Insteel Industries, Inc.

Good morning all and thank you for joining us for the Instil Industries fourth quarter 2024 earnings call. My name is Carly and I'll be your call coordinator for today. If you'd like to register a question during the call, you can do so by pressing star followed by one on your telephone keypad and to remove your slant line of questioning, it will be star followed by two. I'd now like to hand over to your host, Mr. H. Waltz, CEO of Instil Industries to begin. The floor is yours.

Thank you, Carly, and good morning. Thank you for your interest in INSTEADLE, and welcome to our fourth quarter 2024 conference call, which will be conducted by Scott Giafrutti, our Vice President, CFO, and Treasurer, and me. Before we begin, let me remind you that some of our comments made on the 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. Despite having seen signs of an upturn in market activity during Q3, during Q4 we experienced a continuation of sluggish market conditions resulting in weak order backlogs that contributed to inefficiencies at our plants. We continue to believe that patience is our only viable strategy since we're unable to create demand and competitors who believe that reducing prices will stimulate demand or result in market share gains are simply mistaken. We've noted that market lethargy is not limited to reinforcing markets, following weaker forecasts for producers of cement, steel, aggregates, and other construction materials. We look forward to attaining higher operating rates, lower costs, and improved revenue and margins that we believe will be supported by future market conditions. 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 up to discuss our business outlook.

Thank you, H, and good morning to everyone joining us today. As highlighted in our press release earlier, our fourth quarter financial performance for fiscal 2024 reflects the ongoing challenges of tighter spreads between selling prices and raw material costs relative to the prior year quarter. As a result, net earnings for the period dropped to $4.7 million, or $0.24 per share, compared to $5.6 million, or $0.29 per share a year ago. Net sales for the quarter fell by 14.7% to $134.3 million, primarily driven by a 12.9% decline in average selling prices. On a sequential basis, average selling prices fell by 2.8%. As we've highlighted in previous calls, ASPs were again adversely impacted by ongoing competitive pricing pressures within our welded wire reinforcing markets and the growing influence of low-price PC strand imports. Despite experiencing a modest year-over-year improvement in shipping volume during the third quarter, shipments fell slightly in the current period, declining 2.1%. On a sequential basis, shipments were down 5.2%. The decrease was driven by a combination of weak market conditions within our construction end markets, the impact of low-price PC strand imports, and adverse weather conditions in certain of our markets during the quarter. Gross profit for the fourth quarter fell $1.7 million from a year ago to $12.3 million. However, gross margin increased 20 basis points to 9.1%, primarily due to lower unit conversion costs and higher production levels are still set by lower spread. 1 million from the third quarter and gross margin declined by 150 basis points due to lower spreads and decreased volumes. Unit conversion costs for the fourth quarter improved year over year as we continued to align plant operating schedules with current market conditions and further leverage our recent capital investments. However, as I had indicated during our third quarter call, spreads have remained under pressure in the current period as the decline in selling prices once again exceeded the reduction in our average inventory carrying values. Looking ahead to the first quarter of fiscal 2025, we expect that profit margins will continue to face short-term pressure due to the ongoing competitive landscape impacting selling prices compounded by the anticipated seasonal slowdown in demand. SG&A expense for the quarter decreased to $7.5 million or 5.6% in net sales from $8.1 million or 5.2% in net sales last year. The dollar decrease primarily resulted from a favorable relative year-over-year change in the cash or undervalued life insurance policies combined with lower compensation costs under our return on capital base incentive plan, which was negatively impacted by weaker full-year results. Our effective tax rate for the fourth quarter was largely unchanged at 23%, up slightly from 22.5% last year. Looking ahead to fiscal 2025, 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 provision calculation. Moving to the cash flow statement and balance sheet. Cash flow from operations for the quarter declined to $16.2 million from $38.6 million last year due to a reduction in the relative change in the net working capital. Working capital provided $5.3 million of cash in the fourth quarter, driven mostly by a $2.9 million reduction in receivables reflecting the decline in our selling prices. Our inventory position at the end of the quarter represented three months of shipments on a forward-looking basis, calculated off our forecasted Q1 shipments, compared with 2.5 months at the end of the third quarter. Additionally, it's worth noting that our inventories at the end of the fourth quarter were valued at an average unit cost lower than our fourth quarter cost of sales. This is expected to have a favorable impact on spreads and margins in the first quarter, as the lower cost material is consumed and reflected in cost of sales, provided that average selling prices do not decrease to a greater extent. We incurred $1.7 million in capital expenditures in the fourth quarter for a total of $19.1 million for the year, which is down $11.6 million from last year. Looking ahead to fiscal 2025, we expect capital expenditures to total $22 million. April will provide more detail on this topic in his remarks. Along with our ongoing efforts to invest in the business to drive both growth and cost reduction, our strong financial position allowed us to return 52.8 million capital to our shareholders in fiscal 2024 through a combination of dividends and share buybacks. This included our highest ever special dividend of $2.50 per share, alongside our four regular quarterly dividends, marking the fourth consecutive year that we have paid a special dividend of at least $1.50 per share. Furthermore, we repurchased approximately 58,000 shares of our common equity during fiscal 2024, equivalent to $1.8 million through our share buyback program. From a liquidity perspective, we ended the quarter with $111.5 million of cash on hand, and we're debt-free with no borrowings outstanding on our $100 million revolving credit facility. As we enter fiscal 2025, we anticipate a gradual improvement in the business outlook within our construction end markets. This expectation is based on the potential for additional interest rate cuts by the Federal Reserve, which is projected to stimulate demand. However, it's important to note that the current macro indicators for our construction markets present a somewhat mixed picture. The most recent reports for the architectural building and Dodge Amendment Indexes, leading indicators for non-residential building construction, continue to imply weaker business conditions going forward. The Dodge Amendment Index, which tracks non-residential building projects going in planning, decreased 4.2% in September, down to 208.6. However, the index is still 21% higher than September of 2023. Dodge noted that the decline in September was driven by a drop within the commercial construction segment, driven largely by the moderation of data center activity. Despite this, Dodge suggests that non-residential activity is expected to increase as 2025 progresses, driven by the Federal Reserve rate cuts. In August, the ABI continued to remain in negative territory with a score of 45.7. Any score below 50 indicates a decline in business conditions. However, there was a positive sign as firms reported an increase in inquiries for future projects, indicating a potential shift in momentum. We are also encouraged by the most recent construction spending data, which continues to show strength. Data from the U.S. Department of Commerce shows that For the first eight months of the calendar year, total construction spending on a seasonally adjusted annual basis is up 4.1% from August of last year. Non-residential construction spending saw a 5.2% increase, with public highway street construction, one of the major end uses for our products, experiencing a 3.5% increase. However, while construction spending remains high, U.S. cement shipments, another metric we monitor, continues to lag behind 2023 levels. with shipments decreasing by 2.9% in July and 5.2% in the first seven months of the calendar year. This concludes my prepared remarks. I will now turn the call back over to H. Thank you, Scott.