Hello, everyone and welcome to Insteel Industries Fourth Quarter 2023 Earnings Call. My name is Runo [ph] and I will be operating your call today. [Operator Instructions] I will now hand over to your host and CEO, H. Woltz. Please go ahead.

Good morning. Thank you for your interest in Insteel and welcome to our fourth quarter 2023 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 and which could cause actual results to differ materially from those projected. These risk factors are described in our periodic filings with the SEC. 2023 was challenging for the company in view of inventory accumulations throughout the supply chain and a significant downward reset in steel prices that occurred following several quarters of extreme supply tightness and significant market price escalations. We believe these headwinds have about run their course and we continue to be optimistic about the underlying level of demand for our products. I'm going to call -- turn the call over to Scot 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. As highlighted in our press release earlier today, our performance in the fourth quarter of fiscal 2023 reflects the continued pressure of narrow spreads between selling prices and raw material costs following with elevated unit conversion costs. As a result, net earnings for the fourth quarter fell to $5.6 million or $0.29 a share from $24.3 million or $1.24 per diluted share a year ago. Our net sales for the quarter of base headwinds, declining 24.3% from last year on a 27.8% decrease in average selling prices, although this was partially offset by a 4.9% increase in shipments. On a sequential basis, average selling prices declined 6.6%, while shipments were 1.8% higher. The ongoing challenges of the competitive pricing environment, the persistent downward trend in steel scrap prices and the growing influence of low-priced imported PC strand all contributed to a decline in our average selling prices during the fourth quarter. As I've mentioned in previous calls, our product is most exposed to the residential construction market has experienced the largest decline in average selling prices, a trend that continued throughout our fourth quarter. Despite the weakening in our ASPs, our shipping volume exhibited modest improvement during the fourth quarter. Many customers are currently experiencing favorable or improving business conditions and the majority have now normalized their inventory levels following their destocking efforts that suppress demand for much of fiscal 2023. However, it is important to highlight that our shipments came in below our internal forecast, primarily due to project delays, weakness in the non-residential construction market and the negative effect of adverse weather conditions in certain of our markets during the quarter. Gross profit for the fourth quarter fell $25.8 million from a year ago and…

Thank you, Scot. We're pleased to have experienced an uptick in shipments year-over-year during the fourth quarter. Most of the improvement originated with shipments into our housing-related markets which was unexpected. Shipments into infrastructure and other commercial applications were weak in a continuation of the phenomenon we've experienced throughout the year where customers seem to be busier than their suppliers. Inventory liquidations by customers of both finished goods and reinforcing material would explain market conditions, although we lack objective data to support such a claim. We believe, however, that consumption of reinforcing products is at an attractive level and that we're maintaining market share [ph]; and the base of softer order entry rates was our best course of action. Declining prices for metals has likely had a negative impact on the motivation of our customers to rebuild inventories. While Insteel is not a price setter, we recognize the need to be competitive consistently. The fact remains, however, that lower prices do not stimulate demand, so the tactic is questionable from a business perspective. We've mentioned before that declining steel prices create a headwind for Insteel earnings which has clearly been the case over the last year during a period of significant reductions in steel scrap and hot-rolled pricing. We believe the downward slide has about run its course finally and that steel prices are likely to rise in coming months. Weaker-than-expected demand in Q4 caused us to continue reducing finished goods inventories, inventory levels and we incurred the associated negative impact on operating costs. Our plants experienced unfavorable impact of lower volume while also feeling substantial inflationary pressures for all purchases, including energy, labor, spare parts and operating supplies. We believe that internal inventory corrections should be complete during the first quarter and that we should resume operations at a…

[Operator Instructions] We have our first question coming through. It comes from Julio Romero from Sidoti Company.

Maybe to start the -- so to start on maybe selling prices, you'd mentioned a number of factors that affected pricing during the quarter, competitive pressures, scrap pricing trending downward and the import pressure on the PC strand side. Could you maybe rank order those factors for us in terms of what was most impactful during the quarter?

Julio, I would tell you, it's just mainly competitive pricing pressures pretty much across the board. And if you were to take a snapshot of contemporaneous purchases and sales, we don't have a margin collapse on our hands. What we have is a significant reset in pricing throughout the supply chain and the inventory impact and flows of inventory through cost of sales has been something we just -- we've been unable to get ahead of.

Understood. And the competitive pressure would that be both on the domestic and the imported side?

Yes. I would tell you it's pretty much across the board.

Okay. No, that's helpful. Maybe just on the import competition on the PC strand side, can you maybe just talk about that a little bit? And how much more of the recent growing influence of those imports have been to freight costs coming down versus other factors?

Yes. I don't know that we can actually quantify it for you. And we've seen this coming. And now it's here that there were a few factors that insulated our market from lower-priced imports, including freight rates that skyrocketed during the '21, '22 period. All of that is normalized and we're now seeing we're seeing significant import action. And keep in mind that we do get a forward look at this because customers who are purchasing import materials generally do so 2, 3, 4 months ahead of taking receipts. So we know what's going on in that market. At that of the imports actually hitting the U.S. market; so that's what we're seeing. It certainly began in earnest towards the end of Q4. We'll see it in Q1 and we'll see -- so I'll pursue additional trade cases sometime in 2024.

Very helpful. And then just I'll squeeze one in on demand, if I could. Just speak to what you're hearing or seeing from your customers in terms of maybe what they're seeing on the private non-residential demand side.

Well, we don't necessarily know whether it's private, non-residential or whether it's public non-residential. But if you wrap those 2 families together and let's just say non-risk construction, our customers are busy that they're regionally, there are always some winners and losers but it's remarkable that the level of quotations and the level of shipments and backlog that our customers had is generally positive. Regionally, there are definitely some differences. But as a general statement, I think consumption of our products is better than the market indicators, what have you believe at this point.

[Operator Instructions] Our next question comes from Tyson Bauer from KC Capital.

Congratulations on doing your part to fight against inflation and pricing. So the Fed appreciates that and hopefully, as the shareholders stay with us and work our way through this as we get toward the end of it. When we have price pressures on imports, sometimes that can also lead to advantages for you and purchasing supply of wire rod from foreign sources. Has that not presented itself as an opportunity this go around? Or are you seeing opportunities in that regard?

Well, keep in mind that all of our raw material purchases are subject to the Section 232 tariff of 25% which has had the impact of certainly making offshore purchases less attractive. The other reality of offshore purchases is extraordinarily long lead times which create risk for us that is not particularly attractive at the present time. So I would say that our offshore material purchases are probably at a low ebb at this point.

Okay. You talked about the competitive pricing. The supply seems to be obviously very adequate within the domestic marketplace. Yes, we're spending $60 million over a 2-year period to expand capacity through 3 more production lines and other -- I'm sure there's maintenance included in that and other things. Kind of break down what your return expectations are for that $60 million in regards to increased opportunities of revenue versus maybe just getting a better handle on your cost and the cost per unit as production going forward.

Well, I can't quantify those components but you have identified correctly that the investments that we are making have both the potential for increasing revenue and significantly reducing the cash cost of production of products that we're currently producing. So as a general return expectation, I can tell you that we would expect these investments to return in excess of our cost of capital, we don't try to push up further than that. And I’ll also tell you Tyson that just to repeat, what we've said in our last conference call, you don't get to pick your time for starting these investments off. There's 1.5 year to 2-year lead time to get these things done, they are -- the projects that we have undertaken are critical to the future of the company and I would argue, deserve these investments -- deserved to be made regardless of the market outlook because they're critical going forward.

Right; especially given the equipment time line and such forth. Your balance sheet obviously easily supports a $2 special dividend, what we've seen here recently. The question is, does your general outlook or as you exhibited a year ago, even though the cash used for working capital drain some of that balance, you were able to look on a 3-, 4-year horizon to justify that special dividend. Same parameters this go around, you have the cash; the outlook may be a little weaker for Q1. But overall, you're generally positive in the outlook that would be supportive.

Yes. I mean, you well know because you're familiar with the company that we've never claimed to have great insight to what happens 2, 3, 4 quarters out. But we don't see a train wreck coming our way in 2024 or 2025. We think that while there may be a downturn, there are a lot of countervailing factors that would support the non-residential construction market. And so we're not -- we don't feel like the sky is falling.

Okay. Do you -- have you come to a point where we're reviewing operational adjustments in where you look at whether we should be really protecting market share versus margin protection? Or are you looking at the margin will kind of settle itself out with the inventory adjustments. Thus, it's more important to protect your market share.

No. I mean, as I stated in my prepared comments that we expect to be competitive in the market on a consistent basis and we will be. Our customers expect that of us. We expected of ourselves and we're not going to hold an umbrella over the market. I think we have the cost structure to compete with anyone. As I said, we don't want to be price setters. We think the tactic of lowering prices is naive to say the least. But nevertheless, there's a market out there and we're going to compete and we'll let the results fall out where they are but we're not going to hold an umbrella over the market.

Okay. And last question for me; probably directed to Scot, the monthly trends in the last two quarters. We've had the front-end month show a good recovery from the previous quarter. And then the rest of the quarter kind of falls below expectations. We had a good April. We had a good July and then all of a sudden, we have this rapid decline for various reasons that you've explained. Anything unique that you can see that would have created that impact or is that just how the numbers worked out?

There's nothing unique there. That's just how it worked out for the quarter.

Okay. But that anticipation is for the rest of this year, we're going to start out kind of as we ended and probably just kind of stay tight or stable until we get into the next year's seasonally stronger quarters.

But I think the influences that we're dealing with right now, Tyson, are related to reducing inventory and the impact on our plants. And certainly, I mean, the level of volume that's out there isn't particularly impressive anyway. But we have exacerbated that impact with our inventory reduction after which are clearly called for but nevertheless, they're painful. So I think that, that -- that's a big driver of what you're seeing.

We currently have no further questions. So I would like to hand the call back to H. Woltz to closing remarks.

Okay. Thank you. We appreciate your interest in the company. We look forward to talking to you next quarter and we encourage you to follow up with us if you have continuing questions. Thank you.

Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines. Thank you.