Rocky Brands, Inc.

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Rocky Brands' third quarter 2023 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. Instruction will be provided at that time for you to queue up for questions. If anyone has any difficulties hearing the conference, please press star zero for operator assistance at any time. I would like to remind everyone that this conference call is being recorded and will now turn the conference over to Brendan 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 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 31st, 2022. I'll now turn the conference over to Jason Brooks, Chief Executive Officer of Rocky Brands. Jason?

Thank you, Brandon. With me on today's call is Tom Robertson. After Tom's and my prepared remarks, we will be happy to take questions. We are pleased with our third quarter results, which were highlighted by a meaningful top-line improvement compared with the second quarter and a significant increase in profitability on both a sequential and year-over-year basis. As we outline on our Q2 call, We anticipated that our performance would start to rebound beginning in the second half, thanks to the sustained consumer demand we've seen all year for our product offering. It's important to remember that while 2023 got off to a difficult start, much of the top-line pressure was experienced, was related more to macroeconomic headwinds and industry dynamics. notably excess channel inventory, along with tough comparisons versus the strength and desirability of our brands. In fact, our sell-through has held up relatively well despite persistent inflation that has impacted consumer discretionary spending. This performance, combined with early actions by retailers to better align overall inventory levels with the current demand environment drove an acceleration in at-once orders for many of our key wholesale partners as the third quarter progressed. While third quarter sales did not reach our year-ago levels, the work we've done enhancing our distribution and fulfillment capabilities along with lower expense levels including reduced freight rates, allowed us to translate a 13% decrease in revenue into a 40% increase in operating income on an adjusted basis. Tom will cover the numbers in more detail shortly. But before that, I would like to spend a few minutes reviewing the drivers of our recent top line performance. Starting with work, our four brands that make up this category Georgia, Rocky, Muck, and Extra Tough collectively delivered a sequential sales increase in the third quarter after selling in was severely impacted by high retail inventories in the first half of 2023. And on a year-over-year basis, the decline moderated significantly from what we experienced in the first and second quarters. Momentum for the Georgia built throughout the quarter was sales turning positive in the month of September, as many key customer accounts began returning to more consistent ordering as their inventories further normalized. At the same time, low pricing on a certain Georgia styles, which is the result of recently realized cost savings that we passed along to customers, has spurred a notable pickup in demand. Looking ahead, we are optimistic about the brand's growth prospects. Consumer response to the Georgia's Fall 2023 line has been very positive, while wholesale bookings for spring have been much stronger than we've seen in quite some time. Our Rocky Work brand has had a bit more challenge than the Georgia this quarter. with excess inventory levels continuing to impact replenishment orders. However, there were some bright spots, particularly with strength in our own e-commerce channel, along with solid success with new key independent retailers driven by new product introductions. Shifting to our rubber-based work product, both the Muck and Extra Tough brands delivered solid results, While warm weather weighed on category demand and elevated inventories continued to impact sell-in, we saw steady improvement in Q3 compared to the first six months of this year. Of note, Muck's new fall collection featuring 12 new styles and supported by a new marketing campaign that targets the brand's core consumer is performing well at the gate, setting the stage for continuing success in the months to come. With Extra Tough, shipments were up year over year for the first time in 2023, as we delivered the brand's highly anticipated new fall product. Inventory levels for our key partners have begun to right size, resulting in a return to steady and growing wholesale demand. As we finalize our spring 24 booking season, we are seeing continued success for the brand in both existing and new channels and expect this positive trajectory to continue into the fourth quarter and next year. Turning now to our Western business. While inventory levels with some key account partners were again a hurdle, we saw steady sales improvements in the third quarter over the first half of the year. With Durango, Strength in our direct-to-consumer channel and increases in our special makeup business helped offset a portion of the lower sell-in compared to a year ago. In terms of sell-through, lower MAP pricing on certain key products, which is the result of the affirmation cost efficiencies that we were able to pass through to customers, helped drive demand and further reduce on-hand inventory levels for several retailers. We also saw notable improvement with our Rocky-branded Western product driven by new distribution with key Western retailers. Along with these new partnerships, updates to longstanding Rocky Western bestsellers drove new interest in the brand this quarter. Looking ahead, the Durango and Rocky Western teams are focused on launching of existing new collections in Q4 and ensuring that the right wholesale partners have the right product to meet the needs of our consumers. Outdoor, which includes under Rocky, Muck, and Extra Tough brands, was again the category most impacted by retailer inventory levels in the period. A poor 2022 for industry created greater carryover than normal, which led to reduced bookings for new products ahead of this year's primary fall season. Hunting boots and apparel were most affected by carryover, and this was compounded by one large sporting goods retailer exiting the category altogether. That said, as I mentioned, when discussing our work product, both the Extra Tough and Muck brands delivered a notable improvement in this quarter. driven in part by new penetration of the outdoor product and more outdoor-focused marketing. Last but not least, within our wholesale segment, commercial military was a bright spot in the third quarter, as orders from several suppliers to the U.S. Army and the United States Marine Corps drove the strongest Q3 in recent memory for the business. Shifting to our retail segment, where sales were up 5% over last year, thanks to a very solid quarter from our direct e-commerce channel. Each of our branded sites, Rocky, Georgia, Durango, Muck, and Extra Tough, were up double digits, which more than offset expected declines in marketplace transactions. Through enhanced digital marketing efforts, We've been successful fostering more direct engagement with consumers, and we expect this trend to continue going forward, which should positively impact the segment's growth and margin portfolio. Shifting to our B2B Lehigh business. Sales were in line with the year-ago levels. The temporary headwind from upgrades to our security protocols that we spoke about on our last earnings call in August are now fully behind us and based on recent event bookings, we are optimistic about the return to growth in the fourth quarter. We are still very positive about our Lehigh business and the opportunity it provides in 2024 and beyond. While overall market conditions remain challenging, we are confident that our top line is positioned for further improvement on a sequential basis in the fourth quarter. With channel inventories continuing to come down and the demand for our durable, innovative, and accessibility-priced work, Western and outdoor footwear pick up. The difference between our sell-through and sell-in is nearly parity. This dynamic, along with an improved balance sheet, sets us up for a good finish to 2023 and a strong start to next year. I'll now turn the call over to Tom. Tom?