Welcome to the Insteel Industries Fourth Quarter 2015 Conference Call. [Operator Instructions]. I would now like to turn the conference over to your host for today H.O. Woltz, President & CEO. Sir, you may begin.

Good morning. Thank you for your interest in Insteel and welcome to our fourth quarter 2015 earnings call. which will be conducted by Michael Gazmarian, Vice President, CFO and Treasurer and me. Before we begin let me remind you that some of the comments made on today's call are considered to be forward looking statements which are subject to various risks and uncertainties that could cause actual results to differ materially from those projected. These risk factors are described in our periodic filings with the SEC. All forward looking statements are based on our current expectations and information that is currently available. We do not assume any obligation to update these statements in the future, to reflect the occurrence of anticipated or unanticipated events or new information. I'll now turn it over to Mike to review our fourth quarter financial results and the macro indicators for our construction end markets then I will follow up to comment more on market conditions and our business outlook.

Thank you H, as reflected in this morning's earnings release Insteel posted strong results for the fourth quarter fiscal 2015 with net earnings rising to the highest level in seven years. On a pro forma basis excluding the non-recurring charges and gains that were referenced in the release net earnings nearly doubled 9.4 million to 9.4 million or $0.50 to diluted share from 4.9 million or $0.26 a diluted share a year ago due to wider spreads between selling prices in raw material costs and higher shipment. Our current year quarter also benefited from having an extra week than the prior year based on our fiscal calendar. Net sales for the quarter rose 0.9% from last year on a 6% increase in shipments. That was driven by the additional business provided by the ASW acquisition and the extra week in the current your quarter. Our results for the quarter were unfavorably impacted by continued delays, with the ramp up of the new standard velvet wire reinforcement production line at the Hazelton facility. We estimate the volume shortfall at Hazelton reduced Q4 net sales by approximately 4 million and the year-over-year growth in shipments by about 400 basis points, aside from the equipment issues at Hazelton shipments for the quarter did not accelerate to the same extent as certain of the macro indicators for construction end markets are reflect as much of a weather related deferral of business from Q3 as we had anticipated which is difficult to reconcile. Based on the most recent construction forecast and the prevailing sentiment of our customers. We continue to expect improved market conditions and favorable demand trends in the coming year. Gross profit for the quarter rose to 21.9 million from 13.8 million a year ago with gross margins widening 670 basis points to…

Thank you, Mike. During the fourth quarter, demand for our reinforcing products benefited from favorable seasonal influences and the continuation of the cyclical recovery, as indicated by our year over year and sequential shipment comparisons however growth in demand was moderate, relative to recent construction industry data and it's difficult to reconcile these differences considering that we do not believe we have ceded market share to competitors. As indicated in the release capacity utilization for the quarter was 51% compared to 54% last year. As we look ahead to 2016 macro indicators and customer sentiment remain optimistic and point to continued growth. During the Q3 earnings call we commented on the prospect for expanding spreads resulting from declining prices for steel scrap and our primary raw material, steel wire rod together with the potential for stable selling prices resulting from the cyclical recovery in construction markets as well as the usual seasonal upturn. Our Q3 results reflected some impact from these favorable trends which became more pronounced during the fourth quarter and should continue to benefit us during the first quarter of fiscal 2016. As we've mentioned previously however it is difficult to forecast our selling prices and volume with a high degree of precision given the dynamic nature of our markets or short order lead times and our minimal backlog. Looking ahead, there does not appear to be a significant catalyst on the horizon that would lead to strengthening pricing for the steel industry. Weakening economic conditions in most regions of the world including China argue against a near term recovery and demand that would be required to mitigate the downward pricing pressure for iron ore, steel scrap and wire rod. China continues to struggle with anemic home market demand and is capitalizing on the depressed metallic's market by…

[Operator Instructions]. And our first question comes from the line of Michael Conti of Sidoti. Your line is open. Please go ahead.

Yes, so I just want to get a better idea on I guess the outlook on some of your volume shipments, just hearing from a few companies in the space that there is a lack of capacity from the end customer in terms of a labor shortage etcetera, I mean is that playing a role in your shipment.

It's a good question, we certainly have heard that it is a factor for our customers. But I have not heard of any specific case where a labor shortage prevented a job from moving forward.

And then I guess can you just. I mean just go into some detail on the decision to expand the Houston facility in terms of end market demand and particularly in that region, are you seeing more in terms of you know infrastructure or commercial. Any color there would be great.

I don't think that there has been any change in the mix of the end markets and I don't detect that there's been an acceleration or deceleration with any of our market in any of our downstream markets it just seems like business has rocked along at about the pace that we have seen earlier in the year.

And then Mike, with SG&A that stuck out to me, would this be a good run rate, you know a model for the rest of the fiscal 2016?

It's going to fluctuate quarter to quarter depending on our results which drive that incentive plan, compensation components. So this quarter was skewed higher by the increase, but for the year overall I think it probably be pretty representative recognizing that there's probably on the upside if our results were to continue to improve to where we maxed out on the incentive plan there would probably be as much as another million dollars of expense. on the upside.

And then I guess when you guys expand the Houston facility should we anticipate a pick-up in cost in terms of training new employees or would that be offset by the reduction on the fixed side of the conversion cost?

There is really very little impact on the employment level of the facility related to this project that there been some very labor intensive and high cost processes operating at the plant that we plan to eliminate and so the impact on employment will be negligible.

Just one other point on the Houston expansion the comment we made about realigning its capacity. Just to be clear as it stands now. The capacity of the plant falls short of meeting the requirements of its markets where we're incurring some additional freight expense shipment from the other strand locations so this will, you know this will realign the volume of the plant to meet those needs and reduce some expense as well.

Our next question comes from the line of Tyson Bauer of KC Capital. Your line is open. Please go ahead.

You alluded to this briefly in your prepared remarks, the expectations that we might see some demand pushed into this quarter also pushed into fiscal Q1 that really didn't materialize as we first thought, any ideas that may have happened there and does that erode some of those expectations for Q1 that we're currently, that maybe we didn't have that pent up demand that's going to flow through the system.

It's a good question and it's been the subject of quite a bit of introspection here over the last few weeks that there does seem to be a mismatch between what appears to be pretty strong data coming out of the construction industry and we're just not see it in our order book. So it's not that that business is bad in any way, it's just not meeting the expectations that we had of accelerating unit volume. So I think it's too early, it's too early to say that it's going to continue to run at a low growth rate I think there are some upside there but we just have to wait and see as we've described a few times over the course of these calls, our insight into the future volume levels is just pretty low relative to the backlogs that we maintain and the short lead times that we're required to fulfill. So we're optimistic that 2016 is going to represent further growth and we're hopeful that we see that the acceleration in unit volume that we've expected.

And just a follow on to that, the expectation was for favorable comps at least for the next three quarters due to events whether as Mother Nature driven or whether it was your own internal difficulties getting things ramped up, moved around from facility to facility. Do you still maintain that outlook at least in a broad sense that given some of those external factors that occurred a year ago, the elimination of those should provide some lift as we go forward?

Yes I mean I think our expectation is for continued growth and to the extent that materializes, I mean it would provide some additional upside if we're going against those prior year periods that were depressed due to the weather other factors. So I think that's correct and if you know if you look at the most recent construction industry forecasts for nonres, they're still clustered in that high single-digit range for growth rates for 2016.

In your prepared remarks, you talked about the expectations for steel stabilization and pricing. They didn't see a lot of factors that would create the volatility we've seen in years past. Any effect that has on your cash management strategies in regards to billing inventories or just going maybe a shorter timetable on those turns?

We're not speculators, Tyson. We will continue to back the product that we need on the timeline that's required to adequately service our plants. But we don't plan to take any inventory positions above and beyond what's required for normal operations.

Given the low-cost steel environment more globally, in that retrospect, have you seen any unusual or atypical countries trying to export into the U.S. that maybe you hadn't seen before?

Well, I think at one time or the other, we've seen nearly every wire rod producing country in the world that's not under a dumping order interested in shipping to the U.S.. So no, there are no new countries, but there is considerable interest really worldwide in the U.S. market and for the obvious reasons.

Okay. Last question for me, given the expansion in Houston, moving product down in that area, Texas as the representative strong area for the Company, how does that -- how do your other regions compare relative to Texas and is this what we should expect going forward, a greater concentration in that area?

I wouldn't say that there's been any change in the relative strength of the Texas market area to the other areas. Texas has always been the largest consumer of products and we have always serviced the Texas market from afar. The difference that having the Houston strand plant makes for us is that we should be able to service the bulk of our participation in that market from a much closer location that will help our service and it will also reduce our freight costs. So we have not seen a large acceleration or deceleration in other regions relative to Texas. It just continues to be the largest consuming area for us.

Our next question comes from the line of Keenan Murray of Forge First Asset Management. Your line is open. Please go ahead.

I was just wondering in layman's terms if you could kind of explain the impacts at the Houston facility and -- sorry, the Hazelton plant in this quarter and you said the 400 basis point impact and how much was that versus just weaker than expected shipments in the quarter?

The amount that we referenced, the $4 million in lost revenues and the 400 basis point drop-off in shipment growth, those would be directly attributed to the production issues where we believe we would've been able to ship that material out that the demand was there. So it represented a lost opportunity for the quarter. And then in addition, just with the lower operating level, it had an unfavorable conversion cost impact as well.

Yes, so can you just kind of explain what -- kind of explain more of the production issues and are those kind of alleviated going forward now?

Do you mean the nature of the difficulties that our supplier had commissioning the loan?

Yes, I guess so and kind of what you --

Multiple component failures and repeated component failures, downtime required to replace these components, along with some redesigns of certain systems on the machine. It's a big machine, it is a highly productive and highly automated machine and we've had a disappointing trip out of the gate with it. As I referenced in my comments, we were dragging along 40% to 50% of expected output rates for many months and we're now up to 70% to 80% of expected rates which represents a significant improvement. So I think we will get there and I think we will get there in the current quarter, but it's been a very disappointing experience for us. We have a long record with the supplier of quick and efficient startups of new production lines and this certainly is anything but that. But I think we will get there and I think we will get there during the current quarter.

And then I'm just wondering if you can comment at all on what you may think of your uses of cash above and beyond the $20 million expected CapEx for next year? Is that primarily for acquisitions or maybe do you think about any other priorities of these of that cash?

think our priorities remain unchanged in that our first priority is looking for continued opportunities to grow either organically or through acquisition and we want to maintain plenty of financial flexibility to do so. After that, we have, over history, generated a record of returning cash to shareholders through both special dividends, dividends and share repurchases and we would consider all of those options going forward if we thought that it was prudent and wouldn't interfere with our growth aspirations.

[Operator Instructions]. Our next question comes from the line of Arthur Winston of Pilot Advisors. Your line is open. Please go ahead.

Two questions about the disparity between the economic statistics and the demand for your shipments. The first part is, was the disparity the greatest in regions where oil is explored and produced? That's my first question. And the second part, was there a disparity in a certain class or type of construction project more than the other kinds of projects that you serve?

Let me try to answer it this way, saying that across our two product families of welded wire reinforcing and PC strand, we have three distinct welded wire reinforcing product lines and we have two areas of participation in PC strand. And I would tell you that we saw similar characteristics in each of those market areas and product segments and geographically there is not a great deal of difference in what we're seeing. So I would say just to say it's an overall phenomenon would be a proper characterization.

Does your product come in at the beginning of a project or more towards the end?

It would be more toward the front end generally.

Thank you and I am showing no additional questions. I would like to turn the conference back over to Mr. Woltz for any closing remarks.

Thank you. We appreciate your interest in Insteel and encourage you to follow up with us later if additional questions come up. Thank you very much.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the programming. You may all disconnect. Have a great rest of your day.