Good day, and thank you for standing by. Welcome to the Insteel Industries Fourth Quarter 2021 Conference Call. [Operator Instructions] I would now like to hand the conference over to your speaker today H. Woltz, President and Chief Executive Officer.

Good morning. Thank you for your interest in Insteel, and welcome to our fourth quarter 2021 conference call, which will be conducted by Mark Carano, our Senior 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 with our fourth quarter results that were driven by surging demand for our reinforcing products and escalating steel prices. We expect both trends to continue into calendar 2022. During environments of strong demand and escalating pricing, the company's results typically are favorably impacted by the implementation of price increases sufficient to recover higher costs together with the consumption of lower cost inventories under first in first out accounting. I'm going to turn the call over to Mark to comment on our financial results for the quarter and the macro environment, and then I'll pick it back up to discuss our business outlook.

Thank you, H., and good morning to everyone joining us on the call. In our release earlier today, Insteel reported record financial performance for our fourth quarter as well as our full year fiscal 2021. Our net earnings for the fourth quarter more than tripled to $25.2 million from $7.4 million a year ago, and earnings per diluted share rose to $1.28 from $0.38 per share, bringing the total for the fiscal year to $3.41 per diluted share, which is the highest level of earnings in our history. These historically strong results were achieved despite supply chain and labor challenges that plagued not only our business but much of the U.S. economy. Like our third quarter of 2021, the robust demand environment for our concrete reinforcing products allowed us to increase prices to recover rapidly increasing raw material costs that continued unabated in our fourth quarter. As H. referenced in his opening comments, these price increases often generate timing benefit in our spread. This benefit offset the negative impact of considerably lower shipments and plant operating inefficiencies resulting from inconsistent raw material availability and constrained labor markets. Average selling prices in the fourth quarter were up 56.1% relative to the prior year, and sequentially, average selling prices increased 18.8% for Q3 2021, which was our third sequential quarter of price increases greater than 10%. Shipments for the quarter decreased 20.6% from last year and 10.3% sequentially from Q3 2020. The decline in shipments as compared to last year and sequentially was not due to a lack of demand. It was a direct result of the tight global rod supply environment and particularly a domestic raw material market that is currently producing an insufficient supply of wire rod to meet domestic demand. To note, shipments from the prior quarter benefited from…

Thank you, Mark. As reflected in the release, our strong fourth quarter results were driven by robust non-residential construction markets and escalating steel prices. Above all, we thank our Insteel teammates for their perseverance through challenging circumstances and their focus on execution, excellence and working safely. While we're pleased with the solid underlying demand for our products and our financial performance, there have been changes in our markets that are unprecedented an unsustainable. As we reported in the release, ASPs escalated almost 20% from the prior quarter, and nearly 60% from the fourth quarter last year. For the first time in my career both purchasers of wire rod like Insteel, and purchasers of our finished products have prioritized availability of product and subordinated pricing considerations. This trend is driven by tight supplies of hot-rolled steel rod, which is clearly underproduced domestically, resulting in substantial monthly price increases and poor performance to schedule by most of our suppliers. The unreliability of deliveries has in turn caused inconsistencies in Insteel's customer service as we've contended with constant delivery delays and sporadic interruptions of our plant operations. While these dynamics are not constructive in the longer term for Insteel's business model or our customers' needs, current conditions will likely persist for the near term, unless there are substantial improvements in steel availability that alleviate the current short supply. As we mentioned in the release, we turned to the international steel markets to supplement domestic supplies. Up until very recently, however, robust demand globally has resulted in limited availability for export to the U.S. as home markets have been more attractive to these steel producers. We will continue to pursue important transactions for non-buy America applications to fill voids created by the difficult domestic production and service environment. Until we develop more competitive sourcing…

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

So my first question would be on the shipments in the quarter. Can you talk about whether there was any weather impact in any of your regions or was the decrease just solely attributable to the tight wire rod supply?

No, we've lost some production time when one of the hurricanes came through, but it really didn't affect shipments as much as it did production on. The shipping phenomenon is related to supply concerns.

And H., I think I may have heard you mention in your comments that you said that in terms of foreign wire rod availability, that's been maybe not equally as tough, but just as tough until very recently. Have you seen a - has there been any recent changes that have kind of alleviated that somewhat?

Yes, maybe at the margin, Julio, it is - there are some opportunities out there, but it's still a fact that global markets are strong and imports are less available than you might expect.

Got it, and last quarter, I believe you mentioned that there was two mills in the U.S. that could be returning to the market. Did that happen or are there any other opportunities to bring on additional domestic capacity for wire rod?

There was a major upgrade at a Texas steel mill and after having been down for several weeks in upgrading hardware and software, that mill has returned to the market at a rather slow pace. I think they are behind their projections in terms of ramp up volumes, which is continuing to have a negative effect on supply. The other mills that had experienced outages that were related to accidents did come back online pretty much as scheduled and are operating now.

I guess just turning to pricing, I'm fascinated by the ASPs and how dramatically they've been able to rise, and I guess how well you've executed there. But just listening to your remarks, H., I think the way I interpret it is that the conditions that support that pricing should persist at least in the near term?

Certainly, I expect that, yes, Julio.

Okay. It's quite surprising there. I don't think I see that anywhere when I go back historically. My model, I haven't ever seen pricing, anything like that.

Notably.

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

The benefit obviously, with price increases as robust as it was throughout the quarter, do we have any calculations on kind of what that FIFO benefit was in the quarter and how much of that gets muted as we get into fiscal Q1? Do we stabilize a little bit, that draws that margin down, just from the accounting aspect?

It's really hard to say what's going to happen in 2022, Tyson. And so far as whether steel prices stabilize or whether they continue to escalate, I think the only thing we can say for sure is that our inventory levels have fallen to about 1.9 months from about 3.5...

Right.

Or more a couple of quarters ago. So, the impact of the FIFO phenomenon is muted relative to earlier in the year.

Okay. So, what we've just witnessed, an experience has some staying power at least until we get into a seasonal situation, which begs the question, do you anticipate the same seasonality as we, typically, you have seen before, or does production and shipments gets shifted south of the Mason Dixon line, and we really don't have that seasonality this year as we've seen in years past?

That's a good question, and I don't think that underlying seasonality trends have changed. They could be distorted by lack of availability of materials, and I'm not referring to only steel. But the underlying seasonality is driven by weather, and I don't think that there has been any fundamental change there.

Okay. So, you don't anticipate that we'll just have more freight going south from your more northern production facilities that are unable to service projects that shut down once we get to winter?

There is some of that, Tyson, some of our product lines are more seasonal than others, but I don't think you'll see a departure from the norm that you've come to expect from Insteel.

Okay. Have you quantified roughly kind of the percentage that you're short on your wire rod supply that you could be taking in, you could bring in 20%, 30% more and still just try to meet some of the demand that you've had to turn away?

Maybe to answer a question you didn't ask, but it is a little less speculative, I would tell you that our entire shipments shortfall is related to wire rod availability and not demand. And on the pro forma results that was down, shipments were down about 14.5%. So, all of that is related to supply concerns.

Correct.

That's not to say that we wouldn't have shipped more than last year had we had sufficient supplies of steel, but it's speculative as to how much more we may have shipped.

Right. Well, you talked about disruptions at the production facilities, those kinds of things. Are you - is it always hand of foot, I mean, hand to mouth situation as you get it in? Are we that tight or give us a little flavor on the tightness and the ability to meet your shipping schedules.

We've actually lost a considerable amount of manufacturing time, Tyson, when plants have been completely out of wire rod.

Okay. Would you anticipate if you have greater visibility and greater supply ease, that that pricing will soften or is it just that much demand out there in the marketplace that the pricing really would stay firm as you are able to make more shipments?

Yes, I do not think that pricing would weaken if we had extra wire rod suppliers. I think the market is strong enough so that everyone would be would be glad to see an environment where our service improved, and we could completely fulfill requirements and I think we could do that at existing prices.

Okay. Do you have a calculation on kind of the wage increase, production wage increase year-over-year, as you've had to incentivize and try to retain labor?

Yes. But we haven't disclosed it, Tyson. But it's a considerable on impact to our costs.

Okay. And last question, we've been running an infrastructure bill for so many years, lived through 20-plus CRs in the past, are we in a scenario right now, careful what you wish for or it's better to have that increased demand over that longer term and figure it out on the supply side, than it is not to have the infrastructure bill at this time?

Well, we need an infrastructure bill - but we need an infrastructure bill that is focused on infrastructure. And not to get political about it, but I have great misgivings about the bill that is known as the Bipartisan Infrastructure Bill. And for one thing I'm not sure who thinks this industry needs to be stimulated at this point on. I have a hard time understanding that.

So it is possibly too much of a good thing.

Well, I think it's just purely inflationary, yes. And that is too much of a good thing.

I am not showing any further questions at this time. I would now like to turn the conference back to H. Woltz.

Okay. Thank you for your interest in Insteel. Feel free to contact us if you have further questions and we look forward to talking to you next quarter. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.