Q3 2025 Insteel Industries Inc Earnings Call

Becky: My name is Becky and I'll be your operator today. During the presentation you can register a question by pressing star followed by 1 on your keypad. If you change your mind please press star followed by 2.

Hello and welcome everyone to the install Industries. Third, quarter 2025 earnings call.

Becky: My name is Becky and I'll be your operator today.

Pete Schwartz: I will now hand over to your host Pete Schwartz to begin. Please go ahead. Thank you.

Becky: During the presentation, you can register a question by pressing star, followed by 1 on your keypad. If you change your mind, please press star followed by 2.

Peach Waltz: I will now hand over to your host Peach Waltz to begin. Please go ahead.

Scot Jafroodi: Good morning. Thank you for your interest in Insteel and welcome to our third quarter 2025 conference call, which will be conducted by Scot Jafroodi, our Vice President, CFO and Treasurer, and me.

Peach Waltz: Thank you.

Peach Waltz: Good morning. Thank you.

Scot Jafroodi: 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 FCC. We're pleased that the upturn in business activity we experienced over the last couple of quarters continued during our third fiscal quarter, despite macro indicators that would indicate mediocre activity in the construction sector. While we're glad to see the ongoing recovery in our markets, we continue to be aware of uncertainties created by the rollout of the administration's trade policies and from the economic cycle.

Peach Waltz: For your interest in in steel and Welcome to our third quarter 2025 conference call which will be conducted by about security, our vice president, CFO and Treasurer and me.

Peach Waltz: Materially from those projected. These risk factors are described in our periodic filings with the FCC.

Peach Waltz: We're pleased that the upturning business activity. We experienced over the last couple of quarters continued during our third fiscal quarter despite macro indicators that would indicate mediocre activity in the construction sector.

Peach Waltz: So we're glad to see the ongoing.

Scot Jafroodi: I'll now turn the call over to Scott to comment on our financial results and following Scott's comments, I'll pick it back up to discuss our business outlook and the view of the impact of tariffs on our company. Thank you, H, and good morning to everyone joining us on the call today. As reported in this morning's press release, our strong third quarter performance was driven by higher shipment volumes along with a significant recovery in spreads between selling prices and raw material costs. that earnings for the quarter increased to $15.2 million, or $0.78 per share, compared to $6.6 million, or $0.34 per share in the prior year.

Recovery in our markets, we continue to be aware of uncertainties created by the roll out of the administration's trade policies. And from the economic cycle,

I'll now turn the call over to Scott to comment on our financial results and following Scott's comments. I'll pick it back up to discuss our business Outlook and the view of in of the impact of tariffs on our company.

Thank you, H, and good morning, everyone. Joining us on the call today as we report in this morning's trust release our strong. Third quarter performance was driven by higher shipment volumes along with a significant recovery and spreads between selling prices and raw material costs.

Scot Jafroodi: Excluding the non-recurring restructuring charges mentioned in the release, adjusted earnings are $0.81 per share. Our results this quarter are supported by the pricing actions we have taken to manage the continued rise in raw material costs. Average selling prices rose 11.7% year over year and 8.2% sequentially from the second quarter, reflecting price increases implemented throughout fiscal 2025, including additional adjustments made in the third quarter to help offset the impact of higher input costs.

That earnings from the quarter increase to 15.2 million or 78 cents for a share compared to 6.6 million or 34 cents per share in the prior year.

Peach Waltz: Excluding the non-recurrent restructuring charges mentioned in the release adjusted earnings are 81 cents per share.

Scot Jafroodi: As we mentioned on our last call, the U.S. wire rod market remains tight, driven by reduced domestic production capacity, alongside strong underlying demand. January published prices for steel wire rot, our primary raw material, have increased by approximately $190 per ton. Despite these price increases, supplies remain limited. To help ease these conditions, we have supplemented our domestic purchases with significant offshore volumes, which have improved our material availability and are helping to support production levels heading into the fourth quarter. Despite the supply headwinds, shipments for the quarter increased 10.5% year-over-year and 3.5% sequentially. The growth was driven by contributions from our recent acquisitions, along with improving demand in our construction and markets.

Peach Waltz: Our results this quarter support. By the pricing actions, we have taken to manage the continued rise in raw material cost, average selling Prices rose 11.7% year-over-year and 8.2% sequentially from the second quarter reflecting price increases. If amended throughout fiscal 2025, including additional adjustments made in the third quarter to help offset the impact of higher input costs.

Peach Waltz: As we mentioned on our last call the US wire Rod Market remains tight driven by reduced domestic production capacity alongside strong, underlying demand.

Since January public Pro published prices for steel wire wrote Our primary raw material has increased by approximately 190 per ton despite these price increases supplies, remain limited to help ease. These conditions, we have supplemented our domestic purchases with significant offshore volumes, which have improved our material availability and are helping to support production levels heading into the fourth quarter.

Peach Waltz: Despite these Supply headwinds shipments for the quarter, increase 10.5%, year-over-year and 3.5% sequentially.

Scot Jafroodi: That said, we weren't able to fully meet all of the market demand this quarter. Limited availability of wire rod created production challenges at several of our facilities, which in turn affected our ability to maintain typical lead times. Gross profit for the quarter increased $15.4 million from a year ago to $30.8 million, while gross margin expanded by 650 basis points to 17.1%. The performance is driven primarily by the expansion of spreads, as the increase in average selling prices outpaced the rise in raw material costs during the quarter. As we noted on prior calls, during periods of strong demand and rising steel rod prices, Our financial results tend to benefit from both the timely implementation of price increases, enabling us to offset high replacement costs, and the favorable impact of lower-cost inventory flowing through under our first-in, first-out accounting methodology.

The growth was driven by contributions from our recent acquisitions along with improving demand in our construction and markets that said we weren't able to fully meet all the market demand disorder, limited availability wire Rodriguez production challenges that several of our facilities which in turn affected, our ability to maintain typical lead times.

Peach Waltz: Gross profit for the quarter increased 15.4 million from a year ago to 30.8 million. While gross margin expanded by 650 basis points to 17.1%

Peach Waltz: This is the former Journal of primarily by an expansion of the spreads. As the increase in average selling prices outpaced the rise in raw material costs during the quarter.

As we've noted in our prior calls during periods of strong demand and Rising Steel. Rod prices our financial results tend to benefit from both the time and the implication of price increases enabling us to offset higher replacement costs and the favorable impact of lower cost. Inventory flowing through under our first, in first out accounting methodology.

Scot Jafroodi: As we move into the fourth quarter, we expect gross margin to remain near current levels, supported by strengthening demand, favorable raw material carrying values, and higher operating rates at our facilities. SG&A expense for the quarter rose to $10.6 million or 5.9% of net sales compared to $7.9 million or 5.4% of net sales in the prior year period. increases primarily attributable to a $2.5 million rise in compensation expense under our Return on Capital-Based Incentive Plan, which reflects our improved financial performance during the quarter. We also recognize an increase of $300,000 in amortization expense related to intangible assets acquired through our recent acquisitions.

Peach Waltz: As we move into the fourth quarter, we expect gross margin to remain near current levels supported by strengthening demand, favorable raw material, carrying values and higher operating rates at our facilities.

Peach Waltz: Fgx that's for the quarter rows to 10.6 million or 5.9% in that sales compared to 7.9 million or 5.4% of that sales in the prior year period.

Peach Waltz: The increases primarily attributable to a 2.5 million rise in compensation expense under our return on Capital basis and a plan, which reflects our improved financial performance during the quarter.

Scot Jafroodi: These increases are partially offset by a $487,000 favorable year-over-year swing in the cash-to-render value of life insurance policies, reflecting fluctuations in the value of the underlying investment.

Peach Waltz: we also recognize an increase of $300,000 in amortization expense related to intangible assets, acquired through our recent acquisitions,

Peach Waltz: These increases are partial set by 487,000 favorable year-over-year, swing in the cash render value of life, insurance policies, reflecting fluctuations, in the value of the underlying Investments.

Scot Jafroodi: Separately, we incurred $843,000 in restructuring charges during the quarter tied to the consolidation of our welded wire manufacturing operation. These actions follow our acquisitions of Engineered Wire Products and O'Brien Wire Products in Texas earlier in the fiscal year. While the majority of the remaining restructuring activities are expected to be completed during the fourth quarter, some related costs may extend into the first quarter of fiscal 2026. Our effective tax rate for the quarter fell to 23.3% from 24.7% a year ago. Looking ahead to the balance of the year, we expect our effective rate to run close to 23.4%, subject to the level of pre-tax earnings, split tax differences, and other assumptions and estimates that compose our tax revision calculation.

Peach Waltz: Separately, we incurred 843,000 in restructuring charges during the quarter time to the consolidation of our welded wire manufacturing operations. These actions, follow. Our Acquisitions of engineered wire products in O'Brien and wire products at Texas earlier in the fiscal year.

While the majority of the remaining restructuring activities are expected to be completed. They're in fourth quarter, some related costs May extend into the first quarter of fiscal 2026.

Scot Jafroodi: Here is the cash flow statement and balance sheet. Operating activities generated $28.2 million cash during the quarter, driven primarily by higher net earnings and a reduction in net working capital. Working capital improvement was largely attributed to a $36 million increase in accounts payable on accrued expenses.

Peach Waltz: I'll be to the level 3 tax earnings, both tax differences and other assumptions in SMS that compose our tax revision calculation.

Scot Jafroodi: Selecting Elevated Rod Purchase and an Increase in Average Rod Cost. This benefit was partially offset by a $23.1 million increase in inventories, which was also tied to the rod purchasing activity and the higher average carrying value of raw material.

Peach Waltz: Courtesy cash flow statement and balance sheet operating activities generated, 28.2 million cash during the quarter different primarily by higher net earnings and a reduction in net working capital. Working capital Improvement was largely attributed to a 36 million dollar increase in accounts. Payable on a crude expenses reflecting elevated Rod purchases and an increase in average rod cost this benefit was partially offset by 23.1 million increase in inventories which was also tied to the rod purchasing activity in the higher average carrying value of raw materials.

Scot Jafroodi: Our inventory position at the end of the quarter represented 2.7 months of shipments on a forward-looking basis, calculated off of forecasted Q4 shipments, which is up from 2.2 months at the end of the second quarter. Finally, our inventories at the end of the third quarter were valued at an average unit cost that were higher than our third quarter cost of sales, but remain favorable relative to current replacement costs, which will have a positive impact on spreads and margins as we move through the fourth quarter.

Our inventory position at the end of the quarter represented 2.7 months of shipments on a 4 looking basis, calculated it off of forecasted Q4 shipments, which is up from 2.2% quarter.

Peach Waltz: Finally, our inventory is at the end of the third quarter, we're valued at an average unit cost that were higher than our third quarter cost of sales. But remains favorable relative to the current replacement cost, which will have a positive impact on spreads and margins as we move through the fourth quarter.

Scot Jafroodi: Incurred $1.6 million in capital expenditures in a quarter for a total of 6.5 through the first nine months of our fiscal year. Based on forecasted expenditures for the remainder of fiscal 2025, we have reduced our full-year target to $11 million from the previously communicated target of $17 million.

Scot Jafroodi: Dave will provide more detail on this topic in his remarks. We continued our shared buyback program during the quarter, repurchasing $200,000 of common equity, equal to approximately 6,000 shares. From a liquidity perspective, we ended the quarter with $53.7 million of cash on hand, and we're debt-free with no borrowings outstanding on our $100 million revolving credit facility, providing us ample financial flexibility and the ability to pursue any attractive growth opportunities that may develop.

We incurred 1.6 million dollars of capital expenditures in quarter for a total of 6.5 through the first 9 months of our fiscal year based on forecasted expenditures for a remainder of fiscal 2025. We have reduced our full year Target to 11 million from the pre previously, communicated Target of 17 million, each will provide more detail on this topic, and his remarks.

Peach Waltz: We continued our share buyback program during the quarter refurbishing 200,000 dollars of common Equity equal to approximately 6,000 shares.

Scot Jafroodi: Turning to the macro indicators for our construction and markets, recent data continues to reflect a mix and uncertain outlook. The latest readings from key leading indicators for non-residential construction suggest that market conditions may remain, could remain challenging over the near term. In May, the Architectural Billing Index increased to 47.2, reflecting a modest ease in the rate of decline. While this uptick suggests some early signs of stabilization, particularly with an increase in new project inquiries, the index remains below the 50 threshold that indicates growth.

Peach Waltz: From a liquidity perspective, we ended the quarter of a 53.7 million of cash on hand and we're debt-free with no borrowing that standing on our hundred million dollar revolving credit facility providing a sample Financial flexibility and ability to pursue any attractive growth opportunities that may develop.

Turning to the macro indicators for our construction and markets. Recent data continues to reflect a mix of network, the latest readings from Key leading indicators, from non-residential construction. Suggest that the market conditions may or may be, could remain challenging over the near term.

Peach Waltz: In May the architectural billing index increased to 47.2 reflecting a modest easing in the rate of decline.

Scot Jafroodi: Meanwhile, the Dodge Amendment Index, which tracks non-residential projects entering the planning stage, offered a more encouraging outlook in June. The index rose 6.8% month-over-month to 225.1% and is now approximately 20% higher than it was in June of last year. Much of the gain was in the commercial segment, which climbed 7.3% for May and is up 11% year-over-year. This pickup in planning activity suggests a growing pipeline that could support future non-residential construction demand.

Peach Waltz: On this uptick suggests, some early signs of stabilization, particularly with an increase in new project inquiries, the index remains below the 50 threshold that indicates growth.

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Peach Waltz: Meanwhile the Dodge Amendment index which tracks non-residential projects entering the planning stage, offered a more encouraging Outlook in. June the index row is 6.8% month over a month to 225.1% higher than it was in June of last year. Much of the game was in the commercial segment which climbed 7.3% from May and is up 11% year-over-year. This pick up an activity planning activity, suggests a growing pipeline that could support future non-residential construction demand

Scot Jafroodi: cement shipments, another proxy for construction activities, showed modest improvement in March, rising 1.4% year-over-year, however, on a year-to-date basis, through March, shipments remained down 7.5% compared to the same period in 2024.

Peach Waltz: Us, amen. Shipment is another proxy for construction activities, showed modest Improvement, marks Rising 1.4% year-over-year. However, on a year-to-date basis, due March shipments, remain down 7.5% compared to the same period in 2024.

Scot Jafroodi: Construction spending data from the U.S. Department of Commerce also reflects a software demand environment.

Scot Jafroodi: In May, total construction spending declined 0.3% from April on a seasonally adjusted annual basis and was down 3.5% compared to the prior year. Non-residential spending fell 0.2% month-over-month and 1.1% year-over-year. Within that category, highway and street construction are key. market for our products was down 0.7% versus May of last year.

Scot Jafroodi: A broader macroeconomic environment is also contributing to the uncertainty moving forward. While the Federal Reserve has indicated a possible shift towards lower interest rates later in the year, persistent inflationary pressures and uneven economic data could delay or limit the extent of easing. At the same time, the evolving U.S. trade and tariff landscape, particularly around steel, presents further uncertainty. for potential applications for both input costs and our long-term demand for it.

Peach Waltz: Construction spending data from the US Department of Commerce. Also reflects a software demand environment, and may total construction spending decline, 3%, from April. I want to see when you jump in annual basis, it was down 3.5% compared to the prior year, non-residential spendings sale 0.2% month-over-month and 1.1% year-over-year within that category, Street, Highway and Street, construction and key. And used market for our products was down to 7% versus May of last year.

Scot Jafroodi: While market conditions remain competitive and visibility beyond the near-term is limited, we believe Insteel is well-positioned to capitalize on improving the man-trends of the close-out fiscal 2025. By staying disciplined in our operations, closely managing working capital, and maintaining strong customer relationships, we aim to navigate near-term challenges while building long-term value for our shareholders.

Peach Waltz: The broader macroeconomic environment is also contributing to the uncertainty moving forward. While the Federal Reserve has indicated possible shift, towards lower interest rates later in the year for assisting inflationary pressures and uneven economic data could delay or limit the extent of easing at the same time, the evolving us trade and tariff landscape, particularly around steel, for since further uncertainty, what's potential applications for both input costs? And our long-term demand forecast

Scot Jafroodi: This concludes my prepared remarks.

Peach Waltz: Well, Market dishes, remain competitive and visibility beyond. The near-term is limited. We believe in sales. Well, positioned to capitalize on improving demand trends of the clothes out. Fiscal 2025 by saying this, what in our operations closely managing working capital, and maintaining strong customer relationships. We need to navigate near-term challenges, while building long-term value for our shareholders,

Scot Jafroodi: I'll now turn the call back over to Thank you, Scott. We noted a substantial acceleration of demand for concrete reinforcing products in Q1 and Q2, and commented that we expected the demand recovery to continue through fiscal 2025. We're glad to confirm that the positive trend continued through our third fiscal quarter and into the strongest seasonal period for our company, giving us confidence that we should perform well for the balance of the calendar year. As stated in the release, the brisk pace of business we experienced over the past few months is not reflected in broader macroeconomic indicators that are generally used to measure the strength of the construction industry, but the demand recovery is nevertheless real.

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

Speaker Change: Thank you, Scott.

Speaker Change: School quarter and into the strongest seasonal period for our company. Giving us confidence, that we should perform well for the balance of the calendar year.

Scot Jafroodi: The confidence level of most customers, interactions between our salespeople and customers, and favorable seasonal trends lead us to believe business conditions should remain reasonably robust for a balance of the calendar year.

Speaker Change: As stated in release in the release, the brisk pace of business. We experienced over the past few months is not reflected in the broader. Macroeconomic indicators that are generally used to measure the strength of the construction industry, but the demand recovery is nevertheless real.

Scot Jafroodi: The administration's tear-up strategy continues to be a work in process and affects our industry in unpredictable ways. Before updating listeners on our view of tariffs and how they may affect Insteel, let me reiterate that only about 10% of Insteel's revenue base is directly affected by imports and therefore potentially subject to unintended consequences of the administration's tariff policy. This is not coincidental, as we've recognized the futility of competing in markets where imports constitute a major source of competition. The objectives and disciplines driving offshore competitors and offshore investors are fundamentally different from those influencing domestic producers and domestic investors.

Speaker Change: The confidence level of most customers interactions between our sales, people, and customers and favorable seasonal Trends. Lead us to believe business. Conditions should remain reasonably robust for balance of the calendar year.

The administration's tear up, strategy continues to be a work in process and affects our industry in unpredictable ways.

Speaker Change: Before updating listeners on our view of tariffs and how they may affect in steel. Let me reiterate that only about 10% of instills. Revenue base is directly affected by Imports and therefore potentially subject to unintended consequences of the administration's tariff policy.

Speaker Change: This is not coincidental as we've recognized the futility of competing in markets. Where Imports constitute a major source of competition.

Scot Jafroodi: While we're committed to retaining our position in import effective markets going forward, it's unlikely that Insteel would materially increase its exposure to import competition.

Speaker Change: The objectives and disciplines driving offshore competitors and offshore investors are fundamentally different from those influencing domestic producers and domestic investors.

Speaker Change: While we're committed to retaining our position. In import effective markets, going forward, it's unlikely that in steel would materially increase its exposure to import competition.

Scot Jafroodi: with those comments as context. Let me provide a current view of the tariff landscape while acknowledging that my comments are valid today and may not be valid tomorrow, depending on the actions the administration may take. Everyone probably knows that the Section 232 tariff, which has been in effect since March of 2018, was doubled to 50% of value effective in June following a determination by the administration that the 25% tariff was insufficient to protect the domestic steel industry.

Speaker Change: With those comments as context.

Speaker Change: Let me provide a current view of the Tariff landscape while acknowledging that my comments are valid today, and may not be valid tomorrow, depending on the actions. The administration may take

Scot Jafroodi: While we welcomed the increase to 50%, which would further level the playing field with respect to imports of PC strands, we were surprised to learn that the increased Section 232 tariff would apply only to the steel value of imports. The executive order increasing the Section 232 tariff was ambiguous enough to give rise to a variety of interpretations with respect to the value that was actually tariffed.

Speaker Change: Everyone probably knows that the section 232 tariff, which has been in effect since March of 2018 was doubled to 50% of value effective in June following a determination by the administration that the 25% Tariff was insufficient to protect the domestic steel industry.

Speaker Change: While we welcome to the increased to 50%, which would further level the playing field. With respect to Imports of PC, strands, we are surprised to learn that the increased section. 232 tariff would apply only to the steel value of imports.

Scot Jafroodi: While PC Strand is a product that is 100% steel. The steel value subject to the tariff is reported to U.S. Customs by the importer of records. Not surprisingly, some parties have elected to interpret the executive order in accordance with their interests. While we have no visibility into the tariff actually paid by PC strand importers of record, we understand that some importers of record are reporting steel values equal to wire rod value. And in the case of vertically integrated producers that produce wire rod may be reporting steel values equal to the value of steel scrap that they purchased, melt, and roll into wire rod.

The executive order increasing the section. 232 Tariff was ambiguous enough to give rise to a variety of interpretations, with respect to the value that was actually pair up.

Speaker Change: While PC strand is a product that is 100% steel, the steel value subject to the Tariff is reported to US Customs by the Importer of record.

Speaker Change: Not surprisingly. Some parties have elected to interpret the executive order in accordance with their interests.

Scot Jafroodi: Prior to the increase in the tariff to 50%, it was clear that the tariff was imposed on the full value of the imported PC strand. We understand, however, that U.S. Customs is meticulous in requiring thorough documentation of tariff values, and we believe that this matter will be resolved appropriately. Erroneous interpretations of the tariff undermine the administration's intent with respect to the Section 232 tariff, and we're working with the Department of Commerce to raise the feasibility of this matter and to seek corrections that may be warranted.

Speaker Change: While we have no visibility into the Tariff actually paid, by PC strand importers of record. We understand that some importers of records are reporting steel values equal to wire rod value and in the case of vertically integrated producers that produce wire rods, may be reporting steel values equal to the value of steel scrap that they purchased melt and roll into wire rods.

Speaker Change: Prior to the increase, in the Tariff to 50%. It was clear that the Tariff was imposed on the full value of the importance, PC strand.

Speaker Change: We understand however that US Customs is meticulous in requiring thorough documentation of tariff values. And we believe that this matter will be resolved appropriately.

Scot Jafroodi: Meanwhile, the uncertainty surrounding the issue is sufficient to induce caution in the importing community, since there is a prospect for retroactive truing up and intentional violations could constitute customs fraud, which is a criminal offense.

Speaker Change: Erroneous interpretations of the Tariff undermine, the administration's intent with respect to the section 232 tariff, and we're working with the Department of Commerce, to raise the visibility of this matter. And to seek Corrections, that may be warranted.

Scot Jafroodi: Aside from the impact on PC strand imports, the administration's tariff policy is affecting our purchase of spare parts and our primary raw material, hot-rolled carbon steel wire rods. Concerning spare parts, most are imported primarily from Europe and are subject to the Section 232 tariff on steel and aluminum, as well as to reciprocal tariffs on any non-steel or non-aluminum content. This creates a substantial administrative challenge because U.S. Customs will not clear a part until confirming its steel content, its aluminum content, its non-steel or aluminum content, and the country of origin for non-steel or non-aluminum content. Only then can Customs apply the relevant tariffs to the part.

Meanwhile, the uncertainties surrounding the issue is sufficient to induce caution in the importing Community. Since there is a prospect for retroactive truing off and intentional violations could C could constitute Customs fraud which is a criminal offense.

Speaker Change: Wire rod.

Concerning spare parts, most are imported primarily from Europe and reception subject to the section, 232 tariff on steel, and aluminum as well as to reciprocal tariffs on any non-steel or non-aluminum content.

Scot Jafroodi: The result, of course, is longer lead time for spare parts and higher costs. tariff regime also affects our purchases of offshore raw materials.

This creates a substantial administrative challenge because US Customs will not clear a part until confirming, it still content, it's a Content. It's not steel or aluminum content and the country of origin for non steel or non-aluminum content only then can Customs apply the relevant tariffs to the park. The result of course, is longer lead time for spare parts and higher costs.

Scot Jafroodi: As a reminder, imports of wire rod are essential for insteel today, as there is insufficient domestic wire rod production capacity to supply domestic demand. Our choice is to pursue offshore sourcing or to scale back operations to the point that our ability to support customers threatens. With this trade off in mind, we've elected to import sufficient volumes of wire rod to assure we can support our market.

Speaker Change: The Tariff regime also affects our purchases of offshore raw materials as a reminder Imports of wire Rod are essential for in steel today, as there is insufficient domestic wire Rod, production capacity to to supply domestic demand.

Scot Jafroodi: We were surprised by the administration's June action to increase the Section 232 tariff, which will affect the undelivered portion of our offshore wire rod purchase. In as much as there is no supply alternative, we elected to proceed with the offshore transactions, and we will pass through the higher costs. We're convinced that competitors are similarly situated, although some may find themselves short of raw material. The reality of wire rod supply in the U.S. required us to make commitments to import substantial quantities.

Our choice is to P pursue offshore sourcing or to scale back operations to the point that our ability to support customers threatened. With this trade-off in mind, we've elected to import. Sufficient volumes of wire Rod to assure. We can support our markets.

Speaker Change: We were surprised by the administration's June action to increase the section 232 tariff, which will affect the undelivered portion of our offshore wide ride purchases in. As much as there is no Supply alternative, we elected to proceed with the offshore transactions and we will pass through the higher costs.

Speaker Change: we're convinced that competitors are similarly situated, although some may find themselves short of raw materials

Scot Jafroodi: While we entered into these transactions reluctantly due to the inherent higher risk of longer lead times, there was no alternative available except to take down time at our manufacturing facility. We believe the bullish domestic pricing trajectory for wire rod reduces the pricing risk normally associated with import, but that risk has not been eliminated. Depending on actual deliveries, we could see raw material inventory levels spike temporarily, although any such spike would be short-lived.

Speaker Change: The reality of wire Rod Supply in the US required us to make commitments to import substantial quantities. While we enter entered into these transactions, reluctantly due to the entire inherent higher risk of longer lead times. There was no alternative available except to take down time at our manufacturing facilities.

Speaker Change: We believe the bullish domestic pricing trajectory for wire. Rods reduces the pricing risk normally associated with importing but that risk is not been eliminated.

Speaker Change: Depending on actual deliveries, we can see raw material inventory levels Spike temporarily although any such Spike would be short-lived.

Scot Jafroodi: Moving to acquisition activity, we continue to be pleased with the operation and results of the Upper Sandusky, Ohio facility that we acquired during Q1. Our Texas acquisition, while considerably smaller, has also yielded the expected benefits.

Speaker Change: Moving to acquisition activity, we continue to be pleased with the operation and results of the Upper Sandusky, Ohio facility that we acquired in q1.

Scot Jafroodi: I again compliment and thank our people, including those at the acquired facilities, for their professional and effective integration efforts. Turning to CapEx, as mentioned in the release, we now estimate 11 million expenditures for fiscal 2025. The resources consumed by integration activities related to our acquisitions impacted our investment programs at our manufacturing facilities, which we expect to rebound in coming years as we execute on our commitment to lower our cash cost of production and expand our product offering.

Speaker Change: Our Texas acquisition while considerably smaller has also yielded the expected benefits again compliment and thank our people including those at the acquired facilities for their professional and effective integration efforts.

Scot Jafroodi: No projects have been canceled, and we're evaluating a number of attractive opportunities.

Scot Jafroodi: We'll provide a view of 2026 CAVX next quarter. Looking ahead, we're aware of the substantial risks related to the administration's tariff policies and the future of performance of the U.S. economy. Regardless of developments in these areas, we are well positioned to pursue actions to maximize shipments and optimize our costs, and to pursue attractive growth opportunities, both organic and through acquisition.

Turning to capex as mentioned in the release. We now, estimate estimate, 11 million expenditures for fiscal 2025 the resources consumed by integration activities related to our Acquisitions impacted our investment programs at our manufacturing facilities, which we expect to rebound and come come in years as we execute on our commitment, to lower our cash costs for production and expand our product offering, no projects have been canceled and we are a bit evaluating a number of attractive opportunities will provide a view of 2026 capacitance quarter.

Speaker Change: Looking ahead. We're aware of the substantial risks related to the administration's tariff policies and the future of performance of the US economy. Regardless of developments in these areas we are well positioned to pursue actions to maximize shipments and optimize our costs and to pursue attractive growth opportunities.

Scot Jafroodi: This concludes our prepared remarks and we'll now take your questions.

Speaker Change: Is both organic and through acquisition.

Becky: Becky, would you please explain the procedure for asking questions? Thank you. To ask a question please press star followed by one on your telephone keypad now. If for any reason you want to remove your question please press star followed by two. When preparing to ask your question please ensure your device is unmuted locally.

This concludes our prepared remarks and will now take your questions. Becky, would you please explain the procedure for asking questions?

Becky: Thank you to ask a question. Please press star. Followed by 1 on your telephone keypad now.

Becky: If any reason you want to remove your question, please press star followed by 2.

Julio Romero: Our first question comes from Julio Romero from Sudoti and Company. Your line is now open, please go ahead. Great, thanks. Good morning, Ashton, Scott. Morning. Good morning.

Becky: When preparing to ask your question, please, ensure your device is unmuted locally.

Speaker Change: Our first question comes from Julia Romero from sidoti and Company. Your line is now open. Please go ahead.

Speaker Change: Great. Thanks. Good morning agent. Scott.

Scot Jafroodi: You talked about, hey, good morning, you talked about the strong business activity you saw in April that you called out last quarter on your call, continuing into the third quarter. I'm curious if you've also seen voting levels for newer projects follow that same trajectory. Keep in mind that that we really operate with minimal backlogs on. Raw material constrictions have actually caused our backlogs to grow, and I think it's difficult to compare this year with prior years because circumstances have changed.

Speaker Change: Good morning. Good morning.

Speaker Change: Hey, good morning, you talked about the strong business activity. You saw in April that you called out last quarter on your call, um, continuing into the third quarter. Um, I'm curious if you've also seen voting levels, um, for newer projects, follow that same trajectory

Speaker Change: uh, keep in mind that that

Speaker Change: That we really operate with minimal backlogs. Um,

Speaker Change: Raw material constrictions have actually caused our backlogs to grow. And and I think it's it's difficult to to compare this year with prior years, because circumstances have changed but

Scot Jafroodi: Our backlogs are lengthy enough to concern me at this point from just the perspective of providing the requisite level of service that our customers expect. And in more project-oriented markets, we're seeing that data centers and like have clearly filled the gap that the slower commercial construction has created. So overall, we're pretty optimistic about what we'll see out there. Okay, very helpful.

Speaker Change: Our backlogs are lengthy enough to concern me at this point, um, from just the perspective of providing the, the requisite level of service that our customers, um, expect and in more project oriented, um, markets. We're seeing that data centers and light, um, have have clearly, um, filled the Gap that the slower slower commercial construction has, um, has created. So, oh, overall, we're pretty optimistic about what we see out there.

Scot Jafroodi: You know, when thinking about Section 232 and the first implementation of Section 232 back in 2018, The resolution to include downstream steel didn't get resolved until about seven years later, and just thinking about that historical context, I wanted to ask what's your sense of the timeline, potential timeline to resolve the most recent Section 232 disconnect between the metal value of the import versus the full value of the import? Well, keep in mind that we don't know that importers are correct. are not actually declaring the full value of PC Sprint. We believe that it is the administration's intent that the pair of should be on the full value of the product.

Speaker Change: Okay, very helpful. Um,

Speaker Change: you know, when thinking about, uh, section 232 and, and the first implementation of section, 232 back in 2018. Um, the resolution to include Downstream steel didn't get resolved until about 7 years later. And, and just thinking about that historical context. Um, you know, wanted to ask, what's your sense of of the timeline potential timeline to resolve the the most recent section, 232 disconnect between the metal value of the import, versus the full value of the import.

Speaker Change: Well, keep in mind.

That we don't know.

That importers or records?

Speaker Change: Are not actually declaring the full value of PC strand.

we believe that it is the administration's intent, that the Tariff

Scot Jafroodi: And therefore, by implication, anyone who is acknowledging the steel value as wire rod value or steel scrap value is playing outside the rules. And we don't think that that will be allowed to persist on an ongoing basis. And we are, as you might expect, very vocal with commerce about this.

Speaker Change: Should be on the full value of the product.

Scot Jafroodi: And it would be nice, but I guess it's not unexpected that there's a considerable amount of ambiguity in this thing, the way it was rolled out. Gotcha, understood. Thank you for that.

And and therefore by implication anyone who is, who is acknowledging the steel value, as wire, rod value, or steel scrap value, um, is playing outside the rules and, and we don't think that that will be allowed to persist on an ongoing basis. And, and we are, um, as you might expect very vocal, uh, with Commerce about this.

And um it it would be nice but I guess it's not unexpected that. There's a considerable amount of ambiguity in this thing. The way it was rolled out.

Scot Jafroodi: And then just last one for me would just be thinking about the integration of engineered wire products, you know, how is that going? And can you maybe speak to any synergies you may be seeing on the freight cost per ton side of things from that acquisition? Well, keep in mind that we competed with this group for a lot of years, and we could tell from a competitive point of view that the facility was a good facility and the people knew what they were doing, and certainly our view has not changed. We're learning as much as we teach, and we feel real solid about where we are with the acquisition.

Speaker Change: Gotcha understood. Um, thank you for that. And then just the last 1 for me would just be thinking about the integration of of engineered wire products. You know how, how is that going? And um, can you maybe speak to any synergies? You may be seeing on the freight cost per ton, um, side of things from that acquisition.

Scot Jafroodi: Thank you. We've moved a lot of products around. So there's, there's no real, there's no real comparable performance between last year and this year. It's just a fundamentally different operating approach. So but, but they obviously know what they're doing. And they're productive. And we know, we know how to quantify those things.

Speaker Change: Well, keep in mind that we competed with with, with uh, with this group for a lot of years and we could tell from a comp from just from a competitive point of view that the facility was a good facility and the people knew what they were doing and certainly our view has not changed. Um, we're we're learning as much as we teach, um, and and we feel real solid about where we are with, um, with the acquisition. Um,

Yeah, we've moved a lot of products around, um, so there's, there's no real. There's no real comparable performance between last year. And this year, um, it's just a fundamentally different operating, um, approach, uh, so but, but, I obviously know what they're doing and and they're productive. And, um, we know, we know how to, to quantify those things.

Scot Jafroodi: Very helpful. I'll pass it on. Thanks very much. Thank you.

Speaker Change: Very helpful. I'll pass it on. Thanks very much.

Tyson Bauer: Our next question comes from Tyson Bauer from KC Capital. Your line is now open, please go ahead. Good morning, gentlemen, and well done. I'm just going to piggyback on that last question since he opened up the door.

Thank you.

Speaker Change: Our next question comes from Tyson Bower from Casey Capital, your line is now open. Please go ahead.

Speaker Change: Yeah. Good morning gentlemen and well done.

Speaker Change: Good morning.

Scot Jafroodi: H, do you think that EWP acquisition is probably the best one you've done as CEO as far as timing, impact, and benefit for shareholders? No. I think the IV acquisition in fiscal 2011 was more transformative for the company. Okay. I think it was a very good one, Tyson. But when you say the best, I mean, we acquired five plants without the IV acquisition. Right, which gave you the scale and the economies and really put your market share on the map at that point in time. Yeah, I mean, it gave us a nationwide presence. Challenges meeting the man that you referenced, is it?

Speaker Change: No.

Speaker Change: I think in fiscal 2001 was more transferred transformative for the company.

Speaker Change: Okay, the uh, I think it's a very good. I think it was a very good 1 Tyson so. But but when you say the best, I mean we acquired 5 plants with with the IV acquisition.

Right.

Speaker Change: Which gave you the scale and the uh uh of the economies and really put your uh market share on the map.

At that point in time. Um yeah I mean it gave us a nationwide presence.

Correct.

Scot Jafroodi: The challenges are trying to meet that physical demand and capacity to meet it? Or are you talking more that challenges and meeting that demand while maintaining or expanding your current spreads and margins? I think that the challenges have been first. when we have less than about 45 days of raw material, then scheduling becomes a real problem. We run into more frequent changeovers and changeovers that logically we wouldn't make under other circumstances. And, and we've had, you know, we've had plants at 10 days of raw materials at plants with no raw material. So, so, so scheduling has been a tremendous headache for us.

Speaker Change: Challenges meeting, uh, demand, that you reference, is it?

The challenges are trying to meet that physical demand and capacity uh to meet it. Or are you talking more that challenges and meeting that demand while maintaining or expanding your current spreads and margins?

Speaker Change: I think that the the challenges have been first.

when, when we have less than

About 45 days of raw material. Then scheduling becomes a real problem. We run into more frequent changeovers and changeovers that logically we wouldn't make um under other circumstances and and we've had you know we've had

Scot Jafroodi: And as we have, as we've said, for many quarters, we continue to have Concerns about properly staffing our plants that continues to be a problem for us. So, you know, it's a chicken and the egg question in some respects, but clearly we incurred higher costs. We lost shipments due to raw material disruptions in the quarter.

Speaker Change: Plants at 10 days of raw materials. We've had plants with no raw material. Um, so so, so scheduling has been a tremendous headache for us. Um, and as we have, as we've said, for many quarters, we continue to have

Speaker Change: Have concerns about.

Speaker Change: Properly Staffing, our plants that continues to be a a problem for us. So, you know, it it it's a Chicken and the Egg question in some respects. But but um,

Speaker Change: Clearly we, we incurred higher costs. We lost shipments. Um, and and, and the such due due to raw material disruptions in the quarter.

Scot Jafroodi: Doug, given the strength and the trenches you see leading into Q4, do you anticipate being able to sustain or maintain your current marginal levels? Well, as Scott said in his comments, yeah, we expect that that we're going to pass through higher costs. There's no company in the industry that can afford to absorb the tariff rates that that we're seeing. So it's difficult from a day to day point of view to know exactly where selling prices are going to be and where costs are. But from a big picture, I wouldn't expect our margins to deteriorate in a market such as we have now.

Speaker Change: Okay, given the strength and the trance as you see leading in the queue for do you anticipate being able to sustain or maintain that your current margin levels?

Well, as Scott said in in his comments. Yeah, we expect that that

Speaker Change: That we're going to pass through higher costs. Um, there's no company in the industry that can afford to absorb the Tariff rates that that we're seeing. Um so it's difficult from a day-to-day.

Point of view to to know exactly where selling prices are going to be and where costs are. But, but from from a, a big picture, um, I wouldn't expect our margins to deteriorate in in a market such as we have now.

Scot Jafroodi: Okay.

Scot Jafroodi: The benefit of these trends have all occurred with basically residential and housing as a non-participant, or certainly has not had any recovery of note. That doesn't look like it's changing anytime soon. What needs to occur to see that area improve, or are you satisfied that the commercial side and the infrastructure side is strong enough that you really don't need housing to be an area of strength? Well, to say we don't need it, I think maybe maybe going beyond what what I would say, but but one of the things that we talk about is the impact of the infrastructure investment in that, that, you know, our customers don't necessarily know the funding sources for the projects that they're shipping, and we certainly don't know.

Speaker Change: Okay.

Speaker Change: The benefit of these trends of all occurred with basically residential and housing. As a non-participant are certainly has not had any recovery of note. Uh, that doesn't look like it's changing anytime soon. What needs to occur to see that area improve? Or are you satisfied that the commercial side and the infrastructure side is strong enough that you really don't need housing to be an area of strength.

Speaker Change: Well to say we don't need it, I think maybe maybe um going beyond what what I would say. But, but 1 of the things that we talk about is the impact of the infrastructure investment in that that, you know, our customers don't necessarily know.

Speaker Change: The funding sources for the projects that they're shipping.

Scot Jafroodi: No one comes to us and says, you know, I need five truckloads of steel because I have an IJA project. That just doesn't happen. Bye. We can see that customers really throughout the country and throughout most of the segments of our business are busy. And I suspect that finally, some of those IIJA funds are Okay.

And we certainly don't know. No, 1 comes to us and says, you know, I need I need 5 truckloads of Steel because I haven't, I jaw project that just doesn't happen.

but, but

Speaker Change: we can see that customers really throughout the country, um, and, and throughout most of the segments of our business are busy and I suspect that finally, some of those iija funds, um, are are

Scot Jafroodi: In housekeeping question, cash management, obviously working capital needs, inventory costs continue to need funding.

Scot Jafroodi: What kind of year end outlook are we seeing for cash balance? And are we able to get that closer to that 75-80 million? We'll know when we get there, Tyson, but I mean, keep in mind that we put out nearly $100 million in cash during Q1 between acquisitions and our special dividend. So at $53.7 million, or wherever we wound up in June, I'm not at all dissatisfied.

Speaker Change: Okay, uh, in housekeeping question. The cash management. Obviously working capital needs inventory. Uh, costs continue to, uh, uh, need funding. What kind of year-end Outlook are we, uh, seeing for a cash balance? And are we able to get that closer to that 75? 800 million?

well, know, when we get

Scot Jafroodi: Okay, last one for me, the wire rod supply shortage, you talk about domestically, any sense of the magnitude of what that is, and relative to like when the COVID years occurred, and that revenue slippage as a result, any way to quantify what that opportunity cost was? I don't think we could give you an answer that would be very good, but I would say that that when we rack it all up, we probably will have imported 25 to 30% of our steel requirement. which would approximate the domestic shortfall. Okay.

Speaker Change: cash during q1 between Acquisitions and our special dividend. So, so, um, at 53.7, million where, wherever we wound up in June. Um, I'm not at all dissatisfied.

Speaker Change: Okay. Uh, last 1 for me, the

way of Rod supplies shortage, you talked about domestically any sense of the magnitude of what that is and relative to like when the co years occurred and that Revenue slippage as a result, any way to quantify, what that opportunity cost was

I don't I don't think we could give you an answer that that would be, that would be very good. But but I would, I would say that.

Speaker Change: That point.

Speaker Change: Racked. It all up, we probably will have imported 25 to 30% of our of our steel requirement.

Speaker Change: Which would approximate the domestic shortfall.

Speaker Change: Okay.

Scot Jafroodi: And are you viewing 25, 26? more favorably than 21, 22, just in the current setup being more sustainable for you to continue your success as shipment volumes have been a key component this time. That's a hard one. That's a hard one to answer. The circumstances in 21 and 22 post-COVID were so fundamentally different than what we're seeing now that I'm not really sure I could give you an answer to that that makes any sense. All right.

And are you viewing 2526?

Speaker Change: More favorably than 2122, just in the current setup being more sustainable for you to continue your success at shipment volumes have been a key component this time.

Speaker Change: That that's a hard 1. That's a hard 1 to answer the circumstances in 21 and 22 postco. We're so fundamentally different than what we're seeing now that I, I'm not really sure. I could give you an answer to that. That makes any sense.

Scot Jafroodi: Thank you, gentlemen. Okay, thank you guys. Thank you.

Speaker Change: All right. Thank you gentlemen.

Tyson Bower: Okay, thank you Tyson.

Becky: As a reminder to ask a question please press star followed by one on your telephone keypads. That's star followed by one on your telephone keypads now.

Speaker Change: Thank you as a reminder to ask a question. Please press star. Followed by 1 on your telephone keypad. That's star, followed by 1 on your telephone keypad now.

Scot Jafroodi: We currently have no further questions, so I'll hand back to our speaker team for closing remarks. Well, we appreciate your interest in Insteel. If questions arise later, don't hesitate to call us. Otherwise, we'll talk to you next quarter. Thank you.

We currently have no further questions so I'll hand back to our speaker team for closing remarks.

Speaker Change: Okay, well, we appreciate your interest in in steel. Um, if you have questions, arise later, don't don't hesitate to call us. Um, and otherwise we'll talk to you next quarter. Thank you.

Scot Jafroodi: This concludes today's call. Thank you for joining.

Unknown Executive: You may now disconnect your lines.

Speaker Change: This concludes today's call, thank you for joining. You may now disconnect your lines.