Q3 2021 Insteel Industries Inc Earnings Call

July 22, 2021

[music].

Good day, and thank you for standing by and welcome to the instill industries third quarter 2021 conference call. At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask the question. During the session you will need to press star 1 on your telephone please be of as of today's conference is being recorded.

If you require any further assistance. Please press star zero and I would now like to hand, the conference over to your Speaker today. Mr. Waltz. Please go ahead Sir.

Thank you good morning, and thank you for your interest and in steel and welcome to our third quarter 2021 conference call, which will be conducted by Mark Carano, Our senior Vice President and 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 for.

And looking statements that are subject to various risks and uncertainties, which could cause actual results to differ materially from those projected these.

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 the first out of accounting.

And 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 and steel posted another quarter of exceptionally strong results and fact that was the highest net revenue quarter achieved and the company's history.

Net earnings for the quarter increased to $18.4 million for 94 cents per diluted share from $6.7 million or <unk> 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 of our concrete reinforcing products and continued escalation and manufacturing costs.

2 elements provide some additional context with respect to this increase relative to the comparable period.

The first since the second quarter of 2021 steel scrap the primary input and the production of wire Rod increased price 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 and average selling prices during.

During that period those products susceptible to import competition, which represented about a third of our revenue and that quarter for experienced pronounced pricing pressures and <unk>.

Ports were surging, while our trade case efforts and the PC strand and the standard welded wire markets were underway.

Shipments for the quarter decreased 1% from last year, but increased 1.2% sequentially from Q2 the.

The largely flat volume growth as compared to last year and sequentially resulted from a tight global's rod supply environment that restrained our ability to meet fully the market demand.

Gross profit for the quarter increased to $16.7 million from a year ago and gross margin expanded to 19, 6% due primarily to widening in spreads as the average selling prices outpaced rod cost increases during the period.

On a sequential basis gross profit was largely flat for gross margin declined 210 basis points.

This was due to increased manufacturing costs, resulting from supply chain driven operating efficiencies at several of our plants.

SG&A expenses for the quarter decreased <unk> 5 million to $6.2 million as a percentage of sales of decreased 210 basis points to 3.8%.

The decrease was the result of zero point $8 million and 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 planned benefit allowable.

The decrease in incentive plan costs was partially offset by an unfavorable zero point $4 million change and 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.

Due to changes and permanent book tax differences.

Looking ahead to the remainder of the year, we would expect our effective tax rate will run around 23% subject to the level of pre tax 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 and 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, we're valued and the average unit cost that was higher than our second quarter cost of sales, but remains favorable relative to current replacement costs.

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, we referenced and the second quarter continued throughout our third quarter.

Confidence and the outlook from our nonresidential construction customer base continues to gain momentum across all of 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 and the recorded history.

While they are leading indicators of future project activity, usually 12 to 18 months out the optimism embedded and these levels seems to be translating into the sustained activity levels. Today that has shown no sign of abating.

Concurrently public nonresidential construction demand has remained durable and in fact never really slowed despite the concern of financial challenges with state level budgets.

Many today or and 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 package, while encouraging remain mired in the politics and complexity of the budget process and Washington.

That said the bipartisan proposal under consideration would provide relatively speaking of substantial boost Daniel federal infrastructure spending.

Supply chain challenges, including both product availability and logistics issues continue and the resulting and 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.

<unk> will provide some additional context on these dynamics and 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 mention of low risk.

Now I'll turn the call back over the age.

Thank you Mark.

As reflected in the release, our strong third quarter results were driven by robust non residential construction markets and escalating steel prices and we're pleased with the solid underlying demand for our products and our financial performance and we think our and steel team mates for their focus on execution excellence and working safely.

And.

Over the course of the last 16 months or people have executed through difficult conditions, including pandemic related uncertainties and inconveniences and then through supply change chain challenges that are complicating life at our plants and our administrative offices.

<unk> 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 nonresidential 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.

And we did not anticipate any meaningful supply chain performance improvement through the end of the calendar year and view of planned production outages at various steel mills over coming months, and the continuing and 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 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 product configurations, assuming that our programmatic.

<unk> continues as expected the line should be released the operations in August and begin a gradual ramp up towards full capacity.

We expect to pursue additional investments and 2021 to support our <unk> growth.

Our capex strategy continues to be focused on reducing cash cost of production and 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 are well positioned to per.

Pursue attractive growth opportunities, both organic and through acquisition.

This concludes our prepared remarks, and we will now take your questions Reshade would you. Please explain the procedure for asking questions.

And that reminded you ask a question you need to press star 1 on your telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster. Your first question line of Julio Romero with the data.

And company the item and company.

Hey, good morning, yes clearer for Sidoti here.

And everyone's doing okay.

Hey, good morning, and good morning.

Hey, very nice quarter.

I guess my first question is just kind of touching on the wire rod.

Do you expect maybe any additional capacity of wire rod and be brought on domestically.

Over the coming.

The near term or or maybe 12 months that could lead to some relief for or how is that true kind of already dropped and you've seen capacity as much capacity as you expected the bottom line has been and bottom line.

I don't expect any domestic additional capacity to come online and Julio.

Operating hours could be expanded by certain mills that may not be running full full out at this point and I guess the.

Maybe the most important thing is the return to the market of 2 mills that had unplanned outages and.

And and unexpectedly.

Curtailed market supply pretty significantly and those plants should be coming back online.

During this quarter up, but but no otherwise otherwise theres, no more brick and mortar and hardware to produce wire rod coming on line.

Knowledge.

Okay got it and.

And just maybe a silly question, but is there any substitute for wire rod it could potentially be used as an input or for different type of steel or anything of that nature.

No not not from a practical point of view.

Okay, Okay and is there.

Is there a risk of customers, maybe turning to substitute products, such as traditional <unk> rather than <unk> sales products.

Okay.

If there isn't enough wire rod to make some.

Steel wire reinforcement on your end.

Well you know.

Desperation will cause people to do whatever they have to.

Survive.

And I don't think of the supply situation is so dire, though that we would we would expect to see customers revert to rebar for the long term, but I do believe that as a short term band AIDS for supply of problems Youll see youll see some of our of our customers using rebar I would point out the.

And that rebar is also in short supply.

So theres not theres no panacea all of the supply side.

Okay. That's helpful. Maybe just turning to some of your Capex commentary, it's very exciting the here the ESN line and Dan is underway.

When you see 2 additional investments that could potentially be.

You could be you could be doing even beyond fiscal 'twenty..1 can you maybe give us a sense of.

Yes, how much capacity could you potentially build out for engineered structural mesh.

And what's the runway there.

Well we're.

We're taking a pull through of approach on that that will continue.

And first and then the market as long as we like our growth prospects, but we haven't set of certain objective for <unk>.

For unit growth.

But we have put in place significant technical infrastructure and marketing infrastructure to continue our building our presence and the market.

So I think as we said in the past.

We believe we will continue to see strong double digit growth and units and we're just going to let we're going to let that momentum pull our capital investment growth.

Got it and then.

Just last 1 for me and I'll pass it on.

On the on the demand side of it seems like both public and private non res are doing very well.

What is there anything that keeps you up at night and the demand side.

People.

And then the hiring investment the or the hiring environment is extremely extremely difficult.

And really all of the inputs into into our business or our coming at premium cost with limited availability and.

And I will tell you that while the results are our all of our.

Of our gratifying.

We're a little bit Isle and edge around here about.

About how we keep the momentum going.

Helpful. Thanks for taking the questions.

Thank you.

Again, if you would like to ask a question. Please press Star then the number 1 and your telephone keypad again of starting and number 1 to ask the question. Your next question the line of Tyson Bauer with KC capital.

Hey, good morning, gentlemen, great quarter.

Good morning, Good morning, Tyson just to piggyback on that last question and comment.

Theres really no areas of weakness on the demand side as far as from various sectors public private non res and <unk> infrastructure.

All of those seem to have a very robust outlook would you agree and that allows more.

It allows you to have that price and control within the market.

Yes, I mean, I wouldn't call it pricing control, but I would say, it's certainly you are correct that that all sectors are hitting on all cylinders, which provides an environment where we're <unk>.

Availability of the product is at a premium now of the same is the case for our raw materials that we are less we are less price sensitive and more availability of sensitive and we've been in quite some time and 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.

The contribution margins of what you're willing to.

Allocate your supply.

And deliver to the for that customer base.

Well you would think so but at a point we have to produce the products.

And for which we have raw material.

And it doesn't necessarily always match up with the products that are most desirable for us and actually.

Create some strategic concerns and.

And <unk>.

Just cigna.

Significant frustration because we basically are work and schedules around raw material availability now rather than around more important things like customer wishes and.

And needs. Okay, you talked about the 2 mill outages.

Kind of affect different geographies more so depending on location.

Is that impact expected to be seen and greater inefficiencies and this quarter for instill or potentially and.

The fiscal first quarter.

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

And that gets relieved.

Hope by the.

Tom you walk into the new fiscal year.

Well.

And its day to day and week to week, but we can see out we can see out towards the end of our fourth quarter and we have a little bit of help on the way.

But we're we're definitely going to struggle.

Okay and for July and August.

There a point, where even with the tariff situation that imports become.

Alternative.

Given the pricing within the and the U S market.

Yes, I think thats, 1 of the interest and interest and factors that we're dealing with today that the $2.32 tariff is certainly still a thorn in our side, but I don't think a reasonable argument can be made that if $2.32 were to go away that there would be a significant impact on on available supply of today.

And the phenomenon that we're seeing is global.

Demand for wire Rod and all other carbon steel products as is hitting on all cylinders and every region of the world.

And.

And I don't see that change and in the short term so.

Certainly we'll continue to work for the elimination of $2.32, and we will make our case and over time 2 quarters for 4 quarters.

And your number I think the elimination of $2.32 would greatly help our sourcing situation, but right now.

Demand is so robust worldwide that I, just wouldn't expect I wouldn't expect any immediate impact of the elimination of $2.32.

And last question.

And our yourself insurer.

For what purpose or health insurance for employees and that.

We are yes are you seeing any big increases and that.

Expense line item or as we go for the next 12 months.

And that 1 moves around a lot based on on individual large claims that we may incur but as a general statement I can tell you that we're pleasantly shocked.

Surprised with the cost profile of what we're experiencing right now.

And you talked about hiring difficulties and give us a sense of what.

Vacancies are there that you are unable to fill or the length of time to fill vacancies.

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

Phil.

Okay. Thank you gentlemen.

Thank you thanks.

Again, if you would like to ask a question. Please press Star then the number 1 on your telephone keypad. We do have a follow up question from Julio Romero with Sidoti and company.

Hey, yes, thanks, very much for taking the follow up here.

I'd love to get your thoughts on.

On a couple of ideas.

Maybe yes.

And given the supply constraints and the demand outlook. It seems like the in regards to prices for for both wire Rod and your products of PC strand and welded wire on the price side. It feels like we're heading towards the new normal of higher highs and higher lows.

Would you agree with that assessment.

I think thats likely Julio if you look back and time, we've seen we've seen the step moves both for metallics that work their way through all of the products downstream, both hot rolled and and.

Fabricated products such as we produce we saw it in 2004, we saw it in 2008.

And while while.

Scrap prices and other metallics are going to be volatile up and down.

And generally generally I think we could be and another situation, where we're going to see a step up.

Okay, Okay, and then secondly.

Yes earlier this year I don't remember for most of January call. It over the March for the.

The April conference call.

And she gave some comments on the potential of federal infrastructure stimulus actually passing through.

I think you sounded pretty pretty confident on that I don't know if you have any thoughts on.

And.

Of that overall and do you think that still might happen and any thoughts there I'd love to think of right now.

Yes.

But I don't know the appropriate yes.

For.

I, just I'm, just amazed at <unk> and <unk>.

Washington.

And I look at it with the mix of amazement and fear so.

Mark Mark said that bet, it's likely that something will happen on the infrastructure side and I think that's right.

Whether whether whether and how good it is for for our industry I think remains to be seen.

I think 1 of the comments I made earlier is the infrastructure as a term that's been so badly abused it's hardly recognize the bulk of it.

Very much appreciate it thanks very much.

Again, if you would like to ask the question. Please press Star then and the number 1 and your telephone keypad again, the starting of number 1 to ask a question, we'll pause for just a moment to go part of the Q&A roster.

Yes.

Again, if you would like to ask a question. Please press Star then the number 1 and your telephone keypad.

And there are no other questions at this time.

And I would like to turn the call back over to Mr. Walsh for any closing remarks.

Okay. Thank you reshape we appreciate your interest and and steel and we look forward to talking to you next quarter and 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.

Okay.

And.

Yes.

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Yes.

Okay.

[music].

And.

[music].

Good day, and thank you for standing by and welcome to the instill industries third quarter 'twenty 'twenty 1 conference call. At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask the question. During the session you will need to press star 1 on your telephone please be of off of today's conference is being recorded if you require.

Any further assistance please press star zero and I'd now like to hand, the conference over to your Speaker today. Mr. Walsh. Please go ahead Sir.

Thank you.

And thank you for your interest and and steel welcome to our third quarter 2021 conference call, which will be conducted by Mark Corrado, Our senior Vice President and 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.

These risk factors are described in our periodic filings with the SEC.

And 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.

And as we reported in our press release earlier today and steel posted another quarter of exceptionally strong results and factor was the highest net revenue quarter achieved and the Companys history.

Net earnings for the quarter increased to $18.4 million for 94 cents per diluted share from $6.7 million or <unk> 34 per diluted share.

And 2 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 and the production of wire Rod increased price 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 and average selling prices during that period those products susceptible to import competition, which represented about a third of our revenue and that quarter for experienced pronounced pricing pressures and imports were surging, while our trade case efforts and 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's rod supply environment that restrained our ability to meet fully the market demand.

On a sequential basis gross profit was largely flat for gross margin declined 210 basis points.

This was due to increased manufacturing costs, resulting from supply chain driven operating efficiencies at several of our plants.

SG&A expense for the quarter decreased <unk> 5 million to $6.2 million as a percentage of sales of decreased 210 basis points to 3.8% the.

The decrease was the result of zero point $8 million and 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 zero point $4 million change and 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.

Due to changes and permanent book tax differences.

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 and 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, we're valued and average unit cost that was higher than our second quarter cost of sales, but remains favorable relative to current replacement costs.

We concluded the quarter with $89.8 million of cash on hand, and no borrowings outstanding on our $100 million revolving credit facility.

The confidence and the outlook from our nonresidential construction customer base continues to gain momentum across all of our sales regions.

This perspective is supported by a widely monitored leading indicators, which are now reporting positive metrics on par with levels before the financial crisis of a decade ago and approaching all time highs and the recorded history.

Concurrently public nonresidential construction demand has remained durable and in fact never really slowed despite the concern of financial challenges with state level budgets.

Many today are and a stronger position than they were pre pandemic, thanks to federal support and less dire budget outcomes and we're originally forecasted a year ago.

Ongoing discussions for potential long term infrastructure package, while encouraging remain mired in the politics and complexity of the budget process and Washington that said the bipartisan proposal under consideration would provide relatively speaking of substantial boost annual federal infrastructure spending.

Unfortunately, we believe this dynamic will continue to be an issue for at least the remainder of the calendar year.

<unk> will provide some additional context on these dynamics and 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 and no longer pose any mention of a risk.

Now I'll turn the call back over to H.

Thank you Mark.

As reflected in the release, our strong third quarter results were driven by robust non residential construction markets and escalating steel prices and we're pleased with the solid underlying demand for our products and our financial performance and we think our and steel teammates for their focus on execution excellence and working safely.

And.

Over the course of the last 16 months or people have executed through difficult conditions, including pandemic related uncertainties and inconveniences and then through supply change chain challenges that are complicated life at our plants and our administrative offices, we are thankful for their perseverance through.

Gordon area of circumstances.

Looking ahead, we expect continued market strength driven by significantly improved public finances at the state and local levels together with elevated private nonresidential 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 and view.

Of planned production outages at various steel mills over coming months, and the continuing and 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.

And 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 to expect 2021 to come in at approximately 20 million subject to timing of certain planned expenditures the.

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 towards testing along with more complex product completed durations, assuming that our progress.

<unk> continues as expected the line should be released the operations in August and begin a gradual ramp up toward full capacity.

We expect to pursue additional investments and 2021 to support our <unk> growth.

This concludes our prepared remarks, and we'll now take your questions. Michelle would you. Please explain the procedure for asking questions.

And remind you ask a question you need to press star 1 on your telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster. Your first question line of Julio Romero with deep data and.

And company data and company.

Hey, good morning, yes clearer for Sidoti here.

And everyone is doing okay.

Good morning, and good morning.

Hey, very nice quarter.

I guess my first question is just kind of touching on the wire rod.

Do you expect maybe any additional capacity of wire rod would be brought on domestically.

Over the coming.

The near term or or maybe 12 months that could lead to some relief or or has that true kind of already drop and you've seen capacity as much capacity as you expected the bottom line Hasnt bottom line.

I don't expect any domestic additional capacity to come online and Julio.

Operating hours could be expanded by certain mills that may not be running full full out at this point and I guess the.

And maybe the most important thing is the return to the market of 2 mills that had unplanned outages and.

And and unexpectedly curtailed.

Curtailed market supply pretty significantly and those plants should be coming back online.

And during this quarter.

But but no otherwise otherwise theres, no more brick and mortar and hardware to produce wire rod coming on line.

Knowledge.

Okay got it and.

We expect the 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 of that nature.

No not not from a practical point of view.

Okay, Okay and is there.

Is there a risk of customers, maybe turning to substitute products, such as traditional var, rather than and sales products.

Yes.

If there isn't enough wire rod to make some the.

Steel wire reinforcement on your end.

Well you know.

Desperation will cause people to do whatever they have to survive.

And that rebar is also in short supply.

So there is not there is no panacea on the supply side.

Okay. That's helpful. Maybe just turning to some of your Capex commentary, it's very exciting to hear the ESN line and day and is underway.

When you see 2 additional investments that could potentially be.

You could be you could be doing even beyond fiscal 'twenty..1 can you maybe give us a sense of.

Yes, how much capacity could you potentially build out for engineered structural mesh.

And what's the runway there.

Well only of.

We're taking a pull through of approach on that that will continue.

And first and then the market as long as we like our growth prospects, but we haven't set of certain objective for for unit growth.

But we have put in place significant technical infrastructure and marketing infrastructure to continue our building our presence and the market.

So think.

I think as we said in the past.

We believe we will continue to see strong double digit growth and units and we're just going to let we're going to let that momentum pull our capital investment through.

Got it and then just last 1 for me and I'll pass it on.

On the and the demand side of it seems like both public and private non res are doing very well.

What is there anything that keeps you up at night and the demand side.

People.

And the hiring investment the or the hiring environment is extremely extremely difficult and.

And really all of the inputs into into our business or our coming at premium cost with limited availability of.

And I'll tell you that while the results are R. R.

Our gratifying.

We're a little bit Isle and edge around here about.

About how we keep the momentum going.

Helpful. Thanks for taking the questions.

Thank you.

Again, if you would like to ask the question. Please press Star then the number 1 and your telephone keypad again of starting and number 1 to ask a question. Your next question the line of Tyson Bauer with KC capital.

Hey, good morning, gentlemen, great quarter good morning.

Good morning, Tyson just to piggyback on that last question and comment.

And there's really no areas of weakness on the demand side as far as from various sectors.

Click per.

And non res and <unk> infrastructure.

All of those seem to have a very robust outlook would you agree and that allows more.

It allows you to have that price and control within the market.

Yes, I wouldn't call it pricing control, but I would say certainly you are correct that that all sectors are hitting on all cylinders.

<unk> provides an environment, where where availability of the product is at a premium now the same is the case for our raw materials that we are less we are less price sensitive and more availability of sensitive than we've been in quite some time and and I think that carries through the supply chain are you able then.

And to be a little more choosy as far as product mix and better.

Contribution margins of what you're willing to.

Allocate your supply.

And deliver to the for 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.

And it doesn't necessarily always match up with the products that are most desirable for us and it actually.

Create some strategic concerns and.

And.

Just significant frustration, because we basically of work and schedules around raw material availability now rather than around more important things like customer wishes and the.

Needs Okay.

What about the 2 mill outages.

Affect different geographies more solid depending on location.

Is that impact expected to be seen and greater inefficiencies and this quarter for instill or potentially and.

Fiscal first quarter.

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

And that gets relieved.

Hope.

By the time, you walk into the new fiscal year.

Well, it's day to day and wait to wait, but we can see out 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 we're definitely going to struggle.

Okay for July and August.

Is there a point, where even with the tariff situation that imports become.

Alternative.

Given the pricing within the and the U S market.

Yes, I think thats, 1 of the interest and interest and factors that we're dealing with today that the $2.32 tariff is certainly still the warrant and our side, but I don't think a reasonable argument can be made that if $2.32 were to go away that there will be a significant impact for all on available supply of today.

Day, the phenomenon that we're seeing is global.

Demand for wire Rod and all other carbon steel products as is hitting on all cylinders and every region of the world and and.

And I don't see that change and in the short term. So certainly we'll continue to work for all of the elimination of $2.32, and we will make our case and over time 2 quarters for 4 quarters pick your number I think the elimination of $2.32 would greatly help our sourcing.

<unk>, but but right now.

Demand is so robust worldwide that I, just wouldn't expect I wouldn't expect any immediate impact of the elimination of $2.32.

Okay.

Last question.

Are you self insured.

For what purpose or health insurance for employees and that.

We are yes are you seeing any big increases and that.

Expense line item or as you go for the next 12 months.

And then that 1 moves around a lot and based on on individual large claims that we may incur but as a general statement I can tell you that we're pleasantly share.

Just with the cost profile of what we're experiencing right now, okay, and you talked about hiring difficulties and give us.

The sensor.

Vacancies are there that you are unable to fill or the length of time to fill vacancies.

All of the above I mean.

All of vacancies are hard to fill whether it's in our eyes department or and our sales department or at our plants, they're all difficult.

Phil.

Okay. Thank you gentlemen.

Thanks.

And again, if you'd like to ask a question. Please press Star then the number 1 on your telephone keypad. We do have a follow up question from Julio Romero with Sidoti and company.

Hey, yes, thanks, very much for taking the follow up here.

I'd love to get your thoughts on.

On a couple of ideas.

Maybe yes.

Yes, given the supply constraints and the demand outlook. It seems like the in regards to the prices for for both wire Rod and and your products of PC strand and wildfire on the price side of it feels like we're heading towards the new normal of higher highs and higher lows.

Would you agree with that assessment.

I think thats likely Julio if you look back and time, we've seen we've seen the step moves.

Both for metallics that work their way through all of the products downstream, both hot rolled and and fabrics.

Fabricated products such as we produced solid and 2004, we saw it in 2008.

And while while scrap.

Scrap prices and other metallics are going to be volatile up and down.

Generally generally I think we could be and another situation, where we're going to see a step up.

Okay, Okay, and then secondly.

Yes earlier this year I don't remember if it was the January call it for the March.

The April conference call.

And she gave some comments on the potential of federal infrastructure stimulus actually passing through.

I think you sounded pretty pretty confident on the I don't know if you have any thoughts on.

Has.

And that overall and do you think that still might happen and any thoughts there I'd love to think of right now.

And yes, some thoughts, but I don't know where appropriate.

Yes.

For our part.

I'm just amazed of quarter myths there is.

And Washington.

And with the mix of amazement and fear.

And so.

I think Marc Marc said that bet, it's likely that something will happen on the infrastructure side, and I think thats right whether weather.

Whether and how good it is for for our industry I think remains to be seen I think 1 of the comments I made earlier is that infrastructure is a term that's been so badly abused it's hardly recognize the bulk of that.

<unk>.

Very much appreciate it thanks very much.

Again, if you would like to ask the question. Please for starting and number 1 and your telephone keypad again, the starting of number 1 to ask a question, we'll pause for just a moment to go paths Q&A roster.

And again, if you would like to ask a question please price starting and number 1 and your telephone keypad.

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

Okay. Thank you reshape we appreciate your interest and and steel and we look forward to talking to you and next quarter and 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.

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