Good day, and thank you for joining us. Welcome to the Insteel Industries Third Quarter 2021 Conference Call. I would now like to turn the call over to your speaker today, Mr. Woltz. Please proceed, sir.

Thank you. Good morning, and thank you for your interest in Insteel. Welcome to our third quarter 2021 conference call, which will be conducted by Mark Carano, our Senior 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 uncertainties and which could cause actual results to differ materially from those projected. These risk factors are described in our periodic filings with the SEC. We are pleased with our third quarter performance that was driven by surging demand for our reinforcing products and escalating steel prices. We expect both trends to continue through the end of the calendar year. During environments of strong demand and escalating pricing, the company's results typically are favorably impacted by the implementation of price increases sufficient to recover higher costs together with the consumption of lower-cost inventories under first-in, first-out accounting. I'm going to turn the call over to Mark 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. As we reported in our press release earlier today, Insteel posted another quarter of exceptionally strong results. In fact, it was the highest net revenue quarter achieved in the company's history. Net earnings for the quarter increased to $18.4 million or $0.94 per diluted share from $6.7 million or $0.34 per diluted share. Average selling prices increased 32.9% from last year and 14.2% sequentially from Q2, reflecting the price increases we implemented in response to both strong demand across all our concrete reinforcing products and continued escalation in manufacturing costs. Two elements provide some additional context with respect to this increase relative to the comparable period. First, since the second quarter of 2021, steel scrap, the primary input in the production of wire rod, increased in price by 11% relative to the benchmark Chicago shredded index and has now increased 79% since the beginning of our current fiscal year. And second, as you may recall, the third quarter of 2020 represented a 3-year low in average selling prices. During that period, those products susceptible to import competition, which represented about 1/3 of our revenue in that quarter, experienced pronounced pricing pressures as imports were surging while our trade case efforts in the PC strand and standard welded wire markets were underway. Shipments for the quarter decreased 1% from last year but increased 1.2% sequentially from Q2. The largely flat volume growth as compared to last year and sequentially resulted from a tight global rod supply environment that restrained our ability to fully meet the market demand. Gross profit for the quarter increased $16.7 million from a year ago, and gross margin expanded to 19.6% due primarily to widening in spreads as average selling prices outpaced rod cost increases during the period. On a sequential basis, gross profit was largely flat, but gross margin declined 210 basis points. This was due to increased manufacturing costs resulting from supply-chain-driven operating inefficiencies at several of our plants. SG&A expense for the quarter decreased $0.5 million to $6.2 million. As a percentage of sales, it decreased 210 basis points to 3.8%. The decrease was a result of $0.8 million in lower compensation expense under our return-on-capital-based incentive plan. As a result of our strong results to date, that plan has now achieved the maximum plan benefit allowable. The decrease in incentive plan costs was partially offset by an unfavorable $0.4 million change in the cash surrender value of life insurance policies relative to the prior quarter. Our effective tax rate for the quarter increased marginally to 22.4% from 21.9% last year due to changes in permanent book-tax differences. Looking ahead to the remainder of the year, we would expect our effective tax rate to run around 23%, subject to a level of pretax earnings, book-tax differences and other assumptions and estimates that compose our tax provision calculation. Moving to the balance sheet and cash flow statement. Cash flow from operations for the quarter generated $36.2 million due primarily to net earnings, but also due to a reduction in net working capital. The net working capital reduction was driven by an increase in accounts payable of $15.7 million, which resulted from the timing of raw material deliveries late in the month of June. We would expect working capital balances to increase moderately as we complete our fourth quarter and fiscal year. Based on our sales forecast, as of the end of the third quarter of 2021, our quarter end inventories represented 1.9 months of shipments compared with 2 months at the end of the second quarter. The tight rod supply market referenced earlier continues to suppress our inventory levels which are trending below normalized levels of forecasted shipments at the end of the third quarter. And finally, our inventories at the end of the third quarter of 2021 were valued at an average unit cost that was higher than our second quarter cost of sales, but remains favorable relative to current replacement cost. We concluded the quarter with $89.8 million of cash on hand and no borrowings outstanding on our $100 million revolving credit facility. As we look ahead to the fourth quarter, market conditions remain encouraging as the strong demand environment for our products, which we referenced in the second quarter, continued throughout our third quarter. Confidence in the outlook from our non-residential construction customer base continues to gain momentum across all our sales regions. This perspective is supported by widely monitored leading indicators which are now recording positive metrics on par with levels before the financial crisis of a decade ago and approaching all-time highs in their recorded history. While they are leading indicators of future project activity, usually 12 to 18 months out, the optimism embedded in these levels seems to be translating into sustained activity levels today that shows no sign of abating. Concurrently, public non-residential construction demand has remained durable and, in fact, never really slowed despite concerns of financial challenges with state-level budgets. Many today are in a stronger position than they were pre-pandemic, thanks to federal support and less dire budget outcomes than were originally forecasted a year ago. Ongoing discussions for potential long-term infrastructure packages, while encouraging, remain mired in the politics and complexity of the budget process in Washington. That said, the bipartisan proposal under consideration would provide, relatively speaking, a substantial boost to annual federal infrastructure spending. Supply chain challenges, including both product availability and logistics issues, continue and are resulting in escalating manufacturing costs and operational inefficiencies at several of our plants. Unfortunately, we believe this dynamic will continue to be an issue for at least the remainder of the calendar year. H will provide some additional context on these dynamics in his prepared remarks. And lastly, with respect to the uncertainties of COVID-19, our markets and operations continue to see no negative impact. We hope this risk will remain contained and soon no longer pose any mentionable risk.

Thank you, Mark. As reflected in the release, our strong third quarter results were driven by robust nonresidential construction markets and escalating steel prices. We're pleased with the solid underlying demand for our products and our financial performance and we thank our Insteel teammates for their focus on execution, excellence, and working safely. Over the course of the last 16 months, our people have executed through difficult conditions, including pandemic-related uncertainties and inconveniences and then through supply chain challenges that are complicating life at our plants and our administrative offices. We are thankful for their perseverance through extraordinary circumstances. Looking ahead, we expect continued market strength driven by significantly improved public finances at the state and local levels together with elevated private non-residential construction activity. While robust demand for our reinforcing products stretched lead times significantly, steel wire rod prices also rose sharply over our third quarter and supplier deliveries were unpredictable, leading to scheduling-related inefficiencies at our manufacturing facilities and customer service challenges. We do not anticipate any meaningful supply chain performance improvement through the end of the calendar year in view of planned production outages at various steel mills over coming months and the continuing risk of unplanned outages, which seem to occur with some regularity. Adding pressure to our cost and customer service performance is the chronic shortage of flatbed trucking capacity, which appears unlikely to abate over the course of the next few months. Until we develop more competitive sourcing opportunities, we expect the robust demand environment to support our passing escalating costs through the supply chain. Turning to CapEx. We continue to expect 2021 to come in at approximately $20 million, subject to timing of certain planned expenditures. The new engineered structural mesh production line at our Dayton, Texas plant is being commissioned now. We began commissioning activities by producing relatively simple products, which went well. This week, we've moved toward testing the line with more complex products. Assuming that our progress continues as expected, the line should be released to operations in August and begin a gradual ramp-up towards full capacity. We expect to pursue additional investments in 2021 to support our ESM growth. Our CapEx strategy continues to be focused on reducing cash cost of production, improving the quality of our products, supporting growth initiatives, and improving our information technology infrastructure and capabilities. Looking through the balance of the fiscal year, we will closely monitor market conditions and aggressively pursue the appropriate actions to maximize shipments and optimize our costs. And we're well positioned to pursue attractive growth opportunities, both organic and through acquisition. This concludes our prepared remarks, and we'll now take your questions. Roche, would you please explain the procedure for asking questions?

Your first question comes from Julio Romero with Sidoti & Company.

It's Julio Romero from Sidoti here. Very nice quarter. I guess my first question is just kind of touching on wire rod. Do you expect maybe any additional capacity of wire rod to be brought on domestically over the coming near term or maybe 12 months that could lead to some relief? Or has that shoe kind of already dropped and you've seen capacity, as much capacity as you expect to be brought online has been brought online?

I don't anticipate any additional domestic capacity to come online, Julio. There's potential for certain mills to extend operating hours if they are not currently running at full capacity. The key point is the return of two mills that faced unplanned outages, which significantly reduced market supply. Those plants are expected to be back online this quarter. Otherwise, to our knowledge, there won't be any new brick-and-mortar or hardware available for wire rod production.

Okay. Got it. This might be a silly question, but is there any substitute for wire rod that could potentially be used as an input or a different type of steel or anything like that?

No, not from a practical point of view.

Okay. Okay. And is there a risk of customers maybe turning to substitute products such as traditional rebar rather than Insteel's products, if there isn't enough wire rod to make some steel wire reinforcement on your end?

Well, desperation will cause people to do whatever they have to, to survive. I don't think the supply situation is so dire though that we would expect to see customers revert to rebar for the long term. But I do believe that, as short-term band-aids for supply problems, you'll see some of our customers using rebar. I would point out, though, that rebar is also in short supply. So there's no panacea on the supply side.

It's great to see that the ESM line in Dayton is progressing. Could you provide some insight into potential investments beyond fiscal '21? Specifically, how much additional capacity for engineered structural mesh can you envision building out? What does the future look like in that regard?

Well, Julio, we're taking an approach that focuses on sustained investment in the market as long as we remain optimistic about our growth potential. Although we haven't established a specific target for unit growth, we have implemented substantial technical and marketing infrastructure to enhance our presence in the market. As we've mentioned previously, we anticipate continued strong double-digit growth in units, and we will allow that momentum to drive our capital investments.

Got it. Just one last question from me before I pass it on. On the demand side, it appears that both public and private non-residential sectors are performing very well. Is there anything that concerns you regarding demand?

The hiring environment is extremely challenging, and all our business inputs are coming at a premium cost with limited availability. While we are pleased with the results, we are somewhat apprehensive about how to maintain our momentum.

Your next question comes from Tyson Bauer with KC Capital.

Great quarter. In response to the previous comment, there are no weaknesses in demand across various sectors, including public, private, non-residential, residential, and infrastructure. All of these areas have a strong outlook. Would you agree that this situation gives you more pricing control in the market?

Yes. I mean I wouldn't call it pricing control, but I would say, certainly, you're correct that all sectors are hitting on all cylinders, which provides an environment where availability of the product is at a premium now the same is the case for our raw materials that we're less price-sensitive and more availability-sensitive than we've been in quite some time, and I think that carries through the supply chain.

Are you able then to be a little more choosy as far as product mix and better contribution margins and what you're willing to allocate your supply and deliver to that customer base?

Well, you would think so. But at a point, we have to produce the products for which we have raw material. And it doesn't necessarily always match up with the products that are most desirable for us. And it actually creates some strategic concerns and just a significant frustration because we basically are working schedules around raw material availability now rather than around more important things like customer wishes and needs.

Okay. You talked about the two mill outages, which kind of affect different geographies, more so depending on location. Is that impact expected to be seen in greater inefficiencies in this quarter for Insteel or potentially in the fiscal first quarter?

I'm going to tell you that I think that our fourth fiscal quarter will be the most difficult for us in terms of supply challenges.

And that gets relieved, we hope, by the time you walk into the new fiscal year?

Well, it's day to day and week to week, but we can see out toward the end of our fourth quarter, and we have a little bit of help on the way. But we're definitely going to struggle for July and August.

Is there a point where, even with the tariff situation, that imports become an alternative given the pricing within the U.S. market?

Yes. I think one of the interesting factors we’re facing today is that the 232 tariff remains an issue for us. However, I don't believe there is a strong argument to suggest that if the 232 tariff were removed, it would significantly affect the available supply right now. The trend we are observing is global. The demand for wire rod and all carbon steel products is very high in every region worldwide, and I don’t foresee that changing in the near future. We will continue to advocate for the removal of the 232 tariff, and over time, whether it takes two quarters or four, I believe that abolishing it would greatly improve our sourcing situation. But currently, demand is so strong globally that I don't expect any immediate effect from the elimination of the 232 tariff.

Okay. And last question. Are you self-insured?

For what purpose?

For health insurance for employees and that.

We are, yes.

Are you seeing any big increases in that expense line item or as you go forward in the next 12 months?

That one moves around a lot based on individual large claims that we may incur. But as a general statement, I could tell you that we're pleasantly surprised with the cost profile that we're experiencing right now.

Okay. And you talked about hiring difficulties. Give us a sense of what vacancies are there that you're unable to fill or the length of time to fill vacancies.

All of the above. I mean all vacancies are hard to fill, whether it's in our IS department or in our sales department or at our plants. They're all difficult to fill.

We do have a follow-up question from Julio Romero with Sidoti & Company.

H, I'd love to get your thoughts on a couple of ideas. Maybe given the supply constraints and the demand outlook, it seems like in regards to prices for both wire rod and your products of PC strand and welded wire on the price side, it feels like we're heading towards a new normal of higher highs and higher lows. Would you agree with that assessment?

I think that's likely, Julio. If you look back in time, we've seen these step moves both from metallics that work their way through all of the products downstream, both hot-rolled and fabricated products such as we produce. We saw it in 2004, we saw it in 2008. And while scrap prices and other metallics are going to be volatile up and down, generally, I think we could be in another situation where we're going to see a step-up.

Okay. Earlier this year, I don't remember if it was during the January, March, or April conference call, you made some comments about the possibility of federal infrastructure stimulus actually being approved. You seemed quite confident about it. Do you have any updated thoughts on whether that might still happen? I'd love to hear your insights.

Yes. I have some thoughts, but I don't know that they're appropriate or inappropriate. I'm just amazed at what a mess there is in Washington. I look at it with a mix of amazement and fear. So I think Mark said that it is likely that something will happen on the infrastructure side. And I think that's right. Whether and how good it is for our industry, I think remains to be seen. I think one of the comments I made earlier is that infrastructure is a term that's been so badly abused, it's hardly recognizable today.

And there are no other questions at this time. I would like to turn the call back over to Mr. Woltz for any closing remarks.

Okay. Thank you, Roche. We appreciate your interest in Insteel and we look forward to talking to you next quarter. In the meantime, don't hesitate to contact us if you have questions. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.