Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Rocky Brands First Quarter Fiscal 2021 Earnings Conference Call. I would like to remind everyone that this conference is being recorded. I will now turn the call over to Brendon Frey. Please go ahead.

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, 2020. I'll now turn the conference over to Jason Brooks, Chief Executive Officer of Rocky Brands.

Thank you, Brendon. With me on today's call is Tom Robertson, our Chief Financial Officer. 2021 is off to a great start as the strong momentum our business experienced in the second half of last year continued during the first quarter. The combination of robust demand for our Rocky, Georgia, and Durango brands, in-stock inventory positions, and an easier comparison due to the impact of COVID-19 led to our strongest growth rate in years. On top of our excellent results, we have also completed a highly transformative acquisition with the addition of The Original Muck Boot Company, XTRATUF, Servus, NEOS, and Ranger brands. We have meaningfully enhanced our powerful portfolio of footwear brands and nearly doubled our sales base. At the same time, the acquired brands bring exciting growth opportunities with our existing categories as well as an entrée into new market segments. I'm going to start with a review of our first quarter performance, and then I'll share some thoughts on our initial plans for the acquired brands. Tom will go through the numbers in more detail, but here are just a few of the financial highlights. Net sales increased 57% to $87.7 million. Adjusted gross margin improved 410 basis points and the adjusted earnings per share grew 341% to $1.19. To better understand the underlying strength of the Rocky business, I think it is important to look at our results against first quarter of 2019, which eliminates the benefit from the easy comparison due to COVID. Compared to 2 years ago, we grew first quarter sales 33% and increased adjusted earnings per share 148%. Our performance has been driven by strong growth in both our wholesale and retail segments. Beginning with wholesale, and starting with Work, our largest category, sales were up 53% over Q1 last year and up 26% compared to the same period in 2019. The growth in our Work business has been led by Georgia Boot, as the brand's core items such as the Romeo and Giants have been in high demand throughout the country. Meanwhile, newer collections continue to gain great traction with consumers fueling strong sell-through and leading to incremental shelf space. Georgia's performance was broad-based with strong double-digit percentage gains across key retail partners like Tractor Supply, Cavender's, Coastal Farm & Ranch, and Bass Pro shops, to name a few, as well as our robust network of smaller independent accounts. Our western business was on fire during the first quarter. Following a very strong finish in 2020, demand for the Durango brand accelerated early in 2021, helping to drive 110% growth in the category over last year and 82% growth when compared to the first quarter of 2019. Fresh assortments continue to be well received in the marketplace, while legacy styles such as the Rebel and Rebel Flag series outpaced prior year sales levels. Major accounts such as Tractor Supply and Academy, along with Farm & Ranch retailers like Bomgaars, Orschelns, and Runnings posted high double digits, and in some cases, triple-digit gains year-over-year. Durango's strong performance at retail has been bolstered by much healthier stock positions relative to many of its industrial peers, who have struggled with inventory issues since the outbreak of the pandemic. This has been a key competitive advantage, not only for Durango but across our business over the past year. The Rocky brand, which spans work, outdoor, western, and commercial military, had a fantastic start to the New Year driven by a mix of increased participation in outdoor activities, pent-up demand, government stimulus, and competitive supply issues. What has been particularly encouraging is the performance of several new product introductions. In outdoor, this included the highly successful dry strike line, which marks Rocky's initial foray into the popular marine, fishing, and water sports market. In western, it has been the new Work smart online Wellington boots that have driven excitement and volume. While in Work, we introduced a new Dual Work hike boot and a new made-in-the-USA iron clad safety toe shoe, both of which are selling very well and have helped to create the most complete package of Work boots from Rocky in many years. With respect to Rocky's commercial military division, business in the direct-to-consumer channels has accelerated as more members of the U.S. military become fully vaccinated and resume operational status. With military training and developments on the rise, we are seeing increased demand across the globe for our popular S2V and Tropic Weather boots. Turning to our retail segment. Strong growth in our e-commerce channel, which consists of both our own branded websites and online marketplaces, helped fuel another double-digit gain in the quarter. Total web sales were up 88% with Georgia, Rocky, and Durango all increasing strong double digits. Even as consumers resume shopping at brick-and-mortar retail in greater numbers, we continue to see increased engagement online with both existing and new customers. The work we've done enhancing the functionality of our branded desktop and mobile sites and expanding our direct-to-consumer efforts on marketplaces, particularly Amazon, and more recently, Target Plus and eBay, has provided us the opportunity to further capitalize on this change in buying behavior. Meanwhile, our Lehigh Safety Shoe business also enjoyed a strong first quarter with sales up 18% year-over-year. As more and more companies have resumed normalized operations, our activity with existing and new accounts has continued to pick up, leading to a record level of on-site iFit events in the month of March. We expect this trend to continue based on our pipeline of new accounts and the further loosening of the on-site restrictions in the coming quarters. Finally, our contract military segment increased 16% to $4.4 million in the first quarter driven by increased orders under an existing contract, combined with the start of a recently awarded Navy contract. We are pleased with the positive start in 2021 for this segment; however, we do anticipate full-year sales to be down slightly versus 2020 due to a contract expiring in the third quarter and the continued challenges we face as the only non-small business competing for U.S. military footwear contracts. Shifting to our manufacturing facilities. We continue to run both Puerto Rico and the Dominican Republic at 100% capacity. During the first quarter, we had to adjust productivity to keep up with demand for certain key styles and are evaluating additional shifts as necessary to maintain in-stock positions. Our adaptability and speed to market underscores the benefits of our vertically integrated manufacturing structure, a key competitive advantage that has become increasingly important given the recent disruptions in some of the major global supply chain routes. We are very pleased with the profitable growth we've delivered over the last several quarters. The multiyear initiatives we've been executing in product innovation, fulfillment, consumer engagement, and inventory management enhanced our ability to capture market share during the pandemic while creating a strong foundation to support long-term growth. The recent addition of The Original Muck Boot Company, XTRATUF, Servus, NEOS, and Ranger brands has further bolstered our powerful brand portfolio and provided our business model with compelling new opportunities to drive profitability and top-line expansion. Our primary focus for the acquired business over the remainder of 2021 is on three main areas: people, systems, and inventory. Starting with people, our people are the foundation of Rocky Brands, and they are the reason for the success we've achieved over the years. Based on interactions and discussions with Honeywell, throughout the process, the same is true for the people coming over to Rocky as part of the acquisition. Integrating our two great organizations and harnessing the power of the combined teams will be key to our future success. In terms of systems, migrating the acquired business from Honeywell's ERP system onto Rocky's is underway. This step, which we expect to be completed during the fourth quarter, is critical to providing our newest brands, customers, and consumers with the world-class service we've been executing at Rocky for years. Finally, on inventory, we have started moving the acquired inventory to our state-of-the-art distribution facility in Ohio. We expect to have everything under one roof by late Q2 or early Q3. With the investments we've made in technology and people, we are extremely confident we'll be able to realize important savings over time by meaningfully lowering fulfillment costs for the new brands. And this is just the beginning. After we execute these critical first steps, we'll shift our focus to leveraging our collective strengths across this powerful brand portfolio to create new growth opportunities for all our businesses. I'll now turn the call over to Tom.

Thanks, Jason. As Jason outlined, it has been a great start to 2021, highlighted by strong demand for our brands and products during the first quarter, partially aided — our year-over-year performance was aided by an easier comparison due to the impact COVID-19 had on our business in the first quarter of 2020 and the contribution from the acquisition of Honeywell's performance and lifestyle footwear business. Now to the results. Net sales for the first quarter increased 57.3% to $87.7 million driven by strong gains in our two largest segments, wholesale and retail. By segment, wholesale sales increased 69.1% to $59.2 million, retail sales increased 42% to $24 million, and military sales increased 15.7% to $4.4 million. The first quarter of this year includes approximately $6.5 million in sales from the acquired brands, with approximately $5.5 million falling in our wholesale segment and $1 million in retail. Gross profit in the first quarter increased 81.9% to $35.1 million or 40.1% of sales compared to $19.3 million or 34.7% of sales in the same period last year. This year's gross margin includes a $300,000 inventory purchase accounting adjustment, while last year's gross margin includes approximately $1 million in expenses related to the temporary closure of our manufacturing facilities due to COVID-19. Excluding these items, gross margin for the first quarter of this year and last year were 40.5% and 36.4%, respectively. The 410 basis point increase was primarily attributable to higher margins in all three segments, with the biggest gain in wholesale as we benefited from increased manufacturing synergies on higher volumes, experienced less promotional selling, and were up against an easier comparison due to higher tariffs in the year-ago quarter. Gross margins by segment were as follows: wholesale, 37.6%; retail, 48.1%; and military, 29.9%. Operating expenses were $28.6 million or 32.6% of net sales in the first quarter of 2021 compared to $17.8 million or 32% of net sales last year. Included in this year's first quarter were approximately $5.2 million of acquisition-related expenses. Excluding these expenses, operating expenses as a percent of net sales improved 530 basis points to 26.7%, driven by leverage on higher sales. Income from operations increased 335% to $6.6 million or 7.5% of net sales compared to $1.5 million or 2.7% of net sales in the year-ago period. Adjusted operating income, which excludes the inventory purchase accounting adjustment and acquisition-related expenses in Q1 of 2021 and the expenses from the manufacturing facility shutdowns in Q1 of last year, were $12.1 million or 13.8% of net sales versus $2.5 million or 4.5% of net sales, respectively. Net income for the quarter increased 278.1% to $4.5 million or $0.61 per diluted share compared to net income of $1.2 million or $0.16 per diluted share in the year-ago period. Adjusted net income for the first quarter of the year was $8.7 million or $1.19 per diluted share, an increase of 344% compared to adjusted net income of $2 million or $0.27 per diluted share last year. Turning to our balance sheet. We ended 2020 in a very strong position, highlighted by cash and cash equivalents of $28.4 million and no debt. During the first quarter, we borrowed approximately $190 million and utilized $20 million in cash to fund the acquisition. As of March 31, 2021, cash and cash equivalents stood at $8.9 million, and our debt totaled $186.3 million, consisting of our $130 million senior secured term loan facility and borrowings under our $150 million senior secured asset-backed credit facility. With regard to our outlook, we want to provide some updated thoughts on 2021. As a reminder, we said in the Q4 call in February that we expected full-year revenue for Rocky Brands on a stand-alone basis to increase in the mid-single-digit range. However, based on the strong first quarter performance, combined with a very good start to the second quarter, we are now expecting Rocky's stand-alone revenue for the full year to increase approximately 20% over 2020. With respect to the acquired business, as we previously disclosed, collectively, the new brands generated annual revenue of approximately $205 million in 2020. For 2021, we are also forecasting growth of approximately 20%, of which we'll recognize roughly 80% based on when the transaction closed. In terms of margins, we're expecting consolidated gross margins for 2021 to be approximately 40% as the combined businesses benefit from increased economies of scale and higher gross margins for the acquired brands to help offset headwinds from increased shipping costs. That concludes our prepared remarks. Operator, we are now ready for questions.

Our first question comes from Jonathan Komp with Baird.

Yes. Great. Maybe if I could start. Looking at the base business and the acceleration you've seen in the first quarter, could you maybe just share more about where you've been surprised in terms of the sources of the upside? And I know, Tom, it sounds like maybe that's continuing into the second quarter. But any thoughts on how you expect some of the strong performance at the category level to play out going forward?

Yes. John, thanks for being on the call. I would tell you that all the categories have continued as we came out of Q4 into Q1. I think our expectations were that things would maybe slow down a little bit as the retailers came out of the holiday timeframe and there would be a little bit of a slowdown. Fortunately, for us, that has just not happened. I think we also can say that the stimulus funds that have been distributed have definitely helped that. Because of the position we took during COVID last year regarding inventory, our inventory going into Q1 was in a really good place, and we were able to fill orders that I'm not sure all of our competitors were able to fill. So we've really seen a nice, steady increase through all the categories and brands. As I stated, Durango and the western category really caught fire. I would say that's the biggest one, but they're all doing well right now.

And when you look forward, just looking at the implied guidance, I know in the first quarter, without the new business, it looks like sales were up kind of 46% versus Q1 of '20. It looks like for the balance of the year, you're embedding more of a mid-teens growth rate versus 2020 for the core business, excluding the acquisition. So any thoughts on how you came up with those assumptions? I know the comparisons look a lot different Q2 compared to the back half. So any more thoughts there, especially assuming maybe some of your competitors catch up on inventory availability, if you expect that to have any impact as well?

Yes. John, I'll take this one. So obviously, if we look at Q2, we're going to be running up against another pretty easy comparison, given the impact of COVID in Q2 of 2020. And then you kind of hit the nail on the head here. Q3 and Q4, if you recall, for us, were very strong quarters, which would obviously have tougher comparisons. To your point, we think that some of our peers will have caught up on inventory, and we will be back to fighting for some of that shelf space. That could have implications on gross margins. If we have to get promotional again, but we haven't had the need to really get promotional over the last couple of quarters. So I think if you're trying to model out for the rest of the year, obviously, you're in much tougher comparisons, particularly in Q4, which was a very strong quarter for us.

Okay. Understood. And do you still think the base business can grow against those comparisons? Or I'm not sure if you're willing to comment. But looking out at the fourth quarter.

Sorry. Yes, I believe we do.

Okay. Great. And then just a few on the new business. So a couple of questions. Just first, the integration, the biggest heavy lifting, curious how you're viewing the work that's needed to bring everything on board? And how you're managing any executional risk there?

Yes, John, I would say this is the largest undertaking we've ever faced, and many people here would agree. We have an excellent team, and as I've mentioned, the individuals coming from the new brands are genuinely engaged and excited to be part of this company. I believe we have an effective plan in place, and we are in regular meetings, often daily or even hourly, to implement this plan. We have already begun moving some inventory into our RDC and anticipate that once it's there, we can operate more efficiently than in the past. Transitioning off the Honeywell system to our ERP is crucial, and we are on track to achieve this by Q4, keeping in mind the holiday season. I feel confident about our plan, although I expect we will encounter some challenges and make mistakes along the way. As long as we can keep those to a minimum, I am pleased with our progress over the first 40 to 45 days.

Okay, great. And then on the sales, first, if I could ask about how the first quarter looked for the new brands and any color there? And then as we think about modeling out going forward, any color on the channel split wholesale versus retail? And then any differences in terms of the seasonality as we build out the revenue projection?

Yes. Great question, John. As we look at the acquired business, the first quarter results were only for the last 15 days, given that we closed on March 15. We actually shipped for about 7 or 8 days. The results we had in that time period were flat compared to the Boston Group's numbers in those last 15 days; however, for the overall quarter, that's reflected in our numbers. The brands performed well. As we move into the full year, I'll take the seasonality part first. The seasonality of the acquired brands, as we’d coin them, is fairly similar to ours. It would probably weigh a little heavier in the fourth quarter than ours, given the nature of the product being rubber boots. Regarding the mix between our segments, the acquired brands do not do military business. So obviously, there will be no incremental adds to the military business. They also do not have the Lehigh business, which shows up in our retail segment. Therefore, we expect an increase in our wholesale segments as a percentage of the total. Roughly, I would peg wholesale at somewhere between 75% and 80% of the total as we move forward. The Boston Group does have a strong e-commerce business, and so we are anxious to see how we can bolt these brands onto the marketplace initiatives we've done over the past couple of years, which could shift some sales from wholesale to retail.

Understood. And maybe last one, if I could, just the 40% gross margin outlook on a consolidated basis. Any way to further break down the base business or organic expansion versus any mix impact from the new business? And then, Tom, unless I missed it, I don't think I heard any comment on overall margin or earnings for the year. So I wanted to see if you had any comments there.

Yes. From a gross margin standpoint, we were going to pick up given the demand for where our traditional or Ohio Group business has been. We're going to get volume efficiencies in our manufacturing facilities in Puerto Rico and the Dominican. Also, if you think about Q2, we were still working through some of the Section 301, that 15% incremental tariff product. We'll have a little bit easier comparison in Q2 as well. The big question there for both groups, Ohio and Boston, is going to be when do we actually start getting promotional again. Right now, we haven't seen that, and we're hopeful that we will not need to get promotional as a lot of our peers get back in stock. As for operating margins, given the approximately 20% sales increase we’ve talked about for both groups, we're obviously going to leverage our operating expenses. However, we're refraining from providing clear guidance as we are still trying to work through the integration, and some significant expenses will affect margins and earnings for 2021. So we're not really prepared to give further guidance on that part.

Your next question comes from Susan Anderson with B. Riley.

Nice job on the quarter. I guess just to start out with the Honeywell business, I think you said you did $6.5 million in the half-month of March. Was that in line with your expectations? And should we think about the cadence being similar in the second quarter? And from our checks, we've noticed a lot of out-of-stocks in their brands, particularly the Muck Boot. So I'm just curious how much you think from an inventory perspective, revenues being left on the table? What's the opportunity from a revenue perspective there going forward by having more in-stock inventory but also expanding into new wholesalers?

Yes. Susan, I'll take the first part of this one and give Jason a response as well. Our philosophy at Rocky Brands has been to make investments in inventory, as those investments have paid off over the last 12 months. Our plan is to continue investing in inventory so we can meet demand, and we can also cater to at-once business. We have a good appreciation for how much of the business is at-once versus bookings. So that takes inventory to meet demand some of these retailers require, and that investment helps to support the approximate 20% growth we've guided to for the Boston Group brands in 2021. As for timing, we really owned these brands for only 15 days, and we were down for a little over a week during the transition. There was pent-up demand that began shipping in April when we got back up and running.

Great. That's helpful. And then just on the retail business, I'm curious about the trends you've seen in the Lehigh business. It looks like it's rebounded. If you could talk about the e-commerce contribution?

Yes. I'll start with the Lehigh. As you indicated, we've really been focused on the Lehigh business, and we've seen it start to come back pretty nicely. We think that will continue. COVID really impacted that due to many companies closing. Now that they're opening back up and allowing us to communicate with them, it's driving that business. We believe COVID itself has made our business model even more relevant now. Companies are looking to limit how many trucks they want coming here. They don’t want as many visits, and that weight in communication is driving opportunities for us for the rest of the year. We're pretty optimistic about the Lehigh retail side. Touching on the e-commerce side, we are still seeing nice increases. We anticipate this to slow compared to the triple-digit increases we've seen, but we're investing and doing many right things to drive our e-commerce business. It's important to continue that in the future, and we think we’ll see our share of that market continue to grow.

One quick thing to add, too. We're still focused on adding third-party brands to our marketplace sales. So continuing to leverage our state-of-the-art distribution center in Logan and sell other third-party brands through Amazon and eBay marketplaces is another growth area for us in this space. We're hopeful that we will continue to grow that piece of the business.

Great. That's helpful. And then just really quick on the Work Boot business. I'm curious, as you're seeing strength across all your brands, how is that business performing? What are the expectations, if we do get an infrastructure bill passed? Do you think that's going to be a longer-term tailwind for the business?

Yes. The first part, you're right. The Work Boot business was deemed essential through the whole COVID period. Our customer base was fortunate, and we've been able to keep the shelves full of our Work-type product. That has been strong across all the brands, including Rocky, Georgia, and Durango. We think that is going to continue. We don't see why that would slow down anytime soon. There is a question about our competitors getting back in stock and what that will look like, but we still think there are good opportunities ahead. As for the infrastructure bill, if that happens, it will provide additional upside for us. There is no reason why that wouldn't be a nice tailwind. Depending on when it goes into effect, it could be 2022 into 2023, but it would certainly be positive for us.

Great. And then last one. Can you just touch on the orders you're seeing in the back half of the year? With the tougher compares in mind, it looks like wholesale rebounded quite a bit in the back half. What are your wholesale partners saying about orders for the back half if you're expecting that strength to continue?

I think Tom kind of touched on it earlier. Q1 and a little bit of COVID helped. Q2 may be that way too. We still had a strong Q3 in 2020. But we feel the bookings we're seeing are good, and we feel confident there. Q4 was a particularly strong time for our core Rocky, Georgia, and Durango businesses. As we stated, this 20% increase target for the year seems achievable. Our wholesalers and brands are resonating well, and we feel positive about the remainder of the year.

I would like to turn the floor over to Jason for his closing remarks.

Great. Thank you very much. A big thank you to Susan and John and anyone else that was on the call today. I want to give a shout-out to the Rocky employees, the OG Group, and the BG Group. They are doing a fantastic job. Let's stay focused and continue to keep 2021 positive. We look forward to next quarter. Thank you so much.

This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.