Insteel Industries, Inc.

by pressing star followed by one on your keypad. If you change your mind, please press star followed by two. I will now hand over to your host, Pete Schwartz, to begin. Please go ahead.

Thank you. Good morning. Thank you for your interest in InSteel, and welcome to our third quarter 2025 conference call, which will be conducted by Scott Jafuri, our Vice President, CFO, and Treasurer, and me. Before we begin, let me 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 FCC. We're pleased that the upturn in business activity we experienced over the last couple of quarters continued during our third fiscal quarter despite macro indicators that would indicate mediocre activity in the construction sector. While we're glad to see the ongoing recovery in our markets, we continue to be aware of uncertainties created by the rollout of the administration's trade policies and from the economic cycle. I'll now turn the call over to Scott to comment on our financial results. And following Scott's comments, I'll pick it back up to discuss our business outlook, and the view of the impact of tariffs on our company.

Thank you, H. And good morning to everyone joining us on the call today. As reported in this morning's press release, our strong third quarter performance was driven by higher shipment volumes, along with a significant recovery in spreads between selling prices and raw material costs. Net earnings for the quarter increased to $15.2 million, or $0.78 per share, compared to $6.6 million, or $0.34 per share, in the prior year. excluding the non-recurring restructuring charges mentioned in the release, adjusted earnings for $0.81 per share. Our results this quarter were supported by the pricing actions we have taken to manage the continued rise in raw material costs. Average selling prices rose 11.7% year-over-year and 8.2% sequentially from the second quarter, reflecting price increases implemented throughout fiscal 2025, including additional adjustments made in the third quarter to help offset the impact of higher input costs. As we mentioned on our last call, the US wire rod market remains tight, driven by reduced domestic production capacity alongside strong underlying demand. Since January, published prices for steel wire rod, our primary raw material, have increased by approximately $190 per ton. Despite these price increases, supplies remain limited. To help ease these conditions, we have supplemented our domestic purchases with significant offshore volumes. which have improved our material availability and are helping to support production levels heading into the fourth quarter. Despite these supply headwinds, shipments for the quarter increased 10.5% year-over-year and 3.5% sequentially. The growth was driven by contributions from our recent acquisitions, along with improving demand in our construction and markets. That said, we weren't able to fully meet all the market demand this quarter, limited availability, wide variety of production challenges at several of our facilities, which in turn affected our ability to maintain typical lead times. Gross profit for the quarter increased 15.4 million from a year ago to 30.8 million, while gross margin expanded by 650 basis points to 17.1%. This performance is driven primarily by an expansion in the spread, as the increase in average selling prices outpaced the rise in raw material costs during the quarter. As we've noted on prior calls, during periods of strong demand and rising steel rod prices, Our financial results tend to benefit from both the timely implementation of price increases, enabling us to offset higher replacement costs and the favorable impact of lower cost inventory flowing through under our first in, first out accounting methodology. As we move into the fourth quarter, we expect gross margin to remain near current levels, supported by strengthening demand, favorable raw material carrying values, and higher operating rates at our facilities. SG&A expense for the quarter rose to 10.6 million or 5.9% of net sales compared to 7.9 million or 5.4% of net sales in the prior year period. The increase was primarily attributable to a $2.5 million rise in compensation expense under our return on capital base incentive plan, which reflects our improved financial performance during the quarter. We also recognize an increase of $300,000 in amortization expense related to intangible assets acquired through our recent acquisitions. These increases are partially offset by $487,000 favorable year-over-year swing in the cash render value of life insurance policies, reflecting fluctuations in the value of the underlying investments. Separately, we incurred $843,000 in restructuring charges during the quarter, tied to the consolidation of our welded wire manufacturing operations. These actions follow our acquisitions of Engineered Wire Products and O'Brien Wire Products in Texas earlier in the fiscal year. While the majority of the remaining restructuring activities are expected to be completed during the fourth quarter, some related costs may extend into the first quarter of fiscal 2026. Our effective tax rate for the quarter fell to 23.3% from 24.7% a year ago. Looking ahead to the balance of the year, we expect our effective rate to run close to 23.4%, subject to the level of pre-tax earnings, tax differences, and other assumptions and estimates that compose our tax revision calculation. In terms of the cash flow statement and balance sheet, operating activities generated $28.2 million cash during the quarter, driven primarily by higher net earnings and a reduction in net working capital. Working capital improvement was largely attributed to a $36 million increase in accounts payable on accrued expenses, reflecting elevated rod purchases and an increase in average rod costs. This benefit was partially offset by a $23.1 million increase in inventories, which was also tied to the rod purchasing activity. and the higher average carrying value of raw materials. Our inventory position at the end of the quarter represented 2.7 months of shipments on a forward-looking basis, calculated off of forecasted Q4 shipments, which is up from 2.2 months at the end of the second quarter. Finally, our inventories at the end of the third quarter were valued at an average unit cost that were higher than our third quarter cost of sales, but remained favorable relative to current replacement costs. which will have a positive impact on spreads and margins as we move through the fourth quarter. We incurred $1.6 million in capital expenditures in the quarter for a total of 6.5 through the first nine months of our fiscal year. Based on forecasted expenditures for the remainder of fiscal 2025, we reduced our full-year target to $11 million from the previously communicated target of $17 million. Age will provide more detail on this topic in his remarks. We continued our share buyback program during the quarter, repurchasing $200,000 of common equity, equal to approximately 6,000 shares. From a liquidity perspective, we ended the quarter with $53.7 million of cash on hand, and we're debt-free with no borrowings outstanding on our $100 million revolving credit facility, providing us ample financial flexibility and ability to pursue any attractive growth opportunities that may develop. Turning to the macro indicators for our construction and markets, recent data continues to reflect a mix and uncertain outlook. The latest readings from key leading indicators for non-residential construction suggest that market conditions could remain challenging over the near term. In May, the architectural building index increased to 47.2, reflecting a modest easing in the rate of decline. While this uptick suggests some early signs of stabilization, particularly with an increase in new project inquiries, the index remains below the 50 threshold that indicates growth. Meanwhile, the Dodge Amendment Index, which tracks non-residential projects entering the planning stage, offered a more encouraging outlook in June. The index rose 6.8% month-over-month to 225.1. It is now approximately 20% higher than it was in June of last year. Much of the gain was in the commercial segment, which climbed 7.3% for May and is up 11% year-over-year. This take-up and planning activity suggests a growing pipeline that could support future non-residential construction demand. U.S. cement shipments, another proxy for construction activity, showed modest improvement in March, 4% year-over-year. However, on a year-to-date basis, through March, shipments remained down 7.5% compared to the same period in 2024. Construction spending data from the U.S. Department of Commerce also reflects the software demand environment. In May, total construction spending declined 0.3% from April on a seasonally adjusted annual basis and was down 3.5% compared to the prior year. Non-residential spending fell 0.2% month-over-month. and 1.1% year-over-year. Within that category, highway and street construction, a key end-use market for our products, was down 0.7% versus May of last year. The broader macroeconomic environment is also contributing to the uncertainty moving forward. While the Federal Reserve has indicated a possible shift towards lower interest rates later in the year, persistent inflationary pressures and uneven economic data could delay or limit the extent of easing. At the same time, the evolving U.S. trade and tariff landscape, particularly around steel, presents further uncertainty with potential implications for both input costs and our long-term demand forecast. While market conditions remain competitive, and visibility beyond the near term is limited, we believe in steel is well positioned to capitalize on improving demand trends as we close out fiscal 2025. By staying disciplined in our operations, closely managing working capital, and maintaining strong customer relationships, we aim to navigate near-term challenges while building long-term value for our shareholders. This concludes my prepared remarks.