IIIN - Insteel Industries, Inc.
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Q3 2026 Earnings Call
2026-07-16Operator: Hello, everyone. Thank you for joining us, and welcome to the Insteel Industries Third Quarter 26 earnings call. After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press 1. To raise your hand. To withdraw your question, press 1 again. I will now hand the conference over to H. Woltz, president and chief executive officer. H, please go ahead.
Howard Osler Woltz: Thank you. Good morning. Thank you for your interest in Insteel. And welcome to our third quarter 26 conference call which will be conducted by Scot R. 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 which could cause actual results to differ materially from those projected. These risk factors are described in our periodic filings with the SEC. Despite falling short of our expected financial performance, in Q3, we believe the upturn in business activity we reported previously is still intact. I will turn the call over to Scot to comment on our financial results. And following his comments, I will pick the call back up to discuss our business outlook.
Scot R. Jafroodi: Thank you, H. And good morning to everyone joining us on the call. As reported in our earnings release this morning, third quarter results benefited from higher average selling prices and improved shipment activity. However, those benefits were more than offset by higher costs. Resulting in net earnings of $9 million or $0.46 per share compared with $15.2 million or $0.78 per share in the prior year quarter, Despite the decline in earnings, underlying demand trends remain generally favorable. Third quarter shipments increased 1.7% from the prior year quarter, supported by healthy infrastructure activity, although conditions across much of the broader private nonresidential construction market remain soft. Wet weather in certain regions, together with scheduling and delivery delays on several customer projects, including data center related projects, moderated the pace of shipments during the quarter. Continue to view these project delays as timing related rather than indications of weakening underlying demand. Overall, customer sentiment remains positive and activity across our key markets continue to support our outlook. Turning to pricing. Average selling prices increased 8.1% from the prior year quarter and 2.3% sequentially from the second quarter. Reflecting the continued benefit of pricing actions implemented over the past year in response to higher steel wire rod, freight, and other operating costs. Gross profit for the quarter declined to $10.8 million in the prior year period and gross margin contracted by 690 basis points to 10.2% from 17.1%. The year over year decline was driven primarily by narrow spread between selling prices and raw material costs as well as higher freight and manufacturing costs. In addition, lower production volumes resulted in higher unit conversion costs, which further pressured margins. On a sequential basis, gross profit increased by $3.6 million from the second quarter gross margin improved by 60 basis points. Reflecting higher shipment volumes and improved spreads. Looking ahead to the fourth quarter, we expect gross margins to remain near current levels. With the potential for modest improvement. Our outlook is supported by steady demand and improved manufacturing efficiency from higher production volumes and operating rates. However, significant margin expansion will depend on our ability to realize additional pricing increases sufficient to offset ongoing inflationary pressures in raw material, freight, and other operating expenses. SG and A expense for the quarter declined to $8.5 million or 4.3% of net sales compared with $10.6 million or 5.9% of net sales in the prior year period. The decrease was driven primarily by a $2.1 million reduction in compensation expense associated with our return on capital based incentive plan reflecting lower financial performance relative to the prior year. Our effective tax rate for the quarter fell to 22.8% from 23.3% a year ago, Looking ahead to the balance of the year, we expect our effective rate to run close to 23% subject to the level of pretax earnings, both tax differences, and the other assumptions and estimates that compose our tax provision calculation. Turning to the cash flow statement and balance sheet. Operating activities generated $13.7 million of cash during the quarter, driven primarily by net earnings. Changes in net working capital had a minimal impact on cash flow. Providing $500 thousand during the quarter. A $7.9 million increase in inventories reflecting continued wire rod purchasing activity and higher average raw material costs mostly offset by $7.8 million increase in accounts payable and accrued expenses related to those purchases. Our inventory position at the quarter end represented approximately 3.5 months of shipments on forward looking basis calculated off of our fourth quarter forecast up slightly from 3.4 months at the end of the second quarter. As discussed on prior calls, inventory levels have remained elevated in fiscal 26 as we supplement the domestic wire rod purchases with offshore material to support customer demand and mitigate supply risk. Looking ahead, we expect inventories to decline modestly during the fourth quarter as shipment activity progresses through the seasonal busy period. Finally, inventories at the end of the third quarter were valued at average unit cost that was generally consistent with both the costs reflected in the third quarter cost of sales and current replacement cost. We invested $3.2 million in capital expenditures during the quarter bringing total capital spending to $9.1 million for the first 9 months of fiscal 26. Based on our updated forecast for the remainder of the fiscal year, we now expect full year capital expenditures to total approximately $15 million, down from our previous estimate of $20 million. The revised outlook reflects the timing of certain projects, rather than any changes in our underlying investment plans. A portion of the related spending now expected to shift into fiscal 27. Our strong balance sheet continues to provide significant financial flexibility. We ended the quarter with $22.9 million of cash and no borrowings outstanding on our $100 million revolving credit facility. During the quarter, we increased share repurchase activity under our existing authorization repurchasing 75 thousand shares for $1.9 million. We continue to believe our shares represent an attractive long term investment and view share repurchases as an effective means of creating shareholder value when valuation levels are appropriate. Our capital allocation priorities remain unchanged. We will continue to invest in the business to support growth initiatives and improve operating efficiency, maintain a strong balance sheet, and return excess capital to shareholders through a balanced approach of dividends and disciplined share repurchases. Turning to the macro indicators for our construction end markets. Recent data suggest conditions remain uneven. In May, architectural billing index declined to 44.5 its lowest reading since January and remained well below the 50 threshold that separates expansion from contraction. According to the AIA, the decline reflected--it reflected the continued uncertainty related to geopolitical tensions in the Middle East and higher energy costs together with elevated interest rates, rising material prices, and persistent labor shortages. The Dodge Momentum Index, which measured nonresidential projects entering the planning stage also pointed to some moderation in June. Index declined 1.9% from May, with commercial component down 6.8%. While data center planning continues to be a key source of activity, Dodge noted that the pace moderated from their elevated levels seen in recent months. Construction spending data from the US Department of Commerce also reflect mixed conditions. In May, total construction spending on a seasonally adjusted annual basis increased just 0.1% from April and declined 1.5% from last May. Total nonresidential construction spending was essentially unchanged from April and was 3.8% below the prior year level. However, highway and street construction a key end market for our products, increased 3% from May of last year, reflecting continued strength of publicly funded activity. Taken together, these indicators support our view that the near term borrowing environment remains mixed, but underlying drivers of demand across our key end markets remain supportive. Looking ahead, shipment levels have improved from the weather impacted second quarter, customer activity remains favorable across many of the nonresidential markets we serve. Although certain projects continue to move through the system more slowly than originally expected, we believe these delays are primarily timing related and do not reflect weakening underlying demand. At the same time, we continue to navigate uncertainty related to raw material costs freight expense, and trade policy. While we are monitoring these developments closely, we believe the company remains well positioned as we move through the remainder of fiscal 26. Our debt free balance sheet and strong liquidity provide us financial flexibility to invest in the business, pursue growth opportunities, continue returning capital to shareholders. This concludes my prepared remarks. I will now turn the call back over to H.
Howard Osler Woltz: Thank you, Scot. Despite our relatively weak financial performance in Q3, I am glad to report that we believe market conditions are holding up reasonably well and certainly well enough to support better financial performance from our company. In a nutshell, I would characterize infrastructure markets as reasonably strong and private nonresidential construction absent data centers as quite weak. As reported last quarter, we have experienced scheduled delays with respect to data center projects that are unavoidable under prevailing circumstances. These delays are related to later than anticipated start times for projects that necessarily back up delivery schedules for materials and equipment. I would reiterate comments from last quarter and from Scot that we are not seeing cancellations, just delays. We expect shipments to private nonresidential market, including our data center projects, to accelerate during the current quarter and to remain strong through the end of the calendar year. Another obstacle adversely affected our financial performance has been the impact of inflation on nearly every product or service we acquire to operate our plants. We have struggled to get in front of costs that are rising substantially in every aspect of the business. With that in mind, we announced a price increase that was recently effective to recover these rising costs. Turning to another subject, the steel industry may have been more impacted by the administration's tariff policy than any other industry. The section 32 tariff of 50% on imports of steel has caused market prices in The US for hot rolled wire rod our primary raw material, to rise to a level that is 50% to 100% over the global market price. Realizing that foreign companies were circumventing the 32 tariff by downstreaming hot-rolled steel into finished product to which 32 did not apply. In 2025, the administration applied the 32 tariff to downstream products derived from hot rolled steel covered by the section 32 tariff. While we initially questioned the effectiveness of the derivative products tariff strategy implemented by the administration, We are glad to report a significant decline in the volume of imported PC strand that has entered the U.S. since the tariff was increased to 50% and derivative products, including PC strand, were covered. For the first 4 months of calendar 2026, the most recent data available PC strand imports fell 30% from the prior year. Although the average unit values continue to reflect the availability of world market steel to our foreign competitors. Despite low AUVs of imports, prices in the most import-affected market have begun to recover as import volumes have declined and uncertainty in insurance and transport costs have increased. We intend to point out to trade policymakers the reality that US hot rolled steel prices have risen so high relative to world market levels that the effectiveness of the derivative tariffs is compromised. Foreign competitors can still acquire hot rolled steel at world market prices and simply pay the 32 tariff. The economics still work. Although uncertainty and other costs have risen substantially. Turning to the raw material environment. It appears that domestic producers of wire rod are primary raw material have increased margins to an extent that is satisfactory and the rapid price escalation to take full advantage of the section 32 tariff has run its course. Markets while priced much higher than world markets, seem reasonably stable and calm Because there continues to be a deficit in domestic production relative to domestic demand, Insteel will continue to import the portion of its requirement that cannot be sourced domestically. And will continue to bear the net working capital implications. Ultimately, there must be capital investment in the domestic wire rod business for conditions of reasonable competition to be restored to the market. The wisdom of such investment will depend on the investor's view of the longevity of the Section 32 tariff Today, however, unplanned downtime at any producer of steel wire rod would cause marketplace havoc. And unplanned downtime has not been an unusual occurrence in this industry. Finally, turning to CapEx. As mentioned in the release and by Scot, we expect to invest approximately $15 million in our plants and information systems in infrastructure during 2026. Our investment will support the growth of our engineered structural mesh business reduce our cash production costs, and enhance the robust nature of our information systems. Consistent with past practice, we will provide quarterly updates on our investment activities and expectations as the year progresses. Looking ahead, we are aware of the substantial risk related to state of the economy and the administration's tariff and trade policies. Regardless of developments in these areas, we are well positioned to pursue growth related activities both organic and from acquisition and actions to optimize our costs. This concludes our prepared remarks, and we will now take your questions. Jen, would you please explain 1 more time the first procedure for asking questions?
Operator: Absolutely. Thank you. We will now begin the question-and-answer session. If you would like to ask a question, please press 1. To raise your hand. To withdraw your question, press 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please standby while we compile the Q and A roster. Your first question comes from the line of Julio Alberto Romero with Sidoti. Julio? Your line is open. Please go ahead.
Julio Alberto Romero: Great. Thanks. Hey. Good morning, H and Scot. The data center related-- Hey. Good morning, guys. The data center related delays that were cited on the April call, it sounds like none of those volumes were realized as of the June quarter end. Can you confirm that is correct? And if so, based on your visibility into that into the project, can you speak to the confidence about the acceleration in those projects occurring here in the current fourth quarter?
Howard Osler Woltz: Well, we can confirm the delay for sure. But anything we would say about expectations going forward is as of today, and subject to change. But as I said in the prepared remarks, we expect those shipments to pick up during the current quarter and to remain strong through the end of the calendar year. But it is a day--it is a day-to-day matter. And we are learning a lot as we go through this process.
Julio Alberto Romero: Got it. Thank you for that. That is that is helpful. And that makes sense. Just once deliveries begin, for this 1 project or this current batch of projects, you are supplying, how far do you expect that to extend? I think you said as you said, through the end of the calendar year, But I think in the past, you have said it would extend into fiscal 27. So just trying to get any finer point on the duration if possible.
Howard Osler Woltz: Well, yeah. And that is hard for me to answer. Julio, because I do not recall the details. I have been more I have I have been more focused on when we start shipping than how far it goes. And we are involved in multiple projects. it is not just 1. And the nature of this is that once we begin shipping, we will ship on a regular basis until the project is complete. But the material is not needed at the job site, until the contractor's ready for it. that is sort of where we are.
Julio Alberto Romero: Okay. No. That makes sense. Once this project or the group of projects is complete, can you talk about maybe the prospects for repeat business with the developer, the contractor, or the end user of that data center? You know, have you had that conversation with them. Just, you know, speak to that if you could.
Howard Osler Woltz: Well, where we are going with this and the way we think about it is that, you know, there is 9 million or 10 million tons of rebar used in this market on an annual basis. And based on the capacity that you are seeing in that market, certainly, producers of rebar expect that number to rise substantially. In the coming years. Our needs and our aspirations are really very small part of the rebar market. But we have a valid value proposition that is important to customers. And we intend to exploit that. So, this is a new undertaking for our company relatively. And as I said a few minutes ago, we are learning a lot, but we expect this to ramp up to be a substantial contributor to Insteel's revenue base over time. Data centers notwithstanding, If it does not go to data centers, it goes somewhere else. We are beginning to see some signs of life in other private nonresidential applications. But that will be a 2027 or 2028 recovery in my view.
Julio Alberto Romero: Perfect. And thank you for going into that, and me for trying to get ahead of myself and thinking about that part of the story. But just the valid value proposition beyond data centers, Does that apply to, like, large reshoring or onshoring facilities, other mega projects with the benefit of accelerating construction speed would also apply.
Howard Osler Woltz: Well, yeah. And I think what we are learning is that we need to target applications where the speed of construction is important to the owner and the contractor which would imply maybe not so much speculative building as strategic building. And in those applications, we have a distinct advantage and, as I said, intend to exploit it. We need repetition. We do not need small cut up structures because it is harder for us to be-- or it is harder for our value proposition to be realized in that kind of structure. So we are looking at larger buildings.
Julio Alberto Romero: Okay. Perfect. 1 more for me, and I will turn it over if I could. Just last quarter, you cited an expectation to kind of not book any sort of receivable with regards to the IPA tariffs. Just curious if there is any change on that stance and where do vendor conversations kind of stand on recovery and passing through any of those IPA tariffs you paid last year.
Howard Osler Woltz: We are going to record them when we receive them. And it is limited as far as the tariffs that we were the importer of record on a vast majority of the tariffs that we paid, someone else was the importer of record. So we are waiting for them to file all the paperwork. And the other reality is that this repayment scheme was mandated by the Court of International Trade. And at the end of June, the Trump administration appealed that ruling. So the adjudication of the legality of the AIBA tariffs has a long way to run. I would say that this is not something that we or any other company should hold our breath to receive.
Julio Alberto Romero: Great. Thanks again for all the color, guys.
Howard Osler Woltz: Thank you.
Operator: Your next question comes from the line of Tyson Lee Bauer with KC Capital. Tyson, your line is open. Please go ahead.
Tyson Lee Bauer: Good morning, gentlemen.
Howard Osler Woltz: Good morning, Tyson.
Tyson Lee Bauer: Just a quick bookkeeping 1. On the SG&A, the $2.1 million that you highlighted, Scot, is part of that just a, not having the recognition of incentive comp because of your current run rate Or as part of that, that function plus a callback, from what you recognized in the first 2 quarters.
Scot R. Jafroodi: No. there is no clawback. It was just the pace of approving that expense was a lower level due to the reduced financial results.
Tyson Lee Bauer: So that would indicate that your anticipation for this final fiscal quarter were pretty much on this run rate that we are currently seeing?
Scot R. Jafroodi: Yes. And, obviously, that would be dependent on how Q4 plays out. But, yes, that would be that would be how it would work.
Tyson Lee Bauer: Was there any other impact due to the surrender value of life insurance because of the share price?
Scot R. Jafroodi: Yeah. There was a $300 thousand pickup. In the cash surrender value of life insurance policies. Based on the market returns.
Tyson Lee Bauer: You talked about price increases. Is that a onetime price increase that you are pushing through, and what was the effect date, or are you looking at this at multiple increases through this current quarter?
Howard Osler Woltz: We have seen we have seen multiple increases through fiscal 2 thousand 26 as we tried to recover rising wire rod cost as well as rising cost for everything else. And the most recent price increase that we announced was to be effective July 13, which, as you know, is this week. And nobody likes price increases. And we do not like having to float price increases. But when a profit cost $1.5 thousand to send to a destination now $3 thousand somebody's gotta pay the bill. And when I read about the inflation rate as reported by the administration, I can promise you it bears no reality to what we are seeing in the industrial sector.
Tyson Lee Bauer: Well, as I have if you are just doing it this week, you probably do not have the early returns. I was going to ask how you characterize your pricing power. It seems like freight is a fairly universal. Nobody has an advantage on those costs. Everyone must be absorbing or having to push those along.
Howard Osler Woltz: Yeah. Yeah. And that is only 1 of the costs that we are trying to recover, Tyson. And we are we are doing this in a market that is we characterize it. it is reasonably okay. But we are not doing it in a market that is bullishly strong. So it is difficult to collect it, but at the same time, you have 2 choices. You either absorb these costs or you pass them along. And our choice is to pass them along and not absorb them. So, yeah, we will just have to see how it goes. But to say that our customers or even our people internally or are happy about this, the answer would be we are certainly not. I do not like the environment.
Tyson Lee Bauer: And that kind of leads into the next topic of demand concentration and are your results becoming more variable or volatile because of larger products or projects are included in your revenue streams. So just based on industry and geography, that kind of concentration that we are seeing And, also, I was going to ask about data centers being more of a backfilling function as opposed to incremental. But if you are truly not shipping, and they are delayed, and we are not recognizing data center revenue currently, to what you think you will be, it really cannot be much of a backfill operation. It must be incremental as we go forward.
Howard Osler Woltz: No. I would consider it a key part of our market going forward. And as we have acknowledged forever. This is a volatile, cyclical, seasonal business. So what happens in any 1 quarter? I cannot really say. But if you give us 2 to 5 years, you are going to see that a tremendous part of our revenue is coming from a market that we did not participate in 2 years ago.
Tyson Lee Bauer: Okay. So it has somewhat of a similar effect as when we saw in 2021-2022, the distribution center boom that went through and then kind of waned off. This is just the next iteration of a different industry segment that is picked up that boom, you know, is it?
Howard Osler Woltz: Yes. It is. I mean, the distribution centers have, tailed off dramatically. But I would just say again, that whether it is data centers or whether it is distribution centers or some other application, there is still 9 million or 10 million tons of rebar used in The US every year. And that must be going to 11 or 12. And we are we are going to be there taking part of it, in whatever applications happen to be robust at the time.
Tyson Lee Bauer: Okay. When you see the headlines on data center moratoriums and all the angst? Do you kind of write that off as just, election politics And once we get beyond that season, we will start to get into a more regular flow and that does not make the headlines like it currently is in New York or other places.
Howard Osler Woltz: that is you know, our guys are pretty savvy about this, and we are we are only talking to people who are pursuing projects that are permitted and funded. So I would not expect to have to tell you guys that projects that we believe we are going to participate in were deferred or canceled because they could not be permitted or because of public opposition. We just--we do not have time to chase those.
Tyson Lee Bauer: Okay. And the last 1, I guess, in the same vein as you will report it when it happens on tariff refunds. Residential construction activity, a turn in that industry, When it happens, we will believe it as opposed to trying to forecast it.
Howard Osler Woltz: Yeah. That is it is certainly residential applications are on their back right now. there is a lot of price competition in products for residential and it is just not it is not our big strategic focus anyway. So we would not spend a lot of time trying to forecast when that recovers.
Tyson Lee Bauer: Alright. Sounds great. Thank you, gentlemen.
Howard Osler Woltz: Okay. Thank you, Tyson.
Operator: There are no further questions at this time. I will now turn the call back to H. Woltz for closing remarks.
Howard Osler Woltz: Okay. Thank you. We appreciate your interest in the company and your participation on the call today. We are glad to hear from you. if you want to give us a call, during the coming quarter, and we look forward to talking with you at the end of the fiscal year. Thank you.
Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Howard Osler Woltz: Thank you. Good morning. Thank you for your interest in Insteel. And welcome to our third quarter 26 conference call which will be conducted by Scot R. 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 which could cause actual results to differ materially from those projected. These risk factors are described in our periodic filings with the SEC. Despite falling short of our expected financial performance, in Q3, we believe the upturn in business activity we reported previously is still intact. I will turn the call over to Scot to comment on our financial results. And following his comments, I will pick the call back up to discuss our business outlook.
Scot R. Jafroodi: Thank you, H. And good morning to everyone joining us on the call. As reported in our earnings release this morning, third quarter results benefited from higher average selling prices and improved shipment activity. However, those benefits were more than offset by higher costs. Resulting in net earnings of $9 million or $0.46 per share compared with $15.2 million or $0.78 per share in the prior year quarter, Despite the decline in earnings, underlying demand trends remain generally favorable. Third quarter shipments increased 1.7% from the prior year quarter, supported by healthy infrastructure activity, although conditions across much of the broader private nonresidential construction market remain soft. Wet weather in certain regions, together with scheduling and delivery delays on several customer projects, including data center related projects, moderated the pace of shipments during the quarter. Continue to view these project delays as timing related rather than indications of weakening underlying demand. Overall, customer sentiment remains positive and activity across our key markets continue to support our outlook. Turning to pricing. Average selling prices increased 8.1% from the prior year quarter and 2.3% sequentially from the second quarter. Reflecting the continued benefit of pricing actions implemented over the past year in response to higher steel wire rod, freight, and other operating costs. Gross profit for the quarter declined to $10.8 million in the prior year period and gross margin contracted by 690 basis points to 10.2% from 17.1%. The year over year decline was driven primarily by narrow spread between selling prices and raw material costs as well as higher freight and manufacturing costs. In addition, lower production volumes resulted in higher unit conversion costs, which further pressured margins. On a sequential basis, gross profit increased by $3.6 million from the second quarter gross margin improved by 60 basis points. Reflecting higher shipment volumes and improved spreads. Looking ahead to the fourth quarter, we expect gross margins to remain near current levels. With the potential for modest improvement. Our outlook is supported by steady demand and improved manufacturing efficiency from higher production volumes and operating rates. However, significant margin expansion will depend on our ability to realize additional pricing increases sufficient to offset ongoing inflationary pressures in raw material, freight, and other operating expenses. SG and A expense for the quarter declined to $8.5 million or 4.3% of net sales compared with $10.6 million or 5.9% of net sales in the prior year period. The decrease was driven primarily by a $2.1 million reduction in compensation expense associated with our return on capital based incentive plan reflecting lower financial performance relative to the prior year. Our effective tax rate for the quarter fell to 22.8% from 23.3% a year ago, Looking ahead to the balance of the year, we expect our effective rate to run close to 23% subject to the level of pretax earnings, both tax differences, and the other assumptions and estimates that compose our tax provision calculation. Turning to the cash flow statement and balance sheet. Operating activities generated $13.7 million of cash during the quarter, driven primarily by net earnings. Changes in net working capital had a minimal impact on cash flow. Providing $500 thousand during the quarter. A $7.9 million increase in inventories reflecting continued wire rod purchasing activity and higher average raw material costs mostly offset by $7.8 million increase in accounts payable and accrued expenses related to those purchases. Our inventory position at the quarter end represented approximately 3.5 months of shipments on forward looking basis calculated off of our fourth quarter forecast up slightly from 3.4 months at the end of the second quarter. As discussed on prior calls, inventory levels have remained elevated in fiscal 26 as we supplement the domestic wire rod purchases with offshore material to support customer demand and mitigate supply risk. Looking ahead, we expect inventories to decline modestly during the fourth quarter as shipment activity progresses through the seasonal busy period. Finally, inventories at the end of the third quarter were valued at average unit cost that was generally consistent with both the costs reflected in the third quarter cost of sales and current replacement cost. We invested $3.2 million in capital expenditures during the quarter bringing total capital spending to $9.1 million for the first 9 months of fiscal 26. Based on our updated forecast for the remainder of the fiscal year, we now expect full year capital expenditures to total approximately $15 million, down from our previous estimate of $20 million. The revised outlook reflects the timing of certain projects, rather than any changes in our underlying investment plans. A portion of the related spending now expected to shift into fiscal 27. Our strong balance sheet continues to provide significant financial flexibility. We ended the quarter with $22.9 million of cash and no borrowings outstanding on our $100 million revolving credit facility. During the quarter, we increased share repurchase activity under our existing authorization repurchasing 75 thousand shares for $1.9 million. We continue to believe our shares represent an attractive long term investment and view share repurchases as an effective means of creating shareholder value when valuation levels are appropriate. Our capital allocation priorities remain unchanged. We will continue to invest in the business to support growth initiatives and improve operating efficiency, maintain a strong balance sheet, and return excess capital to shareholders through a balanced approach of dividends and disciplined share repurchases. Turning to the macro indicators for our construction end markets. Recent data suggest conditions remain uneven. In May, architectural billing index declined to 44.5 its lowest reading since January and remained well below the 50 threshold that separates expansion from contraction. According to the AIA, the decline reflected--it reflected the continued uncertainty related to geopolitical tensions in the Middle East and higher energy costs together with elevated interest rates, rising material prices, and persistent labor shortages. The Dodge Momentum Index, which measured nonresidential projects entering the planning stage also pointed to some moderation in June. Index declined 1.9% from May, with commercial component down 6.8%. While data center planning continues to be a key source of activity, Dodge noted that the pace moderated from their elevated levels seen in recent months. Construction spending data from the US Department of Commerce also reflect mixed conditions. In May, total construction spending on a seasonally adjusted annual basis increased just 0.1% from April and declined 1.5% from last May. Total nonresidential construction spending was essentially unchanged from April and was 3.8% below the prior year level. However, highway and street construction a key end market for our products, increased 3% from May of last year, reflecting continued strength of publicly funded activity. Taken together, these indicators support our view that the near term borrowing environment remains mixed, but underlying drivers of demand across our key end markets remain supportive. Looking ahead, shipment levels have improved from the weather impacted second quarter, customer activity remains favorable across many of the nonresidential markets we serve. Although certain projects continue to move through the system more slowly than originally expected, we believe these delays are primarily timing related and do not reflect weakening underlying demand. At the same time, we continue to navigate uncertainty related to raw material costs freight expense, and trade policy. While we are monitoring these developments closely, we believe the company remains well positioned as we move through the remainder of fiscal 26. Our debt free balance sheet and strong liquidity provide us financial flexibility to invest in the business, pursue growth opportunities, continue returning capital to shareholders. This concludes my prepared remarks. I will now turn the call back over to H.
Howard Osler Woltz: Thank you, Scot. Despite our relatively weak financial performance in Q3, I am glad to report that we believe market conditions are holding up reasonably well and certainly well enough to support better financial performance from our company. In a nutshell, I would characterize infrastructure markets as reasonably strong and private nonresidential construction absent data centers as quite weak. As reported last quarter, we have experienced scheduled delays with respect to data center projects that are unavoidable under prevailing circumstances. These delays are related to later than anticipated start times for projects that necessarily back up delivery schedules for materials and equipment. I would reiterate comments from last quarter and from Scot that we are not seeing cancellations, just delays. We expect shipments to private nonresidential market, including our data center projects, to accelerate during the current quarter and to remain strong through the end of the calendar year. Another obstacle adversely affected our financial performance has been the impact of inflation on nearly every product or service we acquire to operate our plants. We have struggled to get in front of costs that are rising substantially in every aspect of the business. With that in mind, we announced a price increase that was recently effective to recover these rising costs. Turning to another subject, the steel industry may have been more impacted by the administration's tariff policy than any other industry. The section 32 tariff of 50% on imports of steel has caused market prices in The US for hot rolled wire rod our primary raw material, to rise to a level that is 50% to 100% over the global market price. Realizing that foreign companies were circumventing the 32 tariff by downstreaming hot-rolled steel into finished product to which 32 did not apply. In 2025, the administration applied the 32 tariff to downstream products derived from hot rolled steel covered by the section 32 tariff. While we initially questioned the effectiveness of the derivative products tariff strategy implemented by the administration, We are glad to report a significant decline in the volume of imported PC strand that has entered the U.S. since the tariff was increased to 50% and derivative products, including PC strand, were covered. For the first 4 months of calendar 2026, the most recent data available PC strand imports fell 30% from the prior year. Although the average unit values continue to reflect the availability of world market steel to our foreign competitors. Despite low AUVs of imports, prices in the most import-affected market have begun to recover as import volumes have declined and uncertainty in insurance and transport costs have increased. We intend to point out to trade policymakers the reality that US hot rolled steel prices have risen so high relative to world market levels that the effectiveness of the derivative tariffs is compromised. Foreign competitors can still acquire hot rolled steel at world market prices and simply pay the 32 tariff. The economics still work. Although uncertainty and other costs have risen substantially. Turning to the raw material environment. It appears that domestic producers of wire rod are primary raw material have increased margins to an extent that is satisfactory and the rapid price escalation to take full advantage of the section 32 tariff has run its course. Markets while priced much higher than world markets, seem reasonably stable and calm Because there continues to be a deficit in domestic production relative to domestic demand, Insteel will continue to import the portion of its requirement that cannot be sourced domestically. And will continue to bear the net working capital implications. Ultimately, there must be capital investment in the domestic wire rod business for conditions of reasonable competition to be restored to the market. The wisdom of such investment will depend on the investor's view of the longevity of the Section 32 tariff Today, however, unplanned downtime at any producer of steel wire rod would cause marketplace havoc. And unplanned downtime has not been an unusual occurrence in this industry. Finally, turning to CapEx. As mentioned in the release and by Scot, we expect to invest approximately $15 million in our plants and information systems in infrastructure during 2026. Our investment will support the growth of our engineered structural mesh business reduce our cash production costs, and enhance the robust nature of our information systems. Consistent with past practice, we will provide quarterly updates on our investment activities and expectations as the year progresses. Looking ahead, we are aware of the substantial risk related to state of the economy and the administration's tariff and trade policies. Regardless of developments in these areas, we are well positioned to pursue growth related activities both organic and from acquisition and actions to optimize our costs. This concludes our prepared remarks, and we will now take your questions. Jen, would you please explain 1 more time the first procedure for asking questions?
Operator: Absolutely. Thank you. We will now begin the question-and-answer session. If you would like to ask a question, please press 1. To raise your hand. To withdraw your question, press 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please standby while we compile the Q and A roster. Your first question comes from the line of Julio Alberto Romero with Sidoti. Julio? Your line is open. Please go ahead.
Julio Alberto Romero: Great. Thanks. Hey. Good morning, H and Scot. The data center related-- Hey. Good morning, guys. The data center related delays that were cited on the April call, it sounds like none of those volumes were realized as of the June quarter end. Can you confirm that is correct? And if so, based on your visibility into that into the project, can you speak to the confidence about the acceleration in those projects occurring here in the current fourth quarter?
Howard Osler Woltz: Well, we can confirm the delay for sure. But anything we would say about expectations going forward is as of today, and subject to change. But as I said in the prepared remarks, we expect those shipments to pick up during the current quarter and to remain strong through the end of the calendar year. But it is a day--it is a day-to-day matter. And we are learning a lot as we go through this process.
Julio Alberto Romero: Got it. Thank you for that. That is that is helpful. And that makes sense. Just once deliveries begin, for this 1 project or this current batch of projects, you are supplying, how far do you expect that to extend? I think you said as you said, through the end of the calendar year, But I think in the past, you have said it would extend into fiscal 27. So just trying to get any finer point on the duration if possible.
Howard Osler Woltz: Well, yeah. And that is hard for me to answer. Julio, because I do not recall the details. I have been more I have I have been more focused on when we start shipping than how far it goes. And we are involved in multiple projects. it is not just 1. And the nature of this is that once we begin shipping, we will ship on a regular basis until the project is complete. But the material is not needed at the job site, until the contractor's ready for it. that is sort of where we are.
Julio Alberto Romero: Okay. No. That makes sense. Once this project or the group of projects is complete, can you talk about maybe the prospects for repeat business with the developer, the contractor, or the end user of that data center? You know, have you had that conversation with them. Just, you know, speak to that if you could.
Howard Osler Woltz: Well, where we are going with this and the way we think about it is that, you know, there is 9 million or 10 million tons of rebar used in this market on an annual basis. And based on the capacity that you are seeing in that market, certainly, producers of rebar expect that number to rise substantially. In the coming years. Our needs and our aspirations are really very small part of the rebar market. But we have a valid value proposition that is important to customers. And we intend to exploit that. So, this is a new undertaking for our company relatively. And as I said a few minutes ago, we are learning a lot, but we expect this to ramp up to be a substantial contributor to Insteel's revenue base over time. Data centers notwithstanding, If it does not go to data centers, it goes somewhere else. We are beginning to see some signs of life in other private nonresidential applications. But that will be a 2027 or 2028 recovery in my view.
Julio Alberto Romero: Perfect. And thank you for going into that, and me for trying to get ahead of myself and thinking about that part of the story. But just the valid value proposition beyond data centers, Does that apply to, like, large reshoring or onshoring facilities, other mega projects with the benefit of accelerating construction speed would also apply.
Howard Osler Woltz: Well, yeah. And I think what we are learning is that we need to target applications where the speed of construction is important to the owner and the contractor which would imply maybe not so much speculative building as strategic building. And in those applications, we have a distinct advantage and, as I said, intend to exploit it. We need repetition. We do not need small cut up structures because it is harder for us to be-- or it is harder for our value proposition to be realized in that kind of structure. So we are looking at larger buildings.
Julio Alberto Romero: Okay. Perfect. 1 more for me, and I will turn it over if I could. Just last quarter, you cited an expectation to kind of not book any sort of receivable with regards to the IPA tariffs. Just curious if there is any change on that stance and where do vendor conversations kind of stand on recovery and passing through any of those IPA tariffs you paid last year.
Howard Osler Woltz: We are going to record them when we receive them. And it is limited as far as the tariffs that we were the importer of record on a vast majority of the tariffs that we paid, someone else was the importer of record. So we are waiting for them to file all the paperwork. And the other reality is that this repayment scheme was mandated by the Court of International Trade. And at the end of June, the Trump administration appealed that ruling. So the adjudication of the legality of the AIBA tariffs has a long way to run. I would say that this is not something that we or any other company should hold our breath to receive.
Julio Alberto Romero: Great. Thanks again for all the color, guys.
Howard Osler Woltz: Thank you.
Operator: Your next question comes from the line of Tyson Lee Bauer with KC Capital. Tyson, your line is open. Please go ahead.
Tyson Lee Bauer: Good morning, gentlemen.
Howard Osler Woltz: Good morning, Tyson.
Tyson Lee Bauer: Just a quick bookkeeping 1. On the SG&A, the $2.1 million that you highlighted, Scot, is part of that just a, not having the recognition of incentive comp because of your current run rate Or as part of that, that function plus a callback, from what you recognized in the first 2 quarters.
Scot R. Jafroodi: No. there is no clawback. It was just the pace of approving that expense was a lower level due to the reduced financial results.
Tyson Lee Bauer: So that would indicate that your anticipation for this final fiscal quarter were pretty much on this run rate that we are currently seeing?
Scot R. Jafroodi: Yes. And, obviously, that would be dependent on how Q4 plays out. But, yes, that would be that would be how it would work.
Tyson Lee Bauer: Was there any other impact due to the surrender value of life insurance because of the share price?
Scot R. Jafroodi: Yeah. There was a $300 thousand pickup. In the cash surrender value of life insurance policies. Based on the market returns.
Tyson Lee Bauer: You talked about price increases. Is that a onetime price increase that you are pushing through, and what was the effect date, or are you looking at this at multiple increases through this current quarter?
Howard Osler Woltz: We have seen we have seen multiple increases through fiscal 2 thousand 26 as we tried to recover rising wire rod cost as well as rising cost for everything else. And the most recent price increase that we announced was to be effective July 13, which, as you know, is this week. And nobody likes price increases. And we do not like having to float price increases. But when a profit cost $1.5 thousand to send to a destination now $3 thousand somebody's gotta pay the bill. And when I read about the inflation rate as reported by the administration, I can promise you it bears no reality to what we are seeing in the industrial sector.
Tyson Lee Bauer: Well, as I have if you are just doing it this week, you probably do not have the early returns. I was going to ask how you characterize your pricing power. It seems like freight is a fairly universal. Nobody has an advantage on those costs. Everyone must be absorbing or having to push those along.
Howard Osler Woltz: Yeah. Yeah. And that is only 1 of the costs that we are trying to recover, Tyson. And we are we are doing this in a market that is we characterize it. it is reasonably okay. But we are not doing it in a market that is bullishly strong. So it is difficult to collect it, but at the same time, you have 2 choices. You either absorb these costs or you pass them along. And our choice is to pass them along and not absorb them. So, yeah, we will just have to see how it goes. But to say that our customers or even our people internally or are happy about this, the answer would be we are certainly not. I do not like the environment.
Tyson Lee Bauer: And that kind of leads into the next topic of demand concentration and are your results becoming more variable or volatile because of larger products or projects are included in your revenue streams. So just based on industry and geography, that kind of concentration that we are seeing And, also, I was going to ask about data centers being more of a backfilling function as opposed to incremental. But if you are truly not shipping, and they are delayed, and we are not recognizing data center revenue currently, to what you think you will be, it really cannot be much of a backfill operation. It must be incremental as we go forward.
Howard Osler Woltz: No. I would consider it a key part of our market going forward. And as we have acknowledged forever. This is a volatile, cyclical, seasonal business. So what happens in any 1 quarter? I cannot really say. But if you give us 2 to 5 years, you are going to see that a tremendous part of our revenue is coming from a market that we did not participate in 2 years ago.
Tyson Lee Bauer: Okay. So it has somewhat of a similar effect as when we saw in 2021-2022, the distribution center boom that went through and then kind of waned off. This is just the next iteration of a different industry segment that is picked up that boom, you know, is it?
Howard Osler Woltz: Yes. It is. I mean, the distribution centers have, tailed off dramatically. But I would just say again, that whether it is data centers or whether it is distribution centers or some other application, there is still 9 million or 10 million tons of rebar used in The US every year. And that must be going to 11 or 12. And we are we are going to be there taking part of it, in whatever applications happen to be robust at the time.
Tyson Lee Bauer: Okay. When you see the headlines on data center moratoriums and all the angst? Do you kind of write that off as just, election politics And once we get beyond that season, we will start to get into a more regular flow and that does not make the headlines like it currently is in New York or other places.
Howard Osler Woltz: that is you know, our guys are pretty savvy about this, and we are we are only talking to people who are pursuing projects that are permitted and funded. So I would not expect to have to tell you guys that projects that we believe we are going to participate in were deferred or canceled because they could not be permitted or because of public opposition. We just--we do not have time to chase those.
Tyson Lee Bauer: Okay. And the last 1, I guess, in the same vein as you will report it when it happens on tariff refunds. Residential construction activity, a turn in that industry, When it happens, we will believe it as opposed to trying to forecast it.
Howard Osler Woltz: Yeah. That is it is certainly residential applications are on their back right now. there is a lot of price competition in products for residential and it is just not it is not our big strategic focus anyway. So we would not spend a lot of time trying to forecast when that recovers.
Tyson Lee Bauer: Alright. Sounds great. Thank you, gentlemen.
Howard Osler Woltz: Okay. Thank you, Tyson.
Operator: There are no further questions at this time. I will now turn the call back to H. Woltz for closing remarks.
Howard Osler Woltz: Okay. Thank you. We appreciate your interest in the company and your participation on the call today. We are glad to hear from you. if you want to give us a call, during the coming quarter, and we look forward to talking with you at the end of the fiscal year. Thank you.
Operator: This concludes today's call. Thank you for attending. You may now disconnect.