Insteel Industries, Inc.

Good morning and thank you for joining the InSteel Industries First Quarter 2025 Earnings Call. My name is Harry and I'll be your operator today. During the presentation, you can register for questions by pressing star followed by one on your telephone keypad. If you change your mind, please press star followed by two to exit the queue. I would now like to hand the conference over to H. Waltz, InSteel Industries President and CEO. Mr. Waltz, please go ahead.

Thank you, Harry. Good morning. Thank you for your interest in InSteel and welcome to our first quarter 2021. President, CFO, and Treasurer, and me. Before we begin, let me remind you that some of the comments made in 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're pleased to have experienced a material upturn in business activity during the first fiscal quarter relative to the same period last year. Seasonally, however, trends were normal resulting in lower shipments sequentially. Following the lackluster demand environment that persisted through fiscal 2024, we made two important acquisitions during our first quarter that we expect to deliver solid returns for shareholders going forward. 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 and provide some insight on the rationale for our acquisition activity.

Thank you, H. And good morning to everyone joining us on the call. Earlier today, we reported our results for the first quarter of fiscal 2025, which were largely in line with the same period last year. Improved spread between selling prices and raw material costs, coupled with increased demand from our concrete reinforcing products, offset the impact of higher selling general and administrative expenses. Net earnings for the quarter were unchanged at $1.1 million or $0.06 per share. However, after adjusting for the non-recurring charges outlined in our press release, adjusted net earnings increased to $0.10 per share. Shipments for the first quarter, typically our slowest period due to winter weather and holiday schedules, increased 11.4% year-over-year. Sequentially, shipments declined by 4.5% from Q4 a considerably smaller drop than the usual seasonal decrease. This strong performance is driven by increased water activity across our commercial and infrastructure end markets, along with incremental volumes from our first quarter acquisitions of engineered wire products and O'Brien wire products of Texas. Additionally, first quarter volumes were benefited by shipments deferred from the fourth quarter due to weather-related delays, as well as demand from customers seeking to complete projects ahead of the winter season. Average selling prices for the quarter declined 4.3% year-over-year, reflecting the competitive market conditions experienced throughout the past year and the ongoing impact of low-price PC strand imports. However, on a sequential basis, average selling prices increased 1.1% compared to Q4, driven by the implementation of price increases during the quarter in response to rising raw material costs stemming from tightening garage supply. Gross profit for the quarter improved to $9.5 million from $6.3 million a year ago, with gross margin expanding 210 basis points to 7.3% from 5.2%. This improvement was driven by widening spread between selling prices and raw material costs, along with higher shipment volumes, partially offset by increased conversion costs. On a sequential basis, gross profit declined by $2.7 million from the fourth quarter and gross margin narrowed by 180 basis points. As noted earlier, in response to the recent rise in raw material costs, we have amended price increases during the quarter. Moreover, an additional price adjustment across most of our product lines went into effect earlier this month. These pricing actions are expected to favorably impact second quarter spreads and margins as higher selling prices will align with the consumption of lower cost inventories under the first in, first out accounting methodology. Finally, gross margin for the quarter was unfavorably impacted by our two recent acquisitions. The acquisitions resulted in a revaluation of acquired inventory to its fair market value as required in the purchase accounting standards. This adjustment temporarily increased the cost of goods sold when the revalued inventory was sold, which in turn put downward pressure on our gross margins during the period. We estimate that this adjustment lowered our gross margin by 110 basis points for the quarter. This impact is non-recurring and is expected to normalize as the remaining revalued inventory is sold and replaced with inventory recorded at standard cost. SG&A expense for the quarter rose by $1.5 million to $7.9 million, or 6.1% of net sales, compared to $6.4 million, or 5.2% of net sales, in the prior year. This increase was primarily attributed to a year-over-year change in the cash and render value of life insurance policies which declined by $275,000 in the current year compared to $675,000 gain in the prior year, reflecting fluctuations in the value of the underlying investments. Additionally, amortization expense rose by $220,000, driven by intangible assets recognized from our recent acquisitions. In addition to higher SG&A expense, we recorded $700,000 in restructuring charges during the quarter, These charges included asset impairment, severance, equipment relocation, and plant closure costs related to the recently announced consolidation of our welded wire manufacturing operations. This consolidation included the closure of our facility in Warren, Ohio, which we acquired through our purchase of engineered wire products. Furthermore, we incurred $300,000 of acquisition costs during the period for legal, accounting, and other professional fees related to our acquisitions. Our effective tax rate fell slightly to 26.1% from 27.2% a year ago. The decrease was largely driven by the effect of its discrete tax item, which had an amplified impact on the rate due to the lower pre-tax earnings. Looking ahead to the balance of the year, we expect our effective rate to run close to 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 provided $19 million of cash in the first quarter. This was primarily driven by the changes in networking capital, which included a reduction in receivables, reflecting the usual seasonal slowdown in sales, and a decrease in inventories, resulting from lower raw material purchases after excluding the impact of the inventory acquired through our acquisitions. Our inventory position at the end of the quarter represented 2.8 months of shipments on a forward-looking basis, calculated off of our forecasted Q2 shipments. Finally, our inventories at the end of the first quarter were valued at an average unit cost slightly lower than our first quarter cost of sales and below current replacement costs, which should favorably impact spreads and margins during the second quarter as we consume the lower cost material. Recurred $2.7 million in capital expenditures in the first quarter remain committed to our full year target of $22 million. H will provide more detail on this topic in his remarks. In December, we returned $19.4 million of capital to our shareholders through the payment of a $1 per share special cash dividend in addition to our regular quarterly dividend. This marks the eighth time in the last nine years that we have issued a special dividend. Also, during the first quarter, we continued our share buyback, repurchasing $617,000 of common equity, equal to approximately 22,000 shares. From a liquidity perspective, after funding two acquisitions during the quarter and paying the $1 per share of special dividends, we ended with $36 million in cash on hand and no borrowings outstanding on our $100 million revolving credit facility. This strong financial position provides us with significant flexibility and the capability to pursue additional growth opportunities as they arise. Turning to the macro indicators for our construction and markets, the latest reports for the architectural billing and Dodge Amendment Indexes which are leading indicators for non-residential building construction, offer an improving view of the market conditions going forward. In November, ABI remained in negative territory with a score of 49.6. Any score below 50 indicates a decline in business conditions. However, despite finishing below 50, building and architectural firms stabilized after nearly two years of decline. In addition, inquiries into new projects are increasing, an encouraging sign moving forward. The Dodge Amendment Index, another leading indicator for non-residential building construction, rebounded 10.2% in December, with commercial planning increasing over 14%, driven mainly by data center and warehouse planning activity. On a year-over-year basis, the overall index was higher by 19%. Dodge noted that the strong performance of the index this past year is expected to support non-residential construction spending throughout calendar 2025. The monthly construction spending data from the U.S. Department of Commerce continue to remain fairly strong, with the November report showing total spending on a seasonally adjusted basis up approximately 3% from last year, with non-residential construction up 2.8%. However, public highway and street construction, one of the larger end uses for our products, was down 3.6%. Finally, U.S. cement shipments, another measure that we monitor, show signs of recovery compared to last year. year-to-date shipments are still down 5%. This concludes my compare remarks. I'll now turn the call back over to Age.