Good day, ladies and gentlemen and welcome to the Insteel Industries' Fourth Quarter 2013 Conference Call. At this time, all participants are in a listen-only mode. Later we'll have a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, today's conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. H.O. Woltz III, President and CEO. Sir, you may begin.

Good morning. Thank you for your interest in Insteel and welcome to our fourth quarter 2013 conference call to 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 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. All forward-looking statements are based on our current expectations and information that is currently available. We disclaim 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 end markets. Then I’ll 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 fourth quarter of fiscal 2013 rose to $2.3 million or $0.13 a share from $0.8 million or $0.05 a share in the same period last year, marking the fourth consecutive quarter that we posted significant year-over-year improvement. For fiscal year 2013, net earnings increased to $11.7 million or $0.64 a diluted share, the highest level since the onset of the recession in our construction end markets five years ago. Net sales for the fourth quarter rose slightly from the prior year, as the 4.7% increase in shipments was largely offset by a 4.2% reduction in average selling prices. On a sequential basis, net sales increased 1.3% from the third quarter driven by a 2.3% increase in shipments, which you may recall was unfavorably impacted by excessive rainfall in certain regions of the country. Average selling prices continued to soften during the quarter, falling 1% sequentially from Q3 due to competitive pressures in most of our markets that were likely spurred by further reductions in the cost of our primary raw material, steel wire rod. Gross profit for the fourth quarter rose to $8.7 million from $5.9 million a year ago, with gross margins widening to 8.8% of net sales from 6% due to higher spreads and to a lesser extent the increase in shipments. On a sequential basis, gross profit fell $2.2 million from Q3 and gross margins declined 2.5%, primarily due to the drop off in selling prices. SG&A expense for the fourth quarter rose $0.6 million from a year ago, largely due to a $0.5 million gain from life insurance proceeds that reduced prior year expense, together with higher incentive compensation in the current year driven by our improved results. Our effective income tax…

Thank you, Mike. As reflected in our release and in Mike's comments, activity levels in our markets improved marginally during the fourth quarter, continuing a trend of sluggish construction spending and employment. Looking forward, our opinion is unchanged regarding the likely pace of the recovery through the next few quarters. We expect gradually improving conditions in the absence of a catalyst for a more robust recovery. We indicated in our third quarter conference call that we experienced spread compression resulting from intensified competitive pricing pressures and that we expected that trend to carry over into our fourth quarter, which it did. We believe this unfavorable trend has been driven by lackluster demand in the market, together with declining prices for wire rod, our principal raw material. While various factors could serve to stabilize spreads, we expect market conditions to remain highly competitive. During the quarter, we completed the installation and commissioning of the new specialty ESM production line at our North Carolina plant. Our timeline was extended by numerous software issues that had to be worked out, but most of those are behind us and we are fully engaged in obtaining customer approvals for new products as well as transitioning existing products that had previously required labor-intensive offline fabrication. We're pleased with the product coming off the line and the enthusiastic response we have received from customers. Turning to our raw material markets, following an uptick in steel scrap prices and wire rod prices in July, conditions moderated and pricing has drifted down over the last couple of months. Lethargic demand, weakening scrap prices and new wire rod capacity entering the market has resulted in heightened competition among our suppliers. Under these circumstances, availability and lead times are satisfactory, particularly in view of the less favorable seasonal influences that will…

(Operator Instructions) Our first question comes from Lance James from RBC Global Asset. Your line is open.

Couple of questions. One is, you commented on the difficult pricing environment. Just wondering if you could update us, what the status is on imports, especially Chinese imports? Are they a factor in the market or do you project them to be, and is most of the price competition coming from domestic competitors?

On the import question, the product line that we have that is exposed to import competition is PC strand and we actually have a dumping order against the Chinese that came into play in 2010. So they are not a factor in this market, although with the economic downturn that ensued in 2009, we have seen several European sources come into the market and they do keep pressure on prices. I would tell you, it's about what we are generally accustomed to though and we wouldn't call it unusual or out of the ordinary. The other pricing pressure that we are exposed to in our welded wire reinforcing markets is primarily of domestic origin, where our competitors, just as we, are facing lethargic markets and weak demand which is just intensifying the level of competition that we see in every region of the country.

Thanks. One other question, and this would be kind of a longer term opportunity, but there is a lot of talk that the cheaper energy prices, not only spurring domestic energy exploration and production, but also there's talk from process industry companies such as chemical companies about actually relocating plants here in the United States to take advantage of that somewhat of a reindustrialization of America utilities than having to upgrade their infrastructure. I'm just trying to figure out, if that comes about, is that a large demand factor for you or is more of your demand on the side of public works type infrastructure, be it highway, building, bridges, that type of thing, or is it a mix between private and public?

Well, it's a mix between private and public, but addressing specifically your question about process industries that maybe relocating, those facilities typically come with significant infrastructure investments related to logistics. Frequently there is port enhancement that goes on or even port construction that goes along with these facilities and quite a bit of work is generated for our industry in the construction of those facilities. I would also point to the well-publicised LNG projects that some of which have now been permitted, that potentially would drive demand for our products. To what extent and exactly what part of our revenue base that they eventually account for, I can't estimate it, but they are pretty intensive in use of our products.

Thanks very much and good luck.

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

You mentioned on the TIFIA greater impact in your fiscal 2014. Have all the funds been appropriated at this point in time and are we looking to be very lumpy that we're going to see some very large major projects that will occur, so it's not necessarily a nice little steady ramp-up, but once you do secure in your part of a project, you should have a nice little run while that project occurs, correct?

Yes, from what we're hearing, I'd say the latter is the case or it could be somewhat lumpy, and we understand there have been significant delays in the approval process in the provision of credit assistance where it's just evolved a lot slower than had initially been anticipated. If you take a look at the TIFIA website which is periodically updated to show the status of various projects in the review cycle, there are only a handful that have gotten across the finish line. So we would expect to see I guess a gradually increasing impact from that over the next year.

And you view these projects as above and beyond just your normal maintenance and construction for infrastructure type, say the municipal, state and federal, those type of things, these are above and beyond, this isn't like the Reinvestment Act that we saw in previous years that's more or less 'you're robbing Peter to pay Paul' situation?

Right, yes, we would view it as being incremental and there are some pretty high profile projects, Tappan Zee Bridge comes to mind, that would be pretty intense users of our product versus the repaving, the resurfacing type work that consumed a lot of the previous stimulus dollars.

Can you – and this is going to - I'm going to throw you a softball pitch here – you get the perception, I'm also looking at the results, that we're kind of the hamster in the wheel and we're gradually making some progress but not anything significant. What are some of the things that in general we don't see, such as getting state permits for using your product or making progress, obviously the ESM, you've done that, what are some of the things that aren't obvious that you are better prepared for when things improve?

I don't know, Tyson, whether it's obvious or not but just the state of our facilities, the reconfigurations that we've done, following the Ivy acquisition of late 2010, and the extremely low level of capacity utilization that we are operating at and managing to operate probably at, I just think leaves a lot of upside but we have to see that demand. And while we continue to do the legwork with state departments of transportation to approve our engineered structural mesh as a substitute for rebar, at the end of the day, there has to be some demand for that product for us to really be able to show the earnings capacity that we have and I think we have to get past a lot of the political uncertainty that's out there and we have to get past some of the budgetary constraints that exist in the public sector before the fundamentals of this industry are really going to begin to favorably change.

And my last comment and we'll follow on what you just said, H, public versus spending is always a debate and whether we're just backfilling one for the other and so we're not getting a true growth at any great rate, what's your opinion and what are you seeing in regards to that public versus spending structure?

I mean other than on the potential incremental impact of TIFIA that Mike just talked about, the reality at the federal level is that spending continues to decline. Some states have taken initiative to begin raising funds outside of the federal umbrella which they relied on for so long because states are finding that they have requirements that are no longer discretionary, they have to be addressed. So that's favorable but it's hard to quantify what the impact is going to be, but you see more and more states that are taking that initiative to begin to raise their own funding through PPPs or through revised fuel tax schemes. So we think those things are positive but we're not able to really hang on that absolute impact on our industry.

Okay. Thanks a lot, gentlemen.

Thank you. Our next question comes from Steve Marascia from Capitol Securities. Your line is open.

Good morning, everyone. Two questions. Number one, what do you guys feel is the prognosis for your capital capacity utilization during the next four quarters?

I think consistent with our comment that this recovery is going to be plotting, we hope to see it continue to inch up, but I wouldn't at this point tell you that you should expect it to ratchet up at any accelerated rate.

Okay. Second question, you said you expected CapEx of $12 million for fiscal year 2014. Is it going to be evenly spread between the quarters or do you foresee some heavier quarters than others?

I think there's a chance that it's front-loaded to the first two quarters.

Okay. That's it. Thank you very much.

Thank you. (Operator Instructions) Our next question comes from Robert Kelly from Sidoti. Your line is open. Robert Kelly - Sidoti & Company: If you could, the shipment growth that you saw year-over-year, could you parse that out between what was going into private non-res and the public side of the business?

I don't know that we'd have the ability to drill down to that level where – the overall estimates that we provided indicating 90 to 10 split between non-res and res, and then a 55-35 split within non-res between private non-res and public, those are estimates based on the knowledge of our customers' business and their mix but I don't know that we'd be able to give you a precise indication of how that changed for the year. I mean just at a higher level, we feel that the housing percentage is probably in steps, just given the recovery, but I don't know that we could drill down much lower than that. Robert Kelly - Sidoti & Company: Okay, because I kind of imagined that there were some impacts from all the talk in Washington on the public side during this quarter. Was that the case and then will that be resolved – if there was a raining in of activity on the public side, will that get rectified pretty quickly as we enter F'14?

I really don't see, Bob, that it had any impact at all. Our customers are looking a couple of quarters out at what they have to do and there's been concern about the pipeline of work and the level of growth that's going to occur in 2014 for the last several months. I don't think any of our customers are seeing that the pipeline is really filling up, but I couldn't attribute any downside to the shenanigans that have taken place over the last few weeks in Washington. Robert Kelly - Sidoti & Company: That's a good term to describe it. Could you talk about the impact or what the impact might be from the added rod mill capacity in the market now domestically? The way I understood it, I mean the fact that your two previous suppliers operated at such low utilization, it almost provided you kind of a price floor. Any risk to that situation going forward?

If I indicated or implied a price war, then that was not intended and not correct. Robert Kelly - Sidoti & Company: No, I wanted to say, a price floor. I mean the fact that they ran at such a…

Excuse me. I think the market has become more competitive and it would have even in the absence of the new mill that is starting up, just due to the relatively high level of imports in the market, seasonal influences that are adversely affecting demand and just unused capacity in the wire rod industry right now. Certainly the advent of new capacity of those added a little bit of heat to that fire, but it's a competitive market for them, probably more so than they've seen in the last couple of years and it's really hard to say what the impact of that will be on Insteel. Our comments indicated that some of the downward drift in our selling prices we believe is attributable to the fact that wire rod prices have declined some. So from that standpoint, you might say it's not all that healthy for our industry to see continuing lowering of raw material prices. Probably what would be better for us is a tight market with rising prices. Robert Kelly - Sidoti & Company: Fair enough. The question I had was on your spread. I know you don't give out the exact dollars and I might have missed it in your prepared remarks, what did the spread do year-over-year, was it up, down, flat?

Spreads were higher year-over-year but down sequentially, a sequential decrease primarily due to the pricing pressure, the reduction in average selling prices. And you always have – in a declining price environment, you always have a timing issue just in terms of the inventory impact, where to the extent we're carrying three months worth of inventory in that type of environment, we're consuming the higher cost material under FIFO on an interim basis which tends to compress our margins until we fully consume it. Robert Kelly - Sidoti & Company: So, if we kind of ex out the accounting convention there, on a real-time basis, where you are as far as selling prices versus where the market is for wire rod, are your spreads like unchanged on a sequential basis? I mean how do we think about like the run rate for spreads going into F'14?

Then in my comment, I had indicated that just in terms of inventory value and purchase commitments, that we would expect to see – I'm assuming that prices flat-line, we would expect to see a favorable effect going forward as that lower cost material is consumed. Robert Kelly - Sidoti & Company: So I mean basically all you need to show margin expansion is selling prices plateauing?

Correct, right. Robert Kelly - Sidoti & Company: Got it, okay. Thanks guys.

Thank you. Our next question comes from John Kohler from Oppenheimer. Your line is open.

Quick question, I was wondering if you could give a rough percentage of what ESM was as a percent of the business in Q4, and then if possible, when you'd expect the new line to be mostly utilized to say?

The new line should ramp up over this quarter and the next quarter to the point that it's running reasonably full, and we don't disclose the percentage of the product line shipments.

But yet on an overall – I guess we've disclosed at a higher level that the mix between welded wire reinforcement and PC strand is about, I think last year it was 63% welded wire versus 37% for PC strand, but we don't drill down to a lower level within welded wire.

Okay, great. Thanks very much and we just like the way for end demand to pick up.

Thank you. I show no further questions at this time and would like to turn the conference back to Mr. H.O. Woltz for closing remarks.

Okay, thank you. We appreciate your interest in Insteel and don't hesitate to call us back for follow-up to the questions aroused. Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may all disconnect at this time.