# Rocky Brands, Inc.: Form 10-Q for the period ended Sep 30, 2024

- Company: [Rocky Brands, Inc.](/companies/rcky.md) (CIK 895456)
- Form: 10-Q
- Filed: 2024-11-12
- Accepted by EDGAR: Nov 12, 2024, 09:30 ET
- Period: 2024-09-30
- Accession: 0001437749-24-034368
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/895456/000143774924034368/rcky20240930_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/895456/000143774924034368/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-07-01 to 2024-09-30 | $114.6m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Revenue | 9 months, 2024-01-01 to 2024-09-30 | $325.7m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Cost of revenue | 3 months, 2024-07-01 to 2024-09-30 | $70.9m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2024-01-01 to 2024-09-30 | $199.9m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2024-07-01 to 2024-09-30 | $43.6m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2024-01-01 to 2024-09-30 | $125.8m | us-gaap:GrossProfit |
| Operating income | 3 months, 2024-07-01 to 2024-09-30 | $10.1m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2024-01-01 to 2024-09-30 | $22.6m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2024-07-01 to 2024-09-30 | $1.6m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2024-01-01 to 2024-09-30 | $2.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-07-01 to 2024-09-30 | $5.3m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2024-01-01 to 2024-09-30 | $6.6m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-07-01 to 2024-09-30 | $0.70 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2024-01-01 to 2024-09-30 | $0.88 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-07-01 to 2024-09-30 | $0.71 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2024-01-01 to 2024-09-30 | $0.89 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-07-01 to 2024-09-30 | 7,503,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2024-01-01 to 2024-09-30 | 7,479,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2024-01-01 to 2024-09-30 | $28.4m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2024-01-01 to 2024-09-30 | $3.2m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 9 months, 2024-01-01 to 2024-09-30 | $3.5m | us-gaap:PaymentsOfDividends |
| Cash and equivalents | at 2024-09-30 | $3.7m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-09-30 | $258.1m | us-gaap:AssetsCurrent |
| Total assets | at 2024-09-30 | $475.0m | us-gaap:Assets |
| Current liabilities | at 2024-09-30 | $92.4m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-09-30 | $246.8m | us-gaap:Liabilities |
| Long-term debt | at 2024-09-30 | $141.9m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2024-09-30 | $8.4m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2024-09-30 | $228.3m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 27,360 characters.

### OVERVIEW

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.

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.

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.

### THIRD QUARTER 2024 FINANCIAL HIGHLIGHTS COMPARED TO THIRD QUARTER 2023

- **Net sales decreased 8.8% to $114.6 million;**
- **Gross margin increased 110 basis points to 38.1%;**
- **Inventory decreased 11.8% to $171.8 million as of September 30, 2024; and**
- **Total debt decreased 29.7% to $150.3 million as of September 30, 2024.**

### YEAR TO DATE 2024 FINANCIAL HIGHLIGHTS COMPARED TO YEAR TO DATE 2023

- **Net sales decreased 3.0% to $325.7 million;**
- **Gross margin increased 60 basis points to 38.6% for the; and**
- **Operating income as a percentage of net sales increased 80 basis points to $22.6 million.**

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.

### RESULTS OF OPERATIONS

The following tables set forth, for the periods indicated, information derived from our Unaudited Condensed Consolidated Financial Statements. The discussion that follows each table should be read in conjunction with our Unaudited Condensed Consolidated Financial Statements as well as our Annual Report on Form 10-K for the year ended December 31, 2023.

*($ in thousands)*

|  | Three Months Ended September 30, 2024 | 2023 | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Net sales | $114,554 | $125,614 | $325,718 | $335,881 |
| Cost of goods sold | 70,908 | 79,076 | 199,886 | 208,012 |
| Gross margin | 43,646 | 46,538 | 125,832 | 127,869 |
| Operating expenses | 33,575 | 32,259 | 103,271 | 107,233 |
| Income from operations | $10,071 | $14,279 | $22,561 | $20,636 |

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.

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.

Operating expenses for the three months ended September 30, 2024 were $33.6 million, or 29.3% of net sales, compared to $32.3 million, or 25.7% of net sales, for the three months ended September 30, 2023. The increase in operating expenses in the third quarter of 2024 compared to the third quarter of 2023 was primarily attributable to incremental brand building and advertising programs to support future growth.

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.

Net sales decreased 3.0% to $325.7 million for the nine months ended September 30, 2024 compared to $335.9 million for the nine months ended September 30, 2023. The decline in net sales in the current year 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.

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.

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.

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.

### Three Months Ended September 30, 2024 compared to Three Months Ended September 30, 2023

*($ in thousands)*

| NET SALES: | Three Months Ended September 30, 2024 | 2023 | Inc./ (Dec.) | Inc./ (Dec.) |
| --- | ---: | ---: | ---: | ---: |
| Wholesale | $84,033 | $99,716 | $(15,683) | (15.7)% |
| Retail | 26,771 | $24,523 | 2,248 | 9.2 |
| Contract Manufacturing | 3,750 | $1,375 | 2,375 | 172.7 |
| Total Net Sales | $114,554 | $125,614 | $(11,060) | (8.8)% |

Wholesale net sales for the three months ended September 30, 2024 were $84.0 million compared to $99.7 million for the three months ended September 30, 2023. The decrease in net sales in the current year period was attributed to non-recurring sales following the change to a distributor model in Canada in November 2023 and temporarily elevated commercial military footwear sales to a single customer throughout 2023. In addition to the aforementioned non-recurring sales, the decrease in Wholesale sales can be attributed to a more mild climate in the third quarter of 2024 compared to the prior year quarter as well as lean inventory on some key styles in the current period.

Retail net sales for the three months ended September 30, 2024 were $26.8 million compared to $24.5 million for the three months ended September 30, 2023. The increase in Retail net sales for the third quarter of 2024 was due to increased sales in our Lehigh CustomFit platform as a result of completing a realignment of our sales organization which allowed us to expand our customer base and increase offerings to current customers.

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.

*($ in thousands)*

| GROSS MARGIN: | Three Months Ended September 30, 2024 | 2023 | Inc./ (Dec.) |
| --- | ---: | ---: | ---: |
| Wholesale Margin $'s | $31,514 | $34,599 | $(3,085) |
| Margin % | 37.5% | 34.7% | 2.8% |
| Retail Margin $'s | $11,683 | $11,781 | $(98) |
| Margin % | 43.6% | 48.0% | (4.4)% |
| Contract Manufacturing Margin $'s | $449 | $158 | $291 |
| Margin % | 12.0% | 11.5% | 0.5% |
| Total Margin $'s | $43,646 | $46,538 | $(2,892) |
| Margin % | 38.1% | 37.0% | 1.1% |

Wholesale gross margin for the three months ended September 30, 2024 was $31.5 million, or 37.5% of net sales, compared to $34.6 million, or 34.7% of net sales, for the three months ended September 30, 2023. The higher Wholesale gross margins in the third quarter of 2024 compared to the third quarter 2023 was attributable to lower promotional activity in the current year period as well as opportunistic sales to certain international and key wholesale partners in the third quarter of 2023, which contributed to lower gross margins in the prior year period.

Retail gross margin for the three months ended September 30, 2024 was $11.7 million, or 43.6% of net sales, compared to $11.8 million, or 48.0% of net sales, for the three months ended September 30, 2023. The decrease in gross margin as a percent of net sales was attributable to our Lehigh CustomFit platform having a higher percentage of total retail sales than our e-commerce branded websites, which carry lower margin than our branded e-commerce websites.

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.

*($ in thousands)*

|  | Three Months Ended September 30, 2024 | 2023 | Inc./ (Dec.) | Inc./ (Dec.) |
| --- | ---: | ---: | ---: | ---: |
| OPERATING EXPENSES | $33,575 | $32,259 | $1,316 | 4.1% |
| % of Net Sales | 29.3% | 25.7% | 3.6% |  |

Operating expenses for the three months ended September 30, 2024 were $33.6 million or 29.3% of net sales compared to $32.3 million, or 25.7% of net sales for the three months ended September 30, 2023. This increase in operating expenses was primarily attributable to incremental brand building and advertising programs to support future growth.

*($ in thousands)*

|  | Three Months Ended September 30, 2024 | 2023 | Inc./ (Dec.) | Inc./ (Dec.) |
| --- | ---: | ---: | ---: | ---: |
| INTEREST EXPENSE AND OTHER - net | $(3,180) | $(5,649) | $(2,469) | (43.7)% |

Interest Expense and Other - net for the three months ended September 30, 2024 was $3.2 million compared to $5.6 million in the year ago period. The decrease in interest expense was a result of lower debt levels and lower interest rates in the third quarter of 2024 compared to the third quarter of 2023. The lower interest rates can be attributed to the refinance completed in the second quarter of 2024.

*($ in thousands)*

|  | Three Months Ended September 30, 2024 | 2023 | Inc./ (Dec.) | Inc./ (Dec.) |
| --- | ---: | ---: | ---: | ---: |
| Income Tax Expense | $1,612 | $1,803 | $(191) | (10.6)% |
| Effective Tax Rate | 23.4% | 20.9% | 2.5% |  |

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.

### Nine Months Ended September 30, 2024 compared to Nine Months Ended September 30, 2023

*($ in thousands)*

| NET SALES: | Nine Months Ended September 30, 2024 | 2023 | Inc./ (Dec.) | Inc./ (Dec.) |
| --- | ---: | ---: | ---: | ---: |
| Wholesale | $232,082 | $251,228 | $(19,146) | (7.6)% |
| Retail | 83,288 | 79,114 | 4,174 | 5.3 |
| Contract Manufacturing | 10,348 | 5,539 | 4,809 | 86.8 |
| Total Net Sales | $325,718 | $335,881 | $(10,163) | (3.0)% |

Wholesale net sales for the nine months ended September 30, 2024 were $232.1 million compared to $251.2 million for the nine 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.

Retail net sales for the nine months ended September 30, 2024 were $83.3 million compared to $79.1 million for the nine 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 the nine months ended September 30, 2024 compared to the prior year ago period.

Contract Manufacturing net sales for the nine months ended September 30, 2024 were $10.3 million compared to $5.5 million for the nine 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.

*($ in thousands)*

| GROSS MARGIN: | Nine Months Ended September 30, 2024 | 2023 | Inc./ (Dec.) |
| --- | ---: | ---: | ---: |
| Wholesale Margin $'s | $85,977 | $89,084 | $(3,107) |
| Margin % | 37.0% | 35.5% | 1.6% |
| Retail Margin $'s | $38,719 | $38,379 | $340 |
| Margin % | 46.5% | 48.5% | (2.0)% |
| Contract Manufacturing Margin $'s | $1,136 | $406 | $730 |
| Margin % | 11.0% | 7.3% | 3.7% |
| Total Margin $'s | $125,832 | $127,869 | $(2,037) |
| Margin % | 38.6% | 38.1% | 0.5% |

Wholesale gross margin for the nine 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 the nine 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.

Retail gross margin for the nine 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 the nine 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 as enhanced promotional efforts on our branded e-commerce websites as we continue to optimize our inventory levels.

Contract Manufacturing gross margin for the nine 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 the nine 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.

*($ in thousands)*

|  | Nine Months Ended September 30, 2024 | 2023 | Inc./ (Dec.) | Inc./ (Dec.) |
| --- | ---: | ---: | ---: | ---: |
| OPERATING EXPENSES | $103,271 | $107,233 | $(3,962) | (3.7)% |
| % of Net Sales | 31.7% | 31.9% | (0.2)% |  |

18

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 nine months ended September 30, 2023. The reduction in operating expenses during the nine 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.

*($ in thousands)*

|  | Nine Months Ended September 30, 2024 | 2023 | Inc./ (Dec.) | Inc./ (Dec.) |
| --- | ---: | ---: | ---: | ---: |
| INTEREST EXPENSE AND OTHER - net | $(13,964) | $(15,943) | $(1,979) | (12.4)% |

Interest Expense and Other - net for the nine months ended September 30, 2024 decreased $2.0 million compared to the nine months ended September 30, 2023. The decrease in Interest Expense and Other - net was mainly attributed to our debt refinance that took place during the second quarter of 2024, as well as lower debt levels and interest rates for the nine months ended September 30, 2024 compared to the prior year ago period. See Note 10 - Long Term Debt to the Unaudited Condensed Consolidated Financial Statement for more information.

*($ in thousands)*

|  | Nine Months Ended September 30, 2024 | 2023 | Inc./ (Dec.) | Inc./ (Dec.) |
| --- | ---: | ---: | ---: | ---: |
| Income Tax Expense | $2,011 | $980 | $1,031 | 105.2% |
| Effective Tax Rate | 23.4% | 20.9% | 2.5% |  |

The increase in our effective tax rate for the nine 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.

### LIQUIDITY AND CAPITAL RESOURCES

### Overview

Our principal source of liquidity has been our income from operations.

During the nine 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.

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

We lease certain machinery, a distribution center in Reno, Nevada, and manufacturing facilities under operating leases that generally provide for renewal options.

We believe that our ABL Facility, coupled with cash generated from operations will provide sufficient liquidity to fund our operations and debt obligations for at least the next twelve months. Our continued liquidity, however, is contingent upon future operating performance, cash flows and our ability to meet financial covenants under our credit facility. For more information regarding our credit facility see Note 10 - Long Term Debt of our Notes to Unaudited Condensed Consolidated Financial Statements.

### Cash Flows

*($ in millions)*

|  | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: |
| Operating activities | $28.4 | $31.1 |
| Investing activities | (1.5) | 14.4 |
| Financing activities | (27.7) | (47.0) |
| Net change in cash and cash equivalents | $(0.8) | $(1.5) |

*Operating Activities.* Net cash provided by operating activities for the nine 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 the nine 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 the nine months ended September 30, 2024, compared to an increase of $18.3 million for the nine months ended September 30, 2023.

An increase in accounts receivable resulted in a use of cash of $1.2 million and $3.0 million for the nine months ended September 30, 2024 and 2023, respectively. The increase in accounts receivable in 2024 and 2023 was due to timing of collections.

An increase in inventory resulted in a use of cash of $2.6 million for the nine months ended September 30, 2024 compared to a decrease of inventory and a source of cash of $34.5 million for the nine 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.

Changes in accounts payable resulted in a source of cash of $12.4 million for the nine months ended September 30, 2024 compared to a use of cash of $8.4 million for the nine 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.

*Investing Activities.* Net cash used in investing activities for the nine 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 invested $3.2 million and $2.9 million in capital expenditures for our manufacturing operations and information technology during the nine 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 the nine months ended September 30, 2024 and $17.3 million in the nine months ended September 30, 2023.

*Financing Activities.* Net cash used in financing activities for the nine 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 the nine months ended September 30, 2024 and 2023, respectively.

### Litigation

The Company is involved in legal proceedings in the ordinary course of business. Unless otherwise stated, we believe that the likelihood of the resolution being materially adverse to our financial statements is remote and as such have not recorded any contingent liabilities within the accompanying Unaudited Condensed Consolidated Financial Statement.

### CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of the Company’s Unaudited Condensed Consolidated Financial Statements, which have been prepared in accordance with U.S. GAAP, requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, management evaluates these estimates. Estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Historically, actual results have not been materially different from the Company’s estimates. However, actual results may differ materially from these estimates under different assumptions or conditions.

We have identified the critical accounting policies used in determining estimates and assumptions in the amounts reported in our Management Discussion and Analysis of Financial Conditions and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2023.

### SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES REFORM ACT OF 1995

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.

## Market risk

As filed, 212 characters.

There have been no material changes to our market risk as disclosed in Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the year ended December 31, 2023.

## Controls and procedures

As filed, 2,501 characters.

*Disclosure Controls and Procedures.* Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information we are required to disclose in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management as appropriate to allow timely decisions regarding required disclosure.

As of the end of the period covered by this report, our management, with the participation of our chief executive officer and chief financial officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 and 15d-15 promulgated under the Exchange Act. Based upon this evaluation, our chief executive officer and our chief financial officer concluded that, as of September 30, 2024, our disclosure controls and procedures were (1) designed to ensure that material information relating to our Company is accumulated and made known to our management, including our chief executive officer and chief financial officer, in a timely manner, particularly during the period in which this report was being prepared, and (2) effective, in that they provide reasonable assurance that information we are required to disclose in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Management believes, however, that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

*Changes in Internal Controls* There have been no material changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act) during our fiscal quarter ended September 30, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Filed Nov 12, 2024.
Source: SEC EDGAR, the filing index for accession 0001437749-24-034368. Last ingested by Listed: Oct 27, 2026, 16:13 ET. No prices; not investment advice.