Good afternoon everyone and thank you for joining us. Welcome to the Rocky Brands' First Quarter 2024 Earnings Conference Call. I would like to remind you that this call is being recorded and I will now hand it over to Brendon Frey of ICR. Please proceed.

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, 2023. 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 Operating and Chief Financial Officer. After our prepared remarks, we will be happy to take any questions. We are pleased with our first quarter results as sales and earnings came in ahead of our expectations. Following the implementation of several cost-saving initiatives throughout last year, we have reinvested a portion of the savings into additional advertising programs, which fueled stronger than anticipated growth and meaningful expense leverage. I'll go into more detail about the drivers of our top-line performance momentarily. But we are encouraged by the momentum we experienced across our business highlighted by double-digit gains for our Durango and XTRATUF brands. While the macroeconomic outlook remains uncertain, we continue to be cautiously optimistic that the business is well positioned to generate enhanced profitability and increase shareholder value as 2024 unfolds. Before Tom covers the numbers, I'll spend a few minutes going through the first quarter sales performance by category and brand. In our wholesale channel, the majority of retailers have rightsized their inventories and reorders are now more closely aligned with sell-through, bringing greater stability to our sell-in cadence to start 2024. While this has benefited the Work, western and outdoor categories to different degrees, based on partner inventory levels, we are pleased to see this start to return to normalcy across the industry. Our Work category, which includes our Georgia, Rocky and select styles under the Muck and XTRATUF brands, had several bright spots in the quarter. Georgia Boot delivered a single-digit sales increase in the quarter driven by strong demand for our legacy product and several new product launches. Last year's selective price decreases on certain Georgia styles are resonating with consumers, leading to faster sell-through. Importantly, Georgia's sell-through is now better translating to improved sell-in, leading to strong gains with both key accounts and online retail partners. In fact, we saw strong double-digit growth this quarter with several of our large key accounts. And the strong growth trajectory with online retail partners has advanced beyond what was established last year. As the industry backdrop improves, we expect Georgia growth to accelerate. While Rocky Work remained under some pressure early in the year as key retail partners worked through certain slower selling products, the business is improving and is now in a better position at retail to take receipt of the brand's bestsellers. During Q1, we also shipped a new line of Rocky Work boots that brings both value and quality to the competitive Work boot market. This new product line made in our own Dominican facility should provide both top-line and margin contributions as we move through 2024. Shifting to our Rubber Work Boot business, the first quarter was highlighted by starting the celebration of the Muck brand's 25th anniversary. To support this milestone event, we introduced a redesigned homepage in conjunction with the launch of an enhanced marketing campaign highlighting Muck's heritage and influencer partnerships that are amplifying visibility. Interest in the legacy Muck product remains solid, especially in the U.S. where brand sales were up mid-single digits as our recent marketing efforts helped to accelerate demand as the first quarter progressed. Turning to our western category, Durango delivered a very good first quarter, lifted by strong bookings across key accounts and Farm & Ranch partners along with an acceleration of at-once business. With moderate partner inventory levels, better than expected consumer demand for key Durango styles led to some brief and early stockouts. However, we moved quickly, and we were able to fulfill orders late in the quarter and ship additional inventory of in-demand product, which should lead to even higher returns for Durango going forward. This, coupled with an improving wholesale climate and the addition of new distribution channels in late 2023 and early 2024, have positioned Durango to build upon its strong first quarter results. For Rocky Western, our focus in the first quarter was on improving inventory health and setting the business up for better full-price sell-in later in the year. Sales were up low double digits, driven primarily by discounting of overstock product with key western promotional retailers. At the same time, we've reduced SKU count and eliminated duplicate styles to better focus the Rocky Western line on its key demographic with more targeted products. Our Outdoor category delivered solid growth with a very strong performance from XTRATUF, more than offsetting modest declines in Rocky and Muck. Demand for XTRATUF outdoor styles continued to build with healthy double-digit growth in both our wholesale and direct e-commerce channels. After helping our wholesale customers rebalance inventories last year, bookings and at-once orders for key styles accelerated, leaving us chasing some inventory with higher-than-expected turns on new spring items and legacy products. Looking ahead, we are focused on securing new bookings and filling in replenishment aggressively while maintaining efforts to source sufficient inventory for XTRATUF. With respect to Rocky and Muck sales, we're pressured by a mild winter throughout the country that limited sales of insulated and rubber footwear. While these outdoor categories remain challenged, casual styles like our Rocky Ridgetop and Outback hikers and the Muck for gardening and dog walking boots and shoes have shown very positive results. Going forward, we are introducing new non-hunting, value-driven products in the category that we believe will help improve sales. Lastly, in wholesale, commercial military sales were up meaningfully in the first quarter as the team completed its last shipment under an elevated purchase agreement to a customer that supplies to the U.S. Army with footwear and other gear. Shifting to retail, each of our branded e-commerce sites for Rocky, Georgia, Durango, Muck, and XTRATUF posted strong traffic and sales increases this quarter, with total channel sales up double digits compared to Q1 of 2023. We also utilized our websites to move some overstock inventory in the quarter, which was at a higher margin compared to the traditional discount wholesaler channel. Lastly, our recurring CustomFit B2B Lehigh business was up over last year's first quarter as we had several account renewals and onboarded new accounts in the quarter. At the same time, companies refreshed their budgets, increased subsidies and opened employee eligibility to start the new year, paving the way for continued improvement as we progress through 2024. In addition to the discontinuation of some cruise line programs that offset our CustomFit gains in Q1, I want to point out that we recently realigned our sales organization to improve our sales pipeline and provide greater continuation in account setup, rollout and implementation. While these changes disrupted sales as they were rolled out, we expect that it will positively impact the business in the future quarters. Before I turn the call over to Tom, I want to thank the entire Rocky team for a promising start to 2024. The moderation of partner inventory levels and subsequent return of wholesale demand is allowing the strong sell-through and resilient consumer demand we've seen across the brand portfolio translate into better financial results. This improving industry dynamic, coupled with our continued focus on top line expansion, expense discipline and balance sheet improvement should provide a strong foundation for favorable results in the year ahead. I'll now turn the call over to Tom to cover the financial details.

Thanks, Jason. As Jason discussed, we are optimistic about the start of 2024 as the diversity of our product categories and steady consumer demand for our brands has allowed us to adeptly navigate the current retail environment. Reported net sales for the first quarter increased 2.2% year-over-year to $112.9 million. Excluding the service brand net sales from the year-ago period, net sales increased 7.6% or 9.3% when you also factor in the Canadian distribution model change we made in late 2023. By segment, wholesale sales excluding the service brand and the Canadian distribution model change were up 8.5% to $79.8 million. Retail sales increased 5% to $30.4 million after factoring in the Canadian distribution model change. And contract manufacturing sales were $2.7 million. Turning to gross profit, for the first quarter, gross profit was $44.1 million or 39.1% of sales compared to $43.8 million or 39.6% of sales in the same period last year. Gross margin in the first quarter of 2023 benefited from a net $1.3 million tariff recovery. Minus the recovery, gross margins were up 70 basis points year-over-year, driven by the divestiture of the service brand, which carried lower gross margin than the rest of our product portfolio. Reported gross margins by segment were as follows: wholesale, down 20 basis points to 36.4%, retail flat at 48.7%, and contract manufacturing up to 11.7% from 8.1%. Excluding the tariff recovery, wholesale margins were up 140 basis points. Operating expenses were $36.2 million or 32% of net sales in the first quarter of 2024 compared to $39.6 million or 35.9% of net sales last year. On an adjusted basis, operating expenses were $35.5 million this year or 31.4% of net sales and $38.8 million or 35.2% of net sales a year ago. The decrease in operating expenses was largely attributable to cost savings, reviews, and operational efficiencies achieved through strategic restructuring initiatives implemented in 2023 as well as lower freight expense in the current year. Income from operations was $8 million or 7.1% of net sales compared to $4.2 million or 3.8% of net sales in the year-ago period. Adjusted operating income was $8.7 million or 7.7% of net sales compared with adjusted operating income of $4.9 million or 4.5% of net sales a year ago. For the first quarter of this year, interest expense was $4.5 million compared with $6 million in the year-ago period. The decrease reflects lower debt levels in the quarter compared with the first quarter of 2023. On a GAAP basis, we reported net income of $2.6 million or $0.34 per diluted share compared with a net loss of $0.4 million or $0.05 per diluted share in the first quarter of 2023. Adjusted net income for the first quarter of 2024 was $3.1 million or $0.41 per diluted share compared to adjusted net loss of $0.8 million or $0.12 per diluted share a year ago. Turning to our balance sheet. At the end of the first quarter, cash and cash equivalents stood at $3.1 million, and our total debt, net of unamortized debt issuance costs totaled $156 million, a decrease of 29% since March 31 last year. As we announced yesterday, we signed an upsized, amended and extended ABL facility with Bank of America. The new facility, which amends and restates our existing revolving $175 million credit facility, is comprised of a $175 million revolving credit facility and a $50 million term facility. We utilized a portion of the proceeds from the refinancing to retire our existing senior secured term loan facility with TCW Asset Management. We project these transactions will generate interest savings of $2.9 million over the remainder of 2024, offset by fees and amortization associated with the retirement of the senior secured term loan facility of approximately $2.6 million. Starting in 2025, these transactions are expected to generate a combined annualized savings of approximately $4.4 million. Inventories at the end of the first quarter were $165.1 million, down 26.3% compared to $224.1 million a year ago and down 2.4% compared to $169.2 million at the end of 2023. With respect to our outlook, based on the first quarter performance, we now expect revenue to be towards the high end of our range of $450 million to $460 million. We still expect margin to remain consistent or to see slight improvements from the 38.9% adjusted gross margins we delivered in 2023, partially offset by SG&A deleverage due to investments in marketing of our brands as well as performance-based compensation. Finally, the additional $2.9 million in savings from the combined refinancing transactions, we now expect 2024 adjusted interest expense to be down approximately $7.9 million from 2023 versus our prior guidance of approximately $5 million. That concludes our prepared remarks. Operator, we are now ready for questions.

Our first question is from Jonathan Komp of Baird.

Tom, first question, if I could follow up just on the guidance commentary. If you look at the underlying growth rate you highlighted, I think, in the press release, you indicated up 7% excluding the non-comparable revenue last year and the guidance for the year now is the higher end of $450 million to $460 million, which would be, I think, 4% underlying growth. So any color as you look ahead, if there's something in the first quarter that was unsustainable or what you're building into the outlook in terms of the moderated pace of underlying growth for the year?

I think as we look at Q1, there were a couple of opportunities that we took advantage of from a closeout perspective, which is why our margins probably came in slightly under where we had internally forecasted them. And so I think some of those sales were certainly incremental. If those opportunities arise in the future, we'll continue to take advantage of those. So we'll convert inventory to cash. But we don't necessarily bake it into our model. And I think there's just overall just kind of a sense of being cautious here about the future and what it holds for the rest of the year, but we feel good about the higher end of that range that we guided to.

Yes. I would just add, Jon, that with the election year, election years always seem to be an odd year. So depending on where that kind of ends up as the year goes through, I think we're just being cautious and that was one other reason why.

Yes. One other thing that jumped in my mind, too, Jon, is that Jason called out in his remarks that we were at the end of a contract for our commercial military product. And so we see that if there's another opportunity, we'll certainly bid on them and try to win those. But that's something that we won't see or we don't have planned in the next three quarters.

And if I can follow up on the wholesale performance. Is there any way to talk maybe across? Maybe there's differences across brands or segments or categories, but how would you characterize the first quarter performance as it relates to underlying consumer demand? Any changes that you're seeing in sort of the sell-through indications versus really sort of a catch-up in the sell-in versus the sell-through and how should we think about those dynamics going forward?

Yes, that's an important question. We are continuously evaluating this situation. We previously discussed it on our last earnings call; we collect data from some of our retail partners regarding their sell-through rates. Specifically, for the Durango and XTRATUF brands, we are observing very strong sell-through, which positively impacts the sell-in to retailers. However, the Work category, which includes Georgia and Rocky, and possibly touches Durango, is facing some challenges because interest in western styles seems to be stronger at the moment. The Muck brand is also experiencing similar issues. In the Work category, the retail sell-through isn't performing as well, which is causing the sell-in to lag. The outdoor hunting category has been the weakest, largely due to poor weather conditions. We anticipate better weather patterns this year, which could improve that segment. I hope that answers your question.

Yes. I think the only other callout there that I have is that a meaningful increase that we saw kind of across the board was with key accounts. So key accounts performed very well for us and started to buy back in. And as Jason alluded to earlier, more of that normal cadence. And so we're starting to see more normalized behavior, which is good for Q1 and hopefully the rest of the year.

And can you remind me, have you given a rough split how much of your business is key account oriented versus non-key accounts?

We have not shared that, Jon before, and we'll probably keep that one to ourselves for now.

Last two just modeling questions. Tom, any color, Q2 revenue, should we expect it to be the low point, and I think you're cycling a fair amount of non-comparable business yet. So any color there you can offer? And then SG&A, I know you're still talking to deleverage for the year after achieving pretty big, pretty meaningful leverage in the first quarter. So how should we think about the quarterly progression on the SG&A spend?

Yes, we expect Q2 to be the lowest point for the year, followed by an acceleration in the third and fourth quarters, which are usually our strongest. The fourth quarter is anticipated to be the largest for 2024, particularly in the e-commerce sector. In terms of SG&A spending, we expect it to reach a low point in Q2 as well, with significant investments, particularly in digital, becoming more evident during our peak season in Q3 and Q4. We mentioned a slight deleverage coupled with an increase in SG&A spending for 2024. It's important to note that we are focused on maintaining our operating income comparability to the previous year. As sales progress throughout the year, we will adjust our plans accordingly, drawing on the experience we gained last year and being able to reduce discretionary spending to help safeguard our operating income for 2024.

The next question is from Janine Stichter of BTIG.

I have a couple of questions. First, it seems like you took some of the cost savings and redirected that into higher advertising spend. Can you elaborate on that? From our perspective, it appears that most of the upside was on the wholesale side rather than the retail side of the business. I’d like to understand if this impacts both channels and how to assess where the benefits lie.

Yes. So I'll start. Tom probably will add on. It is more of a wholesale play. And for us, it's really about just staying in front of the consumers. We want to make sure that the consumers are aware of our brands, are aware of our new products that we're introducing, and continuing to drive that business to our retail partners and also drive them to our own websites, where obviously, we make a little bit better margin. But we feel like we have to continue to drive the brands and support the brand. So investing back in them is important. And it really focuses mainly on wholesale. We go a little bit from a retail standpoint from the dot-coms, but not the budget that we did for Lehigh has really stayed about the same.

And then it sounds like you were chasing in XTRATUF and Durango. You were able to fulfill some of those with at-once orders. But is there any of that that spilled over into Q2? And I guess, bigger picture, how is the fact that you're seeing out of stocks and having to chase? Is that encouraging your wholesale partners to place orders earlier or just how to think about that dynamic of at-once for subprime orders?

Yes, I'll take this one, and Jason can certainly add to it. I believe there may have been a slight spillover, but not much into Q2. I am particularly proud of the team for managing to get all the inventory here and turning it around towards the end of the quarter. We saw an impressive turnover of that inventory in March, and I am very proud of the team's efforts. What we're observing is that we're accelerating our pace. Our in-transit inventory is increasing, especially on the styles we're targeting. And yes, you are absolutely correct; we are urging every account to place their orders if they want the product. When considering the supply chain developments over the last few years, particularly with inventory constraints in Asia over the past year or 18 months, it is taking a bit more time to get these factories back up to the production levels we had two years ago. Therefore, for our core styles like the Muck boots, the tour boot, XTRATUF, and Durango products, we're encouraging people to order as early as possible for the fall season before our busy period begins.

Ladies and gentlemen, we have no further questions in the queue. And I would like to turn the call back to Jason Brooks for some closing remarks.

Great. Thank you very much. Just want to again reiterate Tom and my appreciation to the Rocky team. We are excited about Q1 and 2024 and how we've executed in the first three months of the year, and we look forward to finishing strong, and we thank our investors for their commitment, and thank you all so much.

Thank you very much, sir. Ladies and gentlemen, that then concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.