Quarterly Report for Quarter Ending December 27, 2025 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Note Regarding Forward-Looking Statements

This report contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, particularly under the caption "Outlook" below. When used in this report, the words "believes," "anticipates," "expects," "estimates," "appears," "plans," "intends," "may," "should," "could," "outlook," "continues," "remains" and similar expressions are intended to identify forward-looking statements. Although we believe that our plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, they are subject to numerous risks and uncertainties and involve certain assumptions. Actual results may differ materially from those expressed in forward-looking statements, and we can provide no assurances that such plans, intentions or expectations will be implemented or achieved. Many of these risks and uncertainties are discussed in detail and, where appropriate, updated in our filings with the U.S. Securities and Exchange Commission ("SEC"), in particular in our Annual Report on Form 10-K for the fiscal year ended September 27, 2025 (our "2025 Annual Report"). You should carefully review these risks and uncertainties.

All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. All forward-looking statements speak only to the respective dates on which such statements are made, and we do not undertake any obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events, except as may be required by law.

It is not possible to anticipate and list all risks and uncertainties that may affect our business, future operations or financial performance; however, they include, but are not limited to, the following:

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general economic and competitive conditions in the markets in which we operate, including uncertainty over global trade policies and the financial impact of related tariffs and retaliatory tariffs;

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changes in the spending levels for nonresidential and residential construction and the impact on demand for our products;

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changes in the amount and duration of transportation funding provided by federal, state and local governments and the impact on spending for infrastructure construction and demand for our products;

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the cyclical nature of the steel and building material industries;

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credit market conditions and the relative availability of financing for us, our customers and the construction industry as a whole;

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the impact of rising interest rates on the cost of financing for our customers;

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fluctuations in the cost and availability of our primary raw material, hot-rolled carbon steel wire rod, from domestic and foreign suppliers;

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competitive pricing pressures and our ability to raise selling prices in order to recover increases in raw material or operating costs;

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changes in U.S. or foreign trade policy affecting imports or exports of steel wire rod or our products;

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unanticipated changes in customer demand, order patterns and inventory levels;

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the impact of fluctuations in demand and capacity utilization levels on our unit manufacturing costs;

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our ability to further develop the market for engineered structural mesh ("ESM") and expand our shipments of ESM;

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legal, environmental, economic or regulatory developments that significantly impact our business or operating costs;

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unanticipated plant outages, equipment failures or labor difficulties;

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the impact of cybersecurity breaches and data leaks; and

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the risks and uncertainties discussed under "Item 1A. Risk Factors" in our 2025 Annual Report and in other filings made by us with the SEC.

Overview

Insteel Industries Inc. ("we," "us," "our," "the Company" or "Insteel") is the nation's largest manufacturer of steel wire reinforcing products for concrete construction applications. We manufacture and market prestressed concrete strand ("PC strand") and welded wire reinforcement ("WWR"), including ESM, concrete pipe reinforcement and standard welded wire reinforcement. Our products are sold primarily to manufacturers of concrete products that are used in nonresidential construction. We market our products through sales representatives who are our employees. We sell our products nationwide across the U.S. and, to a much lesser extent, into Canada, Mexico and Central and South America, shipping them primarily by truck, using common or contract carriers. Our business strategy is focused on: (1) achieving leadership positions in our markets; (2) operating as the lowest cost producer in our industry; and (3) pursuing growth opportunities within our core businesses that further our penetration of the markets we currently serve or expand our footprint.

On October 21, 2024, we, through our wholly-owned subsidiary, Insteel Wire Products Company ("IWP"), purchased substantially all of the assets, other than cash and accounts receivable, of Engineered Wire Products, Inc. ("EWP") and certain related assets of Liberty Steel Georgetown, Inc. ("LSG") for an adjusted purchase price of $67.0 million (the "EWP Acquisition"). EWP was a leading manufacturer of WWR products for use in nonresidential and residential construction. We acquired EWP's inventories, production equipment, production facilities located in Upper Sandusky, Ohio and Warren, Ohio and certain equipment from LSG located in Georgetown, South Carolina. Subsequent to the acquisition, we elected to consolidate our WWR operations with the closure of the Warren facility and relocation of certain equipment to our existing WWR facilities.

On November 26, 2024, we, through our wholly-owned subsidiary, IWP, purchased certain assets of O'Brien Wire Products of Texas, Inc. ("OWP") for a purchase price of $5.1 million (the "OWP Acquisition"). OWP was a manufacturer of WWR products for use in nonresidential and residential construction. We acquired certain of OWP's inventories and all of the production equipment. Subsequent to the acquisition, we elected to consolidate our WWR operations with the relocation of certain acquired equipment from OWP to our existing WWR facilities.

Results of Operations

Statements of Operations - Selected Data

(Dollars in thousands)

		Three Months Ended
		December 27,								December 28,
		2025				Change				2024
Net sales		$	159,924				23.3	%		$	129,720
Gross profit			18,060				89.5	%			9,529
Percentage of net sales			11.3	%							7.3	%
Selling, general and administrative expense		$	8,760				11.1	%		$	7,887
Percentage of net sales			5.5	%							6.1	%
Restructuring charges, net		$	51			N/M				$	696
Acquisition costs			-			N/M					271
Interest income			(370	)			(52.9	%)			(786	)
Effective income tax rate			21.0	%							26.1	%
Net earnings		$	7,593				602.4	%		$	1,081

"N/M" = not meaningful

First Quarter of Fiscal 2026 Compared to First Quarter of Fiscal 2025

Net Sales

Net sales for the first quarter of 2026 increased 23.3% to $159.9 million from $129.7 million in the prior year quarter, reflecting an 18.8% increase in average selling prices and a 3.8% increase in shipments. The increase in average selling prices was driven by price increases implemented over the course of the prior year to recover the escalation in raw material cost. The increase in shipments was primarily due to favorable demand trends in the infrastructure and commercial construction markets and incremental contributions from our prior year acquisitions.

Gross Profit

Gross profit for the first quarter of 2026 increased 89.5% to $18.1 million, or 11.3% of net sales, from $9.5 million, or 7.3% of net sales, in the prior year quarter due to higher spreads between average selling prices and raw material costs ($6.9 million), lower manufacturing costs ($1.3 million) and an increase in shipments ($390,000). The increase in spreads was driven by higher average selling prices ($24.3 million) partially offset by higher raw material costs ($16.7 million) and an increase in freight expense ($741,000).

Selling, General and Administrative Expense

Selling, general and administrative expense ("SG&A expense") for the first quarter of 2026 increased 11.1% to $8.8 million, or 5.5% of net sales, from $7.9 million, or 6.1% of net sales, in the prior year quarter primarily due to higher compensation ($725,000), employee benefit ($353,000) and bad debt ($150,000) expense partially offset by the relative year-over-year change in the cash surrender value of life insurance policies ($524,000). The increase in compensation expense was primarily driven by higher incentive plan expense due to our improved financial results in the current year quarter. The increase in employee benefit expense was largely related to higher employee health insurance expense in the current year period. The higher bad debt expense resulted from adjustments to customer credit reserves. The cash surrender value of life insurance policies increased $249,000 in the current year quarter compared with a decrease of $275,000 in the prior year quarter due to the corresponding changes in the value of the underlying investments.

Restructuring Charges, Net

Net restructuring charges of $51,000 were incurred in the first quarter of 2026 related to the closure of the Warren, Ohio facility, which had been acquired through the EWP Acquisition, and expenses related to the consolidation of our WWR operations. Net restructuring charges for the current year quarter included equipment relocation costs ($48,000) and facility closure costs ($3,000). Net restructuring charges of $696,000 were incurred in the prior year quarter for asset impairment charges ($273,000), facility closure costs ($231,000) and employee separation costs ($192,000).

Acquisition Costs

Acquisition costs of $271,000 were incurred in the first quarter of 2025 for legal, accounting and other professional fees related to the EWP Acquisition and the OWP Acquisition.

Interest Income

Interest income decreased $416,000 from the prior year quarter due to lower average cash balances and interest rates.

Income Taxes

Our effective tax rate for the first quarter of 2026 decreased to 21.0% from 26.1% for the prior year quarter. The decrease was primarily driven by a reduction in the valuation allowance on deferred tax assets expected to be utilized, as well as the calculation of state deferred tax balances, which were treated as discrete items in the current period.

Net Earnings

Net earnings for the first quarter of 2026 increased to $7.6 million ($0.39 per share) from $1.1 million ($0.06 per share) in the prior year quarter primarily due to the increase in gross profit and lower restructuring charges and acquisition related costs partially offset by higher SG&A expense and lower interest income.

Liquidity and Capital Resources

Selected Financial Data

(Dollars in thousands)

		Three Months Ended
		December 27,				December 28,
		2025				2024
Net cash (used for) provided by operating activities		$	(701	)		$	18,983
Net cash used for investing activities			(1,617	)			(73,939	)
Net cash used for financing activities			(20,723	)			(20,631	)
Net working capital			186,023				145,401
Total debt			-				-
Percentage of total capital			-				-
Shareholders' equity		$	358,843			$	331,650
Percentage of total capital			100.0	%			100.0	%
Total capital (total debt + shareholders' equity)		$	358,843			$	331,650

Operating Activities

Operating activities used $701,000 of cash during the first quarter of 2026 primarily from a net increase in working capital partially offset by net earnings adjusted for non-cash items. Working capital used $16.6 million of cash due to a $34.5 million increase in inventories partially offset by a $14.1 million decrease in accounts receivable and a $3.8 million increase in accounts payable and accrued expenses. The increase in inventories was primarily driven by higher raw material purchases during the quarter and an increase in the average unit costs. The decrease in accounts receivable was largely driven by the seasonal decline in shipments during the quarter. The increase in accounts payable and accrued expenses was related to higher raw material purchases partially offset by a decrease in accrued salaries, wages and related expenses.

Operating activities provided $19.0 million of cash during the first quarter of 2025 primarily from net earnings adjusted for non-cash items together with a net decrease in working capital. Working capital, net of adjustments for assets and liabilities acquired, provided $12.3 million of cash due to an $8.9 million reduction in accounts receivable, a $2.6 million decrease in inventories and a $754,000 increase in accounts payable and accrued expenses. The decrease in accounts receivable was largely driven by the decrease in shipments due to the seasonal slowdown in sales partially offset by higher average selling prices. The reduction in inventories, net of inventory acquired from our acquisitions, was primarily due to reduced raw material purchases during the quarter and lower average unit costs. The increase in accounts payable and accrued expenses was mostly due to higher raw material purchases near the end of the period which were partially offset by lower accruals for property taxes and salaries, wages, and related expenses.

We may elect to adjust our operating activities as there are changes in our construction end-markets, which could materially impact our cash requirements. While a downturn in the level of construction activity adversely affects sales to our customers, it generally reduces our working capital requirements.

Investing Activities

Investing activities used $1.6 million of cash during the first quarter of 2026 compared to $73.9 million during the prior year period primarily due to the EWP Acquisition ($66.4 million), OWP Acquisition ($5.1 million) and lower capital expenditures ($1.2 million). Capital expenditures decreased to $1.5 million from $2.7 million in the prior year period and are expected to total up to approximately $20.0 million for fiscal 2026. Capital expenditures for fiscal 2026 are to support costs and productivity initiatives as well as recurring maintenance requirements.

Our investing activities are largely discretionary, providing us with the ability to significantly curtail outlays when warranted based on business conditions.

Financing Activities

Financing activities used $20.7 million of cash during the first quarter of 2026 compared to $20.6 million during the prior year period. During the first quarter of 2026, $20.0 million of cash was used for dividend payments (including a special dividend of $19.4 million, or $1.00 per share, and regular quarterly dividends totaling $582,000, or $0.03 per share) and $745,000 for the repurchase of common stock. During the first quarter of 2025, $20.0 million of cash was used for dividend payments (including a special dividend of $19.4 million, or $1.00 per share, and regular quarterly dividend totaling $583,000, or $0.03 per share) and $617,000 for the repurchase of common stock.

Cash Management

Our cash is principally concentrated at one major financial institution, which at times exceeds federally insured limits. We invest excess cash primarily in money market funds, which are highly liquid securities that bear minimal risk.

Credit Facility

We have a $100.0 million revolving credit facility (the "Credit Facility") that is used to supplement our operating cash flow and fund our working capital, capital expenditure, general corporate and growth requirements. In March 2023, we amended our credit agreement to extend the maturity date of the Credit Facility from May 15, 2024, to March 15, 2028 and replaced the London Inter-Bank Offered Rate with the Secured Overnight Financing Rate. The Credit Facility provides for an accordion feature whereby its size may be increased by up to $50.0 million, subject to our lender's approval. Advances under the Credit Facility are limited to the lesser of the revolving loan commitment amount (currently $100.0 million) or a borrowing base amount that is calculated based upon a percentage of eligible receivables and inventories. As of December 27, 2025, no borrowings were outstanding on the Credit Facility, $98.7 million of borrowing capacity was available and outstanding letters of credit totaled $1.3 million (see Note 10 to the consolidated financial statements).

We believe that, in the absence of significant unanticipated funding requirements, cash and cash equivalents, cash generated by operating activities and the borrowing availability provided under the Credit Facility will be sufficient to satisfy our expected requirements for working capital, capital expenditures, dividends and share repurchases, if any, in both the short- and long-term. We also expect to have access to the amounts available under the Credit Facility as required. However, should we experience future reductions in our operating cash flows due to weakening conditions in our construction end-markets and reduced demand from our customers, we may need to curtail capital and operating expenditures, cease dividend payments, delay or restrict share repurchases and/or realign our working capital requirements.

Should we determine, at any time, that we require additional short-term liquidity, we would evaluate the alternative sources of financing potentially available to provide such funding. There can be no assurance that any such financing, if pursued, would be obtained, or if obtained, would be adequate or on terms acceptable to us. However, we believe that our strong balance sheet, flexible capital structure and borrowing capacity available to us under our Credit Facility position us to meet our anticipated liquidity requirements for the foreseeable future, including the next 12 months.

Seasonality and Cyclicality

Demand in our markets is both seasonal and cyclical, driven by the level of construction activity, but can also be impacted by fluctuations in the inventory positions of our customers. Shipments are seasonal, typically reaching their highest level when weather conditions are the most conducive to construction activity. As a result, assuming normal seasonal weather patterns, shipments and profitability are usually higher in the third and fourth quarters of the fiscal year and lower in the first and second quarters. Construction activity and demand for our products are cyclical based on overall economic conditions, although there can be significant differences between the relative strength of nonresidential and residential construction for extended periods.

Impact of Inflation

We are subject to inflationary risks arising from fluctuations in the market prices for our primary raw material, hot-rolled carbon steel wire rod, and, to a much lesser extent, labor rates, freight, energy and other consumables that are used in our manufacturing processes. We have generally been able to adjust our selling prices to pass through increases in these costs or offset them through various cost reduction and productivity improvement initiatives. However, our ability to raise our selling prices depends on market conditions and competitive dynamics, and there may be periods during which we are unable to fully recover increases in our costs. Inflation did not have a material impact on our sales or earnings during the first quarter of fiscal 2026. The timing and magnitude of any future increases in our raw material costs and the selling prices for our products are uncertain at this time.

Contractual Obligations

There have been no material changes in our contractual obligations and commitments as disclosed in our 2025 Annual Report other than those which occur in the ordinary course of business.

Critical Accounting Estimates

Our Management's Discussion and Analysis of Financial Condition and Results of Operations is based on our unaudited financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. for interim financial information. The preparation of our financial statements requires the application of these accounting principles in addition to certain estimates and judgments based on current available information, actuarial estimates, historical results and other assumptions believed to be reasonable. These estimates, assumptions and judgments are affected by our application of accounting policies, which are discussed in our 2025 Annual Report. Estimates are used for, but not limited to, determining the net carrying value of trade accounts receivable, inventories, recording self-insurance liabilities and other accrued liabilities. Actual results could differ from these estimates. Please refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates" included in our 2025 Annual Report for further information regarding our critical accounting policies and estimates. As of December 27, 2025, none of our accounting estimates were deemed to be critical for the accounting periods presented, which is consistent with our assessment of critical accounting estimates disclosed in our 2025 Annual Report.

Recent Accounting Pronouncements

Refer to Note 2 of the Notes to Consolidated Financial Statements in Item 1 of this Quarterly Report for recently issued accounting pronouncements including the expected dates of adoption and estimated effects, if any, on our consolidated financial statements.

Outlook

As we look ahead to the remainder of fiscal 2026, we believe we are well positioned for another year of strong performance. Customer sentiment continues to be generally positive, and demand across our core markets remains strong, even as broader macroeconomic indicators for construction suggest a more cautious environment. Nonresidential construction remains a key demand driver, supported by infrastructure spending and data center activity. While residential markets are still soft, we are encouraged by early signs of stabilization.

Our outlook is further supported by the recent downward trend in interest rates and the continued contributions from our recent investments. At the same time, we remain concerned about the significant steel price premium in the U.S. relative to the global market, and we expect finished products markets exposed to imports to remain highly competitive. However, as we have stated previously, only approximately 10% of our revenues are directly affected by import competition.

Regardless of the market dynamics, we continue to focus on those factors we control, including closely managing and controlling our expenses; realizing synergies from our recent acquisitions; aligning our production schedules with demand in a proactive manner as there are changes in market conditions to minimize our operating costs; and pursuing further improvements in the productivity and effectiveness of all our manufacturing, selling and administrative activities. We also expect increasing contributions from the substantial investments we have made in our facilities in recent years and expect to continue to make in the form of reduced operating costs and additional capacity to support future growth. Looking ahead, we will continue to evaluate acquisition opportunities that enhance our presence in markets we currently serve or expand our geographic footprint.

The statements contained in this section are forward-looking statements. See "Cautionary Note Regarding Forward-Looking Statements" and "Risk Factors".