Good morning. Thank you for attending the Insteel Industries Second Quarter 2024 Earnings Call. My name is Matt, and I'll be your moderator for today's call. [Operator Instructions]. I would now like to pass the conference over to our host, H. Woltz, President and Chief Executive Officer Insteel. H, please go ahead.

Thank you, Matt. Good morning. Thank you for your interest in Insteel, and welcome to our second quarter 2024 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 on 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 had stated during our Q1 call that we believe the headwinds of inventory liquidations and the downward reset in steel prices had run its course. I can confirm that we continue to believe this and that our markets have been steadily accelerating since the 1st of the year. We're optimistic about the underlying level of demand for our products and the outlook for our financial performance. I'm going to 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 we reported in our press release earlier today, Insteel's results for the second quarter improved from the year ago as widening spreads between selling prices and raw material costs offset the negative impact of lower shipments. Net earnings for the quarter rose to $6.9 million from $5.1 million a year ago and earnings per share increased to $0.35 per diluted share from $0.26 per share in the prior year. Shipments for the quarter rose 1.9% from Q1, reflecting the normal seasonal upturn in business that fell 3.2% year-over-year. Q2 shipments started slowly as adverse winter weather conditions during January negatively impacted construction activity. In addition, we faced several familiar challenges during the quarter, including ongoing project delays, weakness within our commercial construction markets and heightened competition from low-priced imports within certain of our PC strand markets. Despite these headwinds, there was a strengthening in shipments as the quarter progressed, with February and March volumes higher than the previous year levels. Although we are still early in the third quarter, our order book has remained strong, and April shipments have trended above forecasted levels. Average selling prices were up 2.7% sequentially from the first quarter, reflecting a portion of the price increase we implemented in January in response to the escalation in our raw material costs during Q1. Unfortunately, the amount realized fell short of our expectations as persistent headwinds, including competitive pricing pressures from domestic competitors and the growing impact of low-priced PC strand imports gradually eroded selling prices as the quarter progressed. On a year-over-year basis, ASPs were down 17.3%, reflecting a significant downward reset in selling prices experienced over much of fiscal 2023, in the first quarter of fiscal 2024. Gross profit for the…

Thank you, Scott. As we commented last quarter, the operating environment during fiscal 2024 has been difficult as we face headwinds, including declining steel prices, inventory liquidations by customers, the need to align our finished goods inventories to reflect lower shipments, and finally, the normal seasonal downturn in construction activity. We're glad to report that these adverse conditions seem to have run their course, and we're experiencing rising demand driven by market fundamentals as well as the capital investments made by the company in recent years. While our shipments for Q2 were slightly lower than the prior year, each month of the quarter was stronger than the prior month. And for April month-to-date, shipments have increased compared to last year by more than 10%. As indicated in the release, we're ramping up operating hours at several facilities to respond to more robust demand. Hiring continues to be difficult in view of a low unemployment rate in most markets, but conditions have improved considerably since hiring challenges peaked. As Scott mentioned, and as we've stated in the last couple of earnings calls, we are increasingly affected by low-priced imported PC strand from producers in a variety of countries that appear to be circumventing the Section 232 tariff on hot-rolled steel by downstreaming. Continuing the trend that began last year, the average unit value of imported PC strand for February, which is the most recent data was lower than the domestic price for wire rod, the raw material from which PC strand is produced. The industry is carefully scrutinizing strand imports and will pursue any trade that are later justified. We are also working with the administration to demonstrate that the differential treatment of hot-rolled wire rod and PC strand with respect to the Section 232 tariff is undermining the intent of…

[Operator Instructions] The first question is from line Julio Romero with Sidoti & Company.

I wanted to maybe talk about pricing to start off. The price increase that was put in place January 1, I think you guys mentioned in the prepared remarks that the amount accepted fell short of expectations. And I was just hoping to kind of dig into that. Were you guys alluding to maybe the price increase not being accepted by the marketplace? Or was it just slower to be accepted than you would have thought? Or was the price hike to be more narrowly focused on some select product lines like the PC strand susceptible at the [indiscernible]. Just hoping for some clarification there?

Well the renovation for the price increase was really the dramatic escalation that we saw in steel costs from December and January. And I know you keep up with these things that reversed itself rather precipitously in some of the impetus throughout the industry for getting ahead of steel price increases seem to evaporate as the market changes. So I would say that the level of commitment by the industry to collect and the increase waned during the quarter.

Okay. That is helpful. Because the ASPs did move up sequentially in the quarter, and I thought they were pretty good. I'm just wondering if you see the -- you talked about the volumes kind of trending upward a little bit. Wondering if you see the ASPs kind of exiting the March quarter on an upswing? Or do you see pricing somewhat pressured as we go into the June quarter?

Well Julio, there are so many different markets that we're serving, that it's hard to make a general statement that covers them all because there are different levels of competition in each of them. As a general statement, I would say we're not surprised about where we find ourselves at the end of Q2 and beginning of Q3. And this is a week-to-week matter for us. So I think the underlying level of demand will support decent prices for our products going forward, but we only know week-to-week how that's going to shape up.

Okay. That's helpful. And then maybe last one for me is just thinking about you mentioned strengthening shipments as the quarter progressed. Can you maybe talk about what your -- how they trended on the non-res side? which I think has been weak for a couple of quarters now versus the residential. Are you seeing any difference there? Or are they kind of moving at the same kind of parallel pace?

I would say parallel is probably a good term for it, as you know, most of the products that we put into residential markets are more commodity like and they've been more competitive. But with that said, I think parallel is probably a pretty good summation of where we are.

Next question is from the line of Tyson Bauer with KC Capital.

I will have to follow up on that shipment trends and increases. I guess the word that comes to my head is finally. It seems like we've had a lot of new lines, modernization and that expectation that we're finally going to get that operating leverage from increased shipments and it just never developed as probably as timely as we had hoped. Finally seeing that is certainly a good thing. As we see those trends and those increased shipments going forward, how much of that is just recovering from the declines we've had in the last couple of years as opposed to incremental contribution from your capacity increases you've done over the last couple of years, where we'll start to see that implication on the margin spread?

Yes. I think most of it is a recovery in the underlying business, Tyson. And as we've stated on a number of occasions, the capital investments that we made have a two part of return. One is lowering our internal cash cost of operation. And the other is expanding capacity as -- really as we have moved certain product lines to new equipment and opened up capacity on older equipment. So we're seeing right now more of a recovery in the underlying business -- base business and not -- it's not all incremental growth from CapEx.

Is the market -- obviously, we don't know the macro stuff, but we do anticipate improvements on the infrastructure side of this. Is there enough there in those product lines to see that contribution margin play a bigger role as we get into the seasonally stronger quarters?

Well, you would certainly think so. You know that we've incurred significantly higher manufacturing costs due to inflationary trends in really everything that we purchased, but we've also had these facilities throttled back to low levels of capacity utilization just based on market trends and we worked diligently to maintain our finished goods inventories, which has further depressed our operating rates in some cases. So as we see volumes return to the business, you would logically expect that we would develop more pricing power and that we would see a significant reduction in operating costs and quickly just add that we don't have the backlog to be able to tell you that we know that's going to happen. But certainly, the trends are positive and customers are generally optimistic, and we would expect quarters 3 and 4 to be good quarters for the company.

Okay. In regards to PC strand imports through the years, it's kind of this game of whack-a-mole, depending on what region the imports are coming from and we've had favorable trade rulings that seem to take care or say, India, Korea, Eastern Europe, Brazil, and then somebody else kind of fills that void and it's difficult to really get ahead and prevent those imports from having an impact domestically. Anything different this go around? Or is this just the cycle that repeats itself?

Well, let me state first that PC strand remains an attractive business for our company. And yes, there is a segment of it of that market that is subject to import competition and always has been and Insteel has always dealt effectively with an import competition over time. And I think we'll do so again this time. What is different about where we find ourselves today and where we found ourselves in the past is the Section 232 tariff on hot-rolled steel products, which applies to our raw material but does not apply to imports of PC strand and the motivation for offshore producers to downstream that wire rod into PC strand and send it into the U.S. is damaging to our country -- our company. And when the 232 tariff was envisioned by the Trump Administration, we told them that if they apply tariff to steel products, they needed to look at the entire supply chain, and they didn't do that. We continue to press our case one of the fundamental thresholds of 232 was that they wanted the steel industry to operate at 80% of capacity utilization. The domestic wire rod producers today are operating at under 70% of capacity and partly is because imports of PC strand and other downstream products have reduced the parent domestic consumption of wire rod significantly. So we will continue to pursue illegal trading tactics through antidumping and countervailing duty actions and, as I said in my prepared comments, we're also working with the administration to demonstrate to them that the intended beneficiaries of Section 232 are actually being harmed by what's going on and that they need to seriously look at expanding the coverage of Section 232 to include PC strand. And it's a heavy left but we have the data on our side and the logics on our side, and it's basically irrefutable. Does that mean they'll do something hard to say. But certainly, all the logic is there to support it.

Does the administration trying to block the M&A activity for the steel producers exasperate that problem? Or is it try to correct it?

Well, I mean, I think if you look at the U.S. steel market, it's the highest-priced steel market in the world. What producer wouldn't covet market position in the highest price market in the world, and it is the highest price market because of Section 232. And so how the administration or why they would be surprised that Nippon would want to buy U.S. steel. I mean, I just can't imagine. So in our space, I wouldn't say the administration is an impediment to M&A. But it's hard for me to understand that they would be surprised by the environment that exists today.

Okay. Caterpillar also announced this morning, and it gave you some comments on some headwinds in the commercial construction, which matches up with the non-res. Is that something that you are also seeing at your level that there is some working through on that side of it, but it's being overcome by the infrastructure portion of it? Or do they somewhat go hand-in-hand creating this delay on recognizing that demand?

Keep in mind that it's hard for us to know for sure where our products are going, whether they would be -- whether the demand is driven by residential or nonresidential markets. Sometimes our customers aren't even sure which market segment they're serving. So I think what we're seeing now is really decent demand from both residential and nonresidential markets and certainly a recovery in both.

There are currently no further questions registered. [Operator Instructions] There are no additional questions waiting at this time. So I'll pass the call back to the management team for any closing remarks.

Okay. Well, we appreciate your interest in the company. We encourage you to contact us if you develop questions, and we'll look forward to the Q3 call, which will be coming up before you know it. Thank you.

That concludes the conference call. Thank you for your participation. You may now disconnect your lines.