Insteel Industries, Inc. (IIIN) Q1 2017 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Insteel Industries’ First Quarter 2017 earnings call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today’s conference, Mr. H. Woltz, Insteel’s President and CEO. Sir, you may begin.

Thank you, Chanel. Good morning and thank you for your interest in Insteel. Welcome to our first quarter 2017 earnings call, which will be conducted by Mike Gazmarian, our 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 first quarter financial results and the macro indicators for our markets, and then I will follow-up to comment more on market conditions and our business outlook.

Thank you H. As we reported earlier this morning, Insteel’s net earnings for the first quarter of fiscal 2017 fell to $4.5 million from $6.7 million a year ago, and earnings per share dropped to $0.23 from $0.36. On a positive note, the softening in business we experienced in the fourth quarter proved to be of short duration with shipments trending stronger than anticipated during Q1, which has historically been our slowest period of the year due to the onset of winter weather and holiday schedules. Shipments for the quarter are up 8.5% year-over-year and the 4.7% sequential decrease from Q4 to Q1 was significantly lower than the usual seasonal drop-off we experience. Unfortunately, the favorable impact from the higher volume was offset by narrower spreads between selling prices and raw material costs. As we indicated on our Q4 earnings call, our quarter-end inventory was valued at higher average unit cost and cost of sales for the period, and these higher costs would compress spreads until we begin to consume more recent lower cost purchases, which proved to be the case. Since we are typically carrying around three months of inventory valued on a FIFO basis, there is usually about a one-quarter lag before purchases are reflected in cost of sales. The higher raw material costs were compounded by a 4.5% sequential reduction in average selling prices due to competitive pricing pressures that we believe were triggered by the softening in shipments and the drop-off in steel metallic prices during the fourth quarter heading into the slower time of the year. These pressures diminished over the course of the first quarter as demand rebounded and it became more apparent that the initial November uptick in steel prices is going to continue. Shipments have remained above expected levels thus far in January, although I would caution that our volume over the remainder of the quarter can be significantly impacted by the relative severity of the winter weather. We are also facing difficult prior-year comps considering the unusually mild weather conditions that benefited us during the second quarter of last year. Gross profit for the first quarter fell $3.4 million from a year ago to $13 million with gross margin narrowing 390 basis points to 13.9% due to the compression in spreads as the year-over-year reduction in ASPs exceeded the drop-off in raw material costs. We ended the quarter with approximately three months of inventory valued at average unit costs that were below Q1 cost of sales, which will benefit us during the second quarter. Prices for hot rolled steel wire rod, the raw material used to produce all our products, have escalated since November, following the upward trend for steel scrap with domestic rod producers announcing three consecutive increases totaling $130 a ton. We are currently in the process of pursuing price increases to offset these higher costs, which should favorably impact our second quarter results. SG&A expense for the quarter was relatively flat compared to a year ago at $6.3 million, as lower incentive plan expense under our return on capital plan was offset by higher employee benefit and compensation costs. We ended the quarter with $57 million of cash on hand, or $3 a share, and no borrowings outstanding on our $100 million credit facility, positioning us with plenty of financial flexibility. Looking ahead to the remainder of the year, we expect favorable conditions in our construction end markets. The monthly construction spending data has strengthened recently with the November total rising to its highest level in over 10 years on a seasonally adjusted annual basis. November year-to-date spending was up 4.4% from last year with private non-res up 7.7% and private res up 5% while public was down just under 1%. After moderating around the middle of the year, public highway and street construction spending has picked up over the past few months with the October/November total up 7.3% year-over-year, and the November year-to-date total up 2% from last year. The most recent reports for the Architectural Billings Index and Dodge Momentum Index reflect favorable trends that imply further improvement in non-residential building construction in the coming year. Yesterday, the American Institute of Architects reported that the ABI ended 2016 on a strong note, rising to 55.9 in December, its highest level for the year largely from improvements in the commercial industrial and institutional sectors. The monthly average for the year wound up at a positive 51.2, which was down only slightly from 51.6 in 2015. The Dodge Momentum Index has now risen 11 in the last 13 months, increasing to its highest level in eight years. The December three-month average was smoothed out to typical month-to-month volatility was up 16.8% year-over-year driven by a 30.6% increase in the commercial component. As we move further into the year, we believe the Federal FAST Act funding will begin to have a more significant impact on infrastructure construction, particularly when the increases that were authorized are finally appropriated. Unfortunately, transportation funding has been maintained at the prior-year level under the continuing resolution currently in effect that runs through April 28. Finally, we are encouraged by the support that has been expressed by the new administration for the rebuilding of our nation’s infrastructure. It currently appears that the specifics of a new plan will be firmed up sometime in the spring or summer, which could drive additional demand growth for our products in the coming years. Our business outlook could also be favorably impacted by other changes that are likely to be pursued in the areas of tax reform, regulatory relief, and trade policy. I will now turn the call back over to H.

Thank you, Mike. We were pleased to see the recovery in our shipments during the first quarter from the depressed levels of Q4. The higher level of activity confirms the recent favorable anecdotal information we’ve received from our customers regarding business conditions, as well as various construction industry data and forecasts pointing to continued growth in 2017. On our last earnings call, we reported that competitive pricing activity had picked up over the course of the fourth quarter, driven by the weakening in business conditions and the decline in steel scrap prices and wire rod costs. As anticipated, the reduction in selling prices, together with the consumption of higher cost raw material, compressed Q1 margins. Looking forward, steel scrap prices rose sharply in November, December and January, with the cumulative increase exceeding $100 per ton, and wire rod costs are expected to track upward by similar amounts. In response, we’ve announced an initial round of price increases with January effective dates for each of our product lines to begin the process of recovering these higher costs. We are currently planning on implementing additional increases during Q2 that should be sufficient to cover the balance of the cost increases we expect to incur, and believe the favorable demand trends, together with the magnitude of the cost pressure, will support these efforts. Turning to CapEx, we forecast total outlays for 2017 to come in at approximately $25 million as we continue to invest in our plants, our people, and our information systems. Our most significant investments are related to the expansion of the Houston PC strand facility, including the installation of a new state-of-the-art raw material cleaning process similar to our other two strand facilities, and the addition of a new ESM production line at our Missouri plant. Other projects scheduled for 2017 include additional investments in our ESM capabilities and upgrades of our information systems and wire production equipment at certain plants. We originally expected to begin commissioning activities at the Houston strand plant during the first quarter, but extended lead times and other delays have pushed our timeline out into Q2. We expect the general contractor to complete his work on the project next week, which will allow us to begin commissioning of raw material cleaning process shortly thereafter. We anticipate the cleaning operation will be ramping up to a full operating schedule by the end of February, and the new wire drawing and stranding lines should follow before the end of the quarter. We should begin to realize the expected annual cost reductions of approximately $5 million once all of the components of the project are online. At our Missouri facility, installation activities for the new ESM production line are underway with startup plan for Q3. The project has proceeded very smoothly up to this point. As we mentioned on our last call, our CapEx estimates have generally tended to be on the conservative side, which could prove to be the case for 2017. We will continue to aggressively pursue the attractive growth and cost reduction opportunities that we’ve identified as rapidly as our internal resources will allow. To conclude our prepared remarks, it appears the softness our markets experienced during Q4 has run its course as demand has bounced back and shipments have continued to trend above expected levels. Customer sentiment remains positive, and our infrastructure related business should begin to benefit from the impact of the FAST Act during 2017. We welcome these renewed signs of recovery and believe we are well positioned to capitalize on continued growth in our markets. Additionally, we expect to realize the anticipated benefits from several of the significant investments that we’ve recently undertaken. We are also continuing our ongoing efforts to further improve the effectiveness of our manufacturing, selling and administrative activities, and to identify additional opportunities to broaden our product offering and grow both organically and through acquisition. This concludes our prepared remarks, and we will now take your questions. Chanel, would you please explain the procedure for asking questions?

[Operator Instructions] And our first question comes from the line of Chris Olin of Rosenblatt Securities. Your line is now open.

Hey, good morning guys.

Good morning, Chris.

Good morning.

H., I wanted to start with a big picture question for you, because there is some uncertainty out there. And I guess my question is October, from a volume point of view, was abnormally weak. You had this uncertainty with the election and it seemed to be delaying a number of projects or other issues. And then in November and December, we had this Trump bounce, and then we had favorable weather. And I guess my question for you is, is this type of growth that we are seeing today sustainable, or is there some catch-up in the numbers where I should start thinking about this is a mid-single-digit environment rather than a double-digit environment in 2017?

That’s an excellent question. And unfortunately, our crystal ball is a bit cloudy today. I would go back to our Q4 and say that I view that more of an anomaly than I do the Q1 pickup. And I am of the opinion that people really don’t turn on capital faucets and turn them off based on presidential elections. And even if they did, it’s hard for me to understand how the cycle could complete itself in such a compressed duration. So, we can’t fully explain Q4 still, but we don’t see anything in Q1 and as far as the momentum that we have in Q2, we don’t see anything that would point to this being an unsustainable bubble. And with all of that said, you are well aware of the lack of backlog in our order book and the way that our visibility is typically just not all that great, but we do have daily contact in the market, and I think we would feel some of it, at least intuitively, if it weren’t sustainable.

Interesting. If you looked at your backlog, and I guess the anecdotal information you have today, do you expect your incremental volume going forward to be generated from the private commercial markets, or do you think the infrastructure markets will be a bigger factor this year?

Infrastructure would certainly have more potential to grow, given the stimulative nature of the FAST Act, and the fact that they haven’t grown for a protracted period of time. Mike, I don’t know if you have another insight on that.

No, I would tend to agree, although we would expect continued growth in the private sector just mirroring the growth of the overall economy as well.

Last question I had, so January weather, at least out here in Ohio, has been pretty favorable. And I imagine a lot of regions in the north have been too. And I know you mentioned the difficult comps. I was just kind of curious if you have an idea in terms of is that growth rate holding so far, and how we should think about it in terms of volume, the difficult comparison weather-related?

Go ahead, Mike

I was just going to say, thus far, it’s been trending above expectations pretty close to the trends of a year ago. But again, I would caution just the uncertainty going forward should weather conditions deteriorate this year relative to last year.

Okay. I’ll get back into queue. Thanks a lot.

Thank you.

Thank you. And our next question comes from the line of Steve Marascia of Capitol Securities Management. Your line is now open.

Hi, good morning gentlemen.

Good morning, Steve.

Good morning.

Just a couple of questions. In terms of the pricing on metals and scrap moving higher, in your crystal ball, what do you – how do you think that’s going to play out for – going forward into 2017, are we going to see leveling continued increases or pullback somewhere down the line? And secondly, in terms of your SG&A going forward for 2017, would a $66.3 million mark be standard for the quarters going forward?

Mike, do you want to touch on the SG&A question?

Yes. With the SG&A, there are a couple variable components to keep in mind. One is just the timing of our semiannual stock option grants, which tend to skew the second- and the fourth-quarter SG&A higher. And then you have the incentive plan component which is going to fluctuate with our results. So with our results being down year-over-year, that drove the SG&A lower and it offset some increases in other areas. But generally we would expect the SG&A to rise from the Q1 level over the course of the year just with the typical improvement in our results just from seasonal factors and continued growth in the market. So, and then we would expect it to be pretty similar to the prior-year level in terms of run rate.

Okay.

And then to follow on your question about the metals markets, if we were to use the last 18 months or so as a guide for what we might expect, I think you could make a case that the current rate of upward movement in scrap prices is probably not sustainable, and we are already reading a forecast for February scrap settlements that indicate the upward momentum has tailed off. Now, with that said, you don’t know until the settlements have occurred on what really happens, and it can – sentiment can change rapidly in the course of a 10-day or two-week period. But just recent history would tell you that this thing can’t rise $30 to $40 per month indefinitely. So, my personal view would be that we are going to see a plateau coming up here.

Okay. Thank you very much.

Thank you.

Thank you. And our next question comes from the line of Tyson Bauer of KC Capital. Your line is now open.

Good morning gentlemen.

Good morning, Tyson.

Good morning, Tyson.

A couple of quick questions. In regards to your second fiscal quarter having the difficult comps you mentioned with the weather last year, does it also imply that you’re looking at difficult comps on the margin aspect of this also, where you had fairly reasonable margins for that weaker quarter than you seasonally typically have. Is that also in the outlook?

I guess it would depend on the extent to which we maintain these favorable shipment trends. If we come in – if the weather remains moderate over the remainder of the quarter, the volume would significantly play a factor. But also, I mean, just from a spread standpoint, as I indicated in my comments, we began the quarter better positioned from an inventory value standpoint where we just – with the timing of the previous fluctuations in scrap and wire rod, we went through a stretch there during Q1 of higher raw material costs, and ended the quarter with lower costs than what was reflected in our Q1 cost of sales. So that would imply a favorable impact in Q2. And then the other driver would be the selling price increases that we are pursuing as well, which could have a favorable, favorable spread impact.

Right. And I’m just trying to bracket you. We are going to be better than what we just experienced. How we get to that – what was it, 17.8% a year ago, that may be a bigger stretch, or is that a reasonable possibility? It seems that blow…

Yes. I think it’s just a function of both those factors, the volume over the remainder of the quarter and the weather related impact and then the selling price increases and the timing and effect from those.

Do you have any negative impact from that startup delay in Houston where we’re going to have some accelerated expenses initially that could – that back?

No, it’s just more of an opportunity cost issue where we would expect that $5 million of annualized savings to now begin in the third quarter instead of the second quarter, so there’s just a timing issue on the cost reduction side, but no negative implications other than that.

Part of the rationale there is, to nearly double the output of the plant, we are not having to add any significant amount of labor to the cost structure of the plant. So, there’s not a lot of front-end costs that we are incurring.

Okay. Historically, in periods of strong dollar environments, you have been able to take advantage of cheaper steel imports coming into the country, whether it’s from Turkey or other places. Is that scenario building as we speak in this environment where you could see yourself, given your scales of economy, to take advantage of that affect?

It certainly – the stronger dollar certainly is favorable in terms of the number of players that are interested in exporting to the U.S. And typically, we find ways to take advantage of that. So yes, I would say, overall, it is a favorable factor on the raw material purchasing side. Of course, in the PC strand business where we compete some against imports, it has a negative impact. But certainly, we acquire much more wire rod than we see PC strand coming in. So, overall, I think it could be favorable for us.

You brought up PC strand. Are you seeing, because we have a new domestic production that’s come online, that probably has a more influence on pricing than imports at this point in time, that you are more competing with the domestic players right now?

I would say that the balance of competitive activity hasn’t changed a lot in terms of the percentage that’s constituted by imports and the percentage that’s constituted by domestic competition. Not a lot of change there at this point. Clearly, the psychological impact of new capacity coming into the market domestically has had a depressing impact on pricing. There’s no doubt about that. But in terms of the overall mix of competition, I wouldn’t say that there’s been any significant change.

Okay. And last question, H., you seem to be, on the government policy side of this, in the know. A lot of the Trump rally, or a lot of the expectation for an infrastructure stimulus in those plants, the devil is always in the details. The details in regard to what he wants to do have a lot of private participation. We’ve seen those activities in states like Texas, California, some of the Southern tier states, with a mixed history of success. What is your view as a participant in that industry that could benefit from that activity of the success of having that kind of private-public joint projects where you’re looking for the investment from the private sector? And what have you experienced or seen in your business as far as how successful that’s been?

We’ve seen a lot of very successful public-private partnership projects. I think that business model has matured and is very viable. But I think, as we’ve mentioned before, maybe even on the last call, that there are certain project that are infrastructure related which just don’t lend themselves to generating streams of cash flow for private investors. And so I think the devil is in the details on Trump’s plan but, at the end of the day, I think we’re going to see a much more hospitable infrastructure market environment than what we’ve seen over the last few years. But I don’t have a good feel for exactly what form that’s going to take and how it’s going to play out.

Okay. Thank you, gentlemen.

Thank you. And our next question comes from line of Phil Gibbs of KeyBanc Capital Markets. Your line is now open.

Good morning. Thanks for taking my call. Question here on just the geographical mix of business. I know you’re more so I think in the South, but anything geographically that you’re noticing in terms of trends within your served markets that there could be some differentiation?

We are really active nationwide. And you would see that our production capacity is pretty well aligned with the consumption of our products over the entire nation. Mike, do you want to comment on the Texas situation?

Yes. Just in terms of the quarterly year-over-year comparisons, we saw a significant improvement in Texas as well as across the Mid-Atlantic States as well as in Florida and the southern states. It was pretty broad-based. But we did see a nice bounce back in Texas from the softening that we experienced back in Q4.

Okay. And some of it was just – some of the indicators on the West Coast have been softening a little bit, the leading indicators. Have you seen some of the markets like California taper off a little bit relative to those other markets?

I think that’s accurate. We haven’t seen much of a pickup there.

Yes. And that’s been the case for some time.

Okay. And then just a general question on steel intensity. Is there a difference in steel intensity when you’re looking at commercial projects versus infrastructure projects?

I think it’s hard to make a general statement, but I would tell you that one of the most intensive applications of our project is for bridges where we are supplying both engineered structural mesh and PC strand for bridge beams and other precast components. So, if that’s the most intensive – and certainly most of that’s going into infrastructure. But when we do jobs in the private sector, for instance we’ve done some Amazon distribution centers, they can be very steel-intensive. But I’m not sure how I would measure the relative intensity between the two.

But just kind of at a higher level on an overall basis in terms of our end-use mix, we ballpark it as being around 85% non-res versus 15% res. And then within that 85%, you could break it out roughly at about 40% infrastructure related for roads and bridges, and the other 45% would be a catchall for all the other non-res categories.

Okay. So the answer broadly – if I’m reading this correctly, is that it depends. It sounds like it depends on what you’re making, but there is no general statement between those two in terms of…

I think that’s a good characterization. And I would say, as we look at market opportunities for our business, certainly the lagging nature of that public infrastructure piece of our market presents pretty significant opportunities for growth now if we do see significant uptick in spending related to either the FAST Act or Trump’s plans, or certainly both would be desirable

One more general question and then I will hop here. But it’s on just the volatility that we’ve seen in raw materials as you’ve elaborated on. In that type of market environment, and I know it’s just been a quick jump, but is there lot of requests for requoting in that type of market? Obviously, the customers probably wouldn’t want to be requoted, but you’re going back and trying to requote them, how is that back and forth in this type of volatility that we are likely to see for a bit of time? Thanks.

Yes. Most of our pricing has not locked in, so when we have a price increase, we begin quoting the new levels on the effective date of the increase. We do carry some backlog of projects that are at a fixed price, but it’s really a very, very small percentage of our business, and I would tell you it’s not a highly concerning issue for us.

Thanks very much

Thank you and our next question comes from the line of Bill Hyler of WDH Capital. Your line is now open.

Yes, good morning. I appreciate the call.

Good morning.

Yes. Can you expand a bit on the $700 million of annual revenue capacity that you discuss in the investor presentation, maybe how much was due to the Ivy American Spring acquisition, how much was organic expansion initiatives? And also in the last, say, 10 years, have we experienced an environment that would support this kind of revenue growth, perhaps back in the 2005 to 2008 time frame?

Sure, sure. Yes, that upside really reflects a combination of the contributions from both those acquisitions as well as the significant investments that we made in our facilities, particularly in our ESM business to further our penetration of the rebar market. But just as a point of comparison, when you look at our historical sales going back pre-recession to that stronger period back in 2006, 2007, 2008, on a pro forma basis, if you were to roll up Ivy and American Spring Wire standalone revenues with our revenues of somewhere in the $350 million range back in 2008, we were actually above $600 million at that time. So we were approaching that $700 million threshold. So, I mean I guess the point there is that, in a healthier market environment, we are right on the verge of reaching that threshold. And with the investments we’ve made, I mean that’s really what gets us up to that $700 million level.

And is most of the capacity increase like the engineered mesh side of the business?

I would say, over that period, internally, I would say yes. That would be the case.

And PC strand has also been the recipient of significant investments.

Okay, interesting. Okay, appreciate it, thank you.

Okay, thank you.

Thank you. And our next question comes from the line of Fran Okoniewski of Friess Associates. Your line is now open.

Thank you, good morning. Just to sort of follow-up on that last question, in terms of your potential $700 million annual capacity, it would be great to kind of approach that. What kind of SG&A investments would you guys need in order to sort of even get halfway there? Are we looking at more investments in headcount and/or other middle of the P&L investments to kind of get to that level if we were to see that kind of demand?

I mean that’s where we really get the operating leverage benefit. The incremental SG&A would be minimal. We would largely be able to ramp up to that volume without any additions, just through our existing infrastructure. As I mentioned earlier, the biggest variable component on our SG&A is the incentive plan, which is going to fluctuate with our results and with the strong performance last year, the incentive plan expense that paid out at the maximum level, so there’s no further upside there other than just inflationary type increases year-to-year. So that’s where we clearly get an operating leverage benefit.

Okay. Just one more. In terms of your shipments or the momentum that we’re seeing here in the fiscal second quarter so far, is that just sort of catch up from Q1, fiscal Q1, or is this new order demand that’s starting to sort of trickle in?

Well, it’s not catch up from a deferral of projects point of view. And of course, that would’ve been during Q4 because Q1 actually saw that pickup, which is continuing. You know, I don’t perceive that our customers backed off from producing products or otherwise. As I said earlier, I can’t explain the Q4 downturn. But our customers seem to be going about their business in the ordinary course today, which leads me to believe that they are responding to the inquiries and orders that come into them on just an ordinary course basis and that there’s no unusual pent-up demand out there.

And would you say that the shipment momentum that you are seeing right now correlates pretty closely to some of the indicators that you mentioned earlier, or is that something that we could see maybe continued momentum benefit from the ABIs, the Dodges and things like that?

I think there’s somewhat of a correlation with construction spending data, which reflects the current level of activity. The Dodge and ABI are both forward-looking with the ABI looking out nine to 12 months and the Dodge 12 months. So, that would just imply further improvement in conditions over the next year.

Okay, great. Thanks.

Thank you. And our next question comes from the line of Christopher Hillary of Roubaix. Your line is now open.

Hi, good morning. Thanks for taking my question, and thank you for the detailed slide deck you guys provide. I think most of my questions on trying to suss out the incremental demand have been asked a few different ways, so maybe I’ll ask a different question. That is, when we look at your gross margins, you have a long history there. What do you think some of the puts and takes are going forward in terms of your sales mix, the costs you’ve taken out and the competitive marketplace? Do you have a view on kind of some upward or downward bias on gross margins based upon what you see today?

Just breaking it out simplistically in terms of gross profit and gross margin, there are really three drivers – the volumes, spreads, and conversion costs. And conversion costs, as we’ve indicated, we are expecting further improvement there going forward through our ongoing initiatives as well as the expected savings coming out of the Houston expansion. The spread outlook is somewhat correlated with volume where, as you’d expect in a stronger demand environment, that typically leads to widening in spreads, so those tend to move together. So to the extent that the expected growth in non-res and infrastructure does occur, that would just lend itself to a favorable spread environment and provide some additional benefit to gross profit and margin.

Okay. And then maybe one more. You obviously have an unusually strong balance sheet versus a lot of your peers. What’s your kind of update on your attitude towards how you want to use the strength of your balance sheet with some respect to kind of the changing outlook and drivers that you’ve already discussed on the call so far?

I think, as we’ve stated before, the fact that the Company is debt-free with a sizable cash balance is really a coincidence. It’s not a goal in itself that our priorities are to continue to grow our business, and also to continue to invest in our manufacturing operations to the point that the technology that we are deploying really drives down our cash operating cost to a point that is highly competitive or certainly outpacing our competitors. So, we are very focused on our internal execution, which obviously requires some financial resources to execute on. But if you are wondering whether the Company would be willing to step out there and incur debt for the right growth opportunity, the answer is certainly yes, we would. And we would like that opportunity and we are working in that direction all the time.

Okay. Thank you and good luck with the rest of the year.

Thank you.

Thank you.

Thank you. And our next question comes from a follow-up from the line of Chris Olin of Rosenblatt Securities. Your line is now open.

Thanks for letting me jump back on here. Hey, Mike I had a quick question about your comments regarding Texas. I was looking at some of the cement data, and I think it came out for the month of November, and it looked like northern Texas was up considerably, but southern Texas was still weak. I was curious if you are seeing that same type of trend within the state? And if southern Texas is weak, does that limit the ability for the Houston facility to get pricing?

I don’t know that I can comment on the variability within the state. I just know that, on an overall basis, there was significant improvement. So, I don’t know. I mean the Houston facility isn’t just confined to that local market. It’s shipping further out into the state as well. So, to the extent that there is some softening there, I don’t know that it would really be a limiting factor.

Yes. We really don’t see – we don’t see market differentiation in those small, regional areas. When the market moves, it moves in wider geographic areas, Chris.

Okay, that makes sense. The last question I had was – and you touched upon it a little bit, but this engineered structural mesh business seems like its part of the strategy. It’s an area for growth. And I was wondering if you give us an update on kind of where you are in terms of customer acceptance and maybe any thoughts on what this market could look like over the next year, year and a half, two years, however you think about it.

It has been a major area of focus for the company, and investment, and certainly continues to be with the Missouri project that we have, we have underway. The development of the market has been steady. We continue to improve the resources that we have to convert rebar applications to engineered structural mesh. We have penetrated the pre-cast side of the ESM market significantly. And the growth – the bigger growth opportunity today resides in the market where the product is actually used on a job site rather than in a manufacturing facility. And we are ramping up our resources and focusing on capturing more and more of that market. It’s a much more complex undertaking, but a much more financially attractive one also. So, we continue to push hard in that direction.

Is it still about one-third of the wire mesh business?

Are you referring to the greater market, or are you referring to Insteel shipments?

Insteel’s direct shipment.

We haven’t disclosed that previously.

Okay, fair enough. Thanks a lot.

Thank you.

Thank you. And I’m showing no further questions at this time. I would now like to turn the call over to Mr. H. Woltz for closing remarks.

Thank you, Chanel. We appreciate your interest in Insteel, and would be glad to have you call us back if other questions arise. Thank you.