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DATE
Thursday, Oct. 22, 2026
CALL PARTICIPANTS
- President and Chief Executive Officer - H. Woltz
- Vice President, Chief Financial Officer and Treasurer - Scot R. Jafroodi
TAKEAWAYS
- Net Sales -- $209.3 million, representing an 17.9% increase year over year driven by higher average selling prices and increased shipments during a 14-week fiscal quarter.
- Net Earnings -- $7.7 million, or $0.40 per diluted share, reflecting a decrease from $14.6 million in the prior year quarter due to narrow margins and inflationary pressures.
- Gross Margin -- 10.0%, a contraction of 6.1 percentage points from 16.1% in the prior year quarter due to the narrow spread between selling prices and raw material costs.
- Shipment Volume -- 10.6% growth year over year, though on a comparable 13-week basis shipments increased only 2.2% reflecting underlying demand in infrastructure and data center construction.
- Average Selling Prices -- 6.6% increase year over year, resulting from pricing actions implemented to recover higher steel wire rod, freight, and other operating costs.
- Fiscal 2027 Capital Expenditures Guidance -- $30 million, with $20 million focused on expanding engineered structural mesh capacity at an existing facility.
- Full-Year Operating Cash Flow -- $36.6 million, an increase from $27.2 million in fiscal 2025 primarily due to favorable changes in net working capital.
- Inventory Level -- 3.4 months of shipments, down slightly from 3.5 months as the company supplemented constrained domestic rod availability with offshore purchases.
- Share Repurchases -- 114,000 shares for $3.2 million during the full fiscal year, as part of a disciplined capital allocation strategy.
- Cash Balance -- $37.5 million with no debt outstanding at fiscal year-end, leaving the company positioned to fund operating needs and pursue investment opportunities.
- Restructuring Charges -- $700,000 in the fourth quarter, related to the consolidation of welded wire operations and the closure of the Upper Sandusky facility.
- Effective Tax Rate -- 24.2% for the fourth quarter, compared with 24.4% in the prior year quarter, driven by changes in book to tax differences.
- SG&A Expense -- $10.4 million, or 5% of net sales, reflecting higher labor costs from the additional week and unfavorable changes in life insurance cash surrender value.
- Architectural Billing Index -- 44.7 in Sept., down from 47.2 in Aug., indicating a further deterioration of business conditions at architectural firms.
- Dodge Momentum Index -- 2.4% gain in Sept., supported by a 9.4% increase in institutional planning for education, health care, and government projects.
- Construction Spending -- 0.9% increase in Aug. on a seasonally adjusted basis, with highway and street construction spending rising 4.6% year over year.
- Wire Rod Supply Deficit -- 1.3 million tons in the U.S. market, requiring the company to navigate antidumping and countervailing duty orders to secure imported supply.
- Pricing Actions -- Seven price increases implemented since Dec. 2025 to counteract rising costs for raw materials, labor, and energy.
- Full-Year Dividend -- $1.12 per share, including a $1.00 special dividend paid in the first quarter and regular quarterly payments.
- Nonresidential Construction Spending -- 0.5% growth year over year in Aug., providing mixed indicators for private nonresidential demand.
- 13-Week Comparable Shipments -- 5.4% sequential decrease from the third quarter, reflecting seasonally lower demand and project-specific timing factors.
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RISKS
- Woltz noted, "Domestic wire rod prices remain at historically high levels, well above prices in global markets, while availability continues to be constrained," highlighting raw material supply risks.
- Woltz stated, "The situation is particularly concerning with respect to our primary raw material, hot rolled steel wire rod," following Section 232 tariff changes that made Canadian supply uncompetitive.
- Woltz noted that "diesel fuel prices have surged in recent months dramatically increasing costs for inbound and outbound transportation," impacting overall operating margins.
- Woltz warned that "offshore competitors once again have a distinct advantage relative to domestic producers of PC strand" due to domestic price levels making certain derivative tariffs ineffective.
SUMMARY
Insteel Industries Inc. (NYSE:IIIN) reported fourth quarter results impacted by elevated input costs and mixed demand across its primary construction end markets. Management reported that infrastructure and data center activity provided a foundation for shipment volumes, while private nonresidential and housing segments remained weak. The company is currently consolidating its welded wire operations, which includes the closure of the Upper Sandusky facility, to improve operating efficiency and lower unit conversion costs. Management stated that the company remains debt-free with $37.5 million in cash to fund a $30 million capital investment program in fiscal 2027.
- Management reported that previous data center project delays were temporary, and shipments have commenced on the originally communicated schedules.
- The company is expanding its engineered structural mesh capacity with a new production line, representing a $20 million strategic investment.
- CEO Woltz stated, "Funding at state and federal levels looks like it will be fairly flat in 2027. but will remain at healthy levels as analyzed by ARPA among others."
- Management has implemented seven price increases since Dec. 2025 to counteract rising costs for labor, electricity, chemicals, and raw materials.
- Management noted that while the housing market remains in a trough, they do not expect further deterioration in that segment during fiscal 2027.
- CFO Jafroodi indicated that inventory levels are expected to remain near current levels through the first quarter of fiscal 2027 to mitigate domestic supply risks with offshore purchases.
- The company returned $24.9 million to shareholders through dividends and share repurchases during the full fiscal year.
INDUSTRY GLOSSARY
- PC Strand: Prestressed concrete strand, a seven-wire product used to introduce compression into precast concrete structures.
- ESM: Engineered structural mesh, a custom-made welded wire reinforcement product used as an alternative to conventional rebar.
- WWR: Welded wire reinforcement, a product used in both residential and nonresidential concrete construction.
- Section 232: U.S. trade policy involving tariffs on imported steel and aluminum intended to protect national security.
- Architectural Billing Index (ABI): An economic indicator that provides a nine-to-12-month glimpse into the future of nonresidential construction spending.
- Dodge Momentum Index: A monthly measure of the initial report for nonresidential building projects in planning, which leads construction spending by about a year.
Full Conference Call Transcript
Operator: To raise your hand, To withdraw your question, press star 1 again. I will now hand the conference over to H. Woltz, president and chief executive officer. H? Please go ahead.
Howard Osler Woltz: Good morning. Thank you for your interest in Insteel, and welcome to our fourth quarter 2026 conference call which will be conducted by Scot R. Jafroodi, our Vice President, CFO and Treasurer, and me. Before we begin, let me remind you that some of the comments made in our presentation are considered to be forward looking statements that are subject to various risks and uncertainties which could cause actual results to differ materially from those projected. These risk factors are described in our periodic filings with the SEC. Looking back at 2026, public funding for infrastructure improvements continued to be solid foundation for Insteel's markets. Except for data center activity, private nonresidential markets were disappointing.
And housing, the smallest of Insteel's market, was weak and adversely affected by a host of unfavorable developments. I will turn the call over to Scot to comment on our financial results. And following his comments, I will pick the call back up to discuss our business outlook.
Scot R. Jafroodi: Thank you, H., and good morning to everyone joining us on the call. Reported in our earnings release this morning, our fourth quarter results reflected the challenging cost environment that persisted throughout fiscal 26. Net earnings were $7.7 million or $0.40 per share compared with $14.6 million or $0.74 per diluted share in the prior year quarter. This quarter results included $700 thousand of restructuring charges related to consolidation of our welded wire operations announced in August. These charges reduced net earnings by $0.03 per diluted share. Before discussing sales and shipments, I would like to note that fiscal 2026 was a 53-week year.
Resulting in a 14-week fourth quarter compared with 13 weeks in both the prior year fourth quarter and the third quarter of fiscal 2026. Accordingly, net sales and shipment volumes benefited from the additional week. Net sales for the quarter were $209 million up 17.9% from $177 million in the prior year period. Total shipments increased 10.6% year over year and 2.5% sequentially from the third quarter with both comparisons benefiting from the additional week in the current year quarter. On a comparable 13-week basis, shipments increased 2.2% from the prior year quarter, but decreased 5.4% sequentially from the third quarter.
From a demand standpoint, fourth quarter shipments remain supported by healthy infrastructure spending and ongoing data center related construction activity. Continued expansion of our engineered structural mesh business also contributed to shipment activity and helped offset softness across much of the broader private nonresidential construction market. During the quarter, we began shipping on several projects that had previously been delayed. Although scheduling and delivery delays continue to affect the timing of certain shipments, we believe these issues reflect project specific timing factors rather than any deterioration in underlying demand. Overall, customer sentiment remains generally positive supporting our confidence in the demand outlook across our key end markets as we enter fiscal 27.
Moving from shipment activity to pricing, average selling prices increased 6.6% from the prior year quarter and increased 3.3% from the third quarter. Reflecting pricing actions implemented to recover higher steel wire rod, freight, and other operating costs. We continue to closely manage the spread between selling prices and our underlying costs to support margins and profitability. Gross profit for the quarter was $21 million compared with $28.6 million a year ago, while gross margin declined 610 basis points to 10% from 16.1%. The year over year decrease reflects the narrow spread between selling prices and raw material costs. Higher freight and manufacturing expenses, and elevated unit conversion costs due to lower than expected production volumes.
Pricing actions partially offset these pressures, but the increase in average selling prices was not sufficient to fully recover the higher costs. Sequentially, gross profit increased $5.9 million from $2.021 billion in the third quarter, while gross margin edged down to 10% from 10.2%. Looking ahead to the first quarter of fiscal 27, we expect to see increased benefits from the closure of our Upper Sandusky facility and the consolidation of our welded wire operations. Which should contribute to lower cost and improve operating efficiency. Elevated input costs and seasonally lower demand are expected to continue to pressure margins in the near term.
However, our recently announced price increase, together with the savings in efficiency gains from the Upper Sandusky closure and welded wire operation consolidation should provide additional margin support. And position us to improve profitability as we move through the year. SG&A expense for the quarter was $10.4 million or 5% of net sales. Compared with $9.7 million or 5.5% of net sales in the prior year period. The year over year increase primarily reflected higher payroll and other labor related costs associated with the additional week in the current year quarter, as well as a $666 thousand year-over-year unfavorable change in the cash surrender value of life insurance policies resulting from weaker financial market performance.
These create increases were partially offset by $700 thousand reduction in compensation expense under our return on capital incentive plan reflecting lower financial performance relative to the prior year. Our effective tax rate for the fourth quarter was 24.2%, compared with 24.4% a year ago. For the full fiscal year, our effective tax rate was 22.8% compared with 23.8% in fiscal 2025. Decrease was mainly driven by changes in book to tax differences. Looking ahead to fiscal 27, we expect our effective rate to run around 23% subject to the level of pretax earnings book to tax differences, and the other assumptions and that compose our tax provision calculation. Turning to the cash flow statement and balance sheet.
Operating activities generated $18.2 million of cash during the fourth quarter. Compared with a use of $17 million in the prior year period. Changes in net working capital contributed $4.6 million of cash primarily due to lower inventory levels. Partially offset by an increase in accounts receivable. For the full year, cash provided by operating activities increased to $36.6 million from $27.2 million in fiscal 2025. Inventory position at year-end represent approximately 3.4 months of shipments on a forward looking basis calculated from our first quarter fiscal 2027 forecast down slightly from 3.5 months at the end of the third quarter.
Inventory remained elevated throughout fiscal 26 as we supplemented constrained domestic rod availability with imported material to meet customer demand and reduce supply risk. Expect inventory balances to remain near current levels through the first quarter as we continue to offset limited domestic supply with offshore purchases. At the end of the fourth quarter, inventory is valued at an average unit cost generally consistent with the cost reflected in fourth quarter cost of sales. And favorable to current replacement cost. We invested $2.7 million in capital expenditures during the fourth quarter. Bringing total capital spending of $11.8 million for the year compared with $8.2 million in fiscal 2025.
Looking ahead, we expect fiscal 27 capital expenditures to total approximately 30 million H will provide more details in his remarks. While investing in the business to support growth and reduce costs remains our top priority, We continue to return capital to shareholders throughout the course of the fiscal year. The combination of a $1.00 per share special dividend paid in the first quarter and 4 regular quarterly dividends of $0.03 per share resulted in total dividends of $1.12 per share for the year. We also continue to repurchase shares under our existing buyback program acquiring approximately 15 thousand shares during the fourth quarter and approximately 114 thousand shares for the full year at a total cost of $3.2 million.
We remain confident in the long term value of our shares and view share repurchases as an effective component of our disciplined capital allocation strategy. We closed the fiscal year with $37.5 million in cash and no borrowings outstanding under our $100 million revolving credit facility. Leaving us well positioned to fund our operating needs and pursue investment opportunities. Turning to the macro indicators for our construction end markets. Recent data continues to present a mixed picture for the outlook. In September, architectural billing index declined to 44.7 from 47.2 in August, indicating a further deterioration of business conditions at architectural firms. The index remains below the 50 threshold that separates expansion from contraction.
With the pace of decline accelerating during the month. While increase for new projects increased newly signed design contracts weakened significantly suggesting continued pressure on future nonresidential construction activity. The Dodge Momentum Index, which measures nonresidential building projects entering the planning stage increased 2.4% in September The gain was driven by a 9.4% increase in institutional planning. Supported by strength in education, health care, government projects. Commercial planning declined 1.3% as slower activity in data center and warehouse projects more than offset improvement across several other commercial categories. Overall, the industry continues to indicate a healthy pipeline of projects, although the composition of planning activity remains uneven.
The most recent construction spending data from the US Census Bureau show that total spending increased 0.9% on a seasonally adjusted annual basis in August, but declined 1.7% from a year earlier. Nonresidential construction spending increased 0.7% from July and 0.5% year over year, while highway and street construction a key end market for our products, increased 0.2% for the month and 4.6% from the prior year. Taken together, these indicators suggest that nonresidential construction conditions remain mixed as we enter fiscal 27. Public infrastructure spending and data center investment continues to support demand. Activity across much of the broader private nonresidential market remains soft. Against this backdrop, we remain focused on the factors within our control.
Managing costs, improving operating efficiencies, and allocating capital on a disciplined manner. This concludes my prepared remarks. I will now turn the call back over to H.
Howard Osler Woltz: Thank you, Scot. As we reported last quarter, infrastructure markets have been reasonably strong for the company, we believe we will see a repeat performance from infrastructure applications in 2027. Funding at state and federal levels looks like it will be fairly flat in 2027. but will remain at healthy levels as analyzed by ARPA among others. Concerning private nonresidential construction markets, we believe the data center momentum will continue through 2027, and we are evaluating many non data center projects which gives us confidence we will see more well-rounded demand in broader market segments than in 2026. In other words, it looks like a recovery may be underway in the private nonresidential market.
During our Q2 and Q3 conference calls, we reported delays in shipments to data center projects which seemed to ripple throughout the supply chain. We can now report that the delays were, in fact, delays and not cancellations as shipments have commenced on essentially the schedule originally communicated. Just later. Clearly, though, delays came with minimal notice and there was little we could do to backfill the holes created by project delays. Lower shipping performance was the result. Housing, of course, has been stuck in a trough for several quarters. And we see no reasonable prospect for a meaningful recovery in 2027. At the same time, we do not expect further deterioration in housing.
It should be noted that over the last couple of years, we have dramatically expanded the market for our engineered structural mesh and shipments have grown to become a meaningful part of our business. While the general softness in construction markets masked our progress, our performance would have lagged substantially had we not pursued new applications and new markets. We expect to continue growing in 2027 and beyond. With fewer growth paths in our traditional markets, we expect growth in those to mirror the growth in the overall construction market. Unfavorable market trends in housing, and light private commercial construction together with insufficient domestic wire rod supplies led to severe margin compression during fiscal 2026.
In the standard welded wire reinforcement market. With the expected impact on shipments and profitability. Another obstacle adversely affecting our financial performance has been the impact of inflation on nearly every product or service we acquire to operate our plant. The situation is particularly concerning with respect to our primary raw material, hot rolled steel wire rod. Following the Section 232 tariff rate rising to 50% and adding Canada and Mexico to the list of covered countries. Canadian mills which were regularly active in our supply chain, immediately became uncompetitive relative to domestic prices and other offshore prices.
Since the Section 232 tariff changes in 2025, we have been unable to source adequate volumes of wire rod in North America and have been forced to purchase significant quantities from other more remote producers. By our calculation, there is a supply deficit of steel wire rod produced in the U.S. of approximately 1.3 million tons. With few, if any, investments being made to expand domestic output of wire rods, the deficit must be imported has become more difficult as we navigate around antidumping and countervailing duty orders in addition to the Section 232.
Today, it appears domestic wire rod producers have little competition in their markets and have elected to make hay while the sun shines and issue investments in additional capacity. Domestic prices have risen to the extent that the Section 232 tariff applicable to derivative products such as PC strand has become nearly meaningless. Offshore competitors once again have a distinct advantage relative to domestic producers of PC strand.
Needless to say, the housing downturn together with trade policies adversely affecting domestic PC strand producers severely pressured shipment volumes and profitability in standalone domestic tension market for PC strand where import competition is rampant Aside from inflationary trends and trade policy obstacles, affecting raw material markets, costs have also risen rapidly for labor, electricity, chemicals, carbide and copper, spare parts, and nearly every other input into our manufacturing process. Notably, diesel fuel prices have surged in recent months dramatically increasing costs for inbound and outbound transportation. Our company has always focused intently on managing costs, but today's environment has overwhelmed all efforts to stem the tide of rising costs through internal actions.
As a result, we have implemented 6 price increases since December 2025. and a 7th has been announced with an effective date of a few days from now. This is unprecedented in my years in this business. Turning to CapEx. As mentioned in the release, we expect to invest approximately $30 million in our plants and information systems infrastructure during 2027. Our largest investment approximating $20 million is focused on expanding our engineered structural mesh capacity with the addition of a new production line at an existing facility. We also plan to install new equipment to service the PC strand market which should increase output and reduce manufacturing costs.
Other investments will constitute replacements and upgrades to existing equipment and facilities that will reduce cost and or improve product quality. I would point out with respect to our engineered structural mesh investment, that we know existing capacity will be consumed in the near term which will adversely affect customer service and stymie growth if not addressed. But we do not know the market conditions that might confront us upon startup of the new line. Our judgment is that the company and its shareholders are best served by making this capacity addition now rather than a year from now. In the short term, our timing may be good, or it may be bad.
In the long term, however, the investment is essential. Consistent with past practice, we will provide quarterly updates on our investment activities and expectations as the year progresses. Finally, let me mention that activities surrounding the closure of the Upper Sandusky, Ohio facility and the redistribution of that demand to other Insteel facilities are proceeding on schedule and as expected. The Upper Sandusky workforce is a can do group. And we are very appreciative of their professionalism through this difficult process. As we have indicated on several occasion, the closure is not related to the people at the plant or their effectiveness.
The plant is simply in the wrong location to fit well into Insteel's manufacturing footprint and other Insteel facilities have ample excess capacity. To handle the output heretofore produced at Upper Sandusky. This was not a close call. But it was a difficult call by our management team that is committed to doing the right thing for Insteel. Looking ahead, we are aware of the substantial risks related to the state of the economy and the administration's tariff and trade policies. Regardless of developments in these areas, we are well positioned to pursue growth related activities both organic and through acquisition and actions to optimize our costs. This concludes our prepared remarks, and we will now take your questions.
Melissa, would you please explain the procedure for asking questions again?
Operator: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press *1 to raise your hand. To withdraw your question, press *1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Julio Alberto Romero with Sidoti and Company. Your line is now open. Please go ahead.
Julio Romero: Thanks. Hey. Good morning, H and Scot.
Scot R. Jafroodi: Morning.
Howard Osler Woltz: Good morning.
Julio Romero: H, good to hear that the shipments began on several of the delayed projects. And in the last call, you said you expected those shipments to pick up in the September quarter and remain strong through calendar year end. I think you also mentioned some potential continued scheduling delays, if I am not mistaken. Just help us think if the strength through the. Into the calorie calendar year is still the right expectation. Then also, could you help us size how meaningful the shipments were in the quarter?
Howard Osler Woltz: Well, as you know, it is a week to week business in a lot of respects, Julio. And our forecast is reflective of the conditions that we currently see for our first and second quarters. And how that all shakes out remains to be seen. In our engineered structural mesh, business, I expect that we will continue to see good growth.
Julio Romero: Understood. On the engineer. Engineered structural mesh business, you mentioned H, you are evaluating many non-data center projects. As engineered structural mesh wins those projects, can you help us think about who drives the decision there? Is it the owner, the engineer, or the contractor? And are you increasingly seeing it designed from the start rather than substituted for rebar at the bid stage?
Howard Osler Woltz: In answer to your last question, that is no. We are not seeing projects begin to be designed with our material. We have to convert them all. And with respect to your previous 2 questions, I would really rather not get into detail about how we identify these projects and where we are going with them.
Julio Romero: Got it. I guess maybe to maybe ask a different way. Just you know, help us kind of understand you know, to the extent that you can, you know, how durable the demand might be on the non data center project side.
Howard Osler Woltz: Well. So in the project oriented sector of our business, we are looking at a lot of projects that are not data center related. We are also looking at a lot of data center projects. But I would tell you that as an early sign of what is happening in the market, We may be seeing a recovery in nonresidential markets that were woefully underwater during fiscal 2026. But it. it is not like we have a big backlog of business in our pocket that we can that we can talk about. But before we get an order, we have got to see that the project's out there, and we are seeing that. Now.
Julio Romero: Understood. 1 more for me before I pass it on is just on the CapEx of 30 million caught my attention. And then you mentioned the $20 million committed to the ESM capacity, for engineered structural mesh capacity. How much does that add to your current capacity to the extent you could tell us when you expect it to be in service? And I think I know the answer to the second part of my question, but is that sized to any committed demand from your customers, or is that kind of more line of sight that you that you currently have but not formalized? Thank you.
Howard Osler Woltz: Julio, there is no committed demand from our customers for anything we produce. So all of our actions are based on our knowledge of the market and our expectations. I can tell you that we have committed to the $20 million, and I cannot tell you what we will get out of that except we would not have made the commitment had we not expected to need the capacity. And in terms of volumes, it all depends on what goes across the clip. The equipment. The nature of the of the product is that we can produce a huge number of tons across piece of equipment or only a few just depending on what the mix looks like.
So we are very well cognizant of that. We are very well cognizant of the wide range of conversion costs that come with that fact And we have substantially beefed up our internal resources to be able to understand those costs. Very helpful. Thanks for taking my questions. I will pass it on. Okay. Thank you.
Operator: Your next question comes from the line of Tyson Lee Bauer with KC Capital. Your line is now open. Please go ahead.
Tyson Bauer: Hey. Good morning, gentlemen.
Howard Osler Woltz: Good morning, Tyson.
Tyson Bauer: You talked about 6 price increases since last December, 1 more coming in the coming weeks. When you do your cost accounting and you are looking through the price increases of what you need to do or want to do, When you are identifying recoverable cost versus nonrecoverable cost, what exactly is that looking like, and what is in those categories where you are looking at we can recover some of that wire rod, freight pass through, those areas. But is there just this onslaught of increase in cost in general that has you bailing water as fast as you can, but you are just not catching up.
Howard Osler Woltz: Well, let me say first that I am unaware of any cost that is not recoverable. That our expectation is we recover all increased costs. The easiest thing for us to look at is raw material costs. Because we know precisely what those costs are and we see them coming when we receive a price increase letter from 1 of our suppliers. With every other cost that we are incurring that is escalating rapidly, We know that only when we incur the cost. Nobody tells us that copper or cobalt or chemicals are going to go up in December. We know it. When we place an order.
So we try to stay on top of all of those elements of our conversion costs that are rising and to recover those as we as we move forward. But we do not know how to anticipate those and we only react to them once they have hit our costs. So but we believe they are all recoverable, as long as the market allows you to. Well, I guess I would say that my expectation is that all our competitors are experiencing the same phenomenon that we are And it is having the same impact on their financial performance as we see on ours.
So I guess there is a leap of faith that has to be taken there But the market will not let us will not let us effect increases that are not market related. And so far, there is good evidence out there that we are all in the same boat. Okay.
Tyson Bauer: You talked about 2 areas of strength of the infrastructure and also data centers, kind of the highlight area. As a percentage of your total sales, are you moving more toward large project activity versus smaller projects, or how has that trended over the last 12 months?
Howard Osler Woltz: It depends on what we see out there. That the project related work that we are doing generally is characterized by much better repetition and it is fundamentally different than our legacy business. But we obviously want to rank order in terms of desirability, the projects that we see that may be available.
But it is impossible to project what that is going to look like And in terms of how project related work stacks up in terms of our total revenues, to the extent that we are new in this business and we continue to build it, yes, it is growing as a percentage of the total, and we want it to continue growing But it is not like we are forfeiting any of the legacy business because we want to replace it with project business. that is not happening. We want the project business to be incremental Okay.
Tyson Bauer: So you have enough available capacity that it is just an add on that helps out your overall cost per unit. But you see it as purely incremental as going forward.
Howard Osler Woltz: It is purely incremental. And I would just maybe to help you understand why we are putting a lot of money into the business. Customers expect quick delivery. If your lead time is 4 weeks or 6 weeks, then you are probably not set yourselves up for success in this business. You need to be able to deliver the product in 2 to 4 weeks. And if you cannot do that, then you are out of the game. And we are not going to be out of the game.
Tyson Bauer: Given how fast costs have risen, and when looking at these large projects, I am guessing you are having to rebid as these delays occur with price increases or adjustments as you go through that process. Is that fairly standard that you are seeing if you have a delay or otherwise and all of a sudden, wire rods up $50 a ton or more in a month, you have got those escalators already, factored in.
Howard Osler Woltz: No. I mean, the way we handle it, and it is the same for our legacy business or any other businesses that a price that we quote is good for a period of time, And if we do not ship the product in that period of time, then we talk about price again. Okay.
Tyson Bauer: Are you seeing, facility variability across your different regions based on demand activity? Obviously, certain areas are more favorable for onshoring facilities, data centers, other things that are going on And does that make operational where you put these orders and what facility is fulfilling them make that a little more difficult. Well, let me let me try to answer the question this way, saying that if we go back several years, our company took a couple years and a lot of money And we put our equipment. And by the way, our equipment is specific by product line.
Howard Osler Woltz: it is not that 1 production line will serve all markets, as it is just not the case. that is not the way it works. So we identified the markets that we serve out of each of our physical locations and we put the equipment that is most hospitable to those markets in those locations and we try to optimize both our inbound and outbound freight costs by getting as close as we could to our raw material suppliers. Now as you fast forward to where we are today, and looking at some of the project work, 1 of the unintended or, let's say, unanticipated, benefit that we have is a nationwide footprint.
So that we do not have to ship product from North Carolina to Arizona. Or from any other remote location because we have production facilities that are located everywhere. So we can assign the work that we get in the marketplace to the location that is most logical to ship that product And it is a huge benefit and it is 1 that I would admit readily. Was a happenstance. If we did not configure the company this way for that purpose, but it turns out to be a tremendous advantage for us.
Tyson Bauer: Okay. And last question for me. You talked about the possibility of seeing the inventory build as we go through the first quarter or first half of fiscal 27 and those net working capital requirements Does that impact at all the board's decision or philosophy when they review whether or not the special dividend will be paid this year?
Howard Osler Woltz: I think we have already taken the working capital hit that is associated with being required to go offshore for substantial quantities of raw material. I would not expect that you would see any working capital build or any inventory build in 2027. that is not like what you have seen in any of our other seasonally weaker periods. There should be nothing in 2027. that is extraordinary. Okay.
Tyson Bauer: And regarding the special dividend philosophy, you feel given your outlook and where you are at that is still something you expect to continue?
Howard Osler Woltz: I would tell you that I expect to be in the position to do whatever we want to do. Sounds great. Thank you, gentlemen. Okay. Thank you.
Operator: There are no further questions at this time. I will now turn the call back to H. Woltz for closing remarks.
Howard Osler Woltz: Okay. We appreciate your interest in Insteel. We thank you for your time today and encourage you to follow-up with us if you have questions going forward. With that, we will conclude the call and look forward to talking to you next quarter. Thank you.
Operator: This concludes today's call. Thank you for attending. You may now disconnect.
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