Quarterly Report for Quarter Ending March 28, 2026 (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												Six Months Ended
		March 28,								March 29,				March 28,								March 29,
		2026				Change				2025				2026				Change				2025
Net sales		$	172,653				7.5	%		$	160,656			$	332,577				14.5	%		$	290,376
Gross profit			16,493				(32.8	%)			24,529				34,553				1.5	%			34,058
Percentage of net sales			9.6	%							15.3	%			10.4	%							11.7	%
Selling, general and administrative expense		$	9,712				(10.1	%)		$	10,800			$	18,472				(1.2	%)		$	18,687
Percentage of net sales			5.6	%							6.7	%			5.6	%							6.4	%
Restructuring charges, net		$	-			N/M				$	662			$	51			N/M				$	1,358
Acquisition costs			-			N/M					27				-			N/M					298
Interest income			(61	)			(80.7	%)			(316	)			(431	)			(60.9	%)			(1,102	)
Effective income tax rate			23.3	%							23.2	%			22.0	%							23.5	%
Net earnings		$	5,217				(49.0	%)		$	10,230			$	12,810				13.3	%		$	11,311
"N/M" = not meaningful

Second Quarter of Fiscal 2026 Compared to Second Quarter of Fiscal 2025

Net Sales

Net sales for the second quarter of 2026 increased 7.5% to $172.7 million from $160.7 million in the prior year quarter, reflecting a 14.2% increase in average selling prices partially offset by a 5.9% decrease in shipments. The increase in average selling prices was driven by price increases implemented to recover higher raw material and operating costs. The decline in shipments was primarily attributable to adverse weather conditions across most of our markets, which limited construction activity and disrupted customer operating schedules. In addition, shipments were impacted by certain customer projects originally scheduled for delivery during the quarter being deferred to later in the fiscal year.

Gross Profit

Gross profit for the second quarter of 2026 decreased 32.8% to $16.5 million, or 9.6% of net sales, from $24.5 million, or 15.3% of net sales, in the prior year quarter due to higher manufacturing costs ($3.3 million), lower spreads between average selling prices and raw material costs ($2.3 million), a decrease in shipments ($1.4 million) and other material costs and adjustments ($1.0 million). The decrease in spreads was driven by higher raw material costs ($23.7 million) and an increase in freight expense ($437,000) partially offset by higher average selling prices ($21.8 million).

Selling, General and Administrative Expense

Selling, general and administrative expense ("SG&A expense") for the second quarter of 2026 decreased 10.1% to $9.7 million, or 5.6% of net sales, from $10.8 million, or 6.7% of net sales, in the prior year quarter primarily due to lower compensation ($1.3 million) and employee benefits ($174,000) expense partially offset by higher legal expense ($225,000) and the relative year-over-year change in the cash surrender value of life insurance policies ($203,000). The decrease in compensation expense was primarily driven by lower incentive plan expense due to a decline in financial results. The decrease in employee benefit expense was largely related to lower employee health insurance expense in the current quarter. Legal expenses increased due to costs associated with various legal matters. The cash surrender value of life insurance policies decreased $234,000 in the current year quarter compared to $31,000 in the prior year quarter due to the corresponding changes in the value of the underlying investments.

Restructuring Charges, Net

Net restructuring charges of $662,000 were incurred in the prior year quarter 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 prior year quarter included asset impairment charges ($320,000), facility closure costs ($205,000), equipment relocation costs ($78,000) and employee separation costs ($59,000).

Interest Income

Interest income decreased $255,000 from the prior year quarter due to lower average cash balances and interest rates.

Income Taxes

Our effective tax rate for the second quarter of 2026 increased to 23.3% from 23.2% for the prior year quarter primarily due to changes in book versus tax differences.

Net Earnings

Net earnings for the second quarter of 2026 decreased to $5.2 million ($0.27 per share) from $10.2 million ($0.52 per diluted share) in the prior year quarter primarily due to the decrease in gross profit and interest income partially offset by lower SG&A expense and restructuring charges.

First Half of Fiscal 2026 Compared to First Half of Fiscal 2025

Net Sales

Net sales for the first half of 2026 increased 14.5% to $332.6 million from $290.4 million in the prior year period, reflecting a 16.2% increase in average selling prices partially offset by a 1.5% reduction in shipments. The increase in average selling prices was driven by price increases implemented to recover higher raw material and operating costs. The decrease in shipments was largely due to adverse weather conditions in most of our markets during the current year period which impacted construction activity.

Gross Profit

Gross profit for the first half of 2026 increased 1.5% to $34.6 million, or 10.4% of net sales, from $34.1 million, or 11.7% of net sales, in the prior year period. The year-over-year increase was primarily due to higher spreads between average selling prices and raw material costs ($4.6 million) partially offset by higher manufacturing costs ($2.1 million), other material costs and adjustments ($1.5 million) and a decrease in shipments ($467,000). The increase in spreads was driven by higher average selling prices ($45.7 million) partially offset by higher raw material costs ($39.9 million) and an increase in freight expense ($1.2 million).

Selling, General and Administrative Expense

SG&A expense for the first half of 2026 decreased 1.2% to $18.5 million, or 5.6% of net sales, from $18.7 million, or 6.4% of net sales, in the prior year period primarily due to lower compensation expense ($566,000) and the relative year-over-year change in the cash surrender value of life insurance policies ($321,000) partially offset by higher legal ($257,000) and employee benefit ($179,000) expenses. The decrease in compensation expense was largely driven by lower incentive plan costs. The cash surrender value of life insurance policies increased $14,000 in the current year period compared with a decrease of $307,000 in the prior year period due to the corresponding changes in the value of the underlying investments. Legal expenses increased due to costs associated with various legal matters. The increase in employee benefit expense was primarily driven by higher employer payroll tax costs.

Restructuring Charges, Net

Net restructuring charges of $51,000 were incurred in the first half 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 first half of 2026 included equipment relocation costs ($48,000) and facility closure costs ($3,000). Net restructuring charges of $1.4 million were incurred in the prior year period for asset impairment charges ($593,000), facility closure costs ($436,000), employee separation costs ($251,000) and equipment relocation costs ($78,000).

Acquisition Costs

Acquisition costs of $298,000 were incurred in the first half of 2025 for legal, accounting and other professional fees related to the EWP Acquisition and the OWP Acquisition.

Interest Income

Interest income decreased $671,000 due to lower average cash balances and interest rates.

Income Taxes

Our effective tax rate for the first half of 2026 decreased to 22.0% from 23.5% for the prior year period. 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.

Net Earnings

Net earnings for the first half of 2026 increased to $12.8 million ($0.65 per diluted share) from $11.3 million ($0.58 per share) in the prior year period primarily due to the increase in gross profit and the net change in restructuring charges and acquisition-related costs partially offset by lower interest income.

Liquidity and Capital Resources

Selected Financial Data

(Dollars in thousands)

		Six Months Ended
		March 28,				March 29,
		2026				2025
Net cash provided by operating activities		$	4,370			$	15,665
Net cash used for investing activities			(6,328	)			(76,338	)
Net cash used for financing activities			(21,584	)			(22,441	)
Net working capital			192,534				156,360
Total debt			-				-
Percentage of total capital			-				-
Shareholders' equity		$	364,516			$	341,413
Percentage of total capital			100.0	%			100.0	%
Total capital (total debt + shareholders' equity)		$	364,516			$	341,413

Operating Activities

Operating activities provided $4.4 million of cash during the first half of 2026 primarily from net earnings adjusted for non-cash items partially offset by a net increase in working capital. Working capital used $18.0 million of cash due to a $21.2 million increase in inventories and a $2.7 million increase in accounts receivable partially offset by a $5.9 million increase in accounts payable and accrued expenses. The increase in inventories was the result of higher raw material purchases together with higher average unit costs. The increase in accounts receivable was primarily due to an increase in days sales outstanding and higher average selling prices. The increase in accounts payable and accrued expenses was related to higher raw material purchases near the end of the period.

Operating activities provided $15.7 million of cash during the first half of 2025 primarily from net earnings adjusted for non-cash items partially offset by a net increase in working capital. Working capital, net of adjustments for assets and liabilities acquired, used $9.6 million of cash due to a $21.5 million increase in accounts receivable partially offset by a $6.6 million increase in accounts payable and accrued expenses and a $5.3 million decrease in inventories. The increase in accounts receivable was largely driven by the increase in shipments combined with higher average selling prices. The reduction in inventories, net of inventory acquired from our acquisitions, was primarily due to lower raw material purchases near the end of the period partially offset by higher unit costs. The increase in accounts payable and accrued expenses was largely due to the timing of payments related to raw material purchases, higher unit costs and increased accruals for 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 $6.3 million of cash during the first half of 2026 compared to using $76.3 million during the prior year period primarily due to the EWP Acquisition ($66.4 million) and the OWP Acquisition ($5.1 million) partially offset by higher capital expenditures ($1.0 million). Capital expenditures increased to $5.9 million from $4.9 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 primarily directed toward cost and productivity improvement initiatives, investments in the growth of our ESM business and routine 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 $21.6 million of cash during the first half of 2026 compared to $22.4 million during the prior year period. During the first half of 2026, $20.6 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 $1.2 million, or $0.06 per share) and $745,000 for the repurchase of common stock. During the first half of 2025, $20.6 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 $1.2 million, or $0.06 per share) and $1.7 million 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 March 28, 2026, 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. During the first half of 2026, we were successful in implementing price increases sufficient to recover the escalation in our raw material costs that occurred over the course of the period. 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 March 28, 2026, 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 second half of fiscal 2026, we expect shipment levels to strengthen, supported by continued momentum in our nonresidential construction markets, the typical seasonal pickup in activity, and the carryover of weather-delayed projects. Overall market conditions remain generally supportive, and we are optimistic about demand across our end markets. We believe Insteel is well-positioned to benefit as activity levels increase.

Beyond the near-term effects of winter weather, broader market forces continue to shape our operating environment, particularly those tied to raw material availability and pricing, evolving U.S. trade policy and ongoing geopolitical tension in the Middle East. Domestic hot-rolled wire rod prices remain far above global levels, practically eliminating the intended impact of the Section 232 derivative product initiative pursued by the Trump Administration in 2025. Even so, we are comfortable with our market position that includes minimal direct import competition, though we remain concerned about the disconnect between U.S. pricing for hot-rolled steel relative to the world market level. Inflationary conditions also continue to pressure our cost structure, including increased tariff costs, higher energy prices and, more recently, escalating freight expenses.

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".