Ladies and gentlemen, thank you for standing by and welcome to the Insteel Industries Third Quarter 2020 Conference Call. At this time, all participants' lines are in a listen-only mode. After speakers' presentation, there will be a question-and-answer session [Operator Instructions]. Please be advised that today's conference is being recorded [Operator Instructions]. Today's call is being hosted by H. Woltz, President and Chief Executive Officer and Mark Carano, Vice President, CFO and Treasurer. I would now like to hand the conference over to your first speaker today, Mr. H. Woltz. Thank you. Please go ahead, sir.

Good morning. Thank you for your interest in Insteel, and welcome to our third quarter 2020 earnings call, which will be conducted by Mark Carano, our Vice President, CFO and Treasurer and me. This is Mark's first earnings call with the company and we welcome him to the Insteel team. Before we begin today, I’d like those on the call to be aware that Mike Gazmarian, who faithfully and confidently served as Insteel’s CFO for 25 years will leave the company effective July 31st. On behalf of our entire management team and the Board of Directors, I would like to thank Mike for his performance orientation, leadership and integrity that were instrumental and transforming Insteel into the premier competitor in its markets, who is strongly focused on making our company good place to work and shareholder friendly for investors. Mike, we wish you the very best going forward. Pertaining to the call today, 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's 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 will now turn the call over to Mark to review our third quarter financial results. Then I'll follow up to comment more on business conditions and other recent developments.

Great. Thank you, H, and good morning to everyone joining us on the call. I'm pleased to be here participating in my first earnings call as the CFO of Insteel. As we reported earlier today, the recovery and spreads between selling prices and raw materials from the depressed levels of a year ago was the key driver in our strong results for the third quarter of fiscal 2020. Additionally, our performance also benefited from strong shipment growth relative to the prior year period. Excluding the non-recurring charges and gain that were referenced in our release, net earnings rose to $0.30 a share from $0.11 a share last year. Shipments for the quarter rose 9.5% from last year and 7.4% sequentially from Q2, which represented the second highest quarter of shipments in the last 10 years, a level that was only exceeded in the third quarter of 2016. The strong shipping performance was driven by increased construction activity across most of our markets, the benefit of incremental tonnage from the Strand-Tech Manufacturing acquisition and the return to generally more favorable weather conditions for construction activity this year as compared to the prior period. Partially offsetting the benefit of these increased shipments though was the impact of declining average selling prices, which fell sequentially for the sixth straight quarter, declining 11.7% from last year and 1.2% sequentially from Q2. And in those markets susceptible to import competition, the pricing pressure was more pronounced. In certain of our PC strand and the standard welded wire reinforcement markets susceptible to import competition, which represents about 30% of our overall sales for the quarter, average selling prices in these markets declined 20% year-over-year, which was more than double the 8% decline for the remainder of our business. As we’ve conveyed on previous calls, low price…

As Mark indicated, our third quarter results reflect strong shipment growth relative to the prior year, driven by favorable underlying demand for our concrete reinforcing products and return to more normalized seasonal weather patterns. We also benefited from the closer alignment between our raw material costs and average selling prices. We were pleased with the solid underlying demand for our products and our Q3 financial performance. In response to the COVID-19 outbreak, we're observing CDC recommended procedures for managing exposure to the virus and its transmission at our plants, as well as our administrative offices. With our industry deemed essential, none of our manufacturing facilities was materially affected by COVID related operating restrictions during the third quarter. Order entry has remained robust. Although, we saw some moderation in the Northeast and Midwest during the quarter, reflecting COVID related regulatory responses, which has now largely abated. Through the beginning of this week, the company had 29 confirmed COVID-19 cases affecting six plants and our administrative offices. Fortunately, there's been only one hospitalization and 18 employees have recovered and returned to work. Our hospitalized employee is recovering, and we look forward to welcoming him back to the plant. Although, we're unable to predict the ultimate impact of the virus on our business, as a general statement, customers are adhering to normal operating schedules and the impact on our operations has been minimal. We remain committed to fulfilling customer requirements provided that we can do so without compromising the safety of our people. Should we eventually experience a precipitous drop off in demand, we're prepared to make the appropriate adjustments to our operating plans. While pandemic concerns did not materially affect our operations during Q3, we elected to schedule two weeks of downtime during the quarter at two plants producing standard reinforcing products…

[Operator Instructions] Our first question comes from Julio Romero with Sidoti and Company. Your line is now open.

I guess to start, can you maybe talk about COVID-19 response, I appreciate the comments in the prepared remarks. But maybe just talk about more broadly what's been the biggest impact in your view? It sounds like again minimal impact, but would you say the biggest impact would be any customer uncertainty, or any changes in the competitive environment, or anything else that is worth highlighting?

While the impacts has been minimal on our operations, the concern has been high. We have customers who have difficulty predicting their operating rates based on the impact of infections in their manufacturing facilities. We have had disruptions in our own manufacturing facilities as we've been conservative in quarantine procedures and be ensure that people get the right attention if they've been exposed, which means that we wind up with vacancies in our operations and shifts that aren't completely staffed and clearly, that's been a problem for us to work around. But overall, I'd say the uncertainty that's been created maybe the most significant impact at this point, because neither Insteel nor Insteel’s customers can say exactly what operating configurations and conditions will be next week or next month, or in the fall. So, I'd say that while we typically don't have a long view of demand in our markets that's particularly true right now, because everything is subject to change on a daily basis.

And I guess on that point, as you talk to your customers, as you talk to the concrete manufacturers. Could you just talk to what areas within residential or nonresidential holding up well? I know you have couple of steps removed from the end project. But maybe any sense of public, private and kind of areas within that would be helpful?

Well, I think public construction has continued to be pretty robust. As you’re well aware, most of those projects were funded prior to all the uncertainties that have developed. We've also seen on the private nonres side a tremendous amount of work in the distribution center market, which has been quite robust and appears to continue to have a long glide path for us. So, I can't point out any significant area of weakness at this point.

And then on the volumes really strong quarter there, I was really impressed there. I mean, I was hoping you'd maybe quantify the incremental tonnage from Strand-Tech in the quarter?

Yes, Julio, that's actually, that's a number that we haven't disclosed historically, with respect to tonnage more broadly, but also with respect to the acquisition.

And the other part of it is Julio, that it's difficult for us to know precisely on certain cases we were splitting business with Strand-Tech at certain accounts, and we've really focused on just taking good care of those accounts that Strand-Tech was servicing, but it's really difficult for us to pin down the incremental tonnage.

I guess just maybe to ask another way. I guess you mentioned the customer retention has been pretty good. If you could speak to maybe the customer retention efforts with Strand-Tech, maybe that would be helpful?

Well, that was key, customer retention is a key driver of making this transaction successful. And it probably won't surprise you to know that our focus has been on making good on our commitments for delivery, being competitive with market pricing with these accounts and to the extent that we can make their lives easier they'll stick with us. And we've done that and we're pleased with the retention that we've seen up to this point.

[Operator Instructions] Our next question comes from Tyson Bauer with KC Capital. Your line is now open.

Can you give us a sense, I’m reading a lot of headlines regarding state bonding activity. It would appear that municipalities, states outside of their general fund typically do a lot of bonding that is project oriented, or for the Department of Transportation's and they're taking advantage of the availability of lower rates at this current time. Does that help insulate or help out your particular business, if they are to continue that pattern of increasing that bonding?

Yes, I mean, absolutely. And I think this is a trend that is not new as DOTs have become more strapped for funds and localities, municipalities have been strapped for funds over the last few years. We've seen at the local and state level that many of these entities have turned to bond financing, or they have dealt with their own fuel tax issues and a local or statewide basis on to try to replace some of the funding that in prior years may have come out of the federal government. So, I think that the trend is positive for us. Although, I don't know that it would be sufficient to offset what we believe will be a pretty serious downturn in federal fuel receipts and distributions in 2021. I think, it remains to be seen.

Doesn't the highway trust fund technically run out of money I think in September. So the action must be taken in some regards just to maintain. Is that your understanding?

It is, yes.

Would you anticipate minimally and maintenance funding for that, that we've seen the past two years? Or do you buy into the fact they may try to increase that availability of stimulus?

Well, good questions. I think the context of the election in November has to be considered in all of these scenarios. And with the emphasis and focus on minimizing the COVID damage to our economy, I fully expect that there will be some sort of infrastructure action at the federal level. Whether that comes before the election or after, it's hard to say. But I would be, I'll be very surprised if infrastructure funding isn't wrapped up into this whole stimulus and recovery program that seems to be popular in Washington.

What do you say when referencing your '21 outlook, which obviously it's early, that the most uncertainty it’s probably isolated or focused in on the private nonres portion of your business on whether or not back and backfill current activity?

I would say both private nonres and public construction are concerns, Tyson. And when we talk to customers who have backlogs that go six to eight months out, we're trying to keep our ear to the ground on bidding activity that's occurring for 2021. And there's mix news on that at this point. But, I think there’s risk in both sectors.

It appears we're getting into an economy that's going to be more delivery-based, people taking it at home as opposed to going to the stores whether that's groceries or otherwise, which puts a much greater focus on DCs that has been what Amazon has been doing, some of the other big companies in that area. Tilt up buildings typically are those kind of manufacturing, or that kind of construction. Is that a key area for you and something that you excel at and provide that cost saving equation for those construction companies and that type of design?

Absolutely. It's a sweet spot for us and we have capitalized on it to a great degree this year. We also believe that that trend has a long way to run for exactly the reason that you pointed out in the comment you made in opening your question. So it's very robust and we expect it to continue.

Last one, so I don't take up too much time. You got a significant amount of cash built up. Years past, you have at the board level examined a possible special dividend at the end of the year. Is your '21 outlook too uncertain to put that under consideration? Or are you more focused in on being conservative having the cash there and M&A opportunities should they arise?

Well, our position hasn't really changed, Tyson, that our first objective is to find attractive growth opportunities for the business on both organic and by acquisition. We will continue to be conservative with respect to our balance sheet, because we believe this has real strategic advantage in times of uncertainty. But with all that said, we're not going to hoard cash that if we have cash that is beyond that that we believe on a conservative basis is required to operate the business then we’ll seriously consider it to shareholders.

All right. Thank you, gentlemen. And thank you, Mike, for all the years of service and dealing with you as a real pleasure, and I hope things go well in Michigan.

Thank you. I'm not showing any further questions at this time. I would now like to turn the call back over to H. Woltz for any closing remarks.

Okay, thank you. We appreciate your interest in the company and encourage you to call us back with questions if they arise. And we look forward to speaking with you at the Q4 call. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.