Business Wire | Aug 3, 2021 04:05PM EDT

Rocky Brands, Inc. Announces Record Second Quarter Results

Aug. 03, 2021

NELSONVILLE, Ohio--(BUSINESS WIRE)--Aug. 03, 2021--Rocky Brands, Inc. (NASDAQ: RCKY) today announced financial results for its second quarter ended June 30, 2021.

Second Quarter 2021 Highlights

* Net sales increased 134.2% to $131.6 million Wholesale segment sales increased 195.0%; Retail segment sales increased 36.8% * Gross margin increased 280 basis points to 37.4% * Net income increased 59.5% to $3.9 million, or $0.52 per diluted share * Adjusted net income increased 129.0% to $7.4 million, or $0.99 per diluted share

"Our business exhibited tremendous strength in the second quarter," said Jason Brooks, Chairman, President and Chief Executive Officer. "Demand for our Rocky, Georgia and Durango brands has been building over the past year and recent trends have been particularly strong. The combination of innovative product introductions, enhanced consumer engagement, and effective inventory management are fueling market share gains in our work, western and outdoor markets. At the same time, the newest additions to our brand portfolio, in particular The Original Muck Boot Company and XTRATUF are performing very well, contributing to our exceptional growth. I am confident that we are well positioned to continue capitalizing on our current momentum and successfully integrating our recent acquisition to unlock even greater earnings power from our operating model in the years ahead."

Second Quarter Review

Second quarter net sales increased 134.2% to $131.6 million compared with $56.2 million in the second quarter of 2020. Second quarter 2021 net sales includes $50.1 million in net sales from the performance and lifestyle footwear business acquired from Honeywell International, Inc. on March 15, 2021.

Wholesale sales for the second quarter increased 195.0% to $101.1 million compared to $34.3 million for the same period in 2020. Retail sales for the second quarter increased 36.8% to $22.3 million compared to $16.3 million for the same period last year. Contract Manufacturing segment sales, which now include contract military sales and private label programs, increased 45.6% to $8.1 million compared to $5.6 million in the second quarter of 2020.

Gross margin in the second quarter of 2021 was $49.2 million, or 37.4% of net sales, compared to $19.5 million, or 34.6% of net sales, for the same period last year. Adjusted gross margin in the second quarter of 2021, which excludes a $2.3 million inventory purchase accounting adjustment, was $51.4 million, or 39.1% of net sales. Adjusted gross margin in the second quarter of 2020, which excluded approximately $1.0 million in expenses related to the closure of the Company's manufacturing facilities due to COVID-19, was $20.4 million, or 36.4% of net sales. The 270 basis point increase to adjusted gross margin was attributable to higher margins in all three operating segments with a 450 basis point improvement in wholesale the largest driver of the year-over-year improvement. (See below for a reconciliation of GAAP financial measures to non-GAAP financial measures).

Operating expenses were $40.7 million, or 30.9% of net sales, for the second quarter of 2021 compared to $16.4 million, or 29.1% of net sales, for the same period a year ago. Excluding $2.3 million in acquisition related amortization and integration expenses, second quarter 2021 operating expenses were $38.5 million, or 29.2% of net sales. The increase in operating expenses was driven primarily by the expenses associated with the acquired brands.

Income from operations for the second quarter of 2021 increased 172.2% to $8.4 million, or 6.4% of net sales compared to $3.1 million or 5.5% of net sales for the same period a year ago. Adjusted operating income for the second quarter of 2021 was $13.0 million, or 9.9% of net sales, compared to adjusted operating income for the second quarter of 2020 of $4.1 million, or 7.3% of net sales.

Interest expense for the second quarter of 2021 was $3.5 million compared with $48,000 a year ago. The increase reflected interest payments on the senior term loan and credit facility used to finance the Honeywell footwear acquisition.

The Company reported second quarter net income of $3.9 million, or $0.52 per diluted share compared to net income of $2.4 million, or $0.33 per diluted share in the second quarter of 2020. Adjusted net income for the second quarter of 2021, was $7.4 million, or $0.99 per diluted share, compared to an adjusted net income of $3.2 million, or $0.45 per diluted share, in the second quarter of 2020.

Balance Sheet Review

Cash and cash equivalents were $8.4 million at June 30, 2021 compared to $25.8 million on the same date a year ago. The change in cash and cash equivalents was driven primarily by the use of cash to fund a portion of the acquisition of the performance and lifestyle footwear business of Honeywell International, Inc.

Total debt at June 30, 2021 was $187.4 million consisting of $130 million senior term loan and borrowings under the Company's senior secured asset-backed credit facility.

Inventory at June 30, 2021 increased to $143.5 million compared to $74.5 million on the same date a year ago. The $69.0 million increase in inventory includes approximately $55.0 million associated with the newly acquired brands.

Conference Call Information

The Company's conference call to review second quarter 2021 results will be broadcast live over the internet today, Tuesday, August 3, 2021 at 4:30 pm Eastern Time. Investors and analysts interested in participating in the call are invited to dial (877) 705-6003 (domestic) or (201) 493-6725 (international). The conference call will also be available to interested parties through a live webcast at www.rockybrands.com. Please visit the website and select the "Investors" link at least 15 minutes prior to the start of the call to register and download any necessary software.

About Rocky Brands, Inc.

Rocky Brands, Inc. is a leading designer, manufacturer and marketer of premium quality footwear and apparel marketed under a portfolio of well recognized brand names. Brands in the portfolio include Rocky(r), Georgia Boot(r), Durango(r), Lehigh(r), The Original Muck Boot Company(r), XTRATUF(r), Servus(r), NEOS(r) and Ranger(r). More information can be found at RockyBrands.com.

Safe Harbor Language

This press release contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. Those statements include, but may not be limited to, all statements regarding intent, beliefs, expectations, projections, forecasts, and plans of the Company and its management and include statements in this press release regarding recent trends in demand for the Company's products (paragraph 2), recent trends related to gains in the Company's market share (Paragraph 2), the Company being well-positioned to continue to capitalize on current momentum (Paragraph 2), and the Company's ability to successfully integrate the recent acquisition of performance and lifestyle footwear business acquired from Honeywell International Inc. These forward-looking statements involve numerous risks and uncertainties, including, without limitation, the various risks inherent in the Company's business as set forth in periodic reports filed with the Securities and Exchange Commission, including the Company's annual report on Form 10-K for the year ended December 31, 2020 (filed March 16, 2021) and quarterly report on Form 10-Q for the quarter ended March 31, 2021 (filed May 6, 2021). One or more of these factors have affected historical results, and could in the future affect the Company's businesses and financial results in future periods and could cause actual results to differ materially from plans and projections. Therefore there can be no assurance that the forward-looking statements included in this press release will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation or warranty by the Company or any other person that the objectives and plans of the Company will be achieved. All forward-looking statements made in this press release are based on information presently available to the management of the Company. The Company assumes no obligation to update any forward-looking statements.

Rocky Brands, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands, except share amounts)

June 30, December June 30, 31,

2021 2020 2020

ASSETS:

CURRENT ASSETS:

Cash and cash equivalents $ 8,358 $ 28,353 $ 25,832

Trade receivables - net 79,963 48,010 35,362

Contract receivables 2,017 5,170 1,254

Other receivables 235 364 402

Inventories - net 143,516 77,576 74,546

Income tax receivable 2,290 - -

Prepaid expenses 4,772 3,713 3,358

Total current assets 241,151 163,186 140,754

LEASED ASSETS 2,626 1,572 1,554

PROPERTY, PLANT & EQUIPMENT - net 55,956 33,750 28,450

GOODWILL 48,375 - -

IDENTIFIED INTANGIBLES - net 127,904 30,209 30,224

OTHER ASSETS 879 374 348

TOTAL ASSETS $ 476,891 $ 229,091 $ 201,330



LIABILITIES AND SHAREHOLDERS' EQUITY:

CURRENT LIABILITIES:

Accounts payable 67,224 20,090 15,962

Contract liabilities 2,017 5,582 1,254

Current Portion of Long-Term Debt 3,250 - -

Accrued expenses:

Salaries and wages 4,363 4,463 1,304

Taxes - other 536 893 778

Accrued freight 2,670 911 417

Commissions 1,068 712 392

Accrued duty 6,534 4,270 3,954

Accrued interest 2,197 - -

Income tax payable - 1,019 578

Other 5,115 2,043 1,598

Total current liabilities 94,974 39,983 26,237

LONG-TERM DEBT 184,121 - -

LONG-TERM TAXES PAYABLE 169 169 169

LONG-TERM LEASE 1,867 944 967

DEFERRED INCOME TAXES 8,272 8,271 8,108

DEFERRED LIABILITIES 392 219 219

TOTAL LIABILITIES 289,795 49,586 35,700

SHAREHOLDERS' EQUITY:

Common stock, no par value;

25,000,000 shares authorized; issuedand outstanding June 30, 2021 - 67,210 65,971 67,390 7,283,434; December 31, 2020 -7,247,631; June 30, 2020 - 7,312,217

Retained earnings 119,886 113,534 98,240

Total shareholders' equity 187,096 179,505 165,630

TOTAL LIABILITIES AND SHAREHOLDERS' $ 476,891 $ 229,091 $ 201,330 EQUITY

Rocky Brands, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(In thousands, except share amounts)

Three Months Ended

Six Months Ended

June 30,

June 30,

2021

2020

2021

2020

NET SALES

$

131,602

$

56,186

$

219,268

$

111,905

COST OF GOODS SOLD

82,448

36,724

134,976

73,124

GROSS MARGIN

49,154

19,462

84,292

38,781

OPERATING EXPENSES

40,717

16,363

69,275

34,169

INCOME FROM OPERATIONS

8,437

3,099

15,017

4,612

OTHER (EXPENSES) INCOME

(3,378

)

(48

)

(4,125

)

(57

)

INCOME BEFORE INCOME TAXES

5,059

3,051

10,892

4,555

INCOME TAX EXPENSE

1,164

609

2,506

925

NET INCOME

$

3,895

$

2,442

$

8,386

$

3,630

INCOME PER SHARE

Basic

$

0.53

$

0.33

$

1.15

$

0.50

Diluted

$

0.52

$

0.33

$

1.13

$

0.49

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING

Basic

7,283

7,312

7,271

7,332

Diluted

7,439

7,334

7,402

7,360

Rocky Brands, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(In thousands, except share amounts)

Three Months Ended Six Months Ended

June 30, June 30,

2021 2020 2021 2020

NET SALES $ 131,602 $ 56,186 $ 219,268 $ 111,905

COST OF GOODS SOLD 82,448 36,724 134,976 73,124

GROSS MARGIN 49,154 19,462 84,292 38,781



OPERATING EXPENSES 40,717 16,363 69,275 34,169



INCOME FROM OPERATIONS 8,437 3,099 15,017 4,612



OTHER (EXPENSES) INCOME (3,378 ) (48 ) (4,125 ) (57 )



INCOME BEFORE INCOME TAXES 5,059 3,051 10,892 4,555



INCOME TAX EXPENSE 1,164 609 2,506 925



NET INCOME $ 3,895 $ 2,442 $ 8,386 $ 3,630



INCOME PER SHARE

Basic $ 0.53 $ 0.33 $ 1.15 $ 0.50

Diluted $ 0.52 $ 0.33 $ 1.13 $ 0.49



WEIGHTED AVERAGE NUMBER OFCOMMON SHARES OUTSTANDING



Basic 7,283 7,312 7,271 7,332

Diluted 7,439 7,334 7,402 7,360

Rocky Brands, Inc. and Subsidiaries

Reconciliation of GAAP Measures to Non-GAAP Measures

(In thousands, except share amounts)

Three Months Ended

Six Months Ended

June 30,

June 30,

2021

2020

2021

2020

GROSS MARGIN

GROSS MARGIN, AS REPORTED

$

49,154

$

19,462

$

84,292

$

38,781

ADD: INVENTORY FAIR VALUE ADJUSTMENT

2,292

-

2,623

-

ADD: MANUFACTURING EXPENSES RELATED TO COVID-19 CLOSURES/SUPPLIES

-

986

-

1,974

ADJUSTED GROSS MARGIN

$

51,446

$

20,448

$

86,915

$

40,755

OPERATING EXPENSES

OPERATING EXPENSES, AS REPORTED

$

40,717

$

16,363

$

69,275

$

34,169

LESS: ACQUISITION RELATED EXPENSES

1,348

-

6,541

-

LESS: ACQUISITION RELATED AMORITIZATION

912

-

912

-

ADJUSTED OPERATING EXPENSES

38,457

16,363

61,822

34,169

INCOME FROM OPERATIONS, ADJUSTED

$

12,989

$

4,085

$

25,093

$

6,586

OTHER INCOME AND (EXPENSES)

$

(3,378

)

$

(48

)

$

(4,125

)

$

(57

)

NET INCOME

NET INCOME, AS REPORTED

$

3,895

$

2,442

$

8,386

$

3,630

ADD: TOTAL NON-GAAP ADJUSTMENTS

4,552

986

10,076

1,974

LESS: TAX IMPACT OF ADJUSTMENTS

(1,047

)

(197

)

(2,318

)

(404

)

ADJUSTED NET INCOME

$

7,400

$

3,231

$

16,144

$

5,200

NET INCOME PER SHARE, AS REPORTED

BASIC

$

0.53

$

0.33

$

1.15

$

0.50

DILUTED

$

0.52

$

0.33

$

1.13

$

0.49

ADJUSTED NET INCOME PER SHARE

BASIC

$

1.02

$

0.44

$

2.22

$

0.71

DILUTED

$

0.99

$

0.45

$

2.18

$

0.71

WEIGHTED AVERAGE SHARES OUTSTANDING

BASIC

7,283

7,312

7,271

7,332

DILUTED

7,439

7,334

7,402

7,360

Use of Non-GAAP Financial Measures

In addition to GAAP financial measures, we present the following non-GAAP financial measures: "non-GAAP adjusted gross margin," "non-GAAP adjusted operating expenses," "non-GAAP adjusted net income," and "non-GAAP adjusted earnings per share." Adjusted results exclude the impact of items that management believes affect the comparability or underlying business trends in our consolidated financial statements in the periods presented. We believe that these non-GAAP measures are useful to investors and other users of our consolidated financial statements as an additional tool for evaluating operating performance. We believe they also provide a useful baseline for analyzing trends in our operations.

Investors should not consider these non-GAAP measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. See "Reconciliation of GAAP Measures to Non-GAAP Measures" accompanying this press release.

Rocky Brands, Inc. and Subsidiaries

Reconciliation of GAAP Measures to Non-GAAP Measures

(In thousands, except share amounts)

Three Months Ended Six Months Ended

June 30, June 30,

2021 2020 2021 2020

GROSS MARGIN

GROSS MARGIN, AS REPORTED $ 49,154 $ 19,462 $ 84,292 $ 38,781

ADD: INVENTORY FAIR VALUE 2,292 - 2,623 - ADJUSTMENT

ADD: MANUFACTURING EXPENSESRELATED TO COVID-19 - 986 - 1,974 CLOSURES/SUPPLIES

ADJUSTED GROSS MARGIN $ 51,446 $ 20,448 $ 86,915 $ 40,755



OPERATING EXPENSES

OPERATING EXPENSES, AS REPORTED $ 40,717 $ 16,363 $ 69,275 $ 34,169

LESS: ACQUISITION RELATED 1,348 - 6,541 - EXPENSES

LESS: ACQUISITION RELATED 912 - 912 - AMORITIZATION

ADJUSTED OPERATING EXPENSES 38,457 16,363 61,822 34,169



INCOME FROM OPERATIONS, $ 12,989 $ 4,085 $ 25,093 $ 6,586 ADJUSTED





OTHER INCOME AND (EXPENSES) $ (3,378 ) $ (48 ) $ (4,125 ) $ (57 )



NET INCOME

NET INCOME, AS REPORTED $ 3,895 $ 2,442 $ 8,386 $ 3,630

ADD: TOTAL NON-GAAP ADJUSTMENTS 4,552 986 10,076 1,974

LESS: TAX IMPACT OF ADJUSTMENTS (1,047 ) (197 ) (2,318 ) (404 )

ADJUSTED NET INCOME $ 7,400 $ 3,231 $ 16,144 $ 5,200



NET INCOME PER SHARE, AS REPORTED

BASIC $ 0.53 $ 0.33 $ 1.15 $ 0.50

DILUTED $ 0.52 $ 0.33 $ 1.13 $ 0.49



ADJUSTED NET INCOME PER SHARE

BASIC $ 1.02 $ 0.44 $ 2.22 $ 0.71

DILUTED $ 0.99 $ 0.45 $ 2.18 $ 0.71



WEIGHTED AVERAGE SHARES OUTSTANDING

BASIC 7,283 7,312 7,271 7,332

DILUTED 7,439 7,334 7,402 7,360

Use of Non-GAAP Financial Measures

In addition to GAAP financial measures, we present the following non-GAAP financial measures: "non-GAAP adjusted gross margin," "non-GAAP adjusted operating expenses," "non-GAAP adjusted net income," and "non-GAAP adjusted earnings per share." Adjusted results exclude the impact of items that management believes affect the comparability or underlying business trends in our consolidated financial statements in the periods presented. We believe that these non-GAAP measures are useful to investors and other users of our consolidated financial statements as an additional tool for evaluating operating performance. We believe they also provide a useful baseline for analyzing trends in our operations.

Investors should not consider these non-GAAP measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. See "Reconciliation of GAAP Measures to Non-GAAP Measures" accompanying this press release.

Non-GAAP Usefulness to management andadjustment or Definition investorsmeasure

We excluded adjustments related to the inventory fair value markup for purposes of calculating Inventory fair value certain non-GAAP measures adjustments are costs related because these costs do not to the fair value markup of reflect the manufactured or inventory purchased with the sourced cost of theInventory fair acquisition of the performance inventory of the acquiredvalue adjustments and lifestyle footwear business. These adjustments business of Honeywell facilitate a useful International, Inc. as evaluation of our current required by business operating performance and combination accounting rules. comparisons to past operating results and provide investors with additional means to evaluate cost trends.

We excluded manufacturing expenses related to COVID-19 for purposes of calculating certain non-GAAP measures Manufacturing expenses related because these costs do not to COVID-19 are costs related reflect our core operatingManufacturing to the overhead, payroll performance. Theseexpenses related to expenses and supplies incurred adjustments facilitate aCOVID-19 during the temporary closure useful evaluation of our of our manufacturing core operating performance facilities due to COVID-19. and comparisons to past operating results and provide investors with additional means to evaluate cost trends.

We exclude acquisition-related integration expenses for Acquisition-related purposes of calculating integration expenses are certain non-GAAP measures expenses including investment because these costs do notAcquisition-related banking fees, legal fees, reflect our currentintegration transaction fees, integration operating performance. Theseexpenses costs and consulting fees tied adjustments facilitate a to the acquisition of the useful evaluation of our performance and lifestyle current operating footwear business of Honeywell performance and comparisons International, Inc. to past operating results and provide investors with additional means to evaluate expense trends.

Amortization of We excluded amortization acquisition-related intangible charges for our assets consists of acquisition-related amortization of intangible intangible assets for assets such as brands and purposes of calculating customer relationships certain non-GAAP measures acquired in connection with because these charges are the acquisition of the inconsistent in size and are performance and lifestyle significantly impacted byAcquisition-related footwear business of Honeywell the valuation of ouramortization International, Inc. Charges acquisition. These related to the amortization of adjustments facilitate a these intangibles are recorded useful evaluation of our in operating expenses in our current operating GAAP financial statements. performance and comparison Amortization charges are to past operating recorded over the estimated performance and provide useful life of the related investors with additional acquired intangible asset, and means to evaluate cost and thus are generally recorded expense trends. over multiple years.

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CONTACT: Company Contact: Tom Robertson Chief Financial Officer (740) 753-9100 Investor Relations: Brendon Frey ICR, Inc. (203) 682-8200