Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Rocky Brands First Quarter Fiscal 2020 Earnings Conference Call. At this time all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. I would like to remind everyone that this conference call is being recorded and I will now turn the conference over to Brendon Frey of ICR. Please go ahead.

Thank you, and thanks everyone joining us today. Before we begin, please note that today’s session, including the Q&A period, may contain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Such statements are based on information and assumptions available at this time and are subject to changes, risks and uncertainties, which may cause actual results to differ materially. We assume no obligation to update such statements. For a complete discussion of the risks and uncertainties, please refer to today’s press release and our reports filed with the Securities and Exchange Commission, including our 10-K for the year ended December 31, 2019. And I’ll now turn the conference over to Jason Brooks, Chief Executive Officer of Rocky Brands. Jason?

Thank you, Brendon. With me on today's call is Tom Robertson, our Chief Financial Officer. As our 2019 performance indicated, we came into 2020 with good momentum in our business. And while we were facing a few sales and margin headwinds early in the year, we were on track for another year of solid growth and improved profitability. Like many companies, our near-term plans and projections have been significantly interrupted due to the Covid-19 pandemic. First and foremost, our thoughts are with everyone affected by this virus and we salute all those on the frontlines battling this global health emergency. We also want to acknowledge the dedicated employees at essential businesses that continue to show up to work every day, including our great teams in our distribution center facilities who haven’t missed a shift since the start of this unprecedented situation. During our quarterly earnings call, I typically review our sales results by brand and segment. In light of the current circumstances, I don’t think that makes sense. To the extent it provides a framework for our current environment, I am going to spend a few moments on our Q1 results and then Tom and I will spend the rest of our time providing an update on the state of our business and review the actions we’ve taken to protect our employees and strengthen our financial liquidity and flexibility. For the first quarter, total net sales were approximately $56 million, compared with approximately $66 million a year ago. We initially anticipated sales to be down slightly, primarily due to planned reductions in our military business plus some early softness in the wholesale segment from a pull forward on certain deliveries ahead of price increases that went into effect on January 1. We also forecasted pressure in Q1 gross margins as we work through inventory that was broadened with the 15% additional tariff prior to the drop back to 7.5% that went into effect February 14 following the signing of the Phase 1 deal between the U.S. and China. Q1 was tracking close to plan prior to the outbreak of Covid-19, driven by a low double-digit increase in retail segment sales through mid-March. As several states announced the closure of all non-essential businesses and implemented stay-at-home directives, we saw an immediate impact on demand, particularly in our wholesale channel, as many accounts became cautious with their planned deliveries and replenishment orders. Today, we estimate approximately a third of our wholesale partner stores are currently closed. Fortunately, roughly two-thirds were designated essential businesses by their respective state governments and they serve consumers who must remain on the job to either fight the virus, protect our citizens, or execute functions that need to be maintained during this crisis. Importantly, as we announced on March 23, our distribution center in Logan, Ohio was deemed an essential infrastructure business operation. This decision has allowed us to continue supporting our retail customers that remain open, as well as servicing customers directly through our branded websites on our Lehigh Safety Shoe program. For the retail doors that are open, they are obviously dealing with decreased traffic levels and they are seeing that in our Q2-to-date results. However, for our wholesale accounts with e-commerce operations where we drop ship customer orders from our distribution center, we’ve experienced a strong spike in demand, particularly for our work in Western Footwear, as consumer purchasing behavior further shifts toward online shopping during this period of self-isolation. With respect to our retail segment, starting with Lehigh, we believe more than half of our safety shoe customers are currently operating, as many function in critical industries such as food and agriculture, infrastructure, pharmaceutical, and waste management. For those businesses that are temporarily closed, fittings are being rescheduled, and we expect there to be pent-up demand once these facilities come back online. Finally, we’ve actually signed up hundreds of new smaller accounts over the past month as the current circumstances have driven an increased move for safety shoes in several professions, and our online business model provides an easy and safe way for employees to outfit their workforces with the required footwear. Meanwhile, our branded e-commerce websites have experienced a strong start to the second quarter. Sales on Rocky Boots, Georgia Boot, and wranglerboot.com are all up strong double digits, driven by robust gains in new users and conversions. I am pleased to report that the temporary government-mandated shutdowns on manufacturing facilities in Puerto Rico and the Dominican Republic have reopened. Based on current demand, both are operating at less than full capacity to reduce costs. However, they are preparing to ramp back up as needed, highlighting the benefits of our vertically integrated manufacturing structure. For the period, we have delayed or cancelled approximately $15 million of purchase orders over the next couple of months due to a slowdown in overall demand. The good news is that for our inventories on our balance sheet at the end of March, over 70% are core styles that have been online for more than a year. So, there is very little risk for a write-down. These are unprecedented times and are certainly the most difficult operating conditions many of us have faced in our lifetime. At Rocky, the health of our employees is our number one priority, and we’ve taken a number of steps to ensure their safety. This includes allowing individuals to work from home if their job function allows it. For those in our distribution center, we have split them into two 33-person teams. We are sanitizing all equipment and work areas before beginning operations. Additionally, we are conducting temperature readings at the beginning of each shift, ensuring each workstation is utilized in a way to keep employees six feet apart and structuring all staff to keep appropriate distance at all times, including during breaks. I am extremely proud of the way our organization has responded to these new challenges and adapted to what we all hope is temporarily the new normal. In addition to executing their jobs, across our organization, people have stepped up to support our communities, healthcare workers, first responders, the U.S. military, and those in need by preparing and delivering food, manufacturing and donating masks, and providing discounts on essential products. I am confident that the combined strength of our people, our brand, and our balance sheet will allow us to weather this storm and emerge well-positioned to get back on track to deliver sustained growth and increased profitability and generate enhanced value for our shareholders. I'll now turn the call over to Tom, who will review the financials in more detail.

Thanks, Jason. As Jason mentioned at the start of the call, we are planning for our first quarter revenue to be down slightly year-over-year and earnings per share to be down even more due to the pressure on margins from higher tariffs. The added impact of COVID-19 in Q1 resulted in a revenue decline of 15.5% to $55.7 million compared to $65.9 million a year ago. By segment, wholesale sales decreased 17.5% to $35 million. Retail sales increased 9.4% to $16.9 million, and military sales decreased 4.3% to $3.8 million. Gross profit in the first quarter was $19.3 million, or 34.7% of sales, compared to $23 million, or 34.9% of sales in the same period last year. This year's gross margins include approximately $1 million in expenses related to the temporary closure of our manufacturing facilities due to COVID-19. Excluding these expenses, the gross margin for the first quarter of 2020 was 36.4%. The 150 basis point increase in adjusted gross margin over last year was driven primarily by a higher percentage of retail sales, which carry higher gross margins than wholesale and military sales. Adjusted gross margins by segment were as follows: wholesale, 33.9%; retail, 44.1%; and military, 26.5%. Selling, general, and administrative expenses were $17.8 million, or 32% of net sales in the first quarter of 2020, compared to $18.5 million, or 28% of net sales last year. Since the outbreak of COVID-19, we’ve taken steps to reduce our expense structure and today have eliminated approximately $1.5 million from our 2020 budget. For our additional potential savings of approximately $3 million, we could realize this year, including a reduction in incentive compensation. Income from operations decreased $1.5 million, or 2.7% of net sales, compared to $4.5 million, or 6.8% of net sales in the year-ago period. Adjusted operating income, which excludes the expenses from our manufacturing facility shutdown, was $2.5 million, or 4.5% of net sales. Net income for the quarter was $1.2 million, or $0.16 per diluted share, compared to net income of $3.6 million, or $0.48 per diluted share in a year-ago period. Adjusted net income for the year was $2 million, or $0.27 per diluted share. Turning to our balance sheet, which at the beginning of the first quarter was in a very strong position, cash and cash equivalents at March 31, 2020, totaled $44.2 million, compared to cash and cash equivalents of $17.6 million at the end of Q1 2019. To bolster our cash position and increase our financial flexibility, we drew down $20 million on a credit facility in March. Inventories at March 31 were $77.2 million, compared to $76.7 million at December 31 and $69.9 million at the end of the first quarter last year. As Jason mentioned, we’ve already started adjusting future receipts from our third-party suppliers, and our plan is to work down our inventory position over the next couple of months – or over the next couple of quarters to better align levels with our current demand. To reiterate, approximately 70% of our current inventory is core product that has been in line year-to-year. On our fourth quarter call in February, we outlined how we thought 2020 would unfold from a revenue perspective. Due to the uncertainty created by COVID-19, we are withdrawing that view and not providing an update at this time. That concludes the prepared remarks. Operator, we are now ready for questions.

I will go first to Jonathan Komp of Baird.

Yes. Hi. Thank you. I want to just first to start, the GAAP versus the non-GAAP disclosure, could you just share the rationale for excluding the $1 million or so that you called out?

Yes, John. So this is the same treatment that we did in 2017 when we had the hurricane hit Puerto Rico. Effectively, this is not to bore you with the accounting, but effectively, this is just overhead and labor cost that we were not allowed to capitalize under our inventory and we had to go through the quarter. So it's not indicative of the operation moving forward, although I do anticipate because the shutdown leaked into the second quarter, we will have a similar type of adjustment in the second quarter.

Okay. And do you by chance have segment gross margins unadjusted, so if you are not excluding that?

Yes, segment unadjusted – yes, unadjusted gross margins by segment: wholesale will be 31.9%, retail 44.1% that will remain unchanged, and military was at 18.1%.

Okay. Thanks. I guess, maybe a broader question, are you seeing a lot of uncertainty out there? And I think just given the lack of maybe clarity around the relative size of the few of the businesses that you called out where you are seeing strength. Is there any way you can comment on if you look at the total business or maybe even parts of it for the last six weeks or so, your guidance in March and April, the type of trend line that you have seen from a revenue perspective?

Yes. So just to make sure I understand the question, just kind of trends in the last six weeks, is that we are looking forward.

From a total revenue perspective or if you could just share a little bit more. I know you called out some of the areas of relative strength, but you know the relative size of all those pieces. I was just trying to get a better sense of where the business stands over the last couple of months here?

Yes, without giving too specific to you John, I think about – if you think about starting with our wholesale business, Jason alluded to about a third of our wholesale customers are shutdown. They are not essential businesses. And but when you think about that, too, of the two-thirds that are still open, I think they are seeing decreased foot traffic. And then, also I am not certain that footwear purchases are the reasons that people are going into the stores; they are looking for what they need more essential type of products. When we think about the retail business, as Jason said in his prepared remarks as well, just over half of our retail customers are open, and so if you look at that segment in total, Lehigh is the biggest proportion of our retail segment. That being said, our retail business, our e-commerce retail business and our marketplace business have significantly increased in sales over the last six weeks, and particularly if you look at the last week or so, it’s even stronger growth. And then from a military segment, we were kind of guiding to that $20 million number for the year. That was going to be relatively even, but given the shut down for over the last 30 days or so, we haven’t been able to ship much military. So, we anticipate getting that business back up to our run rate. But I am not sure we will reach the $20 million for the year.

Okay. Understood. And maybe following up on the inventory. Could you just comment on that – I know you highlighted the reduction in brand orders, but how do you expect inventory in the end to play out here and when you think about the wholesale business, how are you planning for the year in terms of the receipts that you still plan on receiving?

Yes. So, obviously, as we talked about, we’ve either delayed or canceled approximately $50 million in orders right now. We are continuing to monitor the situation. We are having weekly updates. I mean, I think, as everybody right now is having trouble forecasting, what does the next three quarters look like? We are kind of applying it by year; we think that given our own manufacturing facilities that gives us more flexibility. We have shorter lead times in the Dominican Republic and Puerto Rico than out of Asia. And so, we are going to play that to our advantage. As Jason talked about as well, 70% of our products are core products. So, if we get a little over inventory, we'll be able to work through that inventory and adjust our purchases as we move forward. But yes, we are having to guess on demand and as we are too aggressive, my guess would be inventory levels will creep up. But it doesn’t have us overly concerned.

Okay. That looks very helpful. And then maybe last one for me. Just more thinking about the cost side of the business, I know you mentioned some additional flexibility if needed to take out operating cost. But any way to frame up how you are planning the business or even the types of range of scenarios that you might be considering from a sales perspective and how that informs what you are doing on the operating cost side?

Yes. So, that’s – it’s a pretty complicated question Jon, but I will give you my two cents now because we are all kind of in the same boat trying to figure out what’s going to happen over the next three quarters. But, as you think about it, we think we'll see our biggest sales decline in our wholesale business, right? This is the current environment that retail has been. We talked about our retail business; we weren’t doing any kind of meaningful Amazon business really until the third quarter of last year. So, we are continuing to see increases there. As Jason talked about, our e-commerce business is growing, and we hope that that momentum continues. Then with our Lehigh space, which is our biggest category again in our retail segment, we believe that there is going to be more pent-up demand. We can kind of feel that a little bit better and give a little bit more clarity on that because of the fitting scheduling that are happening. So, as we get then the last one with military with those sales being down, as the way that flows through the income statement, obviously, from a gross margin standpoint, with the retail sales being up, those are going to be our highest gross margin area. While with the wholesale business, we think we'll see a little bit – we talked about in the last call how the incremental 15% tariff was going to bleed through Q1 and Q2 as we worked out our inventory, that may bleed through a little longer now that we’ve seen the sales decline. But we are going to work through that inventory through the first three quarters of this year. From an operating expense standpoint, I don't think we'll see significant changes from a dollar standpoint. That being said, even the savings that we are making, and we talked about it earlier on the call, those will be offset by increases in our retail segment. But we talked about the significant increase in operating expenses associated with selling on different marketplaces and the freight cost associated with selling boots and shipping them one and two pairs at a time. So, while I don't think we'll see increases in our SG&A expense from a dollar standpoint, we’ll certainly see us deleverage a little bit as wholesale sales continue to struggle. Hopefully, we’ll see those recover quite nicely here towards the second quarter and in the third and fourth quarters.

Yes. And Jon, I think also, as we have gone through this experience, our sales force is really focused on staying communicated with the field accounts and what’s kind of going on there and then from a Lehigh standpoint, when can we expect accounts to open back up as the states are opening up? We actually have, I believe this week we have two fittings in Texas where they are going to allow us to dock in to hopefully get some things rolling there. So, I think just the fact that the sales forces have been able to communicate with them and make this happen will be kind of interesting to see how it changes. There are still shows that have not been canceled that we are anticipating will be canceled. So there could be some additional SG&A savings there. But we have not made that decision to cancel. We are still waiting for them to roll those out and let us know. So, we still think there might be some savings there as well and will walk through the rest of the year.

Yes. I think, Jon, just kind of put a little positive spin on some of the stuff that’s happening here. I think we are trying to figure out how this is going to change our consumers moving forward. And so, the more consumers we get going through our e-commerce websites, right, the better. Also with our Lehigh business, it is particularly set up to have a hands-off or no contact safety shoe solution. And so, we are excited about what we are seeing from an account growth standpoint at Lehigh and we hope to continue to catch this momentum or keep this momentum going as consumers may change their buying habits moving forward.

Okay. And just last follow-up. Just thinking about the modeling and I think of the second quarter, I'm presuming you'll feel more revenue impact from what’s going on and just want to make sure it’s not unreasonable, I think that you might have a negative operating profit quarter?

I am not really ready to talk through that at this point. I mean, I think that second quarter is certainly going to be our toughest quarter, right. There are a lot of variables in that about manufacturing and shutdown and then we are working through that today. So, I’d rather not comment.

Okay. Understood. Thanks for taking all the questions.

Yes. Thanks, Jon.

Thanks, Jon.

And with that, ladies and gentlemen, that does conclude today’s question and answer session. I would like to turn things back to Mr. Brooks for any additional or closing comments.

Great. Thank you very much everybody. I want to again thank the Rocky team. They have done an exceptional job through this entire situation and I want to thank the people in the field that have worked tirelessly to help keep the United States a safe place. We look forward to moving past this and getting on. Thank you very much.

And with that, ladies and gentlemen, that does conclude today’s call. We thank you for your participation. You may now disconnect.