Good morning, and thank you for joining the Insteel Industries First Quarter 2025 Earnings Call. My name is Harry, and I'll be your operator today. [Operator Instructions] I would now like to hand the conference over to H. Woltz, Insteel Industries' President and CEO. Mr. Woltz, please go ahead.

Okay. Thank you, Harry. Good morning. Thank you for your interest in Insteel, and welcome to our first quarter 2025 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, which could cause actual results to differ materially from those projected. These risk factors are described in our periodic filings with the SEC. We're pleased to have experienced a material upturn in business activity during the first fiscal quarter relative to the same period last year. Seasonally, however, trends were normal, resulting in lower shipments sequentially. Following the lackluster demand environment that persisted through fiscal 2024, we made two important acquisitions during our first quarter that we expect to deliver solid returns for shareholders going forward. I'm going to turn the call over to Scott to comment on our financial results for the quarter in the macro environment, and then I'll kick it off to discuss our business outlook and provide some insight on the rationale for our acquisition activity.

Thank you, H, and good morning to everyone joining us on the call. Earlier today, we reported our results for the first quarter of fiscal 2025, which were largely in line with the same period last year. Improved spreads between selling prices and raw material costs, coupled with increased demand from our concrete reinforcing products, offset the impact of higher selling, general and administrative expenses. Net earnings for the quarter were unchanged at $1.1 million or $0.06 per share. However, after adjusting for the nonrecurring charges outlined in our press release, adjusted net earnings increased to $0.10 per share. Shipments for the first quarter, typically our slowest period due to winter weather and holiday schedules, increased 11.4% year-over-year. Sequentially, shipments declined by 4.5% from Q4, a considerably smaller drop than usual seasonal decrease. This strong performance was driven by increased order activity across our commercial and infrastructure end markets, along with incremental volumes from our first quarter acquisitions of Engineered Wire Products and O'Brien Wire Products in Texas. Additionally, first quarter volumes were benefited by shipments deferred from the fourth quarter due to weather-related delays as well as demand from customers seeking to complete projects ahead of the winter season. Average selling prices for the quarter declined 4.3% year-over-year, reflecting the competitive market conditions experienced throughout the past year and the ongoing impact of low-priced PC strand imports. However, on a sequential basis, average selling prices increased 1.1% compared to Q4, driven by the implementation of price increases during the quarter in response to rising raw material costs stemming from tightening brass supply. Gross profit for the quarter improved to $9.5 million from $6.3 million a year ago, with gross margin expanding 210 basis points to 7.3% from 5.2%. This improvement was driven by widening spread between selling prices and…

Thank you, Scott. As we commented consistently, the operating environment during fiscal 2024 was difficult 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. The result, of course, was lower operating rates at our plants, price competition from competitors experiencing the same weak conditions as Insteel and inadequate utilization of the capital investments that we've made over the past few years. While it's too early to know whether the positive trend will continue, we noted a material uptick in demand during our first quarter. We're mindful that the trend must be sustained to justify ramping our operating hours but it is nonetheless welcome. The first few weeks of our second quarter have not provided much additional insight into the underlying state of demand in our markets as we've been affected by the usual seasonal weather trends that have resulted in curtail of operating hours at multiple facilities and at customer facilities. I think when we look back at the winter of 2025, however, we will call it normal. The weak demand environment during 2024 for wire products both construction-related and non-construction related was confirmed by the announced curtailment of domestic capacity to produce steel wire rod Insteel's primary raw material by two producers affecting three steel facilities. It's likely that production at one facility will resume sometime during the first half of 2025, although there is no assurance of this. The other two closures are probably permanent. Meanwhile, the domestic raw material supply has tightened sending prices higher and creating a void that is likely to be filled by imported wire rod beginning late in the current quarter. As we stated on several occasions, the Section…

[Operator Instructions] Our first question will be from the line of Julio Romero with Sidoti & Company. Please go ahead. Your line is open.

Good morning, H and Scott. I wanted to start on demand trends. Could you speak to the material uptick in demand in the December quarter and any particular in-market geographies or product lines that led the uptick?

It was generally across the board fully and it's a difficult subject to address because there's so many moving parts that affect what we see in our shipments. They're our inventories, they’re our customers' inventories, their weather conditions. It's really difficult to quantify. But nevertheless, our shipments rose substantially in November and December relative to the prior year, and there seemed to be a significant optimism in the market. Whether that continues, as I said in my comments, we don't know. We certainly hope so. But I think we really said all we can say about it at this point.

Understood. And then it's very nice to see your average selling prices inflect positively here in the quarter on a sequential basis at least. You spoke to a couple of price increases that you passed, one during the quarter and a second here in January. And then obviously, you mentioned wire rod domestic supply tightening, but I'm curious if you could talk about kind of the confidence you had to implement those increases? And does that imply that the pricing pressures from domestic competitors have subsided at all?

Yes. I think we saw this tightening of domestic supply coming well before it actually materialized. And we announced price increases prospectively, knowing that we're believing that we would be more successful in taking a few bites at the apple rather than try to eat it all at one time. There is a significant supply deficit in the U.S. market. We saw that come in and we started raising our prices accordingly. Now, the interesting part of this is that the tight supply condition right now is related to the supply of wire rod, it is not driven by outstanding demand for wire rod among wire products producers. And I fully expect, as I stated in my comments that we'll see wire rod imports rise significantly toward the end of this quarter and next quarter to fill the gap. Up to this point, our company, and I think a lot of other companies have not built the need to import significant quantities due to -- just due to the economics of importing as well as the long lead times that come with importing. And all of those factors create risk that we didn't want to take that I think many of our competitors and other producers of wire products didn't want to take. But now, with supplies domestically being in question, it's a matter of this is what you have to do. So, we're doing it.

Very helpful context. And then obviously, congratulations on the acquisitions of Engineered Wire Products and O'Brien as well. You mentioned two weeks than you were up and running on both. Can you just talk about how is the first couple of months of integration post close gone? And how has the reception been from employees, customers, suppliers, et cetera?

Yes. As I stated in my prepared comments, the integrations were fantastic. And the Engineered Wire Products integration was actually a really big project due to some of the fundamental differences in the way Engineered Wire Products and Insteel deal with data. So, it's a big project, but our people put their nose to the grindstone, they got it done. We never utilized the legacy systems at the acquired companies, we brought those companies up on our own systems. It was not necessarily graceful in the first few days but we got past that relatively quickly. And as I've stated continuously in these calls, the state of our information systems and the professional people that we have on staff are something that's just not common to find in our industry, and they certainly prove their metal in the first fiscal quarter. In terms of the acceptance or the customer view of our acquisitions, I think it's been generally positive. It was no secret to anyone that Engineered Wire Products was not in a position of stability. And I think that there's actually some relief in the marketplace that the Company is in -- and then those production assets are in stable hands now, and it's up to us to be good stewards of that going forward, which we fully intend to be.

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

Kind of a follow-up on one of the previous questions. Are you then looking at your revenue growth in '25 to be more driven by price -- favorable pricing or shipment volume growth as you see that demand pick up? How do you kind of split the two?

Yes. Well, I mean there will obviously be a positive revenue impact from the acquisitions. But as you've seen in the last couple of years, selling prices make a big difference in our top line. And I would tell you right now that as we're looking at tight supplies of wire rod that it's likely that we see that we see. Our selling prices rise, our revenues rise, we'll also see that our cost of raw material rises. So -- but through the -- beyond our second fiscal quarter, I honestly don't know how to respond to the question except to tell you that will definitely benefit from increased shipments due to the acquisitions, but it's hard to say whether market recovery in our legacy business is for real or whether we revert to some of the 2024 trends, I just don't -- I don't know.

Okay. You talked about cost synergies from your acquisitions, M&A activity. Obviously, you have the one big -- the plant shutdown and absorbing that into your existing facilities. What were the annual direct savings from that action? And how would you monetize kind of that centralizing the process to your systems? What kind of savings does that provide annually?

Well, let me answer the question that you didn't ask. The plant that we closed was running at a marginal or negative EBITDA level. And the reason for that was just an inadequate throughput and inadequate demand to run the plant efficiently. So, once we understood the underlying nature of the financial disappointment there, we determined that those products will be best made at the legacy Insteel facilities, most appropriately positioned geographically to take those products and that's what we did. We will wind up with a considerable amount of surplus equipment following the acquisitions that we made during the first quarter and we have arranged to -- and as well as a real property, we've arranged to sell that surplus equipment outside of North America. And once we have a better focus on the timing of the full wind down at the Warren, Ohio plant will liquidate that real estate.

So, we should see a gain on sale of assets in future quarters?

Well, I mean, I don't know whether it be a gain or a loss, Tyson. It all depends on what we realized for the asset relative to what they got on our balance sheet at, but there's also the restructuring.

Yes, Tyson, we fair valued all those assets at the acquisition purchase accounting. So, they should be close to the realizable value they have at the moment.

Okay. But you will monetize it?

Absolutely.

What do you anticipate SG&A full year we're still kind of in that $32 million, $35 million range is the target range?

The impact to SG&A is going to be on the intangible amortization from these assets that were generated from the acquisition. And for the remainder of the year, we're probably looking at another $900,000 additional amortization expense over last year for the next nine months.

Okay. When you look at some of the macro things that affect the industry and the business directly, where the priorities are what really has a true material impact? Are you looking more that you need to see a better environment on the interest rate side? Or are you looking at the tariffs would be more impactful and beneficial for the Company, if they were to break favorably towards you, between interest rates and tariffs, how do you weight those?

Well, what's your projection for the tariff environment, I think. I mean we know what the Section 232 tariff has done, but we don't know what Trump's problems broad-based tariff regime is going to look like. But I would tell you that I don't see a way that, that significantly hurts us because we've already been harmed by 232 in a broader-based tariff system, in my view, would help us, at least in the short term, whether it's the right economic policy longer term, I guess, is debatable. And as for interest rates, as I mentioned during some of our prior calls, I think the spike in interest rates could have affected some speculative projects, but I don't think interest rates ever were high enough to really deter strategic investments by companies. So, I think tariffs are bigger news in our world in interest rates.

Okay. You made a comment about emerging opportunities in your prepared press release. You also mentioned in your comments warehousing, which I guess is back in vogue after a little bit of a pause when we had the big run-up in the COVID years, and a lot of that's tilt up construction that's favorable to you. You mentioned data centers, anything unique on that construction. And any color you can provide on other emerging opportunities that maybe were not or less aware of?

I don't think that the basic business has changed, Tyson. The same construction markets that drove the business prior to these acquisitions will continue to drive it. Post-acquisition, we've been pretty focused on our core markets and continue to be, and these acquisitions are consistent with that focus. So, I think you'll see us doing more of the same things that we've been doing.

Okay. Last question. In the states you primarily have as end markets or you do more business in that you're approved your products. What kind of granular look on just those that you focus on those DOT budgets for '25, '26, the kind of growth that you anticipate in spending in those areas.

Well, I don't know that we have any better insight into that than the forecast that we read from various places from the cement industry, from the construction industry, from engineering news record. I don't think that we can really forecast what the market's going to look like, Tyson.

But you are anticipating a trend toward accelerated expenditures that are -- should be favorable to yourself?

Yes. I mean I think there will come a time when the infrastructure investment and Jobs Act actually creates some demand on the ground. I think there's been precious level of that up to this point. But when it does happen, we'll certainly be a beneficiary. There's no question about it, but I don't know how anyone would forecast or projected.

We currently have no further questions on the line. [Operator Instructions]. With no further questions on the line at this time, I'd now like to hand the call back to H. Woltz for some closing remarks.

Okay. Thank you, Harry. We appreciate your interest in Insteel and your participation on the call today. I encourage you to give us a call if you have questions during the quarter, and we look forward to talking to you next quarter. Thank you.

This will conclude the Insteel Industries first quarter 2021 earnings call. Thank you for your participation. You may now disconnect your lines.