ROCKY BRANDS INC

Previous wording

During the second quarter of 2024, we amended and restated our Original ABL Facility which resulted in a restated $175.0 million revolving credit facility and a new $50.0 million term facility. The proceeds from this transaction were used to retire our existing senior secured term loan facility with TCW Asset Management Company, LLC as of April 26, 2024. This transaction resulted in an expense of $2.6 million, consisting of a loss on extinguishment of term debt in the amount of $1.1 million and a $1.5 million prepayment penalty, which are included in Interest Expense and Other - net within the Unaudited Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2024. See Note 10 - Long Term Debt to the Unaudited Condensed Consolidated Financial Statements for further information regarding our long-term debt.

Current wording

During the first nine months of 2024, we amended and restated our Original ABL Facility which resulted in a restated $175.0 million revolving credit facility and a new $50.0 million term facility. The proceeds from this transaction were used to retire our existing senior secured term loan facility with TCW Asset Management Company, LLC as of April 26, 2024. This transaction resulted in an expense of $2.6 million, consisting of a loss on extinguishment of term debt in the amount of $1.1 million and a $1.5 million prepayment penalty, which are included in Interest Expense and Other - net within the Unaudited Condensed Consolidated Statements of Operations for the nine months ended September 30, 2024. See Note 10 - Long Term Debt to the Unaudited Condensed Consolidated Financial Statements for further information regarding our long-term debt.

Previous wording

During the first quarter of 2023, we divested the Servus brand. The gain of approximately $1.3 million on the sale of the Servus brand was recorded within Interest Expense and Other - net in the Unaudited Condensed Consolidated Statements of Operations for the six months ended June 30, 2023. Following the sale of the Servus brand, we manufactured Servus product on behalf of the buyer, pursuant to a transition services agreement. These sales were recorded within our Contract Manufacturing reporting segment and are not expected to recur on an ongoing basis. The Servus brand was sold to allow us to focus on our more profitable core brands and allocate resources toward growth and development of additional opportunities with those brands moving forward.

Current wording

During the first quarter of 2023, we divested the Servus brand. The gain of approximately $1.3 million on the sale of the Servus brand was recorded within Interest Expense and Other - net in the Unaudited Condensed Consolidated Statements of Operations for the nine months ended September 30, 2023. Following the sale of the Servus brand, we manufactured Servus product on behalf of the buyer, pursuant to a transition services agreement. These sales were recorded within our Contract Manufacturing reporting segment and are not expected to recur on an ongoing basis. The Servus brand was sold to allow us to focus on our more profitable core brands and allocate resources toward growth and development of additional opportunities with those brands moving forward.

Previous wording

In 2023, we were also awarded a new multi-year contract with the U.S. Military pursuant to which we will produce and ship a minimum numbers of pairs to the U.S. Military through 2026, with the option to extend. The sales under this contract are included in our Contract Manufacturing reporting segment. The first quarter of 2024 was the first full quarter in which shipments were made to the U.S. Military under this multi-year contract.

Current wording

In 2023, we were also awarded a new multi-year contract with the U.S. Military pursuant to which we will produce and ship a minimum number of pairs to the U.S. Military through 2026, with the option to extend. The sales under this contract are included in our Contract Manufacturing reporting segment. The first quarter of 2024 was the first full quarter in which shipments were made to the U.S. Military under this multi-year contract.

Previous wording

SECOND QUARTER 2024 FINANCIAL HIGHLIGHTS COMPARED TO SECOND QUARTER 2023

Current wording

THIRD QUARTER 2024 FINANCIAL HIGHLIGHTS COMPARED TO THIRD QUARTER 2023

Previous wording

During the three and six months ended June 30, 2024, compared to the same periods last year, our Wholesale segment sales decreased while our Retail segment sales increased, particularly driven by an increase in our branded e-Commerce website sales. Additionally, our Contract Manufacturing segment sales increased despite a decrease in private label contract sales during the three and six months ended June 30, 2024 due to the aforementioned newly awarded contract with the U.S. Military. These factors combined with an uptick in Wholesale gross margin resulted in increased gross margin for both the three and six months ended June 30, 2024 compared to the prior year periods. As a result of cost saving measures and operational efficiencies from strategic restructuring initiatives implemented over the past year, we also saw a reduction in operating expenses as a percentage of net sales. The decline in operating expenses coupled with increased margin led to increased operating income for both the three and six months ended June 30, 2024 compared to the prior year periods.

Current wording

During the three and nine months ended September 30, 2024, compared to the same periods last year, our Wholesale segment sales decreased, due to certain nonrecurring sales, while our Retail segment sales increased, due to an increase in sales under our Lehigh CustomFit platform. Additionally, our Contract Manufacturing segment sales increased despite a decrease in private label contract sales during the three and nine months ended September 30, 2024, due to the U.S. Military contract awarded in the fourth quarter of 2023. These factors combined with an increase in Wholesale gross margin resulted in an overall increase in gross margin for both the three and nine months ended September 30, 2024 compared to the prior year periods.

Previous wording

Second quarter net sales decreased 1.6% to $98.3 million compared with $99.8 million in the second quarter of 2023. The change in net sales was attributable to a $3.2 million decrease in Wholesale net sales, a $1.0 million increase in Retail net sales and a $0.6 million increase in Contract Manufacturing net sales.

Current wording

Net sales decreased 8.8% to $114.6 million in the third quarter of 2024 compared to $125.6 million in the third quarter of 2023. The decline in net sales for the quarter ended September 30, 2024 over the prior year period was attributable to a decrease in Wholesale net sales, partially offset by an increase in Retail and Contract Manufacturing net sales.

Previous wording

Gross margin in the second quarter of 2024 was $38.0 million, or 38.7% of net sales, compared to $37.6 million, or 37.6% of net sales, for the same period last year. The 110-basis point increase in gross margin as a percentage of net sales was due to an increase of 200-basis points in Wholesale gross margin as well as a higher percentage of Retail net sales, which carry higher gross margins than our Wholesale and Contract Manufacturing segments.

Current wording

Gross margin in the third quarter of 2024 was $43.6 million, or 38.1% of net sales, compared to $46.5 million, or 37.0% of net sales, for the same period last year. The increase in gross margin as a percentage of net sales was due to Wholesale product mix as well as a higher percentage of Retail net sales, which carry higher gross margins than our Wholesale and Contract Manufacturing segments.

Previous wording

Income from operations for the second quarter of 2024 was $4.5 million, or 4.6% of net sales compared to $2.2 million or 2.2% of net sales for the same period a year ago. The increase in income from operations was primarily driven by an increase in gross margin in the current year period combined with a decrease in operating expenses.

Current wording

Income from operations for the third quarter of 2024 was $10.1 million, or 8.8% of net sales, compared to $14.3 million, or 11.3% of net sales, for the same period a year ago. The decrease in income from operations was primarily driven by a decrease in net sales and increase in operating expenses offset by an increase in gross margin in the current year period.

Previous wording

Gross margin in the second half of 2024 and 2023 was $82.1 million, or 38.9% of net sales and $81.3 million, or 38.7% of net sales, respectively. The increase in gross margin as a percent of sales was mainly attri butable to increased Retail net sales which carry higher gross margins than the Wholesale and Contract Manufacturing segments.

Current wording

Gross margin for the nine months ended September 30, 2024 was $125.8 million or 38.6% of net sales compared to $127.9 million or 38.1% of net sales for the nine months ended September 30, 2023. The increase in gross margin as a percentage of net sales was due to Wholesale product mix as well as a higher percentage of Retail net sales, which carry higher gross margins than our Wholesale and Contract Manufacturing segments.

Previous wording

FIRST HALF OF 2024 FINANCIAL HIGHLIGHTS COMPARED TO FIRST HALF OF 2023

Current wording

Operating expenses for the nine months ended September 30, 2024 were $103.3 million, or 31.7% of net sales, compared to $107.2 million, or 31.9% of net sales, for the prior year period. The decrease in operating expenses as a percentage of sales for the nine months ended September 30, 2024 was primarily due to restructuring and cost-savings achieved from initiatives implemented during the first half of 2023.

Previous wording

Income from operations for the six months ended June 30, 2024 was $12.5 million or 5.9% of net sales compared to $6.4 million or 3.0% of net sales for the same period a year ago. The increase in income from operations was primarily driven by an increase in gross margin in the current year period combined with a reduction in operating expenses.

Current wording

Income from operations for the first nine months of 2024 was $22.6 million, or 6.9% of net sales, compared to $20.6 million, or 6.2% of net sales, for the same period a year ago. The increase in income from operations was primarily driven by a decrease in operating expenses and an increase in gross margin as a percent of net sales in the current year period.

Previous wording

Contract Manufacturing net sales for the three months ended June 30, 2024 were $3.9 million compared to $3.3 million for the three months ended June 30, 2023. The increase was due to a multi-year contract awarded with the U.S. Military in the fourth quarter of 2023.

Current wording

Contract Manufacturing net sales for the three months ended September 30, 2024 were $3.8 million compared to $1.4 million for the three months ended September 30, 2023. The increase was due to a multi-year contract awarded with the U.S. Military in the fourth quarter of 2023.

Previous wording

Contract Manufacturing gross margin for the three months ended June 30, 2024 was $0.4 million, or 9.6% of net sales, compared to $0.2 million, or 5.4% of net sales for the three months ended June 30, 2023. The increase in gross margin was driven by increased sales to the U.S. Military which carried higher margins than private label sales.

Current wording

Contract Manufacturing gross margin for the three months ended September 30, 2024 was $0.4 million, or 12.0% of net sales, compared to $0.2 million, or 11.5% of net sales, for the three months ended September 30, 2023. The increase in gross margin was driven by increased sales to the U.S. Military which carried higher margins than private label sales.

Previous wording

The increase in our effective tax rate in the second quarter of 2024 compared to the same year ago period was primarily driven by a shift in the mix of the Company's domestic and foreign earnings.

Current wording

The increase in our effective tax rate in the third quarter of 2024 compared to the same year ago period was primarily driven by a shift in the mix of the Company's domestic and foreign earnings.

Previous wording

Wholesale net sales for thesix months ended June 30, 2024 were $148.1 million compared to $151.5 million for thesix months ended June 30, 2023. The decrease in Wholesale salesfor thesix months ended June 30, 2024 was primarily due to the sale of the Servus brand in March 2023 as well as non-recurring commercial military sales to a single customer in the second quarter of 2023 that were not repeated in the current year period.

Current wording

Wholesale net sales for thenine months ended September 30, 2024 were $232.1 million compared to $251.2 million for thenine months ended September 30, 2023. The decline in net sales from the year ago period was primarily due to the sale of the Servus brand in March 2023, the change to our distributor model in Canada in November 2023 and temporarily elevated commercial military footwear sales to a single customer throughout 2023.

Previous wording

Retail net sales for thesix months ended June 30, 2024 were $56.5 million compared to $54.6 million for thesix months ended June 30, 2023. The increase in Retail net sales was primarily due to growth in our e-commerce business as we focused on our targeted marketing efforts, primarily through digital marketing. This led to increased brand awareness and allowed us to engage more directly with consumers, which resulted in increased traffic on our branded websites and increased sales for thesix months ended June 30, 2024 compared to the prior year ago period.

Current wording

Retail net sales for thenine months ended September 30, 2024 were $83.3 million compared to $79.1 million for thenine months ended September 30, 2023. The increase in Retail net sales was due to increased sales in our Lehigh CustomFit platform as we continue to expand our customer base and offerings to current customers. Additionally, we experienced growth in our e-commerce business during the nine months ended September 30, 2024 as we focused on our targeted marketing efforts, primarily through digital marketing. This led to increased brand awareness and allowed us to engage more directly with consumers, which resulted in increased traffic on our branded websites and increased sales for thenine months ended September 30, 2024 compared to the prior year ago period.

Previous wording

Contract Manufacturing net sales for thesix months ended June 30, 2024 were $6.6 million compared to $4.2 million for thesix months ended June 30, 2023. The increase was due to a multi-year contract awarded with the U.S. Military in the fourth quarter of 2023.

Current wording

Contract Manufacturing net sales for thenine months ended September 30, 2024 were $10.3 million compared to $5.5 million for thenine months ended September 30, 2023. The increase was due to a multi-year contract awarded with the U.S. Military in the fourth quarter of 2023.

Previous wording

Wholesale gross margin for thesix months ended June 30, 2024 was $54.5 million, or 36.8% of net sales, compared to $54.5 million, or 36.0% of net sales for thesix months ended June 30, 2023. The increase in Wholesale gross margin as a percent of sales was due to the divestiture of the Servus brand in March 2023, which carried lower gross margins than the rest of our product portfolio, as well as product mix. The increase in reported gross margin for the current year period was partially offset by a $1.3 million net tariff refund received in the first quarter of 2023.

Current wording

Wholesale gross margin for thenine months ended September 30, 2024 was $86.0 million, or 37.0% of net sales, compared to $89.1 million, or 35.5% of net sales, for thenine months ended September 30, 2023. The increase in Wholesale gross margin as a percent of net sales was due to the divestiture of the Servus brand in March 2023, which carried lower gross margins than the rest of our product portfolio, as well as product mix. The increase in reported gross margin for the current year period was partially offset by a $1.3 million net tariff refund received in the first quarter of 2023.

Previous wording

Retail gross margin for thesix months ended June 30, 2024 was $27.0 million, or 47.8% of net sales, compared to $26.6 million, or 48.7% of net sales for thesix months ended June 30, 2023. The decrease in gross margin as a percent of sales was mainly attri butable to product mix combined with enhanced promotional efforts on our branded e-Commerce websites as we continue to optimize our inventory levels.

Current wording

Retail gross margin for thenine months ended September 30, 2024 was $38.7 million, or 46.5% of net sales, compared to $38.4 million, or 48.5% of net sales, for thenine months ended September 30, 2023. The decrease in gross margin as a percent of net sales was due to an increase in Lehigh sales as a percent of total Retail sales, which typically carry a lower margin as well asenhanced promotional efforts on our branded e-commerce websites as we continue to optimize our inventory levels.

Previous wording

Contract Manufacturing gross margin for thesix months ended June 30, 2024 was $0.7 million, or 10.4% of net sales, compared to $0.2 million, or 6.0% of net sales for thesix months ended June 30, 2024. The increase in gross margin was driven by increased sales with the U.S. Military which carried higher margins than sales private label sales.

Current wording

Contract Manufacturing gross margin for thenine months ended September 30, 2024 was $1.1 million, or 11.0% of net sales, compared to $0.4 million, or 7.3% of net sales, for thenine months ended September 30, 2023. The increase in gross margin was driven by increased sales with the U.S. Military which carried higher margins than sales private label sales.

Previous wording

Operating expenses for thesix months ended June 30, 2024 were $69.7 million or 33.0% of net sales compared to $75.0 million, or 35.7% of net sales for thesix months ended June 30, 2023. The reduction in operating expenses during thesix months ended June 30, 2024 compared to the year ago period was primarily attributable to restructuring and cost-savings initiatives implemented in 2023 as well as lower outbound freight costs.

Current wording

Operating expenses for thenine months ended September 30, 2024 were $103.3 million, or 31.7% of net sales, compared to $107.2 million, or 31.9% of net sales, for thenine months ended September 30, 2023. The reduction in operating expenses during thenine months ended September 30, 2024 compared to the year ago period was primarily attributable to restructuring and cost-savings initiatives implemented in 2023 as well as lower outbound freight costs.

Previous wording

The increase in our effective tax rate for thesix months ended June 30, 2024 compared to the same year ago period was primarily driven by a shift in the mix of the Company's domestic and foreign earnings.

Current wording

The increase in our effective tax rate for thenine months ended September 30, 2024 compared to the same year ago period was primarily driven by a shift in the mix of the Company's domestic and foreign earnings.

Previous wording

During thesix months ended June 30, 2024, our primary use of cash was payments on our credit facilities. Our working capital consists primarily of trade receivables and inventory, offset by short-term debt and accounts payable. Our working capital fluctuates throughout the year as a result of our seasonal business cycle and business expansion and is generally lowest in the months of January through March of each year and highest during the months of May through October of each year. We typically utilize our revolving credit facility to fund our seasonal working capital requirements. As a result, balances on our revolving credit facility can fluctuate significantly throughout the year.

Current wording

During thenine months ended September 30, 2024, our primary use of cash was payments on our credit facilities. Our working capital consists primarily of trade receivables and inventory, offset by short-term debt and accounts payable. Our working capital fluctuates throughout the year as a result of our seasonal business cycle and business expansion and is generally lowest in the months of January through March of each year and highest during the months of May through October of each year. We typically utilize our revolving credit facility to fund our seasonal working capital requirements. As a result, balances on our revolving credit facility can fluctuate significantly throughout the year.

Previous wording

Our capital expenditures relate primarily toprojects relating to our corporate offices, property, merchandising fixtures, molds and equipment associated with our manufacturing and distribution operations and for information technology. Capital expenditures were $2.4 million and $2.3 million for thesix months ended June 30, 2024 and 2023, respectively.

Current wording

Our capital expenditures relate primarily toprojects relating to our offices, property, merchandising fixtures, molds and equipment associated with our manufacturing and distribution operations and for information technology.

Previous wording

*Operating Activities.*Net cash provided by operating activities for thesix months ended June 30, 2024 and 2023 was $23.9 million and $19.7 million, respectively. Adjusting for non-cash items, net income provided a cash in-flow of $10.5 million and $2.7 million for thesix months ended June 30, 2024 and 2023, respectively. The net change in working capital and other assets and liabilities resulted in an increase to cash provided by operating activities of $13.4 million for thesix months ended June 30, 2024 compared to an increase of $17.0 million for the six months ended June 30, 2023.

Current wording

*Operating Activities.*Net cash provided by operating activities for thenine months ended September 30, 2024 and 2023 was $28.4 million and $31.1 million, respectively. Adjusting for non-cash items, net income provided a cash in-flow of $20.0 million and $12.9 million for thenine months ended September 30, 2024 and 2023, respectively. The net change in working capital and other assets and liabilities resulted in an increase to cash provided by operating activities of $8.3 million for thenine months ended September 30, 2024, compared to an increase of $18.3 million for the nine months ended September 30, 2023.

Previous wording

An increase in inventory resulted in a use ofcash of $5.8 million for thesix months ended June 30, 2024 compared to a decrease of inventory and a source of cash of $10.9 million for thesix months ended June 30, 2023. The rise in inventory in 2024 was driven by an increase in in-transit inventory at quarter-end as we optimize inventory levels in preparation the second half of the year. The decrease in inventory in 2023 was a result of efforts to reduce inventory levels to better align our inventory levels with supply needs.

Current wording

An increase in inventory resulted in a use ofcash of $2.6 million for thenine months ended September 30, 2024 compared to a decrease of inventory and a source of cash of $34.5 million for thenine months ended September 30, 2023. The rise in inventory in 2024 was driven by an increase in in-transit inventory at quarter-end as we optimize inventory levels in preparation for the fourth quarter and holiday season. The decrease in inventory in 2023 was a result of efforts to reduce inventory levels to better align our inventory levels with supply needs.

Previous wording

Changes in accounts payable resulted in a source of cash of $7.1 million for thesix months ended June 30, 2024 compared to a use of cash of $10.1 million for thesix months ended June 30, 2023. The change in accounts payable was mainly attributable to the change in purchases resulting in the continuous improvement of our inventory levels and inventory optimization in both years.

Current wording

Changes in accounts payable resulted in a source of cash of $12.4 million for thenine months ended September 30, 2024 compared to a use of cash of $8.4 million for thenine months ended September 30, 2023. The change in accounts payable was mainly attributable to the change in purchases resulting in the continuous improvement of our inventory levels and inventory optimization in both years.

Previous wording

Investing Activities. Net cash used in investing activities for thesix months ended June 30, 2024 was $0.4 million, compared to net cash provided by investing activities of $15.6 million for the same period in 2023. We invested $2.1 million and $1.7 million in capital expenditures for our manufacturing operations and information technology during thesix months ended June 30, 2024 and 2023, respectively. These investments were offset by proceeds from the sale of the Servus brand, totaling $1.7 million in the six months ended June 30, 2024 and $17.3 million in the six months ended June 30, 2023.

Current wording

Investing Activities. Net cash used in investing activities for thenine months ended September 30, 2024 was $1.5 million, compared to net cash provided by investing activities of $14.4 million for the same period in 2023. We inve sted $3.2 million and $2.9 million in capital expenditures for our manufacturing operations and information technology during thenine months ended September 30, 2024 and 2023, respectively. These investments were offset by proceeds from the sale of the Servus brand, totaling $1.7 million in thenine months ended September 30, 2024 and $17.3 million in thenine months ended September 30, 2023.

Previous wording

Financing Activities. Net cash used in financing activities for thesix months ended June 30, 2024 and 2023 was$23.8 million and $37.9 million, respectively. The use of cash primarily related to payments on our revolving credit facility and term debt, which totaled $20.1 million and $35.6 million for thesix months ended June 30, 2024 and 2023, respectively.

Current wording

Financing Activities. Net cash used in financing activities for thenine months ended September 30, 2024 and 2023 was$27.7 million and $47.0 million, respectively. The use of cash primarily related to payments on our revolving credit facility and term debt for thenine months ended September 30, 2024 and 2023, respectively.

Previous wording

This report, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, 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 our and management’s intent, belief, and expectations, such as statements concerning our future profitability and our operating and growth strategy. Words such as “believe,” “anticipate,” “expect,” “will,” “may,” “should,” “intend,” “plan,” “estimate,” “predict,” “potential,” “continue,” “likely,” “would,” “could” and similar expressions are intended to identify forward-looking statements. Investors are cautioned that forward-looking statements involve risk and uncertainties including, without limitations, dependence on sales forecasts, changes in consumer demand, seasonality, impact of weather, competition, reliance on suppliers, risks inherent to international trade, changing retail trends, the loss or disruption of our manufacturing and distribution operations, cybersecurity breaches or disruption of our digital systems, fluctuations in foreign currency exchange rates, economic changes, as well as other factors set forth under the caption “Item 1A, Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023 (filed March 15, 2024) and the Quarterly Report on Form 10-Q for the quarter ended March 31, 2024 (filed May 9, 2024), and other factors detailed from time to time in our filings with the Securities and Exchange Commission. Although we believe that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate. Therefore, there can be no assurance that the forward-looking statements included herein 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 by us or any other person that our objectives and plans will be achieved. We assume no obligation to update any forward-looking statements.

Current wording

This report, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, 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 our and management’s intent, belief, and expectations, such as statements concerning our future profitability and our operating and growth strategy. Words such as “believe,” “anticipate,” “expect,” “will,” “may,” “should,” “intend,” “plan,” “estimate,” “predict,” “potential,” “continue,” “likely,” “would,” “could” and similar expressions are intended to identify forward-looking statements. Investors are cautioned that forward-looking statements involve risk and uncertainties including, without limitations, dependence on sales forecasts, changes in consumer demand, seasonality, impact of weather, competition, reliance on suppliers, risks inherent to international trade, changing retail trends, the loss or disruption of our manufacturing and distribution operations, cybersecurity breaches or disruption of our digital systems, fluctuations in foreign currency exchange rates, economic changes, as well as other factors set forth under the caption “Item 1A, Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023 (filed March 15, 2024) and the Quarterly Reports on Form 10-Q for the quarter ended March 31, 2024 (filed May 9, 2024) and June 30, 2024 (filed August 8, 2024), and other factors detailed from time to time in our filings with the Securities and Exchange Commission. Although we believe that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate. Therefore, there can be no assurance that the forward-looking statements included herein 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 by us or any other person that our objectives and plans will be achieved. We assume no obligation to update any forward-looking statements.