Cardinal Infrastructure Group Inc. (CDNL) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to Cardinal Infrastructure Group's Full Year 2025 Earnings Conference Call and Webcast. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to Emily Lear, Director of Investor Relations. Please go ahead, ma'am.

Good morning, everyone, and welcome to Cardinal Infrastructure Group's Full Year 2025 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; and Mike Rowe, Cardinal's Chief Financial Officer. Please note that there are accompanying slides available on the Events and Presentations section of our corporate website. Today's call will present certain non-GAAP financial measures. It will include forward-looking statements as defined by 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 undertakes 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. 2025 was a landmark year for Cardinal. We delivered very strong revenue growth, closed three acquisitions, and finished the year with a record $682 million backlog, a company record. And to top it all off, we completed our IPO in December. None of that happens without an exceptional team, and I want to acknowledge the Cardinal employees whose commitment to our customers, this company and to each other made this year possible. For the full year 2025, revenue increased 45% to $456 million. Organically, our business grew approximately 33% year-over-year. Top line growth was broad-based across our residential, commercial, DOT municipal and paving end markets, demonstrating meaningful progress in diversifying our end-use markets and customer base. The demand environment across our core geographies is as strong as we have seen. Population migration into the Southeast continues to outpace national averages, and our customers are communicating capital deployment plans that extend well into the latter part of this decade. On the commercial side, reshoring and advanced manufacturing investment is translating into robust project pipelines and the scope of individual projects continues to grow. The need for a vertically integrated, experienced, and trusted contractors who can execute timely at scale is only becoming more critical. Because of that, we are well positioned to be that partner. Our workforce grew meaningfully in 2025, both through our acquisitions and organically, and we continue to attract professionals who want to be part of what we are building. Labor availability is a real constraint across our industry, and while we are not immune to that, we feel well positioned relative to the opportunity in front of us. In 2025, we closed on three great acquisitions. Purcell Construction in Charlotte, Page & Associates in Greensboro and Charlotte-based Red Clay Industries, which expanded our paving and services capability across North and South Carolina. Three acquisitions in a single year is a meaningful test for any organization's integration capacity. Our team executed well, and all three businesses are operational and contributing under Cardinal's growth model. We have built a culture of accountability, safety and consistency that we believe translates directly into execution quality and positive customer outcomes, and that culture is what makes this kind of growth sustainable. Subsequent to year-end, on February 18, we closed the acquisition of AL Grading Contractors, our largest and most strategically significant acquisition to date, a fourth-generation site development business in Sugar Hill, Georgia, ALGC provides services, including grading, underground utilities, and clearing for large-scale commercial, industrial and residential projects across Georgia and South Carolina. They bring approximately $160 million in annual revenue at a profile that is meaningfully accretive to our consolidated business. This transaction marks Cardinal's first expansion outside of the Carolinas and is a deliberate step in our strategy to build density through expansion and vertical integration in high-growth Southeast markets where population and development trends are most compelling. Given the strength of our platform and our recent ALGC acquisition, we are guiding full year 2026 revenues in the range of $664.9 million to $678.3 million with adjusted EBITDA margins above 20%. Mike will walk through the details a bit later. We entered 2026 with a record backlog, a broader platform than we have ever had and a team that has proven it can execute through a year as demanding as 2025 was. The demand environment across our markets is strong, and we have good visibility into the year ahead. I founded this business because I believed in what we could build. And sitting here today, I could not be more proud of where we are. We're more excited about the opportunity ahead of us. With that, I'll turn it over to Mike.

Thank you, Jeremy, and good morning, everyone. I will begin with a review of our full year financial results before covering our outlook for 2026. For the full year 2025, revenue was $456 million, an increase of 45%, compared to 2024. The increase was driven by a 33% organic growth as residential and commercial demand continued to scale across our core markets, complemented by Page, Purcell and Red Clay acquisitions completed in the year. Gross profits were $64 million compared to $47 million in the prior year. On an adjusted basis, gross profit was $96 million or a 21.1% margin, up 40 basis points year-over-year, reflecting execution quality and scale benefits realized throughout the year. General and administrative expenses for the full year was $23 million or 5% of revenue. The year-over-year increase reflects $8.5 million in nonrecurring costs associated with recent acquisitions and the build-out of our public company infrastructure ahead of and following our IPO. Excluding nonrecurring impacts, continuing general and administrative expenses, were 3.3% of revenue compared to 3.4% in 2024. Full year, we reported approximately $72 million in EBITDA, or 15.8% margins, and adjusted EBITDA of $81.5 million, a 44% increase compared to 2024, with an adjusted EBITDA margin of 17.9%. Turning to cash flow. Cash flow from operating activities were approximately $38 million for the full year, reflected solid working capital management through the IPO process. Capital expenditures were approximately $44 million, elevated relative to prior periods as we began construction of our asphalt manufacturing plant and invested in fleet to support the recent acquisition growth, both delivered investments in the long-term capacity of the platform. The asphalt plant, which we're expecting to bring online towards the end of the second quarter is a vertical integration initiative that minimizes our reliance on third-party asphalt supply in the Raleigh market and positions us to serve external customers as well. We intentionally deployed capital in '25 to build infrastructure that we expect to generate returns for years to come. Turning to the balance sheet. During the year, we raised nearly $140 million through financing activities, including IPO proceeds and our credit facility, and we deployed over $101 million against in-year acquisitions and elevated capital expenditures, I just described. We ended the year with $120 million outstanding on our term loan and nothing drawn down on our $75 million revolving credit facility, resulting in a year-end net leverage of 0.4x. Subsequent to year-end, we amended our credit facilities to provide an incremental $80 million to fund the ALGC acquisition. On a pro forma basis, including ALGC, net leverage is approximately 1.27x, well below our covenant at 2.5, leaving us with meaningful capacity to continue executing on our growth strategy. We are comfortable with our current capital structure, and we believe it is well suited to support both organic growth and continued M&A activity. And finally, our 2026 guidance, as Jeremy mentioned, we are reiterating our full year 2026 guidance ranges, which we first provided with the ALGC acquisition announcement on February 18. Revenue is expected to be in the range of $664.9 million to $678.3 million, and we expect adjusted EBITDA margins of 20% or above. This margin profile represents meaningful expansion relative to 2025, and we see a clear path to getting there. The ALGC carries an adjusted EBITDA margin profile that is meaningfully accretive to our consolidated business, and we are executing on our vertical integration strategy that reduces our reliance on third-party suppliers and contractors, improved input cost control and expands the scope of what we can self-perform on any given project. Combined with the underlying strength of our core business, we believe the margin profile we are guiding to is achievable and sustainable. Our year-end backlog of $682 million represents a 1.5x our 2025 revenue, providing strong coverage for our 2026 guidance and good visibility to the cadence of the year. We expect 2026 capital expenditures of approximately $58 million as we complete construction of our asphalt manufacturing facility and continue to upgrade the Cardinal fleet and remain active in evaluating strategic acquisitions. Thinking about the cadence of the year, consistent with typical construction seasonality, we expect 40% to 45% of revenue to be recognized in the first half with the first quarter being our seasonal low point for both revenue and profitability, accelerating through the third quarter, historically our strongest, as crews take full advantage of the summer weather. With that, let's go ahead and open up to questions.

[Operator Instructions] Our first question is going to come from the line of Brian Brophy with Stifel.

Congrats on the nice quarter and great start here. Just wanted to ask on the demand environment, particularly on the housing side. Obviously, the headlines there continue to be softer, but your award and backlog activity continues to be quite healthy, and it sounds like the bidding environment continues to be strong as well. Can you just talk about what you're seeing out there from a demand perspective, both in North Carolina and Georgia? What do you think is driving some of the disconnect between what you're seeing in some of the headlines? Is it share gains? Is it continued geographic expansion? Are we seeing more commercial and state DOT work in the backlog? Appreciate any thoughts.

Brian, this is Jeremy. I appreciate the question. It's a fair question, and something that we watch closely. Obviously, we operate -- the markets that we operate in, in the Carolinas and in Georgia are attractive markets in the Southeast where net migration is positive. We continue to have undersupply of housing and over demand for said housing. So our -- the Carolinas, in general, both North and South Carolina have been flat year-over-year to slightly up, and Georgia is falling in the same boat more towards the flat. And as market conditions, there are some tailwinds coming with interest rates and some things that the administration is doing to tee up housing to hopefully trend in the right direction, the headwinds as we see it are the geopolitical things happening that or having uncertainty with inflation as it relates to materials and other things that impact trades as they go vertical. But our backlog, our pipeline and visibility in the markets that we operate are very strong. We -- as you and I have discussed in previous conversations, we have privy to backlog well in advance of projects coming to fruition because of our ability to help and assist clients with underwriting of projects and moving through the entitlement process with value engineering and certain resources that we're able to provide to help make projects come to life. So we see a strong growth ahead of us. We have a robust pipeline and very excited about what's coming about the things that are in the hopper, and we all said and done, we continue to operate in the best market in the United States. So when you look macro at the news, you're going to see a macro analysis of the housing in general. And if you zero in on the Southeast, and specifically the states that we operate in, it's far less negative than what you're seeing in the public.

Yes, that's really helpful. And then as my follow-up, you touched on this a little bit, but can you remind us how much diesel is as a percentage of your COGS? And to what extent are you guys protected from some of the rise in diesel we've seen here recently?

Yes, we have clauses in our contracts that allow for us to have any kind of major adjustments that would in our numbers to do a change order for, but we're not seeing that much yet. We don't expect it to be anything that's going to make us change our guidance whatsoever. As a percentage, I can't really tell you what it is, but we're not worried about our guidance.

[Operator Instructions] Our next question will come from the line of Noah Levitz with William Blair.

Great. Jeremy, Mike and Emily, congrats on great results. To start off, I just wanted to confirm fourth quarter revenue and EBITDA, it seems as if it came in roughly $146 million on the top line with EBITDA of $26 million. And just off of that, it implies roughly flattish margins for the quarter relative to the full year. And I just wanted to split out the disconnect for the guidance between how much of that greater than 20% is coming from ALGC, which is obviously very accretive. And then how much are you kind of baking in on the organic side with synergies from like the Red Clay acquisition, the asphalt plant coming online, operational efficiencies and whatnot.