Hello, and welcome everyone to the Insteel Industries 2nd Quarter 2025 earnings call. My name is Becky, and I'll be your operator today. During the presentation, you can register a question by pressing * followed by 1 on your keypad. If you change your mind, please press * followed by 2. I will now hand over to your host, H. Woltz, CEO to begin. Please go ahead.

Thank you, Becky. Good morning, and thank you for your interest in Insteel. Welcome to our 2nd quarter 2025 conference call, which will be conducted by Scott Jaffrutti, 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 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 second fiscal quarter relative to the same period last year. While we're glad to see the recovery in our markets, the tumultuous events that followed the rollout of the administration's tariff strategy created new uncertainties for the company. And before I turn the call over to Scott to comment on our financial results, we again thank all of our people for the effective integration of our acquired assets during the first fiscal quarter. Following Scott's comments, I'll take the call back to discuss our business outlook and the impact of tariffs on our company.

Thank you, H, and good morning to everyone joining us on the call. As we reported earlier today, the second quarter of 2025 proved to be a strong quarter for Insteel and marked the second consecutive quarter of favorable shipment trends following the weaker volumes we experienced in the prior year. Improved demand in our construction end markets, in addition to lower manufacturing costs and higher production volume, were the key drivers in our Q2 performance. Net earnings for the quarter rose to $10.2 million from $6.9 million a year ago, and earnings per share increased to $0.52 per diluted share from $0.35 per diluted share in the prior year. Excluding the nonrecurring restructuring charges referenced in our release, net earnings rose to $0.55 per share. Shipments for the quarter increased 28.9% from last year and 17.9% sequentially from Q1. The improved shipping performance in the second quarter was driven by increased activity across most of our construction end markets along with the additional tonnage generated from our first quarter acquisitions. Volume growth remained roughly consistent throughout all three months of the quarter despite disruption conditions in various regions. The price increases were implemented in the first and second quarters to offset escalating raw material costs. To add some perspective to this, published prices for steel wire rod, our primary raw material have increased approximately $150 per ton. We incurred a $1.4 million rise in compensation costs tied to our return on capital-based incentive plan, reflecting stronger financial performance last year. Our effective tax rate for the quarter was 23.2%. This rate remains steady at around 23%. Moving to the cash flow statement, cash flow from operations was adversely impacted by $3.3 million due to a decline in receivables from the going decline in inventory. Our inventory position at the end of the quarter represented 2 months of shipments on a forward-looking basis, calculated off of forecasted Q3 shipments compared with 2.8 months at the end of the first quarter. Finally, our inventories at the end of the second quarter were valued at an average unit cost that approximates our second quarter cost of sales and remains favorable relative to current replacement costs, which will have a positive impact on spreads and margins as we move through the third quarter. We also incurred $2.2 million in capital expenditures in the quarter for a total of $4.9 million through the first half of our fiscal year. Based on forecasted expenditures for the remainder of fiscal 2025, we reduced our full year target to $17 million from the previously communicated target of $22 million. H. will provide more detail on this topic in his remarks. Additionally, in the second quarter, we continued our share buyback program, repurchasing $1.1 million of our common equity equal to approximately 40,000 shares. Finally, from a liquidity perspective, we ended the quarter with $28.4 million of cash on hand and no borrowing outstanding on our $100 million revolving credit facility, providing ample liquidity and financial flexibility going forward. As we enter the third quarter of fiscal 2025, we are cautiously optimistic about our market outlook for the remainder of the year, supported by the continued strength in demand across our markets. Recent shipment trends and overall market sentiment reinforce this view. Although we are still early in the third quarter, our order book has remained strong and shipments in April have exceeded levels from the previous year. However, there are still uncertainties that support our cautious outlook. The long-term demand forecast remains clouded by a shift in U.S. trade policies and the potential economic fallout from the administration's tariff strategy. Turning to the macroeconomic indicators for our construction end markets, the latest reports for the Architectural Billing Index and the Dodge Momentum Index suggest a challenging outlook for business conditions moving forward. In February, the ABI ratio score of 45.5% remained well below the growth threshold of 50%, signaling that firms continue to experience declining billings. Additionally, the Dodge Momentum Index, which tracks non-residential building projects entering the planning phase, saw a decrease of 6.9% in March with commercial planning activity dropping by 7.8%. U.S. emissions, another key metric we monitor, reflected ongoing weakness with January 2025 shipments down 3.1% year-over-year. Finally, the monthly construction spending data from the U.S. Department of Commerce continues to indicate modest growth. The latest February data revealed a total construction spending on a seasonally adjusted annual basis increased by approximately 3% compared to last year. Non-residential construction spending rose by around 4%, however, spending on public highway and street construction, which is a major end-use application for our products, remained relatively flat with an increase of less than 1%. This concludes my prepared remarks. I'll now turn the call back over to H.

Thank you, Scott. During our first quarter conference call and in the earnings release, we noted a substantial acceleration of demand for concrete reinforcing products and commented that we expected the demand recovery to continue into calendar 2025. We're glad to confirm that the positive trend continued through our second quarter, which takes us past the riskiest seasonal influences on our business and gives us confidence that we should perform well for the balance of the year. As stated in the release, the brisk pace of business we've experienced over the past few months is not reflected in the broader macroeconomic indicators that are generally used to measure the strength of the construction industry, but it is nonetheless real. The confidence level of most customers, the interactions between our salespeople and customers, and favorable seasonal trends lead us to believe that business conditions should remain robust at least through the end of our fiscal year. For several quarters in earnings releases and conference calls, we have lamented the unreasonable impact on our field of the 2018 Section 232 steel tariff that was applied to most imports of our raw material, hot-rolled steel but not to imports of finished PC strand. We worked for years with multiple administrations to correct this obvious mistake without any success until recently. While there may be reasons to object to the administration's tariff strategy, I'm glad to report that one provision of the new tariff regime is the application of the 25% Section 232 steel tariff to imports of PC strand and other derivative products of hot-rolled steel wire rod. This precludes the easy circumvention of the tariff by offshore companies that elected to ship finished PC strand into the U.S. rather than hot-rolled steel wire rod, and it eliminates the inequity of our incurring high U.S. costs for raw materials while competing with world market steel prices used to produce PC strand. This tariff anomaly cost Insteel millions of dollars over the course of 7 years. We're also relieved to see that the reciprocal tariffs announced and subsequently paused by the President would not apply to steel products that are covered by the Section 232 steel tariff. This means that, with one notable exception, the world raw material marketplace for Insteel remains as it has been since 2018. That is, the Section 232 steel tariff affects imports of hot-rolled steel wire rod. The exception relates to the re-imposition of Section 232 tariffs on Mexico and Canada, which had been exempted from 232 until March 12. This could impact Insteel marginally in as much as severe U.S. supply constraints had required us to purchase from Canada on a regular basis. We do not expect the Canadian Section 232 tariff impact to be material, although we have serious concerns about adequate domestic supplies of wire rod going forward. I should note that reciprocal tariffs, if they come to pass, could affect Insteel with respect to purchases of capital equipment, spare parts, and certain operating supplies, all of which are imported. At this point, it's impossible to know whether the reciprocal tariffs will become reality or if so, to what extent Insteel might be affected. While we would take advantage of all opportunities to manage our exposure to tariffs, if forced to incur higher costs, we would plan to pass them through in the form of higher selling prices. In our last call, I mentioned that domestic supplies of our primary raw material, hot-rolled steel wire rod, were tight due to two permanent mill closures that occurred or were announced and the absence of a third mill from the market for an indefinite period. As of today, the third mill has communicated plans to restart production but it cannot be considered a source of supply today and we wonder what changes might make the environment for it more hospitable today than last fall when it shut down. And as mentioned, Canada and Mexico are now subject to the Section 232 tariff, which has affected their competitiveness and further tightened supplies available to U.S. purchasers. Uncertainties surrounding adequate supplies of wire rod bear in our third and fourth fiscal quarters resulted in our making commitments to import substantial quantities. While we entered into these transactions reluctantly due to the inherent higher risk of longer lead times, there was clearly no alternative available except to take downtime in our manufacturing facilities. Additionally, the bullish domestic pricing trajectory greatly reduces the pricing risk normally associated with importing, but that risk has not been eliminated. Depending on actual deliveries, we can see raw material inventory levels spike this quarter. Any increase would be short-lived unless we conclude that a higher proportion of offshore supply is required going forward. As you know, during our first quarter, we acquired two manufacturing facilities and production equipment from a third facility. While we closed one manufacturing facility, the integration of the remaining assets is complete and successful. We're pleased with the operations of the Upper Sandusky, Ohio facility and with the operational and freight synergies we've been able to realize to date and that we expect to realize in the future. We could not have accomplished the integrations as quickly or efficiently without sophisticated information systems and diligent professionals at the Upper Sandusky plant and throughout the Insteel organization who made it happen. I'm grateful to everyone involved. Turning to CapEx. As reported in the release, through 6 months CapEx totaled $4.9 million, which is well off the pace of our initial forecast for fiscal 2025 of $22 million, due primarily to the resources devoted to acquisitions, equipment relocations, and integration activities. We have canceled no projects and continue to seek opportunities to expand our product offering and reduce our cash cost of production. Given that we're now in the third quarter of fiscal 2025, we have lowered our CapEx estimate to $17 million and will update expectations during our next call. Looking ahead, we are aware of the substantial risk related to the administration's tariff policies and the future performance of the U.S. economy. Regardless of developments in these areas, we're well positioned to take actions to maximize shipments and optimize our costs and to pursue attractive growth opportunities both organic and through acquisition. This concludes our prepared remarks, and we'll now take your questions. Becky, would you please explain again the procedure for asking questions.

Our first question comes from Julio Romero from Sidoti & Company.

Great. Scott, I wanted to start on how you are viewing and managing the broader operating environment. It sounds like the March quarter for Insteel did see improving business conditions. It sounds like the order book in April is good. But I was hoping you could maybe speak specifically to conditions April to date in terms of the changing tariff policy, the overall level of uncertainty and just provide some color to what you're hearing from your conversations with customers, suppliers, and the overall value chain as to how to manage through this level of uncertainty?

Well, I would tell you, Julio, that we saw a distinct acceleration of our business beginning in the first quarter. So I would view our second quarter as continued momentum that was first evident in our first quarter. I see no reason at this point that we would expect our third or fourth quarters to be different. That business is robust, our year-over-year shipping comparables through April are really solid. And the limiting factor probably in what our company can do at this point is going to be the availability of raw material. So as I mentioned in my prepared comments, the bullish conditions that we see in the market really aren't reflected in the broader macroeconomic indicators that we normally refer to. So something else is responsible for the pickup but the pickup is real; the customers are optimistic. They have good backlogs, they're quoting a lot of business, and I readily acknowledge that all that is subject to change based on people's perception of the impact of the administration's trade policies. So the comments that you hear today are as of today, and we know the conditions could change. We are working to ramp up operating hours at all of our facilities to accommodate the increasing business levels we see. But of course, those ramp-up aspirations are tempered by our view of the availability of raw materials and our outlook for continued robust conditions in the market. But as of right now, I'll tell you that we're trying to operate more hours at every facility, and it continues to be difficult to hire people. So that's where we are.

Okay. Very helpful there. I'm tempted to ask you like what are your thoughts on that disconnect between the macro indicators and what you're seeing on the ground? Why do you think that is?

Well, so over time, we have mentioned on numerous occasions that the lack of objective data connected with consumption of our products or even with our customers' products is frustrating. This has caused us to take a step up the chain and look at more macro factors. Clearly, somewhere in this whole scheme inventories have to have a bearing on what's going on. But it's not simply that our customers and their customers are wanting to get product in the ground and get projects started. I would tell you that the influx of activity that our customers are seeing is solid. So does it mean that the macro factors lag, or does it mean that there's an anomaly in the market that we really can't name? I don't know which it goes, and we'll continue trying to analyze those factors going forward. But right now, we're going strong.

Could you talk about your pricing strategy in this environment? Considering imports and the supply-demand dynamics from your domestic suppliers, how do you see things evolving as we move into 2018?

Yes, we faced challenges since 2018. However, during 2018, 2019, and 2020, we were somewhat protected from the full effect of the Section 232 issue when ocean freight rates from Asia skyrocketed. This situation increased the cost of imported PC strand and provided us some temporary relief. Over the last three years, as ocean rates have decreased and returned to normal, the import of PC strand has become a significant issue for us. The extension of Section 232 should be regarded as a positive development, although it still puts us at a cost disadvantage of $300 to $400 per ton compared to offshore competitors who maintain a significant edge. However, they no longer benefit from the Section 232 advantage. Consequently, the extension for PC strand is beneficial for Insteel. We dealt with import-affected markets for seven years without Section 232 protection, making it more feasible for us to continue this approach moving forward. However, until U.S. and global steel prices align more closely, we will remain at a competitive disadvantage relative to imports. I want to point out, as I have mentioned previously, that only a certain factor contributes to this situation. These kinds of market anomalies have guided our strategic direction.

Our next question is from Tyson Bauer from KC Capital.

Congratulations. The last time we experienced significant disruptions in supply and the end markets was during the COVID period, which was not too long ago. It appears that your current situation is much stronger because the growth is driven by an increase in shipments, higher volumes, and improved health in the end markets, rather than just benefiting from pricing power. How do you perceive the differences between the high inflation and pricing we experienced during COVID compared to now, particularly with the tariffs, while still demonstrating strong underlying growth evident in your shipment increases?

Yes. I mean I would tell you that COVID created some artificial conditions in the supply chain, particularly related to inventories. With the shutdown of part of the economy, it ran supply chain dynamics, which resulted in a manic rebuilding when it happened. I would agree with you that the underlying fundamentals of what we're seeing today, should it continue, are much more solid than what we saw as the economy recovered from COVID. We've never been under the illusion that solid supply and demand relationships are essential for our business to do well. Today, we have that; in '24 and '23, we didn't have it, and our results reflected that. I don't think any of this should really come as a surprise except that I don't know that anyone forecasted the strength of the marketplace that we're seeing today. Certainly, we didn't.

With the expansion to PC strand, this acquisition is very timely as we enter the seasonally strong second half of the year. Are you really seeing that?

Yes. Keep in mind that as we look at what's going on in the marketplace and are uncertain about whether we'll have sufficient quantities of raw materials to fully serve our market, our sensitivity to competitive conditions in the market is lessened. But right now, I think every consumer of steel wire rod is feeling the same impacts of tight supplies and uncertainties about availability, so the natural reaction is that prices are elevating for the hot-rolled product and for our products. How long that continues is unknown, but I certainly see it going through our third quarter. Does it carry over into our fourth quarter? It's hard to say. Insteel is not the only company out there that has turned to the offshore markets to supplement domestic supplies, which are clearly inadequate. I think in the fourth quarter, our suppliers and our market will look around at conditions and just analyze the impact of hot-rolled prices and downstream prices and hopefully make the appropriate decisions at the time.

Okay. Given those comments, does that imply that we will see ASP growth year-over-year next quarter, and really for the second half, along with that shipment growth better utilization, which should create a favorable environment for your spreads? Are all those three things aligning at least for the next couple of quarters?

Well, I mean I think it would be hard to see a deterioration in those factors during our third fiscal quarter. I can't comment on our fourth quarter.

Okay. From looking at state budgets as they're in that process, the federal budget, the continuing resolution, what may or may not be untapped going forward. It doesn't appear to be any lowering of spending, especially on your key markets, and the public spending, which should be favorable for you. Because we are starting off such a low base on residential construction, are all those things favorable for us going forward? Planning may be lower confidence may be lower, but things that are in the pipeline or things that are imminent to begin construction, all those are really just on schedule as they were intended to be.

I mean I think one of the more optimistic things that we're seeing in the marketplace is that while the infrastructure consumption of our product has been pretty consistent, we've seen some of the commercial players with really weak order books over the past couple of years, but that's starting to turn around. The warehouse people, the wall panel people, they are beginning to build backlogs that are encouraging. From our perspective, it appears that part of the market is showing signs of life, which have been rare over the last couple of years.

Okay. And a bookkeeping question, last one for me. On the incentive accrual, did we have any catch-up in the quarter or pull forward based upon your ongoing trend line here that we get back to a more normalized accrual in the third and fourth quarter, Scott?

I don't know if you can say there's a normalized accrual; it's purely going to be dependent on performance. The better we do, the higher that expense is going to be. But we didn't have any catch-up in the quarter based on where we were in the first quarter. Not necessarily. The quarter expense reflects what happened in the quarter. It fluctuates throughout the year. There were some build in Q1 that got triggered in Q2 as we continued moving higher. But I wouldn't say there's any carryover.

Thank you. We currently have no further questions. So I'll hand back to H. for closing remarks.

Okay. Thank you, Becky. We appreciate your interest in the company. We look forward to talking to you next quarter and encourage you to contact us in the meantime if you have questions. Thank you.

This concludes today's call. Thank you for joining us. You may now disconnect your lines.