Investor Presentation April 18, 2019

Transcription

1 Investor Presentation April 18, 2019

2 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 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 our plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, they are subject to a number of risks and uncertainties, and we can provide no assurances that such plans, intentions or expectations will be implemented or achieved. All forward-looking statements are based on information that is current as of the date of this presentation. Many of these risks and uncertainties are discussed in detail in our filings with the U.S. Securities and Exchange Commission, in particular our Annual Report on Form 10-K for the year ended September 29, 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. 2

3 Business Overview Insteel Industries is the nation s largest manufacturer of steel wire reinforcing products for concrete construction applications. PC Strand 40% 2018 Sales by Product Line We manufacture and market a broad range of welded wire reinforcement ( WWR ) and prestressed concrete strand ( PC strand ) products. Welded Wire Reinforcement 60% Headquartered in Mount Airy, North Carolina, Insteel operates ten manufacturing facilities located in the United States (seven WWR plants and three PC strand plants). Our business strategy is focused on: achieving leadership positions in our markets. operating as the lowest cost producer in our industry. pursuing growth opportunities in our core businesses that further our penetration of the markets we currently serve or expand our footprint. 3

4 Business Overview Insteel s products are sold primarily to manufacturers of concrete products that are used in nonresidential construction. Sales by End Use Virtually all sales are in the U.S. (< 1% foreign in 2018). Residential Construction 15% Nonresidential Construction 85% Demand is both cyclical and seasonal. Shipments are usually higher in the third and fourth quarters of the fiscal year (April to September) when weather conditions are more conducive to construction activity, and lower in the first and second quarters. Distributors Rebar Fabricators Contractors 30% Sales by Customer Category Concrete Product Manufacturers 70% Insteel s customer base is diverse with minimal concentration. 4

5 Welded Wire Reinforcement ( WWR ) Produced as both standard and specially engineered reinforcing products for use in nonresidential and residential construction. Broad offering of WWR products includes: Engineered Structural Mesh - Engineered made-to-order reinforcing products that are used as the primary reinforcement in concrete elements or structures, frequently serving as a substitute for hotrolled rebar. Concrete Pipe Reinforcement - Engineered made-to-order reinforcing products that are used as the primary reinforcement in concrete pipe and box culverts for drainage and sewage systems, water treatment facilities and other related applications. Standard Welded Wire Reinforcement - Secondary reinforcing products made-to-stock in standard styles for crack control applications in residential and light nonresidential construction, including driveways, sidewalks and a wide range of slab-on-grade applications. 5

6 Engineered Structural Mesh ( ESM ) For many applications, ESM can serve as a lower cost and higher strength concrete reinforcing solution than hot-rolled rebar. Eliminates the labor intensive process of placing and hand-tying required for rebar, yielding significant cost savings and accelerating the construction process. Fewer tons of steel are generally required when ESM is specified due to its superior yield strength (80,000 PSI for ESM versus 60,000 PSI for rebar). Continued conversion of rebar users to ESM represents substantial growth opportunity considering estimated domestic production represents < 5% of rebar volume it could potentially replace. 6

7 Prestressed Concrete Strand ( PC Strand ) Seven-wire strand used to impart compression forces into precast concrete elements and structures, providing reinforcement for bridges, parking decks, buildings and other concrete structures. High tensile strength makes it possible to cast longer spans and thinner sections. PC strand is used for both pretensioned and posttensioned reinforcing applications. Pretensioned Strands are tensioned and anchored at the ends of a form. Anchors are released after the concrete has been placed and cured, creating compression forces within the element. Posttensioned Strands are tensioned after the concrete has been placed and cured. 7

8 Manufacturing Locations Hazleton, PA ESM, SWWR St. Joseph, MO ESM, CPR Kingman, AZ ESM, CPR Hickman, KY SWWR Mount Airy, NC ESM, CPR, SWWR Gallatin, TN PCS Dayton, TX ESM, CPR, SWWR Houston, TX PCS Sanderson, FL PCS Jacksonville, FL ESM, SWWR 8

9 Competitive Position Primary Competitors Welded Wire Reinforcement PC Strand Liberty Steel/Engineered Wire Products Wire Mesh Corp. Concrete Reinforcements Inc. National Wire Products Davis Wire Oklahoma/Iowa Steel and Wire Sumiden Wire Products Liberty Steel/Strand-Tech Wire Mesh Corp. Imports Largest domestic producer of WWR and PC strand and only producer with a national market presence. Strong market leadership positions extend across all product lines/families. Ability to bundle WWR and PC strand products, which are used in combination for many concrete reinforcing applications. 9

10 Ivy Acquisition Wilmington Plant Closed May 2011 Insteel Ivy WWR Facilities Houston Plant Closed Dec 2010 In November 2010, Insteel acquired substantially all the assets associated with the WWR business of Ivy Steel & Wire, Inc. ( Ivy ) for $50.3 million. Ivy was previously the second largest producer of WWR in the U.S. behind Insteel and the largest producer of ESM and concrete pipe reinforcement with September 2010 TTM sales of $105.0 million ($229.8 million in CY 2008). Assets acquired include Ivy s facilities in Arizona, Florida, Missouri and Pennsylvania; equipment at a leased facility in Texas; and certain related inventories. 10

11 American Spring Wire Acquisition Insteel ASW Newnan Plant Closed Mar 2015 PC Strand Facilities In August 2014, Insteel acquired substantially all the assets associated with the PC strand business of American Spring Wire Corporation ( ASW ) for $33.5 million. ASW was previously the second largest producer of PC strand in the U.S. behind Insteel with June 2014 TTM sales of $67.8 million. Assets acquired include working capital, equipment at a leased facility in Texas and a facility in Georgia. 11

12 Ortiz Engineered Products Acquisition In November 2017, Insteel acquired certain of the assets of Ortiz Engineered Products, Inc. ( OEP ). OEP provides value-engineered reinforcing solutions for the concrete construction industry, converting projects designed with conventional rebar to WWR. Addition of OEP s engineering staff and project management capabilities should accelerate ongoing efforts to penetrate rebar market through substitution of ESM for cast-in-place ( CIP ) applications. Newly combined engineering and sales group focused on leveraging ESM manufacturing capabilities and expanding CIP business. 12

13 Financials Net Sales ($ Millions) $500 $450 $400 $350 Ivy Acquisition Nov 2010 $336.9 $363.3 $363.9 ASW Acquisition Aug 2014 $409.0 $117.1 $447.5 $118.1 $418.5 $103.1 $388.9 $96.9 $453.2 $121.4 $300 $99.1 $97.9 $98.2 $250 $200 $230.3 $61.1 $211.6 $56.2 $98.6 $93.6 $96.9 $113.2 $117.0 $115.6 $96.9 $126.7 Q2 YTD $216.1 $150 $57.0 $62.0 $87.0 $82.9 $91.4 $101.8 $107.4 $101.2 $107.4 $111.9 $100 $50.4 $86.9 $50 $0 $52.3 $110.6 $84.8 $85.9 $87.2 $92.4 $93.9 $97.7 $104.1 $61.8 $52.3 $ Q1 Q2 Q3 Q4 13

14 Financials Shipments and Average Selling Prices ASW Acquisition Aug Ivy Acquisition Nov 2010 Index (2009 = 100) Shipments (Tons) Average Selling Price Per Ton 14

15 Financials Gross Profit Drivers % of 2018 Cost of Sales Freight 7% Manufacturing Costs 23% Raw Materials 70% Shipment and operating volumes Spreads Difference between selling price and raw material cost (hot-rolled steel wire rod) Unit manufacturing costs Impacted by operating volumes and cost management 15

16 Steel Scrap Price Trends Chicago Shredded Index $390 ($/Ton) $380 $380 $370 $370 $370 $370 $360 $355 $355 $350 $350 $345 $340 $335 $330 $320 $325 $325 $325 $322 $310 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 16

17 Financials Gross Profit (Annual) $100 25% $80 20% Gross Profit ($ Millions) $60 $40 $86.8 $58.3 $85.2 $59.8 $ % 10% Gross Margin % $48.8 $20 $39.2 5% $31.7 $20.3 $22.5 $0 $ % Gross Profit Gross Margin % ( amounts are pro forma excluding inventory write-downs) 17

18 Financials Gross Profit (Quarterly) Q2 09 Q1 11 Q1 09 Q3 09 Q4 09 Q1 10 Q2 10 Q3 10 Q4 10 Q1 12 Q2 12 Q3 12 Q4 12 Q2 11 Q3 11 Q4 11 Q1 13 Q4 13 Q1 14 Q2 15 Q2 19 Q2 13 Q3 13 Q2 14 Q1 15 Q3 14 Q4 14 Q3 15 Q1 16 Q2 16 Q1 17 Q2 17 Q3 17 Q4 17 Q1 18 Q2 18 Q4 18 Q1 19 Q4 15 Q4 16 Q3 18 Q3 16 $30 30% $25 25% $20 $15 $10 $5 20% 15% 10% 5% Gross Profit ($ Millions) Gross Margin % $0 ($5) 2009 $ % 2010 $ % 2011 $ % 2012 $ % 2013 $ % 2014 $ % 2015 $ % 2016 $ % 2017 $ % 2018 $ % Q2 YTD 2019 $ % 0% (5%) ($10) (10%) Gross Profit Gross Margin % ( amounts are pro forma excluding inventory write-downs) 18

19 Financials EBITDA (Annual) $80 24% $60 18% EBITDA ($ Millions) $40 $77.2 $73.1 $ % EBITDA Margin % $46.7 $48.2 $20 $38.3 6% $30.5 $24.6 $13.6 $15.5 $0 $ % EBITDA EBITDA Margin % (Amounts are pro forma excluding discontinued operations, inventory write-downs, restructuring charges, acquisition costs, bargain purchase gain, gain on early extinguishment of debt, legal settlement, gain on insurance recoveries related to Gallatin fire, settlement of customer dispute and pension plan settlement loss). 19

20 Financials EBITDA (Quarterly) $30 25% $25 Q % $20 Q4 15 Q4 16 Q % EBITDA ($ Millions) $15 $10 $5 $0 ($5) Q1 09 Q $ % Q4 09 Q1 10 Q2 10 Q $ % Q4 10 Q1 11 Q2 11 Q $ % Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q $ % Q2 13 Q3 13 Q4 13 Q1 14 Q $ % Q3 14 Q4 14 Q $ % Q2 15 Q $ % Q1 16 Q $ % Q1 17 Q2 17 Q $ % Q4 17 Q1 18 Q $ % Q4 18 Q1 19 Q2 19 Q2 YTD 2019 $ % 10% 5% 0% (5%) (10%) EBITDA Margin % ($10) Q2 09 (15%) EBITDA EBITDA Margin % (Amounts are pro forma excluding discontinued operations, inventory write-downs, restructuring charges, acquisition costs, bargain purchase gain, gain on early extinguishment of debt, legal settlement, gain on insurance recoveries related to Gallatin fire, settlement of customer dispute and pension plan settlement loss). 20

21 Financials EBITDA Reconciliation Earnings before interest, taxes, depreciation and amortization ( EBITDA ) calculated as earnings from continuing operations before interest expense and income, other income, depreciation and amortization, stock-based compensation expense and income taxes, and excludes inventory write-downs, restructuring charges, acquisition costs, bargain purchase gain, gain on early extinguishment of debt and legal settlement. EBITDA (i) should not be considered as an alternative to net earnings (determined in accordance with GAAP) as an indicator of our financial performance, (ii) is not an alternative to cash flow from operating activities (determined in accordance with GAAP) as a measure of our liquidity, and (iii) is not indicative of funds available to fund our cash needs because of needed capital replacement or expansion, debt service obligations or other cash commitments and uncertainties. We have included EBITDA in the presentation because management believes that it provides investors with a supplemental measure of cash flow and the ability to assess Insteel s operating performance for the periods presented on a comparable basis excluding changes in our capital structure and effective tax rates. Fiscal Year Ended (26 weeks) (52 weeks) (52 weeks) (52 weeks) (53 weeks) (52 weeks) (52 weeks) (52 weeks) (52 weeks) (52 weeks) (53 weeks) March 30, September 29, September 30, October 1, October 3, September 27, September 28, September 29, October 1, October 2, October 3, ($ in 000s) Earnings (Loss) from Continuing Ops $5,175 $36,266 $22,548 $37,245 $21,710 $16,641 $11,735 $1,809 $7,061 $458 ($20,940) Interest Expense , Interest Income (167) (515) (248) (166) (11) (10) (14) (21) (25) (102) (144) Other Expense (Income), Net (1,800) (1,113) (1,907) 333 (188) (279) (291) (135) Inventory Write-Downs ,333 25,941 Acquisition Costs Pension Plan Settlement Loss , Restructuring Charges , , Bargain Purchase Gain (500) - - Gain on Early Extinguishment of Debt (425) - - Legal Settlement ,487 - Depreciation and Amortization 6,622 12,818 11,649 11,544 11,934 10,274 9,833 9,762 9,925 7,009 7,377 Stock-Based Comp Expense 1,019 2,078 2,245 2,439 2,298 2,661 2,161 2,208 2,747 2,258 2,036 Income Taxes 1,624 6,364 11,620 19,045 11,254 8,567 6, ,318 (38) (11,758) EBITDA $12,548 $57,399 $48,167 $73,102 $46,741 $38,337 $30,545 $15,343 $29,177 $13,567 $3,018 21

22 Financials Net Earnings (Annual) ($ Per Diluted Share) $3.00 $2.50 $2.44 $2.00 $2.04 $1.71 $1.50 $1.13 $1.17 $1.00 $0.89 $0.64 $0.50 $0.38 $0.16 $0.11 $0.00 ($0.50) ($0.24) (Amounts are pro forma excluding discontinued operations, inventory write-downs, restructuring charges, acquisition costs, bargain purchase gain, gain on early extinguishment of debt, legal settlement, gain on insurance recoveries related to Gallatin fire, settlement of customer dispute, pension plan settlement loss, gain on remeasurement of deferred tax liabilities and gains (losses) on dispositions of property, plant and equipment). 22

23 Financials Net Earnings (Quarterly) ($ Per Diluted Share) $1.00 $ $2.04 $ $1.71 $0.67 $ $1.13 $0.50 $ $1.17 $0.49 $0.40 $0.20 $ ($0.24) 2010 $ $ $ $ $0.89 $0.00 $0.16 $0.00 $0.09 $0.09 $0.23 $0.27 $0.04 $0.00 $0.02 $0.05 $0.05 $0.13 $0.20 $0.18 $0.13 $0.15 $0.20 $0.28 $0.26 $0.22 $0.10 $0.32 $0.36 $0.38 $0.23 $0.39 $0.36 $0.20 $0.23 $0.31 $0.19 Q2 YTD 2019 $0.20 $0.01 ($0.20) ($0.08) ($0.03) ($0.18) ($0.40) ($0.36) Q1 Q2 Q3 Q4 (Amounts are pro forma excluding discontinued operations, inventory write-downs, restructuring charges, acquisition costs, bargain purchase gain, gain on early extinguishment of debt, legal settlement, gain on insurance recoveries related to Gallatin and Dayton fires, settlement of customer dispute, pension plan settlement loss, gain on remeasurement of deferred tax liabilities and gains (losses) on disposition of property, plant and equipment). 23

24 Financials Cash Flow 2009 Q2 YTD 2019 Sources (Uses) ($ Millions) $250 $239.4 $200 $150 $100 $101.1 $98.1 $74.1 $50 $15.6 $7.7 $0 Cash From Operating Activities (Continuing Operations) Other Capital Expenditures Payment of Cash Dividends Acquisitions Repayment of Debt 24

25 Financials Capital Expenditures $25 ($ Millions) $22.0 $20 $20.6 $18.4 $15 $13.0 $10 $7.9 $8.1 $9.0 $7.2 $5 $5.0 $2.4 $1.5 $ (F) Capital Expenditures Depreciation and Amortization Capital expenditures expected to total up to $22.0 million in 2019 primarily focused on cost and productivity improvement initiatives outlays largely related to additional investments in ESM manufacturing capabilities, purchase of leased Houston facility and upgrades of production technology and information systems. 25

26 Financials Capital Structure $250 80% 70% Total Debt and Shareholders' Equity ($ Millions) $200 $150 $100 $50 60% 50% 40% 30% 20% Total Debt to Total Capitalization (%) 10% $0 0% Q2 09 Q2 10 Q2 11 Q2 12 Q2 13 Q2 14 Q2 15 Q2 16 Q2 17 Q2 18 Q2 19 Total Debt Shareholders' Equity Total Debt to Total Capitalization As of March 30, 2019, Insteel had $0.5 million of cash and $5.4 million outstanding on its $100.0 million revolving credit facility. 26

27 Dividend and Share Repurchase Programs Regular Quarterly Cash Dividend Currently paying regular quarterly cash dividend of $0.03 per share. Special Cash Dividends Paid $1.00 per share special cash dividend in January 2018, $1.25 in January 2017, $1.00 in January 2016, $0.25 in December 2012 and $0.50 in October Share Repurchase Program Current $25.0 million share repurchase program was authorized in November During 2008, 913,000 shares were repurchased under previous authorizations for $8.7 million or approximately 5% of total shares outstanding as of beginning of year. 27

28 Construction Spending Value of Construction Put In Place (Not Seasonally Adjusted) ($ Billions and Y-O-Y % Change) $1,400 $1,200 $1,000 $800 $600 $400 $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $1, % $ % $ % $1, % $ % $ % $1, % $ % $ % $1, % $ % $ % $1, % $ % $ % $200 $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ Private Nonresidential Public Private Residential Total construction spending for 2018 was up 3.9% from the prior year, with private nonresidential up 3.4% and private residential up 2.8% while public was up 6.4%. 28

29 Construction Spending Value of Construction Put in Place (Not Seasonally Adjusted) ($ Billions) $80 $75 $73 $70 $68 $68 $69 $68 $60 $57 $61 $54 $61 $50 $40 $35 $38 $35 $37 $40 $30 $20 $10 $0 Private Nonresidential Public Private Residential Private construction spending for February YTD 2019 was down 0.6% from the prior year, with nonresidential up 1.6% and residential down 2.5% while public construction spending was up 8.9%. 29

30 Construction Spending 15% Value of Construction Put-in-Place (Seasonally-Adjusted Annual Rate) (Y-O-Y % Change) 10% 5% 0% -5% Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Total Construction Private Residential Private Nonresidential Public Total construction spending for February 2019 (SAAR) was up 1.1% from the prior year with public up 11.5%, private nonresidential up 0.1% and private residential down 3.4%. 30

31 Construction Employment 8,000 Apr , % 7,500 Mar , % 7, % (SAAR in 000s) 6, % 6, % 5,500 Jan , % 5,000 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12 Apr-13 Apr-14 Apr-15 Apr-16 Apr-17 Apr % Construction Employment Unemployment Rate Construction employment in March 2019 was up 16,000 from the prior month and 246,000, or 3.4% from a year ago. Construction unemployment rate in March 2019 fell to 5.2% from 7.4% a year ago. 31

32 Architecture Billings Index Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 May-18 Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 Monthly Three-Month Average Architecture Billings Index ( ABI ) is a leading indicator for nonresidential building construction activity based on nine to twelve month lead time between architecture billings and construction spending. ABI moderated to 47.8 in March 2019 from 50.3 the prior month following 25 consecutive monthly increases. 32

33 Dodge Momentum Index 170 (Year 2000 = 100) Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 May-18 Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 Monthly Three Month Average Dodge Momentum Index ( DMI ) is a leading indicator for nonresidential building construction activity (excluding manufacturing) based on twelve-month lead time between reported projects in planning phase and construction spending. DMI for March 2019 was up 0.5% from the prior month, but down 2.3% from a year ago. 33

34 FAST Act $48 Total FAST Act Authorization to Federal Highway Administration ($ Billions) 6.0% 5.3% $47.3 $47 5.0% $46.2 $46 $ % $45 $ % $44 $43 $ % 2.2% 2.3% 2.4% 2.0% $42 1.0% $ Total Authorization Y-O-Y % Change 0.0% Fixing America s Surface Transportation Act (FAST Act) authorizes $305 billion of funding over a five-year period, including $226.2 billion for federal highway investment. First long-term surface transportation funding bill enacted in over a decade following series of 36 short-term extensions. Average annual funding represents 10% nominal increase over previous level. Improved funding visibility for states and municipalities should favorably impact project mix, increasing proportion of larger, longer-term projects requiring concrete reinforcing products. 34

35 Outlook Expect continued growth in construction end-markets over remainder of 2019, which should support higher shipments and lower unit manufacturing costs. Leading indicators and forecasts for nonresidential building construction remain positive. Infrastructure-related business should be favorably impacted by FAST act and supplemental measures at the federal level and higher state and local spending supported by various funding initiatives. Continued recovery in housing market should also benefit certain segments within nonresidential construction. Business conditions expected to remain challenging due to escalation in raw material costs resulting from Section 232 tariffs and wire rod trade cases, and increasing low-priced import competition. Recent capital investments should generate increasing contributions through cost reductions and additional capacity. New raw material cleaning and production lines at Houston PC strand facility provides additional capacity to service Texas market and expected to reduce costs $5.0 million/year. New ESM production line at St. Joseph facility reduces manufacturing costs and provides additional capacity to service Midwest market. 35

36 Summary Investment Considerations Strong positions in attractive fragmented markets. Modern manufacturing facilities and highly competitive cost structure. Significant growth potential of existing facilities through increased capacity utilization as market conditions improve. Highly variable cost structure advantageous during business downturns. Growth initiatives (organic and acquisitions). National scope of facilities and markets served. Financial strength and flexibility. Experienced management team. Import competition limited to PC strand business. Diversified customer base. Breadth of product lines and bundling capabilities. Raw material purchasing leverage volume and mix. Lack of legacy issues environmental, post-retirement or defined benefit plan obligations. 36