Insteel Industries, Inc. Q3 FY2026 earnings call

### End Market Demand Conditions - Infrastructure end markets remain reasonably strong, while most private nonresidential construction (excluding data centers) is soft. Data center projects have experienced delayed start and delivery schedules, but no cancellations; management attributes delays to timing, not weakening underlying demand. - Publicly funded highway and street construction (a key end market) increased 3% YoY in May, supporting steady demand for Insteel's products. - Broad nonresidential indicators remain mixed: the Architectural Billing Index fell to 44.5 (well below the 50 expansion/contraction threshold) in May, and the Dodge Momentum Index declined 1.9% in June, with the commercial component down 6.8%.

### Cost and Margin Dynamics - Higher average selling prices and shipment improvements were more than offset by higher raw material, freight, and manufacturing costs, leading to lower YoY earnings. Narrow spreads between selling prices and raw material costs, plus higher unit conversion costs from lower production volumes, drove the gross margin contraction. - Sequentially, gross profit increased $3.6 million from Q2, and gross margin improved 60 basis points on higher shipment volumes and better raw material selling price spreads. - A recently effective July 13 price increase was implemented to recover broad-based inflation across operating input costs, as the company has struggled to keep pace with rising costs across all business areas.

### Balance Sheet and Capital Allocation - The company ended Q3 with $22.9 million in cash and no outstanding borrowings on its $100 million revolving credit facility, maintaining a strong, flexible balance sheet. - Insteel repurchased 75 thousand shares for $1.9 million in Q3 under its existing authorization, and continues to view disciplined share repurchases as an effective creator of shareholder value when valuations are attractive. Capital allocation priorities remain: invest in growth and efficiency, maintain a strong balance sheet, and return excess capital via dividends and repurchases. - Inventory levels remain elevated in fiscal 26, as the company supplements domestic wire rod purchases with offshore material to meet demand and mitigate supply risk; Q3 ending inventory represents ~3.5 months of forecasted Q4 shipments, up slightly from 3.4 months at the end of Q2.

### Section 32 Tariff Impact - The 50% Section 32 tariff on steel imports has raised domestic hot rolled wire rod prices (Insteel's primary raw material) to 50% to 100% above global market prices. After the administration extended tariffs to cover derivative downstream products including PC strand, PC strand imports fell 30% YoY for the first four months of 2026, and import-impacted market prices have started to recover. - Foreign competitors can still acquire steel at global market prices, pay the 50% tariff, and remain competitive, limiting the full effectiveness of the derivative tariffs due to the large gap between domestic and global steel prices. Domestic wire rod production continues to run below domestic demand, so Insteel will continue sourcing a portion of its raw material from offshore imports. - Domestic steel wire rod prices appear to have stabilized after rapid escalation driven by the tariff, but the market remains vulnerable to disruption from unplanned producer downtime, which is not uncommon in the industry.

Insteel Industries operates as a single consolidated producer of steel wire products for construction, so no separate product segment financials are broken out in the call. Consolidated Q3 26 results: net earnings of $9 million ($0.46 per diluted share), down from $15.2 million ($0.78 per diluted share) in the prior-year Q3. Q3 gross profit declined to $27.5 million, gross margin contracted 690 basis points to 10.2% (from 17.1% YoY). SG&A expense for the quarter was $8.5 million, equal to 4.3% of net sales, down from $10.6 million (5.9% of net sales) YoY. Q3 shipments increased 1.7% YoY, and average selling prices increased 8.1% YoY (2.3% sequentially QoQ).

- Gross margins are expected to remain near current Q3 levels in Q4, with potential for modest improvement, supported by steady demand and higher manufacturing efficiency from increased production volumes and operating rates. Significant margin expansion will depend on additional pricing increases sufficient to offset ongoing inflation in raw material, freight, and other operating costs. - Full year fiscal 26 capital expenditures are now expected to total ~$15 million, revised downward from the prior forecast of $20 million. The revision reflects timing shifts for certain projects, with a portion of spending moving to fiscal 27, not a change to underlying investment plans. Capital spending will support growth of the engineered structural mesh business, reduce production costs, and upgrade information system infrastructure. - Effective tax rate for the full year is expected to be close to 23%, subject to changes in pretax earnings and other tax assumptions. - Inventories are expected to decline modestly in Q4 as shipment activity progresses through the seasonal busy period. - Management expects delayed data center project shipments to accelerate in Q4 (the current quarter) and remain strong through the end of the 2026 calendar year.

- Persistently high domestic raw material prices relative to global markets, driven by Section 32 tariffs, limit the effectiveness of new derivative tariff rules and keep input cost pressure high, squeezing gross margins. - Elevated interest rates, geopolitical uncertainty, higher energy costs, rising material prices, and persistent labor shortages continue to weigh on the broader nonresidential construction market, leading to uneven demand and project delays. - Domestic wire rod production runs below domestic demand, and the market is vulnerable to significant disruption from unplanned producer downtime, which is a common occurrence in the steel industry. - Adjudication of the court-ordered Section 201 (IPA) tariff refund process is delayed by an appeal filed by the former administration, so refunds remain uncertain and highly unlikely to be received in the near term. - Broad-based inflation across all industrial operating inputs (including freight, which has doubled in some cases) continues to outpace the company's ability to implement offsetting pricing increases, pressuring profitability. - The construction industry is inherently cyclical and seasonal, leading to potential variability in quarterly financial results.

Q: Can you confirm that delayed data center volumes were not realized in Q3, how confident are you that shipments will accelerate in Q4, how long will shipments last, and what are the prospects for repeat data center business beyond current projects? / A: Management confirms the volumes were not realized in Q3, and expects shipments to accelerate in the current quarter and remain strong through the end of the 2026 calendar year, though timing is subject to change. Insteel is involved in multiple delayed data center projects, and shipments will continue on a regular basis once each project starts, until completion. The company sees large long-term demand for its products across large, speed-focused construction projects, and expects its engineered structural mesh business to become a substantial revenue contributor over time regardless of near-term data center timing, with other applications like reshoring mega projects also offering growth opportunities.

Q: Is there any update to the company's stance on receiving refunds for previously paid IPA tariffs, and where do discussions with vendors stand on passing through refunds? / A: The company will only recognize refunds once they are actually received. Most of the tariffs paid were imported by third parties (not Insteel as the importer of record), so Insteel is waiting for those third parties to complete all required paperwork. In addition, the former administration appealed the Court of International Trade ruling that mandated the repayment scheme, so the legal process has a long way to run, and management advises not to expect refunds in the near term.

Q: Is the recent July price increase a one-time adjustment, what is its effective date, and how would you describe Insteel's current pricing power? / A: Insteel has implemented multiple price increases throughout fiscal 26 to recover rising wire rod and other operating costs, with the most recent increase effective July 13. While freight and broader input cost inflation are universal industry-wide, the market is not bullishly strong, so passing through full cost increases is challenging. The company's choice is to pass along cost increases rather than absorb them, and will monitor acceptance over the coming weeks.

Q: Is Insteel's revenue becoming more volatile due to shifting focus to larger, project-based demand like data centers, and is data center growth incremental or just backfilling lost demand from other segments? / A: The construction industry has always been volatile, cyclical, and seasonal, so quarterly variability is not new. Data center growth is a core incremental part of Insteel's long-term market strategy; over the next 2-5 years, a large share of the company's revenue is expected to come from this new market segment it did not participate in just two years ago. It follows the pattern of prior booms like distribution center construction, and Insteel will pursue growth in whatever large construction segments are active at any given time.