Financial Data and Key Metrics Changes - Net earnings for Q1 2023 decreased to $11.1 million from $23.1 million in the previous year, with earnings per share dropping to $0.57 from $1.18 [6] - Net sales fell by 6.5% year-over-year, driven by a 10% decrease in shipments, partially offset by a 3.9% increase in average selling prices [6] - On a sequential basis, net sales declined by 19.8% from Q4 2022 due to a 12% drop in shipments and an 8.8% decrease in average selling prices [7] - Gross profit fell by $24.6 million year-over-year, with gross margin narrowing to 10.7% from 23.7% [25] Business Line Data and Key Metrics Changes - The residential-related markets have shown weakness since Q3 2022, with no significant recovery expected until interest rates change [3] - Non-residential markets experienced shipment weakness attributed to customer inventory management rather than impaired demand [3] - SG&A expenses decreased to $7.2 million, representing 4.3% of net sales, down from $12.3 million or 6.9% of net sales in the previous year [9] Market Data and Key Metrics Changes - The ABI index for non-residential construction spending remained negative at 46.6, while the Dodge Momentum Index increased to 222.3, reflecting a 40% year-over-year rise [13] - The company noted an inventory imbalance primarily in residential markets, while non-residential construction inventories were more aligned with business levels [15] Company Strategy and Development Direction - The company plans to invest approximately $30 million in capital expenditures for 2023 to enhance product capabilities and reduce production costs [16] - The Infrastructure Investment and Jobs Act is expected to positively impact the company's markets in 2023, addressing long-standing infrastructure investment needs [33] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about the non-residential markets, indicating that underlying demand remains robust despite inventory corrections [22][41] - The company is monitoring rising risks related to the U.S. economy while pursuing actions to maximize shipments and optimize costs [43] Other Important Information - The company returned $39.5 million to shareholders through a special cash dividend of $2 per share, marking the second consecutive year of such dividends [12] - Cash flow from operations provided $33 million in Q1, driven by a reduction in working capital [28] Q&A Session Summary Question: What is the impact of customer destocking on non-residential shipments? - Management indicated that the weakness in non-residential shipments was primarily due to customer destocking rather than easing supply chain constraints [52] Question: How do you expect prices to change in the coming quarters? - Management stated that price changes are unpredictable but typically do not see significant price competition when demand is strong [54] Question: What is the outlook for inventory levels? - Management noted that the over-inventory situation is mainly in residential markets and expects to work through this by the second quarter [45]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________ Commission File Number: 1-9929 Insteel Industries, Inc. (Exact name of registrant as specified in its charter) North Carolina (State or other jur ...

[Cautionary Note Regarding Forward-Looking Statements](index=5&type=section&id=Cautionary%20Note%20Regarding%20Forward-Looking%20Statements) The report contains forward-looking statements, particularly in key sections, with actual results potentially differing due to various risks and uncertainties - The report contains forward-looking statements, particularly in the 'Business,' 'Risk Factors,' and 'Management's Discussion and Analysis of Financial Condition and Results of Operations' sections, identified by words like 'believes,' 'anticipates,' 'expects,' and 'estimates'[10](index=10&type=chunk) - Actual results may differ materially from forward-looking statements due to various risks and uncertainties, many of which are discussed in the 'Risk Factors' section[10](index=10&type=chunk) - Key risks include general economic and competitive conditions, changes in construction spending, transportation funding, steel and building material industry cyclicality, credit market conditions, raw material cost fluctuations, competitive pricing, trade policy changes, demand variability, plant outages, COVID-19 impact, and legal/environmental developments[12](index=12&type=chunk) PART I [Item 1. Business](index=6&type=section&id=Item%201.%20Business) Insteel Industries, Inc. is the largest U.S. manufacturer of steel wire reinforcing products for concrete construction, focusing on market leadership and low-cost production - Insteel Industries, Inc. is the nation's largest manufacturer of steel wire reinforcing products for concrete construction applications[14](index=14&type=chunk) - Approximately **85% of sales in fiscal 2022** were related to nonresidential construction and **15% to residential construction**[14](index=14&type=chunk) - The company's business strategy focuses on achieving market leadership, operating as the lowest cost producer, and pursuing growth opportunities within core businesses[16](index=16&type=chunk) - Products include prestressed concrete strand (PC strand) and welded wire reinforcement (WWR), which encompasses engineered structural mesh (ESM), concrete pipe reinforcement (CPR), and standard welded wire reinforcement (SWWR)[18](index=18&type=chunk)[19](index=19&type=chunk)[20](index=20&type=chunk) - The primary raw material is hot-rolled carbon steel wire rod, purchased from both domestic and foreign suppliers, with prices fluctuating based on scrap prices and market conditions[26](index=26&type=chunk)[27](index=27&type=chunk) - Demand is seasonal and cyclical, typically higher in the third and fourth fiscal quarters due to favorable weather for construction[25](index=25&type=chunk) - The company employs **964 individuals** as of October 1, 2022, none of whom are represented by labor unions, and emphasizes 'Safe Operations with Zero Harm' as a core safety philosophy[34](index=34&type=chunk)[35](index=35&type=chunk) [Item 1A. Risk Factors](index=9&type=section&id=Item%201A.%20Risk%20Factors) The company faces risks from cyclical demand, government funding, raw material cost volatility, operational issues, and cybersecurity threats - Demand for products is cyclical and sensitive to economic conditions and financial markets, with prolonged downturns or tightening credit adversely impacting sales[44](index=44&type=chunk) - Reductions in government funding for infrastructure projects could negatively impact demand for certain products[45](index=45&type=chunk) - Volatility in the cost and availability of hot-rolled carbon steel wire rod, the primary raw material, can significantly impact financial results, as the company does not use derivative instruments to hedge this exposure[47](index=47&type=chunk)[116](index=116&type=chunk) - Operational risks include unexpected equipment failures, operational interruptions, and casualty losses at manufacturing facilities[51](index=51&type=chunk) - Escalation of operating costs, including labor, medical, workers' compensation, freight, natural gas, electricity, and fuel, could adversely impact profitability if not offset by price increases or cost reductions[52](index=52&type=chunk)[53](index=53&type=chunk) - The company is increasingly dependent on information technology systems, making it susceptible to cybersecurity breaches and data leaks[61](index=61&type=chunk) [Item 1B. Unresolved Staff Comments](index=13&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) There are no unresolved staff comments from the SEC - No unresolved staff comments[63](index=63&type=chunk) [Item 2. Properties](index=13&type=section&id=Item%202.%20Properties) Insteel operates ten owned manufacturing facilities across the U.S., with corporate headquarters in Mount Airy, North Carolina - Corporate headquarters and IWP's sales and administrative offices are located in Mount Airy, North Carolina[64](index=64&type=chunk) - As of October 1, 2022, the company operated **ten manufacturing facilities** in various U.S. states[64](index=64&type=chunk) - All real estate is owned, except for the leased office in Sugarloaf, Pennsylvania[65](index=65&type=chunk) [Item 3. Legal Proceedings](index=13&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in routine legal matters, with no anticipated material adverse effect on its financial position - Involved in routine lawsuits, claims, investigations, and proceedings[66](index=66&type=chunk) - Ultimate cost to resolve these matters is not anticipated to have a material adverse effect on financial position, results of operations, or cash flows[66](index=66&type=chunk) [Item 4. Mine Safety Disclosures](index=13&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[67](index=67&type=chunk) [Information About Our Executive Officers](index=13&type=section&id=Information%20About%20Our%20Executive%20Officers) This section lists the company's executive officers, including their ages and key roles Executive Officers | Name | Age | Position | | :------------- | :-- | :-------------------------------------------- | | H. O. Woltz III | 66 | President, Chief Executive Officer and Chairman of the Board | | Mark A. Carano | 53 | Senior Vice President, Chief Financial Officer and Treasurer | | James F. Petelle | 72 | Vice President Administration, Secretary and Chief Legal Officer | | Richard T. Wagner | 63 | Senior Vice President and Chief Operating Officer | | James R. York | 64 | Senior Vice President, Sourcing and Logistics | - H. O. Woltz III has served as CEO since 1991 and Chairman since 2009, with extensive experience in the company and its subsidiaries since 1978[69](index=69&type=chunk) - Mark A. Carano joined in 2020, bringing prior experience as CFO of Big River Steel and various finance roles at Babcock & Wilcox Enterprises, along with investment banking experience[70](index=70&type=chunk) PART II [Item 5. Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities](index=14&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Shareholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Insteel's common stock trades on the NYSE, with regular dividends and recent share repurchases, and a detailed shareholder return comparison - Common stock is listed on the NYSE under the symbol 'IIIN'[75](index=75&type=chunk) - As of October 26, 2022, there were **467 shareholders of record**[75](index=75&type=chunk) - The company pays regular quarterly cash dividends and paid a one-time special cash dividend of **$2.00 per share** on December 17, 2021[76](index=76&type=chunk) Issuer Purchases of Equity Securities (Quarter Ended October 1, 2022) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plan or Program | Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plan or Program (in thousands) | | :--------------------------- | :------------------------------- | :--------------------------- | :--------------------------------------------------------------------------- | :--------------------------------------------------------------------------------------------------- | | July 3, 2022 - August 6, 2022 | - | - | - | $24,756 (1) | | August 7, 2022 - September 3, 2022 | 25,763 | $29.26 | 25,763 | $24,002 (1) | | September 4, 2022 - October 1, 2022 | 15,943 | $28.20 | 15,943 | $23,552 (1) | | **Total** | **41,706** | | **41,706** | | Cumulative Total Shareholder Return (Five Years Ended October 1, 2022) | Fiscal Year Ended | Sep 30, 2017 | Sep 29, 2018 | Sep 28, 2019 | Oct 3, 2020 | Oct 2, 2021 | Oct 1, 2022 | | :---------------- | :----------- | :----------- | :----------- | :---------- | :---------- | :---------- | | Insteel Industries, Inc. | $100.00 | $142.87 | $82.93 | $76.42 | $168.12 | $120.44 | | Russell 2000 | $100.00 | $115.24 | $104.99 | $105.40 | $155.66 | $119.08 | | S&P Building Products | $100.00 | $90.79 | $107.05 | $123.99 | $179.62 | $135.57 | [Item 6. Reserved](index=15&type=section&id=Item%206.%20Reserved) This item is reserved and contains no information [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=15&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) MD&A reviews Insteel's strategy, financial performance for fiscal 2022 (showing increased sales and earnings), liquidity, and an optimistic outlook for nonresidential construction - Operations are entirely focused on the manufacture and marketing of concrete reinforcing products, with a strategy centered on market leadership, low-cost production, and growth[82](index=82&type=chunk) - COVID-19 has had a limited impact on operations despite supply chain and labor challenges[84](index=84&type=chunk) Statements of Operations – Selected Data (Fiscal 2022 vs. 2021) | Metric | Year Ended October 1, 2022 (in thousands) | Change (%) | Year Ended October 2, 2021 (in thousands) | | :-------------------------------------- | :---------------------------------------- | :--------- | :---------------------------------------- | | Net sales | $826,832 | 40.0% | $590,601 | | Gross profit | $197,310 | 62.3% | $121,548 | | Percentage of net sales | 23.9% | | 20.6% | | Selling, general and administrative expense | $36,048 | 11.3% | $32,388 | | Percentage of net sales | 4.4% | | 5.5% | | Restructuring (recoveries) charges, net | $(318) | (111.1%) | $2,868 | | Effective income tax rate | 22.7% | | 22.6% | | Net earnings | $125,011 | 87.7% | $66,610 | - Net sales increased **40.0% in 2022**, driven by a **51.9% increase in selling prices**, partially offset by a **7.8% decrease in shipments** due to raw material supply issues and customer inventory management[92](index=92&type=chunk) - Gross profit increased **62.3% to $197.3 million**, with the gross margin improving from **20.6% to 23.9%**, primarily due to higher spreads between selling prices and raw material costs[93](index=93&type=chunk) - Net earnings increased **87.7% to $125.0 million** (**$6.37 per diluted share**) in 2022 from **$66.6 million** (**$3.41 per diluted share**) in 2021[97](index=97&type=chunk) Selected Liquidity and Capital Resources Data (Fiscal 2022 vs. 2021) | Metric | Year Ended October 1, 2022 (in thousands) | Year Ended October 2, 2021 (in thousands) | | :------------------------------------ | :---------------------------------------- | :---------------------------------------- | | Net cash provided by operating activities | $5,670 | $69,878 | | Net cash used for investing activities | $(6,039) | $(17,805) | | Net cash used for financing activities | $(41,199) | $(30,877) | | Cash and cash equivalents | $48,316 | $89,884 | | Net working capital | $272,736 | $178,057 | | Total debt | - | - | | Shareholders' equity | $389,744 | $302,038 | - Operating activities provided **$5.7 million of cash in 2022**, a significant decrease from **$69.9 million in 2021**, primarily due to a **$134.3 million increase in working capital**, driven by higher inventories and accounts receivable[102](index=102&type=chunk)[103](index=103&type=chunk) - Capital expenditures are expected to total up to approximately **$30.0 million in 2023**, focusing on engineered structural mesh growth, cost/productivity improvements, and maintenance[105](index=105&type=chunk) - Financing activities used **$41.2 million in 2022**, mainly for dividend payments (**$41.2 million**, including a **$38.8 million special dividend**) and common stock repurchases (**$1.2 million**)[106](index=106&type=chunk) - The company has a **$100.0 million revolving credit facility** with **$98.6 million available** as of October 1, 2022, and no outstanding borrowings[108](index=108&type=chunk) - Outlook for fiscal 2023 is optimistic for private and public nonresidential construction markets, benefiting from solid backlogs and the Infrastructure Investment and Jobs Act[112](index=112&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=21&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Insteel's financial performance is exposed to market risks from commodity prices, interest rates, and foreign exchange rates, managed without derivative instruments for commodities - Cash flows and earnings are subject to fluctuations from changes in commodity prices (hot-rolled carbon steel wire rod), interest rates, and foreign exchange rates[115](index=115&type=chunk) - The company does not use derivative commodity instruments to hedge exposure to wire rod price changes, as such instruments are not currently available[116](index=116&type=chunk) - A **10% increase in wire rod price** would have resulted in a **$48.5 million decrease in annual pre-tax earnings in 2022**, assuming no corresponding change in selling prices[116](index=116&type=chunk) - Future borrowings under the Credit Facility are subject to a variable interest rate, making them sensitive to interest rate changes, though no balances were outstanding as of October 1, 2022[117](index=117&type=chunk) - Foreign currency exposures have not been material historically, and a **10% change in the U.S. dollar's value in 2022** would not have materially impacted financial results[118](index=118&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=22&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents audited consolidated financial statements for fiscal years 2020-2022, including detailed notes and an unqualified audit opinion Consolidated Statements of Operations (in thousands, except per share amounts) | Metric | Year Ended October 1, 2022 | Year Ended October 2, 2021 | Year Ended October 3, 2020 | | :-------------------------------------- | :------------------------- | :------------------------- | :------------------------- | | Net sales | $826,832 | $590,601 | $472,618 | | Cost of sales | $629,522 | $469,053 | $416,831 | | Gross profit | $197,310 | $121,548 | $55,787 | | Selling, general and administrative expense | $36,048 | $32,388 | $31,348 | | Restructuring (recoveries) charges, net | $(318) | $2,868 | $1,695 | | Earnings before income taxes | $161,727 | $86,103 | $24,170 | | Income taxes | $36,716 | $19,493 | $5,161 | | Net earnings | $125,011 | $66,610 | $19,009 | | Net earnings per share: Basic | $6.41 | $3.44 | $0.99 | | Net earnings per share: Diluted | $6.37 | $3.41 | $0.98 | | Cash dividends declared | $2.12 | $1.62 | $0.12 | Consolidated Balance Sheets (in thousands) | Asset/Liability/Equity | October 1, 2022 | October 2, 2021 | | :---------------------------------- | :-------------- | :-------------- | | Cash and cash equivalents | $48,316 | $89,884 | | Accounts receivable, net | $81,646 | $67,917 | | Inventories | $197,654 | $79,049 | | Total current assets | $335,332 | $246,906 | | Property, plant and equipment, net | $108,156 | $105,624 | | Goodwill | $9,745 | $9,745 | | Total assets | $471,745 | $390,710 | | Accounts payable | $46,796 | $49,443 | | Accrued expenses | $15,800 | $19,406 | | Total current liabilities | $62,596 | $68,849 | | Total shareholders' equity | $389,744 | $302,038 | | Total liabilities and shareholders' equity | $471,745 | $390,710 | Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Year Ended October 1, 2022 | Year Ended October 2, 2021 | Year Ended October 3, 2020 | | :---------------------------------- | :------------------------- | :------------------------- | :------------------------- | | Net cash provided by operating activities | $5,670 | $69,878 | $56,224 | | Net cash used for investing activities | $(6,039) | $(17,805) | $(23,174) | | Net cash used for financing activities | $(41,199) | $(30,877) | $(2,543) | | Net (decrease) increase in cash and cash equivalents | $(41,568) | $21,196 | $30,507 | | Cash and cash equivalents at end of period | $48,316 | $89,884 | $68,688 | [Notes to Consolidated Financial Statements](index=29&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) [(1) Description of Business](index=29&type=section&id=(1)%20Description%20of%20Business) Insteel is the largest U.S. manufacturer of steel wire reinforcing products, including PC strand and WWR, primarily for concrete construction - Insteel is the nation's largest manufacturer of steel wire reinforcing products for concrete construction applications[138](index=138&type=chunk) - Products include prestressed concrete strand (PC strand) and welded wire reinforcement (WWR)[138](index=138&type=chunk) - On March 16, 2020, Insteel acquired substantially all assets of Strand-Tech Manufacturing, Inc. (STM) for **$19.4 million**[139](index=139&type=chunk)[166](index=166&type=chunk) [(2) Summary of Significant Accounting Policies](index=29&type=section&id=(2)%20Summary%20of%20Significant%20Accounting%20Policies) This note details Insteel's accounting policies, including fiscal year, consolidation, estimates, stock-based compensation, goodwill, and inventory valuation - Fiscal years 2022 and 2021 were 52-week periods, and fiscal year 2020 was a 53-week period, ending on the Saturday closest to September 30[140](index=140&type=chunk) - The company accounts for stock-based compensation based on the fair value of the award at the grant date, using a Monte Carlo valuation model for stock options[145](index=145&type=chunk) - Goodwill is tested annually for impairment, or more frequently if indicators arise, using a qualitative assessment or a quantitative discounted cash flow model[153](index=153&type=chunk) - Inventories are valued at the lower of weighted average cost and net realizable value, including material, labor, and manufacturing overhead[151](index=151&type=chunk) [(3) Recent Accounting Pronouncements](index=31&type=section&id=(3)%20Recent%20Accounting%20Pronouncements) The company adopted ASU No. 2019-12 in Q1 2022 with no material impact, and ASU No. 2020-04 is not expected to be material - Adopted ASU No. 2019-12 'Simplifying the Accounting for Income Taxes' in Q1 2022, with no material impact[158](index=158&type=chunk) - ASU No. 2020-04 'Reference Rate Reform' is effective through December 31, 2022, and is not expected to have a material impact[159](index=159&type=chunk) [(4) Revenue Recognition](index=31&type=section&id=(4)%20Revenue%20Recognition) Revenue is recognized upon product shipment and control transfer, measured net of variable consideration, with immaterial contract assets/liabilities - Revenue is recognized when performance obligations are satisfied, generally upon product shipment and transfer of control[160](index=160&type=chunk) - Revenue is measured net of sales tax and variable consideration like contractual discounts, rebates, returns, and credits[160](index=160&type=chunk)[161](index=161&type=chunk) - Contract assets and liabilities were not material as of October 1, 2022, and October 2, 2021[163](index=163&type=chunk) [(5) Restructuring](index=33&type=section&id=(5)%20Restructuring) Following the STM acquisition, Insteel consolidated PC strand operations by closing its Summerville facility, resulting in net restructuring recoveries in 2022 - In connection with the STM acquisition, Insteel consolidated PC strand operations by closing the Summerville, South Carolina facility[167](index=167&type=chunk) - The Summerville facility was sold in 2022, and the consolidation of PC strand operations was completed in 2022[167](index=167&type=chunk) Restructuring Activity (in thousands) | Category | 2022 | 2021 | 2020 | | :----------------------- | :---- | :---- | :---- | | Restructuring (recoveries) charges, net | $(318) | $2,868 | $1,695 | [(6) Fair Value Measurements](index=33&type=section&id=(6)%20Fair%20Value%20Measurements) Fair value measurements are categorized into a three-level hierarchy, with cash equivalents as Level 1 and life insurance policies as Level 2 - Fair value measurements are categorized into a three-level hierarchy: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs)[168](index=168&type=chunk)[169](index=169&type=chunk)[171](index=171&type=chunk) Financial Assets Measured at Fair Value (in thousands) | Category | October 1, 2022 Total | October 1, 2022 Level 1 | October 1, 2022 Level 2 | October 2, 2021 Total | October 2, 2021 Level 1 | October 2, 2021 Level 2 | | :-------------------------------------- | :-------------------- | :---------------------- | :---------------------- | :-------------------- | :---------------------- | :---------------------- | | Cash equivalents | $48,045 | $48,045 | - | $86,395 | $86,395 | - | | Cash surrender value of life insurance policies | $9,938 | - | $9,938 | $12,501 | - | $12,501 | | **Total** | **$57,983** | **$48,045** | **$9,938** | **$98,896** | **$86,395** | **$12,501** | - In 2021, **$1.4 million of impairment charges** were recognized related to the Summerville facility to reflect its fair value[172](index=172&type=chunk) [(7) Intangible Assets](index=36&type=section&id=(7)%20Intangible%20Assets) Intangible assets, primarily customer relationships and technology, are amortized over their useful lives, with a net book value of $6.8 million in 2022 Intangible Assets (in thousands) | Category | Weighted Average Useful Life (Years) | Gross (Oct 1, 2022) | Accumulated Amortization (Oct 1, 2022) | Net Book Value (Oct 1, 2022) | Gross (Oct 2, 2021) | Accumulated Amortization (Oct 2, 2021) | Net Book Value (Oct 2, 2021) | | :------------------------------ | :----------------------------------- | :------------------ | :------------------------------------- | :--------------------------- | :------------------ | :------------------------------------- | :--------------------------- | | Customer relationships | 17.1 | $9,870 | $(4,130) | $5,740 | $9,870 | $(3,482) | $6,388 | | Developed technology and know-how | 20.0 | $1,800 | $(729) | $1,071 | $1,800 | $(639) | $1,161 | | Non-competition agreements | 5.0 | $400 | $(364) | $36 | $400 | $(284) | $116 | | Trade name | 2.7 | | | | $250 | $(247) | $3 | | **Total** | | **$12,070** | **$(5,223)** | **$6,847** | **$12,320** | **$(4,652)** | **$7,668** | - Amortization expense for intangibles was **$821,000 in 2022**, **$899,000 in 2021**, and **$1.0 million in 2020**[173](index=173&type=chunk) [(8) Long-Term Debt](index=36&type=section&id=(8)%20Long-Term%20Debt) Insteel maintains a $100.0 million revolving credit facility with no outstanding borrowings and compliance with all covenants as of October 1, 2022 - The company has a **$100.0 million revolving credit facility** (Credit Facility) with a maturity date of May 15, 2024[174](index=174&type=chunk) - As of October 1, 2022, no borrowings were outstanding, **$98.6 million of borrowing capacity was available**, and outstanding letters of credit totaled **$1.4 million**[174](index=174&type=chunk) - Interest rates are variable, based on an index rate or LIBOR, plus an applicable interest rate margin adjusted quarterly[175](index=175&type=chunk) - The company was in compliance with all financial and negative covenants under the Credit Facility as of October 1, 2022[176](index=176&type=chunk) [(9) Stock-Based Compensation](index=38&type=section&id=(9)%20Stock-Based%20Compensation) The equity incentive plan allows for various grants, with 555,000 shares available for future grants and compensation expenses for options and RSUs - The 2015 Equity Incentive Plan authorizes grants of stock options, restricted stock, restricted stock units, and performance awards[179](index=179&type=chunk) - As of October 1, 2022, **555,000 shares of common stock** were available for future grants under the 2015 Plan[179](index=179&type=chunk) Stock Option Compensation Expense and Fair Value | Metric | 2022 | 2021 | 2020 | | :------------------------------------ | :---------- | :---------- | :---------- | | Compensation expense (in thousands) | $1,100 | $860 | $810 | | Weighted-average estimated fair value per share | $14.67 | $14.47 | $8.05 | Restricted Stock Unit (RSU) Grants and Compensation Expense (in thousands) | Metric | 2022 | 2021 | 2020 | | :------------------------------------ | :---------- | :---------- | :---------- | | Units granted | 43 | 43 | 68 | | Market value of grants | $1,563 | $1,430 | $1,444 | | Compensation expense | $1,365 | $1,128 | $1,218 | [(10) Income Taxes](index=40&type=section&id=(10)%20Income%20Taxes) The provision for income taxes was $36.7 million in 2022, with a 22.7% effective tax rate and a net deferred tax liability of $7.1 million Provision for Income Taxes (in thousands) | Category | Year Ended October 1, 2022 | Year Ended October 2, 2021 | Year Ended October 3, 2020 | | :---------------- | :------------------------- | :------------------------- | :------------------------- | | Current: Federal | $33,377 | $17,904 | $5,056 | | Current: State | $3,012 | $1,707 | $529 | | Deferred: Federal | $627 | $(180) | $(288) | | Deferred: State | $(300) | $62 | $(136) | | **Income taxes** | **$36,716** | **$19,493** | **$5,161** | | Effective income tax rate | 22.7% | 22.6% | 21.4% | Net Deferred Tax Liability (in thousands) | Category | October 1, 2022 | October 2, 2021 | | :---------------------- | :-------------- | :-------------- | | Deferred tax assets | $6,686 | $6,773 | | Deferred tax liabilities | $(13,772) | $(13,069) | | **Net deferred tax liability** | **$(7,086)** | **$(6,296)** | - The company has **$5.6 million of state NOLs** that begin to expire in 2031, principally between 2031 and 2037[188](index=188&type=chunk) - A valuation allowance of **$32,000** was recorded as of October 1, 2022, pertaining to state NOLs not expected to be utilized[189](index=189&type=chunk) [(11) Employee Benefit Plans](index=41&type=section&id=(11)%20Employee%20Benefit%20Plans) Insteel maintains SRBAs for key employees, a 401k plan, and a VEBA for medical costs, with significant contributions to these plans - The projected benefit obligation for SRBAs was **$11.8 million** as of October 1, 2022, down from **$12.9 million in 2021**[193](index=193&type=chunk) Net Periodic Pension Cost for SRBAs (in thousands) | Component | 2022 | 2021 | 2020 | | :-------------------- | :---- | :---- | :---- | | Service cost | $399 | $312 | $338 | | Interest cost | $347 | $316 | $334 | | Amortization of net loss | $278 | $215 | $294 | | **Net periodic pension cost** | **$1,024** | **$843** | **$966** | - Cash contributions to SRBAs during 2023 are expected to be **$560,000**[147](index=147&type=chunk) - Company contributions to the Retirement Savings Plan (401k) were **$1.7 million in 2022**, **$1.5 million in 2021**, and **$1.3 million in 2020**[198](index=198&type=chunk) - Contributions to the Voluntary Employee Beneficiary Associations (VEBA) were **$5.4 million in 2022**, **$6.4 million in 2021**, and **$6.0 million in 2020**[199](index=199&type=chunk) [(12) Commitments and Contingencies](index=43&type=section&id=(12)%20Commitments%20and%20Contingencies) The company has significant raw material and equipment purchase commitments, routine legal proceedings, and severance agreements for key management - As of October 1, 2022, the company had **$57.1 million in non-cancelable raw material purchase commitments** (extending ~30 days) and **$31.9 million in contractual commitments for equipment**[200](index=200&type=chunk) - Routine legal proceedings are not expected to have a material adverse effect on financial position, results of operations, or cash flows[201](index=201&type=chunk) - Severance agreements for the CEO provide termination benefits equal to **1.5 times annual base salary** and **18 months of health/welfare benefits** if terminated without cause[202](index=202&type=chunk) - Change in control agreements for key management provide severance benefits (**2x base/bonus for CEO, 1x for other executives**) and immediate vesting of stock options/RSUs if terminated within two years of a change of control[203](index=203&type=chunk) [(13) Leases](index=44&type=section&id=(13)%20Leases) Insteel has operating leases for equipment, office space, and vehicles, with a weighted average remaining lease term of 1.7 years and total future payments of $1.6 million - Lease expense for operating leases with original terms over twelve months was **$1.4 million in 2022**, **$1.4 million in 2021**, and **$1.3 million in 2020**[204](index=204&type=chunk) Supplemental Balance Sheet Information Related to Leases (in thousands) | Category | October 1, 2022 | October 2, 2021 | | :---------------------- | :-------------- | :-------------- | | Right-of-use assets | $1,565 | $1,717 | | Total operating lease liabilities | $1,569 | $1,725 | Weighted Average Lease Terms and Discount Rates | Metric | October 1, 2022 | October 2, 2021 | | :-------------------------- | :-------------- | :-------------- | | Weighted average lease term (in years) | 1.7 | 1.8 | | Weighted average discount rate | 3.7% | 4.1% | Aggregate Future Operating Lease Payments (in thousands) | Fiscal year(s) | Amount | | :------------- | :----- | | 2023 | $1,034 | | 2024 | $512 | | 2025 | $69 | | 2026 | $2 | | 2027 | $1 | | **Total future operating lease payments** | **$1,618** | | Less: imputed interest | $(49) | | **Present value of lease liabilities** | **$1,569** | [(14) Earnings Per Share](index=46&type=section&id=(14)%20Earnings%20Per%20Share) Basic EPS for 2022 was $6.41 and diluted EPS was $6.37, reflecting an increase from 2021, with dilutive effects from stock-based compensation Earnings Per Share (in thousands, except per share amounts) | Metric | Year Ended October 1, 2022 | Year Ended October 2, 2021 | Year Ended October 3, 2020 | | :------------------------------------ | :------------------------- | :------------------------- | :------------------------- | | Net earnings | $125,011 | $66,610 | $19,009 | | Basic weighted average shares outstanding | 19,517 | 19,344 | 19,278 | | Dilutive effect of stock-based compensation | 112 | 190 | 105 | | Diluted weighted average shares outstanding | 19,629 | 19,534 | 19,383 | | Net earnings per share: Basic | $6.41 | $3.44 | $0.99 | | Net earnings per share: Diluted | $6.37 | $3.41 | $0.98 | - Options and RSUs that were antidilutive and not included in diluted EPS amounted to **49,000 shares in 2022**[209](index=209&type=chunk) [(15) Business Segment Information](index=46&type=section&id=(15)%20Business%20Segment%20Information) Insteel operates as a single segment, with most sales from the U.S., and detailed breakdowns by product line (WWR and PC strand) - The company has one reportable segment, focused on steel wire reinforcing products[210](index=210&type=chunk) Net Sales by Geographic Region (in thousands) | Geographic Region | Year Ended October 1, 2022 | Year Ended October 2, 2021 | Year Ended October 3, 2020 | | :---------------- | :------------------------- | :------------------------- | :------------------------- | | United States | $820,641 | $583,458 | $470,420 | | Foreign | $6,191 | $7,143 | $2,198 | | **Total** | **$826,832** | **$590,601** | **$472,618** | Net Sales by Product Line (in thousands) | Product Line | Year Ended October 1, 2022 | Year Ended October 2, 2021 | Year Ended October 3, 2020 | | :-------------------------- | :------------------------- | :------------------------- | :------------------------- | | Welded wire reinforcement | $495,401 | $358,334 | $294,129 | | Prestressed concrete strand | $331,431 | $232,267 | $178,489 | | **Total** | **$826,832** | **$590,601** | **$472,618** | [(16) Other Financial Data](index=48&type=section&id=(16)%20Other%20Financial%20Data) This note provides detailed breakdowns of balance sheet accounts, including accounts receivable, inventories, and property, plant, and equipment Accounts Receivable, Net (in thousands) | Category | October 1, 2022 | October 2, 2021 | | :------------------------ | :-------------- | :-------------- | | Accounts receivable | $82,043 | $68,274 | | Less allowance for credit losses | $(397) | $(357) | | **Total** | **$81,646** | **$67,917** | Inventories (in thousands) | Category | October 1, 2022 | October 2, 2021 | | :-------------- | :-------------- | :-------------- | | Raw materials | $108,894 | $50,459 | | Work in process | $8,817 | $6,680 | | Finished goods | $79,943 | $21,910 | | **Total** | **$197,654** | **$79,049** | Property, Plant and Equipment, Net (in thousands) | Category | October 1, 2022 | October 2, 2021 | | :------------------------ | :-------------- | :-------------- | | Land and land improvements | $14,947 | $14,554 | | Buildings | $55,044 | $53,182 | | Machinery and equipment | $191,790 | $180,654 | | Construction in progress | $11,745 | $10,191 | | Less accumulated depreciation | $(165,370) | $(152,957) | | **Total** | **$108,156** | **$105,624** | [(17) Product Warranties](index=49&type=section&id=(17)%20Product%20Warranties) Insteel warrants product specifications but does not maintain a warranty reserve due to immaterial historical claims, relying on product liability insurance - Products are warranted to meet certain specifications, with inherent risks in applications[215](index=215&type=chunk) - No reserve for warranties is maintained due to immaterial historical claims[215](index=215&type=chunk) - Product liability insurance coverage is maintained to minimize exposure to risks[215](index=215&type=chunk) [(18) Share Repurchases](index=49&type=section&id=(18)%20Share%20Repurchases) The company repurchased 41,706 shares for $1.2 million in 2022 under a $25.0 million authorization, with $23.6 million remaining - A **$25.0 million share repurchase authorization** was approved on November 18, 2008, and remains in effect[216](index=216&type=chunk) - During 2022, the company repurchased **41,706 shares of common stock for $1.2 million**[216](index=216&type=chunk) - As of October 1, 2022, **$23.6 million remained available** for future share repurchases[216](index=216&type=chunk) - No share repurchases occurred during 2021 or 2020[216](index=216&type=chunk) [Report of Independent Registered Public Accounting Firm – Consolidated Financial Statements](index=50&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm%20%E2%80%93%20Consolidated%20Financial%20Statements) Grant Thornton LLP issued an unqualified opinion on Insteel's consolidated financial statements and internal control over financial reporting as of October 1, 2022 - Grant Thornton LLP issued an unqualified opinion on the consolidated financial statements for the period ended October 1, 2022[219](index=219&type=chunk) - An unqualified opinion was also expressed on the effectiveness of the company's internal control over financial reporting as of October 1, 2022[220](index=220&type=chunk) - No critical audit matters were determined[223](index=223&type=chunk) [Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=51&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) There were no changes in or disagreements with accountants on accounting and financial disclosure - There were no changes in or disagreements with accountants on accounting and financial disclosure[225](index=225&type=chunk) [Item 9A. Controls and Procedures](index=51&type=section&id=Item%209A.%20Controls%20and%20Procedures) [Evaluation of Disclosure Controls and Procedures](index=51&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of October 1, 2022, ensuring timely and accurate reporting - Disclosure controls and procedures were evaluated as effective as of October 1, 2022[226](index=226&type=chunk) - The evaluation confirmed that information for SEC reports is recorded, processed, summarized, and reported timely[226](index=226&type=chunk) [Management's Report on Internal Control over Financial Reporting](index=51&type=section&id=Management%27s%20Report%20on%20Internal%20Control%20over%20Financial%20Reporting) Management assessed and concluded that internal control over financial reporting was effective as of October 1, 2022, with no material changes during the quarter - Management is responsible for establishing and maintaining adequate internal control over financial reporting[227](index=227&type=chunk) - Management assessed the effectiveness of internal control over financial reporting based on the 2013 COSO framework and concluded it was effective as of October 1, 2022[228](index=228&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter ended October 1, 2022[228](index=228&type=chunk) [Report of Independent Registered Public Accounting Firm – Internal Control Over Financial Reporting](index=52&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm%20%E2%80%93%20Internal%20Control%20Over%20Financial%20Reporting) Grant Thornton LLP issued an unqualified opinion on the effectiveness of Insteel's internal control over financial reporting as of October 1, 2022 - Grant Thornton LLP issued an unqualified opinion on the effectiveness of internal control over financial reporting as of October 1, 2022[232](index=232&type=chunk) - The audit was conducted in accordance with PCAOB standards[235](index=235&type=chunk) [Item 9B. Other Information](index=53&type=section&id=Item%209B.%20Other%20Information) No other information is reported under this item - No other information is reported under this item[239](index=239&type=chunk) [Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=53&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections) This item is not applicable to the company - This item is not applicable[239](index=239&type=chunk) PART III [Item 10. Directors, Executive Officers and Corporate Governance](index=53&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors, executive officers, and corporate governance is incorporated by reference from the 2023 Proxy Statement, including the Code of Business Conduct - Information is incorporated by reference from the 2023 Annual Meeting of Shareholders Proxy Statement[241](index=241&type=chunk) - A Code of Business Conduct applies to all directors, officers, and employees, available on the company's website[242](index=242&type=chunk) [Item 11. Executive Compensation](index=53&type=section&id=Item%2011.%20Executive%20Compensation) Information concerning executive compensation is incorporated by reference from the 2023 Proxy Statement - Information is incorporated by reference from the 2023 Annual Meeting of Shareholders Proxy Statement[243](index=243&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=53&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Details on security ownership of beneficial owners and management are incorporated by reference from the 2023 Proxy Statement - Information is incorporated by reference from the 2023 Annual Meeting of Shareholders Proxy Statement[244](index=244&type=chunk) [Item 13. Certain Relationships and Related Transactions, and Director Independence](index=53&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information regarding certain relationships, related person transactions, and director independence is incorporated by reference from the 2023 Proxy Statement - Information is incorporated by reference from the 2023 Annual Meeting of Shareholders Proxy Statement[245](index=245&type=chunk) [Item 14. Principal Accounting Fees and Services](index=53&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information on principal accounting fees and services is incorporated by reference from the 2023 Proxy Statement - Information is incorporated by reference from the 2023 Annual Meeting of Shareholders Proxy Statement[246](index=246&type=chunk) PART IV [Item 15. Exhibits, Financial Statement Schedules](index=53&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists filed financial statements, notes the omission of other schedules, and provides a comprehensive exhibit index - Financial statements as set forth under Item 8 are filed as part of this report[248](index=248&type=chunk) - All other financial statement schedules have been omitted because they are either not required or not applicable[249](index=249&type=chunk) - A list of exhibits filed as part of this annual report is provided in the Exhibit Index[250](index=250&type=chunk)[251](index=251&type=chunk) [Item 16. Form 10-K Summary](index=54&type=section&id=Item%2016.%20Form%2010-K%20Summary) This item indicates that no Form 10-K Summary is provided - No Form 10-K Summary is provided[253](index=253&type=chunk)

Insteel Industries, Inc. (NYSE:IIIN) Q4 2022 Earnings Conference Call October 20, 2022 10:00 AM ET Company Participants H.O. Woltz - Chairman, President, and Chief Executive Officer Mark Carano - Senior Vice President, Chief Financial Officer, and Treasurer Conference Call Participants Julio Romero - Sidoti & Co. Tyson Bauer - KC Capital Operator Good morning and a warm welcome to the Insteel Industries' Fourth Quarter 2022 Earnings Conference Call. My name is Candice, and I will be your moderator for today ...

Financial Data and Key Metrics Changes - The company reported quarterly revenue of $227.2 million, an increase of 41.3% from $160.8 million in the prior year [5] - Net earnings were $38.6 million, or $1.96 per diluted share, compared to $18.4 million or $0.84 per diluted share in the prior year, representing a 109% increase in earnings per share [5] - Average selling prices increased by 53.9% compared to the prior year and 6.3% sequentially from Q2 2022, marking the eighth consecutive quarter of rising average selling prices [6][7] Business Line Data and Key Metrics Changes - Shipments for the quarter decreased by 8.2% from last year, remaining essentially unchanged sequentially from Q2 2022 [8] - The decrease in shipments was attributed to softness in the standard welded wire mesh product line and labor availability issues [8][9] - Gross profit increased by $26.6 million or 84% from the same period last year to a record level of $58.1 million, with gross margin expanding over 600 basis points to 25.6% [10] Market Data and Key Metrics Changes - The residential market represents about 15% of the company's revenue, and while it is transitioning to a slower growth period, the overall market outlook remains positive [17] - Non-residential construction markets are expected to remain robust, with customer backlogs at near record levels [25][27] Company Strategy and Development Direction - The company is optimistic about the impact of the infrastructure investment and JOBS Act, expecting significant demand for products beginning in late 2022 or early 2023 [27] - The company plans to closely monitor market conditions and pursue actions to maximize shipments and optimize costs, positioning itself for attractive growth opportunities [29] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strong demand for reinforcing products and the positive outlook for markets, driven by infrastructure investments [3][16] - Labor availability has emerged as a key constraint on production, with management implementing flexible work schedules to address staffing challenges [21][22] Other Important Information - Cash flow from operations for the quarter used $5 million due to increased working capital from higher inventory levels [13] - The company ended the quarter with $63 million in cash and no borrowings on its $100 million revolving credit facility [15] Q&A Session All Questions and Answers Question: Could you guys maybe just dig into standard welded wire? What percentage of sales is that typically make up of overall sales? - The company does not disclose product line details [34] Question: Would it be -- I think you guys have typically talked about 15% of your overall sales comes from residential. Does that kind of fall in line with that? - The residential market consumes both standard welded wire reinforcement and PC strand [35] Question: Is the shipments down 8.2% you talked about labor, is that very regional? - Labor availability issues are experienced across different regions, with unemployment rates ranging from 2% to 4% [49] Question: Did the timing of getting the raw materials in along with the staffing shortage contribute to revenue loss? - Yes, the company entered the third quarter with low finished goods inventories, impacting potential revenue [51] Question: Will we see a big increase in cash balances at the end of the calendar year? - Inventory balances are expected to remain higher due to a combination of more units and higher values [53]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended July 2, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________ Commission File Number: 1-9929 Insteel Industries, Inc. (Exact name of registrant as specified in its charter) North Carolina (State or other jurisdic ...

INDUSTRIES INC. Investor Presentation April 21, 2022 Quener, P 1 1 1 8 L 男 Forward-Looking Statements This presentation contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. When used in this presentation, the words "believes," "anticipates," "expects," "estimates," "appears," "plans," "intends," "may," "should," "could" and similar expressions are intended to identify forward-looking statements. Although we believe that ...

Insteel industries, Inc. (NYSE:IIIN) Q2 2022 Earnings Conference Call April 21, 2022 10:00 AM ET Company Participants H.O. Woltz III – Chairman, President and Chief Executive Officer Mark Carano – Senior Vice President, Chief Financial Officer and Treasurer Conference Call Participants Tyson Bauer – KC Capital Julio Romero – Sidoti Operator Hello, and welcome to today's In-steel Industries. Second Quarter 2022, Earnings Call. My name is Bally and I will be your moderator for today's call. All lines will be ...

[PART I – FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20%E2%80%93%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) Unaudited consolidated financial statements for Q2 and H1 2022, covering operations, balance sheets, cash flows, equity, and notes [Consolidated Statements of Operations and Comprehensive Income](index=4&type=section&id=Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income) Q2 and H1 2022 showed significant revenue and profitability growth, with Q2 net sales up 53.4% and net earnings up 161.5% Consolidated Statements of Operations Highlights (In thousands, except per share amounts) | Metric | Three Months Ended April 2, 2022 | Three Months Ended April 3, 2021 | YoY Change | Six Months Ended April 2, 2022 | Six Months Ended April 3, 2021 | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **Net sales** | $213,209 | $138,999 | +53.4% | $391,668 | $258,604 | +51.5% | | **Gross profit** | $57,069 | $30,228 | +88.8% | $99,433 | $50,079 | +98.6% | | **Net earnings** | $39,017 | $14,920 | +161.5% | $62,146 | $23,063 | +169.5% | | **Diluted EPS** | $1.99 | $0.76 | +161.8% | $3.17 | $1.18 | +168.6% | [Consolidated Balance Sheets](index=5&type=section&id=Consolidated%20Balance%20Sheets) Strong financial position as of April 2, 2022, with total assets of $420.6 million, driven by inventories and receivables Consolidated Balance Sheet Highlights (In thousands) | Account | April 2, 2022 (Unaudited) | October 2, 2021 | | :--- | :--- | :--- | | **Total current assets** | $282,804 | $246,906 | | Cash and cash equivalents | $69,725 | $89,884 | | Inventories | $127,049 | $79,049 | | **Total assets** | $420,558 | $390,710 | | **Total current liabilities** | $73,816 | $68,849 | | **Total shareholders' equity** | $325,147 | $302,038 | [Consolidated Statements of Cash Flows](index=6&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) H1 2022 operating cash flow decreased to $20.1 million due to inventory, while financing cash flow rose from a special dividend Consolidated Statements of Cash Flows Highlights (Six Months Ended, In thousands) | Cash Flow Activity | April 2, 2022 | April 3, 2021 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $20,066 | $29,239 | | **Net cash used for investing activities** | $(86) | $(8,923) | | **Net cash used for financing activities** | $(40,139) | $(30,064) | | **Net decrease in cash and cash equivalents** | $(20,159) | $(9,748) | | **Cash and cash equivalents at end of period** | $69,725 | $58,940 | [Notes to Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Detailed financial statement notes cover revenue, restructuring, credit facility, and tax rates - Restructuring activities related to the consolidation of PC strand operations following the STM acquisition resulted in a net recovery of **$365,000** in Q2 2022, primarily from a gain on the sale of the Summerville facility. The company does not expect further restructuring charges from this consolidation[26](index=26&type=chunk)[76](index=76&type=chunk) Net Sales by Product Line (Six Months Ended, In thousands) | Product Line | April 2, 2022 | April 3, 2021 | YoY Change | | :--- | :--- | :--- | :--- | | Welded wire reinforcement | $247,044 | $155,949 | +58.4% | | Prestressed concrete strand | $144,624 | $102,655 | +40.9% | | **Total** | **$391,668** | **$258,604** | **+51.5%** | - The company has a **$100.0 million** revolving credit facility maturing in May 2024. As of April 2, 2022, there were no borrowings outstanding, with **$98.6 million** of borrowing capacity available[52](index=52&type=chunk)[95](index=95&type=chunk) - The effective income tax rate was **22.6%** for the first six months of fiscal 2022, slightly down from **22.8%** in the same period of fiscal 2021[45](index=45&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=18&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial performance, highlighting price-driven sales growth, strong liquidity, and positive outlook [Results of Operations](index=20&type=section&id=Results%20of%20Operations) Strong Q2 and H1 2022 performance driven by higher price-raw material spreads, with Q2 net sales up 53.4% and gross profit up 88.8% - Q2 2022 net sales increased **53.4%** year-over-year, reflecting a **65.4%** increase in average selling prices partially offset by a **7.2%** decrease in shipments[73](index=73&type=chunk) - Gross profit for Q2 2022 increased **88.8%** to **$57.1 million**, or **26.8%** of net sales, up from **21.7%** in the prior year quarter, due to higher spreads between selling prices and raw material costs[74](index=74&type=chunk) - First half 2022 net sales increased **51.5%** year-over-year, driven by a **67.5%** increase in average selling prices, which was partially offset by a **9.5%** decrease in shipments due to tight raw material supply[79](index=79&type=chunk) [Liquidity and Capital Resources](index=23&type=section&id=Liquidity%20and%20Capital%20Resources) Robust liquidity with no debt and $69.7 million cash, despite decreased operating cash flow due to inventory and special dividend - The company remains debt-free with **$98.6 million** of available borrowing capacity under its **$100.0 million** revolving credit facility as of April 2, 2022[87](index=87&type=chunk)[95](index=95&type=chunk) - Cash from operations decreased to **$20.1 million** in H1 2022 from **$29.2 million** in H1 2021, largely due to a **$48.0 million** increase in inventories[88](index=88&type=chunk) - During H1 2022, the company paid a special dividend of **$38.8 million** (**$2.00** per share) and regular quarterly dividends totaling **$1.2 million** (**$0.06** per share)[93](index=93&type=chunk) [Outlook](index=25&type=section&id=Outlook) Strong financial results expected for the fiscal year due to robust demand, addressing raw material supply and high steel prices - The company expects strong financial results for the balance of the fiscal year due to robust demand and seasonal upturns in construction[104](index=104&type=chunk) - Inadequate domestic supply of hot-rolled steel wire rod is a primary concern, leading the company to supplement its needs with foreign sources to support demand[105](index=105&type=chunk) - Future strategy includes managing expenses, improving productivity, and opportunistically pursuing acquisitions to expand market penetration or footprint[106](index=106&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=26&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Primary market risk is commodity price fluctuations for steel wire rod, with minimal interest rate or foreign exchange risk - The company is subject to significant fluctuations in the cost and availability of its primary raw material, hot-rolled carbon steel wire rod[108](index=108&type=chunk) - A hypothetical **10%** increase in the price of wire rod would have resulted in a **$22.3 million** decrease in pre-tax earnings for the first half of 2022, assuming selling prices remained constant[108](index=108&type=chunk) [Item 4. Controls and Procedures](index=26&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls and procedures were effective as of April 2, 2022, with no material changes in internal control - Management concluded that the company's disclosure controls and procedures were effective as of April 2, 2022[111](index=111&type=chunk) - No changes occurred in the company's internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, its internal controls[112](index=112&type=chunk) [PART II – OTHER INFORMATION](index=27&type=section&id=PART%20II%20%E2%80%93%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=27&type=section&id=Item%201.%20Legal%20Proceedings) Ongoing legal matters are not expected to materially affect financial condition or results of operations - The company does not anticipate that the ultimate costs to resolve ongoing lawsuits, claims, and investigations will have a material adverse effect on its financial position, results of operations, or cash flows[115](index=115&type=chunk) [Item 1A. Risk Factors](index=27&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors from the 2021 Annual Report on Form 10-K - No material changes to the risk factors set forth in the 2021 Annual Report occurred during the quarter ended April 2, 2022[116](index=116&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=27&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No share repurchases in Q2/H1 2022; $24.8 million remains for future repurchases - There were no share repurchases during the three- and six-month periods ended April 2, 2022 and April 3, 2021[117](index=117&type=chunk) - As of April 2, 2022, **$24.8 million** remained available for future share repurchases under the company's authorization[117](index=117&type=chunk) [Item 6. Exhibits](index=27&type=section&id=Item%206.%20Exhibits) Lists exhibits including management compensation, officer certifications, and iXBRL financial data - The report includes exhibits such as forms of Restricted Stock Unit and Stock Option Agreements, CEO and CFO certifications (pursuant to Sections 302 and 906 of Sarbanes-Oxley), and iXBRL financial data[119](index=119&type=chunk)

[PART I – FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20%E2%80%93%20FINANCIAL%20INFORMATION) [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) In Q1 fiscal 2022, Insteel Industries reported significant year-over-year growth in net sales and profitability, with net earnings up 184.0% to $23.1 million, while total assets slightly decreased due to lower cash balances [Consolidated Statements of Operations and Comprehensive Income](index=4&type=section&id=Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income) The company experienced substantial growth in Q1 fiscal 2022, with net sales increasing by 49.2% and net earnings surging by 184.0% Consolidated Statements of Operations (Unaudited) | Metric | Three Months Ended Jan 1, 2022 (in thousands) | Three Months Ended Jan 2, 2021 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Net sales | $178,459 | $119,605 | +49.2% | | Gross profit | $42,364 | $19,851 | +113.4% | | Earnings before income taxes | $30,033 | $10,608 | +183.1% | | Net earnings | $23,129 | $8,143 | +184.0% | | Diluted EPS | $1.18 | $0.42 | +181.0% | [Consolidated Balance Sheets](index=5&type=section&id=Consolidated%20Balance%20Sheets) As of January 1, 2022, total assets decreased to $368.8 million, primarily due to a $26.9 million reduction in cash and cash equivalents Consolidated Balance Sheet Highlights (Unaudited) | Metric (in thousands) | January 1, 2022 | October 2, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $63,020 | $89,884 | | Total current assets | $226,804 | $246,906 | | Total assets | $368,779 | $390,710 | | Total current liabilities | $62,574 | $68,849 | | Total shareholders' equity | $286,020 | $302,038 | [Consolidated Statements of Cash Flows](index=6&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash provided by operating activities was $13.6 million, while financing activities used significantly more cash due to a larger special dividend payment Consolidated Cash Flows (Unaudited) | Metric (in thousands) | Three Months Ended Jan 1, 2022 | Three Months Ended Jan 2, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $13,631 | $13,950 | | Net cash used for investing activities | ($1,076) | ($3,020) | | Net cash used for financing activities | ($39,419) | ($29,436) | | Net decrease in cash and cash equivalents | ($26,864) | ($18,506) | [Consolidated Statements of Shareholders' Equity](index=7&type=section&id=Consolidated%20Statements%20of%20Shareholders%27%20Equity) Shareholders' equity decreased to $286.0 million, primarily due to $39.4 million in cash dividends, partially offset by $23.1 million in net earnings Changes in Shareholders' Equity (Q1 2022, in thousands) | Description | Amount | | :--- | :--- | | Balance at October 2, 2021 | $302,038 | | Net earnings | $23,129 | | Cash dividends declared | ($39,410) | | Other (stock plans, etc.) | $263 | | **Balance at January 1, 2022** | **$286,020** | [Notes to Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail accounting policies, revenue breakdown by product line, and the company's $100 million undrawn credit facility - In connection with the 2020 STM Acquisition, the company closed the Summerville facility, which was subsequently sold for net cash proceeds of **$6.8 million**, expected to result in a gain of approximately **$470,000** in the next quarter[28](index=28&type=chunk) Net Sales by Product Line (in thousands) | Product Line | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Welded wire reinforcement | $113,393 | $74,026 | | Prestressed concrete strand | $65,066 | $45,579 | | **Total** | **$178,459** | **$119,605** | - The company has a **$100.0 million** revolving credit facility maturing in May 2024, with **$98.6 million** of borrowing capacity available and no outstanding borrowings as of January 1, 2022[53](index=53&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=18&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes the 49.2% increase in Q1 net sales to higher selling prices, offsetting volume declines due to raw material constraints, while maintaining a strong liquidity position [Results of Operations](index=20&type=section&id=Results%20of%20Operations) Net sales for Q1 2022 increased 49.2% to $178.5 million, driven by price increases that offset an 11.9% decrease in shipments due to raw material supply issues - The increase in net sales was driven by price increases implemented to recover escalating raw material costs amid strong product demand, while decreased shipments were due to sustained tight supply conditions for raw materials[75](index=75&type=chunk) - Gross profit increased by **$22.5 million**, primarily due to higher spreads between average selling prices and raw material costs (**$27.2 million**), partially offset by higher manufacturing costs (**$2.5 million**) and the impact of lower shipments (**$2.1 million**)[76](index=76&type=chunk) - SG&A expense increased by **$3.7 million**, largely driven by higher compensation expense (**$3.8 million**) resulting from improved financial performance[77](index=77&type=chunk) [Liquidity and Capital Resources](index=22&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintained a strong, debt-free balance sheet with $286.0 million in shareholders' equity, with capital expenditures for fiscal 2022 expected to be up to $25.0 million Liquidity and Capitalization | Metric (in thousands) | January 1, 2022 | January 2, 2021 | | :--- | :--- | :--- | | Net working capital | $164,230 | $122,110 | | Total debt | $0 | $0 | | Shareholders' equity | $286,020 | $243,734 | - Capital expenditures are expected to total up to **$25.0 million** for fiscal 2022, focused on growing the engineered structural mesh business and cost/productivity initiatives[87](index=87&type=chunk) - In Q1 2022, the company paid a special dividend of **$38.8 million** (**$2.00 per share**) and a regular dividend of **$582,000** (**$0.03 per share**)[89](index=89&type=chunk) [Outlook](index=24&type=section&id=Outlook) Management is optimistic for the remainder of fiscal 2022, anticipating strong market demand and infrastructure spending benefits, despite challenges from raw material shortages and cost inflation - The company is optimistic for the remainder of 2022, expecting continued strong market demand and incremental demand from the Infrastructure Investment and Jobs Act beginning in the latter half of 2022[100](index=100&type=chunk) - Significant challenges include inadequate domestic supplies of hot-rolled steel wire rod, leading to commitments for imported material, and sharply escalating costs for labor, transportation, utilities, and other purchases[101](index=101&type=chunk) - The company will continue to focus on controlling expenses, aligning production with demand, and pursuing productivity improvements and opportunistic acquisitions[102](index=102&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=24&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is exposure to commodity price fluctuations for hot-rolled carbon steel wire rod, with a hypothetical 10% increase in cost reducing Q1 2022 pre-tax earnings by $10.4 million - The company is subject to significant fluctuations in the cost and availability of its primary raw material, hot-rolled carbon steel wire rod, and does not use derivative instruments to hedge this exposure[104](index=104&type=chunk) - Based on Q1 2022 results, a **10% increase** in the price of wire rod would have resulted in a **$10.4 million** decrease in pre-tax earnings, assuming selling prices remained unchanged[104](index=104&type=chunk) [Controls and Procedures](index=25&type=section&id=Item%204.%20Controls%20and%20Procedures) The company's disclosure controls and procedures were deemed effective as of January 1, 2022, with no material changes in internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of January 1, 2022[107](index=107&type=chunk) - No change in internal control over financial reporting occurred during the quarter that has materially affected, or is reasonably likely to materially affect, internal controls[108](index=108&type=chunk) [PART II – OTHER INFORMATION](index=25&type=section&id=PART%20II%20%E2%80%93%20OTHER%20INFORMATION) [Legal Proceedings](index=25&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various ordinary course lawsuits and claims, but management does not anticipate a material adverse effect on its financial position or results - The company is involved in ordinary course lawsuits and claims but does not expect the ultimate cost to resolve these matters will have a material adverse effect on its financial position, results of operations or cash flows[110](index=110&type=chunk) [Risk Factors](index=26&type=section&id=Item%201A.%20Risk%20Factors) There were no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended October 2, 2021 - There have been no material changes from the risk factors set forth in the company's 2021 Annual Report[112](index=112&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=26&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) As of January 1, 2022, $24.8 million remained available for future share repurchases under the company's authorization, with no repurchases made during the quarter - As of January 1, 2022, **$24.8 million** remained available for future share repurchases under the company's authorization, with no repurchases made during the quarter[113](index=113&type=chunk) [Exhibits](index=26&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and financial data in iXBRL format - Exhibits filed include CEO and CFO certifications pursuant to Sarbanes-Oxley Act Sections 302 and 906, and financial statements formatted in iXBRL[116](index=116&type=chunk)