Insteel Industries, Inc.

opportunity for questions and answers at the end. If you would like to ask a question, please press star 1 on your telephone keypad. I would now like to pass the conference over to our host, H. Waltz, President and Chief Executive Officer of InSteel. H., please go ahead.

Thank you, Matt. Good morning. Thank you for your interest in InSteel, and welcome to our second quarter 2024 conference call, which will be conducted by Scott Giuffruti, our Vice President, CFO, and Treasurer, and me, Before we begin, let me remind you that some of the comments made on our presentation are considered to be forward-looking statements that are subject to various risks and uncertainties, which could cause actual results to differ materially from those projected. These risk factors are described in our periodic filings with the SEC. We had stated there in our Q1 call that we believed the headwinds of inventory liquidations and that downward reset in steel prices had run its course. I can confirm that we continue to believe this and that our markets have been steadily accelerating since the first of the year. We're optimistic about the underlying level of demand for our products and the outlook for our financial performance. I'm going to turn the call over to Scott to comment on our financial results for the quarter and the macro environment, and then I'll pick it back up to discuss our business outlook.

Thank you, H. And good morning to everyone joining us on the call. As we reported in our press release earlier today, InSteel's results for the second quarter improved from a year ago, as widening spread between selling prices and raw material cost offset the negative impact of lower shipments. Net earnings for the quarter rose to $6.9 million from $5.1 million a year ago, and earnings per share increased to $0.35 per diluted share from $0.26 per share in the prior year. Shipments for the quarter rose 1.9% from Q1, reflecting the normal seasonal upturn in business, but fell 3.2% year-over-year. Q2 shipments started slowly as adverse winter weather conditions during January negatively impacted construction activity. In addition, we faced several familiar challenges during the quarter, including ongoing project delays, weakness within our commercial construction markets, and heightened competition from low-priced imports within certain of our PC strand markets. Despite these headwinds, there was a strengthening in shipments as the quarter progressed, with February and March volumes higher than the previous year levels. Although we are still early in the third quarter, our order book has remained strong, and April shipments have trended above forecasted levels. Average selling prices were up 2.7% sequentially from the first quarter, reflecting a portion of the price increase we implemented in January in response to the escalation in our raw material costs during Q1. Unfortunately, the amount realized fell short of our expectations, as persistent headwinds, including competitive pricing pressures from domestic competitors and the growing impact of low-priced PC strand imports, gradually eroded selling prices as the quarter progressed. On a year-over-year basis, ASPs are down 17.3%, reflecting a significant downward reset in selling prices experienced over much of fiscal 2023 and the first quarter of fiscal 2024. Gross profit for the quarter increased 2.4 million from a year ago to 15.7 million, while gross margin expanded to 12.3% from 8.3%. On a sequential basis, gross profit increased 9.4 million from the first quarter and gross margin improved 710 basis points. A recovery spread between average selling prices and raw material cost was partially offset by lower shipments. Spreads benefited this quarter from the selling price increase I mentioned earlier, along with the consumption of lower cost raw material inventory that now closely reflects replacement value. Unit conversion costs were essentially unchanged year over year, but remained elevated due to continued inventory management efforts and operating restrictions out of facilities in response to market conditions. As we move into the third quarter, we anticipate that a combination of a strengthening demand environment, current raw material carrying values, and increased operating levels at our facilities will continue to restore gross margins to more attractive levels following the compression we experienced over the past year. SG&A expense for the quarter increased to $7.9 million, or 6.2% of net sales, from $7.5 million or 4.7% in net sales last year. The dollar increase was primarily the result of increases in employee benefit costs, depreciation expense, and bad debt reserve. These increases were partially offset by lower compensation expense under our return on capital base incentive plan, which was negatively impacted by the weaker year-to-date results. Our effective tax rate for the quarter was virtually unchanged at 22.5%, which is up slightly from 22% last year, Looking ahead to the balance of the year, we expect our effective rate will remain steady at around 23%, subject to the level of pre-tax earnings, both tax differences, and the other assumptions and estimates that compose our tax revision calculation. Moving to the cash flow statement and balance sheet. Cash flow from operations for the quarter fell to 1.4 million from 46.6 million last year. Networking capital used 10.5 million dollars of cash in the second quarter. due to a $12.2 million increase in receivables resulting from higher sales and an increase in average selling prices, which offset a $1.6 million decline in inventory. Our inventory position at the end of the quarter represented 2.6 months of shipments on a forward-looking basis calculated off of forecasted Q3 shipments compared to three months at the end of the first quarter. Additionally, our raw material inventories at the end of the second quarter were valued at an average unit cost that approximates our second quarter cost of sales. It remains favorable relative to current replacement costs, which should continue to favorably impact spreads and margins during the third quarter. We incur 2 million dollars in capital expenditures in the quarter for a total of 14.2 million during the first half of our fiscal year, and we remain committed to our full-year target of 30 million. H will provide more detail on this topic in his remarks. Finally, from a liquidity perspective, we ended the quarter with $83.9 million of cash on hand and no borrowings outstanding on our $100 million revolving credit facility, providing us ample liquidity and financial flexibility going forward. Finally, during the second quarter, we continued our share buyback program, repurchasing $300,000 of common equity equal to approximately 9,000 shares. Turning to the macro indicators of our construction and markets, the monthly construction spending data from the US Department of Commerce continue to show strength. The latest February data revealed that total construction spending on a seemingly adjusted annual basis increased by approximately 11% compared to last year. Non-residential construction spending increased by 14%. And public highway and street construction, which is one of the largest in-use applications for our products, showed an increase of nearly 19%. However, leading indicators for non-residential construction Architectural Billings and Dodge Amendment Indexes remain weak and indicate easing demand. In March, the ABI fell to 43.6, down from 49.5 in February, remaining below the 50 growth threshold and falling to its lowest level since December 2020. The Dodge Amendment Index, which tracks non-residential building projects going into planning, has fallen over the last several months. The March report showed a continued decrease in planning activity. dropping 8.6% from February due to slowdowns in both commercial and institutional planning. This concludes my prepared remarks. I will now turn the call back over to H. Thank you, Scott.