Good day, ladies and gentlemen, and welcome to the Insteel Industries' Second Quarter 2018 Conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this call is being recorded. I would now like to introduce your host for today's conference Mr. H. Woltz, President and CEO. Please go ahead Sir.

Good morning. Thank you for your interest in Insteel and welcome to our second quarter 2018 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 the call over to Mike to review our second quarter financial results and outlook for our construction markets, then follow up to comment more on business conditions.

Thank you, H. and good morning to everyone joining us on the call. As we reported earlier today, Insteel's results for the second quarter of fiscal 2018 marked the second consecutive quarter of favorable shipment trends following the disappointing volumes we experienced during the second half of last year. We believe the recent strengthening in demand will continue during our third quarter, which is typically one of the busiest periods of the year based on the usual seasonal pick up in construction activity. Spreads between selling prices and raw material costs widened sequentially from the lows of Q1 through the price increases that were implemented and we expect further improvement during our third quarter. Insteel’s earnings for the second quarter came in at $0.31 a share, which was up $0.08 sequentially from the first quarter, excluding the non-recurring gain on deferred tax liabilities, but down $0.08 from a year ago. The sequential improvement was driven by the higher spreads in shipments, while the year-over-year decrease was due to lower spreads relative to last year. The second quarter got off to a choppy start due to the intermittent stretches of cold and wet weather across our markets with shipments trending below prior year levels through the first two months of the period before rebounding strongly in March, rising over 18% from a year ago. For the quarter as a whole, shipments were up 6.8% sequentially from Q1 exceeding last year's 5.6% increase and 2.4% year-over-year. From a geographic standpoint, the volume growth was primarily driven by higher shipments into Florida and most of the Mid-Atlantic states, which offset some softening in Texas, our largest market that was likely compounded by the inclement weather. Average selling prices were up 2.9% sequentially from the first quarter and 3.7% year-over-year, reflecting a portion of…

Thank you, Mike. As we reported on our last call our Q1 shipment volumes gained momentum over the course of the quarter following the unusual weakness that we experienced during the second half of fiscal 2017. As we moved into the second quarter, our view of the underlying demand trends was obscured ‘somewhat by the impact of severe weather on the operations of seven of our plants, as well as shipments from all of our plants, particularly during January and February. Beginning in March however incoming orders and shipments accelerated dramatically driven by the usual seasonal pickup in demand together with concerns regarding the Trump Administration's Initiation of a Section 232 Tariff regime on imported steel products, including our primary raw material hot-rolled steel wire rod. These favorable demand trends have continued thus far in April as we move into what is typically our busiest season of the year. Following the completion of the DoC’s Section 232 investigation that was initiated last Spring and the delivery of its recommendations to the President. On March 9th, the administration announced that it would impose, across the board 25% tariff on steel imports, effective March 23. Subsequent to the announcement, temporary exemptions were provided to several countries deemed to be strategic allies. The exemptions could become permanent depending on the outcome of negotiations, currently underway to resolve administration trade concerns. Any such permanent exemption would likely require reductions in steel export volumes to the U.S. as was agreed with South Korea and would represent a favorable outcome for Insteel by expanding outsourcing options as compared to the across the board tariff approach that was initially announced. We should also benefit from the anticipated June restart of a previously idle wire rod mill in Georgetown, South Carolina which is strategically located to several of…

[Operator Instruction] Our first question is from the line of Steve Marascia of Capitol Securities. Your line is open.

Good morning, gentlemen. Just a quick question in terms of our models for this year, what would your guesstimate be that the blended expected tax rate might be going forward?

Should be right around 24.7% for the year.

Okay. No variation from quarter-to-quarter or just straight line?

It should be relatively close quarter-to-quarter.

Okay. Thank you much.

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

Good morning, gentlemen. Are you expecting to see any kind of significant recovery one of the laggers last year in the non-res construction was the public spending institutions, federal state buildings, colleges, universities that kind of area. Are we looking for a rebound this year in that area, that was kind of the lagger last year?

Yeah there has been a recent pick-up in public spending activity over the past few months and as we commented just with the recent passage of the Omnibus Spending bill that frees up the increase that was previously approved under the FAST Act and also provides another $2.5 billion of highways funding, which should have a favorable impact. And it also eliminates the uncertainty that existed through the previous continuing resolutions that were in effect. So, we are expecting some improvement at the federal level and at the state and local level. As we've discussed on previous calls just with the various funding initiatives that have been enacted or pursued over the past few years, we should see a more, more significant impact from those in the coming months as well.

Your four price increases, what would that be as a composite percentage increase?

I think, Tyson we'd like to leave it at that. At this point, they’re sufficient to cover our increasing costs and begin to help resolve the margin compression issue that we ran into in 2017.

Okay. You mentioned in March your margin would have been on a pro forma basis, 17%, are you looking at these price increases to keep that 17% steady or do you think because of the increased shipments and better leverage on those fixed assets that, that 17% can be the baseline that we can incrementally work off of?

I think it's really -- it's really hard to project at this time. There are so many moving pieces in the marketplace on both our market side and our supply side that, that, if it's typically difficult for us to see what's going to happen, it is exceedingly difficult now.

And just to clarify on your question, the 17% margin for March - in excess of 17% that was, that was actually - it wasn't a pro forma, so we were just pointing out that within the quarter there was significant improvement both in terms of margins and volumes.

So that was realized margin?

Right.

That's - I would assume your expectation at least from what you can see, which is limited of course, but we're starting out April in that same range?

As a starting point, yes.

Correct. Okay. All right. Thank you.

[Operator Instruction] Our next question is from Julio Romero of Sidoti & Company. Your line is open.

Hey, good morning H.. Good Morning Mike.

Good morning.

So did you guys call out lower shipments in Texas year over year? Was that just a function of weather or was there something else you saw going on in the region?

I think the weather clearly had an impact. It's really difficult to segregate that or quantify it precisely.

But Julio, we did lose time - manufacturing time in Texas due to ice which is – it is not unheard of, but nor is it expected. I don't think there's been a change in Texas market conditions that, that would be concerning. I think it's more a function of wet and cold weather.

Got It. Yeah. I mean everything we hear about Texas seems to be trending well and with the four announced price increases you mentioned since January, I guess I assume you see healthy appetite from your customer base to absorb these rising input costs?

Yeah, I think so far I think we're on track to do that.

Can you tell us at all what percentage of cost of sales in the quarter were raw materials versus freight and manufacturing, you know either a number or maybe if it's up at this point year over year?

I don't know that we'd want to drill down to that level of detail on for the quarter.

Got It. And then just last one for me is just, can you talk a lot about freight costs effected you at all during the quarter, availability of truckers and if you see that affecting you going forward?

It's a serious concern on the availability and the cost it just continues to be a tremendous challenge for our people across the board at all our locations. And I don't know that we see any rest that is coming in that condition. It's going to be difficult.

Got It. Thanks for taking my questions.

Thank you. Our next question is from Chris Olin of Longbow Research. Your line is open.

Hey, good morning.

Good morning, Chris.

Just want to look at the March strength that you were talking about a bit here. Do you get the sense that, any of the construction demand or I guess, let's just say you're shipping levels were impacted by the timing of the steel tariff announcements, any type of inventory adjustments, or do you get the sense that people are trying to build early before the prices started moving higher?

It's a good question. And I don't know that we necessarily have a good answer. But I could tell you that that even before the March 9 announcement of the 232 program, we had seen an acceleration in shipments. And of course, the 232 issue has been hanging over the industry since April of 2017. So where people reacting to it prior to the March 9 announcement, I assume that, it's possible that's the case. But they didn't react to it in February and they didn't react to it in January. So, it's just really hard to tell on following the announcement I would say that that concern has ramped up so that, that certainly the 232 program has had an impact on buying behaviors since that time. And, I think that's continuing, but it’s difficult for us to peel it away from, from the underlying level of demand for the product, which is pretty solid and certainly improved from last year. So, I wish we could parse it for you, but that's about all we know.

Okay. What about just in terms of your own sourcing, how should I think about your inventory costs? Or is there any margin benefit going forward since you do tend to keep a lot of inventory on hand?

Yeah we had – I think I mentioned at the end of the quarter, we had right around 2.5 months of inventory, so under a fivefold and that would get us through, most of the third quarter. Now if you go back through the most recent scrapping wire rod increases that now our inventory value is valued at higher than the amounts going through Q2 costs of sales, but still well under a replacement cost. So, I mean it's just going to be a matter of how, how that inventory carrying value compares against these additional price increases that we're implementing. But I think we're well positioned for the third quarter just from a spread and margin standpoint.

Okay, thanks a lot.

Thank you. And I'm showing no further questions. I'd like to turn the call back over to Mr. H. Woltz for any further remarks.

Okay, thank you. We appreciate your interest in the company and please don't hesitate to contact us if you have follow-up questions. Thank you.