease) of 1,000,000 shares in the number of Class A ordinary shares offered by us would increase (decrease) each of our pro forma as adjusted cash and cash equivalents, capital reserves and total shareholders’ equity by $17.9 million (CHF 16.5 million), assuming the assumed initial public offering price of $19.00 per Class A ordinary share remains the same, and after deducting estimated underwriting discounts and commissions.

The selling shareholders identified herein will receive all net proceeds from the secondary offering of the Class A ordinary shares held by them. Therefore, we will not receive any net proceeds from their secondary offering and our total capitalization will not be impacted by such net proceeds received by the selling shareholders.

 

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DILUTION

At June 30, 2021, we had a total net tangible book value of $227.6 million (CHF 210.6 million). The net tangible book value attributable to our Class A ordinary shares was $201.0 million (CHF 184.9 million), corresponding to a net tangible book value of $1,011.03 per Class A ordinary share. After giving effect to the Share Capital Reorganization, our total pro forma net tangible book value and our pro forma net tangible book value attributable to Class A shares would have remain unchanged at June 30, 2021, corresponding to a pro forma net tangible book value of $0.81 per Class A ordinary share. Net tangible book value represents the amount of our total assets less our total liabilities, excluding goodwill and other intangible assets. Net tangible book value per Class A ordinary share represents net tangible book value attributable to Class A ordinary shares divided by 198,813, the total number of our Class A ordinary shares outstanding before giving effect to the Share Capital Reorganization. Pro forma net tangible book value per Class A ordinary share represents net tangible book value divided by 248,516,250, which is equal to the total number of our Class A ordinary shares outstanding after giving effect to the Share Capital Reorganization plus 2,776,250 Class A ordinary shares that are issuable upon the exercise of options that have vested prior to this offering.

After giving further effect to the sale by us of the 25,442,391 Class A ordinary shares offered by us in the offering, and assuming an offering price of $19.00 per Class A ordinary share (the midpoint of the range set forth on the cover of this prospectus), after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, our total pro forma as adjusted net tangible book value estimated at June 30, 2021 would have been $677.9 million (CHF 623.6 million) and our pro forma as adjusted net tangible book value attributable to Class A ordinary shares would have been $602.0 million (CHF 553.8 million), representing $2.20 per Class A ordinary share. This represents an immediate increase in pro forma net tangible book value of $1.39 per Class A ordinary share to existing shareholders and an immediate dilution in net tangible book value of $16.80 per Class A ordinary share to new investors purchasing Class A ordinary shares in this offering. Dilution for this purpose represents the difference between the price per Class A ordinary shares paid by these purchasers and pro forma net tangible book value per Class A ordinary share immediately after the completion of the offering.

The following table illustrates this dilution to new investors purchasing Class A ordinary shares in the offering.

 

Assumed initial public offering price per Class A ordinary share

      $ 19.00  

Net tangible book value per Class A ordinary share at June 30, 2021

   $ 1,011.03     

Pro forma net tangible book value per Class A ordinary share at June 30, 2021

     0.81     

Increase in pro forma net tangible book value per Class A ordinary share attributable to new investors

   $ 1.39     
  

 

 

    

Pro forma as adjusted net tangible book value per Class A ordinary share after the offering

        2.20  

Dilution per Class A ordinary share to new investors

      $ 16.80  
     

 

 

 

The dilution information discussed above is illustrative only and may change based on the actual initial public offering price and other terms of this offering. A $1.00 increase (decrease) in the assumed initial public offering price of $19.00 per Class A ordinary share, the midpoint of the estimated price range set forth on the cover page of this prospectus, would increase (decrease) our pro forma as adjusted net tangible book value per Class A ordinary share after this offering by $0.08 per Class A ordinary share and increase (decrease) the immediate dilution to new investors by $0.92 per Class A ordinary share, in each case assuming the number of

 

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Class A ordinary shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions. Similarly, each increase of 1,000,000 shares in the number of Class A ordinary shares offered by us would increase our pro forma as adjusted net tangible book value by approximately $0.05 per Class A ordinary share and decrease the dilution to new investors by approximately $0.05 per Class A ordinary share, and each decrease of 1,000,000 shares in the number of Class A ordinary shares offered by us would decrease our pro forma as adjusted net tangible book value by approximately $0.05 per Class A ordinary share and increase the dilution to new investors by approximately $0.05 per share, in each case assuming the assumed initial public offering price of $19.00 per Class A ordinary share remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The following table summarizes, as of June 30, 2021, on an a pro forma adjusted basis as described above, the number of our Class A ordinary shares, the total consideration and the average price per share (1) paid to us by existing shareholders and (2) to be paid by new investors acquiring our Class A ordinary shares in this offering at an assumed initial public offering price of $19.00 per share, the midpoint of the estimated price range set forth on the cover page of this prospectus, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

     Shares Purchased     Total Consideration     Average Price
Per Share
 
     Number      Percent     Amount      Percent    

 

 

Existing shareholders

     245,740,000        90.6   $ 512,848,696        51.5   $ 2.09  

New investors

     25,442,391        9.4   $ 483,405,435        48.5   $ 19.00  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Totals

     271,182,391        100.0   $ 996,254,130        100.0   $ 3.67  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Each $1.00 increase (decrease) in the assumed initial public offering price of $19.00 per Class A ordinary share, the midpoint of the estimated price range set forth on the cover page of this prospectus, would increase (decrease) the total consideration paid by new investors and total consideration paid by all shareholders by approximately $25.4 million, assuming that the number of Class A ordinary shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase (decrease) of 1,000,000 shares in the number of Class A ordinary shares offered by us would increase (decrease) the total consideration paid by new investors and total consideration paid by all shareholders by $19.0 million, assuming the assumed initial public offering price of $19.00 per Class A ordinary share remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

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LOGO

 

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PARTNERS’ LETTER

Dear prospective shareholders and On community,

Thank you for considering investing in On. Before you make your decision, we, the five On Partners, would like to give you some insights into why On exists, what drives our growth and how our culture is different.

When Olivier took his first strides in the prototype of what would become the original On shoe, he felt something that he had never felt before. He seemed to be floating above the ground—it was like running on clouds. As a three-time world champion and six-time Ironman champion, Olivier had already run a total distance further than circumnavigating the circumference of the globe, but never like this.

To validate his experience, Olivier invited his friends Caspar and David (and eventually Marc and Martin)—all of us amateur runners who had been battling with running injuries—to try his shoes. We were so impressed that we started to dream of bringing these shoes to runners around the world, and empowering them to have more fun on the run. Eleven years on, we believe that we are a favorite brand of many runners, worn by Olympians and world champions, and one of the fastest-growing sports companies.

On is an innovation company at heart. We founded On based on an invention—a completely new cushioning technology, CloudTec—and have since created many more innovations and patents. On exists at the intersection of performance, design and impact. Changing the game with Swiss engineering, we focus our development efforts on three main areas: increasing performance for athletes and consumers, smarter design, and innovating a path to a more sustainable future where On’s growth is decoupled from resource depletion. Under the guidance of the co-founders, a highly talented team of biomechanics, engineers, materials experts and designers is constantly dreaming up new products. The result is technology that you can see and feel—no longer just in running shoes but also in performance-infused footwear, sportswear and accessories for the outdoors and for an active lifestyle—all amplified with new digital and physical experiences that we believe create value for our fans and give On an edge over the competition.

We live by the explorer spirit. The breakthrough success of the first invention encouraged us to continue challenging the status quo. Today, we still believe that doing things differently will continue to give On an advantage. How? By taking a contrarian view, questioning, and debating—something we ask of our teams, no matter what function they are in. We also believe that before you can create something, you have to be able to dream it. So we allow our teams to dream big. We will continue to make calculated, courageous moves when venturing into the unknown, whether that is with new territories, new products, new materials, new business models or new consumers.

Diversity, inclusion, and empowerment as the catalyst for exploration and innovation. We are building the team to harness the ingenuity that comes from diverse viewpoints—from scientists, athletes, designers, storytellers, product developers, digital innovators, talent scouts and business operators. On’s high-performing global team not only brings together 52 different nationalities, but also the richness of different mindsets and cultural backgrounds. And with a culture of inclusion and continuous improvement, this winning team gets better every day. We empower our teams to make decisions, guide them with our values, and enable them to make things happen. This allows us to continue scaling while retaining the entrepreneurial mindset of our startup culture well beyond the days of still being able to call ourselves a startup.

The On community is not only loyal, they are advocates. They tell their friends, family and social followers to choose On too. Word of mouth is a big driver of growth for On, as our industry-leading net promoter score of 66 shows. Many On fans own more than one or two pairs of our shoes, they own many. 43% of our e-commerce customers have already purchased two or more items, and this number keeps increasing. Our team regularly receives messages from fans around the world. They might hear from a runner in Shanghai, a hiker in Hokkaido, a commuter in Chicago, or a rather famous Swiss tennis player who wants to get involved.

 

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Since 2019, we are proud to call Roger Federer not just an investor, but a friend and partner who spends many days with us in the On Lab working on his namesake sneaker franchise and his tennis competition shoe.

We meet the consumers wherever they are. At running events, in neighborhood training groups, core running stores, on the high street and on our website and social channels, which have seen a groundswell of community over the last 10 years. The strong direct relationship we have with our community has been built through our grassroots activities as well as our digital channels. This direct-to-consumer strategy continues to evolve, from e-commerce to On retail experience stores in key cities such as New York, Beijing or Shanghai. At the same time as we develop our DTC model, we keep building strong relationships with some of the most trusted retailers in running specialty, the outdoors and fashion, enabling us to deliver a well-balanced and premium multi-channel experience.

For runners, from runners. Many of our team members are ambitious athletes. Many of us run or work out, and our offices often buzz with energy and laughter after a lunchtime group run or yoga session. Running counts as work at On and, more often than not, we will be going out in a prototype of an upcoming product. As many of you will agree, running can be challenging and it teaches you persistence and discipline. We believe the honesty and authenticity that stems from running benefits our business.

Impact and performance can go hand-in-hand. Growing up in the Swiss Alps gives you a special appreciation for the natural world. Nature is not only where we play, it is also our source of inspiration and above all, it is our home. As a truly global company with a worldwide community, the challenges facing the planet take on new significance. As we grow, we continue to take on more responsibility, as proven by our public commitment to ambitious, science-based greenhouse gas emissions reduction targets. We also dream of completely new kinds of products. We recently introduced the first fully recyclable shoes available only by subscription. By applying efficient design, we are making the majority of our products more sustainable while at the same time increasing performance.

Born in Switzerland, at home in the world. On is based in Switzerland, one of the world’s smallest countries. With few inhabitants, high mountains and long winters, there are not enough runners here to support a running brand. So right from day one, On aspired to be a multinational company. Over the past decade, we have built strong bonds with consumers in markets such as the United States, Brazil, Australia, Germany and China. On takes a culture-sensitive approach to globalization, adapting to local customs where needed while working from a single operational blueprint. Today, we operate in more than 60 countries. We have fully owned subsidiaries in the major markets, all of which are growing rapidly. It is immensely gratifying for us to see On products worn, recommended, tested and loved by an active community across continents and very different cultures. We call Portland, New York, Shanghai, Tokyo, Sao Paulo, Berlin, Melbourne, Ho-Chi-Minh City, and of course Zurich, “home.”

We run On as a partnership. After founding On in 2010, getting it off the ground and starting to gain traction in a few markets, Caspar, David and Olivier quickly realized that we needed more management capacity to scale and professionalize the business. In 2013, in what turned out to be a defining moment for On’s leadership philosophy, we decided to bring on Marc (as COO) and Martin (as CFO) as equal partners. The shared judgments, deep level of trust and extra bandwidth from the five of us have significantly benefited On.

The five Partners lead the company collaboratively, with Caspar and David acting as Executive Co-Chairmen, Olivier as Executive Board Member, Martin as CFO & Co-CEO and Marc as Co-CEO. The three co-founders spend a considerable amount of their time on innovation and product development, with Marc and Martin focusing more on operational and administrative matters. In addition, each of us owns a number of strategic missions that contribute to both the operational and long-term success of On. This partnership has been an integral part of On’s culture and success in the past decade and we expect it to continue.

We also have an experienced board of directors, three of whom are independent, to oversee the management of On. We feel extremely fortunate to have attracted and developed a strong and talented senior leadership team

 

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consisting of 14 people, nearly half of them women, with seven nationalities represented. Some of them started at On as interns and many are industry outsiders bringing fresh perspectives. This inspiring group has grown On to where it is today—they operate the company and deserve much of the credit.

Join our mission. When Olivier was a professional athlete, he realized that the difference between first and second place was more than just physical performance: that it is not just the human body that determines whether you cross the finish line, reach the peak or dare to dream the big idea—it is the human spirit.

When we run, move, and explore, we can access reserves of performance that go way beyond the physical. We discover a capacity to dream bigger and better. We start to see that maybe, just maybe, we can make that dream a reality. We realized that our best ideas come from going for a run, a hike, or just moving. And that the more we move, the bolder our endeavors become.

When we revealed our patented CloudTec technology back in 2010, we redefined what it feels like to run. We made running feel lighter, more agile—more fun. When people stepped into the shoes something switched “On.” They found themselves moving. Sometimes further. Sometimes faster. Sometimes in entirely new ways. With millions of people around the world having discovered On and over 17 million products sold to date, we believe moving in On shoes and gear does not just feel effortless, it taps into something that has benefits long after their workout is over. And that is no accident—every On innovation is Swiss-engineered to deliver on our mission:

To ignite the human spirit through movement.

At this special stepping-stone in On’s journey, we invite you to join us in our mission. We aim to continue discovering and exploring new frontiers, doing things differently and building long-term, durable value for all stakeholders.

Caspar, David, Marc, Martin, Olivier

The On Partners

 

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LOGO

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read in conjunction with the consolidated financial statements, including the notes thereto, included elsewhere in this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus contains forward-looking statements that reflect our plans, strategy, estimates and beliefs. Our actual results and the timing of events could differ materially from those anticipated in the forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to those discussed below and elsewhere in this prospectus, particularly in the sections titled “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements.” The audited consolidated financial statements as of and for the years ended December 31, 2020 and 2019 and the unaudited consolidated interim financial statements as of June 30, 2021 and for the six-month periods ended June 30, 2021 and 2020 were prepared in accordance with IFRS, as issued by the International Accounting Standards Board, and presented in Swiss Francs (CHF). We include certain financial information for years prior to 2019, which is derived from financial statements that are not included in this prospectus. The information for net sales prior to 2018 has been derived from the consolidated financial statements of On Holding AG for the years ended December 31, 2012 to 2017 and from the financial statements of On AG for the years ended December 31, 2010 to 2011, each prepared in accordance with Swiss GAAP. There are no significant differences in net sales recognized under Swiss GAAP and IFRS. Net sales for the years ended December 31, 2010 and 2011 have been derived from On AG’s historical financial statements for such periods as On Holding AG was formed subsequent to such periods. The information in this section does not give effect to the Share Capital Reorganization.

Overview

On is a premium performance sports brand rooted in technology, design and sustainability that has built a passionate global community of fans across more than 60 countries. We believe we are one of the fastest-growing scaled athletic sports companies in the world having grown our net sales at an 85% compound annual growth rate (“CAGR”) from inception through 2020 to CHF 425.3 million for the year ended December 31, 2020. Our growth has continued in 2021, with net sales growing 84.6% to CHF 315.5 million for the six-month period ended June 30, 2021 compared to the six-month period ended June 30, 2020. We focus on providing a premium product experience to customers wherever they are and our brand resonates with our loyal customers around the world.

We believe our Swiss heritage and our focus on innovating at the cutting edge of performance, design and sustainability differentiates us from other sports brands. We are committed to creating premium products that deliver strong performance. Our relentless culture of innovation has driven us to repeatedly introduce numerous groundbreaking technologies that are designed to change the experience of running and create continuous excitement for our fans as we bring new products to market.

 

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Building off our heritage of supporting the runner, we have applied our expertise to creating performance products for a broader set of global consumers who use them in everyday life, expanding our product range beyond Performance Running to Performance Outdoor and Performance All Day. Our Performance Outdoor products embrace a new approach to taking on the mountains: light and fast; with shoes and outdoor apparel engineered to free you from the weight and bulk of traditional outdoor gear. Our Performance All Day range of products effortlessly fuses function and aesthetics.

LOGO

 

(1)

The information for net sales prior to 2018 have been derived from the consolidated financial statements of On Holding AG for the years ended December 31, 2012 to 2017 and from the financial statements of On AG for the years ended December 31, 2010 to 2011, each prepared in accordance with Swiss GAAP. There are no significant differences in net sales recognized under Swiss GAAP and IFRS.

On operates as a single-brand consumer products business and therefore has a single reportable segment. This is primarily due to On’s strategies which focus on driving sales growth by increasing overall brand awareness and market share.

Our financial performance reflects the successful execution of specific business priorities integral to our growth strategies. Key highlights for 2020 compared to 2019 include:

 

   

net sales increased 59.2% to CHF 425.3 million;

 

   

net sales through the DTC sales channel increased 141.7% to CHF 160.5 million;

 

   

net sales through the wholesale sales channel increased 31.9% to CHF 264.8 million;

 

   

net sales in the EU, North America and Asia-Pacific increased 46.1% to CHF 187.5 million, 86.2% to CHF 208.1 million and 28.7% to CHF 23.0 million, respectively;

 

   

gross profit increased 61.5% to CHF 231.1 million;

 

   

gross margin increased 76 basis points to 54.3%;

 

   

net loss of CHF 27.5 million for 2020 compared to CHF 1.5 million in 2019; and

 

   

adjusted EBITDA increased 66.6% to CHF 49.8 million.

Key highlights for the six-month period ended June 30, 2021 compared to the six-month period ended June 30, 2020 include:

 

   

net sales increased 84.6% to CHF 315.5 million;

 

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net sales through the DTC sales channel increased 57.5% to CHF 115.4 million, maintaining a high DTC share of 36.6%;

 

   

net sales through the wholesale sales channel increased 104.9% to CHF 200.1 million;

 

   

net sales in the EU, North America and Asia-Pacific increased 56.5% to CHF 127.9 million, 104.9% to CHF 163.9 million and 153.7% to CHF 19.0 million, respectively;

 

   

gross profit increased 95.0% to CHF 187.2 million;

 

   

gross margin increased 3.1% to 59.3%;

 

   

net income of CHF 3.8 million for the six-month period ended June 30, 2021 compared to a net loss of CHF 33.1 million for the six-month period ended June 30, 2020; and

 

   

adjusted EBITDA increased 196.1% to CHF 47.3 million.

Adjusted EBITDA is a non-IFRS measure used by us to evaluate our performance. Furthermore, we believe this non-IFRS measure enhances investor understanding of our financial and operating performance from period to period because it excludes certain material items related to share-based compensation and costs related to this offering, which are not reflective of our ongoing operations and performance. Adjusted EBITDA should not be considered in isolation or as a substitute for other financial measures calculated and presented in accordance with IFRS. See “—Non-IFRS Measures” for a detailed description and a reconciliation to the nearest IFRS measure.

Our Growth Strategies

While we have generated net losses in recent years, our financial profile is characterized by high net sales growth and strong gross margin. We intend to deliver continued growth in net sales and profitability by executing on the following growth strategies:

Grow Brand Awareness and our Community

We believe that powerful consumer trends will continue to expand the approximately $300 billion global sportswear industry and that our differentiated product offering and appeal to our loyal community will drive increasing market share. We believe our brand is globally recognized today, and we have significant opportunities to further grow our brand awareness and expand the size and breadth of our community. While we have meaningfully grown internationally over the past decade, our unaided brand awareness outside of Switzerland remains below established sportswear peers, providing us with a clear runway ahead.

Authenticity gained through word of mouth, recommendations from athletes, influencers, tastemakers and a global community of runners and explorers has proven extremely valuable in organically and credibly growing the On brand. To further drive our brand’s awareness now and in the future, our internal agency team will focus on the following strategies:

 

   

Digital and social media: With a fast growing social presence fueled by storytelling, athletes and both physical and digital live events, we have the ability to drive brand affinity through a large audience. Our high share of voice shows that our engaged global community members are active within our channels and also promote On to their own audiences, sharing tips and offering advice to enhance the community experience.

 

   

Athlete advocacy: There is no better validation for our products than professional athletes trusting our shoes in the most demanding settings. Olympians and World Champions in track and field embrace our products and proudly display them on the world stage. At the same time, our athletes create opportunities for core sporting storytelling that create public relations opportunities for cultural impact.

 

   

Grassroots: The ‘Try On’ experience has proven a useful tool for us to show the benefit of our products and truth in our performance claims. By creating globally owned event series such as our 5k

 

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run crew ‘Squad Races’ or our yearly ‘Run Your Local Mountain’, we have invited thousands of broadly active runners to test and discover our brand. By further developing and adding new formats, we plan to reach and grow our community even further.

Our internal agency team collaborates across the business to ensure we are integrated directly into decision making for premium product storytelling, new innovative services, authentic community growth and shareable moments. At its heart, our marketing philosophy is simply to work with those who love our product, which we believe supports our high marketing efficiency and authenticity.

Leverage Innovation Leadership to Broaden Product Portfolio

We founded On with a view of making movement more effortless and comfortable. Eleven years on, we are broadening our focus beyond runners and their shoes. Our innovation teams are infusing Swiss engineered technology into products to be used all day, every day, and everywhere. We believe we can leverage our expertise in running to improve the functionality of products in adjacent lifestyles, including fitness, everyday use, outdoors and most recently tennis, and to broaden our product portfolio from footwear to apparel and accessories.

The evolution of our line of premium performance sports products and expansion of our product assortment has contributed meaningfully to our net sales growth. As additional products are introduced, it is expected that they will help diversify our product range and attract new customers across both sales channels. On has built a balanced portfolio of strong product franchises, including the Cloud, Cloudflow, CloudX, Cloudswift, Cloudflyer, Cloudventure and Cloudstratus. We believe our latest product launches Cloudnova, Cloud Hi and The Roger resonate well with our customers and we expect these products will further diversify our product mix in the future.

Expand our Geographic Footprint Through Controlled, Multi-channel Growth

We are in a growth phase in almost all of our international markets and we believe we have opportunities for continued market share gains. While we have generated net losses in recent years, we have achieved significant net sales growth historically as we have entered new markets. For example, On entered the United States in 2013 and has grown net sales under IFRS to CHF 202 million in 2020 from CHF 2 million net sales under Swiss GAAP in 2013. In our home market Switzerland we have grown net sales under IFRS to CHF 52 million in 2020 from CHF 1 million net sales under Swiss GAAP in 2010. We entered China in 2018 and grew our net sales in the region by 199% from CHF 1.8 million in 2019 to CHF 5.5 million in 2020. We have continued to grow our net sales across these international markets for the six-month period ended June 30, 2021, with the United States, Switzerland and China accounting for CHF 157 million, CHF 27 million and CHF 8 million, respectively, of net sales during that period.

We believe that pioneering a true multi-channel strategy will ultimately lead to superior outcomes, lower cost of customer acquisition and higher customer retention and repeat purchases. Our wholesale and our DTC channels are mutually beneficial to each other because we always put the customer first. We ask ourselves which customers we want to attract and what is the best and most efficient acquisition channel to deliver a superior experience to these customers. We then aim to deliver that superior experience wherever the customer decides to shop, whether online or in a physical store.

We intend to continue to grow our global footprint by tapping into new customer segments without compromising our premium customer experience across our wholesale and DTC channels:

 

   

Wholesale channel expansion: We intend to take a measured approach to attract new customers and enter new markets through selected retail partners that are complementary to our brand. We started with the run specialty channel and then selectively expanded to additional premium retail partners to reach a broader audience, building on the initial momentum and brand halo gained by our presence in specialty stores.

 

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Additional doors: We believe there is significant room to enter additional premium doors in less mature but also in many of our established markets by tapping into new customer segments.

 

   

Higher sales per door: We believe that by delivering a superior On brand experience at our wholesale partners (in an online and offline environment), we still have room to increase our sales per door. Furthermore, we aim to work with our partners in a very integrated way, including planning assortments and inventory and ensuring that we have the right product assortment in the corresponding channel for the respective consumer.

 

   

DTC channel expansion: The second pillar to the multi-channel growth is our DTC channel, both digital and physical, which we believe enables greater consumer engagement and offers an optimal environment to showcase our brand. We believe that this customer experience will lead to a continued increased share of our DTC channel in the long term, while the short term share continues to depend on the duration and impact of the COVID-19 pandemic and the consumer behavior in the immediate post-COVID-19 periods. Our DTC business represented 37.7% and 36.6% of our net sales in 2020 and the six-month period ended June 30, 2021, respectively.

 

   

Digital: Our scaled DTC e-commerce business represented approximately 0.9 million active customers in 2020. We believe that we have ample opportunity to not only acquire new customers, but also drive repeat purchases. Knowing our customers and being able to provide them a superior experience over time is key. Historically, we have achieved growth in our digital channel thanks to our capability to achieve superior returns on our advertising spend. We will continue to strive for strong growth to further enhance our digital experience.

 

   

Physical: We plan to selectively build physical stores to showcase our brand and products, which we believe will further strengthen our local community and brand reach. Our stores will be designed to create an enriching customer experience through technology and personalized customer service. We opened our first flagship retail location in New York City in 2020, and our intention is to have a very selective presence with flagship locations in key cities around the globe. We believe retail stores will be a key growth pillar in China. We currently operate six mall-based mono-brand stores in Shanghai and Chengdu. We primarily target premium shopping locations in major cities where we are able to directly connect with customers who we believe will connect with On.

Continue to Drive Operational Excellence

As we scale our business, we plan to continue leveraging our brand and powerful business model to drive operational efficiencies and improved financial and operating performance in the following ways:

 

   

Insourcing of product development and Vietnam-European Union Free Trade Agreement. In 2020, On successfully completed the insourcing of product development from an external sourcing agent. Consequently, all products purchased as of 2021 are no longer subject to a sourcing fee. As of August 2020, On benefits from the newly established free trade agreement between the EU and Vietnam. These factors had a positive impact on our gross margin for the six-month period ended June 30, 2021.

 

   

Strong channel profitability and mix. We intend to expand our DTC channel in high-value markets that can support the profitable rollout of e-commerce and select retail stores. We believe this will allow us to maintain our high levels of gross margin in our e-commerce-led DTC channel.

 

   

Conversion of distributor markets. As of June 30, 2021, On worked with distribution partners in 25 countries. As we grow, we expect to transition some of those distributor markets to a direct retail distribution system, which will allow us to more efficiently and profoundly influence the customer experience.

 

   

Operating leverage. We have invested ahead of our growth in all areas of the business and have built highly scalable business processes, including design and manufacturing, multi-channel distribution and

 

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corporate infrastructure. As we continue our growth trajectory, On expects to realize economies of scale. At the same time, On will continue to invest into all areas of the business as part of our geographical and product expansion.

Looking toward the future, we believe that these initiatives will provide a robust foundation for growth and position us to continue capturing market share.

Factors Affecting Our Performance

Our growth, our financial condition and results have been, and will continue to be, affected by a number of factors, including the following:

Ability to Grow into New Geographies and to Convert Distributor Markets

Entering new geographic markets or converting distributor markets requires us to invest in personnel, marketing, and infrastructure, including additional offices, showrooms and distribution networks. Our international expansion has resulted in, and will continue to result in, increased costs and is subject to a variety of risks, including low initial brand awareness, local competition, inventory risks, website translation, multilingual customer service, potentially complex import and delivery logistics, and compliance with foreign laws and regulations. Increased costs include, but are not limited to, personnel expenses for sales and marketing teams to initially build a sales network, lacking economies of scale in distribution and supply chain and additional administration expenses. The duration of those additional costs, among others, depends on the geographical size and structure of the particular market, as well as the existing level of brand awareness.

Ability to Invest

We will continue to make investments across our business to drive growth, and therefore we expect expenses to increase. We will continue to invest significant resources in talent, sales and marketing to drive brand awareness and demand for our products. Marketing expenses as a percentage of net sales were 10.7% for 2020 and 13.3% for the six-month period ended June 30, 2021. We intend to increase marketing expenses in the future, including investment in digital customer acquisition and brand awareness within the e-commerce platform. To support our growth, we also intend to continue investing in our distribution network as well as into product inventory. For example, during 2020, distribution expenses increased to CHF 51.1 million, compared to CHF 28.6 million in 2019, mainly as a result of the increased DTC share as well as due to higher labor cost incurred by our logistics partners as a result of the COVID-19 pandemic. We also intend to continue investing in new manufacturing partners, which has in the past partially resulted in, and may continue to result in, higher purchasing expenses. We also expect to continue to invest into research and development to drive innovations and product offerings. To support the expansion of our own retail network, we intend to invest into additional physical retail stores and store leases. Our corporate infrastructure is essential to our ability to take data driven decisions, enhance customer experience, and enable an efficient and collaborative working environment for our global team. We plan to continue to invest in our corporate back- and front-end infrastructure. The anticipated employee growth is expected to drive additional investments into office space. In late 2021, we expect to open a new office in Berlin, and in 2022, we expect to move both our North American headquarters in Portland and our global headquarters in Zurich into new locations, which is expected to result in significant capital expenditures related to office build out and office infrastructure.

Ability to Manage Inventory

Our ability to grow has been, and will continue to be dependent on the availability of the right inventory at the right time, at the right place. Our data driven approach to demand planning together with an integrative approach between sales, demand, and supply planning has enabled rapid growth while maintaining a premium positioning. Historically, wrong inventory levels have resulted in missed sales opportunities, higher expenses,

 

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including higher freight expenses due to a higher share of air-freighted product, increased distribution expenses, and higher discounts towards wholesale partners, as well as in higher or lower levels of working capital. For example, in 2019 low inventory levels resulted in air freight expenses of CHF 8.2 million, or 3.1% of net sales, while a more balanced inventory in 2020 resulted in air freight expenses of CHF 9.2 million, or 2.2% of net sales.

Customs and Duty Expenses

Most distribution markets that we operate in impose customs and duties on the importation of footwear and apparel products manufactured in Vietnam, China and most other countries. For example, in 2020, we have experienced the impact of significant changes in global customs and duty rates for footwear and apparel products, including, but not limited to, higher tariffs for importing apparel from China into the United States and the implementation of the Vietnam-European Union Free Trade Agreement.

Seasonality

Historically, we have experienced higher net sales in the third and fourth quarters of the fiscal year compared to other quarters, due in large part to the phasing of our product seasons, with spring-summer season from November to May and fall-winter season from July to October, as well as seasonal holiday demand. For example, in 2020 and 2019, our third and fourth quarters combined each represented 60% and 55% of our total net sales. However, starting in 2022 we are planning to introduce new product seasons with spring-summer season from January to June and fall-winter season from July to December. This may result in changes to the seasonality of our financial results.

Foreign exchange

We are also exposed to fluctuation in foreign exchange on various transactions. The majority of our transactional foreign exchange risk arises from products sourced in U.S. dollars, while selling, general and administrative expenses are realized in currencies of the countries in which they are incurred and sales are denominated in the currencies of the respective destination markets. In both 2020 and 2019, we generated 88% of our net sales in currencies other than CHF. We have a high degree of visibility into our net currency exposures. This visibility allows us to enter into derivatives to hedge our foreign currency exposure. As we continue to grow our business in existing and new geographies, we expect our foreign exchange exposures to increase. We do not apply hedge accounting and derivative instruments are recorded as financial assets or liabilities at fair value through profit or loss. In 2020, fair value losses on derivatives amounted to CHF 1.3 million. For the six-month period ended June 30, 2021 fair value gains on derivatives amounted to CHF 0.1 million.

Coronavirus (COVID-19)

In March 2020, the World Health Organization designated the new coronavirus disease (“COVID-19”) as a global pandemic. Governments around the world implemented public health and social measures to slow the transmission of the virus. These included physical and social distancing measures, including mandatory store closure in many areas of the world, which have had a significant impact on certain businesses such as retail, sporting events and fitness providers. Our response to the impact of COVID-19 was to focus on protecting our people, safeguarding our supply chain, responding to new patterns of demand and intensifying partnerships with our customers.

Over the course of 2020 and the first six months of 2021, we demonstrated agility and adapted to the unprecedented impacts of COVID-19, as evidenced by our strong continued financial performance during the respective periods. Our balanced sales mix across both channels and geographies provided us with net sales resiliency as regions were impacted by the pandemic in different ways and at different times. While we expect our strong financial performance to continue, the extent of the current and future impact of COVID-19 on our operational and financial performance depends on future developments outside of our control, including the

 

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duration and spread of the pandemic and related actions taken by international, federal, state and local governments to prevent disease spread, the emergence of variant strains and the pace and efficiency of vaccination efforts. For example, as a result of the recent surge of COVID-19 cases in Vietnam, we are experiencing significant disruptions to our supply chain due to mandatory closures of a number of our suppliers’ manufacturing operations. As of September 1, 2021, factories responsible for approximately 70% of our supply in Vietnam were temporarily closed, while factories responsible for the remaining 30% of our supply remain unaffected. While we are proactively reallocating resources to mitigate the impact of this disruption, we expect these disruptions to impact our inventory levels, increase our cost of sales (including freight costs), cause delays in the launch of new shoe and apparel offerings and adversely impact our expected growth rate in 2021 and beyond. For a more complete discussion of the COVID-19 related risks facing our business, refer to “Risk Factors—Risks Related to Our Business, Business Strategy and Industry—The COVID-19 pandemic and related government, private sector, and individual consumer responsive actions have adversely affected, and may continue to adversely affect our business operations, the operations of our suppliers and other business partners, store traffic, employee availability, and our financial condition, liquidity and cash flow.” We currently believe we will have sufficient liquidity from cash reserves and credit facilities to mitigate the impact of these risks and meet short-term financial obligations.

Post-Offering Public Company Expenses

As a public company, we will be implementing additional procedures and processes for the purpose of addressing the standards and requirements applicable to public companies. In particular, we expect our accounting, legal and personnel-related expenses and directors’ and officers’ insurance costs to increase as we establish more comprehensive compliance and governance functions, establish, maintain and review internal controls over financial reporting, and prepare and distribute periodic reports in accordance with SEC rules. Our financial statements following this offering will reflect the impact of these expenses.

In addition, we grant share-based compensation awards to our extended founder team, other members of senior management and to certain other employees to incentivize individuals based on their impact and contribution to On. No later than 75 days after the date of this offering, we expect to grant options under our 2020 LTIP which will be exercisable into 10,552,670 Class B voting rights shares and 5,502,146 Class A ordinary shares, respectively, and which will vest at the time of grant. Upon the granting and vesting of such options, we will recognize share-based compensation expense. For illustrative purposes, if such options were granted on the date of pricing of this offering, we would recognize a share-based compensation charge of approximately $76.5 million based on the assumed initial public offering price of $19.00 per Class A ordinary share, which is the midpoint of the estimated price range set forth on the cover page of this prospectus. We also expect to grant Class A ordinary shares under our Founders Plan no later than 75 days after the date of this offering, to certain employees who are not eligible to receive grants under our existing equity incentive plans (the “Founder Grants”) with an aggregate value of approximately $18.5 million. For illustrative purposes, if the share price at the date of grant is $19.00 per Class A ordinary share, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, we would recognize a share-based compensation charge of approximately $95.0 million.

A $1.00 increase (decrease) in the assumed share price at the time of grant of the grants under our 2020 LTIP would increase (decrease) the value of the grants under our 2020 LTIP and the related share-based compensation charge by $7.0 million. A $1.00 increase (decrease) in the assumed share price at the time of the Founder Grants, would increase (decrease) the related share-based compensation charge by $1.0 million.

Summary of Financial Performance

The following table summarizes certain key operating measures as of June 30, 2021 and for the six-month periods ended June 30, 2021 and 2020, and as of and for the years ended December 31, 2020 and 2019. See “—Results of Operations” for additional details and for the comparison discussions between the years ended December 31, 2020 and 2019 and the six-month periods ended June 30, 2021 and 2020.

 

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Operating Results

 

     Six-month period ended
June 30,
    Fiscal year ended
December 31,
 
     2021     2020     2020     2019  
     (thousands of CHF, except for percentages and per
share amounts)
 

Net sales

     315,454       170,918       425,295       267,120  

Gross profit

     187,179       96,004       231,105       143,117  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin

     59.3     56.2     54.3     53.6

Operating result

     12,480       (29,315     (17,094     5,689  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income / (loss)

     3,759       (33,052     (27,524     (1,473
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic EPS Class A (CHF)

     16.72       (159.43     (129.50     (7.87

Diluted EPS Class A (CHF)

     16.57       (159.43     (129.50     (7.87

Other data(1)

        

Adjusted EBITDA

     47,299       15,975       49,762       29,869  

Adjusted EBITDA Margin

     15.0     9.3     11.7     11.2

Adjusted Net Income

     27,791       (5,763     22,828       16,771  

Adjusted EPS Class A (CHF)

     123.63       (27.80     107.40       89.60  

Adjusted Diluted EPS Class A (CHF)

     122.51       (26.97     103.97       88.18  

Financial Position

 

     As of  
     June 30,
2021
     December 31,
2020
     December 31,
2019
 
     (thousands of CHF)  

Cash

     106,649        90,642        11,929  

Net Working Capital(1)

     155,503        112,966        69,547  

Total assets

     635,694        382,569        143,628  

Total non-current liabilities

     170,404        51,114        13,909  

Shareholders’ equity

     268,565        245,093        64,414  

 

(1)

Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income, Adjusted EPS, Adjusted Diluted EPS and Net Working Capital are non-IFRS measures. See “—Non-IFRS Measures” for a description of these measures and a reconciliation to the nearest IFRS measure.

Components of our Results of Operations

Net Sales

Net sales are derived from selling premium performance products including shoes, apparel and accessories.

Net sales within the wholesale sales channel are recognized at a point in time when control of the goods has transferred, which is when the goods have been shipped to the customer’s specified location. Following delivery, the customer has the primary responsibility when onselling the goods and bears the risks of obsolescence and loss in relation to the goods. Net sales within the wholesale sales channel are sales net of any discounts or volume rebates.

Net sales within the DTC sales channel are recognized when control of the goods has transferred, namely upon shipment for e-commerce customers or at the point the customer purchases the goods at the retail store. Payment of the transaction price is due immediately when the customer purchases the goods. At the point when

 

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the control of goods has transferred, a refund liability (other current financial liabilities) and a corresponding adjustment to net sales is recognized for those products expected to be returned. At the same time, the Company has a right to recover the product when customers exercise their right of return so consequently recognizes a right to returned goods asset (other current operating assets) and a corresponding adjustment to cost of sales.

Cost of Sales

We outsource the manufacturing of our products. Therefore, cost of sales primarily consists of the cost of purchases of finished goods, which are sourced in U.S. dollars. Other cost of sales relate to personnel expenses in connection with sourcing materials and quality control, depreciation charges for production tools, in-bound freight, duty and non-refundable taxes incurred in delivering the goods to distribution centers managed by third parties, and inventory provision expenses.

Gross Profit

Gross profit is net sales less cost of sales. Gross margin measures gross profit as a percentage of net sales.

Selling, General and Administrative Expenses

Our Selling, General and Administrative expenses (“SG&A expenses”) expenses generally consist of selling, marketing, distribution, general and administrative, and share-based compensation.

Selling expenses support our customer relationships and enable the delivery of products to wholesale customers and end customers through our e-commerce platform and owned retail stores. These expenses include: personnel expenses for sales and technical representatives, paying processing fees in the DTC sales channel and depreciation expenses. Distribution expenses primarily relate to leasing and third-party expenses for warehousing inventories and transportation costs associated with delivering products from distribution centers to wholesale and end customers. Selling and distribution expenses are generally correlated to net sales. As a percentage of sales, we expect selling costs to decrease as the business achieves economies of scale as we continue to grow.

Marketing expenses consist primarily of advertising and marketing promotions (both offline and digital campaigns) of our products, as well as trade show and event costs, sponsorship costs, consulting and contractor expenses, travel, product display expenses and overhead costs. We intend to continue to invest in our marketing capabilities in the future and expect this expense to increase in absolute dollars in future periods as we release new products and expand internationally. Marketing expense as a percentage of total net sales may fluctuate from period to period based on total net sales and the timing of our investments in marketing functions as these investments may vary in scope and scale over future periods.

General and administrative expenses represent costs incurred in our corporate offices, primarily related to personnel costs, including salaries, variable incentive compensation, benefits, other professional service costs, depreciation, amortization related to software and patents and other rights. We have invested considerably in this area to support the growing volume and complexity of the business and anticipate continuing to do so in the future. In addition, in connection with this offering, we expect to incur certain transaction-related costs. Following this offering, we anticipate a significant increase in accounting, legal and professional fees associated with being a public company.

Share-based compensation costs represent expenses for compensation plans for selected employees and for third parties. In connection with this offering, we expect to incur additional share-based compensation expenses.

Operating Result

Operating result is gross profit less SG&A expenses.

 

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Financial Result

Financial result includes income from interest on employee benefit plans, less financial expenses consisting primarily of bank charges and interest expenses as a result of commitment fees paid for bank overdraft facilities, and the net impact of foreign exchange rate fluctuations in a given period.

Income Taxes

We are subject to income taxes in the jurisdictions in which we operate and, consequently, income tax expense is a function of the allocation of taxable income by jurisdiction and the various activities that impact the timing of taxable events. The primary regions that determine the effective tax rate are Switzerland, the United States and China. On May 19, 2019, the Swiss electorate passed the Federal Act on Tax Reform and AHV Financing (“TRAF”). The tax reform abolished the tax regimes for holding, domiciliary and mixed companies as of January 1, 2020 and introduced new tax measures. As a result, our statutory income tax rate in the canton of Zurich decreased effective from January 1, 2021.

Results of Operations

For the Six-Month Period Ended June 30, 2021 Compared to the Six-Month Period Ended June 30, 2020

The following table summarizes results of operations and expresses the percentage relationship to net sales of certain financial statement captions.

 

     Six-month period ended
June 30,
               
     2021      2020      Change      % Change  
     (thousands of CHF)  

Net sales

     315,454        170,918        144,536        84.6
  

 

 

    

 

 

    

 

 

    

 

 

 

Cost of sales

     (128,275      (74,914      (53,361      (71.2 )% 
  

 

 

    

 

 

    

 

 

    

 

 

 

Gross profit

     187,179        96,004        91,175        95.0
  

 

 

    

 

 

    

 

 

    

 

 

 

Selling, general and administrative expenses

     (174,700      (125,319      (49,381      (39.4 )% 
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating Result

     12,480        (29,315      41,795        142.6
  

 

 

    

 

 

    

 

 

    

 

 

 

Financial income

     12        13        (1      (7.7 )% 

Financial expenses

     (1,543      (465      (1,078      (231.8 )% 

Foreign exchange result

     2,299        (643      2,942        457.5
  

 

 

    

 

 

    

 

 

    

 

 

 

Income/(Loss) before taxes

     13,248        (30,410      43,658        143.6
  

 

 

    

 

 

    

 

 

    

 

 

 

Income taxes

     (9,490      (2,642      (6,848      (259.2 )% 
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income / (loss)

     3,759        (33,052      36,811        111.4
  

 

 

    

 

 

    

 

 

    

 

 

 

Net sales

Net sales by sales channel

The following table presents net sales by sales channel:

 

     Six-month period ended
June 30,
                           
     2021      2020      Change      % Change     % of June 30,
2021 Net
Sales
    % of June 30,
2020 Net
Sales
 
     (thousands of CHF, except percentages)  

Wholesale

     200,101        97,655        102,446        104.9     63.4     57.1

DTC

     115,354        73,263        42,091        57.5     36.6     42.9

Net sales

     315,454        170,918        144,536        84.6     100.0     100.0

 

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Net sales for the six-month period ended June 30, 2021 increased by CHF 144.5 million, or 84.6%, compared to the six-month period ended June 30, 2020.

Net sales generated by the wholesale sales channel for the six-month period ended June 30, 2021 increased by CHF 102.4 million, or 104.9%, to CHF 200.1 million, compared to CHF 97.7 million for the six-month period ended June 30, 2020. This increase was attributable to increased brand awareness driving growth in the volume of products sold to new and existing wholesale customers, strong recovery in demand from retailers after the COVID-19 restrictions were lifted in certain markets, partially offset by the continued negative impact of COVID-19 lockdowns mainly between January and April 2020. Net sales generated by the wholesale sales channel as a percentage of net sales increased to 63.4% for the six-month period ended June 30, 2021, from 57.1% for the six-month period ended June 30, 2020.

Net sales generated by the DTC sales channel for the six-month period ended June 30, 2021 increased by CHF 42.1 million, or 57.5%, to CHF 115.4 million, compared to CHF 73.3 million for the six-month period ended June 30, 2020. This was primarily driven by increased traffic on our e-commerce platform as a result of a change in consumer behavior during the COVID-19 pandemic. Our e-commerce platform recorded 38.9 million visits during the six-month period ended June 30, 2021 and 28.5 million visits during the six-month period ended June 30, 2020. Net sales generated from the DTC sales channel as a percentage of net sales decreased to 36.6% for the six-month period ended June 30, 2021 compared to 42.9% for the six-month period ended June 30, 2020 due to increased e-commerce sales and decreased wholesale sales during the lockdowns in 2020. Net sales from our own retail network for the six-month period ended June 30, 2021 was not significant. We operated seven retail stores as of June 30, 2021.

Net sales by geography

The following table presents net sales by geographic region (based on the location of the counterparty):

 

     Six-month period ended
June 30,
                           
     2021      2020      Change      % Change     % of June 30,
2021 Net
Sales
    % of June 30,
2020 Net
Sales
 
     (thousands of CHF, except percentages)  

Europe

     127,920        81,745        46,175        56.5     40.6     47.8

North America

     163,944        79,997        83,947        104.9     52.0     46.8

Asia-Pacific

     19,046        7,506        11,540        153.7     6.0     4.4

Rest of World

     4,545        1,670        2,875        172.2     1.4     1.0
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Net Sales

     315,454        170,918        144,536        84.6     100.0     100.0
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Net sales increased across all geographic regions for the six-month period ended June 30, 2021. The North American market experienced a strong recovery in physical retail due to easing of COVID-19 restrictions, and continued growth of our DTC channel leading to net sales growth of 104.9%. Lockdowns in Europe, and in particular in the key market of Germany, were imposed for a significantly longer period of time, which resulted in lower net sales growth of 56.5%. Net sales growth of 153.7% in Asia-Pacific was primarily driven by strong sales growth in China and Australia. Net sales growth of 172.2% in Rest of World was driven by strong sales growth in Brazil and other markets due to the easing of COVID-19 restrictions.

 

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Net sales by product

The following table presents net sales by product group:

 

     Six-month period ended
June 30,
               
     2021      2020      Change      %
Change
 
     (thousands of CHF, except percentages)  

Shoes

     298,537        161,699        136,838        84.6

Apparel

     14,850        7,651        7,199        94.1

Accessories

     2,069        1,567        502        32.0
  

 

 

    

 

 

    

 

 

    

 

 

 

Net Sales

     315,454        170,918        144,536        84.6
  

 

 

    

 

 

    

 

 

    

 

 

 

Net sales increased across all product groups with shoes and apparel experiencing the largest growth. The increase in net sales for shoes in the six-month period ended June 30, 2021 compared to the six-month period ended June 30, 2020 was partly driven by updated product releases for our Cloudswift, Cloudflyer and CloudX shoes in Performance Running, and by the launch of our new Cloudboom Echo, Cloudultra and Cloudbridge shoes in Performance Running and Performance Outdoor. The increase in net sales for apparel for the six-month period ended June 30, 2021 was primarily due to extending our product range.

Cost of Sales and Gross Profit

Cost of sales during the six-month period ended June 30, 2021 increased by CHF 53.4 million, or 71.2 %, to CHF 128.3 million, compared to CHF 74.9 million during the six-month period ended June 30, 2020. Gross profit was CHF 187.2 million for the six-month period ended June 30, 2021, representing a gross margin of 59.3%, compared with CHF 96.0 million for the six-month period ended June 30, 2020, representing a gross margin of 56.2%. The increase in gross margin was primarily driven by the continued high share of DTC sales; duplicate expenses during the six-month period ended June 30, 2020 in relation to building up our in-house sourcing organization while finalizing payments to former external sourcing agencies; and lower customs expenses due to the new free trade agreement between Vietnam and the EU which became effective in the third quarter of 2020.

Selling, General and Administrative Expenses

SG&A expenses during the six-month period ended June 30, 2021 increased by CHF 49.4 million, or 39.4%, to CHF 174.7 million, compared to CHF 125.3 million during the six-month period ended June 30, 2020. As part of this development, share-based compensation decreased by CHF 20.5 million to CHF 19.9 million from CHF 40.4 million. Excluding share-based compensation, SG&A expenses as a percentage of net sales slightly improved to 49.1% during the six-month period ended June 30, 2021 from 49.7% during the six-month period ended June 30, 2020. The decrease in SG&A expenses, excluding share-based compensation, as a percentage of net sales is primarily attributable to reduced investment opportunities due to the global COVID-19 pandemic.

SG&A expenses were also impacted by the following factors:

 

   

Marketing expenses increased by CHF 25.2 million to CHF 42.0 million during the six-month period ended June 30, 2021, from CHF 16.8 million during the six-month period ended June 30, 2020. As a percentage of net sales, marketing expenses increased to 13.3% during the six-month period ended June 30, 2021 compared to 9.8% during the six-month period ended June 30, 2020. The increase in marketing expenses as a percentage of net sales was primarily driven by an increased focus on investments in digital customer acquisition and demand creating expenses as well as brand building, partially offset by reduced investment opportunities due to the global COVID-19 pandemic, including grassroot activities.

 

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Distribution expenses increased by CHF 17.5 million to CHF 40.4 million during the six-month period ended June 30, 2021 from CHF 22.9 million during the six-month period ended June 30, 2020 as a result of overall growth in net sales. As a percentage of net sales, distribution expenses decreased slightly to 12.8% during the six-month period ended June 30, 2021 compared to 13.4% during the six-month period ended June 30, 2020.

 

   

General and administrative expenses increased by CHF 22.4 million to CHF 50.2 million during the six-month period ended June 30, 2021 from CHF 27.8 million during the six-month period ended June 30, 2020. This increase was primarily due to hiring additional fulltime equivalents (“FTE”) to support the company growth, especially within the customer service, product innovation and support functions, and one-off IPO transaction costs. As a percentage of net sales, general and administrative expenses decreased slightly to 15.9% during the six-month period ended June 30, 2021 compared to 16.3% during the six-month period ended June 30, 2020.

 

   

Selling expenses increased by CHF 4.9 million to CHF 22.2 million during the six-month period ended June 30, 2021 from CHF 17.4 million during the six-month period ended June 30, 2020. As a percentage of net sales, selling expenses decreased to 7.0% during the six-month period ended June 30, 2021 compared to 10.2% during the six-month period ended June 30, 2020, primarily due to higher sales from the Wholesale channel and the underlying increase of efficiency within our sales team.

 

   

Share-based compensation expenses decreased by CHF 20.5 million to CHF 19.9 million during the six-month period ended June 30, 2021 from CHF 40.4 million during the six-month period ended June 30, 2020. The decrease in expenses is primarily due to a one-off transaction in 2020 in connection with a capital round and a services, license, and investment agreement (“SLIA”).

Depreciation and Amortization

Depreciation and amortization expenses during the six-month period ended June 30, 2021 increased by CHF 6.8 million, or 139.1%, to CHF 11.7 million, compared to CHF 4.9 million during the six-month period ended June 30, 2020. The increase was primarily attributable to depreciation and amortization of continued investments into IT, especially our new ERP system landscape, own retail stores, and global offices.

Financial Result

Financial expenses during the six-month period ended June 30, 2021 increased by CHF 1.1 million, or 231.8 %, to CHF 1.5 million, compared to CHF 0.5 million during the six-month period ended June 30, 2020 due to increased interest expense associated with leases. Net foreign exchange income during the six-month period ended June 30, 2021 increased by CHF 2.9 million to CHF 2.3 million, compared to an expense of CHF 0.6 million during the six-month period ended June 30, 2020 due to changes in the fair value of foreign exchange derivatives.

Income Taxes

Income tax expense is recognized based on management’s estimate of the weighted average effective annual income tax rate expected for the full financial year. Income tax expense increased by CHF 6.9 million to CHF 9.5 million during the six-month period ended June 30, 2021, compared to CHF 2.6 million during the six-month period ended June 30, 2020. The is primarily due to the combined effect of increase in income before taxes and higher proportion of net sales to North America and China. The effective tax rate is significantly impacted by non-deductible expenses, mainly related to share-based compensation.

 

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For the Year Ended December 31, 2020 Compared to the Year Ended December 31, 2019

The following table summarizes results of operations and expresses the percentage relationship to net sales of certain financial statement captions.

 

     Fiscal year ended
December 31,
               
     2020      2019      Change      % Change  
     (thousands of CHF)  

Net sales

     425,295        267,120        158,175        59.2
  

 

 

    

 

 

    

 

 

    

 

 

 

Cost of sales

     (194,190      (124,003      (70,187      (56.6 )% 
  

 

 

    

 

 

    

 

 

    

 

 

 

Gross profit

     231,105        143,117        87,988        61.5
  

 

 

    

 

 

    

 

 

    

 

 

 

Selling, general and administrative expenses

     (248,199      (137,428      (110,771      (80.6 )% 
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating Result

     (17,094      5,689        (22,783      (400.5 )% 
  

 

 

    

 

 

    

 

 

    

 

 

 

Financial income

     27        47        (20      (42.6 )% 

Financial expenses

     (940      (697      (243      (34.9 )% 

Foreign exchange result

     (6,434      (1,893      (4,541      (239.9 )% 
  

 

 

    

 

 

    

 

 

    

 

 

 

Income/(Loss) before taxes

     (24,441      3,147        (27,588      (876.6 )% 
  

 

 

    

 

 

    

 

 

    

 

 

 

Income taxes

     (3,083      (4,620      1,537        33.3
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income / (loss)

     (27,524      (1,473      (26,051      (1,768.6 )% 
  

 

 

    

 

 

    

 

 

    

 

 

 

Net sales

Net sales by sales channel

The following table presents net sales by sales channel:

 

     Fiscal year ended
December 31,
                           
     2020      2019      Change      % Change     % of 2020 Net
Sales
    % of 2019 Net
Sales
 
     (thousands of CHF, except percentages)  

Wholesale

     264,819        200,716        64,103        31.9     62.3     75.1

DTC

     160,476        66,404        94,072        141.7     37.7     24.9

Net sales

     425,295        267,120        158,175        59.2     100     100

Net sales for 2020 increased by CHF 158.2 million, or 59.2%, compared to 2019. Net sales generated by the wholesale sales channel as a percentage of net sales decreased to 62.3% for the year ended December 31, 2020, from 75.1% for the year ended December 31, 2019. Net sales generated from the DTC sales channel as a percentage of net sales increased to 37.7% for the year ended December 31, 2020 compared to 24.9% for the year ended December 31, 2019.

Net sales generated by the wholesale sales channel for 2020 increased by CHF 64.1 million, or 31.9%, to CHF 264.8 million, compared to CHF 200.7 million in 2019. This increase was attributable to the significant growth in the volume of products sold, to both new and existing wholesale customers, as a result of increased brand awareness and new product launches. The growth in net sales to recurring and new customers within the wholesale sales channel for 2020 compared to 2019 was lower than originally anticipated due to the COVID-19 lockdowns between February and April 2020 and November and December 2020.

Net sales generated by the DTC sales channel for 2020 increased by CHF 94.1 million, or 141.7%, to CHF 160.5 million, compared to CHF 66.4 million in 2019. This was primarily driven by increased traffic on our

 

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e-commerce platform as a result of a change in consumer behavior during the COVID-19 pandemic. During 2020, our e-commerce platform recorded 60.4 million visits and 753 thousand new customers. During 2019, our e-commerce platform recorded 25.7 million visits and 284 thousand new customers. In 2020, we opened our first retail store in New York City and three additional retail stores in China, however, the contribution to net sales growth from such locations was minimal in 2020. We operated five retail stores as of December 31, 2020.

Net sales by geography

The following table presents net sales by geographic region (based on the location of the counterparty):

 

     Fiscal year ended
December 31,
                          
     2020      2019      Change     % Change     % of 2020 Net
Sales
    % of 2019 Net
Sales
 
     (thousands of CHF, except percentages)  

Europe

     187,510        128,344        59,166       46.1     44.1     48.0

North America

     208,089        111,761        96,328       86.2     48.9     41.8

Asia-Pacific

     22,999        17,867        5,132       28.7     5.4     6.7

Rest of World

     6,697        9,148        (2,451     (26.8 )%      1.6     3.5
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Net Sales

     425,295        267,120        158,175       59.2     100     100
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Net sales increased across all geographic regions in 2020 excluding Rest of World. The growth in North America and Europe was due to the growth in volumes described above. The North American market saw the largest consumer shift from wholesale to DTC in 2020, leading to a net sales growth rate of 86%. In Europe, the repeated COVID-19 lockdowns in the fourth quarter of 2020 negatively impacted overall growth. The growth in Asia-Pacific was primarily a result of strong momentum across both wholesale and DTC channels. The reduction in Rest of World was primarily a result of lower order volumes from international distributors due to the impact of COVID-19.

Net sales by product

The following table presents net sales by product group:

 

     Fiscal year ended
December 31,
               
     2020      2019      Change      %
Change
 
     (thousands of CHF, except percentages)  

Shoes

     406,390        255,612        150,778        59.0

Apparel

     15,750        9,570        6,180        64.5

Accessories

     3,155        1,938        1,217        62.8
  

 

 

    

 

 

    

 

 

    

 

 

 

Net Sales

     425,295        267,120        158,175        59.2
  

 

 

    

 

 

    

 

 

    

 

 

 

The net sales increase in each of our product groups in 2020 was relatively consistent with net sales growth. The increase in net sales for shoes in 2020 compared to 2019 was partly driven by updated product releases for our Cloudflow, Cloudflyer and CloudX shoes in Performance Running, new product launches of The Roger franchise and Cloudnova, which target younger consumers within the Performance All Day market, and the full year impact of hiking boots launched in late 2019 within the Performance Outdoor market. The increase in net sales for apparel in 2020 was primarily due to extending our product range to include more outdoor and casual styles of active wear.

 

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Cost of Sales and Gross Profit

Cost of sales for 2020 increased by CHF 70.2 million, or 56.6%, to CHF 194.2 million, compared to CHF 124.0 million in 2019. Gross profit was CHF 231.1 million in 2020, representing a gross margin of 54.3%, compared with CHF 143.1 million in 2019, representing a gross margin of 53.6%. In 2020, we completed the process of bringing our sourcing team in house while expanding the number and quality of our factory partners to align available capacity with expected future demand. Both developments resulted in temporarily higher purchase prices and redundant development expenses, which increased our costs of sales but also allowed for reduced expenses related to air freight. Principally as a result of the increased share of our DTC sales channel, we grew our overall gross margin from 53.6% for 2019 to 54.3% for 2020.

The higher supply chain costs related to one-off duplicate expenses created by building-up an in-house sourcing organization while finalizing payments to former external sourcing agencies. In addition to these one-off costs, we incurred higher purchase prices due to the strengthening and diversification of the external manufacturing footprint. This was partly offset by a reduction in the use of air freight due to the increased production capacities and increase of demand for air freight during the COVID-19 pandemic.

Selling, General and Administrative Expenses

SG&A expenses for 2020 increased by CHF 110.8 million, or 80.6%, to CHF 248.2 million, compared to CHF 137.4 million in 2019. Part of the increase was attributable to share-based compensation, which increased by CHF 35.9 million to CHF 54.7 million in 2020, compared to CHF 18.8 million in 2019. Excluding share-based compensation, SG&A expenses as a percentage of net sales was largely consistent at 45.5% in 2020 and 44.4% in 2019.

SG&A expenses were also impacted by the following factors:

 

   

Marketing expenses increased by CHF 17.0 million to CHF 45.6 million in 2020, from CHF 28.6 million in 2019. This increase was primarily due to a shift away from offline and point-of-sale marketing to investment in digital customer acquisition and brand awareness within the e-commerce platform. As a percentage of net sales, marketing expenses remained constant at 10.7% in 2020.

 

   

Distribution expenses increased by CHF 22.5 million to CHF 51.1 million in 2020 from CHF 28.6 million in 2019. This increase was primarily due to the increase in sales through the DTC sales channel requiring higher distribution expenses, and increase in wages to U.S. warehouse workers to match or exceed unemployment benefits provided by the U.S. government in response to COVID-19. As a percentage of net sales, distribution expenses increased to 12.0% in 2020 compared to 10.7% in 2019.

 

   

General and administrative expenses increased by CHF 23.1 million to CHF 61.1 million in 2020 from CHF 38.0 million in 2019. This increase was primarily due to hiring additional FTE within the customer service and support functions, finance functions and other global support functions. As a percentage of net sales, general and administrative expenses remained relatively flat at 14.4% in 2020 compared to 14.2% in 2019.

 

   

Selling expenses increased by CHF 12.1 million to CHF 35.6 million in 2020 from CHF 23.5 million in 2019. This increase was primarily due to additional FTE required to support the growth in net sales and to manage relationships with key wholesale customers, and additional payment processing fees as a result of the growth in the DTC channel. As a percentage of net sales, selling expenses remained constant at 8.8% in 2020 compared to 8.4% in 2019.

 

   

Share-based compensation expenses increased by CHF 36.0 million to CHF 54.8 million in 2020 from CHF 18.8 million in 2019. The increase in expenses is primarily due to the grant of share-based compensation in connection with a SLIA and the vesting of existing plans for selected employees.

 

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Depreciation and Amortization

Depreciation and amortization expenses for 2020 increased by CHF 6.8 million, or 126.3%, to CHF 12.1 million, compared to CHF 5.3 million in 2019. The increase was primarily attributable to depreciation and amortization on additions in patents and other rights, software, office expansion, owned retail stores and trade and production tools.

Financial Result

Financial expenses for 2020 increased by CHF 0.2 million, or 34.9%, to CHF 0.9 million, compared to CHF 0.7 million in 2019 due to increased interest expense associated with leases. Net foreign exchange expense for 2020 increased by CHF 4.5 million to CHF 6.4 million, compared to CHF 1.9 million in 2019 due to adverse movements in exchange rates on intercompany loans expressed in foreign currencies and changes in fair value of foreign exchange derivatives.

Income Taxes

Income taxes for 2020 decreased by CHF 1.5 million, or 33.3%, to CHF 3.1 million, compared to CHF 4.6 million in 2019. Our effective income tax rate was (12.6)% for 2020, compared to 146.8% in 2019. The decrease in the effective income tax rate was primarily due to non-deductible expenses in 2019 related to share-based compensation.

Non-IFRS Measures

Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income, Adjusted EPS, Adjusted Diluted EPS and Net Working Capital are financial measures that are not defined under IFRS.

We use these non-IFRS measures when evaluating our performance, including when making financial and operating decisions, and as a key component in the determination of variable incentive compensation for employees. Additionally, we believe these non-IFRS measures enhance an investor’s understanding of our financial and operating performance from period to period, because certain measures, such as Adjusted EBITDA, exclude certain material items relating to share-based compensation and transaction costs related to this offering which are not reflective of our ongoing operations and performance. In particular, we believe Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted Net Income and Net Working Capital are measures commonly used by investors to evaluate companies in the sportswear industry.

However, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income, Adjusted EPS, Adjusted Diluted EPS or Net Working Capital should not be considered in isolation or as a substitute for other financial measures calculated and presented in accordance with IFRS and may not be comparable to similarly titled non-IFRS measures used by other companies. The tables below reconcile each non-IFRS measure to its closest IFRS measure.

 

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Adjusted EBITDA and Adjusted EBITDA Margin

The table below reconciles net income / (loss) to Adjusted EBITDA for the periods presented. Adjusted EBITDA Margin is equal to Adjusted EBITDA for the period presented as a percentage of net sales for the same period.

 

     Six-month period ended
June 30,
    Fiscal year ended
December 31,
 
         2021             2020         2020     2019  
     (thousands of CHF, except percentages)  

Net income / (loss)

     3,759       (33,052     (27,524     (1,473

Exclude the impact of:

        

Income taxes

     9,490       2,642       3,083       4,620  

Financial income

     (12     (13     (27     (47

Financial expenses

     1,543       465       940       697  

Foreign exchange result(a)

     (2,299     643       6,434       1,893  

Depreciation and amortization

     11,676       4,884       12,091       5,342  

Share-based compensation(b)

     19,891       40,406       54,765       18,838  

IPO transaction cost(c)

     3,251       —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

     47,299       15,975       49,762       29,869  
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA Margin

     15.0     9.3     11.7     11.2

 

  (a)

Represents the foreign exchange impact within the net financial result. We do not consider these expenses reflective of the operating performance of the business.

  (b)

Represents non-cash share-based compensation expense. We do not consider these expenses reflective of the operating performance of the business.

  (c)

In connection with this offering, we have incurred expenses related to professional fees, consulting, legal, and accounting that would otherwise not have been incurred. These fees are not indicative of our ongoing costs.

Adjusted Net Income, Adjusted EPS and Adjusted Diluted EPS

We use Adjusted Net Income, Adjusted EPS and Adjusted Diluted EPS as measures of operating performance in conjunction with related IFRS measures.

Adjusted EPS is used in conjunction with other non-IFRS measures and excludes certain items (as listed below) from the calculation in order to increase comparability of the metric from period to period, which we believe makes it useful for management, our audit committee and investors to assess our financial performance over time.

Diluted earnings per share (EPS) is calculated by dividing net income by the weighted average number of ordinary shares outstanding during the period on a fully diluted basis. For the purpose of operational performance measurement, we calculate Adjusted Net Income, Adjusted EPS and Adjusted Diluted EPS in a manner that fully excludes the impact of any costs related to share-based compensation and the transaction costs relating to this offering and includes the tax effect on the tax deductible portion of the non-IFRS adjustments.

 

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The table below reconciles net income / (loss) to Adjusted Net Income, Adjusted EPS and Adjusted Diluted EPS for the periods presented:

 

     Six-month period ended June 30,      Fiscal year ended
December 31,
 
     2021      2021      2020      2020      2019  
     Class A      Class B      Class A      Class A      Class A  
     (thousands of CHF, except per share data)  

Net income / (loss)

     3,578        180        (33,052      (27,524      (1,473

Exclude the impact of:

              

Share-based compensation(a)

     18,938        953        40,406        54,765        18,838  

IPO transaction cost(b)

     3,095        156        —          —          —    

Tax effect of adjustments(c)

     848        43        (13,117      (4,413      (594
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted Net Income

     26,459        1,332        (5,763      22,828        16,771  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Number of shares at beginning of period

     217,151        —          187,359        187,359        186,993  

Number of shares at end of period

     198,813        276,350        217,151        217,151        187,359  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Weighted number of outstanding shares

     214,011        107,469        207,318        212,548        187,166  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Number of shares with dilutive effects

     1,972        99        6,334        7,011        3,020  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Weighted number of outstanding shares (diluted and undiluted)(d)

     215,983        107,569        213,652        219,559        190,186  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EPS (CHF)

     123.63        12.39        (27.80      107.40        89.60  

Adjusted Diluted EPS (CHF)

     122.51        12.38        (26.97      103.97        88.18  

 

  (a)

Represents non-cash share-based compensation expense. We do not consider these expenses reflective of the operating performance of the business.

  (b)

In connection with this offering, we have incurred expenses related to professional fees, consulting, legal, and accounting that would otherwise not have been incurred. These fees are not indicative of our ongoing costs.

  (c)

The tax effect has been calculated by applying the local tax rate on the tax deductible portion of the respective adjustments.

  (d)

Weighted number of outstanding shares (diluted and undiluted) are presented herein in order to calculate Adjusted EPS as Adjusted Net Income for such periods.

Net Working Capital

Net Working Capital is a financial measure that is not defined under IFRS. We use, and believe that certain investors and analysts, use this information to assess liquidity and management of Net Working Capital resources. We define Net Working Capital as trade receivables, plus inventories, minus trade payables. This measure should not be considered in isolation or as a substitute for any standardized measure under IFRS.

 

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Other companies in our industry may calculate this measure differently than we do, limiting its usefulness as a comparative measure.

 

     As of  
     June 30,
2021
     December 31,
2020
     December 31,
2019
 
     (thousands of CHF)  

Trade receivables

     84,031        51,631        41,421  

Inventories

     146,862        102,878        44,540  

Trade payables

     (75,390      (41,543      (16,414
  

 

 

    

 

 

    

 

 

 

Net working capital

     155,503        112,966        69,547  
  

 

 

    

 

 

    

 

 

 

Liquidity and Capital Resources

Our primary need for liquidity is to fund working capital requirements, capital expenditures, debt service, lease obligations and for general corporate purposes. Our future contractual obligations are further discussed in “—Contractual Obligations and Commitments” below.

Our operations historically have been financed through cash flow from operations, net proceeds from an ordinary share capital increase in 2020 and bank overdraft facilities. As of December 31, 2020, we had CHF 90.6 million of cash and CHF 112.9 million of Net Working Capital compared with CHF 11.9 million of cash and CHF 69.5 million of Net Working Capital as of December 31, 2019. The CHF 78.7 million increase in cash as of December 31, 2020 was primarily due to the capital increase in 2020 partly offset by the change in Net Working Capital and capital expenditure. Refer to “—Capital Management” for further details. The CHF 43.4 million increase in Net Working Capital in 2020 was primarily due to increased inventory levels required to capture further market share across the wholesale and DTC sales channels and anticipated demand from wholesale customers post lockdown, which was partially offset by increased trade payables owing to factory partners related to the increase in inventories.

As of June 30, 2021, we had CHF 106.6 million of cash and CHF 155.5 million of Net Working Capital compared with CHF 90.6 million of cash and CHF 112.9 million of Net Working Capital at December 31, 2020. The CHF 16.0 million increase in cash was primarily due to cash inflows from operations. The CHF 42.6 million increase in Net Working Capital was due to increased inventory levels in connection with the net sales growth within the wholesale and DTC sales channels.

We believe our existing cash and cash equivalent balances, cash flow from operations and bank overdraft facilities will be sufficient to meet the Net Working Capital and capital expenditure needs for at least the next 12 months. Refer to “—Indebtedness” for further details. There are no material restrictions that would prevent the repatriation of cash flows from On Holding AG’s subsidiaries to fund its cash requirements. Our long-term capital requirements may vary materially from those currently planned and will depend on many factors, including the rate of net sales growth, the timing and extent of spending on research and development efforts and other growth initiatives, the expansion of sales and marketing activities, the timing of new products, and overall economic conditions including the continued uncertainty of COVID-19. Our historical research and development expenses were CHF 1.9 million, CHF 1.6 million and CHF 2.0 million for the years ended December 31, 2020 and 2019 and six-month period ended June 30, 2021, respectively, and related primarily to product development and innovation. Our capital expenditures are generally internally financed, and historically were CHF 18.6 million, CHF 9.5 million and CHF 9.6 million for the years ended December 31, 2020 and 2019 and six-month period ended June 30, 2021, respectively, and primarily related to registration fees for our intellectual property and purchases of leasehold improvements, production tools and IT hardware. To the extent that current and anticipated future sources of liquidity are insufficient to fund our future business activities and requirements, we may be required to seek additional equity or debt financing. The sale of additional equity would result in additional dilution to shareholders. The incurrence of debt financing would result in debt service obligations and

 

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the instruments governing such debt could provide for operating and financing covenants that may restrict our operations. There can be no assurances that we will be able to raise additional capital on terms that are attractive to us or at all. The inability to raise capital would adversely affect our ability to achieve our business objectives.

Cash Flows

 

     Six-month period ended
June 30,
     Fiscal year ended
December 31,
 
     2021      2020      2020      2019  
     (thousands of CHF)  

Cash (outflow) from operating activities

     29,757        (1,802      (14,728      (5,218

Cash (outflow) from investing activities

     (9,790      (7,298      (18,624      (9,538

Cash inflow (outflow) from financing activities

     (4,948      127,128        124,796        (690

Change in net cash and cash equivalents

     15,019        118,028        91,444        (15,447

Net cash and cash equivalents at the end of the period

     106,550        118,120        90,595        120  

Cash flows from operating activities

Cash inflow from operating activities was CHF 29.8 million during the six-month period ended June 30, 2021 compared to cash outflow from operating activities of CHF 1.8 million during the six-month period ended June 30, 2020. The period-over-period increase of CHF 31.6 million in cash flows from operating activities was primarily due to income generated in the period partially offset by the increase in inventory levels.

Cash outflow from operating activities was CHF 14.7 million in 2020 compared to cash outflow from operating activities of CHF 5.2 million in 2019. The year-over-year decrease of CHF 9.5 million in cash flows from operating activities was primarily due to the increase in Net Working Capital requirements to fund the growth in the business.

Cash flows from investing activities

Cash outflow from investing activities was CHF 9.8 million during the six-month period ended June 30, 2021 compared to cash outflow from investing activities of CHF 7.3 million during the six-month period ended June 30, 2020. The cash flows from investing activities related to investments in IT infrastructure in connection with the implementation of the new global ERP system, and investment into the build-out of new offices.

Cash outflow from investing activities was CHF 18.6 million in 2020 compared to cash outflow from investing activities of CHF 9.5 million in 2019. The year-over-year decrease of CHF 9.1 million in cash flows from investing activities was due to investments in IT and system infrastructure, fitouts for our four new owned retail stores, and molds for shoe production.

Cash flows from financing activities

Cash outflow from financing activities was CHF 4.9 million during the six-month period ended June 30, 2021 compared to cash inflow from financing activities of CHF 127.1 million during the six-month period ended June 30, 2020. The period-on-period decrease of CHF 132.1 million in cash flows from financing activities was due to the proceeds from the capital increases.

Cash inflow from financing activities was CHF 124.8 million in 2020 compared to cash outflow from financing activities of CHF 0.7 million in 2019. The increase of CHF 125.5 million in cash flows from financing activities was primarily due to a CHF 133.3 million share issuance in 2020. See “—Capital Management” below for further details.

 

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Capital Management

 

     Fiscal year ended
December 31,
        
     2020      2019      Change      % Change  
     (thousands of CHF, except percentages)  

Share premium

     175,224        42,256        132,968        314.7

Other

     2,662        2,662        —          —  

Equity transaction costs

     (1,876      (400      (1,476      (369.0 )% 

Share-based compensation

     100,397        22,721        77,676        341.9
  

 

 

    

 

 

    

 

 

    

 

 

 

Capital reserves

     276,408        67,239        209,169        311.1
  

 

 

    

 

 

    

 

 

    

 

 

 

Capital increase

To fund our future growth plans, we completed two ordinary share capital increases in 2020. The capital increases resulted in a total of 29,792 new shares being issued which increased the number of registered shares to 217,151 as of December 31, 2020 compared to 187,359 as of December 31, 2019. The shares have restricted transferability and a par value of CHF 10, with each share representing one voting right. The capital increases resulted in total cash proceeds of CHF 133.3 million, which was net of CHF 1.5 million in fees. As a result, our share capital and share premium increased by CHF 0.3 million and CHF 133.0 million, respectively.

There were no significant share capital increases in the six-month period ended June 30, 2021.

Share-based compensation

At December 31, 2020, the conditional capital consisted of a maximum of 28,730 shares with a par value of CHF 10 each, compared to a maximum of 25,133 shares at December 31, 2019. These shares are reserved entirely for share-based compensation programs or as an alternative method of payment for specific services rendered by certain partners and suppliers. Overall capital reserves were also impacted by an increase in share-based compensation amounting to CHF 77.6 million in 2020. As of June 30, 2021, capital reserves increased by CHF 20.4 million primarily due to share-based compensation.

We have granted share-based compensation pursuant to the following share-based compensation plans and programs for select employees including our group executive team and senior management team, which account for a part of the increase:

 

   

On Employee Participation Program 2018

 

   

Long Term Participation Plan 2018

 

   

Long Term Incentive Plan 2018

 

   

Compensation of non-executive members of our board of directors in 2019

For further details on the respective plans refer to “Management—Equity Incentive Plans.”

Share-based payments are valued based on the grant date fair value of these awards and recorded over the corresponding vesting period.

In addition to the share-based compensation plans for selected employees, we also granted share-based compensation in connection with the (SLIA) at the end of 2019. As part of the transaction, an intangible asset to the value of CHF 44.8 million was recognized to reflect a license we received, giving us the right to use certain trademarks. The difference between the equity instruments recognized at grant date and the settlement date is recognized in the income statement in SG&A expenses over the vesting period.

 

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Indebtedness

Bank Overdraft Facilities

As of June 30, 2021, we had three bank overdraft facilities with different lenders with credit limits of up to CHF 100.0 million, CHF 25.0 million and USD 35.5 million, respectively, which expire in 2024 and 2025. The two CHF facilities are fully committed, whereas the USD facility is uncommitted. The maximum amounts that can be drawn under the respective facilities are determined quarterly based on our Net Working Capital. Any amounts drawn in excess of the committed amounts are repayable on demand.

The facilities also contain financial covenants that depend on our net equity as well as key ratios related to debt to EBITDA (as defined therein) and debt to gross profit. As of and during the years ended December 31, 2020, December 31, 2019 and the six-month period ended June 30, 2021, we were in compliance with all covenants under the overdraft facilities.

As of June 30, 2021, CHF 0.1 million was drawn under the overdraft facilities and is presented in other current financial liabilities.

The following assets have been pledged in relation to the financial liabilities resulting from the three facilities:

 

     June 30, 2021  
     (thousands of
CHF)
 

Trade receivables

     31,255  

Inventory

     80,099  
  

 

 

 

Assets pledged

     111,354  
  

 

 

 

Contractual Obligations and Commitments

The following summarizes the significant contractual obligations and other obligations as of June 30, 2021:

 

     Total      Less than 1
year
     1 to 5
Years
     More than 5
years
 
     (thousands of CHF)  

Purchase obligations(1)

     75,390        75,390        —        —  

Current bank overdrafts

     99        99        —        —  

Lease liabilities(2)

     194,063        15,451        67,163      111,449

Other financial liabilities

     6,278        6,278        —        —  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total contractual obligations

     275,830        102,934        67,163        111,449  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Purchase obligations refer to an agreement to purchase goods or services that is enforceable and legally binding on the registrant that specifies all significant terms. The figures presented comprise of trade payables as of June 30, 2021.

(2)

Lease liabilities are related to storage space, various offices, retail stores (including pop-ups), showrooms and cars. The lease commitments as of December 31, 2020 related to the new On headquarters in Zurich, Switzerland and warehouses located in Switzerland, Germany and USA have now commenced and are therefore presented as lease liabilities as of June 30, 2021.

 

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The following summarizes the significant contractual obligations and other obligations as of December 31, 2020:

 

     Total      Less than 1
year
     1 to 5
Years
     More than 5
years
 
     (thousands of CHF)  

Purchase obligations(1)

     41,543        41,543        —          —    

Current bank overdrafts

     46        46        —          —    

Lease liabilities(2)

     4,921        4,921        —          —    

Other financial liabilities

     2,722        2,722        —          —    

Lease commitments(3)

     89,071        3,640        24,456        60,976  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total contractual obligations(3)

     138,303        52,872        24,456        60,976  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Purchase obligations refer to an agreement to purchase goods or services that is enforceable and legally binding on the registrant that specifies all significant terms. The figures presented comprise of trade payables as of December 31, 2020.

(2)

Lease liabilities are related to storage space, various offices, retail stores (including pop-ups), showrooms and cars. Lease contracts typically run for up to ten years. The figures do not include optional extensions and contingent rent.

(3)

We have committed ourselves to several new lease contracts, which have not yet commenced as of December 31, 2020, and are therefore not required to be recognized on our balance sheet. The majority of the future lease commitments relate to office contracts for the new On headquarters in Zurich, Switzerland.

As of December 31, 2020, we had additional non-current liabilities which included provisions for share-based compensation and deferred income tax liabilities. These liabilities have not been included in the table above as the timing and amount of future payments are uncertain.

Off-Balance Sheet Arrangements

As of December 31, 2020 and June 30, 2021, we provided guarantees in the amount of CHF 0.5 million and CHF 2.4 million, respectively, in favor of third parties. Other than those items disclosed here and elsewhere in this prospectus, we do not have any material off-balance sheet arrangements or commitments as of December 31, 2020 and June 30, 2021.

Quantitative and Qualitative Disclosures about Market Risk

We are exposed to certain market risks arising from transactions in the normal course of business. Such risk is principally associated with foreign currency exchange rates.

Foreign currency risk

The functional currency of our foreign subsidiaries is generally the applicable local currency. Our consolidated financial statements are presented in CHF. Therefore, the net sales, expenses, assets, and liabilities of our foreign subsidiaries are translated from their functional currencies into CHF, as a result of which the reported amounts can be affected by fluctuations in the value of the CHF. Foreign exchange differences which arise on translation of our foreign subsidiaries’ balance sheets into CHF are recorded as a foreign currency translation adjustment in accumulated other comprehensive income or loss within shareholders’ equity. The overall translation risk exposure is not deemed material.

We are also exposed to fluctuation in foreign exchange on various transactions. The majority of our transactional foreign exchange risk arises from products sourced in USD, SG&A in currencies of the countries in which they are incurred, and sales denominated in the currencies of the respective destination markets. In both

 

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2020 and 2019, we generated 88% of its net sales in currencies other than CHF. We have a high degree of visibility into our net currency exposures. This visibility allows us to enter into derivatives to hedge our foreign currency exposure. Hedges are usually rolled forward and do not extend past twelve months. These instruments are not for speculative positions and no hedge accounting is applied. Positive replacement values from derivative instruments are recorded as financial assets at fair value through profit or loss, whereas negative replacement values are recorded as financial liabilities at fair value through profit or loss. We offset positive and negative fair values of derivative instruments and report the net amount in either other current financial assets or other current financial liabilities. Based on foreign currency sensitivity analysis, net income would be impacted as follows by a 10% fluctuation in our main currencies (excluding the impact of derivative financial instruments):

 

     December
31, 2020
     December
31, 2019
 
     (thousands of CHF)  

Change in USD/CHF +10%

     (6,752      (2,162

Change in USD/CHF -10%

     8,253        2,630  

Change in EUR/CHF +10%

     221        (181

Change in EUR/CHF -10%

     (270      221  

Other Risks

We do not have material long-term debt and therefore do not have significant exposure to interest rates. We do not have significant exposure to commodity or security price changes. We do not believe we have significant exposure to inflationary factors.

Critical Accounting Policies and Estimates

The preparation of the consolidated financial statements in accordance with IFRS requires us to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, net sales, expenses and related disclosures. We continually evaluate these judgments, estimates and assumptions based on the most recently available information, our own historical experience and various other assumptions that we believe to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from our expectations as a result of changes in estimates.

An accounting policy is considered critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time such an estimate is made, and if different accounting estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the consolidated financial statements. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition, results of operations and cash flows.

Intangible Assets

The CHF 44.8 million fair value of the intangible asset corresponding to the SLIA transaction was calculated using the relief from royalty method. This methodology relies on deriving the royalty rate using comparable license agreements in the sporting goods and sports apparel sector from a third-party data provider, which is verified using the Knoppe-Formula. Additional assumptions arise from the income approach, namely estimate of future net sales, growth rates, tax rates and Weighted Average Cost of Capital.

These assumptions are subject to change and dependent on a number of factors including but not limited to general economic cycles, fashion trends, the behavior of core customers, changes in short-term interest rates and long-term yield. Therefore, actual results could vary significantly from estimates and our projections may change significantly from period to period.

 

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Share-based Compensation

All awards granted under the different share-based compensation plans are classified as equity-settled share-based payments. The cost of equity settled transactions under the different plans is determined by the fair value at the grant date using a Cox-Rubinstein binomial tree model in order to take into account the complexity of their structure including contractual life of the options and possibility of early exercise. The model uses time-congruent risk-free interest rates. The expected volatility is determined based on the time-congruent historical volatility of peer group companies which means that the volatility that actually occurs may differ from the assumptions made. The expense resulting from the share-based payment transactions was CHF 19.9 million in the six-month period ended June 30, 2021, CHF 54.7 million in 2020 and CHF 18.8 million in 2019, and is pro-rated during the vesting period. Recognition is based on performance conditions and the best available estimate of the number equity instruments expected to vest which considers exit scenarios and forfeitures.

If factors change and we use different assumptions in future periods, our stock-based compensation expense may differ materially in the future from that recorded in the current period.

Employee Benefits

The carrying amounts of defined benefit pension plans are based on actuarial valuations. These valuations are calculated based on statistical data and assumptions about discount rates, expected rates of return on plan assets, future salary increases, mortality rates and future pension increases. Due to the long-term nature of these plans, such estimates are subject to significant uncertainty.

Internal Control Over Financial Reporting

In connection with the preparation of our financial statements for the year ended December 31, 2020, we have identified a material weakness in our internal control over financial reporting. A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected and corrected on a timely basis. This material weakness relates to the ineffective design of controls to address segregation of certain accounting duties within our financial reporting function, including the absence of functionality within our legacy ERP systems to require the review of journal entries, and certain reconciliations for which a formal review process had not been established. We have concluded that this material weakness occurred because, prior to this offering, we were a private company and did not have the necessary systems, business processes, and related internal controls to satisfy the accounting and financial reporting requirements of a public company.

In order to remediate this material weakness, we have undertaken or are currently undertaking the following steps:

 

   

implementation of a new ERP system; and

 

   

engaged external advisors to assist in the implementation of processes and controls to better identify and manage segregation of duties risks.

This material weakness did not result in a material misstatement in our financial statements; however, if we are unable to remediate this material weakness or if other material weaknesses are detected in the future, any such material weaknesses could result in misstatements of our account balances or disclosures that would result in material misstatements of our annual or interim financial statements that would not be prevented or detected.

In accordance with the provisions of the JOBS Act, we and our independent registered public accounting firm were not required to, and did not, perform an evaluation of our internal control over financial reporting as of December 31, 2020 nor any period subsequent in accordance with the provisions of the Sarbanes-Oxley Act.

 

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Accordingly, we cannot assure you that we have identified all, or that we will not in the future have additional, material weaknesses. Material weaknesses may still exist when we report on the effectiveness of our internal control over financial reporting as required under Section 404 of the Sarbanes-Oxley Act after the completion of this offering.

Recently Adopted Accounting Pronouncements

See note 1.4 of the consolidated financial statements for the six-month period ended June 30, 2021 and for the year ended December 31, 2020 included elsewhere in this prospectus for more information on recently adopted accounting pronouncements.

Emerging Growth Company Status

We will not take advantage of the extended transition period provided under Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Because IFRS standards make no distinction between public and private companies for purposes of compliance with new or revised accounting standards, the requirements for our compliance as a private company and as a public company are the same.

 

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LOGO

 

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BUSINESS

Overview

Our Mission

On was born in the Swiss Alps with one goal: to revolutionize the sensation of running based on the radical idea of soft landings followed by explosive take-offs. Or, as we call it, running on clouds.

Innovation is at the core of On’s foundation and we focus our efforts on three main areas: performance, design and impact. We aspire to increase performance for athletes and everyday consumers by applying smart, distinct and sustainability-focused designs to our products.

We believe evolving consumer preferences towards more active, healthier lifestyles and the casualization of fashion are the primary drivers of growth in today’s approximately $300 billion global sportswear industry. We believe our ethos and capabilities position On to benefit from these secular shifts.

Our team culture is built around five core values or, as we call them, spirits: explorer, athlete, team, survivor, and positive spirit. These five spirits guide us in our approach to making a positive contribution in the right way. For ourselves. For runners. And for our planet. We believe how we do things is just as important as what we do.

As a brand built around encouraging and supporting movement, we believe that it is the human spirit, not just the human body, that drives people to dream the big idea and move to make that dream a reality. Everything we do at On is designed to deliver on our mission:

To ignite the human spirit through movement.

Our History: Born in the Swiss Alps

As a professional athlete, three-time World Champion and six-time Ironman Champion, Olivier Bernhard devoted himself to creating a running shoe that would give him the perfect running sensation. Olivier’s quest gave rise to the symbiosis of running experience and engineering expertise that would become On’s CloudTec technology. Dozens of prototypes were developed, but the basic concept – cushioned landing, explosive take-off—remained paramount throughout. It was this unique running sensation that convinced Olivier’s friends Caspar Coppetti and David Allemann to join Olivier in his quest. Together with Olivier, they formally established On in Zürich, Switzerland in January 2010.

Just a month after the company was founded, early On prototypes won the ISPO Brand New Award, one of the most important prizes for innovation in sport. Test runners were enthusiastic and spoke of running on clouds. In July 2010, the first specialty running stores carried On shoes on their shelves.

From these humble beginnings in Zürich, On set out in 2010 with a big ambition: to change the world of running for professionals and amateur runners alike. As On started to gain traction in several key markets, the three co-founders brought on Marc Maurer and Martin Hoffmann as equal partners in 2013 to scale and professionalize the business. Together, we have built a distinct culture that empowers the On team to make decisions and foster innovation, allowing On to rapidly scale while retaining the entrepreneurial mindset of a startup. We believe this partnership approach to leadership has been an integral part of On’s success over the past decade, and we expect it to continue.

Our Present: Achieving Global Scale

On is a premium performance sports brand rooted in technology, design and impact that has built a passionate global community of fans across more than 60 countries. We have a selective wholesale presence in approximately 8,100 premium retail doors globally and we generated 37.7% and 36.6% of our net sales in 2020 and the six-month period ended June 30, 2021, respectively, through our direct-to-consumer (“DTC”) channel, which is primarily driven by our website.

 

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We believe we are one of the fastest-growing scaled athletic sports companies in the world, having grown our net sales at an 85% compound annual growth rate (“CAGR”) from inception through 2020 to CHF 425.3 million for the year ended December 31, 2020. Our growth has continued in 2021, with net sales growing by 84.6% to CHF 315.5 million for the six-month period ended June 30, 2021 compared to the six-month period ended June 30, 2020. We focus on providing a premium product experience to customers wherever they are, and our brand resonates with our loyal customers around the world. As a Swiss company with a small home market, we opted to expand globally from the very beginning, and today we have a fast-growing presence across a number of international markets including, among others, Germany (first entered in 2011), the United States (2013), Japan (2013), China (2018) and Brazil (2018). We believe this global presence within the large global footwear and apparel market positions us well for future growth.

On has a Truly Global Presence

 

 

LOGO

 

Year Of Entry In Key Markets   Net Sales by Region(1)
LOGO   LOGO

 

(1)

For the six-month period ended June 30, 2021. Net sales by region is determined based on the location of the customer.

 

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We believe our Swiss heritage and our focus on innovating at the cutting edge of performance, design and impact differentiates us from other sports brands. We are committed to creating premium products that deliver strong performance. Our relentless culture of innovation has driven us to repeatedly introduce numerous groundbreaking technologies such as CloudTec (2010), purpose-engineered Speedboard (2013), Lightweight Trail Missiongrip (2016), ultra-lightweight yet versatile running apparel (2016), Helion Superfoam (2019) as well as Embedded CloudTec (2019) and the Invisible CloudTec (2020). These innovations are designed to change the experience of running and create continuous excitement for our fans as we bring new products to market.

The exceptional performance, comfort and design of On footwear and sports apparel has led runners and a broader set of consumers to adopt On’s products in their everyday lives. We have supported their strong demand by creating performance products for an active lifestyle and exploration of nature and trails. Our Performance All Day range of products fuses function and aesthetics and includes “The Roger” franchise, which has been developed with Roger Federer after he joined On as an active co-entrepreneur in 2019 and investor. While developing a competition tennis shoe with Roger, he suggested extending On’s patented technology to a tennis sneaker family to re-invent how age-old tennis sneakers are made. This is enriching our performance product offering and we believe Roger’s perspectives and insights as a professional athlete will help improve our product development, marketing and fan experiences. Our Performance Outdoor products embrace a new approach to taking on the mountains: light and fast, with shoes and outdoor apparel engineered to free you from the weight and bulk of traditional outdoor gear.

Athletes know that it takes significant effort to make performance look effortless. The On apparel range includes ultralight and stretchable fabrics, intelligently engineered key details and a style designed equally for the track and the street. Our “Essentials” range includes the running jacket, running shorts, sweatpants and other items that are versatile enough to be worn during running, exploring or simply during all-day activities, which is why we believe they are favored by our fans and continue to drive repeat purchases.

All our products are engineered in Switzerland, and our in-house research and development teams work on the innovation, engineering, design, and testing of our products. With our heritage in the Alps, making a positive environmental impact has been a core value for our business since inception. On aims to minimize the environmental footprint of all our activities, with a special focus on using preferred materials, CO2 reduction and life-cycle circularity. In 2020, we announced Cyclon, our first 100% recyclable shoe, which is only available through an innovative monthly subscription model. Through its groundbreaking design and subscription model, Cyclon has already won the 2021 ISPO Award for Product of the Year and Sustainability Achievement.

On is built on authenticity as our loyal following of professional athletes has inspired amateur runners and other fans to join the On community, which is growing larger every day. This community is full of passion, whether in a running club, a weekend jog, a trip to the coffee shop or competing at the highest levels of athletic competition. Our Net Promoter Score (“NPS”) of 66 is among the highest of all consumer facing brands surveyed, and more than 75% of customers recommend On to their friends.

Our distribution strategy seeks to meet runners wherever they are. At the time of our founding, we first started selling in specialty running stores where discerning runners discovered On and became committed fans of our brand. Over time, we expanded our product range and broadened the range of our distribution partners. Today, our products are present in some of the most reputable outdoor, fashion and lifestyle retailers in the world, in addition to specialty running stores. In 2020 and the six-month period ended June 30, 2021, our wholesale channel accounted for 62.3% and 63.4% of our net sales, respectively. With our community and brand awareness growing globally, we organically started to scale our DTC channel through on-running.com over the last 9 years. DTC sales have increased significantly. Our DTC channel, which includes our e-commerce sites, a recently opened flagship retail store in New York City and four smaller format retail stores in China, generated 37.7% and 36.6% of our net sales in 2020 and in the six-month period ended June 30, 2021, respectively. Through our DTC channel, we create an immersive customer experience from educational product innovation content to inspirational storytelling. Through these initiatives, we believe that we build deeper customer connection and loyalty and learn from data, while also realizing attractive margins.

 

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Recent Financial Performance

We believe the power of our business model and our ability to profitably scale our operations is reflected in our financial performance. In 2020, we had net sales of CHF 425.3 million, gross margin of 54.3%, gross profit of CHF 231.1 million, net loss of CHF 27.5 million, Adjusted EBITDA Margin