Good morning, all, and thank you for joining us for the Insteel Industries Fourth Quarter 2024 Earnings Call. My name is Carly and I'll be your call coordinator for today. [Operator Instructions] I'd now like to hand over to your host, Mr. H. Woltz, CEO of Insteel Industries to begin. The floor is yours.

Thank you, Carly, and good morning. Thank you for your interest in Insteel, and welcome to our fourth 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 our comments made on the 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. Despite having seen signs of an upturn in market activity during Q3, during Q4, we experienced a continuation of sluggish market conditions, resulting in weak order backlogs that contributed to inefficiencies at our plants. We continue to believe that patience is our only viable strategy since we're unable to create demand and competitors who believe that reducing prices will stimulate demand or result in market share gains are simply mistaken. We've noted that market lethargy is not limited to reinforcing markets, following weaker forecast for producers of cement, steel, aggregates and other construction materials. We look forward to attaining higher operating rates, lower cost and improved revenue and margins that we believe will be supported by future market conditions. 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 up to discuss our business outlook.

Thank you, H, and good morning to everyone joining us today. As highlighted in our press release earlier, our fourth quarter financial performance for fiscal 2024 reflects the ongoing challenges of tighter spreads between selling prices and raw material costs relative to the prior year quarter. As a result, net earnings for the period dropped to $4.7 million or $0.24 per share compared to $5.6 million or $0.29 per share a year ago. Net sales for the quarter fell by 14.7% to $134.3 million, primarily driven by a 12.9% decline in average selling prices. On a sequential basis, average selling prices fell by 2.8%. As we've highlighted in previous calls, ASPs were again adversely impacted by ongoing competitive pricing pressures within our welded wire reinforcing markets and the growing influence of low-priced PC strand imports. Despite experiencing a modest year-over-year improvement in shipping volume during the third quarter, shipments fell slightly in the current period, declining 2.1%. On a sequential basis, shipments were down 5.2%. The decrease was driven by a combination of weak market conditions within our construction end markets, the impact of low-priced PC strand imports and adverse weather conditions in certain of our markets during the quarter. Gross profit for the fourth quarter fell $1.7 million from a year ago to $12.3 million. However, gross margin increased 20 basis points to 9.1% primarily due to lower unit conversion costs and higher production levels partially offset by lower spreads. On a sequential basis, gross profit decreased $3.1 million from the third quarter and gross margin declined by 150 basis points due to lower spreads and decreased volumes. Unit conversion costs for the fourth quarter improved year-over-year as we continue to align plant operating schedules with current market conditions and further leverage our recent capital investments. However, as I…

Thank you, Scot. As we commented last quarter, the operating environment during fiscal 2024 was difficult as we faced 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. The result, of course, was lower operating rates at our plants, price competition from competitors, experiencing the same weak conditions as Insteel and inadequate utilization of the capital investments that we've made over the past few years. As we look forward to 2025, we expect to see positive trends in nonresidential construction, resulting from the downward trajectory in interest rates, whether demand for our products recovers to acceptable levels, however, is unknowable. As Scot mentioned and as we have 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 is lower than the domestic market price for wire rod, the raw material from which PC strand is produced. The industry is carefully scrutinizing strand imports and will pursue antidumping and countervailing duty cases as may be justified. We are also working with the administration to resolve the Section 232 tariff disconnect that resulted in wire rod being subject to the tariff and PC strand being uncovered by the tariff. We believe the administration understands the illogic of the current condition that has actually harmed hot-rolled producers that were the intended beneficiaries of the Section 232 tariff. For these reasons, we're optimistic that a resolution will be forthcoming, although we're realistic about the influence of a presidential election and…

Thank you. [Operator Instructions] Our first question comes from Julio Romero of Sidoti & Company. Julio, your line is now open.

Thanks. Hey, good morning, H and Scot.

Good morning, Julio.

Hey, maybe first off, I know you folks are located in North Carolina. I hope you all are okay and safe. Maybe to start on demand trends in the quarter, if you could talk about the month-to-month cadence of shipments in July, August and September?

The first part of the quarter was lower and we finished September year-over-year pretty much even.

Okay. And what's your sense of maybe the impacts on volumes in the quarter. I know you listed a couple of factors, the adverse weather, core demand and the low-priced PC strand impact. Anyway to kind of rank those impacts?

I don't know how you quantify it, Julio, but we lost hundreds of production hours and shipping hours due to weather events, including hurricanes and unnamed tropical events. And of course, if we lost that time, our customers lost time as well. And I would tell you, business is probably better than our shipments reflect. There's still a lot of optimism among our customers and they're quoting a lot of work. So while we are in a period of softness in our market, it's not the end of the world, and I think we're positioned to see this market bounce back in 2025 or at least not fall off the edge of the table and get worse.

Understood. I understand volumes were flat year-over-year. As you said, maybe the market doesn't get worse at '25 but maybe what's your sense of whether kind of the gradual improvement in business conditions, the IIJA, monies, et cetera, can lead to volume growth in fiscal '25?

We're notoriously poor forecasters, but I'll tell you that when we did our annual snapshot of volumes for 2025, it is encouraging, not discouraging. So I think that we'll see probably a gradual increase in activity in our markets over 2025. But I don't, I mean, I certainly don't expect any explosion of volumes, but I think the fundamentals are pretty solid.

Got it. Fundamentals solid and kind of improving in that trajectory I guess?

Yes. That's right.

Okay. And then just last one for me is if you could give us a quick refresher on where you guys are with kind of conversion of rebar users to your engineered structural mesh product?

We are plowing ahead full steam. We have created substantial new infrastructure within the company to promote and sell the product. Our view is that our legacy systems and legacy infrastructure is really not appropriate to solicit and develop markets that are project related. But it's an uphill battle in some respects, but we are fully committed and making good progress.

Very good. Thanks for taking the questions and I'll hop back in the queue.

Okay. Thank you.

Thank you very much. [Operator Instructions] Our next question comes from Tyson Bauer of KC Capital. Tyson, your line is now open.

Good morning, gentlemen.

Good morning, Tyson.

Hi, Tyson.

When we talk about the import price impacts that has been ongoing and you've had different scenarios in the past where that's affected you, you've had some relief on certain countries and then we kind of fall back into that same trap. Are there any levers that you can pull outside of trade restrictions that allow you to lessen that impact? Or is it really reliant on those trade restrictions to be able to get that PC especially the PC strand market more favorable for you? I mean is there anything like Buy America any other programs that can help that's outside of the actual trade restriction?

Well let me start by saying first that this is nothing new. There is a segment of the PC strand market that has been impacted by imports forever. It was when we got in the business in 1993 and it continues today. In terms of our activity and it is a segment of the market that is affected by this, it is not the entire market. And when we talk about our activity in the trade-related space, what we're doing is pursuing countries and importers of record who are violating US trade laws. It's not a matter of our looking for restrictions against legitimate foreign competition. This is a matter of countries and companies that are violating US trade laws, we will pursue. Now the thing that's different today from any other time since I've been in this business is the Section 232 situation that we are facing, where our raw material is covered by a 25% import tariff, but the finished product is not covered by that tariff. And that produces an opportunity for arbitrage among our offshore competitors that they are well aware of and they're taking advantage of. I would also note that it severely undermines the intention of the administration in implementing Section 232 tariffs in the first place. Their intent was to help the hot-rolled steel producers. But if the hot-rolled steel producers can't sell Insteel wire rod because we're losing business to offshore competitors, then the hot-rolled producers are not really helped at all. And we've warned the Trump administration of this issue when they were considering Section 232, but our warnings were not heeded. We're now working with the Biden administration in cooperation with the hot-rolled producers to make the point that this isn't working. And so I'm confident that we will ultimately reach a favorable resolution on this, but nothing happens quickly in Washington and we worked hard on it. We worked hard on it for a long time. And I would tell you we're close, but we're not there.

But there is a united front within the steel industry, whether it's the Cleveland-Cliffs of the worlds or the Nucors or yourselves and other downstream guys that are pushing for these activities to correct the 232 loophole?

Yes. Practically, every steel vendor we have has supported us. We have a letter from the Congressional Steel Caucus supporting us. We have a letter from the American Iron and Steel Institute supporting us, one from the Steel Manufacturers Association supporting us, and we have various senators who have weighed in by letter to the Department of Commerce on the illogic of the current situation and the need to fix it. So we have a lot of firepower behind this, but it is an election year, and it is Washington and just nothing happens fast.

Okay. H, given your vast experience going through cycles, going through lowering interest rate environments versus rising interest rate environments, what has been your experience and the timelines to see actual results or improved results? When we're in that mode of lowering interest rates, do we need to see a pause before people take activity to heart or while they're lowering, people are just waiting for the next drop from the Fed, whether it's 25, 50 basis points before they pull a trigger on a project?

I think that's -- it's a great question. And I would tell you that personally my view is that interest rates have affected projects that are speculative in nature, but probably not so much projects that are for owners. In my own experience, an interest rate of 6% or 7% is not high enough so that it turns what is otherwise a good project into a bad project. So now if you're a speculator and if you're building on spec, then the situation is different. But I don't think that interest rates are so high that they have discouraged owners from investing as they need to invest to build their businesses. And what happens when interest rates begin to fall is a really good question. Do people sit back and do they wait for the next 25 basis points or 50 basis points or do they pull the trigger? My guess is, first, they wait and then you get a second reduction. And I think that it probably loosens up some capital that will flow into projects.

Okay. You talked about some of the impacts you had from the hurricanes in the Southeast. Out of that on the back end, sometimes you get some favorable future opportunities. One of those that has been ongoing are, say, the concrete poles. How do they hold up in these last two hurricanes? And is that something that gains acceleration, although be a small, a little niche part of your business? Do you see opportunities like that arising as these storms increase in frequency?

Well, first, I'm not really sure that they're increasing in frequency Tyson, but nevertheless, the damage that was brought by the recent storms is stimulative for demand of our products. With respect to concrete poles, it is an accepted application and concrete poles are replacing wooden poles in all kinds of geographies, but particularly in storm-affected zones. And our customers who produce poles are really busy and getting busier. The same is true for pipe and culvert producers where you have all these roads that have washed out. There it is very stimulative for demand of those products. So, yes, the hurricanes and storms will create demand. But as you can appreciate, first, you have to clean up and then you see some new demand.

Okay. And last question for me. Your cash balance is roughly $1 a share less than it was a year ago when you did implement that $2.50. Obviously, those decisions are yet to be made by the Board. But does that imply a comfort level of at least the continuation of that $1.50 minimum or greater as you make those decisions if we look at what you've done in the recent history versus where you stand today with your balance sheet?

Well, let me answer the question that you didn't really ask. But that is just to repeat that our capital allocation strategy is that we first want to deploy capital to grow our business and we'll do that at every opportunity that we can. And if we determine that we have cash beyond the needs of growing the business then we'll return it to shareholders either through a special or through share repurchases. And still the -- from a share repurchase standpoint, there are all kinds of realities and practicalities of that, that make it difficult for us to deploy meaningful amounts of capital into share repurchases. So I didn't answer your question, but I told you the way we -- about the way we think of this issue.

All right. Thank you, gentlemen.

Thank you.

Thank you. We currently have no further questions. So I'd like to hand back to Mr. H. Woltz for any closing remarks.

Okay. Well, we appreciate your interest in the company. We thank you for your time this morning and we look forward to talking to you next quarter. Thank you.

As we conclude today's call, we thank everyone for joining. You may now disconnect your lines.