Good morning. And welcome to Insteel Industries First Quarter 2024 Earnings Call. My name is Carla, and I will be your operator for today. [Operator Instructions] I will now hand over to your host H. Woltz, CEO to begin. Please go ahead when you are ready.

Thank you. Good morning. Thank you for your interest in Insteel and welcome to our first quarter 2024 conference call which will be conducted by Scot Jafroodi, our Vice President, CFO and Treasurer; and me. 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 and which could cause actual results to differ materially from those projected. These risk factors are described in our periodic filings with the SEC. The recent environment has been challenging for the company in view of inventory accumulations throughout the supply chain and a significant downward reset in steel prices that occurred following several quarters of extreme supply tightness and significant market price escalations. We believe these headwinds have about run their course and we continue to be optimistic about the underlying level of demand for our products. I'm going to call -- turn the call over to Scot to comment on our financial results for the quarter and the macro environment. And then, I'll pick the call back up to discuss our business outlook.

Thank you, H and good morning to everyone joining us on the call. As we anticipated, business conditions remain challenging during the first quarter of fiscal 2024 as we continue to navigate through the ongoing pressure a narrowing spread between selling prices and raw material costs coupled with elevated unit manufacturing costs. As a result, net earnings for the quarter declined to $1.1 million or $0.06 per share from $11.1 million or $0.57 per share in the prior year period. Net sales for the quarter fell 27.1% from a year ago, driven primarily by a reduction in average selling prices as shipments remains flat. The decline in ASPs for the quarter reflects a persistent competitive environment and the steep decline in steel scrap prices over the past year. Sequentially, ASPs dropped by 7.9% from the fourth quarter as pricing pressure continued during the period driven by both ongoing domestic competition and the growing impact of low priced imported PC strand. As we move into the second quarter, there are indications that the decline in our selling prices may be ending. Steel scrap prices reversed their downward trend during the quarter and have risen by $80 since November. Wire rod producers have followed and made price increases in December and January. In response to the rising cost of our raw materials, we have initiated our own price increases earlier this month, extending across most of our product lines. The start of an upward trend or a leveling out of prices due to these increases could put an end to a headwind that has been negatively impacting our results over the last year. Shipments for the quarter, which have historically been our slowest period of the year due to the onset of winter weather and holiday schedules, were essentially unchanged from the…

Thank you, Scot. As we commented last quarter, the difficult Q1 operating environment was expected as we faced headwinds, including declining steel prices, inventory liquidations by customers, the need to align our finished goods inventories to reflect lower shipments. And finally, the normal seasonal downturn in construction activity. As we first-in, first-out reporter, declining steel prices unfavorably affect reported earnings as a matter of simple mathematics. The particularly sharp increase Insteel prices during 2021 and in 2022, produced a tailwind for earnings during these periods and the sharp reduction of prices during 2023, extending into Q1 2024 created a substantial headwind for the company that was exacerbated by inventory liquidations and inflationary pressures on costs. Fortunately, it appears that pricing is heading up. More steel price stability should contribute to an improved operating environment for the company. As mentioned in the release, shipments of reinforcing products into the housing markets have recovered nicely since collapsing beginning in May 2022 at the onset of the Fed's interest rate increases. Margins have been compressed. However, its higher cost inventory flows through cost of sales, a process that's now behind us. Shipments of welded wire reinforcement into infrastructure markets continue to show weakness, particularly in the Midwest and Western markets. While customers are by and large busy, many have storage yards that are full of finished products due to contractor delays and others are reducing inventories. While there's not objective data to support our view, it's not surprising that inventory corrections would occur following the recent extreme tightness of supply. This phenomenon was repeated throughout the supply chain and we experienced the same dynamics in our raw material supplies. If we are correct, Insteel shipments and production should accelerate at seasonally favorable weather patterns displaced the winter chill. PC strand shipments were flat…

[Operator Instructions] We'll take our first question from Julio Romero from Sidoti & Company.

To start, I was hoping you could update us -- I was hoping you could update us on the competitive pricing pressures that you spoke about last quarter in October? And has the rise in steel scrap kind of ease some of those competitive pressures?

Of course, it's always difficult to know exactly what drives behavior in the markets, but I would suspect that the entire marketplace has experienced the rather disappointing volume -- volume experience that Insteel has seen, and there's been an overreaction by certain competitors to believe that reducing price to stimulate volume. And of course, as steel costs came down, I suppose, that competitors believe that they would -- they would be able to offset lower average selling prices with lower steel costs, of course, that dog chases its tail for quite a while. So the bottom-line is we were glad to see that steel scrap prices stopped their free fall. We're glad to see that the overall steel market in our segment, wire rod and wire products has begun to stabilize and move up. And we think that the stable steel market that we see in front of us for the next few months will certainly benefit our operating environment.

And I guess that stabilization, one would think would lead to more rationality within the marketplace, at least on the domestic side. But I'm curious if you're seeing a divergence on the imported side and if there's any notable kind of differentiation between pressures you're seeing from domestics versus imports?

Are you referring to our raw material, Julio? Or are you referring to import competition with our finished products?

I'm referring to the finished product side. And if the imported finished products are still kind of underpricing domestic such as yourself?

Yes, that is the case. And it's interesting in that import volumes of PC strand are actually down, but pricing for imported products has really collapsed. So in certain segments of the PC strand business imports are a major competitive factor and in that area, we have definitely been affected by that import competition. Julio, this is not new for the company. We've experienced this over and over and over again to the extent that today we have 22 dumping or countervailing duty orders against foreign countries. And if the kind of destructive pricing that we're seeing now continues, I think you can expect to see more trade activity by the domestic PC strand industry.

And then typically, when steel scrap prices reverse towards the positive and when finished goods prices also reversed towards the positive. You typically see a one quarter kind of FIFO tailwind as you benefit from those higher prices of finished goods and the consumption of lower-priced inventory. Do you foresee that on the horizon? And if so, what's maybe your best guess as to when the timing is realized within the P&L?

Well, it's a day-to-day sort of issue with us. We did announce price increases across practically all of our products that were effective the first of January. We are collecting those increases as we speak. What next week brings is hard to say. But this week, we're collecting the increases. And if that were to continue for the quarter, then you would see the impact of those increases in our Q2 results.

[Operator Instructions] We will now take our next question from Tyson Bauer from KC Capital.

Just a follow-up on Julio's last question. As he has mentioned that we have seen historically that sometimes you'll overshoot for a quarter. And then we end up in this little yo-yo situation on the margin. But when you had price increases or announced price increases, you've also benefited from increased shipments ahead of those price increases. And I'm wondering if that will be reflected in Q2 or because we're in the seasonally weaker quarter that somewhat gets muted as opposed to if this happened during the summer months.

I think that shipments for our Q2 will probably be affected by weather conditions as much as any quarter for the company. And it's hard to know what the impact will be. But traditionally either Q1 or Q2 is our lowest shipping quarter. I suspect that Q1 will be our lowest shipping quarter, and Q2 will be better, but it is weather effective. But in terms of whether this would be -- this environment would be more beneficial in the summer months and the winter months. I don't really think so, Tyson. I mean except for the all suppliers higher as we ship more -- we ship more product. But the change is, I think, the important issue here, and it's very welcome at Insteel. I think the other thing that's important to understand is just how volatile this raw material market has been over the course of the last 18 months, we've seen highs that are unprecedented, and then we've seen those numbers drop back to lows. And that whipsaw effect is going to affect Insteel's results just by matter of simple mathematics and it's just part of the business.

Okay. Well, it sounds like you're implying that there's been really no pushback to your price increases. Would that necessitate further price increases?

Well, I mean, there's always pushback to price increases. But I think the magnitude of increases in costs that we've seen are undeniable. And I don't think there's any competitor in our industry that would expect to absorb those raw material increases. And I think the customer base is realistic about sources of supply. So I think supply and demand have matched up in a way that makes this price increase around look attainable. What happens in the future is going to be determined the strength of demand for our products and also about what happens in the overall steel market. And it's just beyond us to be able to project that past a month or two out..

And were you the industry leader in implementing the price increases? Or were you following others within the industry and their actions or have others followed your actions now?

We are typically the leader in the industry, and we have seen others follow our actions.

Okay. Inventory levels, so we're $9 million below where we were the prior quarter, which you have some seasonal lift in there. What's the split between the raw material and the finish? And is that split something that was impacted by delayed shipments at the end of the quarter? Or is that fairly normal split from what you've seen in prior quarters?

It would be a fairly normal split, Tyson. There are a couple of product lines where we needed to reduce finished goods inventories. I don't think that you'll see our raw material inventories fall further than where they are today. They're at a very comfortable level. And of course, raw material inventories are a function of steel mill service levels. The worse the service levels are and the longer the lead times are extended and the higher the inventory levels we end up carrying. And the other real driver there is our activity in offshore markets which is today at a low area. So our raw material inventories are comfortable for the state of the business and our finished goods inventory liquidations are about complete. But I wouldn't say that there's any change in the split between raw materials and finished goods that would be surprising.

And the overall level should be as we gear up for the warmer seasonality, we'll start to see the inventory amount creep up as we get into Q2 forward. Okay. It sounds like -- Scot, was there no incentive calculations or pay compensation that was included in Q1. So does that imply a true-up possibility in future quarters that may have better profitability?

Yes, there is no expense pickup in Q1 for the incentive plan. But -- and yes, it would -- improving results in Q2, Q3 would accelerate that.

Okay. And when we look at Dodge, you look at ABI, you look at all their AIA data, how much of that do you think is -- as far as the expected projects having better numbers is really dependent upon rate cuts and when those rate cuts occur, that would spur actual activity, whether that be in housing, commercial or otherwise. It seems like the infrastructure piece will be there, given state and local municipality budgets on DOT with the matching of the federal funds. So that side seems to be fairly high conviction level. That will show up, what about the residential and more of the commercial side. Is that more rate dependent?

I think in residential, higher rates have already had the impact. And as you can see from new home construction, which is the primary consumer of our product, it hasn't been -- it hasn't been hurt nearly to the extent that overall home sales has been hurt by our rates. So I think on the new construction side, that trauma has run its course and that we should see reasonable market conditions going forward. We may not be building 2 million homes a year, but it's not 1.2 million either. So I think it's run its course and really the issue for us in that market over the last few months has been more margin compression than it has been volumes. Volumes have recovered pretty nicely. Commercial construction has undoubtedly been affected by higher interest rates, particularly speculative projects that are not undertaken by owners, I think that interest rates have been high enough and the change has been dramatic enough to make some projects uneconomic and we see many of those coming back to market for requotes time and time again just as investors assess the viability projects. But it has been -- that market has been adversely affected. And certainly, if interest rates were to begin coming down, I think it would have a beneficial impact there.

Thank you. We have no further questions registered. And with that, I will hand back to your host, H. Woltz for closing remarks.

Okay. Thank you. We appreciate your interest in the company. We look forward to our next call where we fully expect to report much improved results. Thank you.

This concludes today's call. Thank you for your participation. You may now disconnect your lines.