Rocky Brands, Inc.

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. If anyone has any difficulties hearing the conference, please press star and then zero for operator assistance at any time. I would like to remind everyone that this conference call is being recorded, and I'll now turn the conference over to Brendan Frey of ICR. Thank you.

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 follow the Securities and Exchange Commission, including our 10K for the year ended December 31st, 2023. And I'm now turning the conference over to Jason Brooks, Chief Executive Officer of Rocky Brands. Jason.

Thank you, Brendan. 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 ExtraTuff in the U.S., as well as our B2B Lehigh custom fit safety footwear platform nearly offset some softness in other areas of our business due primarily to 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 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 extra tough, 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 full 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 looking at 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. Extra Tough 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 the extratuff.com in mid-August. We immediately witnessed a big spike in its 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 a brand for both near and long-term success. This year's dry, warm fall season has been a headwind for MUC, 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 remain sluggish in Q3. Even with the lack of adequate weather to drive demand, MUC units domestically are slightly up this year, underscoring the resiliency of the brand and the increased consumer interest in MUC'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 the 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 driven the sequential improvement. We experienced better results with our independent retailer base, as well as our branded websites, where we've elevated the placement of industrial safety tow 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 strong reception to our new fall 24 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 slight uptick at once demand ahead of prime hunting season in late Q3, it was not enough to make up for the shortfall in preseason 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 the future growth. Lastly, in our rocky commercial military and duty segment was 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 USMC 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, primary from the strength of our fire category, we anticipate that 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 Extra Tough 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 dropships like the Extra Tough Tailgate Collection in mid-August. Shifting to our B2B lead business, sales were up double digits compared to a year ago period, making a welcoming 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 Extra Tough 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. Tom?