iiin20240629

iiin20240629_10q.htm

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 June 29, 2024.

☐	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: 1-09929

Insteel Industries Inc.

(Exact name of registrant as specified in its charter)

North Carolina	56-0674867
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1373 Boggs Drive, Mount Airy, North Carolina	27030
(Address of principal executive offices)	(Zip code)

(336) 786-2141

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common Stock (No Par Value)

IIIN

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☒
Non-Accelerated filer ☐	Smaller reporting company ☐
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date.

Common Stock (No Par Value)	19,444,897
Title of Class	Number of Shares Outstanding as of July 17, 2024

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

Item 1.	Unaudited Financial Statements
	Consolidated Statements of Operations and Comprehensive Income	3
	Consolidated Balance Sheets	4
	Consolidated Statements of Cash Flows	5
	Consolidated Statements of Shareholders' Equity	6
	Notes to Consolidated Financial Statements	7

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	14

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	20

Item 4.	Controls and Procedures	20

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	21

Item 1A.	Risk Factors	21

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	21

Item 5.	Other Information	21

Item 6.	Exhibits	22

SIGNATURES		23

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

INSTEEL INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(In thousands, except per share amounts)
(Unaudited)

	Three Months Ended						Nine Months Ended
	June 29,			July 1,			June 29,			July 1,
	2024			2023			2024			2023

Net sales	$	145,775		$	165,714		$	394,894		$	491,664
Cost of sales		130,387			145,347			357,521			440,249
Gross profit		15,388			20,367			37,373			51,415
Selling, general and administrative expense		7,879			7,924			22,121			22,556
Other expense (income), net		15			(24	)		2			(3,423	)
Interest expense		19			20			76			67
Interest income		(1,245	)		(1,097	)		(4,051	)		(2,284	)
Earnings before income taxes		8,720			13,544			19,225			34,499
Income taxes		2,155			2,979			4,589			7,710
Net earnings	$	6,565		$	10,565		$	14,636		$	26,789


Net earnings per share:
Basic	$	0.34		$	0.54		$	0.75		$	1.37
Diluted		0.34			0.54			0.75			1.37

Weighted average shares outstanding:
Basic		19,500			19,488			19,502			19,506
Diluted		19,568			19,548			19,579			19,565

Cash dividends declared per share	$	0.03		$	0.03		$	2.59		$	2.09

Comprehensive income	$	6,565		$	10,565		$	14,636		$	26,789

See accompanying notes to consolidated financial statements.

INSTEEL INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)

	(Unaudited)
	June 29,			September 30,
	2024			2023
Assets
Current assets:
Cash and cash equivalents	$	97,745		$	125,670
Accounts receivable, net		61,234			63,424
Inventories		89,379			103,306
Other current assets		8,766			6,453
Total current assets		257,124			298,853
Property, plant and equipment, net		127,889			120,014
Intangibles, net		5,528			6,090
Goodwill		9,745			9,745
Other assets		14,329			12,811
Total assets	$	414,615		$	447,513

Liabilities and shareholders' equity
Current liabilities:
Accounts payable	$	34,827		$	34,346
Accrued expenses		9,888			11,809
Total current liabilities		44,715			46,155
Other liabilities		23,885			19,853
Commitments and contingencies
Shareholders' equity:
Common stock		19,445			19,454
Additional paid-in capital		85,599			83,832
Retained earnings		241,254			278,502
Accumulated other comprehensive loss		(283	)		(283	)
Total shareholders' equity		346,015			381,505
Total liabilities and shareholders' equity	$	414,615		$	447,513

See accompanying notes to consolidated financial statements.

INSTEEL INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

	Nine Months Ended
	June 29,			July 1,
	2024			2023
Cash Flows From Operating Activities:
Net earnings	$	14,636		$	26,789
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		11,412			9,835
Amortization of capitalized financing costs		38			45
Stock-based compensation expense		1,903			1,534
Deferred income taxes		3,638			(991	)
Loss (gain) on sale and disposition of property, plant and equipment		50			(3,321	)
Increase in cash surrender value of life insurance policies over premiums paid		(1,029	)		(854	)
Net changes in assets and liabilities:
Accounts receivable, net		2,190			15,283
Inventories		13,927			64,528
Accounts payable and accrued expenses		(2,492	)		(12,745	)
Other changes		(2,295	)		3,223
Total adjustments		27,342			76,537
Net cash provided by operating activities		41,978			103,326

Cash Flows From Investing Activities:
Capital expenditures		(17,460	)		(26,604	)
Increase in cash surrender value of life insurance policies		(443	)		(402	)
Proceeds from sale of property, plant and equipment		4			9,924
Proceeds from surrender of life insurance policies		25			358
Net cash used for investing activities		(17,874	)		(16,724	)

Cash Flows From Financing Activities:
Proceeds from long-term debt		230			255
Principal payments on long-term debt		(230	)		(255	)
Cash dividends paid		(50,359	)		(40,668	)
Payment of employee tax withholdings related to net share transactions		(262	)		(196	)
Cash received from exercise of stock options		428			191
Financing costs		-			(177	)
Repurchases of common stock		(1,836	)		(2,328	)
Net cash used for financing activities		(52,029	)		(43,178	)

Net (decrease) increase in cash and cash equivalents		(27,925	)		43,424
Cash and cash equivalents at beginning of period		125,670			48,316
Cash and cash equivalents at end of period	$	97,745		$	91,740

Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Income taxes, net	$	3,267		$	5,466
Non-cash investing and financing activities:
Purchases of property, plant and equipment in accounts payable		2,624			843
Restricted stock units and stock options surrendered for withholding taxes payable		262			196

See accompanying notes to consolidated financial statements.

INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(In thousands)

(Unaudited)

													Accumulated
							Additional						Other			Total
	Common Stock						Paid-In			Retained			Comprehensive			Shareholders'
	Shares			Amount			Capital			Earnings			Loss			Equity
*For the three and nine months ended June 29, 2024*

Balance at September 30, 2023		19,454		$	19,454		$	83,832		$	278,502		$	(283	)	$	381,505
Net earnings											1,132						1,132
Stock options exercised, net		13			13			297									310
Compensation expense associated with stock-based plans								398									398
Repurchases of common stock		(19	)		(19	)		(82	)		(438	)					(539	)
Restricted stock units and stock options surrendered for withholding taxes payable								(20	)								(20	)
Cash dividends declared											(49,191	)					(49,191	)
Balance at December 30, 2023		19,448			19,448			84,425			230,005			(283	)		333,595
Net earnings											6,939						6,939
Stock options exercised, net		4			4			114									118
Vested and released restricted stock units		24			24			(24	)								-
Compensation expense associated with stock-based plans								997									997
Repurchases of common stock		(9	)		(9	)		(39	)		(255	)					(303	)
Restricted stock units and stock options surrendered for withholding taxes payable								(141	)								(141	)
Cash dividends declared											(584	)					(584	)
Balance at March 30, 2024		19,467			19,467			85,332			236,105			(283	)		340,621
Net earnings											6,565						6,565
Vested and released restricted stock units		8			8			(8	)								-
Compensation expense associated with stock-based plans								508									508
Repurchases of common stock		(30	)		(30	)		(132	)		(832	)					(994	)
Restricted stock units and stock options surrendered for withholding taxes payable								(101	)								(101	)
Cash dividends declared											(584	)					(584	)
Balance at June 29, 2024		19,445		$	19,445		$	85,599		$	241,254		$	(283	)	$	346,015

*For the three and nine months ended July 1, 2023*

Balance at October 1, 2022		19,478		$	19,478		$	81,997		$	289,246		$	(977	)	$	389,744
Net earnings											11,123						11,123
Stock options exercised, net		5			5			89									94
Compensation expense associated with stock-based plans								130									130
Repurchases of common stock		(32	)		(32	)		(134	)		(750	)					(916	)
Cash dividends declared											(39,501	)					(39,501	)
Balance at December 31, 2022		19,451			19,451			82,082			260,118			(977	)		360,674
Net earnings											5,101						5,101
Vested and released restricted stock units		24			24			(24	)								-
Compensation expense associated with stock-based plans								983									983
Repurchases of common stock		(34	)		(34	)		(146	)		(829	)					(1,009	)
Restricted stock units and stock options surrendered for withholding taxes payable								(187	)								(187	)
Cash dividends declared											(584	)					(584	)
Balance at April 1, 2023		19,441			19,441			82,708			263,806			(977	)		364,978
Net earnings											10,565						10,565
Stock options exercised, net		6			6			91									97
Compensation expense associated with stock-based plans								421									421
Repurchases of common stock		(14	)		(14	)		(61	)		(328	)					(403	)
Restricted stock units and stock options surrendered for withholding taxes payable								(9	)								(9	)
Cash dividends declared											(583	)					(583	)
Balance at July 1, 2023		19,433		$	19,433		$	83,150		$	273,460		$	(977	)	$	375,066

See accompanying notes to consolidated financial statements

INSTEEL INDUSTRIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1) Basis of Presentation

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the U.S. (“GAAP”) on a basis consistent with that used in the Annual Report on Form 10-K for the year ended September 30, 2023 (“2023 Form 10-K”) filed by us with the Securities and Exchange Commission. These statements include all normal recurring adjustments necessary to present fairly the consolidated balance sheets and the statements of operations and comprehensive income, cash flows and shareholders’ equity for the periods indicated. The September 30, 2023 consolidated balance sheet was derived from audited consolidated financial statements but does not include all the disclosures required by GAAP. These statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our 2023 Form 10-K. The results of operations for the periods indicated are not necessarily indicative of the results that may be expected for the full fiscal year or any future periods.

(2) Recent Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures”. ASU No. 2023-07 requires disclosures to include significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”), a description of other segment items by reportable segment and any additional measures of a segment's profit or loss used by the CODM when deciding how to allocate resources. The ASU requires all annual disclosures currently required by Topic 280 to be included in interim periods and is applicable to entities with a single reportable segment. ASU No. 2023-07 will be effective for us in fiscal 2025 for annual reporting and in the first quarter of fiscal 2026 for interim reporting. Retrospective application is required for all prior periods presented in the financial statements. We are currently evaluating the impact of the ASU on our disclosures within the consolidated financial statements.

In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”. ASU No. 2023-09 requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income tax paid. ASU No. 2023-09 will become effective for us in fiscal 2026. We are currently evaluating the impact of the ASU on our income tax disclosures within the consolidated financial statements.

(3) Revenue Recognition

We recognize revenues when performance obligations under the terms of a contract with our customers are satisfied, which generally occurs when products are shipped and control is transferred. We enter into contracts that pertain to products, which are accounted for as separate performance obligations and typically one year or less in duration. We do not exercise significant judgment in determining the timing for the satisfaction of performance obligations or the transaction price. Revenue is measured as the amount of consideration expected to be received in exchange for our products. We present revenue net of amounts collected from customers for sales tax.

Variable consideration that may affect the total transaction price, including contractual discounts, rebates, returns and credits, are included in net sales. Estimates for variable consideration are based on historical experience, anticipated performance and management's judgment and are updated as of each reporting date. Shipping and related expenses associated with outbound freight are accounted for as fulfillment costs and included in cost of sales. We do not have significant financing components. Contract costs are not significant and are recognized as incurred.

Our net sales by product line are as follows:

	Three Months Ended				Nine Months Ended
	June 29,		July 1,		June 29,		July 1,
(In thousands)	2024		2023		2024		2023
Welded wire reinforcement	$	84,486	$	96,698	$	223,038	$	284,044
Prestressed concrete strand		61,289		69,016		171,856		207,620
Total	$	145,775	$	165,714	$	394,894	$	491,664

Contract assets primarily relate to our rights to consideration for products that are delivered but not billed as of the reporting date and are reclassified to receivables when the customer is invoiced. Contract liabilities primarily relate to performance obligations that are to be satisfied in the future and arise when we collect from the customer in advance of shipments. Contract assets and liabilities were not material as of June 29, 2024, and September 30, 2023.

Accounts receivable includes amounts billed and currently due from customers stated at their net estimated realizable value. Customer payment terms are generally 30 days. We maintain an allowance for credit losses to provide for the estimated receivables that will not be collected, which is based upon our assessment of customer creditworthiness, historical payment experience and the age of outstanding receivables. Past-due trade receivable balances are written off when our collection efforts have been unsuccessful.

(4) Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The authoritative guidance for fair value measurements establishes a three-level fair value hierarchy that encourages an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs used to measure fair value are as follows:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets.

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities, including certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

As of June 29, 2024, and September 30, 2023, we held financial assets that are required to be measured at fair value on a recurring basis, which are summarized below:

(In thousands)	Total		Quoted Prices in Active Markets (Level 1)		Observable Inputs (Level 2)
As of June 29, 2024:
Current assets:
Cash equivalents	$	98,218	$	98,218	$	-
Other assets:
Cash surrender value of life insurance policies		12,032		-		12,032
Total	$	110,250	$	98,218	$	12,032

As of September 30, 2023:
Current assets:
Cash equivalents	$	125,805	$	125,805	$	-
Other assets:

SEC Form 10-Q filed by Insteel Industries Inc.