Good day, ladies and gentlemen, and welcome to the Insteel Industries' First Quarter 2018 Earnings Conference call. [Operator Instructions] As a reminder, this conference call may be recorded for replay purposes. It is now my pleasure to hand the conference over to Mr. H. Woltz, Chief Executive Officer. Sir, you may begin.

Good morning. Thank you for your interest in Insteel and welcome to our first 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 it over to Mike to review our first quarter financial results and the macro indicators and outlook for our markets, and then I will follow up to comment more on business conditions and our recent acquisition of Ortiz Engineered Products.

Thank you, H. and good morning to everyone joining us on the call. As we reported earlier today, Insteel's results for the first quarter of fiscal 2018 were favorably impacted by our rebound in shipments from the disappointing levels of the previous two quarters and the enactment of the Tax Cuts and Jobs Act in December. Net earnings rose to $8.1 million or $0.42 per diluted share from $4.5 million or $0.23 per share in the prior year quarter. Excluding the non-recurring gain on the remeasurement of deferred tax liabilities related to the reduction in the corporate tax rate under the new law, earnings per share for the quarter were unchanged from last year at $0.23, but up $0.03 sequentially from the fourth quarter. Shipments for the quarter were up 1.3% year-over-year and 1.7% sequentially from the depressed levels of Q4 which is highly unusual considering that our volumes typically drop off from the fourth to the first quarter due to the usual seasonal downturn in construction. From a geographic standpoint, the pickup in activity during the quarter was more pronounced in the regions that were impacted by hurricanes Harvey and Irma in August and September with shipments into Texas and Florida both up double digits sequentially, although it's impossible to quantify how much of the increase may have been driven by any deferral of business related to the storms. On a year-over-year basis, shipments strengthened considerably over the course of the quarter with our December volumes up almost 13% from last year. I would caution, however, that demand trends remain choppy and it would be premature to assume continued growth at these levels during our second quarter, particularly considering the weather related uncertainty this time of year. Competitive pricing pressures moderated somewhat during the quarter with average selling prices…

Thank you, Mike. Following the unusual weakness that we experienced during the second half of fiscal 2017, we welcomed the uptick in demand that gained momentum during our first fiscal quarter. Although we expect the usual seasonal factors will affect business conditions during Q2, we are hopeful the recent favorable trends will continue as implied by the largely positive macro indicators for our markets. In November we acquired certain assets of Ortiz Engineered Products. OEP has developed a unique market niche in providing value engineered, reinforcing solutions for the concrete construction industry, converting projects that have been designed with convention rebar to welded wire reinforcement. We believe they represent a close strategic fit with our ongoing efforts to further penetrate the rebar market through substitution of engineered structural mess for cast in place applications and should accelerate the growth of our ESM business. Our newly combined sales and engineering group is focused on leveraging the substantial investments that we have made in developing our ESM manufacturing capabilities and expanding our cast in place business across other regions of the country. On our last two calls we indicated that we expected to experience some margin pressure due to the difficulty in recovering higher raw material cost in our markets which is evident in our Q1 results. Over the past few months, steel markets have strengthened and wire rod costs are again on the rise driven by escalating steel scrap prices, a pickup in global demand and the impact of trade cases that were filed in January 2017 which have eliminated certain countries from the domestic market. Another factor that may potentially affect our raw material markets is the Section 232 investigation that was initiated by the Department of Commerce last spring. Last week, Commerce delivered its recommendations to the President who…

[Operator Instructions] Our first question will come from the line of Chris Olin with Longbow Research. Sir, your line is now open.

Just wanted to circle back on your comments regarding pricing. Have you announced price increases on both the PC strand and welded wire business? I know looking back over the past year it was a little bit more difficult to get pricing on the PC strand because of the supply increases. And if so, can you give us an idea of how much you are trying to get over the next month or so?

Yes. We have announced $60 per ton effective at various dates during January and I might take exception to your comment about PC strand having been more difficult during 2017 than welded wire. It was difficult across the board. So we have another significant escalating period of wire rod transaction prices that certainly will affect all our competitors as well as they affect us. And we expect with better business conditions plus the scale of the increases that we are facing, that we will be able to pass those increases through.

Okay. Thanks. Just second to that. Has there been any change in the number, or I should say volume of PC strand imports since we started seeing global pricing move higher in the welded wire market.

Year-to-date imports are up 7% or 8% compared to the prior year. We have seen escalating prices for imported PC strands reflecting escalating wire rod and steel prices worldwide. But PC strands imports continue to be a problem that our industry is focused on addressing.

Okay. Just last question. Can you give us an update on the Houston facility? Kind of where you are at. Is it contributing to the bottom line yet?

Absolutely. Now, saying that we have had some weather disruptions in the Houston area as well as across other regions in the last few days, but the plant is operating and is well along the way to achieving the results on which our investment was based.

Thank you. And our next question will come from the line of Tyson Bauer with KC Capital. Your line is now open.

A couple of quick questions and sorry for the road noise. The pricing, you announced that you have the initial $60 in January, you are going to have another price increase shortly thereafter. Does that imply that you believe they will be readily accepted at first increase otherwise you wouldn’t have the second one, obviously. And does that help spur some of those shipment volumes coming back knowing that prices are going to go up in another two weeks or within another four weeks.

Well, let me try to take that in pieces. First, it's always unknown as to how price increase will be accepted and how effective we will be in collecting it. And I would say that’s true today with the $60 increase that has been announced to be effective in January. However, we are getting enough feedback to make us optimistic that we will put that increase in place. Future increases are driven more by our understanding of changes in the world market and changes in the availability of offshore wire rod to U.S. consumers of wire rod. Both of these things have had the impact of restricting availability and propelling the prices upward. So we don’t have hard data on which to base our feeling that we will be announcing on future price increases except the environment certainly clearly indicates that we will. And as for whether the prospect of higher prices has caused front loading of demand, we really don’t think so. It's hard to know exactly what's going through purchasers minds but we have had that discussion internally and we can't point to any significant trends where purchasers have accelerated their purchases to avoid price increases.

Is it more difficult to push through that initial price increase when you have a widespread cooler temperatures that go all the way down to the Gulf where there is not a lot of movement or activity currently.

I think it might affect short-term psychology but I don’t think it has anything to do with the bigger picture.

Okay. Volumes expectations, obviously you had a rough second half of '17. Weather related, storms, other things that were in there. We saw some of that bounce back in the first quarter here. Should we be as analysts looking more on comparables to '16 where you didn’t have some of those disruptions which would then lead along with price increases this year a much more outsize growth on the top line for the company.

Well, I am not sure that I would have characterized it exactly that way, Tyson. But I think internally what we would like to see is a return to the normal seasonal up trends that have historically been evidenced during the better construction weather months. But I am not sure that that implies that we are going to see runaways in unit volume. But barring any unusual weather related trends like we experienced last year between the rainy weather and the hurricanes, we would expect the typical seasonal pattern to occur this year where Q1 represents our low point and then we typically see an uptick in volume in Q2 and then Q3 and forward represent our busy season at even higher volumes. We would expect to get back to that pattern again assuming no weather related anomalies.

Okay. And regarding Ortiz, is it the double effect that you are looking to drive better top line growth in addition to better margins as they are able to provide more value-add on the engineering side and is that company-wide that their services will be applied even though they are in kind of the rough spell [day] [ph], their services can be applied company-wide.

Yes. That’s correct. The challenge on the underlying thesis of the acquisition is that we will be able to expand the presence of OEP from what has been northeast centric more to nationwide in the market areas where we have a clear value proposition that will allow us to grow.

So we should see, one, better procurement of contracts and, two, a better margin when their services are used.

That’s certainly our expectation.

Thank you. [Operator Instructions] Our next question will come from the line of Julio Romero with Sidoti and Company. Your line is now open.

So I wanted to ask about Ortiz. Can you just give us additional color on maybe how the acquisition process played out? What kind of made the conversion from them being a long-time customer towards being someone you are looking to acquire and then how they can specifically accelerate the ESM adoption going forward.

Yes. So you are correct that Ortiz has been a long time customer for us. It's a highly specialized niche that OEP occupies where they are focusing on projects down to even the placement of reinforcing on a job site and controlling that value chain. Relay that from their point of view that started with procurement from Insteel and ends with a finished concrete structure for their customer. However the development of our ESM market, Insteel focused primarily on the precast segment of that market over the years because there was one opportunity to invest engineering resources and the conversion of rebar to ESM with the a pre-caster. And then repetitive business followed that initial conversion of the customer. With the cast in place market it's different, where every project is unique and every project has its own engineering requirement and is just much more unique and specialized segment of the market. We have been pursuing the market for the cast in place segment of the market for several years and saw the addition of the OEP capabilities as a way to accelerate our growth. So it's not a case where we are entering a market segment that we are unfamiliar with.

Got it. And your most recent Slide deck mentions that estimated domestic production represents currently less than 5% of rebar volume we could potentially replace. I know it's a very long sales cycle. So could you speak on maybe how you see that percentage kind of playing out over the next one, three, five year timeframe.

Yes. We really don’t think about it in terms of what percentage of the rebar market we target to capture. We would rather think about the growth rates that we have in the cast in place market and for that matter, in the other segments of ESM as well. There is no reason that we shouldn’t expect to deliver solid double-digit unit growth from that activity going forward. And that’s our expectation. But to say that we have tried to hang a number on the percentage of participation in rebar market, would just not be correct. We just don’t think of it in those terms.

Yes. The purpose of that reference in our Slide deck was just to give an indication of the magnitude of the growth potential in that segment.

That makes sense thinking about precast versus cast in place. And then just a quick one on tax rate. So just to be clear, that 24.9% effective rate that was called out, that would be the effective rate for the full year where the normalized rate on the income earned in this first quarter would be, as usual, 34% type rate and then you will be paying 23.5%ish on the income for the remaining three quarters of the year. Is that accurate?

Yes, that’s correct. The 24.9% represents the blended rate for the entire year and so this year and next we get the benefit of the lower rate for three quarters, next year we will - in fiscal 2019 we will have it for the entire year.

You may begin with your closing remarks.

Okay. Thank you. We appreciate your interest in Insteel and we look forward to talking with you next quarter. In the meantime, don’t hesitate to contact us if you have questions. Thank you.