Good day, ladies and gentlemen, and welcome to the Insteel Industries' Fourth Quarter 2017 Conference call. [Operator Instructions] As a reminder, this conference is being recorded. I'd like to introduce your host for today's conference, Mr. H. Woltz, President and CEO. Sir?

Good morning. Thank you for your interest in Insteel and welcome to our fourth 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's 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 markets. Then I will follow-up to comment more on market conditions and our business outlook.

Thank you, H. and good morning to everyone joining us on the call. As we reported earlier today, fourth quarter fiscal 2017 prove to be another challenging quarter for Insteel as our results were unfavorably impacted by narrower spreads together with a continuation of soft market condition and adverse weather during what is typically one of the seasonally stronger periods of the year. Net earnings fell to $3.8 million or $0.20 a share from $9.9 million or $0.51 to diluted share in the prior-year quarter which included a pension plan settlement loss of $2.5 million or $0.09 a share after tax. Shipments for the quarter were down 5.1% year-over-year but up 1.9% sequentially from the depressed levels of Q3. Sales out of our four facilities located in the Houston and Jacksonville regions were adversely impacted by Hurricanes Harvey and Irma which caused extended downtime in our facilities, as well as our customers and brought construction activity to a standstill in the areas affected. Texas and Florida represent Insteel's two largest markets typically accounting for around 30% of our overall sales. Our preliminary estimates indicate that the hurricanes reduced our Q4 sales by approximately $4 million or 4% and gross profit by approximately $1 million due to the unfavorable impact on shipments, production volumes, and unit manufacturing costs. We're in the process of refining these estimates and the underlying assumptions for purposes of our insurance claims. Most of our customers reported continued slowdown in construction activity during the quarter particularly in the publicly funded infrastructure segment which translated into weaker demand for our products. We continue to believe the higher funding levels that have been appropriated by many states and cities will begin to have a greater impact as they move further into their new fiscal years. Average selling prices for…

Thank you, Mike. As reflected in this morning's press release, demand for our reinforcing products was weaker than expected during the quarter, as well as compared to last year. During late August and September, our markets were also affected by Hurricanes Harvey and Irma. While we were fortunate to have incurred relatively little damage at our plants, we lost extensive operating time at our four plants in Texas and Florida, and our customers suffered downtime as well. Continuing the trend that we've reported over the last couple of quarters, funding shortfalls in the public infrastructure market and moderating growth rates for private nonresidential construction have adversely affected demand for our reinforcing products with the weakness exacerbated by the unfavorable weather conditions. Looking forward into 2018, we expect modest improvements in demand driven by higher state and local infrastructure spending and continued growth in private nonresidential construction. We commented on the Q3 call that we expected to experience margin compression due to the difficulty in recovering higher raw material costs in our markets and that compression is evident in our Q4 results. Looking forward, we expect a continuation of highly competitive market conditions until demand recovers to healthier levels. Turning to inventories, on our last call we indicated that we had built inventories during Q3 following the initiation of wire rod trade cases targeting 10 countries that supply the majority of imports to the U.S. in 2016 and the initiation by the Department of Commerce of a Section 232 investigation of steel imports that could lead to the imposition of tariffs or quotas. We elected to increase our raw material inventories to ensure a smooth transition to new offshore sources and to manage the risk of supply interruptions or dislocations that may result from changing conditions in the steel market. While…

[Operator Instructions] Our first question is from Chris Olin of Longbow Research. Your line is open.

First question is on pricing. The average realization is down 1% year-over-year. Steel costs had been rising. So I guess I'm trying to reconcile that. Maybe how much would you attribute to the demand environment versus -- are you seeing kind of a rational competition out there right now?

I'm not so sure that we can separate the demand environment from the rationality of the competition Chris. Clearly the upward track of raw material prices began with rising scrap that occurred last year this time and as you know we attempted to recover those increased cost beginning in April late second quarter early third quarter of fiscal 2017, and while Q3 ASP's rose that certainly fell back in Q4 as we just really didn't receive the support that we expected. So I would attribute that the margin compression really just to the demand environment.

Mike mentioned a number of indexes or indicators that were strong. We've actually seen some pretty good data in terms of highway awards of late. I was just wondering how that data compares to maybe your order rates in October, or what you're seeing right now. Has there been a bounce yet?

I wouldn't say there's been a bounce Chris but we have seen our order intake track much closer to expectations. We hear considerable enthusiasm for some significant highway lettings in certain regions but it will take a while for that to make its way into our order book.

Final question. The ESM business has always been a key component of your strategy, and it's kind of driving some of these investments here. I was wondering if there was any way you could give us a progress report on maybe the success rate or where you are in market penetration, perhaps some kind of growth number to give us a feel of where it could go?

I think the best way to address that question is to what you know that we have made significant progress in capturing market share in the precast section or segment of the engineered structural mesh market and we have turned our focus now to driving results and growth in the cast and placed segment of the market. As you know we don't disclose to that level of product detail and don't intend to going forward, but you'll see increasing resources devoted to that part of our business going forward and as things that are material in nature develop or plan to disclose those publicly.

Our next question is from Tyson Bauer of KC Capital. Your line is open.

After a recent visit to your St. Joe facility money well spent up there.

Thank you.

We’re entering in the two seasonally slower periods for the company with suppressed margins making it more difficult to get some recovery on those margins. Is that lend itself to fiscal '18 being a tale of two halves where a lot of your optimism on the outlook is really going to be concentrated in those Q3 and Q4 next year?

Well let me first say when you say our optimism, I mean we believe that we’re going to see growth in our markets during 2018, but I wouldn't want you to think that we're expecting to see a steep trajectory of improvements in construction spending. So, while we don't expect that conditions are going to deteriorate, I would say our expectations are modest in terms of 2018 prospects and certainly the compressed nature of spreads will make the two seasonally slower quarters more difficult this year there's no question about it. And what kind of recovery we see in the spring in summer of 2018 it’s hard to say at this point, but it could be the tale of two halves.

Well just going back, we talk so much about abnormally wet conditions or why geographic area for the summer and also in Q4, if we just had a normal weather period you should pick up some incremental benefit from that. And then we'll see how the spending at the state local level see what the federal spending package ends up being. It certainly - there's enough indicators that are there that provide us some favorable comps as we get into the second half.

I think it’s a fair statement and I think that to the extent that our customers have experienced some of the same interruptions in their markets that we have experienced favorable weather conditions during current quarter would probably motivate our customers to work longer and harder than they might otherwise going into a seasonally slow period because I get the impression that everyone's behind where they would like to be in the weather affected areas.

Mike on the SG&A, what was the call back on previously expensed incentive payments that brought that number in?

Well there wasn't a call back for the quarter, there was a modest amount of expense reported but in the prior year there was no expense reported or did fully recruited previously.

So it was a situation where you had kind of your plan expenditures come in but nothing over the top that would have provided additional incentive?

Right exactly.

The CapEx typically we've seen it between $10 million, $15 million per year kind of maintenance you do one or two projects. We've been in this here recently 20 million plus, is that kind of the new norm as we go forward is that $20 million level or will we work our way back down to those low teens?

I wouldn't expect 20 million plus to be a new normal but we do intend to continue invest in on significant improvements in technology as they are available, but I wouldn't expect $20 million to be a new normal.

I would also add that about $4.9 million of that total amount relates to the exercise of our purchase option on the leased Houston facility. So I mean that will clearly be non-recurring in nature.

In the media reports about the rebar, your standard rebar company's possible consolidation by some of the players there, trying to push through some price increases in October which was interesting did that have a direct or indirect impact on Insteel with your markets or how you operate?

No, I’d say it’s immaterial to us Tyson.

Does - more consolidation is that help with pricing within the market just having a little less competition even though it is a product that yourself don't necessarily sell?

I don’t think it materially affects the competitiveness of the alternatives that we offer. It's not something that we think about a lot.

Given 30% of your market is Florida, is Texas they don't quite have the seasonality as your Northern Mason-Dixon Line. Does that provide some initial upside as we get into what is typically the slowest quarter Q2 that we’re just - we don’t know because they have to go through the appraisal, they have to see what needs to be repaired, services get back on a routine schedule. Is there some possible upside because of those two markets?

Yes, that could potentially be the case where we see an extended busy season. It’s just difficult to pin down the precise timing but certainly that potential exists.

Our next question is from Julio Romero of Sidoti. Your line is open.

So just one last piggyback on pricing. So ASP's were down sequentially just trying to wrap my head around that given that believe you had passed a price increase last quarter that was not fully realized yet as you ended the quarter. And we’ve seen kind of steel scrap relatively flat to slightly up imports going up. So we can surmise that's kind of from the - that's just fully from the competitive environment?

Yes, and we actually we roll back some of the price increases that we had initially collected which would account for some of the change in Q4.

And just can you talk about the shipments in Texas year-over-year. I know the year prior had seen up to that point to what is Texas on record obviously this was a significantly larger storm. But I'm just trying to pass out the difference in impact between what would be a very rainy months and a storm such as this?

Yes actually our shipments were up around 3% year-over-year in Texas and that's even with the storm related impact, but just in comparing our run rates pre versus post-storm, I mean there was a clear impact which ties into that estimate I alluded to earlier the $4 million in revenues. But we did see growth but it would have been even higher without the storm related impact.

Understood. And I guess just lastly, two quarters of - this slightly elevated inventory is about four months on hand. Do you expect to maintain that sort of four-month level as long as there's this uncertainty regarding trade cases and pricing on the raw material side?

I think you'll see that began to come off some this quarter, more in Q2 and then we have to assess, we just have to assess where the market settles out domestically and offshore relative to domestic pricing and make our determinations about inventory position on the facts that exist when they emerge. But our intention is not to continue operating with elevated working capital levels.

I guess barring any unforeseen market developments, we would expect that to get it down to the normal range closer to three months.

Our next question is a follow-up from Chris Olin of Longbow Research. Your line is open.

Yes, just a quick question on imports. I'm wondering if you can still source attractively priced product from offshore, and if your mix of purchase, domestic versus foreign, has changed over the last two months?

You're asking on right on the cost both of changing conditions Chris. So we have covered our offshore requirements for several months into the future. We are assessing the offshore opportunities as we look forward and there was a period in time where offshore pricing was actually being quoted at levels substantially higher than current domestic pricing but we're beginning to see that differential decline. And as I said earlier, we're just waiting for the market to settle out and some trends to emerge so we know where we want to go. I don't think that after the impact of the trade cases in the 232 runs its course, I don't think that you'll see any significant change in Insteel's mix of domestic and offshore sourcing.

And then one final question on that. You were talking about modest volume growth in fiscal 2018. But looking back, I recall your business sell like a 20-plus-percent decline in volumes in the third quarter. And I'm just wondering, does that modest growth also account for the relative easy comps?

I think the growth that we're referring to Chris is demand for the product not necessarily referring to our own shipping comparables but I think the market environment - the market environment will be somewhat more hospitable in the seasonally stronger periods in 2018 than what we saw in 2017.

[Operator Instructions] I see no more questions in queue. I'll turn it to Mr. Woltz for closing remarks.

Okay, thank you. We appreciate your interest in Insteel and invite you to - contact us if you have follow-up questions. Thank you.