Q1 2025 Insteel Industries Inc Earnings Call

[music].

Good morning, and thank you for joining the <unk> industries first quarter 2025 earnings call. My name is Harry and I'll be your operator today.

Operator: Good morning and thank you for joining the Insteel Industries First Quarter 2025 Earnings Call.

Operator: My name is Harry and I'll be your operator today. During the presentation, you can register for questions by pressing star followed by one on your telephone keypad. If you change your mind, please press star followed by two to exit.

During the presentation you can register for questions by pressing star followed by one on your telephone keypad. If you change your mind. Please press star followed by two to execute.

Harry: I would now like to hand the conference over to H. Woltz, Insteel Industries President and CEO.

Speaker Change: I would now like to hand, the conference H Woltz can still industries', President and CEO. Mr. Woltz. Please go ahead.

Howard Woltz: Mr. Woltz, please go ahead. Thank you, Harry. Good morning.

Speaker Change: Thank you Gary Good morning, Thank you for your interest in and steel and welcome to our first quarter 2020 conference call, which will be conducted by Scott <unk>, Our vice President CFO and Treasurer and me.

Howard Woltz: Thank you for your interest in Insteel and welcome to our first quarter 2025 conference call, which will be conducted by Scott Jafroodi, 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 first fiscal quarter relative to the same period last year.

Speaker Change: Before we begin let me let me remind.

Speaker Change: Mind, you that some of the comments made in our presence at <unk> 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.

Speaker Change: We're pleased to have experienced no material upturn in business activity during the first fiscal quarter relative to the same period last year.

Howard Woltz: Seasonally, however, trends were normal, resulting in lower shipments sequentially. Following the lackluster demand environment that persisted through fiscal 2024, we made two important acquisitions during our first quarter that we expect to deliver solid returns for shareholders going forward.

Speaker Change: Seasonally however trends were normal resulting in lower shipments sequentially.

Speaker Change: Following a lackluster demand environment that persisted through fiscal 2024, we made two important acquisitions during our first quarter that we expect to deliver solid returns for shareholders going forward.

Scott Jafroodi: I'm going to call, turn the call over to Scott to comment on our financial results for the quarter and the macro environment, and then I'll pick it up to discuss our business outlook and provide some insight on the rationale for our acquisition activity.

Speaker Change: Let me turn the call over to Scott to comment on our financial results for the quarter and the macro environment and then I'll kick it off to discuss our business outlook and provide some insight on the rationale for acquisition activity.

Scott Jafroodi: Thank you, H, and good morning to everyone joining us on the call. Earlier today, we reported our results for the first quarter of fiscal 2025, which were largely in line with the same period last year. We believe that improved spread between selling prices and raw material costs, coupled with increased demand from our concrete reinforcing products, offset the impact of higher selling general and administrative expenses. Net earnings for the quarter were unchanged at $1.1 million or $0.06 per share. However, after adjusting for the non-recurring charges outlined in our press release, adjusted net earnings increased to $0.10 per share.

Scott: Thank you H and good morning to everyone joining us on the call earlier today, we reported our results for the first quarter of fiscal 2025, which were largely in line with the same period last year improved spreads between selling prices and raw material costs, coupled with increased demand from our concrete reinforcing products offset the impact.

Scott: Higher selling general and administrative expenses.

Scott: Net earnings for the quarter were unchanged at $1 1 million or <unk> <unk> per share. However, after adjusting for the nonrecurring charges outlined in our press release adjusted net earnings increased to 10 cents per share.

Scott Jafroodi: Shipments for the first quarter, typically our slowest period due to winter weather and holiday schedules, increased 11.4% year over year. This strong performance is driven by increased order activity across our commercial and infrastructure end markets, along with incremental volumes from our first quarter acquisitions of Engineered Wire products and O'Brien Wire products of Texas. Additionally, first quarter volumes were benefited by shipments deferred from the fourth quarter due to weather-related delays as well as demand from customers seeking to complete projects ahead of the winter season. Average selling prices for the quarter declined 4.3% year over year, reflecting the competitive market conditions experienced throughout the past year and the ongoing impact of low-priced PC strand imports.

Scott: Shipments for the first quarter typically our slowest period winter weather and holiday schedules increased 11, 4% year over year sequentially shipments declined by four 5% from Q4, it considerably smaller dropped an unusual seasonal decrease this.

Scott: This strong performance was driven by increased order activity across our commercial infrastructure end markets, along with incremental volumes from our first quarter acquisitions of engineered bar products and O'brien wire products in Texas.

Scott: Italy first quarter volumes benefited by shipments deferred from the fourth quarter due to weather related delays as well as demand from customers seeking to complete projects ahead of the winter season.

Scott: Average selling prices for the quarter declined four 3% year over year, reflecting the competitive market conditions experienced throughout the past year and the ongoing impact of low priced PC strand imports. However, on a sequential basis average selling prices increased one 1% compared to Q4 driven by the implementation.

Scott Jafroodi: However, on a sequential basis, average selling prices increased 1.1% compared to Q4, driven by the implementation of price increases during the quarter in response to rising raw material costs stemming from tightening broad supply. Gross profit for the quarter improved to $9.5 million from $6.3 million a year ago, with gross margin expanding 210 basis points to 7.3% from 5.2%. This improvement was driven by widening spread between cement prices and raw material costs, along with higher shipment volumes partially offset by increased conversion costs. On a sequential basis, gross profit declined by $2.7 million from the fourth quarter and gross margin narrowed by 180 basis points.

Scott: The price increases during the quarter in response to rising raw material costs stemming from tightening broth supply.

Scott: Gross profit for the quarter improved to $9 5 million $6 3 million a year ago with gross margin expanding 210 basis points to seven 3% a five 2%.

Scott: This improvement was driven by widening spreads between selling prices and raw material costs, along with higher shipment volumes, partially offset by increased conversion costs.

Scott: On a sequential basis gross profit declined by $2 7 million from the fourth quarter and gross margin narrowed by 180 basis points.

Scott Jafroodi: As noted earlier, in response to the recent rise in raw material costs, we have amended price increases during the quarter. Moreover, an additional price adjustment across most of our product lines went into effect earlier this month. These pricing actions are expected to favorably impact second quarter spreads and margins as higher selling prices will align with consumption of lower cost inventories under the first in, first out accounting methodology. Finally, gross margin for the quarter was unfavorably impacted by our two recent acquisitions. The acquisitions resulted in a revaluation of the acquired inventory to its fair market value as required in the purchase accounting standard.

Scott: As noted earlier in response to the recent rise in raw material cost Lees amended price increases during the quarter. Moreover, an additional price adjustment across most of our product lines went into effect earlier. This month. These.

Scott: These pricing actions are expected to favorably impact second quarter spreads and margins as higher selling prices will align with the consumption of lower cost inventories under the first in first out accounting methodology.

Scott: Finally gross margin for the quarter was unfavorably impacted by our two recent acquisitions. The acquisitions resulted in a revaluation of acquired inventory to fair market value as required under purchase accounting standards.

Scott Jafroodi: This adjustment temporarily increased the cost of goods sold on the revalued inventory with sold, which in turn put downward pressure on our gross margins during the period. We estimate that this adjustment lowered our gross margin by 110 basis points for the quarter. This impact is not reoccurring and is expected to normalize as the remaining revalued inventory is sold and replaced with inventory recorded at standard cost. SG&A expense for the quarter rose by $1.5 million to $7.9 million or 6.1% of net sales. compared to 6.4 million or 5.2% of net sales in the prior year. This increase was primarily attributed to a year-over-year change in the cash and render value of life insurance policies, which declined by $275,000 in the current year, compared to a $675,000 gain in the prior year, reflecting fluctuations in the value of the underlying investment.

Scott: This is just a temporary increase the cost of goods felt on the revalue inventory was sold which in turn put downward pressure on our gross margins. During the period, we estimate estimate that this adjustment lowered our gross margin by 110 basis points for the quarter.

Scott: This impact is non reoccurring and is expected to normalize at the remaining revaluing inventories sold and replace with inventory recorded at standard cost.

Scott: SG&A expense for the quarter rose by one 5 million to $7 9 million or six 1% of net sales.

Scott: With $6 4 million or five 2% of net sales in the prior year.

Scott: This increase was primarily attributed to a year over year change in the cash surrender value of life insurance life insurance policies.

Scott: <unk> declined by $275000 in the current year compared to $675000 gain in the prior year, reflecting fluctuations in the value of the underlying investments.

Scott Jafroodi: Additionally, amortization expense rose by $220,000, driven by intangible assets recognized from our recent acquisition. In addition to higher SG&A expense, we recorded $700,000 in restructuring charges during the quarter. These charges included asset impairment, severance, equipment relocation, and plant closure costs related to the recently announced consolidation of our weldable wire manufacturing operation. This consolidation included the closure of our facility in Warren, Ohio, which we acquired through our purchase of engineered wire products. Furthermore, we incurred $300,000 of acquisition costs during the period for legal, accounting, and other professional fees related to our acquisition. Our effective tax rate fell slightly to 26.1% from 27.2% a year ago.

Scott: Additionally, amortization expense were always about $220000 driven by intangible assets recognized from our recent acquisitions.

Scott: In addition to higher SG&A expense, we recorded $700000 in restructuring charges. During the quarter. These charges included asset impairment severance and equipment relocation of plant closure costs related to the recently announced consolidation of our welded wire manufacturing operations.

This consolidation included the closure of our facility in Warren, Ohio, which we acquired through our purchase of engineered bar products. Furthermore, we incurred $300000 of acquisition cost during the period for legal accounting professional fees related to our acquisitions.

Scott: Our effective tax rate fell slightly to 26, 1% from 27, 2% a year ago. The decrease was largely driven by the effect of at St. Pat's item, which had an amplified impact on the rate due to the lower pre tax earnings.

Scott Jafroodi: The decrease was largely driven by the effect of its discrete tax item, which had an amplified impact on the rate due to the lower pre-tax earnings. Looking ahead to the balance of the year, we expect our effective rate to run close to 23%, subject to the level of three tax earnings, both tax differences, and the other assumptions and estimates that compose our tax provision calculations.

Scott: Looking ahead to the balance of the year, we expect our effective rate to run close to 23%. So just to level of pre tax earnings book tax differences and the other assumptions and estimates that compose our tax provision calculation.

Scott: Moving to the cash flow statement of balance sheet cash flow from operations provide a $19 million of cash in the first quarter. This was primarily driven by the changes in net working capital, which included a reduction in receivables, reflecting the usual seasonal slowdown in sales and a decrease in inventories, resulting from lower raw material purchases accurate.

Scott Jafroodi: Moving to the cash flow statement and balance sheet. Cash flow from operations provided $19 million of cash in the first quarter. is primarily driven by the changes in net working capital, which included a reduction in receivables, reflecting the usual seasonal slowdown in sales, and a decrease in inventories, resulting from lower raw material purchases after excluding the impact of the inventory acquired through our acquisition. Our inventory position at the end of the quarter represented 2.8 months of shipments on a forward-looking basis, calculated off of our forecast at Q2 shipments. Finally, our inventories at the end of the first quarter were valued at an average unit cost slightly lower than our first quarter cost of sales and below current replacement costs, which should favorably impact spreads and margins during the second quarter as we consume the lower cost material.

Scott: Schools and the impact of the inventory acquired through our acquisitions.

Scott: Our inventory position at the end of the quarter represented two eight months of shipments on a forward looking basis calculated off of our forecasted Q2 shipments.

Scott: Finally, our inventories at the end of the first quarter prevented an average unit cost slightly lower than our first quarter cost of sales and below current replacement cost, we should favorably impact spreads and margins during the second quarter as we can see in the lower cost material.

Scott: We incurred $2 $7 million in capital expenditures in the first quarter, we remain committed to our full year target of 22 million eight will provide more detail on this topic in his remarks.

Scott Jafroodi: We incurred $2.7 million in capital expenditures in the first quarter and remain committed to our full-year target of $22 million. H will provide more detail on this topic in his remarks. In December, we returned $19.4 million of capital to our shareholders through the payment of a $1 per share Special Cash Dividend in addition to our regular quarterly dividend. This marks the eighth time in the last nine years that we have issued a Special Cash Dividend. Also, during the first quarter, we continued our share buyback, reversing $670,000 of common equity, equal to approximately 22,000 shares. From a liquidity perspective, after funding two acquisitions during the quarter and paying the $1 per share of special dividends, we ended up with $36 million in cash on hand and no borrowings outstanding under a $100 million revolving credit facility.

Scott: In December we returned $19 $4 billion of capital to our shareholders.

Scott: The payment of a $1 per share special cash dividend. In addition to our regular quarterly dividend. This marks the eighth time in the last nine years that we have issued a special dividend.

Scott: Also during the first quarter, we continued our share buyback repurchasing $670000 or common equity equal to approximately 22000 shares.

Scott: From a liquidity perspective after funding two acquisitions during the quarter and paying the $1 per share special dividend.

Scott: And it was $36 million in cash on hand, and no borrowings outstanding under $100 million revolving credit facility.

Scott Jafroodi: This strong financial position provides us with significant flexibility and the capability to pursue additional growth opportunities as they arise.

Scott: This strong financial position provides us with significant flexibility and the capability to pursue additional growth opportunities as they arise.

Scott Jafroodi: Turning to the macro indicators for our construction and markets, the latest reports for the Architectural Billing and Dodge Amendment Indexes, which are leading indicators for non-residential building construction, offer an improving view of the market conditions going forward. In November, ABI remained in active territory with a score of 49.6. In the case of decline in business conditions, however, despite finishing below 50, building and architectural firms stabilized after nearly two years of decline. In addition, inquiries into new projects are increasing. and Curtick Signed Ford. The Dodge Amendment Index, another leading indicator for non-residential building construction, rebounded 10.2% in December, with commercial planning increasing over 14%, driven mainly by data center and warehouse planning activities.

Scott: Turning to the macro indicators for our construction end markets. The latest reports for the architectural billings and Dodge momentum indexes, which are leading indicators for non residential building construction offer an improving view of the market conditions going forward.

Scott: In November Abi remained in negative territory for score of $49 six.

Scott: Any score below 50 indicates a decline in business conditions. However, despite finishing below 50.

Scott: Architectural for our stabilized after nearly two years of decline and additional inquiries to new projects are increasing and encouraging sign moving forward.

The Dodge momentum index, another leading indicator for nonresidential building construction rebound at 10, 2% in December with commercial planning, increasing over 14% driven mainly by data center warehouse planning activity on.

Scott Jafroodi: On a year-over-year basis, the overall index was higher by 19%. DOJ noted that the strong performance of the index this past year is expected to support non-residential construction spending throughout calendar 2025. The monthly construction spending data from the U.S. Department of Commerce continued to remain fairly strong, with the November report showing total spending on a seasonally adjusted basis up approximately 3% from last year, with non-residential construction up 2.8%. However, public highway and street construction, one of the larger end uses for our products, was down 3.6%. Finally, U.S. cement shipments, another measure that we monitor, shows signs of recovery compared to last year, as October 2024 shipments were up 3.5% from the prior year.

Scott: On a year over year basis overall index was higher by 19%.

Scott: It's noted that the strong performance of the index. This past year is expected to support nonresidential construction spending throughout calendar 2025.

Scott: The monthly construction spending data from the U S Department of Commerce continue to remain fairly strong within the November report showing total spending on a seasonally adjusted basis up approximately 3% from last year with non residential construction up two 8%. However, public highway and street construction one of the larger end uses for our products was down.

Scott: Three 6%.

Scott: Finally U S cement shipments another measure that we monitor show signs of recovery compared to last year and October 2024 shipments are up three 5% from the prior year. However year to date shipments are still down 5%.

Scott Jafroodi: However, year-to-date shipments are still down 5%.

Scott Jafroodi: This concludes my prepared remarks.

H Woltz: This concludes my prepared remarks, I'll now turn the call back over to H.

Howard Woltz: I'll now turn the call back over to Amy. Thank you, Scott. As we commented consistently, the operating environment during fiscal 2024 was difficult as we faced headwinds including declining steel prices, inventory liquidations by customers, the need to align our finished goods inventories to reflect lower shipments, and finally the normal seasonal downturn in construction activity. The result, of course, was lower operating rates at our plants, price competition from competitors experiencing the same weak conditions as Insteel, and inadequate utilization of the capital investments that we've made over the past few years. While it's too early to know whether the positive trend will continue, we noted a material uptick in demand during our first quarter.

Scott: Scott.

Speaker Change: As we commented consistently the operating environment during fiscal 2024 was difficult as we faced headwinds, including declining steel prices inventory liquidations by customers that need to align our finished goods inventories to reflect lower shipments and finally the normal seasonal.

Speaker Change: Unturned and construction activity. The result of course was lower operating rates at our plants price competition from competitors experiencing the same weak conditions in steel and inadequate utilization of the capital investments that we've made over the past few years.

Speaker Change: While it's too early to know whether it's a positive trend will continue we noted a material uptick in demand during our first quarter. We're mindful that the trend must be sustained to justify a ramping of operating hours, but it is nonetheless welcome.

Howard Woltz: We're mindful that the trend must be sustained to justify ramping up operating hours, but it is nonetheless well The first few weeks of our second quarter have not provided much additional insight into the underlying state of demand in our markets as we've been affected by the usual seasonal weather trends that have resulted in curtailed operating hours at multiple facilities and at customer facilities.

Speaker Change: The first few weeks of our second quarter have not provided much additional insight into the underlying state of demand in our markets as we've been affected by the usual seasonal weather trends that have resulted in curtail operating hours at multiple facilities and at customer facilities.

Howard Woltz: I think when we look back at the winter of 2025, however, we will call it normal. The weak demand environment during 2024 for wire products, both construction-related and non-construction-related, was confirmed by the announced curtailment of domestic capacity to produce steel wire rod, Insteel's primary raw material, by two producers affecting three steel facilities. It's likely that production at one facility will resume sometime during the first half of 2025, although there's no assurance. The other two closures are probably permanent. Meanwhile, the domestic raw material supply has tightened, sending prices higher, and creating a void that is likely to be filled by imported wire rod beginning late in the current quarter.

Speaker Change: I think when we look back at the winter of 2025, However, we will call it normal.

Speaker Change: The weak demand environment during 2024 for a wire products, both construction related and non construction related was confirmed by the announced curtailment of domestic capacity to produce steel wire rod in steel.

Speaker Change: The raw material by two producers affecting three steel facilities.

Speaker Change: It is likely that production at one facility will resume sometime during the first half of 2025, although there is no assurance of this the other two closures are probably permanent.

Speaker Change: Meanwhile, the domestic raw material supply has tightened sending prices higher and creating a void that is likely to be filled by imported wire rod beginning late in the current quarter.

Howard Woltz: as we stated on several occasions. The Section 232 tariff structure that is in place has caused hardship to purchasers of hot-rolled wire rod like Insteel because imported wire rod is subject to a 25% tariff, but many downstream products, such as PC-Strand, enter the U.S. market tariff-free. It should surprise no one that offshore producers shifted exports to downstream products to avoid the Section 232 tariff. Ironically, as demonstrated by the shutdown of three domestic wire rod production facilities, the dysfunctional Section 232 tariff structure is also harming our suppliers, hot-rolled The very industry it was meant to protect.

Speaker Change: As we stated on several occasions. The section 232 tariff structure. That's in place that's cause hardship to purchasers of hot rolled wire rod like in steel because imported wire rod is subject to a 25% tariff, but many downstream products such as PC strand.

Speaker Change: And on the U S market tariff free.

Speaker Change: It should surprise no one that offshore producers shifted exports to downstream products to avoid the section 232 pair.

Speaker Change: Ironically at.

Speaker Change: In Australia by the shutdown of three domestic wire rod production facilities. The dysfunctional section 232 tariff structure is also it was also harming our suppliers hot rolled producers the very industry. It was meant to protect.

Howard Woltz: We are working with our supplier community and the administration to resolve this anomaly. Meanwhile, however, we're forced to compete with offshore PC strand that is entering the U.S. market at prices lower than the domestic hot-rolled wire rod price. I would point out that about 30% of our PC strand market and about 10% of our total revenue is directly affected by import competition. We have consciously positioned the company to avoid markets that are dominated by imports, recognizing the unique economic considerations that drive exporters to the U.S. market and the vagaries of U.S. trade policy. It's worth mentioning that the overcapacity problems that plague the steel market worldwide, and certainly the U.S.

Speaker Change: We are working with our supplier community and the administration to resolve this anomaly.

Speaker Change: Meanwhile, However, we're forced to compete with offshore PC strand is entering the U S market at prices lower than the domestic hot rolled wire rod price.

Speaker Change: I would point out that about 30% of our PC strand market and about 10% of our total revenue is directly affected by import competition.

Speaker Change: We have consciously.

Speaker Change: <unk> the company to avoid markets that are dominated by imports recognizing that you make economic considerations that drive exporters to the U S market and the vagaries of U S trade policy.

Speaker Change: It's worth mentioning that the overcapacity problems that plagued the steel market worldwide and certainly in the U S market or a Chinese origin mammoth.

Howard Woltz: market, are of Chinese origin. mammoth Chinese overcapacity and exports and the resulting price pressure, they call us, have disrupted normal patterns of commerce across the entire world, leaving developed economies in a quandary about how to deal with the situation. The U.S. has chosen to fight this battle using terror. We're trying to position Insteel on the proper side of this trade policy.

Speaker Change: Mammoth Chinese overcapacity in exports and the resulting price pressure. They calls have disrupted normal patterns of commerce across the entire world leading developed economies in a quandary about how to deal with the situation.

Speaker Change: The U S has chosen to fight this battle, we using tariffs.

Speaker Change: We're trying to position in steel on the copper side of this trade policy.

Speaker Change: As mentioned in the release, we made two important acquisitions during the first quarter actions that are consistent with our stated capital allocation strategy of using our resources sources first to grow our business and then to return capital to shareholders as may be appropriate.

Howard Woltz: As mentioned in the release, we made two important acquisitions during the first quarter, actions that are consistent with our stated capital allocation strategy of using our resources sources first to grow our business, and then to return capital to shareholders as may be appropriate. I can't say enough about the professional integration process our people completed that accelerates the financial contribution of acquisitions and reduces the risk they create. While not obvious from our first quarter results, we are well on our way to realizing the substantial operating synergies that come to us through these transactions. To date, we have eliminated practically all of the SG&A associated with the acquired operations and identified and realized significant freight and raw material cost reduction opportunities that will become more meaningful as seasonality trends turn in our favor.

Speaker Change: I can't say enough about the professional integration process, our people completed that accelerates the financial contribution of acquisitions and reduces the risk they create.

Speaker Change: While not obvious from our first quarter results, we are well on our way to realizing the substantial operating synergies that come to us through these transactions today.

Speaker Change: To date, we have eliminated practically all of the SG&A associated with the acquired operations and identified and realized significant freight and raw material cost reduction opportunities that will become more meaningful as seasonality trends turn in our favor.

Speaker Change: We could not have accomplished the integrations as quickly or efficiently without sophisticated information systems and intelligent professionals to lead the process.

Howard Woltz: We could not have accomplished the integrations as quickly or efficiently without sophisticated information systems and diligent professionals to lead the process.

Howard Woltz: I'm grateful to everyone involved. Turning to CapEx, while Q1 came in at only $2.7 million, we expect to invest approximately $22 million in our business during fiscal 2025, which is consistent with the estimate we provided last quarter. Our investments will continue to be targeted toward broadening our product offering, lowering our cash cost of production, enhancing our information systems, and maintaining our facilities. As I mentioned previously, we do not try to time our investments to coincide with periods of strong demand for our products. The market is much too volatile and the project lead time is too extended for such an approach to be successful.

Grateful to everyone involved.

Speaker Change: Turning to Capex Capex, while Q1 came in at only $2 7 million, we expect to invest approximately $22 million in our business during fiscal 2025, which is consistent with the estimate we provided last quarter.

Speaker Change: Our investments will continue to be targeted towards broadening our product offering lowering our cash cost of production enhancing our information systems and maintaining our facilities.

Speaker Change: As I mentioned previously we do not try to time, our investments to coincide with periods of strong demand for our products. The market is much too volatile and the project lead times to extend it for such an approach to be successful instead, we take advantage of technological.

Howard Woltz: Instead, we take advantage of technological developments and we maintain our facilities continuously. Insteel continues to be debt-free and has substantial flexibility to make decisions for the long-term best interest of its customers and shareholders. Looking ahead, we're aware of substantial risk related to the future performance of the U.S. economy, and we're monitoring the environment. In any event, we believe we're well positioned to pursue actions to maximize shipments and optimize our costs and to pursue attractive growth opportunities, both organic and through acquisition.

Speaker Change: And we maintain our facilities continuously.

Speaker Change: And steel continues to be debt free and has substantial flexibility to make decisions for the long term best interest of its customers and shareholders.

Speaker Change: Looking ahead, we're aware of substantial risks related to future performance of the U S economy, and we're monitoring the environment in any event. We believe we are well positioned to pursue actions to maximize shipments and optimize our costs and to pursue attractive growth opportunities.

Speaker Change: Both organic and through acquisition.

Howard Woltz: This concludes our prepared remarks and we'll now take your questions.

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

Operator: Harry, would you please explain the procedure for asking questions? Yes, of course, if you would like to ask a question, please dial star followed by one on your telephone keypad now. If you change your mind and would like to exit the queue, please dial star followed by two.

Harry: Yes of course, if you would like to ask a question. Please do stuff looked by one on your telephone keypad now if you change your mind I would like to exit the Q P style store followed by two and finally when comparing to ask a question. Please ensure that your devices on mute locally.

Operator: And finally, when preparing to ask your question, please ensure that your device is unmuted locally.

Our first question will be from the line of Sudan Romero with Sidoti <unk> Company. Please go ahead. Your line is open.

Julio Romero: Our first question will be from the line of Julio Romero with Satoshi Company, please go ahead, your line is open. Thanks. Hey, good morning, H and Scott. I wanted to start on demand trend. Hey, good morning.

Speaker Change: Thanks, Hey, good morning, Scott.

Speaker Change: I wanted to start on demand trend Hey, good morning could you speak to the material uptick in demand in the December quarter in any particular end markets geographies or product lines that led the uptake.

Howard Woltz: Could you speak to the material uptick in demand in the December quarter and, you know, any particular in market geographies or product lines that led the uptick? It was generally across the board, Julio, and it's a difficult subject to address because there's so many moving parts that affect what we see in our shipments. They're our inventories, they're our customers' inventories, they're weather conditions. It's really difficult to quantify. But nevertheless, our shipments rose substantially in November and December relative to the prior year, and there seemed to be significant optimism in the market. Whether that continues, as I said in my comments, we don't know.

Speaker Change: It was generally across the portfolio and it's a difficult subject to address because there's so many there's so many moving parts that affect what we see as our shipments there our inventories there are <unk>.

Speaker Change: <unk> inventories there weather conditions.

Speaker Change: It is it is it.

It's really it's really difficult to quantify but nevertheless, our shipments rose substantially in November and December relative to the prior year.

Speaker Change: And there seem to be significant optimism in the market.

Speaker Change: That continues as I said in my comments, we don't know, we certainly hope so but but.

Howard Woltz: We certainly hope so, but... I think we really said all we can say about it at this point.

Speaker Change: I think we really said all we can say about it at this point.

Speaker Change: Understood and then.

Howard Woltz: Understood. And then, you know, it's very nice to see your average selling prices inflect positively here in the quarter on a sequential basis, at least. You know, you spoke to a couple of price increases that you passed, you know, one during the quarter and a second here in January.

Speaker Change: It's very nice to see your average selling prices inflect positively here in the quarter.

Speaker Change: On a sequential basis at least you spoke to a couple of price increases.

Speaker Change: During the quarter in a second here.

Speaker Change: January.

Howard Woltz: And then obviously you mentioned wire rod domestic supply tightening, but I'm curious if you could talk about kind of the confidence you had to implement those increases and does that imply that the pricing pressures from domestic competitors have subsided at all? Yeah, you know, I think we saw this tightening of domestic supply coming well before it actually materialized and we announced price increases prospectively knowing that or believing that we would be more successful in taking You can see that with a few bites of the apple rather than trying to eat it all at one time.

Speaker Change: And then obviously you mentioned wire rod domestic supply tightening, but I'm curious if you could talk about kind of the confidence you had to.

Speaker Change: Those increases and does that imply that the pricing pressures from some.

Speaker Change: Domestic competitors have subsided at all.

Speaker Change: Yeah, I I you know I think we saw we saw this tightening of domestic supply coming well before it actually materialized.

Speaker Change: And we.

Speaker Change: Announced price increases prospectively.

Speaker Change: Knowing that that or believing that we would be more successful in taking a.

Speaker Change: A few bites at the Apple rather than try to eat at all at one time.

Speaker Change: There is a significant.

Howard Woltz: supply deficit in the US market. We saw it come in and we started raising our prices accordingly. Now, the interesting part of this is that the tight supply condition right now is related to the supply of wire rod. It is not driven by outstanding demand for wire rod among wire products produced. And I fully expect, as I've stated in my comments, that we'll see wire rod imports rise significantly toward the end of this quarter and next quarter to fill the gap. Up to this point, our company, and I think a lot of other companies, have not felt the need to import significant quantities due to, just due to the economics of importing, as well as the long lead times that come with importing.

Speaker Change: Supply.

Speaker Change: In the U S market.

Speaker Change: So I come in it which we started raising our prices accordingly now.

Speaker Change: Interesting part of this is that it that the tight supply condition right now is related to the supply of wire Rod. It is not driven by outstanding demand for wire Rod among.

Speaker Change: Among wire products producers.

Speaker Change: And.

Speaker Change: I fully expect as I've stated in my comments that we will see wire rod imports rise significantly towards the end of this quarter and next quarter.

Speaker Change: To fill the gap up to this point.

Speaker Change: Our company and I think a lot of other companies have not felt the need to import significant quantities.

Speaker Change: To just due to the economics of importing as well as the long lead times that come with with importing.

Howard Woltz: And all of those factors create risk that we didn't want to take, and that I think many of our competitors and other producers of wire products didn't want to take. But now, with supplies domestically being in question, it's a matter of, this is what you have to do, so we're doing it. Very helpful context.

And all of those factors create risk that.

Speaker Change: We didn't want to take and that I think many of our competitors and other producers are wired products didn't want to take but now with with suppliers domestically.

Speaker Change: A question on it.

Speaker Change: It's a matter of them. This is what you have to do so so we're doing it.

Speaker Change: Very helpful context, and then.

Howard Woltz: And then, you know, obviously, congratulations on the acquisitions of engineered wire products and O'Brien as well. You mentioned two weeks and you were up and running on both. You know, can you just talk about, you know, how is the first couple months of integration, post close, gone? And how has the reception been from employees, customers, suppliers, etc? Yeah, as I stated in my prepared comments, the integrations were fantastic, and the engineered wire products integration was actually a really big project due to some of the fundamental differences in the way engineered wire products and Insteel deal with data.

Speaker Change: Obviously, congratulations on the acquisitions of engineered products and O'brien as well.

Speaker Change: Mentioned two weeks, then you were up and running on both.

Speaker Change: Can you just talk about how is the first couple of months of integration post close gone and how has the reception been from employees customers suppliers et cetera.

Speaker Change: Yeah.

Speaker Change: I stated in my prepared comments the integrations were fantastic.

Speaker Change: And and the engineered wire products integration was actually.

Speaker Change: A really big project due to some of the fundamental differences in the way in.

Engineered wired products and in steel deal with that.

Speaker Change: So it's a big project, but.

Howard Woltz: So it was a big project. Our people put their noses to the grindstone. They got it done. We never utilized the legacy systems at the acquired companies. We brought those companies up on our own systems. It was not necessarily graceful in the first few days, but we got past that relatively quickly. And as I've stated. And Dewey told me continuously in these calls on the state of our information systems. And the professional people that we have on staff are something that's just not common to find in our industry, and they certainly proved their metal. In in the first fiscal quarter in terms of of the...

Speaker Change: Our people put their noses to the grindstone they got it done we never utilized.

The legacy systems at the acquired companies.

Speaker Change: We brought those companies up on our own systems.

Speaker Change: Was not necessarily graceful and first few days, but we got past that relatively quickly and as I've stated.

Speaker Change: Continuously on these calls.

Speaker Change: The state of our information systems.

Speaker Change: In the professional people that we have on staff or something that's just not common to find in our industry and they certainly prove their mettle.

Speaker Change: Yeah.

Speaker Change: In the first fiscal quarter.

Speaker Change: In terms of the.

Speaker Change: The acceptance or the customer view of our acquisitions I think it's been generally positive it was no secret to anyone that <unk>.

Howard Woltz: I think it's been generally positive. It was no secret to anyone that Engineered Wire Products was not in a position of stability and I think that there's actually some relief in the marketplace that the company is in those production assets are in stable hands now.

Speaker Change: Engineered wire products was not in a position of stability and I think that there's actually some relief in the marketplace that the company is in.

Those production assets are stable and now and and it's up to us to be good stewards of that going forward, which which we fully intend to be.

Howard Woltz: And it's up to us to be good stewards of that going forward, which we fully intend to be.

Speaker Change: Got it.

Howard Woltz: Got it.

Howard Woltz: Very nice job. I'll pass it on. Thanks very much.

Speaker Change: Very nice job I'll pass it on thanks very much.

Speaker Change: Okay.

Speaker Change: Our next question will be from the line of Tyson Bauer with KC capital. Please go ahead. Your line is open.

Tyson Bauer: Our next question will be from the line of Tyson Bauer with KC Capital. Please go ahead, your line is open. Good morning, gentlemen.

Tyson Bauer: Hey, good morning, gentlemen.

Tyson Bauer: foreignpressunados.com Kind of follow up on one of the previous questions, are you then looking at your revenue growth in 2025 to be more driven by price, favorable pricing, or shipment volume growth as you see that demand pick up? How do you kind of split the two? Yeah, well, I mean, it's good. There will obviously be a positive revenue impact from the acquisitions, but as you've seen in the last couple of years, selling prices make a big difference in our top line. I would tell you right now that as we're looking at tight supplies of wire rod, that it's likely that we see our selling prices rise, our revenues rise.

Speaker Change: 45 <unk>.

Speaker Change: Kind of a follow up on one of the previous questions are are you then looking at your revenue growth and 25 to be more driven by price and favorable pricing or shipment volume growth as you see that demand pick up.

Speaker Change: How do you kind of split the two.

Speaker Change: Yeah, well I mean.

Speaker Change: There'll obviously be a positive revenue impact from the acquisitions, but as you've seen in the last couple of years.

Speaker Change: Selling prices make a big difference.

Speaker Change: Our top line and I would tell you right now that is what we're looking at a tight.

Speaker Change: Tight supplies of wire rod that it's likely that we see that we see our selling prices rise. Our revenues rise will also see that our cost of raw material rises so.

Howard Woltz: We'll also see that our cost of raw material rises. But beyond our second fiscal quarter, I honestly don't know how to respond to the question except to tell you that we'll definitely benefit from increased shipments due to the acquisitions.

Speaker Change: But through the <unk>.

Speaker Change: Our second fiscal quarter.

Speaker Change: I honestly don't know how to respond to the question except to tell you that will definitely benefit from from increased shipments due to the acquisitions.

Howard Woltz: But it's hard to say whether market recovery in our legacy business is for real or whether or whether we revert to some of the 2024 trends. I just don't know.

But it's hard to say, whether a market recovery.

Speaker Change: Our legacy businesses is for real or weather or whether we revert to some of the 2024 trends I just don't I don't know.

Speaker Change: Okay.

Tyson Bauer: Okay. You talked about cost synergies from your acquisitions, M&A activity. Obviously, you have the one big, the plant shutdown and absorbing that into your existing facilities.

Speaker Change: You talked about cost synergies from your acquisitions M&A activity. Obviously, you have the one big the plant shutdown in absorbing that into your existing facilities.

Howard Woltz: What were the annual direct savings from that action? And how would you monetize kind of that centralizing the process to your systems? What kind of savings does that provide annually?

Speaker Change: What were the annual direct savings from that action.

Speaker Change: And how would you monetize kind of that centralizing the process to your systems, what kind of savings is that provide annually.

Speaker Change: Well, let me let me answer the question.

Howard Woltz: Well, let me answer the question. didn't ask. The plant that we closed. was running at a marginal or negative EBITDA level. and the reason for that. was just an inadequate. inadequate throughput and inadequate demand to run the plant efficiently.

Speaker Change: But you didn't ask.

Speaker Change: Yeah.

Speaker Change: The plant that we closed what's run it at a marginal or negative EBITDA level.

Speaker Change:

Speaker Change: And the reason for that.

Speaker Change: Was just.

Speaker Change: Inadequate.

Inadequate throughput and inadequate demand to run the plant efficiently.

Howard Woltz: So once we understood the underlying nature of the financial disappointment there, we determined that those products would be best made at the legacy Insteel facilities most appropriately positioned geographically to take those products, and that's what we did. We will wind up with a considerable amount of surplus equipment following the acquisitions that we made during the first quarter, and as well as a real property, we've arranged to sell that surplus equipment outside of North America, and once we have a better focus on the timing of the full wind down at the Warren, Ohio plant, we'll liquidate that real estate.

Speaker Change: So.

Speaker Change: Once we understood.

Speaker Change: The underlying nature of the financial disappointment there.

We determine that.

Speaker Change: Those products would be best for me at the legacy and steel facilities, most appropriately positioned geographically to take those products and that's it.

Speaker Change: And that's what we did.

Speaker Change: We will wind up with a considerable amount of surplus equipment. Following the acquisitions that we made during the first quarter.

Speaker Change: And we have a range too and as well as some real property.

Speaker Change: We have a range to sell that surplus equipment.

Speaker Change: Outside of North America.

Speaker Change: And once we have a better focus on the timing of the full wind down the war to how play out will liquidate that real estate.

Speaker Change: So we should see a gain on sale of assets in future quarters.

Howard Woltz: So we should see a gain on sale of assets in future quarters. Well, I mean, I don't know whether it'll be a gain or a loss, Tyson, it all depends on what we realize for the assets relative to what they went on our balance sheet at.

Speaker Change: Well I mean, I don't know, whether it'll be a gain or a loss types and it all depends on what we realized for the assets relative to what they want on our balance sheet at.

Howard Woltz: They're also in a restructuring. Yeah, Tyson, we fair valued all those assets at the acquisition purchase accounting, so they should be close to the realizable value they have at the moment. Okay, but you will monetize. Absolutely.

Speaker Change: But there are also there.

Speaker Change: Restructuring Titan, we fair valued all of the assets at the acquisition purchase accounting. So there should be close to the real thought what realizable value they have at the moment.

Speaker Change: Okay, So, but you will monetize it.

Speaker Change: Absolutely.

Tyson Bauer: The, uh, what are you anticipating SG&A full year? Are we still kind of in that 32, 35 million range as a target range? The impact of SG&A is going to be on the intangible amortization from these assets that were generated from the acquisition. And for the remainder of... We're probably looking at another $900,000 additional amortization expense over last year for the next nine months.

Speaker Change: What do you anticipate SG&A full year, we still kind of in that $30 million to $35 million range as a target range.

Speaker Change: In fact, the SG&A is going to be on the intangible amortization.

Speaker Change: From from from these assets that would generate from the acquisition and for the remainder of.

Speaker Change: The year.

Speaker Change: We're probably looking at another $900000 additional amortization expense over last year for the next nine months.

Speaker Change: Okay.

Tyson Bauer: When you look at some of the macro things that affect the industry and the business directly, what are the priorities or what really has a true material impact? Are you looking more that you need to see a better environment on the interest rate side, or are you looking that the tariffs... would be more impactful and beneficial for the company if they were to break favorably towards you. Between interest rates and tariffs, how do you weight those?

Speaker Change: When you look at some of the macro things that affect the industry and the business directly.

Speaker Change: Where the priorities are what really has a true material impact.

Are you looking more that you need to see a better environment on the interest rate side or are you looking at that.

Tariffs.

Speaker Change: Would be more impactful and beneficial for the company if they were to break favorably towards you.

Speaker Change: And interest rates and tariffs.

Speaker Change: Do you wait those.

Speaker Change: Yes.

Speaker Change: Well.

Speaker Change: What's your projection for the tariff environment.

Howard Woltz: What's your projection for the tariff environment? I think, I mean, we know what the Section 232 tariff has done, but we don't know what Trump's promised broad-based tariff regime is going to look like. But I would tell you that I don't see a way that that significantly hurts us because we've already been harmed by 232 and a broader-based tariff system, in my view. My view would help us, at least in the short term, whether it's the right economic policy longer term, I guess is debatable. And as for interest rates, as I mentioned during some of our prior calls, I think the spike in interest rates could have affected some speculative projects, but I don't think interest rates ever were high enough to really deter strategic investments by companies.

Speaker Change: I mean, we know what the section 232 tariff is done but we.

Speaker Change: We don't know what Trump's promise.

Speaker Change: Our base tariff regime is going to look like.

Speaker Change: But I would tell you that that.

Speaker Change:

I don't see a way that that significantly hurts us.

Speaker Change: Because we've already been harmed by 232 and and.

Speaker Change: And a broader based tariff system.

Speaker Change: In my view.

Speaker Change: And my view would help us at least in the short term, whether it's the right economic policy longer term I guess is debatable.

Speaker Change: And as for interest rates as I mentioned during some of our prior calls I think.

Speaker Change: The spike in interest rates could have affected some speculative projects, but I don't think interest rates ever were high enough to really deter strategic investments.

Speaker Change: Bought companies. So so I think tariffs are bigger than us.

Howard Woltz: So I think tariffs are bigger news in our world than interest rates.

Speaker Change: In our world and interest rates.

Speaker Change: Okay, you made a comment about emerging opportunities in your prepared.

Tyson Bauer: Okay. You made a comment about emerging opportunities in your prepared press release. You also mentioned in your comments warehousing, which I guess is back in vogue after a little bit of a pause when we had the big run-up in the COVID years. And a lot of that's tilt-up construction that's favorable to you. You mentioned data centers.

Speaker Change: Our press release.

Speaker Change: You also mentioned in your comments, a warehousing, which I guess is back in Vogue after a little bit of a pause when we had the big run up in the Covid years.

Speaker Change: And a lot of that's tilt up construction that's favorable to you.

Speaker Change: Mentioned data centers anything unique on that construction.

Howard Woltz: Anything unique on that construction and any color you can provide on other emerging opportunities that maybe we're not or less aware of? I don't think that the basic business has changed, Tyson. The same construction markets that drove the business prior to these acquisitions will continue to drive it post-acquisition. We've been pretty focused on our core markets and continue to be, and these acquisitions are consistent with that focus. I think you'll see us doing more of the same things that we've been doing.

Any color you can provide on other emerging opportunities that maybe we're not are less aware of.

Speaker Change: I don't I don't think that the basic business is change Tyson the same construction markets that drove the business. Prior to these acquisitions will continue to drive it post acquisition.

Speaker Change: We've been we've been pretty focused on our core markets.

Speaker Change: And and continue to be and these acquisitions are consistent with that focus.

Speaker Change: No.

Speaker Change: I think I think you'll see us doing more of the same things that we've been doing.

Speaker Change: Okay last question in the States you are primarily primarily have as end markets or you do more business and that you're approved or products.

Tyson Bauer: Okay, last question. In the states you primarily have as end markets, or you do more business in, that you're approved your products, what kind of granular look on just those that you focus on, those DOT budgets for 25-26, the kind of growth that you anticipate in spending in those areas? Well, I don't know that we have any better insight into that than the forecast that we read from you know, from various places, from the cement industry, from the construction industry, from engineering news record.

Speaker Change: What kind of granular look on just those that you focus on those D. O T budgets for $25 26, the kind of growth that you anticipate in spending in those areas.

Speaker Change: Well I I don't know that we have any better insight into that than than the forecast that we read.

Speaker Change: From.

Speaker Change: From various places from the cement industry from the construction industry from Engineering news record.

Howard Woltz: I don't think that we can really forecast what the market's gonna look like. But you are anticipating... a trend toward accelerated expenditures that should be favorable to yourself. So yeah, I mean, I think there will come a time when the Infrastructure Investment and Jobs Act actually creates some demand on the ground. I think there's been precious little of that up to this point. But when it does happen, we'll certainly be a beneficiary. There's no question about it.

Speaker Change: Don't think that that that we can really forecast what the market's going to look like Tyson.

Speaker Change: But you are anticipating.

Speaker Change: Yes.

Speaker Change: A trend toward accelerated expenditures that are should be favorable to yourself.

Speaker Change: So yeah, I mean, I think I think there will come a time when the.

Speaker Change: Infrastructure investment and jobs Act actually create some demand on the ground I think there's been precious little of that up to this point.

Speaker Change: Okay.

Speaker Change: When it does happen we will certainly be a beneficiary. There is no question about it but I don't I don't know how anyone with forecasted or projected.

Tyson Bauer: But I don't know how anyone would forecast it or project it. All right, thank you, gentlemen.

Speaker Change: Alright, Thank you gentlemen.

H Woltz: Thank you Tyson.

Operator: Thank you, Tyson. We currently have no further questions on the line, but if you would like to ask a question, please dial star followed by 1 now.

H Woltz: We currently have no further questions on the line.

Speaker Change: We'd like to ask a question. Please don't stop with my one now.

Operator: We'll pause here briefly for any final questions.

H Woltz: We'll pause briefly for any final questions.

Speaker Change: With no further questions on the line at this time I would now like to hand, the call back to H woltz for some closing remarks.

Howard Woltz: With no further questions on the line at this time, I'd now like to hand the call back to H. Woltz for some closing remarks. Okay. Thank you, Eric. We appreciate your interest in Insteel and your participation on the call today. Encourage you to give us a call if you have questions during the quarter, and we look forward to talking to you next quarter. Thank you.

Speaker Change: Okay. Thank you Gary we appreciate your you're interested in steel and your participation on the call today.

H Woltz: Encourage you to give us a call if you have questions during the quarter and we look forward to talking to you next quarter. Thank you.

H Woltz: This will conclude the steel industry Best School to 2025 earnings call. Thank you for your participation you may now disconnect your lines.

Operator: This will conclude the Insteel Industries first quarter 2025 earnings call. Thank you for your participation. You may now disconnect your lines.

H Woltz: [music].