Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Rocky Brands Third Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. I would like to remind everyone that this conference call is being recorded. And I will now turn the conference over to Brendon Frey of ICR.

Thank you, Claudia, 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 questions. Our third quarter performance does not reflect the underlying strength of our business. However, it does highlight the benefits of our multi-brand multi-channel operating model. Double-digit growth for Durango and XTRATUF in the U.S. as well as our B2B Lehigh, CustomFit safety footwear platform nearly offset some softness in other areas of our business due to primarily unfavorable weather, less promotional activity, and inventory shortages on certain key styles. A warm dry fall like the one many regions of the U.S. have experienced this year would have severely impacted not only our third quarter but also our annual performance 25 years ago when the business was largely just Rocky Hunting Boots. On top of this headwind, we were also less promotional than a year ago, in the current environment when consumers have appeared to pull back even further on discretionary spending outside of peak shopping periods. This decision hurt sales more than we anticipated but contributed to over 100 basis points of gross margin improvement. Finally, because of delivery delays and stronger than expected demand, especially for XTRATUF, we left several million dollars in sales on the table during the third quarter. Despite all this, sales were only modestly below plan and we delivered adjusted operating margins of nearly 9.5%. While we believe it is prudent to be cautious about the remainder of 2024, given the near-term macroeconomic environment and the fact that there are five shopping days between Thanksgiving and Christmas this year, there are several reasons to be optimistic about our growth prospects heading into 2025. We are working on adding more manufacturing and sourcing capacity to ensure we are properly inventory to fully capture future demand. This work will benefit Q4 to some extent, but the majority of the upside will come in 2025, given certain product lead times and most importantly, our current order book points to a very good spring season. Before I hand over to Tom for more detailed insights into the financials, I'll take a few moments to walk through our third quarter brand and channel performance. As I noted, Durango continued its recent momentum with notable gains in the third quarter. We again saw strong bookings across key accounts and farm and ranch partners along with further acceleration of at-once business. Importantly, with the channel now clear of overstock and discontinued styles, we've recently sold in more of the brand's top-performing in-demand styles, setting Durango up for a strong finish to the year. Equally important, spring bookings have been robust, pointing to a strong start in 2025. XTRATUF also maintained a strong momentum in the third quarter, driven by the positive reception to new product introductions as well as a continued demand for the brand's core styles. Of particular note, this summer's collaboration with performance fishing brand, Guy Harvey sold through at nearly 100% shortly after hitting shelves, which was followed by the fall launch of a small collection of boots in partnership with authentic Rugged Seas brand that also sold out very quickly. Finally, we introduced our tailgate collection of ankle deck boots in sports-inspired colorways exclusively on xtratuf.com in mid-August. We immediately witnessed a big spike in site traffic and equally strong conversion as we sold thousands of pairs in less than two months. Along with outsized core product and limited edition demand, the brand continues to see expansion into niche outdoor verticals such as sport fishing and outdoor recreation that are leading to new retail partnerships and door expansions with large existing partners. In the near term, the team is focused on securing inventory as the brand carries a lot of positivity into the holiday season. Looking further out into 2025, the team has seen a significant increase in spring bookings compared to a year ago, which along with our manufacturing and sourcing expansion, positions the brand for both near and long-term success. This year's dry warm fall season has been a headwind for Muck, whose rubber neoprene product drives the vast majority of its sales. At once orders did trend higher this quarter compared to a year ago. However, bookings remained sluggish in Q3. Even with the lack of adequate weather to drive demand, Muck units domestically are slightly up this year, underscoring the resiliency of the brand and the increased consumer interest in Muck's more competitive price points that were introduced earlier this year. Looking ahead, we did see sales start to pick up in the final weeks of the quarter, as parts of the South and Southwest were hit with heavy rains, and have seen the momentum carrying into the early weeks of the fourth quarter. Turning to Georgia Boots, which is, as we've discussed in recent earnings calls, has experienced some headwinds throughout 2024, including changes in order size and frequency from our large account base and more recently, unfavorable weather. This year, the Georgia team has focused much of its energy in finding the value sweet spot for our work-based product and has recently seen more of these concepts begin to pay off, driving increased volumes at retail. Looking ahead, we anticipate that the change in partner buying habits will remain a challenge, but we are cautiously optimistic about our new product approach and the reversal of recent weather-related headwinds to fuel improved trends. Meanwhile, Rocky work also were flat to the year-ago period, which was ahead of first-half trends with an uptick in units from increased consumer adoption of our new value-focused product driving the sequential improvement. We experienced better results with our independent retailer base as well as our branded websites where we elevated the placement of industrial safety toe product. Sticking with the Rocky brand, we continued our progress repositioning Rocky Western with new value-driven product at a more competitive price point this quarter. We saw a strong reception to our new fall 2024 lineup with our new lightweight and flexible options at competitive price points, driving stronger gains compared to last year. Looking ahead, we are confident that our new value-based product positioning will set up Rocky Western for continued success. With respect to Rocky Outdoor, while we did see a slight uptick in at-once demand ahead of the prime hunting season in late Q3, it was not enough to make up for the shortfall in pre-season bookings. The short seasonal window, combined with back-to-back years of mild weather, led to an over-inventory of hunting footwear and apparel with many of our key retail partners. While the hunting market overall continues to be softer, we saw our non-hunting footwear led by rugged casual styles continue to trend positively this year. This is helping the Rocky Outdoor brand reach a less specialized consumer segment and will act as a broader and more diversified base for future growth. Lastly, in our Rocky Commercial Military and Duty segment, we were down in line with our expectations. We are still up against a sizable military blanket purchase agreement that elevated 2023 sales, and in Q3, we were also lapping a large U.S. MC Boot purchase that did not repeat this year. A delay in military budget release for 2024 is also impacting our sales cadence versus last year. While we expect some offsets to these headwinds, primarily from the strength of our fire category, we anticipate the comparability to our outsized 2023 will continue to impact the Commercial Military and Duty segments in the near future. Shifting to Retail, we saw notable areas of strength this quarter with both our XTRATUF and Durango sites posting strong double-digit revenue gains. Due to the growing popularity of these brands and the new push toward having AOV, as well interesting and exclusive drop shipments like the XTRATUF Tailgate collection in mid-August. Shifting to our B2B Lehigh business. Sales were up double-digits compared to a year-ago period, making a welcome shift in recent trends. Over the last two quarters, we shared that we implemented a significant realignment of our sales organization to improve our sales pipeline and provide greater continuing-to-account setup, rollout, and implementation. These changes are now driving results with the addition of more than 200 new accounts in the third quarter. Along with these notable sales gains, customer spending continues to be strong, which leads us to believe Lehigh will continue its momentum into year-end and beyond. While we continue to face some near-term challenges, I remain encouraged about our progress building a more diversified, more sustainable, and more profitable business. We are making strategic investments in Durango and XTRATUF to capitalize on their momentum and reach a broader consumer audience. At the same time, we are leaning into the value proposition for our other brands to drive higher volumes and gain share. We believe this approach positions us to improve our overall top-line performance throughout 2025, which combined with our enhanced capital structure will allow us to grow earnings faster than sales. I will now turn the call over to Tom.

Thanks, Jason. We were encouraged by the underlying strength of our business in the third quarter, especially from an end-to-end demand perspective, while acknowledging that certain transitory headwinds kept us from achieving our plan. As a reminder, last year's Q3 included sales that would not reoccur in 2024. Excluding these from comparison, sales of $114.5 million were down 2.4% year-over-year. By segment, Wholesale sales were down 9.7% to $84 million, Retail sales increased 11.8% to $26.8 million, and Contract Manufacturing sales were $3.6 million, up $3.4 million from last year. Turning to gross profit. For the third quarter, gross profit was $43.6 million or 38.1% of sales, compared to $46.5 million or 37% of sales in the same period last year. The 110 basis point increase in gross margin as a percentage of net sales was attributable to higher Wholesale gross margins and a higher mix of Retail segment sales, which carry higher gross margins than the Wholesale and Contract Manufacturing segments. Gross margin by segment were as follows: Wholesale, up 280 basis points to 37.5%; Retail down 440 basis points to 43.6%; and Contract Manufacturing up 50 basis points to 12%. The Wholesale gross margins in the third quarter of 2024 compared to the third quarter of 2023 can be attributed to the lower promotional activity in the current year period as well as opportunistic purchases by certain international and key Wholesale partners in the third quarter of 2023, which contributed to lower gross margins in the prior year period. Operating expenses were $33.6 million or 29.3% of net sales in the third quarter of 2024, compared to $32.3 million or 25.7% of net sales last year. On an adjusted basis, operating expenses were $32.9 million this year or 28.7% of net sales and $30.7 million or 24.5% of net sales a year ago. The increase in expenses was primarily due to increased brand and marketing investments to support future growth and a higher mix of retail sales in the quarter as these sales carry additional expenses like shipping and handling versus the other two segments. Income from operations was $10.1 million or 8.8% of net sales, compared to $14.3 million or 11.4% of net sales in the year-ago period. Adjusted operating income was $10.8 million or 9.4% of net sales, compared to adjusted operating income of $15.8 million or 12.6% of net sales a year ago. For the third quarter of this year, interest expense was $3.3 million, compared with $5.8 million in the year-ago period. The decrease reflects lower debt levels and interest rates as a result of the debt refinancing completed in April of 2024. On a GAAP basis, we reported net income of $5.3 million or $0.70 per diluted share, compared to net income of $6.8 million or $0.93 per diluted share in the third quarter of 2023. Adjusted net income for the third quarter of 2024 was $5.8 million or $0.77 per diluted share, compared to adjusted net income of $8 million or $1.09 per diluted share in the year-ago period. Turning to our balance sheet. At the end of the third quarter, cash and cash equivalents stood at $3.7 million, compared to $4.5 million at December 31, and $4.2 million a year ago. Total debt was $153.3 million, a decrease of 13.2% from December 31, and a decrease of 29.7% since September 30 last year. Inventories at the end of the third quarter were $171.8 million, up slightly from $169.2 million at the end of 2023, and down 11.8% compared to $213.9 million a year ago. Turning now to our outlook. While we were capturing a portion of the XTRATUF sales missed in Q3 during the fourth quarter, we expect to be chasing inventory into 2025 based on current demand for the brand. Taking this into account, combined with our overall third quarter results, we now anticipate full-year sales to be at the low end of our initial range of $450 million to $460 million. Nothing has changed with respect to our view on gross margin. We still expect 2024 gross margins to be similar to that of 2023's adjusted gross margins of 38.9%. We are spending slightly more as a percentage of sales in 2024, as we invest in additional brand marketing programs to drive long-term growth. However, this is being more than offset by a $5 million reduction in interest expense versus 2023, as a result of our debt paydown over the past 12 months, combined with the refinancing we completed in April. With the divestiture of certain lines of our business last year, combined with our enhanced capital structure, 2024 was about getting more nimble and more profitable. We are pleased with our progress against this goal, and we look forward to combining this work with sustained top-line growth in 2025. That concludes our prepared remarks. Operator, we are now ready for questions.

Thank you very much. At this time, we'll be conducting a question-and-answer session. First question comes from Janine Stichter from BTIG. Please proceed with your question, Janine.

I was hoping if you could elaborate a little bit on some of the delays you're seeing or the inventory shortages, specifically what bottlenecks are driving that. And then maybe just some more color around your initiatives to get back in stock in Q4 and into early next year. Thank you.

Yes, thank you, Janine, for joining the call. I will address this, and Jason, feel free to add your thoughts. Regarding the XTRATUF product, we have experienced demand that exceeded our forecasts and our purchases for this quarter. The lead times for XTRATUF and rubber-based products are longer compared to our leather products. As a result, we are actively trying to manage our inventory for the remainder of this quarter, especially for XTRATUF and into early 2025. This situation arises from the extended lead times and higher-than-expected demand. For our other brands, we typically carry some inventory shortages into the following quarter. Durango also saw strong demand in the third quarter, leaving us slightly below our needs there. There's nothing major to note, just a requirement for increased capacity, and we’re collaborating with our sourcing partners. I am confident we will resolve these issues, but we need to catch up.

Okay. Great. And then maybe one more. If you could just help square some of the comments around being less promotional, but then also a cautious consumer and kind of weak macro. Just curious into your promotional philosophy. How do you think about maybe dialing back up the promotions if the consumer remains soft?

Thank you, Janine. This is Jason. Looking back to last year, we were more aggressive with our promotions than we intended to be this year. I believe there was a heightened level of promotion this year even more than we expected. However, we managed to maintain a 100 basis point margin, and our inventory situation has significantly improved, with much less slow-moving stock. As a result, we felt less inclined to promote in the third quarter this year. The retailers are selling our products fairly well, with key accounts performing better than smaller shops, which appear to be more cautious with their inventory and buying habits. This informed our decision to reduce our promotional efforts this year.

Yes, Janine, to add to that, considering our financing and debt structure from last year, we were focused on ensuring we met our covenants. Consequently, our outlook was more short-term than ideal, as Jason mentioned. With the refinancing of that debt, we have adopted a different approach and are now taking a longer-term view of the business, which is necessary. This allowed us to avoid being overly promotional. We've emphasized that our product is essential and need-based, so pushing for promotions to boost retail sales in the third quarter didn’t seem reasonable as we didn’t believe it would significantly impact sell-through at retail. Moving forward, we are adopting a longer-term perspective, a shift we have been able to make since April of this year.

Perfect. That's great color. Thanks so much.

Yes. Thank you.

Thank you. The next question comes from Jonathan Komp from Baird. Please proceed with your question, Jonathan.

Yes. Hi, good afternoon. Thank you. I just want to follow-up, it's not entirely clear when you look at the second half. Maybe if you could start by sharing your updated thoughts on Wholesale growth for the second half. And if you look at the change in plan, I guess, what's not clear is how much was maybe aggressive assumptions of what you could do versus a change in the marketplace and maybe where any of those changes are concentrated. So just any more color there would be helpful.

Yes. I’ll begin by saying that the third quarter was warmer and drier than we expected, which had the biggest impact on the Muck brand. During this quarter, we were unable to secure all the sales for XTRATUF to compensate for those losses. As we look ahead to the rest of the year, we recognize that we will be chasing inventory for the XTRATUF brand, which means we are likely to come in at the lower end of the guidance we provided at the start of the year, specifically the $450 million target. Regarding the Wholesale/Retail mix, we anticipate that Retail sales will experience slightly higher growth than we initially projected, thanks to the recent success of our Lehigh business following the sales reorganization. Additionally, our e-commerce had a strong performance last year, so even a slight increase in e-commerce compared to last year would be a positive outcome for us. However, we are aiming for the Wholesale business to remain relatively flat in the fourth quarter.

Jonathan, I would just add too, we kind of missed things on both ends, right? So we missed the Durango and XTRATUF upside, and then we probably were a little overconfident in the Muck, Georgia and Rocky, maybe more so in the Muck. So we just kind of missed those combinations of things and could have made up some of the miss if we would have been a little more aggressive on buying the inventory for XTRATUF and then maybe expanding quicker in some other factories in sourcing it. But we just kind of missed both sides. We missed the upside and we were probably a little overconfident in the other brands.

Yes. Jon, to clarify my comment, our goal for the Wholesale business is to remain relatively flat on an adjusted basis. Compared to last year's reported numbers, we would see a slight decline since we do not have those recurring sales we have discussed over the past nine months.

Okay. Great. And then as we think forward to spring and really maybe first half of 2025, what's your current visibility around both the brands that are trending well and then correcting some of the issues for the brands that aren't trending as well?

Yes. So for a Q1 standpoint, we have pretty good visibility. And I think we indicated that the bookings look pretty good, particularly for XTRATUF and Durango. So we see that trend happening. And as we stated, we are taking a more aggressive stance on making sure we have that inventory. And we think we'll be in a much better place for those brands in Q1. As far as the other three brands go, we want to continue to invest in them. We want to continue to try to find the right product mix and make sure that we're getting in front of the consumers and helping our retail partners out. So we're going to continue to drive that. And as Tom indicated, we're in a much better place where we can think more long-term and continue to build that up as we get into 2025 and continue to be a more profitable company.

Yes. Just to add on, Jon, look, we'll give obviously much more thorough guidance for 2025 at the next call. But as we look at 2025, we will have a little bit of comparability issues still with some of the big military contracts that Jason talked about that hit our commercial military business in the Wholesale segment. We'll have a little bit of that at the beginning of 2025. We'll lap that, I think, at the end of the first quarter. But I think big picture, right, for modeling purposes, thinking about the low-single-digit growth rate for the Wholesale business and maybe a more aggressive position mid to high-single-digit growth for the Retail segment is probably what we'll target. But again, we'll have a lot more color for you at the next call.

Okay. Thanks. That’s really helpful. Thanks, again.

Thanks, Jon.

Thanks, Jon.

Thank you. The final question comes from Bruce Geller from Geller Ventures. Please proceed with your questions, Bruce.

Hi, good afternoon, gentlemen.

Hey, Bruce.

Historically, the fourth quarter has been pretty good for cash generation. Can you give some insight into where you expect to finish the year in terms of both inventory and debt levels?

Yes. Sure. Thanks, Bruce. Thanks for being on the call. The inventory one is dynamic right now. And just to paint the picture for you a little bit, we've got an inventory decrease meaningfully over last year. However, our in-transit inventory is up as we're trying to rebuild inventory for some of the demand that we're seeing for a couple of the brands. And so we will probably be pushing our factories and our source partners as hard as we can to get inventory. I'm a little hesitant to give you a firm number, but I would tell you, I think inventory by the end of the year will be down seven figures, but not the $10 million to $15 million that we anticipated more at the beginning of the year just given the uptick in demand. And so we'll be chasing inventory, like I said. From a debt perspective, the fourth quarter is a good cash flow quarter for us. So if you think about we're collecting a lot of those Wholesale sales that we saw in the third quarter, and then also our e-commerce business, which obviously has a very quick cash conversion cycle. So we anticipate to continue to pay down debt in the fourth quarter. And I would like to say probably another $10 million to $12 million. But again, I'd like to see, we're going to push that envelope as hard as we can as we go through the rest of the year.

Okay. Thank you, and good luck.

Thanks, Bruce.

Thank you very much. Ladies and gentlemen, we have reached the end of the question-and-answer session. And I’d now like to turn the call back to Mr. Jason Brooks for closing remarks. Thank you, sir.

Thank you very much. First, I'd like to thank our investors, Board members, and customers for supporting all our brands and the company. And secondly, I would like to thank the entire Rocky Brands team. I'm very proud of the accomplishments that we've been able to do in 2024. And I look forward to finishing a strong year with you and working together to make 2025 and beyond even better. So thank you all very much.

Thank you very much, sir. Ladies and gentlemen, that does conclude today's call. Thank you very much for joining us. You may now disconnect your lines.