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Construction Partners (NASDAQ:ROAD)
Q3 2018 Earnings Conference Call
Aug. 10, 2018 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to Construction Partners, Inc. third-quarter earnings conference call. [Operator instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Rick Black, investor relations. Thank you. You may proceed.

Rick Black -- Investor Relations

Thank you, operator, and good morning, everyone. We appreciate you joining us for the Construction Partners' conference call and webcast to review third-quarter fiscal 2018 results. This call is also being webcast and can be accessed through the audio link on the Events and Presentation page of the IR section of constructionpartners.net. Information recorded on this call speaks only as of today August 10, 2018, so please be advised that any time-sensitive information may no longer be accurate at the date of any replay.

I would like to remind you that the statements made in today's discussion that are not historical facts, including statements of expectations of future events or future financial performance, are forward-looking statements made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. We will be making forward-looking statements as part of today's call that by their nature are uncertain and outside of the company's control. Actual results may differ materially. Please refer to today's press release 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 the earnings press release that came out last night. 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?

Charles Owens -- President and Chief Executive Officer

Thank you, Rick, and good morning, everyone. I'd like to thank you for joining us today. I am on the line today with several other 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, since this is only our second conference call to discuss the market, I'd like to provide a brief overview of our company and our strategy, as well as highlights of our performance in the third quarter.

And it was a very strong quarter. I would then turn the call over to Ned for a few additional comments on the quarter and our company. Finally, Alan will review our third-quarter financial results and recap our financial strategy and outlook. For those of you who are new to the CPI story, we are a vertically integrated civil infrastructure company that does both public and private sector projects with the emphasis on highways, roads, airport, anything, as well as site work for commercial and residential projects in the Southeastern United States.

About 70% of our business is publicly funded projects. Most of our projects are [Inaudible] related, hot mix asphalt, resurfacing work and also the new construction projects in our local markets. What makes us differ from many of our larger private company peers in the civil construction sector is that our projects are mostly recurring road restructuring projects with an average contract duration of eight months and smaller contract size. So we don't have a significant exposure to the [Inaudible] that can accompany large, multiyear projects.

Our vertically integrated operations give us an advantage over smaller competitors. We have the capabilities to do all of the major components of the projects. We subcontract other miscellaneous items like signage, gliding, grassing, and pavement striping. Projects that we bid are generally done close to one of our asphalt plants to ensure a high-quality pavement application.

And the hot mix asphalt manufacturing plant is really the key driver to our vertically integrated model. We internally source all of our Hot Mix asphalt for our projects from our 30 hot mix asphalt plants. And we internally source approximately 35% of the aggregate used in the production of the hot mix asphalt. Approximately 94% of the U.S. roadways are built with asphalt paint. We have these hot mix asphalt plants strategically located across our local markets in the Southeast so the asphalt that we can supply to our local markets drive the work that we bid. Our growth strategy is to pursue probable growth, not just increase market share.

And there are four key components to our strategy. One, we have a management information system that is robust and scalable enough to take care of our needs as we continue to grow. We integrate our public companies we inquire into our enterprise IT system. You may recall that we acquired The Scruggs Company last quarter, and I am pleased to say that the team and our team integrated our management information system in less than 90 days from closure.

We're very pleased with the performance of The Scruggs Company. This platform acquisition allows us to serve new markets in Georgia. The Scruggs business is meeting our expectations, and we've been very pleased by the caliber and energy of the people who joined the organization. Second, we keep our leverage low to position our company to execute our growth strategy.

Third, as part of our M&A strategy, we have completed five platform acquisitions, including The Scruggs Company that functions as a regional hub so that we can expand through bolt-on acquisitions and organic growth initiatives, including new greenfield developments in the five state market area that we currently operate. Since we founded the company in 2001, we have made a total of 16 acquisitions and established seven new greenfields. And finally, we focus on maintaining our cost competitiveness and bidding discipline with a sharp focus on growing EBITDA not just revenue. Our third fiscal-quarter performance demonstrated the effectiveness of our strategy with a strong double-digit growth year over year in all of the key financial metrics.

Alan will walk you through our financial results in more detail in a minute. From an operational perspective, it was just a great quarter. In summary, I would like to thank our more than 2,000 dedicated and hardworking employees for all that they have done. We had a great third quarter and we have a strong backlog for the fourth quarter.

We continue to see strong demand in most of the markets where we compete, and we are maintaining our financial outlook for 2018. Now, I would like to turn it over to the Ned Fleming, our chief executive chairman of the board for a few additional comments. Ned?

Ned Fleming -- Executive Chairman of the Board

Thanks, Charles, and good morning to everyone. First, I'd like to congratulate Charles, Alan, and the rest of the team for delivering an excellent third quarter. Not only was Q3 a record quarter, but the team also simultaneously completed the full integration of The Scruggs acquisition that closed in mid-May. We work on public projects that are primarily maintenance-related with an average project length of eight months in the fast-growing southeastern portion of the United States.

The bulk of our business comes from occurring roadway maintenance projects funded by federal, state and local governments without reliance on large projects. These factors differentiate us from other public companies in our industry. We have minimal cyclicality, minimal seasonality; and as a result of this short contract duration, we were able to adjust and move through labor increases, cost increases and therefore keep consistent growth margins. We are pleased to have outperformed our expectations for the quarter, and we remain well positioned in the market for continued growth.

Today, we believe CPI is either No. 1 or No. 2 in each of its 30 geographic markets with an exceptional reputation for quality and service. And Charles and Alan and the rest of the team continue to execute the business to achieve record results while successfully consolidating the industry by seamlessly integrating acquisitions.

As you know, the roads in our market area and the country need repairs. The Southeast is one of the fastest-growing regions in the nation and its roads need continual maintenance and repair, as well as new roads and expanded capacity. Federal state and local governments have earmarked billions of dollars for roads over the next decade, and CPI is well positioned to profit from this strong industry tailwind. Our company has demonstrated an incredible expertise in acquiring and integrating 16 companies since CPI was founded.

And as an investor, we believe there is a strong momentum for CPI to be the consolidator of choice in the southeastern market. In fact, when owners of companies are ready to sell their businesses to retire, our company had often their call because of our team's experience and strong reputation for dealing fairly with companies we acquire. We have successfully integrated family businesses into our organization, and we focus on keeping, training and promoting employees to join our team through these acquisitions. As a major investor in CPI, I'm excited about the company's strong positioning for future profitable growth.

And with that, I'd like to turn the call over to our CFO, Alan Palmer. Alan?

Alan Palmer -- Chief Financial Officer

Thank you, Ned, and good morning, everyone. Before I get into the third-quarter financials, I wanted to say a few words of follow-up about the success in the integration of The Scruggs Company into our technology systems and operating processes, which Charles mentioned a moment ago. This ability to bring all of our platform and bolt-on acquisitions into the back office system quickly and efficiently is one of the main drivers of our success over time this data-oriented view into each of our operations gives management the ability to see and analyze how the business is doing and make real-time adjustments. We need to know our cause in order to measure improvement in project execution.

Even small incremental changes can improve the bottom line. As we work through the backlog and be at new projects of newly acquired companies that are being on-boarded into our system, there's usually a drag on overall margins in the short term. We have consistently improved those margins and grown those businesses over the long term. Growth is meeting our expectations and has been a great strategic fit for CPI.

We're very happy with both the assets of the people that have been added to our organization. From a financial standpoint, third quarter was outstanding compared with a year ago into the prior quarter. As you can see, in last night's earning release, revenue increased $47 million, or 31.75%, versus the same quarter last year. This increase continues to reflect greater build availability of work in our existing markets and our strong backlog, as well as additional revenue from two acquisitions and two greenfield expansions we completed subsequent to June 30, 2017.

The third-quarter fiscal 2019 included $11.4 million of revenue from Scruggs for half of the quarter. Net income increased $7 million, or 109%, versus the third quarter of 2017 to $13.4 million. This included an additional $900,000 of tax benefit related to the enactment of the Tax Cut and Jobs Act. Adjusted EBITDA was up $5.1 million, or 28.7%, from the third quarter last year, up to $22.7 million.

Gross profit increased $5.5 million, or 23%, from the third quarter last year to $29.5 million. And our backlog increased by $45.2 million from Quarter 2 up to $609 million from $565 million. Our third and fourth fiscal quarters, 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, predictably weather impacts do create some seasonality that draws approximately 60% of our revenues into the third and fourth quarter.

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 months. During the third-fiscal quarter, our EBITDA margin was 11.6% of revenue, which is roughly in line with margins a year ago and significantly higher than the second quarter 6.7%. We take a closer look at the decline in gross profit percentage in the third quarter of 1.1% compared to the same quarter last year.

This was due to a lower gross profit percentage on contracts executed during the current quarter and the impact of rising asphalt cement prices on margins from the internal and external sale of hot mix asphalt. As I mentioned last quarter, there's a natural ebb and flow of contract profit margins. For example, in the second quarter, we had a higher margin on contracts executed compared to the year-ago quarter. And in the third quarter, it was lower than the same quarter last year.

But year to date, that margin is the same. Compared to the profitable quarter in the prior year, there's been a steady and stable rise in the cost of asphalt cement. And while many of our contracts have escalators to adjust for these price increases, there's a lag in timing. In addition, while the cost can be passed along, we're not necessarily able to pass along the margin on escalators in our existing contracts.

We will continue to diligently manage margins. 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, hot spots of competition can move around.

We continue to successfully navigate the competitive environment without giving up market share, while also steering revenue to stronger markets as opportunities for themselves. We can make up for margin squeeze [Inaudible] additional revenue to maintain EBITDA. Strategically, our organization maximizes efficiencies of scale and our flexibility to move crews and equipment to take advantage of favorable margins and maintain EBITDA. Backlog is a key metric in the construction industry, and it provides CPI with significant visibility in the next 12 to 18 months, particularly since our average completion time is just eight months.

We define backlog as a project for which we either have an executed contract and are currently working on that contract, where we are the low bidder on a public project and we have a commitment from the customer, but not in executed contract. Backlog does not include any future external sales of hot mix asphalt or aggregates. At June 30, we had $25 million of availability under our $30 million revolving credit facility, minus $9.5 million of outstanding letters of credit. And our net-to-EBITDA ratio was 0.9.

Before we turn the call over for your questions, I'd like to quickly review and update our financial outlook for the full fiscal year 2018, which ends September 30. We're continuing to target annual revenue growth single to low double digits over the long term and to maintain a double-digit adjusted EBITDA margin. For fiscal 2018, we're maintaining the outlook we've previously provided. We continue to expect revenue to be in the range of $690 million to $710 million compared to $568 million in fiscal year 2017.

We expect net income to be in the range of $47 million to $50 million, versus $26 million in fiscal-year 2017. And our adjusted EBITDA should be in the range of $75 million to $80 million, versus $69.3 million in fiscal-year 2017. With that, we'll now take any questions. Operator? 

Questions and Answers:

Operator

Thank you. [Operator instructions] Our first question comes from the line of Josh Wilson with Raymond James. Please proceed with your question.

Josh Wilson -- Raymond James -- Analyst

Thanks for taking my questions, and congratulations on the quarter.

Charles Owens -- President and Chief Executive Officer

Thank you, Josh.

Josh Wilson -- Raymond James -- Analyst

Could you give us a sense of what the impact of Scruggs was on the backlog number?

Alan Palmer -- Chief Financial Officer

Scruggs backlog at June 30th is about $57 million.

Josh Wilson -- Raymond James -- Analyst

OK. And what are the -- some of the moving parts on the legacy backlog then?

Alan Palmer -- Chief Financial Officer

It's down about 2%, which is typical what we've seen historically during this time of the year between March and June because of the amount of work that we complete. Historically, that range from about 5% to 10% decrease between March and June. This year, it's about a 2% decrease in line with our expectation.

Josh Wilson -- Raymond James -- Analyst

OK, good. And then you said it was a strong quarter. Could you drill down a little more in terms of which parts of the financials were notably better than your plan?

Charles Owens -- President and Chief Executive Officer

Well, our revenue from what we had originally anticipated the total profit [Inaudible] so we were talking about the integration of Scruggs and how well that meant.

Ned Fleming -- Executive Chairman of the Board

I think one the things -- this is Ned Fleming. One of the things that really speak highly of the team and the company is how smoothly the integration from Scruggs went. It happened quicker. It was smoother and integrated [Inaudible] business not just from a financial standpoint, but from an operational standpoint, and a cultural standpoint.

And I think that's an important piece of what we were able to do this -- accomplished this quarter, along with what were some excellent financial numbers in spite of some headwinds with costs going up.

Josh Wilson -- Raymond James -- Analyst

One last one on the backlog. Has the average project size for either the legacy business changed? Or is the mix of project size in Scruggs any different?

Charles Owens -- President and Chief Executive Officer

Yes, very typical, very similar power.

Josh Wilson -- Raymond James -- Analyst

Thank you. Good luck with the next quarter.

Ned Fleming -- Executive Chairman of the Board

Thank you.

Charles Owens -- President and Chief Executive Officer

Thank you.

Operator

Our next question comes from the line of Justin Hauke with Robert W. Baird. Please proceed with your question.

Justin Hauke -- Robert W. Baird & Co. -- Analyst

Great. Thanks, guys. Good morning. I guess I wanted to ask -- and first of all, I appreciate you giving the overview on how you're able to mitigate cost pressures and some -- just revealing that that's helpful.

But maybe just to help us quantify the impact that commodity prices had, I think asphalt's up 40% year to date within the data that we see. So maybe just quantifying how much of that hundred-plus gross margin pressure was from that. And then maybe a second part would be, can you give some context about how -- maybe historically, how volatile has those input prices then versus what you're seeing today? Let's start there.

Alan Palmer -- Chief Financial Officer

All right. Thank you. Good question. And one thing, our year, we've seen almost a 60% increase in those asphalt cement prices in our year because we're in actually our third quarter.

So we saw a steady increase in quarter one. We saw a steady increase in quarter two. And that's something we talked about previously, the impact through that date. In this quarter, we had about another almost 20% increase in those prices so we're actually seeing up about 60% percent in our year.

We do believe that will moderate and stay pretty steady. Our expectation is in the fourth quarter. But with regard to the impact on this quarter, we've calculated that it had about probably about a million-dollar impact, where the impact in the first two quarters together was about three and a half million. So that's -- and then as we've said, we're able to pass a lot of that along many of our contracts but there is just a trailing impact that it has on getting your FOB prices up and then the contracts that you don't to pass through it.

Justin Hauke -- Robert W. Baird & Co. -- Analyst

OK. So it's about a million impact in the quarter from these money prizes. And you said three and a half million in the previous two quarters? Is -- did I hear that right?

Alan Palmer -- Chief Financial Officer

Yes. That's what we had said in the 10-Q for the second quarter.

Justin Hauke -- Robert W. Baird & Co. -- Analyst

OK. And then what's the expectation for the fourth quarter given that you are able to get at least cost recovery on those? Do you have an expectation in the fourth quarter?

Alan Palmer -- Chief Financial Officer

Well, if they don't continue to increase, which we do not expect, we feel like it'll go down from that million dollars and maybe less of an impact. If they continue to increase, then obviously that will impact that fourth quarter a little bit more. But we feel like with the price increases that we've been able to put in and the fact that we're turning over jobs and this is kind of in a year where we're doing a lot of jobs that we bid and complete real quickly, that it should not have any more impact than it did in this third quarter

Justin Hauke -- Robert W. Baird & Co. -- Analyst

OK. Got it. Great. That's helpful.

And then maybe a little more granular on some number questions just so that we have -- I know that it will be in the 10-Q, but can you give us the cash flow from operations and if it -- the gross CAPEX this quarter as well?

Alan Palmer -- Chief Financial Officer

Yes. Well, the cash flow from operations was actually slightly negative, I believe, about $11 million because this is a time of the year when we ramp up significantly in our revenue. So our increase in net receivables and payables was about $25 million, which is typical for this time of the year. So we actually cash generated from operations.

It was actually slightly negative for the quarter.

Justin Hauke -- Robert W. Baird & Co. -- Analyst

And the CAPEX was what?

Alan Palmer -- Chief Financial Officer

The CAPEX was about $18 million, I believe, for the quarter. [Inaudible] $33 million.

Justin Hauke -- Robert W. Baird & Co. -- Analyst

OK. And then maybe two more questions here. So maybe the next one would be just obviously The Scruggs acquisition you just said is going well in terms of the integration. Any update on status of what the M&A pipeline is out there today and also just the greenfield expectations?

Charles Owens -- President and Chief Executive Officer

Yes, this is Charles. We still have a robust pipeline, and we're having a lot of conversations. And things are looking very positive, but do not anticipate anything to develop in the fourth quarter. But we are very optimistic on executing our acquisition strategy in the -- in 2019.

Justin Hauke -- Robert W. Baird & Co. -- Analyst

OK. And then my last question and then I'll jump back in the queue. But one more numbers question. Just the earnings -- the equity income from your joint venture.

I know you mentioned it last call. I think it was a job that was ramping and then increased sequentially this quarter. Is that number -- are we kind of at a run rate where we should expect that number to kind of hold in this half a million range? And how long does that job last? Just so we have our models kind of squared away.

Charles Owens -- President and Chief Executive Officer

Yes. I think for the quarter, it's a little bit less than half a million. But I would say that we're pretty much at the run rate we'll have for next, I believe, probably another 18 months -- approximately four months.

Justin Hauke -- Robert W. Baird & Co. -- Analyst

OK, great. No, that's helpful. Thanks. I will jump in the queue.

Charles Owens -- President and Chief Executive Officer

Thank you.

Operator

[Operator instructions] Our next question comes from the line of Brent Thielman with D.A. Davidson. Please proceed with your question.

Brent Thielman -- D.A. Davidson & Co. -- Analyst

Thank you. good morning.

Charles Owens -- President and Chief Executive Officer

Good morning, Brent.

Brent Thielman -- D.A. Davidson & Co. -- Analyst

Charles or Alan, were there any significant integration or acquisition expenses for Scruggs that we kind of -- we should think about kind of moderating or not repeating going forward?

Charles Owens -- President and Chief Executive Officer

No, they were not anything that we had not anticipated and it was a very smooth transition. The Scruggs people really worked very hard in the integration process with our people and we're very pleased the way everything worked out.

Brent Thielman -- D.A. Davidson & Co. -- Analyst

OK. And any thoughts on how long before you think you can kind of flush out some of that older backlog and get The Scruggs margins near to the core business?

Alan Palmer -- Chief Financial Officer

I think that will be fairly quickly. I think one of the pleasant surprises and one of the things that we talked about was just once we got in seeing their people and the type of work that they have now that we're executing. So I think that will be a pretty short runway to get that up.

Brent Thielman -- D.A. Davidson & Co. -- Analyst

OK. And I guess these fluctuations in asphalt prices, have you seen any big impact to the timing of new jobs coming to bid because you know agencies need to kind of reassess or reestimate the cost for these jobs. Did that push some things out?

Charles Owens -- President and Chief Executive Officer

No. We haven't seen anything. We're just seeing a lot of work [Inaudible] coming to the table and we're seeing a lot of opportunities to work.

Brent Thielman -- D.A. Davidson & Co. -- Analyst

OK, that's great. And then one more if I could. How do the opportunities look on the private side? I mean, I know we talk a lot about the public area. But is there as much activity around resi and kind of commercial development as there ever has been?

Charles Owens -- President and Chief Executive Officer

Yes. I think the private sector is performing very well, and we have part of our business in the private sector. But the majority of it is in the sector that we lack [Inaudible] resurfacing in our DOT and cities and counties. But the private sector still looks very strong and I really don't see anything slowing down in our market areas.

Brent Thielman -- D.A. Davidson & Co. -- Analyst

OK. Thank you, guys. Best of luck this quarter.

Charles Owens -- President and Chief Executive Officer

Thank you.

Operator

Trey, your line is live.

Trey Grooms -- Stephens -- Analyst

Yes, sorry about that. Can you guys hear me OK?

Charles Owens -- President and Chief Executive Officer

Sure. Very good, Trey.

Trey Grooms -- Stephens -- Analyst

Oh, OK. Thank you. I guess first question for me is can you talk about -- I mean, it sounds like things are moving along pretty well from just a demand standpoint. Can you guys talk about just given the states that you're in, demand trends that you're seeing, a little more geographically where you're seeing relative strengths and weaknesses?

Charles Owens -- President and Chief Executive Officer

Yes, we're seeing really very strong demand in all the markets that we're in. We're looking at part of -- some areas is a little bit weaker, but we anticipate some are aggressive increase in funding in some of the markets that hadn't quite called it yet. But as far as the markets that we're in, we're seeing plenty of work to bid and we're seeing the future looking real positive.

Trey Grooms -- Stephens -- Analyst

And of the ones that have been a little bit slower, is that -- I mean if you could give any more specifics on which markets you're seeing that are lagging a little bit and where you would expect to see improvements there?

Charles Owens -- President and Chief Executive Officer

Well, right now, we're not seeing any lagging in those markets. We're just thinking out in the -- more in the 2020 right now and up that we see a lot of positive things developing. And this one thing that we have even baked in the equation is what might happen at the federal level. And we're still optimistic that we're going to see something on the federal level to boost it even more.

But from a federal level, we still anticipate the 4% to 6% increase. Without anything, just watch in place right now.

Ned Fleming -- Executive Chairman of the Board

Yes. And let me say one thing about that because that's something I think I'd mix in a little bit, maybe not very clearly in the previous comments. But we're in over 30 individual markets and when we are looking at that, we're looking at each one of those individually. So there's a normal ebb and flow of work that's available in one particular market.

Some of that is even within the DOT funding that moves around. So one of the strategies that we have is that if there's a market that is slower than we have the ability to move equipment and employees because of how your graphically close our markets are, and so we will pursue work and complete work in those individual markets that are strong at the moment. But that's just the normal ebb and flow from year to year also the types of markets that we're in. So that's one of the flexibility, some strengths we feel like we have as to be able to redeploy those assets.

Trey Grooms -- Stephens -- Analyst

Got it. OK, that's helpful. Longer term, how should we be thinking about working capital and the seasonality of working capital and also the impacts of liquid asphalt as we're modeling out over the next -- just given the movement that we've seen there.

Alan Palmer -- Chief Financial Officer

Yes. I mean, I think from a working capital standpoint, we've always seen a lot of that working capital turn into cash in the latter part of our first quarter and then the -- our second quarter. When work slows down, it begins to move more from cash into receivables starting around March through June. And then it kind of levels off and -- so that's historically what we've seen.

And then from a -- what was that second one?

Trey Grooms -- Stephens -- Analyst

Yes, really, does the swings that we see in liquid asphalt, given the movement we've seen there. Does that generally have any kind of impact on your working capital one way or the other? Or is -- I understand it's largely a pass-through. But just trying to help folks, along with me, understand how

Alan Palmer -- Chief Financial Officer

Yes. It doesn't have much of an impact. I mean, we're actually if you went to an asphalt plant, you would be seeing trucks coming and going almost daily bringing that liquid asphalt. So the amount we have invested at any one time is not impacting that significantly because we don't store that for long periods of time.

Trey Grooms -- Stephens -- Analyst

Got it. OK. Yes, that's helpful. And then lastly, another kind of big picture question is, any -- as we're looking out, I mean, it looks like the -- as you were mentioning, the outlook is still very good for demand.

It looks like that will continue. You guys focus I think a lot more on the maintenance side of things as well. So keeping all of those things in mind, is there any significant CAPEX spends that we have on the horizon that we should be aware of in the next year or two as we kind of look at the demand picture and where the outlook is today?

Alan Palmer -- Chief Financial Officer

We expect the CAPEX to kind of remain at the level kind of where it's been. And obviously, we're always exploring these greenfield sites. And we have that as part of our strategy. And when those develop, yes, it will have a little impact on our capex as we fund those and get it going.

Charles Owens -- President and Chief Executive Officer

And if we're adding crews because of a growth of available work then that would increase it. And that's part of what's happened this year is we've done the greenfield in North Carolina with the new asphalt plant and laid down equipment for that and then the other markets that we're seeing the growth in. But absent significant growth, then we don't have anything unusual that we see out there.

Trey Grooms -- Stephens -- Analyst

And the plan for greenfields, can you elaborate on that a little bit more? Just again kind of keeping in context where we are in the cycle and where we see demand going. Is there a -- do you guys expect to kind of accelerate on the greenfield side of things? Or just any kind of color you can give us on the game plan there.

Charles Owens -- President and Chief Executive Officer

Yes. What -- we're seeing opportunities with greenfields will make sense. And the main thing there is we're going to manage it properly and systematically to make sure that we don't get out over our skis and that -- because we do see a lot of demand in our existing markets. And -- but the greenfield sites will be in our growth strategy, and we're intended on executing those at the proper time.

Trey Grooms -- Stephens -- Analyst

All right, gentlemen. Thank you very much. Very helpful, and good luck. Thank you.

Charles Owens -- President and Chief Executive Officer

Thank you.

Alan Palmer -- Chief Financial Officer

Thank you.

Operator

Our next question comes from the line of Justin Hauke with Robert W. Baird. Please proceed with your question.

Justin Hauke -- Robert W. Baird & Co. -- Analyst

Yes, thanks. Just one more really quick one. Just the last thing we haven't talked about just the tax. And I get that your guidance didn't change the net income.

You had the $1 million or $900,000 pickup on the tax benefits so it's within that range. But any change as you've continued to refine assumptions there that we should be thinking about for the fourth quarter and for 2019 about what your expectation is for the tax rate?

Alan Palmer -- Chief Financial Officer

Yes. The -- I mean, going -- looking out in the future, it should be what we've disclosed before and for the rest of this year. We had an opportunity because we have not filed our 9/30/17 tax return to accelerate some deductions into that year and save some tax. And when you do that, you create a deferred-tax liability.

And with tax law change, when that turns around in the future, it will be at a much lower tax rate. That's what generated that $900,000. Kind of unexpected was really the movement in the tax rate expenses we were able to deduct in 9/30/17 that will turn around at a lower rate. But the stabilized rate for the rest of the year should be about, I think, around 28%.

And then when the full effect of the tax reduction comes in, we should be looking more at about a 24.5% to 25% effective rate in fiscal-year '19.

Justin Hauke -- Robert W. Baird & Co. -- Analyst

Great. Yes. No, perfect. Good job on that, and thank you very much.

Alan Palmer -- Chief Financial Officer

Thank you.

Operator

As there are no further questions left in the queue, I would like to turn the call back over to CEO Charles Owens for closing remarks.

Charles Owens -- President and Chief Executive Officer

OK. Thank you very much, and we will remain focused on executing our strategy. And I want to thank everyone that joined us today on the call and we look forward to talking with you on our next conference call.

Operator

[Operator signoff]

Duration: 43 minutes

Call Participants:

Rick Black -- Investor Relations

Charles Owens -- President and Chief Executive Officer

Ned Fleming -- Executive Chairman of the Board

Alan Palmer -- Chief Financial Officer

Josh Wilson -- Raymond James -- Analyst

Justin Hauke -- Robert W. Baird & Co. -- Analyst

Brent Thielman -- D.A. Davidson & Co. -- Analyst

Trey Grooms -- Stephens -- Analyst

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