Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to Rocky Brands Fourth 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 would now turn the conference over to Mr. Brendon Frey of ICR. Please proceed, sir.

Thank you, and thanks to 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. 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. Our fourth quarter was outstanding on every level. Strong demand for our brands and products fueled record sales and profitability, representing a great finish to a year. From a high level, our fourth quarter results were driven by over 20% growth in our wholesale channel with particular strength in Work and Western, combined with ongoing strength in our direct-to-consumer business. Across both channels we experienced strong full price selling and very little discounting, underscoring the strong appeal of our brands and products. A few of the financial highlights included net sales increased 16% to $87.6 million. Gross margins expanded 370 basis points, and adjusted diluted earnings per share increased 107% to a record $1.41. 2020 was certainly a year of two halves. We had outlined on our Q4 call last February that we expected the year to start slowly due to an expiring contract for our military business and some inventory constraints from our third-party Chinese suppliers due to the early impact from the outbreak of COVID-19 in that country. We obviously weren’t anticipating what happened in late March when the outbreak of COVID-19 in the U.S. resulted in wide scale shutdowns across the country, forcing many of our retail partners to temporarily close their doors. For the locations that were able to remain open, they faced significantly reduced foot traffic as the majority of Americans remained at home and shifted their spending to online. This had a significant impact on our wholesale segment, which makes up approximately two thirds of our overall revenue. As challenging as the initial months of the pandemic were, our people stepped up and executed tremendously, especially our distribution center teams who worked tirelessly to fulfill the surge in digital demand we experienced starting in April. For the first six months of 2020, revenue declined 13% with wholesale down 17% and contract military down 39%, partially offset by a 12% increase in retail sales led by strong gains in our branded e-commerce sites and online marketplace business. As restrictions on many businesses started to ease and consumers began returning to brick-and-mortar retail, our wholesale business rebounded strongly in the third quarter. We attributed this both to the desirability of our products and our ability to replenish channel inventories quickly. We made some inventory investments in key styles towards the end of the second quarter that benefited our business in the third and fourth quarters. This was true for wholesale as well as our digital channel, which didn't let up even as physical retail resumed more normal operations. For the back half of 2020, revenue increased 16%, with wholesale up 21%, retail up 12%, and contract military down 12%. Many of the branding category highlights I've discussed on our Q3 call repeated themselves in the fourth, but let me spend a few minutes reviewing them again. Starting with Work, our largest category, sales were up 18% led by Georgia Boot as the brand's new collections performed well at e-retailers like Tractor Supply, Boot Barn, Coastal Farm & Ranch, along with many of our smaller independent accounts. We've also seen interest spike in several of the Georgia core items such as the Romeo and Giant, driven by more casual work from home policies that are still in effect in many parts of the country. Our Western category continued its strong second half turnaround with fourth quarter sales increasing 43% year-over-year following a 27% increase in the third quarter. Durango had a fantastic finish to the year driven by strong demand for perennial top sellers like our flag boots and other patriotic products, as well as new offerings in core Western and Western Work, two areas we've been focused on growing the last couple of years. In terms of retail performance, it was strong across the board with majors such as Boot Barn, Road King, Cavender's and Academy Sports, all up strong double digits, while our smaller Farm & Ranch field accounts grew at an even faster pace. Sales of the Rocky brand also accelerated in the fourth quarter led by Western, as our functionally focused product offering continued to enjoy strong demand from a customer base that has experienced little to no downtime during the pandemic. Meanwhile, our Outdoor business increased 20% despite less than optimal weather for hunting across much of the country. The lack of cold snowy weather in Q4 was more than offset by the higher participation in hunting and overall enthusiasm for the outdoor lifestyle and our ability to serve consumers with compelling market-appropriate product. Finally, Rocky Work grew high single digits as it continued to supply essential workers with their safety footwear needs combined with a new program for a key e-tailer partner. With respect to Rocky's commercial military division, the fourth quarter was marked by sizable purchases from the Army and Marine Corps as the military continues to transition to tactical uniforms requiring Coyote Brown boots. As a result, our popular S2V collection once again posted a nice gain. This was offset by some softness in the consumer direct transactions as foot traffic at the on-base exchanges like AAFES was down due to temporary travel restrictions related to COVID-19. Turning to our Retail segment, strong growth in our e-commerce channel, which consists of both our branded websites and online marketplaces, fueled another double-digit gain in the quarter. Total web sales were up 33% with Georgia, Rocky and Durango, all increasing double digits. Even as consumers resumed shopping at brick-and-mortar retail in greater numbers, we continued to see increased engagement online with both existing and new customers. The work we've done in enhancing the functionality of our branded desktop and mobile sites and expanding our direct-to-consumer efforts, especially our marketplaces, particularly Amazon where we enjoy seller fulfilled prime status, has provided us the opportunity to capitalize on this change in buying behavior. Meanwhile, our Lehigh Safety Shoe business remained active signing up new accounts, which will provide a nice tailwind in 2021 and beyond. In terms of current business, trends have continued to improve since late spring when many of Lehigh's customers were operating with reduced workforces in order to maintain social distancing. Many companies have resumed more normalized operations and have allowed us back on site to execute our iFit events. We are also deploying new digital tactics to drive demand where our teams aren’t on site, such as enhanced contact techniques and a virtual fitting program that is currently in beta testing and expected to roll out soon. Finally, our Contract Military segment was down 21% or a little over $1 million in the fourth quarter. As we previously discussed, this business has faced headwinds due in part to the recent expiration of some multiyear contracts combined with the fact that Rocky is the only non-small business competing in the U.S. military footwear contracts. On a positive note, we were recently awarded a $3.5 million contract to produce a new safety boot for the U.S. Navy that we expect to start delivering in the third quarter of 2021. It is a one-year contract with an option to extend for an additional two years. Shifting to our manufacturing facilities, both Puerto Rico and the Dominican Republic are running at 100%. During the back half of the year, we had to adjust productivity to keep up with demand for some key styles and compensate for some of our suppliers who have been constrained due to COVID-related restrictions. Our ability to dial up and down our production schedules in response to market volatility and speed to market underscore the benefits of our vertically integrated manufacturing structure, which we believe is a key competitive advantage. For 2020, we manufactured approximately 40% of what we sold. Before I turn the call over to Tom to review the financials, I want to discuss our proposed acquisition of Honeywell's lifestyle footwear business that we announced last month. We are very excited about this transformative transaction for many reasons. First, we are acquiring great brands led by the Original Muck Boot Company and XTRATUF. The combination of our two powerful portfolios will create meaningful growth opportunities within our existing categories, particularly work, and provide an entry into new market segments such as commercial fishing, outdoor, camping, and recreational fishing. Second, with innovative and authentic product collections that complement our existing offering with minimal overlap, we will be in a position to strengthen our wholesale relationships and serve a wider consumer audience. Third, we believe there is tremendous upside for leveraging our advanced fulfillment capabilities to improve distribution of the new brands to wholesale customers and accelerate direct-to-consumer penetration. Currently, these brands are fulfilled from a distribution center that includes numerous other product categories such as hard hats and PPE items. We believe we can meaningfully reduce their fulfillment costs, and we've integrated our business and begun shipping products out of our distribution center in Ohio. Lastly, and perhaps most importantly, it is a very well-run, profitable business that nearly doubles our sales and is immediately accretive to gross margins and EPS. For 2020, sales of the acquired brands were approximately $205 million with an adjusted EBITDA of $24.5 million. We expect the acquisition to close next month, after which we look forward to sharing more details about the growth prospects for our combined brand portfolios. I want to close by expressing my thanks and gratitude to the entire Rocky organization for its hard work and perseverance during what has been a very challenging year for everyone. You all have adapted to significant changes in how we work and do business without missing a beat. It is because of your efforts that we will emerge from this pandemic even stronger and on course to deliver even greater value to shareholders in the years to come. I’ll now turn the call over to Tom. Tom?

Thanks, Jason. Net sales for the fourth quarter increased 16.3% to $87.6 million, driven by strong gains in our two largest segments, Wholesale and Retail. By segment, Wholesale sales increased 21.7% to $59.9 million. Retail sales increased 13.1% to $23.5 million, and Military sales decreased 21.4% to $4.2 million. Gross profit in the fourth quarter increased 27.8% to $36.1 million or 41.2% of sales, compared to $28.3 million or 37.5% of sales in the same period last year. The 370 basis point increase was primarily attributable to higher wholesale margins, driven by increased full price selling along with higher retail margins. Gross margins by segment were as follows: Wholesale 39.1%, Retail 48.7%, and Military 30.0%. Selling, general and administrative expenses were $23.2 million or 26.5% of net sales in the fourth quarter of 2020 compared to $21.6 million or 28.7% of net sales last year. Included in this year's fourth quarter were approximately $700,000 of acquisition-related expenses. Income from operations increased 93.8% to $12.9 million or 14.7% of net sales, compared to $6.7 million or 8.8% of net sales in the year-ago period. Net income for the fourth quarter increased 91.1% to $9.7 million or $1.33 per diluted share, compared to net income of $5.1 million or $0.68 per diluted share in the year-ago period. Adjusted net income for the fourth quarter of this year, which excludes acquisition-related expenses, was $10.3 million or $1.41 per diluted share. As Jason said, 2020 was a year of two halves. Following a challenging first six months due to the impacts from COVID, our business rebounded strongly over the third and fourth quarters. For the full year net sales increased 2.6% with Wholesale up 3.4%, Retail sales up 12.4% and Military sales down 27.6%. Adjusted gross margins increased 260 basis points to 38.5%. Adjusted operating margin increased 290 basis points to 10.8%, and adjusted EPS improved 38.3% to $3.14. Turning to our balance sheet, which at the end of the year was in a very strong position, highlighted by cash and cash equivalents of $28.4 million, compared to cash and cash equivalents of $15.5 million at the end of 2019. We were able to increase our cash position by $12.9 million, even as we paid out $4.1 million in quarterly dividends and spent $2.9 million repurchasing approximately 130,000 shares of our common stock. As we previously disclosed, we were funding a portion of a proposed $230 million acquisition of Honeywell's Performance and Lifestyle footwear business with cash on hand. The remainder of the financing is coming from an $80 million senior secured asset-backed credit facility with Bank of America and a $130 million senior secured term loan facility with the Direct Lending Group of TCW Asset Management Company. With respect to 2021, my comments are for Rocky Brands on a standalone basis as the transaction has yet to close. We are currently planning for a solid year of growth, with revenues projected to increase in the mid-single-digit range, led by our Retail division, followed by Wholesale. With the recent Navy contract that we were awarded, we are expecting Military segment sales to be flat this year. In terms of margins, we are facing some tough comparisons in the second half of the year from the strong full price selling we experienced in 2020, as well as from the mix of sales in our Retail division. That said, we believe we can maintain overall gross margins at or slightly above 2020 levels, as we leverage costs on higher volumes and gain efficiencies in our factories from increased production. Following the close of the acquisition, which is scheduled for next month, we'll share our view on 2021 from a combined business. That concludes our prepared remarks. Operator, we are now ready for questions.

Thank you. Our first question comes from Jonathan Komp with Baird. Please proceed, sir.

Yes hi. Thanks, everyone. I wanted to start with a couple of questions on the business you're planning to acquire. Maybe first, could you just give us a better sense of the relative size of the brand within the portfolio? And then, understand you don't want to give projections at this stage, but can you share more backward-looking on what you've seen for growth across the various brands?

Yes, I think, hi Jon, thanks for the question. Good to hear from you. I think in the press release that came out their annual sales for 2020 was $205 million. I think I could tell you Muck is the largest portion of that.

Yes, Muck represents about two thirds of the total.

Yes, and XTRATUF.

XTRATUF and Servus make up most of the remaining third, and Ranger and the NEOS brands are smaller, pretty small.

But what I can tell you is, they've seen some nice sales increases over the last three years. They've done a really great job with those brands, and the distribution of those brands and the marketing of those brands. And so, as we stated, we're really excited to have them part of our family and think they fit our business model and our distribution model really well.

Okay, and maybe a follow-up there, I want to ask you, maybe stepping back, kind of the motivation to do the deal, it sounds like their brand is fairly profitable already. So when you step back and think about, really the reason this is a good fit, how do you rank order the sales growth opportunity, the opportunity to leverage your own sales force and distribution, and then the supply chain opportunity you mentioned, just curious how to frame that up?

Yes, I think right now until we get to close Jon, we probably need to move to more of a Rocky question right now. I think we're intending on closing here in March and I think we'll be able to answer more of those questions as we are able to get more information and dig in more and bring those together. But those are all very relevant questions that I think we just need to answer at a little later date.

Yes, and I think Jason hit some of the highlights in his prepared remarks too, Jon.

Okay, that makes sense, understood. Maybe one related, but tied back to Rocky, just how do you view the post-acquisition state of the balance sheet, just curious Tom, how you are thinking about the financing and the really, your degree of comfort with the leverage on the balance sheet of this deal?

It will be the first time in three years we have debt.

Yes, and so I think, look we've kind of given some guidance on the financing with the ABL and the term notes on the call, we're planning on using our cash, the fund part of that transaction as well, and so, given our EBIT results for 2020, and we've shared the EBIT results of the transaction. We don't think that, we think we're still in a very good balance sheet position. We don't think we're over-levered by any stretch. And then obviously, as we have planned growth for both ourselves and for the acquired brands in 2021 and with it being accretive, we feel very comfortable with where Rocky will be from a balance sheet perspective.

Okay, and should we think any change in plans short-term debt and dividend and should we kind of expect any other cash to go towards deleveraging in the short term or just any thoughts there?

We haven't really made any of those decisions yet. We're still talking through all the different scenarios. So I think those conversations will evolve over time as the results of the company continue.

I do want to say though I don't see any changes today to our dividend. I think we want to continue with that and have every intention to continue with that. And we'll see what it looks like as we bring these two companies together.

Okay, makes sense. Just a couple of then on the Rocky business, maybe on the wholesale side first, just given how strong the second half, I've been curious. Do you have any insights on the sell-through or kind of the state of inventory and the key retailers? And then how that might translate into certainly the start of 2021? You have pretty easy compares. I don't know if you're still benefiting from better inventory, ability to source given your unique sourcing versus competitors. Just, any more thoughts on the state of inventory and how that plays out?

Yes, so I would tell you, we went into Q4 after seeing Q3 being pretty strong. And I think our anticipation was that it was probably going to slow and obviously, that's not what's happened, right? So what we are hearing and learning and have learned over the last three, four months is that the shelf space that we have been able to pick up is checking at retail well, and then therefore is creating more demand and allowing us to have the kind of increases we're seeing. And we have been able to keep up with the demand. We've found a few little holes in our inventory. But I would say in general, because we made the decisions we did in Q2 we've been able to stay with it and only be short in a couple areas. But we're excited about where we are, where we ended and kind of where things are headed in Q1.

And are you facing any disruptions or are you hearing disruptions for others from some of the West Coast port issues, I assume? Maybe you have less exposure there, but I don't know if there's any short term impact for you or maybe for your competitors?

Yes, I think Jon, I think everybody is feeling this pain. We bring everything from a Rocky standpoint through Seattle. And for whatever reason, there seems to be less of a disruption through Seattle, but we are very focused on it and we are prioritizing containers and product as we see necessary. But it's definitely on our radar and would echo some of the other statements out there in the marketplace. I don't know that we are feeling it as badly as some other people are, but it's definitely there. I would be lying to you if we weren't feeling it at some level.

Yes, Jon, to add on there a little bit, also keep in mind about 40% of our product comes from Puerto Rico or from the Dominican, which isn't coming through any West Coast ports; it is coming through the East Coast. So we've benefited from a large portion of our product coming through the East Coast.

Yes, great to hear. And then Tom, your commentary is helpful on margins. It sounds like you're expecting to hold a double-digit operating margin for '21 for the Rocky business, just any broader context. I know looking back in our model that's higher than you've ever had. So maybe, just any thoughts on what's changed, if anything, or kind of structurally why this style looks like double-digit margin opportunity?

Yes, so I think there's a couple of dynamics leading to that. Clearly, we plan with our sales growth to leverage a lot of our operating expenses, so we'll definitely get some economies there. We also had a little bit of headwind, particularly in the first couple of quarters from a gross margin standpoint because of the incremental Section 301 or Trump tariffs, that incremental 15%. So we've gotten that incremental 15% tariff inventory behind us at this point, so we have got a little upside there, particularly in the first half of the year. So it's really gross margins versus, and additionally, sorry, the leveraged operating expenses from our sales growth.

Okay, great. And maybe last one if I could. I know the first quarter 2020 was so unique, and it is all good, the second quarter is just framing it up, any perspective you might add on the first quarter? I know that the few years prior to 2020, you typically earned at least as much in the first quarter as you did in the fourth quarter. Maybe that's not a good assumption this time around, but just any way to frame up your expectations for the first quarter?

Yes, I think, I don't think using the seasonality of our business in 2020 would give a good representation because as we kind of pointed out, 2020 was pretty wonky. So if we go back to 2019 and 2018, as a percent of, it should be more the seasonality should be similar, I should say from an earnings perspective as it was historically.

Okay, great. That's very helpful. I appreciate you taking all the questions. Thanks, guys.

Yes, thanks Jon. I appreciate it.

Thanks, Jon.

Thank you. There are no further questions in the queue. At this time, I would like to turn the call back over to Jason Brooks for closing comments.

Great, thank you very much. I just want to say once again to the Rocky employees, thank you for an exceptional year. We have been able to pull together in an amazing, difficult climate and have a record year. I continue to keep working with you and look forward to beating this year and finding ways to make it happen. So thank you again. Have a great one.

Thank you, ladies and gentlemen. This concludes today's teleconference. You may disconnect your lines at this time and have a great day.