Business Wire | Nov 2, 2021 04:06PM EDT

Rocky Brands, Inc. Announces Third Quarter Results

Nov. 02, 2021

NELSONVILLE, Ohio--(BUSINESS WIRE)--Nov. 02, 2021--Rocky Brands, Inc. (NASDAQ: RCKY) today announced financial results for its third quarter ended September 30, 2021 which reflect the impact from temporary fulfillment challenges in the Company's Ohio distribution center.

Third Quarter 2021 Overview

* Net sales increased 61.4% to $125.5 million Wholesale segment sales increased 70.3%; Retail segment sales increased 35.3% * Net loss of $(0.4) million, or $(0.05) per diluted share * Adjusted net income of $2.5 million, or $0.34 per diluted share

"We continued to experience robust demand for our portfolio of leading brands during the third quarter," said Jason Brooks, Chairman, President and Chief Executive Officer. "After moving the recently acquired Boston Group's* inventory to our Ohio distribution center in mid-August, and receiving record inbound supply in preparation for a strong finish to the year, we encountered unanticipated fulfillment challenges that are temporarily hindering our ability to deliver a portion of orders on time. We are making good progress towards regaining the full efficiency of our Ohio distribution center, which along with our new distribution center in Reno, Nevada that went live in early October, has improved our shipping capacity ahead of the holiday season."

"While we are disappointed that our near-term growth potential is being limited by fulfillment headwinds, I am confident we're positioning the business for further market share gains and increased profitability even as the operating environment remains volatile. Our enviable inventory position and relative insulation from industry-impacting global supply chain issues enabled through our Caribbean-based manufacturing facilities, provide key competitive advantages that are driving shelf space gains and new market opportunities. We are excited to complete the integration of the Boston Group so we can turn our full attention to unlocking the earning power of our combined organizations."

*Boston Group defined as The Original Muck Boot Company, XTRATUF, Servus, NEOS and Ranger brands acquired from Honeywell International, Inc on March 15, 2021.

Third Quarter Review

Third quarter net sales increased 61.4% to $125.5 million compared with $77.8 million in the third quarter of 2020. Third quarter 2021 net sales include $41.6 million in Boston Group net sales.

Wholesale sales for the third quarter increased 70.3% to $96.0 million compared to $56.3 million for the same period in 2020. Retail sales for the third quarter increased 35.3% to $21.8 million compared to $16.1 million for the same period last year. Contract Manufacturing segment sales, which now include contract military sales and private label programs, increased 45.1% to $7.7 million compared to $5.3 million in the third quarter of 2020.

Gross margin in the third quarter of 2021 was $47.0 million, or 37.4% of net sales, compared to $29.8 million, or 38.4% of net sales, for the same period last year. Adjusted gross margin in the third quarter of 2021, which excludes a $0.9 million inventory purchase accounting adjustment, was $47.8 million, or 38.1% of net sales. The 30-basis point decrease to adjusted gross margin was mainly attributable to lower wholesale segment gross margins due to an increase in capitalized manufacturing and sourcing costs associated with the acquired brands and a lower mix of retail segment sales compared with the year ago period, which carry higher gross margins than the wholesale and contract manufacturing segments. (See below for a reconciliation of GAAP financial measures to non-GAAP financial measures).

Operating expenses were $44.2 million, or 35.2% of net sales, for the third quarter of 2021 compared to $20.2 million, or 25.9% of net sales, for the same period a year ago. Excluding $2.9 million in acquisition related amortization and integration expenses, third quarter 2021 operating expenses were $41.3 million, or 32.9% of net sales. The increase in operating expenses was driven primarily by the expenses associated with the acquired brands.

Income from operations for the third quarter of 2021 was $2.8 million, or 2.2% of net sales compared to $9.7 million or 12.4% of net sales for the same period a year ago. Adjusted operating income for the third quarter of 2021 was $6.5 million, or 5.2% of net sales.

Interest expense for the third quarter of 2021 was $3.4 million compared with $87,000 a year ago. The increase reflected interest payments on the senior term loan and credit facility used to finance the Boston Group acquisition.

The Company reported third quarter a net loss of $0.4 million, or $(0.05) per diluted share compared to net income of $7.6 million, or $1.04 per diluted share in the third quarter of 2020. Adjusted net income for the third quarter of 2021, was $2.5 million, or $0.34 per diluted share.

Balance Sheet Review

Cash and cash equivalents were $12.9 million at September 30, 2021 compared to $19.9 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 Boston Group acquisition.

Total debt at September 30, 2021 was $238.8 million consisting of $130 million senior term loan and borrowings under the Company's senior secured asset-backed credit facility.

Inventory at September 30, 2021 increased to $202.2 million compared to $80.7 million on the same date a year ago. The $121.5 million increase includes approximately $90.9 million in Boston Group inventory and approximately $31 million from orders that did not ship on schedule during the third quarter of 2021.

Conference Call Information

The Company's conference call to review third quarter 2021 results will be broadcast live over the internet today, Tuesday, November 2, 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 quarters ended March 31, 2021 (filed May 6, 2021) and June 30, 2021 (filed August 9, 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)

September December September 30, 31, 30,

2021 2020 2020

ASSETS:

CURRENT ASSETS:

Cash and cash equivalents $ 12,918 $ 28,353 $ 19,947

Trade receivables - net 80,677 48,010 49,188

Contract receivables 1,899 5,170 -

Other receivables 211 364 364

Inventories - net 202,199 77,576 80,655

Income tax receivable 4,220 - -

Prepaid expenses 7,438 3,713 3,611

Total current assets 309,562 163,186 153,765

LEASED ASSETS 2,833 1,572 1,399

PROPERTY, PLANT & EQUIPMENT - net 57,190 33,750 31,325

GOODWILL 49,169 - -

IDENTIFIED INTANGIBLES - net 127,116 30,209 30,216

OTHER ASSETS 952 374 355

TOTAL ASSETS $ 546,822 $ 229,091 $ 217,060



LIABILITIES AND SHAREHOLDERS' EQUITY:

CURRENT LIABILITIES:

Accounts payable $ 85,100 $ 20,090 $ 23,834

Contract liabilities 1,899 5,582 -

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

Accrued expenses:

Salaries and wages 6,409 4,463 3,813

Taxes - other 585 893 789

Accrued freight 3,796 911 729

Commissions 898 712 544

Accrued duty 5,243 4,270 4,586

Accrued interest 2,216 - -

Income tax payable - 1,019 422

Other 4,956 2,043 1,563

Total current liabilities 114,352 39,983 36,280

LONG-TERM DEBT 235,506 - -

LONG-TERM TAXES PAYABLE 169 169 169

LONG-TERM LEASE 1,980 944 833

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

DEFERRED LIABILITIES 503 219 238

TOTAL LIABILITIES 360,781 49,586 45,628

SHAREHOLDERS' EQUITY:

Common stock, no par value;

25,000,000 shares authorized; issuedand outstanding September 30, 2021 -7,295,435; December 31, 2020 - 67,662 65,971 66,604 7,247,631; September 30, 2020 -7,276,379

Retained earnings 118,379 113,534 104,828

Total shareholders' equity 186,041 179,505 171,432

TOTAL LIABILITIES AND SHAREHOLDERS' $ 546,822 $ 229,091 $ 217,060 EQUITY

Rocky Brands, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(In thousands, except share amounts)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2021

2020

2021

2020

NET SALES

$

125,507

$

77,785

$

344,776

$

189,691

COST OF GOODS SOLD

78,546

47,952

213,522

121,077

GROSS MARGIN

46,961

29,833

131,254

68,614

OPERATING EXPENSES

44,208

20,175

113,483

54,344

INCOME FROM OPERATIONS

2,753

9,658

17,771

14,270

OTHER EXPENSES

(3,241

)

(55

)

(7,366

)

(112

)

(LOSS) INCOME BEFORE INCOME TAXES

(488

)

9,603

10,405

14,158

INCOME TAX (BENEFIT) EXPENSE

(113

)

1,992

2,393

2,917

NET (LOSS) INCOME

$

(375

)

$

7,611

$

8,012

$

11,241

(LOSS) INCOME PER SHARE

Basic

$

(0.05

)

$

1.04

$

1.10

$

1.54

Diluted

$

(0.05

)

$

1.04

$

1.08

$

1.53

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING

Basic

7,370

7,306

7,304

7,323

Diluted

7,503

7,336

7,436

7,352

Rocky Brands, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(In thousands, except share amounts)

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

NET SALES $ 125,507 $ 77,785 $ 344,776 $ 189,691

COST OF GOODS SOLD 78,546 47,952 213,522 121,077

GROSS MARGIN 46,961 29,833 131,254 68,614



OPERATING EXPENSES 44,208 20,175 113,483 54,344



INCOME FROM OPERATIONS 2,753 9,658 17,771 14,270



OTHER EXPENSES (3,241 ) (55 ) (7,366 ) (112 )



(LOSS) INCOME BEFORE (488 ) 9,603 10,405 14,158 INCOME TAXES



INCOME TAX (BENEFIT) (113 ) 1,992 2,393 2,917 EXPENSE



NET (LOSS) INCOME $ (375 ) $ 7,611 $ 8,012 $ 11,241



(LOSS) INCOME PER SHARE

Basic $ (0.05 ) $ 1.04 $ 1.10 $ 1.54

Diluted $ (0.05 ) $ 1.04 $ 1.08 $ 1.53



WEIGHTED AVERAGE NUMBEROF COMMON SHARES OUTSTANDING



Basic 7,370 7,306 7,304 7,323

Diluted 7,503 7,336 7,436 7,352

Rocky Brands, Inc. and Subsidiaries

Reconciliation of GAAP Measures to Non-GAAP Measures

(In thousands, except share amounts)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2021

2020

2021

2020

GROSS MARGIN

GROSS MARGIN, AS REPORTED

$

46,961

$

29,833

$

131,254

$

68,614

ADD: INVENTORY FAIR VALUE ADJUSTMENT

881

-

3,504

-

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

-

-

-

1,974

ADJUSTED GROSS MARGIN

$

47,842

$

29,833

$

134,758

$

70,588

OPERATING EXPENSES

OPERATING EXPENSES, AS REPORTED

$

44,208

$

20,175

$

113,483

$

54,344

LESS: ACQUISITION RELATED EXPENSES

2,101

-

8,642

-

LESS: ACQUISITION RELATED AMORTIZATION

782

-

1,694

-

ADJUSTED OPERATING EXPENSES

41,325

20,175

103,147

54,344

INCOME FROM OPERATIONS, ADJUSTED

$

6,517

$

9,658

$

31,611

$

16,244

OTHER INCOME AND (EXPENSES)

$

(3,241

)

$

(55

)

$

(7,366

)

$

(112

)

NET INCOME

NET INCOME, AS REPORTED

$

(375

)

$

7,611

$

8,012

$

11,241

ADD: TOTAL NON-GAAP ADJUSTMENTS

3,764

-

13,840

1,974

LESS: TAX IMPACT OF ADJUSTMENTS

(872

)

-

(3,183

)

(404

)

ADJUSTED NET INCOME

$

2,517

$

7,611

$

18,669

$

12,811

NET INCOME PER SHARE, AS REPORTED

BASIC

$

(0.05

)

$

1.04

$

1.10

$

1.54

DILUTED

$

(0.05

)

$

1.04

$

1.08

$

1.53

ADJUSTED NET INCOME PER SHARE

BASIC

$

0.34

$

1.04

$

2.56

$

1.75

DILUTED

$

0.34

$

1.04

$

2.51

$

1.74

WEIGHTED AVERAGE SHARES OUTSTANDING

BASIC

7,370

7,306

7,304

7,323

DILUTED

7,503

7,336

7,436

7,352

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 Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

GROSS MARGIN

GROSS MARGIN, AS REPORTED $ 46,961 $ 29,833 $ 131,254 $ 68,614

ADD: INVENTORY FAIR VALUE 881 - 3,504 - ADJUSTMENT

ADD: MANUFACTURINGEXPENSES RELATED TO - - - 1,974 COVID-19 CLOSURES/SUPPLIES

ADJUSTED GROSS MARGIN $ 47,842 $ 29,833 $ 134,758 $ 70,588



OPERATING EXPENSES

OPERATING EXPENSES, AS $ 44,208 $ 20,175 $ 113,483 $ 54,344 REPORTED

LESS: ACQUISITION RELATED 2,101 - 8,642 - EXPENSES

LESS: ACQUISITION RELATED 782 - 1,694 - AMORTIZATION

ADJUSTED OPERATING 41,325 20,175 103,147 54,344 EXPENSES



INCOME FROM OPERATIONS, $ 6,517 $ 9,658 $ 31,611 $ 16,244 ADJUSTED





OTHER INCOME AND $ (3,241 ) $ (55 ) $ (7,366 ) $ (112 )(EXPENSES)



NET INCOME

NET INCOME, AS REPORTED $ (375 ) $ 7,611 $ 8,012 $ 11,241

ADD: TOTAL NON-GAAP 3,764 - 13,840 1,974 ADJUSTMENTS

LESS: TAX IMPACT OF (872 ) - (3,183 ) (404 )ADJUSTMENTS

ADJUSTED NET INCOME $ 2,517 $ 7,611 $ 18,669 $ 12,811



NET INCOME PER SHARE, AS REPORTED

BASIC $ (0.05 ) $ 1.04 $ 1.10 $ 1.54

DILUTED $ (0.05 ) $ 1.04 $ 1.08 $ 1.53



ADJUSTED NET INCOME PER SHARE

BASIC $ 0.34 $ 1.04 $ 2.56 $ 1.75

DILUTED $ 0.34 $ 1.04 $ 2.51 $ 1.74



WEIGHTED AVERAGE SHARES OUTSTANDING

BASIC 7,370 7,306 7,304 7,323

DILUTED 7,503 7,336 7,436 7,352

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 adjustment Definition Usefulness to managementor measure and investors

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 inventory of the acquiredvalue adjustments performance and lifestyle business. These adjustments footwear business of facilitate a useful Honeywell International, Inc. evaluation of our current as 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 Manufacturing expenses non-GAAP measures because related to COVID-19 are costs these costs do not reflectManufacturing related to the overhead, our core operatingexpenses related to payroll expenses and supplies performance. TheseCOVID-19 incurred during the temporary adjustments facilitate a closure of our manufacturing useful evaluation of our facilities due to COVID-19. core operating performance 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 not banking fees, legal fees, reflect our currentAcquisition-related transaction fees, integration operating performance.integration costs and consulting fees These adjustmentsexpenses tied to the acquisition of facilitate a useful the performance and lifestyle evaluation of our current footwear business of operating performance and Honeywell International, Inc. comparisons to past operating results and provide investors with additional means to evaluate expense trends.

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

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CONTACT: Company Contact: Tom Robertson Chief Financial Officer (740) 753-9100

CONTACT: Investor Relations: Brendon Frey ICR, Inc. (203) 682-8200