Greetings, and welcome to Construction Partners 4th Quarter and Fiscal Year 2018 Earnings Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host for today's call, Mr.
Rick Black, Investor Relations. Thank you. You may begin.
Thank you, operator, and good morning, everyone.
We appreciate you joining
us for the Construction Partners conference call to review Q4 fiscal year 2018 results. This call is also being webcast and can be accessed through the audio link on the Events and Presentations page of the IR section of constructionpartners.net. Information recorded on this call speaks only as of today, which is December 11, 2018, so please be advised that any time sensitive information may no longer be accurate as of the date of any replay. I would also like to remind you that statements made in today's discussion that are not historical facts, including statements of expectations or future events or future financial performance, those are considered forward looking statements made pursuant to the Safe Harbor provision of the Private Securities Litigation Act of 1995. We will be making forward looking statements as part of today's conference call, and those by their nature are uncertain and outside of the company's control.
Actual results may differ materially. Please refer to the earnings press release that we issued yesterday for our disclosure on forward looking statements. These factors and other risks and uncertainties are described in detail in the company's filings with the Securities and Exchange Commission. Management will also refer to non GAAP measures, including adjusted EBITDA. Reconciliations to the nearest GAAP measures can be found at the end of our Q4 press release.
Construction Partners assumes no obligation to publicly update or revise any forward looking statements. And now, I would like to turn the call over to Construction Partners' President and CEO, Mr. Charles Owens. Charles?
Thank you, Rick, and good morning, everyone. I'd like to thank you for joining us today on our conference call. I'm on the line here today with several members of our senior management team, including Ned Fleming, our Executive Chairman of the Board and Alan Palmer, our Chief Financial Officer. In my opening remarks today, I will provide comments about our fiscal 2018 and again review our strategy. I will then turn the call over to Ned for a few additional comments.
Finally, Alan will review our Q4 and fiscal year financial results and discuss our outlook for 2019. We are extremely pleased with our 1st year performance as a publicly traded company meeting our outlook expectations for the year and achieving record annual revenue, net income and adjusted EBITDA results. During our fiscal year, we added $51,000,000 in revenue attributable to acquisitions and greenfield expansions that combined with organic growth led to 20% revenue growth on a consolidated basis. Demand for our services remains very high in our 30 distinct markets, supported by increased funding for roadways, repairs, maintenance projects where we remain well positioned for continued growth in the 5 Southeastern states in which we operate. Our team achieved record annual revenue, net income and adjusted EBITDA results despite weather related delays in the 4th quarter that prevented the completion of certain projects.
The revenue from those projects is not lost. It is pushed forward to be completed at a later time. I'd like to again review our strategy and point out some specifics about how our strategy and operating model are different, especially compared to other publicly traded companies in the civil infrastructure space. A key point to realize about CPI is that our work in the bulk of our revenue comes from public projects that are primarily reoccurring maintenance projects in our 30 distinct markets. We do work 12 months a year in the Southeastern markets.
Our company is also vertically integrated, which provides an advantage in the local markets where we compete. We are vertically integrated on the aggregates. Approximately 30% is internally sourced in the production of hot mix asphalt. We are also vertically integrated on the service side with our ability to self perform other phases of work, including clearing, grading, roadway base, storm drain, concrete structures and other miscellaneous items. Our unique business model in a fragmented industry segment provides us with advantage over local competitors as well as significant differences compared to larger public companies that typically take on much larger projects and more complex.
Our smaller average project size in shorter duration contracts provides us greater stability in our financial results without large surprises from mega projects or long periods of working through underperforming jobs. In our existing markets, we do perform some large projects where we have the personnel and equipment to do the work. We also provide asphalt paving services as a subcontractor on larger projects that a company may pursue in our market. This proven growth strategy starts with our company culture driven by great people. Our leadership teams and workforce, we believe, are the best in the business.
Our goal is to obtain, retain and train the best people in the industry. Another key factor that sets us apart is our ability to fully integrate the companies we buy. Through our management information system that we have utilized since the beginning, we drive efficiencies throughout our company. We have the ability to see where we stand real time on our projects. The benefit of our integration strategy is to have more data and more knowledge to enhance the probability of our projects.
We drive growth by doing more work based on demand in our markets and through acquisitions that expand our footprint into new markets as well as greenfields where we set up an asphalt plant in an area adjacent to our existing market. In addition, we continue to evaluate opportunities for acquisitions that would expand our vertically integrated operation. Our geographic footprint is one of the fastest growing areas in the United States, and these 5 states have been proactively raising their funding for road projects. Again, it is important to know that publicly funded projects represent 65% to 70% of our revenue, and these projects are historically smaller in size and with shorter duration. This is a different model compared to other public companies in our space.
And finally, we focus on maintaining our cost competitiveness and bidding discipline with a sharp focus on growing EBITDA and not just revenue. Our fiscal year 20 18 performance demonstrated the effectiveness of our strategy with strong growth year over year in all of our key financial metrics. Alan will walk us through the financial results in more detail in a minute, but from an operational perspective, it was just a great year strengthening our foundation for future growth. I would like to thank our more than 2,000 dedicated and hard working employees for all that they do. Lastly, in 2019, we will continue execute on our proven strategy of delivering controlled profitable growth.
This strategy starts with a company culture driven by great people. Our leadership teams and workforce, we believe, are the best in the business and enable us to drive growth by doing more work based on demand increase in our markets. With our geographic footprint located in one of the fastest growing areas in the U. S, the 5 primary states where we operate have been proactively raising their funding for road projects, increasing demand for our services. In addition, we continue to evaluate potential opportunities for acquisitions in the highly fragmented, high growth Southeastern States where we operate.
Now I'd like to turn it over to Ned for a few additional comments. Ned?
Thanks, Charles, and good morning to everybody. I'd like to start by congratulating Charles, Alan and the rest of the team for delivering excellent 2018 fiscal year results. As a founder, over the last 18 years, I've witnessed this differentiated business model perform well in different economic conditions. Due to the nature of our work, which is primarily publicly funded maintenance related projects with short durations, the company is able to better manage its input costs like labor and liquid asphalt. This factor differentiates us from other public and non public companies in our industry.
Coupled with strong cost controls and disciplined management, the team has driven strong growth and profitability year in, year out. We are pleased with our fiscal year 2018 results and with our outlook for 2019. We have the team to continue the execution toward our long term targets of annual revenue growth in single to low double digits, while maintaining double digit adjusted EBITDA margins. In addition, we expect to complete strategic acquisitions and greenfields, which fit our strategy and contribute to profitable growth. CPI participates in a highly fragmented industry and the 2019 pipeline for potential acquisitions is robust.
Based on the proven strategy, the long term profitable track record and the market opportunity, we expect the company to continue to grow and be profitable as we build this company in the future. The company has a very strong competitive position and is well positioned to continue the growth that we have started in 2018. And with that, I'd like to turn the call over to our CFO, Alan Palmer.
Thank you, Ned, and good morning, everyone. Before I get into the fiscal 2018 financials, I want to quickly highlight our performance in the 4th quarter. From a financial standpoint, the 4th quarter performance was very solid despite lower than expected revenues due to severe weather in our markets. While we did not sustain significant damages, we did incur more rain days than we had anticipated. And as Charles mentioned, that revenue does not go away and the margins on those projects has not changed.
That work is simply pushed forward into future periods. Compared to the Q4 of fiscal 2017, our 2018 revenue was $215,700,000 which is up 15%. Our gross profit was 33,500,000 dollars down 1%. Our net income was $15,200,000 up 23%. Our earnings per share was $0.29 the same as the prior year, and our adjusted EBITDA was $28,300,000 up 7 the This was primarily due to a lower gross profit percentage on contracts that were executed during the current quarter.
As I've mentioned in previous calls, there is a natural ebb and flow of contract profit margins during the quarters. And in the Q4 of this year, we did not achieve as great a gain in margin on contracts executed as compared to the prior year. I'd also like to mention that in the Q4, asphalt cement pricing stabilized. In the Q4, our gross profit was not negatively impacted as it had been in our prior three quarters. Currently, we do not anticipate significant changes in asphalt cement prices or for them to have a significant impact on our 20 19 results.
Our 3rd and 4th fiscal quarters, which are April through September, are typically our strongest quarters of the year because the weather is milder in the Southeast. While we do work year round, predictable weather impacts do create some seasonality that drives approximately 60% of our revenue into the 3rd and 4th quarters and typically about 40% of our revenue is realized in the first half of the fiscal year, which is October through March. Margins are also higher in the second half of our fiscal year as we typically have greater utilization of assets during the warmer weather. Turning now to our fiscal year 2018 results compared to 2017. Revenue was 680,100,000 dollars up 20 percent.
Gross profit was $99,500,000 up 9%. Net income was 50,800,000 up 95 percent and earnings per share was $1.11 up 70 6%. Adjusted EBITDA was $75,500,000 up 9% and our backlog was 594,000,000 at September 30, 2018. We will continue to diligently manage margin. To do this, we must also be active in understanding exactly what we are seeing in our markets.
Our business is very competitive and as with most industries, hotspots of competition can move around. We continue to successfully navigate the competitive environment, maintaining our market position, while also steering revenue to stronger markets as opportunities present themselves. We can make up for margin squeeze with work, additional revenue to maintain our EBITDA. Strategically, our organization maximizes efficiencies through scale and flexibility to move crews and equipment to take advantage of favorable margins and maintain EBITDA. Backlog provides CPI with significant visibility in the next 12 to 18 months.
We define backlog as projects for which we either have an executed contract or are currently working on that contract or where we are the current low bidder on a public project and we have commitment from the customer, but not an executed contract. Backlog does not include any future external sales of hot mix asphalt or aggregates. Turning now to the balance sheet. At September 30, 18, we had $99,100,000 of cash and $14,000,000 of availability under our 30,000,000 dollars revolving credit facility after deducting $11,000,000 for outstanding letters of credit. Our debt to EBITDA ratio was 0.9.
We have a very strong balance sheet to support the growth opportunities we are seeing. Before we turn the call over for your questions, I'd like to review our financial outlook for the fiscal year 2019, which ends September 30, 2019. We are continuing to target annual revenue growth of high single to low double digits over the long term and to maintain a double digit adjusted EBITDA margin. In our press release yesterday, we introduced our 2019 outlook of revenue in the range of $760,000,000 to 810,000,000 dollars compared to $680,100,000 in fiscal year 2018 net income in the range of $38,000,000 to $43,000,000 compared to $50,800,000 in fiscal year 2018. And just as a reminder, our net income in fiscal 2018 included a one time positive after tax impact of $10,600,000 on a third party settlement in the 2nd quarter.
Our adjusted EBITDA will be in the range of $85,000,000 to $91,500,000 compared to $75,500,000 in fiscal year 2018. From a modeling perspective, I'd also like to mention that our effective tax rate in 2019 will be approximately 25% compared to our effective tax rate of 17.2 percent in fiscal year 2018. Also in 2019, we expect our capital expenditures to be in the range of 38 $1,000,000 to $42,000,000 Finally, our fiscal year 2019 outlook does not take into account any future acquisitions or greenfield expansions that may occur during the year. The outlook also does not include the potential impact of any new federal or state infrastructure or highway related legislation that could be passed in 2019. With that, we'll now take questions.
Operator?
Thank you. We will now be conducting a question and answer Our first question comes from Joshua Wolf with Raymond James. Please proceed with your question.
Good morning, Charles, Alan and Ed. Thanks for taking my questions.
Good morning. Good morning.
In the September quarter, could you talk about what the win rate was? What percentage of your jobs were still profitable even with the weather?
What percentage were profitable
Yes.
Even with the weather, we didn't have any negative impact on our margins because of the weather. It just primarily delayed when we would be able to complete those jobs. So we saw a gain on the number of jobs and very little fade on any jobs performed during that period. So that was not weather was not really an impact in the margins that we achieved.
Okay. And then regarding backlog, under normal seasonality, where would you look for the December ending backlog to be versus September? And where is it shaking out this year?
Typically, we would see the backlog between June September go down probably 10% to 15% and we saw very little reduction of the backlog this year. And again, that's due to the work that we were not able to complete. And we estimate that to be approximately $15,000,000 to $20,000,000 which would have we've been able to complete that would have put us right at the initial guidance we gave for the year.
And regarding December backlog versus September, what's the normal seasonality and how is that trending?
Typically, we began to see our backlog grow in that December quarter through the March quarter. And then we normally would see it decline from March to June and from June to September because those are our busier months and a lot of the resurfacing work that we do is led in that December, January, February time period. So that's the normal ebb and flow of it.
Our next question comes from Noah Marascos with Stephens. Please proceed with your question.
Hi, yes. So you mentioned the cadence of revenue is going to be 30% for the first half of the year. Could you talk about the cadence for EBITDA? Is that going to be similar?
Yes. Typically, the first 6 months is about 40% of our revenue and 60% in the second half of the year. And but the EBITDA is generally going to be substantially lower as a percentage in the first half because of the fixed costs that we have on equipment and our plants that we incur that we don't recover all of that fixed cost in the volume that we do. So typically, our first quarter margins are going to EBITDA margins are going to be 4% or 5% lower than what we would see later in the year when we have that over recovery of those fixed costs. And also just the volume that we do, there are some more efficiencies in the second half of the year.
Got you. And just one follow-up, can you guys quantify the amount of revenue that got delayed from weather and kind of when you expect that to come back?
Yes. Based on the initial guidance that we gave back in June, we estimated our revenue would be $6.90 to $7.10 and we ended up at $680 a week. We feel like it was $15,000,000 to $20,000,000 of revenue that we were not able to complete contract work. That will be completed throughout 2019. Our slower time being October through March, we won't make up a lot of that during that period.
More of that will be made up in the second half of the year. And that's what's reflected in our forecast for next year is the higher revenue, the increase in revenue part of that is due to the contract work that we did not complete in 2018.
All right. Thanks. I'll jump back in queue. Thank you.
Our next question comes from Brent Thielman with D. A. Davidson. Please proceed with your question.
Thanks. Good morning.
Hey, Tom.
Hey, guys, the CapEx outlook, the $38,000,000 to $42,000,000 for F 'nineteen, can you just talk about what might be embedded in that outside of kind of your normal recurring CapEx?
Yes. We've got some equipment that we're adding. We did a greenfield in Florida in 2000 and at the very end of 2017, they got cranked off in 2018. We also did a greenfield in North Carolina during that year. And so we're adding equipment.
We did the plants and got them up and running and now we're seeing that the amount of work that we have to do, We're adding equipment so that we can put the crews in place in those locations. So we've got about 1% of that total CapEx or equals about 1% of revenue is due to the growth opportunities that we have. And then we've also in process of converting some equipment that we have typically leased in the past. We're converting some of that into owned equipment. We're seeing that the demand is going to continue.
So both of those are included in that CapEx number.
Okay, great. Thanks, Alan. And then, I guess, I suspect the private side of the business might begin a little more scrutiny ahead. But can you just talk about what you're seeing there in your respective geographies? Are there any evident pockets of slowdown in either residential or commercial site developments that you guys do?
Brent, this is Charles. We're not seeing much of a slowdown right now, but it's still pretty robust. I know that I'm hearing a lot of homebuilder that's basically that could be slowing down, but that's something that we do. We do develop lots for, but it's not in all of our markets. We have several markets that we do very little stuff dealing with residential.
Okay. Thanks, Charles.
There are no further questions. At this time, I'd like to turn the floor back over to Charles Owens for closing comments. Our first question comes from Brent Thielman with D. A. Davidson.
Please proceed with your question.
Thanks guys. I snuck in.
Yes.
Just a follow-up, I guess. There's been a lot of, I guess, what I'd call really large projects awarded, call it North Carolina, several other southeastern markets here in the last several months in particular. I know you're not the prime necessarily on these, but do these give you visibility as well in terms of opportunities? And do you embed some of that in the outlook as you look out to F 'nineteen?
Yes. As far as the outlook or the amounts, we've not really baked in getting any extraordinarily large projects. I'll let Charles talk about the possibilities that we have there. But as we've said before, typically if there is a project that we have the people and the equipment to be able to do, it's in our market area, we're going to pursue that. And sometimes that would be as a prime or as a joint venture like the one we had this year that we're still working on.
It also might be as a subcontractor to do the asphalt paving or some other aspect of that large job.
Yes. Alan is correct on that. And especially in the Carolinas, there's been some large projects and we are looking at that work that's coming up and we're evaluating our personnel and our equipment. And the main thing that we're looking at is that we're not going to lose focus on our core business and just because it's a large project there. We are capable of building these projects and will be looking at some of them as they come up.
Okay, great. Maybe just a quick follow-up. Obviously, the Scruggs acquisition is now Scruggs several months behind you. Are you more actively looking at M and A opportunities? And maybe how likely is it we see something get done in fiscal 2019?
We're having several conversations We're having several conversations that we continue to have, and we're very optimistic that that's one of the levers that will help us in our growth. And when those opportunities come, we're going to take advantage of it.
All right. Thanks, guys.
Our next question comes from Joshua Wolf with Raymond James. Please proceed with your question.
Thanks for taking a few more from me.
Yes, absolutely.
You mentioned investments in additional equipment in some of the greenfields. Could you talk about how labor availability is trending both there and in the rest of your business?
Yes. From the labor side, we're obviously no different than a lot of other people. We've been in this business for a long time. I guess ever since someone built a bulldozer, there's always been labor issues and but we're very fortunate. We have our the Whitby Linda seats and we have we retain a lot of our workers and our goal is to train a lot of these people and promote them.
And so we have not really experienced any major issues, but are there shortages out there? Yes, I think there's shortages out there, and that's one reason why we look at the work that in our market to make sure that we have the labor and equipment to service those markets. And so it's worked out well for us so far.
And then And
one thing there, we have the ability with our locations to move people around when certain markets are more robust than others and one of our strategies in the greenfields is being able to service those for a period of time from an existing market that's contiguous to the greenfield and then just gradually add people that are permanent in that market and that equipment. And that's what we're seeing the opportunity to do in 2019 in the 2 greenfields that we had. So our strategy of doing that in sort of a step basis gives us flexibility to do that. So we're not having to just add all those crews at one time.
Got it. And then I appreciate the seasonality you gave us in terms of first half and second half, given that there is, call it, 2 weeks or so left in the December quarter. Is there any other guidance you can give us on sales and EBITDA for the December quarter?
No, we don't have any specific and it's had good periods and it's had snow periods. So we don't know how it will finish, but we're going to keep working till the very last day of the quarter, I can tell you that.
There are no further questions. At this time, I'd like to turn the call back to Charles Owens for closing comments.
Okay. Thank you. And we intend to remain sharply focused on executing our strategy. And thank you all for joining us today, and we look forward to speaking to you on the next conference call.
Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day.