Good afternoon, everyone. Thank you for being here, and welcome to the Rocky Brands First Quarter 2022 Earnings Conference Call. I will now hand it over to Mr. Brendon Frey of ICR.

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 risk 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, 2021. 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. Following a successful 2021, the new year has gotten off to a good start as demand for our portfolio of leading brands continues to be strong. We experienced solid growth across our wholesale and retail segments and throughout our diverse mix of distribution channels, including Western Work, farm and ranch, outdoor, and family retail. The combination of healthy inventory positions and additional fulfillment capacity allowed us to better capitalize on the market opportunities we are creating through our product and marketing strategies and focus on operational excellence. Unfortunately, the current cost environment and tight labor market has required us to spend more temporarily to bring our new distribution facility in Reno up to speed. While this limited our ability to flow more of our revenue outperformance to the bottom line, we are making good progress gaining greater efficiencies and expect we'll be able to translate more of our top line growth into enhanced profitability as the year proceeds. Tom will go through the numbers in more details, but the quarter was highlighted by net sales of $167 million, representing an increase of 91% over the same period last year and a gain of 32% on a pro forma basis. Underlying these results were very strong performance for each of our brands, starting with Durango. The brand continued to experience robust demand, finishing the quarter with mid-double-digit growth in both key and field accounts, driven by strong sell-through. Durango's strategy of diversifying the line into new offerings, particularly in work and core Western has been very beneficial as our farm and ranch and true Western retail partners have posted large year-over-year increases. Not only has demand remained incredibly strong, but we've been able to capture the demand with strong inventory and improving logistics capabilities, leading the increased shelf space again this quarter. Turning to Georgia. The brand generated solid gains over 2021 as demand was once again strong. New opportunities and expansion of current programs continue to drive business as the market looks for answers to the limited supply at retail, especially in key categories that Georgia is an established leader. For example, Georgia experienced tremendous growth of its popular Logger collection, growing strong double digits in part because we were able to fill an inventory void created by peers reliant on Asian production. We produced this line of boots in our own factory in the Dominican Republic and therefore, are able to control inventory flow much more precisely and capitalize on the opportunities. The Rocky brand, which spans work, outdoor, western, commercial military, and duty footwear also had a very solid quarter. Strong growth in Rocky Outdoor and Western was coupled with flat sales in work due to the timing of key orders in the year-ago period that we didn't anniversary. Whether it be hunting product or rugged outdoor footwear for general outdoor activities, we saw ongoing strength as consumers continued the trend of getting outdoors and being active. We are encouraged by the resiliency of the demand we saw this quarter. Unlike previous years where Q1 outdoor sales are boosted by off-price sales of discontinued or overstock product from the past fall hunting season, this was not the case in Q1 of 2022. The overall outlook for Rocky Work, Outdoor, and Western for the balance of 2022 remains solid. With respect to Rocky Commercial Military and Duty divisions, continued efforts over the past few quarters materialized in first-quarter results exceeding expectations. The arrival of much-needed inventory helped commercial military sales continue the positive trend established in the fourth quarter. While our public service business had one of the best quarters as we've increased production of our duty footwear in our Puerto Rican facility. Although there were a multitude of variable contributions to the growth in both categories, the drawdown of the pandemic restrictions in the military and numerous municipalities allowed our military members and public servants to train and work more often than in the last 12 months. Our Muck and XTRATUF brands both posted sizable gains in the first quarter. For Muck, core styles remain in high demand and sold through very well in farm and ranch and outdoor channels, while most new spring 2022 product is just now arriving, creating a nice tailwind for Q2. Muck certainly has a good backlog, and we are working to return to normal retail inventory positions. Additionally, we are beginning to see orders increase with most of our retail partners as they look ahead to fall and winter, which are the key seasons for the Muck brand. At the same time, XTRATUF continues to gain momentum, especially with the brand's key outdoor and fishing retail partners. We are experiencing growth on two fronts, both on a door productivity basis as accounts expand into new styles, as well as expansion of doors from our existing accounts. This expansion positions us for a strong 2022 as our current backlog will only strengthen as we continue to launch new XTRATUF products this year. Turning now to our Retail segment. First-quarter traffic and conversion of our own e-commerce sites was up nicely year-over-year, even as we pulled back on expensive performance marketing. In addition to double-digit e-commerce growth for both Rocky and Georgia, the first quarter was highlighted by the launch of a new I AM XTRATUF campaign on March 1. The campaign has been a fantastic success for the brand thus far, generating a groundswell of demand and positive sentiment across both core and new consumer segments with more than 500,000 video views to date. While we are pleased with our first-quarter e-commerce results, our fulfillment expansion activities did hinder our ability to ship all DTC orders in a timely manner. This was most pronounced with our Muck and XTRATUF brands. As most of this inventory is processed in our new Reno DC, which wasn't fully operational until early April. We are excited to have all inventory now in our distribution and fulfillment system and look forward to taking advantage of our enhanced capabilities to better capture the direct demand for all our brands. Meanwhile, our Lehigh B2B retail business has had a very strong start to 2022, driven by significant growth in both new and existing accounts. This cumulative in March, representing the highest single revenue month for custom fit in Lehigh's history. With prices going up across the footwear industry, many of our customers have increased the subsidy amounts for their employees, helping fuel our top-line performance. Additionally, many accounts are beginning to view providing safety PPE such as footwear, orthotics, and compression socks as a tool to drive employee retention. With its wide offering of safety products, Lehigh has been able to organically drive additional revenue with existing accounts. And as COVID concerns have continued to abate, our number of on-site iFit events is gaining pace, which, combined with our email and SMS strategy is driving higher account participation rates, increasing our account revenue and penetration rate. Overall, I am very pleased with our start to 2022. Our continued focus on operational excellence, combined with our comprehensive portfolio of brands have put us in a great position for upside in a challenging environment as we've seen over the past few years. Our strategies, people, and ability to satisfy every niche of the boot markets are what will drive our success this year and into the future. I'll now turn the call over to Tom. Tom?

Thanks, Jason. As Jason outlined, growing demand and strong inventory to meet that demand drove another solid quarter for Rocky. Reported net sales for the first quarter increased 90.5% year-over-year or 32.2% on a pro forma basis to $167 million. By segment, on a reported basis, wholesale sales increased 126.2% to $134 million. Retail sales increased 19.3% to $28.6 million, and contract manufacturing sales were $4.4 million. Turning to gross profit. For the first quarter, gross profit increased 78.8% to $62.8 million or 37.6% of sales compared to $35.1 million or 40.1% of sales in the same period last year. The decrease in gross margin was mainly attributable to the increase in inbound freight costs, coupled with the delayed impact of our price increases and a lower mix of retail segment sales compared to a year-ago period, which carry higher gross margins than our wholesale and contract manufacturing segments. Gross margin by segment were as follows: Wholesale, down 160 basis points to 36%. Retail, up 30 basis points to 48.4%, and contract manufacturing down to 16.2% from 29.9% a year ago due to labor costs and constraints in Puerto Rico. Operating expenses were $49.6 million or 29.7% of net sales in the first quarter of 2022 compared to $28.6 million or 32.6% of net sales last year. Excluding $1 million in acquisition-related amortization and integration expenses for this quarter and $5.2 million in acquisition-related expenses for the first quarter of 2021. Operating expenses were $48.6 million or 29.1% of sales in the current year and $23.4 million or 26.7% of net sales in the year-ago period. The 240 basis point increase in operating expenses as a percentage of net revenue was driven primarily by higher logistics and fulfillment costs, including temporary spending associated with the opening of the new Reno distribution facility. Income from operations was $13.2 million or 7.9% of net sales compared to $6.6 million or 7.5% of net sales in the year-ago period. Adjusted operating income, which excludes the expenses related to the acquisition in both periods, was $14.2 million or 8.5% of net sales compared to adjusted operating income of $12.1 million or 13.8% of net sales a year ago. For the first quarter of this year, interest expense was $3.9 million compared to $747,000 in the year-ago period. The increase reflects interest payments on our senior term loan and credit facility we used to fund the Honeywell footwear acquisition. On a GAAP basis, we reported net income of $7.4 million or $0.99 per diluted share compared to net income of $4.5 million or $0.61 per diluted share in the first quarter of 2021. Adjusted net income for the first quarter of 2022 was $8.2 million or $1.10 per diluted share compared to adjusted net income of $8.7 million or $1.19 per diluted share. Turning to our balance sheet. At the end of the first quarter, cash and cash equivalents stood at $15 million, and our debt totaled $267.7 million, consisting of $126.8 million term loan facility and borrowings under our asset-backed credit facility. As of March 31, 2022, we had $30.6 million of borrowing available under our credit facility. We are currently working with our lenders to temporarily increase the size of our credit facility by $25 million to provide working capital flexibility over the next couple of months. Inventory at the end of the first quarter was $289.2 million compared to $125.1 million a year ago. The increase in inventory was driven by overall cost increases and strong sales growth, combined with additional inventory as a result of the increased transit times and the distribution and fulfillment challenges experienced in the second half of 2021. While inventory at the end of March was higher than we would have liked, it has come down over the past month. The company plans to realign inventory levels with the sales growth and inventory purchasing strategies by the end of 2022. With respect to our outlook, based on the first quarter sales results, we are raising our full-year projections. We are now expecting sales for 2022 to increase between 21% and 24% over 2021, up from our prior outlook of 16% to 19%. In terms of gross margin, we still expect wholesale margins to remain under pressure in the first half of the year, with second-quarter gross margins down slightly compared to the first quarter before improving starting in the third quarter as our price increases go into effect and start flowing through the income statement. Based on the outlook for wholesale margins and our projected sales mix by segment, we still expect we'll move towards overall gross margins of approximately 40% by the fourth quarter of this year. As stated earlier, we expect to gain efficiencies in our distribution and fulfillment capabilities as the year progresses, while also working to identify synergies and other cost-saving opportunities now that the integration of our two organizations is complete. We did spend more than we planned during the first quarter on temporary help at the Reno distribution center, but expect to start phasing this extra expense out during the second quarter. Our current view is that we will generate slightly better expense leverage in Q2 versus Q1 on an adjusted basis and then start driving down SG&A as a percent of sales into the 26% to 27% range in the second half of the year. For the full year, we are now targeting achieving approximately 60 basis points of expense leverage over 2021 adjusted levels and are making further progress in next year. This will help to transform our top line success into stronger earnings, which, along with the cash generated by reducing inventories, put us in a good position to begin paying down our debt. That concludes our prepared remarks. Operator, we're now ready for questions.

Our first question comes from Susan Anderson with B. Riley.

It's Alec Legg filling in for Susan. First of all, great job on the quarter. My question is about the Nevada distribution center. It seems mostly finished, but the current issues are related to labor. Is there anything else that needs to be completed at the Nevada distribution center, or is it just the labor situation?

This is Tom. I'll start with this one. So yes, the good news is the Reno distribution center currently has full capabilities to process all types of orders, including case-to-card assorted products and e-commerce, direct-to-consumer orders. We did need to rely on a significant amount of temporary labor in the first quarter. As we mentioned earlier, we plan to reduce that temporary labor moving forward. We increased temp labor in Reno to address the backlog following the launch of our capabilities in March and April for direct-to-consumer orders. We'll phase out the temporary labor throughout the second quarter, but we are making good progress in hiring new staff each week.

I would just add that there are some minor issues with acquiring equipment in that area, but they are not as severe as they were six to eight months ago. So, to Tom's point, while labor is the main concern, there are still challenges related to obtaining equipment and other necessities.

The other thing to call out with the Reno facility is that not only will we see temporary labor come down over Q2 and Q3, but I believe that the teams will become more efficient. They're going to be in new processes. And so there's still efficiency improvements to be made in 2022 at the Reno facility.

Got it. And then a follow-up just on how we should think about wholesale and retail sales throughout the rest of the year. Before I remember you were focusing on wholesale just to kind of gain shelf space. How should we think about the sales growth between wholesale and retail just the cadence while it's going through the rest of the year?

Yes. I'll start this one off. I think you're right. The strategy was in Q1 that we wanted to defend our shelf space with the retailers. And so we focused and prioritized those type of shipments. Now that we have the ability to shift Muck and XTRATUF are really the entire catalog, it's in Reno. I think we will see the e-commerce business recover nicely. It was down slightly in the first quarter for those brands that were housed in Reno. I do think that the bulk of the growth will still happen in wholesale. That's where we're seeing the strongest demand. However, our retail category, both Lehigh and our e-commerce business is growing nicely. But I would probably say that the stronger growth will be in wholesale for the year.

Our next question comes from the line of Camilo Lyon with BTIG.

This is Mackenzie Boydston on for Camilo. My first question is just about the price increase that I believe you took January 1. Can you just kind of help us understand was that an across-the-board kind of price increase and how you kind of looked at it from like an Ohio Group versus Boston Group perspective? And then also, did you see any price resistance from the consumers with that price increase? And do you have any price increases that you're planning for the rest of this year?

Thank you for your question, Mackenzie. We didn’t encounter much price resistance. The marketplace has seen many players implementing price increases, and it seems the market is accepting this trend. While price increases are typically met with some resistance, under the current circumstances, the response has been more favorable than usual. We did implement a price increase across all our brands, including Rocky, Georgia, Durango, Muck, XTRATUF, Servus, Neos, and Ranger. As for the last part of your question, we currently do not have any additional price increases planned.

Was there any other price increases planned?

Yes, I just remembered that. So we do not have any planned at this time. We are evaluating that really, as we speak. We are coming into a sales meeting timeframe here at the end of May, but we do not have anything planned for a price increase at this time this year.

Got it. And then just on your supply chain and your exposure to Asia. I believe the Boston Group is a little bit more exposed to Asia than your legacy brands. So can you just talk about any impact that you're seeing from the manufacturing side from the lockdowns in Asia? Have you been able to shift maybe any additional manufacturing to your U.S. facilities just to understand like your exposure and your impact from the lockdowns there?

Yes, sure. So actually, the Muck and XTRATUF brand, excluding our own factory in Chuzhou, we do not produce any other products in Mainland China. Those products are all made in Indonesia and Vietnam. So we saw actually fewer issues with the Muck and XTRATUF from the shutdown standpoint. Our factory was shut down for like 5 days, so not terrible. We did have one other factory that we do business with in some of the other brands, Rocky, Durango that we did have a shutdown again, about a week, I think, 6 days. And so that wasn't too awful from a COVID standpoint where we saw any major delays. What we are still seeing are long lead times, all around the world, really. So we used to be able to get products placed and shipped and delivered to us maybe within 90 days. And we're seeing stuff in 120, 130, 140 days. And so the lead times have just become much longer in regards to that.

Yes. I think these longer transit times are impacting us in a couple of ways. When we're chasing inventory on a particular style or for a particular brand, it is causing a little bit of issue in trying to get the rest of those orders out the door. But it's also put a strain on working capital as we have almost 4x the amount of inventory in transit today than we did a year ago. And so those long transit times are putting a lot of inventory on our balance sheet that we haven't had a chance to distribute and turn into cash yet. So I think the transit times out of Asia, I'm optimistic that we will start to see a little bit of relief there. And we'll just have to take that into account as we're doing our future purchasing out of Asia.

That's really helpful. Just one more question from me. In the last earnings call, you mentioned that your wholesale partners were placing larger orders to ensure they had sufficient product this year. Are you noticing any caution from your wholesale partners regarding fall orders, considering the increased macroeconomic uncertainty, recession fears, and the situation in Ukraine? Is there any additional caution from them, or is it largely unchanged from last quarter?

I'm not sure if the caution is due to global events or if they've just returned to a more typical inventory level. We've definitely noticed that bookings have become more normalized. We do have some backlog, although not significant, and we're seeing some bookings come in. Overall, we feel positive about our current position. There's ongoing discussion about the economy and potential recession, leading us to be cautious and attentive. However, we believe our brands are relatively secure in this environment. People are still working, engaging in activities, and we feel good about our status without observing anything unusual from our retail partners.

Our next question comes from the line of Jonathan Komp with Baird.

Maybe a broader question on the sort of the base business, if you want to call it that. But if you look excluding the Boston brands, the Rocky business generated more than $100 million of revenue in the quarter. That looks like a new high watermark and certainly a step up from the last few quarters. So just any more color on what you've seen for that business and kind of broader context on that step-up in the sales levels.

Yes. I'll start with this one and Jason will add on. We continue to see strong demand for the Rocky, Georgia, and Durango brands, and the first quarter was particularly successful for them. These brands benefited from being located in our Ohio distribution center. As Mackenzie mentioned, we source more of these products from our Dominican Republic facility than from Muck and XTRATUF, which results in shorter lead times. Additionally, our legacy brands generally come through Seattle, compared to Long Beach for those coming out of Asia, leading to favorable supply chain conditions for these brands. While demand remains strong for the XTRATUF and Muck brands, as reflected in our results, we were able to better meet the demand for the Rocky, Georgia, and Durango brands.

Yes, that's helpful. And then maybe thinking about the full-year guidance and the update, how much of the update and the increase relates to the first quarter versus any changes for the balance of the year? And it looks like the midpoint you're assuming close to 10% growth for the balance of the year. Is that still concentrated in the third quarter with Q2 and Q4 flattish? Or how are you thinking about the year as you look across the quarters?

I believe the messaging remains consistent. Last year's third quarter marked the peak of our distribution challenges, so we will have an easy comparison this time. We have visibility into our bookings and anticipate good coverage across all brands, especially for Muck and XTRATUF, which were significantly impacted by distribution issues last year. We expect that most of the growth will occur in the third quarter.

And just so we're aligned, do you expect to still grow in Q2 and Q4? Should we be expecting anything that would impact those two quarters?

Yes. So we're expecting growth in the second quarter, certainly. That is up on a tougher comparison because if you recall, at that part of the year, we were processing the Rocky, Georgia, and Durango brands out of Logan, we really haven't started to move out of the Honeywell facility. And so we were not as hindered; we weren't hindered as much in Q2. It is also the first full quarter of the combined organizations from a sales perspective. In the fourth quarter, I think growth will be challenged a little bit, but certainly not speaking to the demand of the brands, I think that it is speaking to, we don't anticipate rolling into the fourth quarter of this year with the backlog in open orders that we did last year with the miss in the third quarter.

Understood. Maybe last topic. Just on the balance sheet, any color on sort of your plans and your expectations from an inventory perspective? Are you targeting a certain level of inventory turns or weeks on hand? And then maybe similar to just for the overall balance sheet leverage, how quickly do you think you can start converting the working capital to cash and any expectations for the leverage for this year or after that?

We have already observed a reduction in inventory levels, which likely peaked around mid-March and has been gradually declining since then. We expect this trend to continue. Our target is to reduce inventory by approximately $40 million by the end of the year, and we are actively working towards this goal. Several factors will influence our ability to achieve this, but we are committed to managing inventory down and utilizing that working capital to reduce debt by year-end.

And that's Tom, that's in reference to the Q1 balance or the fourth-quarter balance for the base year concerning the $40 million mentioned.

Correct. Q1, sorry, down from Q1.

Okay. So, and the $250 million range is the goal?

Yes. Yes, correct.

Our next question comes from the line of Rob Shapiro with Singular Research.

Besides the increase in expenses in Reno, have you seen any other impact of the inflationary environment on other parts of the business?

I want to clarify something, as it may have been overlooked in our prepared remarks. We experienced a notable increase in temporary labor in Reno, coupled with significant freight increases, which we identified as fulfillment costs. Specifically, we were referring to the rise in outbound freight that appears in our operating expenses. Along with the surge in fuel prices, we faced higher rates from our freight partners and LTL carriers. Additionally, we temporarily made freight concessions to some retail partners due to delays in shipping products, which is not something we expect to continue moving forward. Consequently, these outbound freight costs have contributed to an increase in our operating expenses.

All right. Can you comment on the higher accounts payable this quarter?

Yes. So that's simply a reflection of inventory. And the reality is inventory in transit. I alluded to before a significant increase in in-transit inventory. And so while that inventory is traveling to us, it would sit in accounts payable.

Ladies and gentlemen, we have reached the end of today's question-and-answer session. I would like to turn this call back over to Mr. Jason Brooks for closing remarks.

Thank you very much. I just want to say thanks to everybody on the call and our investors and really want to put out a thank you to all the Rocky Brands employees and the efforts that they put in to make Q1 happen in 2022, and we look forward to finishing out the year and another successful quarter for Rocky Brands. Thank you so much.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Enjoy the rest of your day.