Cardinal Infrastructure Group Inc. (CDNL) Earnings Call Transcript

Good morning, ladies and gentlemen, and welcome to Cardinal Infrastructure Group Second Quarter 2026 Earnings Conference Call and Webcast. [Operator Instructions] I would like now to turn the conference over to Emily Lear Cardinal's Director of Investor Relations. Please go ahead.

Good morning, everyone, and welcome to Cardinal Infrastructure Group's Second Quarter 2026 Earnings Conference Call and Webcast. I'm pleased to be here today to discuss our results with Jeremy Spivey, Cardinal's Chairman and Chief Executive Officer; Benji Wood, Chief Operating Officer; and Mike Rowe, Chief Financial Officer. Please note there are accompanying slides available on the Events and Presentations section of our website. Today's call will present certain non-GAAP financial measures, including adjusted EBITDA, adjusted EBITDA margin and adjusted gross profit. For more information about those non-GAAP financial measures and a reconciliation to the most comparable GAAP measure, please see our earnings release, the accompanying slides posted on our website and the current Form 10-K filed with the SEC. This information is also available on the Investor Relations section of the Cardinal website. Today's call will also include forward-looking statements as defined by the United States Securities laws. These statements relate to future events, operating results or financial performance and are subject to risks and uncertainties that could cause actual results to differ materially. Cardinal Infrastructure Group takes no obligation to publicly update or revise any forward-looking statements, except as legally required, whether due to new information, future developments or otherwise. Information regarding these factors that may cause actual results to differ materially from these forward-looking statements is available in the company's SEC filings. With that, I'll now turn the call over to Jeremy.

Thank you, Emily. Good morning, everyone, and thank you for joining us today. Before I get into our second quarter results, I wanted to start by covering this morning's acquisition announcement. Today, we announced the acquisition of Allied Paving based in Atlanta, our ninth acquisition since 2021. We closed our follow-on equity offering just weeks ago. and we're already putting that capital to work quickly and on accretive terms. I'll let Benji cover the specifics of the transaction. But importantly, this deal was sourced and executed by the ALGC leadership team. with guidance and a playbook from Cardinal. It's been a little over 5 months since we closed the ALGC acquisition, and the team in Atlanta has absorbed how we operate. They set with us through Piedmont Pipe to see how we onboard and integrate and now they've gone out and found, negotiated and closed a deal themselves. That's the best proof point we could ask for, and it's what frees me and the rest of the leadership team to pursue additional organic and M&A opportunities. Now let's get into the quarterly results, starting on Slide 4. This was a record quarter for Cardinal, building on an already strong start to the year. Revenue increased 114% from the prior year driven by continued strength across commercial and industrial and residential end markets. Our ability to flex crews and equipment across our established markets and to build out full turnkey capability as we enter new ones is exactly why we're winning larger, more complex projects, expanding with the customers we already serve and bringing new logo customers onto the platform. Cardinal is increasingly becoming the contractor of these developers call first, and I'm excited by the continued momentum across our footprint, which positions us well for further strength in the coming quarters. Total backlog at the end of the second quarter was $866 million, up 35% from the same period last year with balanced growth across both commercial and industrial and residential. Commercial retail and retail distribution additions in the quarter were meaningful, a sign of recovery and a relatively slower moving part of the broader C&I space. Adjusted EBITDA margins came in below where we expected them to be for the second quarter. While adjusted EBITDA dollars grew 43% year-over-year on higher volumes, the cost of meeting customer demand at this level plus intense weather-related impacts in Georgia ran ahead of plan. Mike will cover the specifics in a few minutes. Given the strong performance and the vibrancy across our end markets, we're raising the midpoint of our full year revenue guidance from $680 million to $890 million, just shy of 100% growth from where we ended 2025. We're gaining share, diversifying our end markets and seeing strong demand signals across the board. Along that raise, we're updating our adjusted EBITDA margin expectation to a range of 16% to 18% for the year. That reflects the onetime cost from this quarter as well as an expected step-up in general and administrative expense through the back half. The demand in front of us right now means we have to invest in the people and resources to keep pace for our customers as much as it for ourselves. This opportunity is bigger than anything we've seen, and we're not going to leave it on the table. Visibility into customers' multiyear capital deployment and investment plans is encouraging, and we're seeing that strength broadly, continued momentum in commercial and industrial site work and recently a genuine recovery in commercial retail. In residential, demand across our Southeast markets continues driven by the migration and population growth into our footprint, even as builder margins compress more broadly nationally. National homeowners continue to move forward with a large multiphase residential communities supported by the persistent structural undersupply of housing in our core markets. The Raleigh market is 1 clear illustration of the supportive housing fundamentals. Raleigh's May or recently emphasized that the city is currently facing a severe 37,000 unit housing shortage, clearing that increasing the housing supply is the top policy priority. A recent statewide housing analysis from the North Carolina Homebuilders Association shows just how big this gap really is. Wait and Mecklenburg counties are expected to face housing shortfalls of over 110,000 homes each by 2029 as population growth in Raleigh and Charlotte significantly outpaced new construction. This dynamic isn't unique to Raleigh or Charlotte according to the U.S. Census Bureau recent population estimates North Carolina and Georgia, the 2 cities where we operate today, both ranked among the fastest-growing states in the country over the year ended July 2025. With North Carolina adding the most residents of any state nationally, 84,000. That same data shows South Carolina, Tennessee and Florida among the 10 fastest-growing states. We aren't in those markets today, but the same demographic tailwinds driving our growth in the Carolinas and Georgia are building across the broader Southeast. And that's exactly the kind of long-term backdrop we look for as we continue to evaluate where this platform expands next. Let me step back for a moment and reflect on our journey since our IPO. We've consistently focused on our 3-part growth strategy. driving vertical integration, diversifying our end markets and pursuing selective acquisitions that build local density and expand our geographic footprint. These last 7 months have been a period of remarkable execution operational scaling and strategic expansion for Cardinal Infrastructure Group reflected in this quarter's 114% revenue growth in today's raised full year revenue guidance. Our performance continues to demonstrate the strength of our self-performing vertically integrated business model across our high-growth Southeastern footprint. Beyond the strong execution from our crews, we had several strategic milestones for the broader platform this quarter. In May, we added Piedmont Pipe in Charlotte, building further density in a market we already knew well. We completed construction of our first asphalt manufacturing facility, which will reduce reliance on third-party asphalt suppliers in Raleigh and in time, will give us the ability to serve outside customers. And in June, we completed a follow-on public offering to strengthen the balance sheet to fund our strategy going forward. With our record backlog, expanding service lines, robust end markets, and an M&A pipeline unlike anything we've seen before, we believe Cardinal is exceptionally well positioned for the second half of 2026 and beyond. With that, I'll hand over the call to our Chief Operating Officer, Benji Wood; to discuss our operational execution and the details of today's acquisition announcement. Benji, the floor is yours.

Thank you, Jeremy, and good morning, everyone. I'll start with Allied paving and close with a broader operational and safety update across the platform before turning it over to Mike. Let me start with Allied Paving since it's a highlight of the day. Allied brings an experienced paving crew and complementary equipment to the North Atlanta market and it fits neatly alongside ALGC's existing grading and site work capabilities. With Allied Paving crews now part of the platform, we can sequence paving directly behind our own grading and subworkteams, which compresses project time lines and keeps that margin in-house instead of passing it to a subcontractor. It also takes ALGC a massive step closer to the kind of fully self-performing full-stack model we've built in Raleigh, where we control a project and start to finish. As Jeremy mentioned, this transaction was sourced and run by the ALGC team using the playbook in capital we built as a platform. We couldn't be more excited to have Allied join the team and are current into ALGC's ability to find and execute deals like this will become a real differentiator for Cardinal as we keep growing, sourcing and executing bolt-on deals to finish building out the turnkey stack. This is how we'd expect future platforms we may acquire to grow going forward, and it's exactly why finding motivated, aligned leaders and retaining them is so core to who we are. Getting to watch my own team be the ones to prove that out is personally pretty rewarded. Looking beyond Allied, we continue to see strong crew productivity across the Cardinal footprint in the quarter. Charlotte is a good example of what density does for us. We already had wet utilities capabilities in that market and Piedmont Pipe adds meaningful additional density there, alongside our existing grading and site work capabilities. That means faster sequencing between scopes and less reliance on subcontracted labor to get a project across the finish line. Charlotte is now nearly a turnkey as a result. They're still early in this growth trajectory. Greensboro continues building towards that same turnkey capability. Our Georgia operations, while impacted by weather in the second quarter are gaining significant momentum with backlog up 10% since March 31 at ALGC. Our first asphalt processing plant operating under the Aviator brand near Raleigh continues to ramp as expected. With the land already secured for a second facility, we look forward to applying the operational lessons from our first plant to our future asphalt plant builds. We're also investing heavily in fleet deployment and equipment management using updated systems to make sure we have the right equipment in the right place at the right time across our newer acquisitions. And we're in the process of rolling out a new CRM system that will give us better real-time visibility into both operations and consolidated financials while helping ensure stock for compliance as we continue to mature as a public company. Beyond the equipment and system investments, our people remain the biggest driver of Cardinal's success and planning for the growth ahead means investing in the now, not just keeping pace with today's demand. As we take on larger, more complex projects to move into new markets, we're expanding our recruiting and training efforts to build the bench strength our crews and project managers need to keep executing at this level. That investment in our people is just as important to sustaining this growth as the equipment and systems we're putting in place. During the quarter, our field teams completed over 9,000 documented safety activities an increase of over 60% year-over-year. Across 57,800 individually inspected safety items on weekly site inspections over 99% metal standards, and the deficiencies are crews proactively self-identified triggered same-day automated awards to safety leadership for corrective action. That shows we don't sacrifice safety for speed, whether on delivery, on integration or otherwise. With that, I'll pass the call over to Mike to cover the financials and our updated outlook.

Thank you, Vince, and good morning, everyone. I'll begin with a review of our second quarter financial results before covering our updated outlook for 2026. In total, second quarter revenue was $227 million, an increase of $115 million from the second quarter of 2025, reflecting organic growth of approximately 56%. The growth accelerated meaningfully as the quarter progressed with May and June, both stepping up significantly over April. In our Raleigh market, sustained demand across our commercial and industrial customer base drove continued share gain and another quarter of 40% organic growth. The depth of our crews and equipment led us win outsized project awards even as competition for skilled labor increase across the region. Our ability to deploy crews and source labor and equipment quickly in the areas like Charlotte, which also printed over 40% growth, and Greensboro met strong share gains across a diversified end market mix in what continues to be a very high-growth market for Cardinal. ALGC continues to build on the momentum as part of the platform and is winning larger and more complex work reinforced in Atlanta as 1 of the most attractive growth markets in the Southeast. The costs associated with delivering on this level of growth, specifically in our new yet turnkey markets ran ahead of expectations. As such, margin performance for the quarter was below our expectations. Gross profit was $24.5 million, up 67% from the prior year, and adjusted gross profit was $36 million, a year-over-year increase of 60%. Adjusted gross margins ended the quarter at 15.9%, down 540 basis points from the prior year. This year-over-year variance is a result of 3 things. First, subcontracted labor and equipment rental costs increased primarily in new markets where we do not yet own full turnkey delivery capabilities. Second, we intentionally shifted towards a more diversified end market mix, larger commercial industrial projects ran on a different deployment schedule than residential work our operations were built around. And that mismatch left us with some underutilized crude capacity as we adjusted our deployment models, to the new mix more than we had modeled for. And finally, intense weather events in Georgia slowed our ability to deploy high-margin work at ALGC General and administrative expenses for the quarter were $9 million or 4% of revenue, driven largely by the cost of maturing our corporate infrastructure to responsibly support a scaling public platform. As we continue to scale this platform and position Cardinal as the acquirer and contractor of choice across the Southeast, we believe these investments are in the best interest of our employees and our shareholders. Adjusted EBITDA for the quarter was $28.1 million, up 43% year-over-year and adjusted EBITDA margins were 12.4%, down from 18.6% in the prior year, reflecting the impacts we just covered. Capital expenditures for the quarter were $24.7 million, reflecting completion of the asphalt manufacturing facility and continued fleet investments across the market. For the full year of 2026, we are reiterating our capital expenditure guidance of $58 million, excluding acquisitions. We ended the quarter with $195 million outstanding on our term loan and nothing drawn on our $75 million revolving credit facility with $339 million of cash on hand, we ended the quarter in a net cash position, giving us substantial capacity to keep funding both organic investments and our acquisition pipeline, thanks to our successful follow-on offering. As you heard, that capacity is already being put to work with the acquisition of Allied Paving which brings $108 million of annual revenue at 20.3% adjusted EBITDA margin on to the platform at roughly 5.5x EBITDA, a meaningfully accretive multiple and exactly the kind of disciplined use of our follow-on proceeds we said we pursue. Turning to our updated outlook for 2026 on Slide 8, given the strong top line performance, up 110% year-to-date, we are raising revenue to a range of $880 million to $900 million, reflecting total year-over-year growth of 95% at the midpoint. That raise is built on real broad-based customer demand and the visibility we have into the remainder of 2026 and beyond. Our backlog stands at a record $866 million and a close relationship with customers across our footprint gives us strong conviction in both the timing and the profitability of that pipeline as it converts to revenue. We're bidding on and winning larger and more complex commercial and industrial projects that we have historically, including work that bringing in new logo customers into the platform. While first half adjusted EBITDA sits at $55 million, ahead of plan. We are adjusting our adjusted gross margin guidance to a range of 16% to 18% for the full year. It's worth noting -- even at this updated rate, the size of our revenue rate means full year adjusted EBITDA are increasing versus our original guidance from roughly $136 million to over $150 million at the midpoint of today's range. We recognize onetime costs for the second quarter, a portion of which we expect to recover as the year progresses. The remainder of the shift reflects the pace and scale of our growth. We are investing in systems and processes that will give us better visibility into clustering going forward. This corporate infrastructure investment reflects reality of running a business growing at this pace, and we expect it to moderate as a percentage of revenue as we can grow into it. Similarly, as we continue to build out this platform across the Southeast, and reduce our concentration in any single market, we expect the impact from localized disruptions like weather in a single region become more muted on our overall results over time. Our conviction in the near-term profitability of this platform in the low 20s is unchanged. And as we look ahead, without getting into 2027 guidance specifically that trajectory only treats us as we recognize synergies across the platform, finalize vertical integration into our newer markets and rightsize our cost structure as we scale. Separately, we've also been extremely active in M&A front acquisitions this year alone, each with a different stage of integration. That's a lot happening across the platform at once, and we're staying disciplined about how we bring each 1 in. As you heard from Jeremy and Benji, we're incredibly optimistic about the road ahead. We have record backlog, strong and strengthening customer relationships and some of the best crews on the company and the opportunities set ahead of us that we believe is unmatched. We're delivering on the strategy that we built this business around incredible, strong organic growth, solid and improved margins, a stronger balance sheet and an acquisition pipeline that gives us multiple paths to compound from here. With that, I'll turn the call over to Jeremy for some quick remarks before Q&A. Jeremy?

Thanks, Mike. Just a quick word before we open it up. This was a record quarter for Cardinal. record revenue, record backlog and our ninth acquisition since 2021, sourced this time by our own team in Atlanta, we'll prove that our platforms can grow their own businesses and free up the rest of us to keep executing. We're growing faster than we planned and gaining share in every market and customer segment we serve. Our balance sheet is strong. Our acquisition pipeline is as deep as it's ever been, and we're going to keep moving. I've never felt better about where this platform is added because we're just getting started. With that, let's turn it over to questions.

[Operator Instructions] And the first question will come from Louie DiPalma with William Blair.

The revenue growth was exceptional, though the margin was disappointing. Can you discuss how much of the margin pressure was related to the onetime cost and the weather? And was the margin pressure focused in Georgia? Or was it generally distributed throughout Georgia and the North Carolina market?

Louie, Mike, Great question. And I think it kind of leads down the path of talking about guidance too as well. So we had 4 headwinds that helped us or hurt us. And those 4 things were -- we talked about it increased onetime labor -- sub labor -- subcontractor labor, rental cost, rental expense cost. We had to deploy to keep up with the customer base. the operational improvements that we are going to make the recent acquisitions that we're doing are going to help to recover this onetime in nature cost. Then on top of that, we had deployment shift from our diversified project mix and crew retention that went with that. Finally, the weather in Georgia, which slowed deployment of our ALGC cruise and network hurt us as well. And then finally, the SG&A, let's not forget about it too, being a brand new public traded company with corporate maturity that requires those costs are coming in and they're starting to level off, but they're still higher than we originally expected. And as such, that's the reason why we're also -- the question I'm addressing the same question at the same time. we are changing from 20% plus to 16% to 18% for our margins. And it's transitional. It's not structural. It's very much transitional, Louie.

Great. And what is the visibility for the second half margin increase? I think the guidance implies a margin in the the '19 range in the second half? And also, what is the visibility for the medium-term target that you said in the low 20s?

Yes. So both of those are the reasons why we have increased guidance for the second half. I mean ALGC feels very strongly. We've been feeling very strongly about their projection for the second half. Not only is the revenue is higher and a bigger percent of our total revenue, their margins are going to be much, much higher. And then on top of that, we just announced Allied. Allied is going to have 3 months of revenue at a 20-plus percent adjusted EBITDA margin. Then finally, we have a $1 million to $2 million of onetime costs that we can recover. Some we can't recover, but that's going to help us. Then we have our costs that we have from the asphalt plant that have come into line that will help us as well. And then finally, we -- some of the, what we call, deployment that we did for the project mix -- now we've got it a line. Now it's coming together. Now we're not going to have the same misses.

Yes. Louie, this is Jeremy. We also had some delayed starts in Charlotte with those projects now starting to kick off a couple of very large projects, that's a smaller growing market for us. So 2 projects, the significant size on the delay has an impact and those are getting started we'll see those start to run through the second half of the year. And that's why we are encouraged and believe in the conviction that we will not -- we'll hit the 16% to 18% guidance for adjusted EBITDA, which at that midpoint allows us to say we're going to be well above the 136 implied that we had for our forecast and that's at the midpoint of $890 million.

Great. And how much -- are you including the contributions from the Allied acquisition in -- beginning in the third quarter.

In the fourth quarter.

In the fourth quarter, okay. Great. And one final one. As it relates to the demand environment, it's it's pretty staggering. Has that been spread across the Georgia market, ALGC in addition to Raleigh and GreenFire in Charlotte, can you provide some market commentary in terms of the demand Jeremy and Benjie, and how sustainable do you see that demand going into 2027 and beyond?

Yes. Louis, this is Jeremy. We continue to see uptick on C&I. We're seeing a lot more opportunity in that space across all the markets that we serve. The residential volume continues at a reasonable pace. Obviously, they've had -- the national homebuilders have had some margin compression macro. We still have the same number of looks that we've had for probably the last 12 months. That hasn't deteriorated at all. What we are seeing there in the residential market is that -- some of the clients are asking for some pricing concessions from us, and we're just determining if it's a good fit for us or not. So the good news there is that -- we're not having a bit of low margin, but we're -- to be in the conversation, we're supplying our normal bids. And then we're determined does this make sense? Is there an opportunity for us to make up reduced margin through schedule compression, additional resources, that kind of things? Or do we just want to go focus on the other end markets that are providing better margin and come back to it when the margins start to rebound. And we'll say that also because of our high degree of involvement in the budgetary services for our residential clients, we have seen activity, specifically in the Triangle market, which is our largest, pick up almost 3 times versus what it was 6 months ago. So this visibility indicates to us that we should start seeing a significant rebound in projects in the next 18 to 24 months. because that's a typical entitlement cycle for residential projects. So this would lead us to believe that 2028 is going to be the year when things start to begin to return to normal on a margin basis for the residential end market. That being said, we're seeing high activity across C&I. And again, I mentioned in my reported call or comments that we're seeing a lot of retail activity, which is quite common. So -- we feel really good about the opportunity very strong across all our MSAs we serve. And as we continue to expand and move geographically, it's going to start to smooth things out for us because we, again, one location gets impacted and has an impact that's noticeable.

And our next question will come from Brian Brophy with Stifel.

Yes. Wondering if you could touch on the data center end market and pipeline. How is execution on that first project going thus far, and just the latest thoughts on that opportunity in that end market.

Yes. Brian, yes, so we were continuing on that project, is going well. We're ahead of schedule. There has been a lot of revisions and change of scope, adding work to this first contract of ours as they get ready for the next phases. I can't speak too much about what it is and where it is and who it's for, but it continues to go well. We are active in the Georgia market to and in the Carolinas looking at other opportunities. I will say that from conception to actual award in that end market seems to be a lot longer than other traditional end markets. So there's a lot more effort going into the bidding process, and it's not awarded really quickly. So takes a little bit longer. But we're very active there. We have a large distribution facility for a very large retailer that's getting started in the Atlantic market, very similar in nature to a data center. in terms of size and complexity and schedule that have we not begun the integration process with ALGC when we did as quickly as we did and Allied as a component. I'm not sure that we would have been very aggressive and being able to meet the schedule that was required to do it. So having all these resources now in-house allowed us to bid this at really good margins, comfortably knowing that we're going to meet the scheduled demand from the client. So we're -- we continue to see opportunity in the data center. It's new for us. The one that we're doing is it's going really well. client is very happy, and we're looking forward to capturing more opportunities throughout the next half of the year.

That's great. And then just following up on some of the margin conversation, was there a particular geographic market where you saw some of the subcontractor costs and crew utilization challenges, and is that related to 1 project, multiple projects? And is there any particular end market that it was concentrated.

Yes. It was in the Charlotte market. And it wasn't really concentrated with 1 customer really related to things that we had multiple customers that had delays on jobs. And with those delays, we had to absorb the all the costs that we couldn't deploy that in terms of the work being done. Now that, that work started now that we've given a lot of attention, a lot of attention. we feel comfortable we're going to see some improvement. And long term, we feel really good about it.

Yes. And from the subcontractor costs and resources. So when you have these delays and you have your workforce once it gets deployed and everything gets started and you have other projects coming online. At the same time, it was causing the necessity for us to go out and partner with some of our former trade partners to help expedite that work and get -- so we didn't compromise schedule. And as we get back on plan there, and you saw the Piedmont acquisition helps to solve that issue. We're adding what utility resources that we're having to stop contract out, right? And so as we get those tucked in and continue to our organic growth mission there in the Charlotte market, it should do nothing but improve over the next quarter and year.