Insteel Industries, Inc.

Hello and welcome everyone to the Instil Industries first quarter 2026 earnings call. My name is Becky and I will be your operator today. All lines will be muted throughout the presentation portion of the call with a chance for Q&A at the end. If you wish to ask a question in this time, please press start followed by one on your telephone keypads. I will now hand over to your host, H. Waltz, CEO to begin. Please go ahead.

Good morning. Thank you for your interest in InSteel, and welcome to our first quarter 2026 conference call, which will be conducted by Scott Jabruti, our Vice 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 The upturn in business activity we reported previously continued during our first quarter, and our fiscal 2025 acquisitions continue to perform well. While our ability to forecast future activity is limited, we are encouraged by the level of optimism in our markets, as well as brisk order entry up to this point in January, that causes us to believe that 2026 will be a strong year for the company. While the relative strength of our markets is real, we are aware of uncertainties created by the administration's trade policies, the nation's fiscal conditions, and by the economic cycle. I'm going to turn the call over to Scott to comment on our financial results, and following Scott's comments, I'll pick the call back up to discuss our business outlook.

Thank you, H, and good morning to everyone joining us today. As highlighted in this morning's press release, we delivered a strong start to the year. first quarter results benefited from improved demand for our concrete reinforcing products, which supported wider spreads between selling prices and raw material costs. Net earnings for the quarter rose $7.276 million, or $0.39 per share, compared with $1.1 million, or $0.06 per share, in the same period last year. It's also worth noting that last year's first quarter First quarter shipments, which are typically our softest period due to winter weather conditions and holiday schedules, increased 3.8% year-over-year. On a sequential basis, shipments declined 9.7% from the fourth quarter, which is consistent with normal seasonal patterns. The year-over-year growth in shipments reflects improved demand across our commercial and infrastructure markets, along with incremental volume from the acquisitions we completed early last year. As we move forward, our year-over-year volume comparisons will normalize, and as these acquisitions are fully integrated into our run rate. Turning to pricing, average selling prices increased 18.8% year-over-year. This reflects the pricing actions we took throughout fiscal 2025 to offset higher steel wire rot costs, which were driven by tight domestic supply conditions and increased Section 232 steel tariffs, as well as to address rising operating costs. Subsequently, Average selling prices were essentially unchanged from the fourth quarter, as we did not take additional pricing actions during the current period. However, with scrap and wire rod prices now moving higher again, we implemented our own price increases across most product lines, which took effect earlier this month. Gross profit for the quarter improved to $18.1 million from $9.5 million a year ago, with gross margin expanding 400 basis points to 11.3% from 7.3%. This improvement was driven by widening spreads, higher shipment volumes, and lower unit manufacturing costs. On a sequential basis, gross profit declined by $10.5 million from the fourth quarter and gross margin narrowed by 480 basis points, driven primarily by the consumption of higher cost inventory. As I just mentioned, the price increase implemented in January are expected to benefit second quarter spreads and margins as higher selling prices begin to align. of lower-cost inventories under the first-in, first-out accounting methodology. SG&A expenses for the quarter rose by approximately $900,000 to $8.8 million, or 5.5% of net sales, compared with $7.9 million, or 6.1% of net sales, in the prior year. The year-over-year increase observed primarily by an $800,000 rise in compensation expense under a return on capital based incentive plan, reflecting stronger financial performance in the current year. As you may recall, we did not incur any incentives compensation expense in the first quarter of last year. Our effective tax rate decreased 21% compared to 26.1% in the prior year period. The decline was primarily driven by a reduction in the valuation allowance on deferred tax assets along with a discrete tax item related to the calculation of state deferred taxes. Looking ahead, we expect our effective tax rate for the remainder of the year to be approximately 23%, such that a level of both the tax differences and the other assumptions and estimates underlying our tax provision calculation. Moving to the cash flow statement and balance sheet, cash flow from operations used $700,000 in the quarter compared to providing $19 million last year. Networking capital used $16.6 million in cash in the first quarter, driven primarily by a $34.5 million increase in inventories, largely offset by a $14.1 million reduction in accounts receivable. The inventory increase reflects higher raw material purchases, including a meaningful amount of offshore material, along with an increase in the average carrying value of inventory. And on the receivable side, the decline was largely tied to lower shipment, which is consistent with a normal seasonal slowdown in sales exceeding this time of year. Per quarter in the inventory position represented approximately 3.9 months of shipment on a forward-looking basis, calculated off of our forecasted second quarter volumes, compared with 3.5 months at the end of the fourth quarter. As we discussed on our prior call, we expected a temporary inventory build in the first quarter as we supplemented domestic wire rod supply with offshore purchases. Looking ahead, we expect inventory levels to moderate over the course of the second quarter as purchasing activity normalizes and shipment volumes increase. It's also worth noting that our first quarter inventories are carried at an average unit cost that is generally in line with our first quarter cost of sales and remain below current replacement levels. We incurred $1.5 million in capital expenditures in the first quarter and remain committed to our full-year target of $20 million. H will provide more detail on this topic in his remarks. In December, we returned $19.4 million of capital to our shareholders to the payment of a $1 per share of special cash dividend in addition to our regular quarterly dividend. This marks the ninth time in the last 10 years that we have issued a special dividend and also during the first quarter week. We continued our share buyback, repurchasing $745,000 of common equity, equal to approximately 24,000 shares. From a liquidity perspective, we ended the quarter with $15.6 million in cash on hand and no borrowings outstanding on our $100 million revolving credit facility. Turning to the macro indicators for our construction and markets, the latest readings from two key leading measures, the Architectural Billing Index and the Dodge Amendment Index, continue to signal a mixed and somewhat cautious outlook for non-residential commercial construction activity. In November, the ADI registered 45.3, remaining firmly in NAGDA territory, as any reading below 50 indicates a contraction in activity. This marks the 13th consecutive month of declining billings. Inquiries from new projects showed only modest improvement, and the value of newly signed design contracts continue to soften. In contrast, the Dodge Amendment Index signal strengthening activity, rising 7% in December, and supported by more than 3.5% growth in commercial planning, driven in large part by data center construction. Year over year, the DMI was up 50% overall, including a 45% increase in the commercial segment. Turning to the broader market backdrop, the most recent was down about 1.6% year-over-year. Non-residential spending declined 1.5%, and public highway and street construction, one of our key end markets, was down about 1% compared to the same period last year. Finally, the U.S. cement shipments, another key measure that we monitor, fell 4.3% in August and were down 3.4% year-to-date. That said, as we close out the first quarter of fiscal 2026, we are encouraged by the steady demand we are seeing across our core markets. While we recognize the broader economic backdrop remains uncertain, the demand trends we're seeing and the conversations we're having with customers give us confidence as we look ahead to the balance of the year. This concludes my prepared remarks. I'll now turn the call back over to H. Thank you, Scott.