Cardinal (CDNL) Q2 2026 Earnings Call Transcript

Image source: The Motley Fool.

DATE

Tuesday, Aug. 11, 2026 at 10:30 a.m. ET

CALL PARTICIPANTS

• Chairman and Chief Executive Officer - Jeremy Spivey
• Chief Operating Officer - Benjamin A. Wood
• Chief Financial Officer - Mike Rowe
• Director of Investor Relations - Emily Lear

TAKEAWAYS

• Revenue -- $226.9 million, an increase of 114% year over year, driven by organic growth and contributions from the ALGC and Piedmont Pipe acquisitions.
• Organic Revenue Growth -- 64% for the second quarter, reflecting market share gains and end-market diversification.
• Backlog -- $866 million as of June 30, 2026, up 35% versus the prior year with balanced growth across commercial and residential segments.
• Adjusted EBITDA -- $28.1 million, a 43% increase compared to the prior year.
• Adjusted EBITDA Margin -- 12.4%, down from 18.6% in the second quarter of 2025 due to higher subcontracted labor costs and weather disruptions.
• Full Year Revenue Guidance -- $880 million to $900 million, representing a midpoint increase of $210 million from previous expectations.
• Full Year Adjusted EBITDA Margin Guidance -- 16% to 18%, adjusted from the previous target of 20%-plus to reflect corporate infrastructure investments and cost trends.
• Allied Paving Acquisition -- $120 million total consideration, comprising approximately $62 million in cash and $58 million in Class A common stock.
• Acquisition Accretion -- The Allied Paving transaction was valued at approximately 5.5x adjusted EBITDA and is expected to contribute $108 million in annual revenue.
• Adjusted Gross Profit Margin -- 15.9%, a decrease of 400 basis points year over year reflecting higher rental equipment and subcontracted labor expenses.
• Regional Growth -- Organic revenue increased over 40% year over year in the Raleigh and Charlotte markets.
• Net Income -- $11.1 million, an 18% increase compared to the second quarter of 2025.
• Capital Expenditures -- $24.7 million for the quarter, including the completion of an asphalt manufacturing facility and fleet investments.
• Full Year CapEx Guidance -- $58 million, excluding any impacts from future acquisitions.
• Cash and Liquidity -- $339.1 million in cash on hand as of June 30, 2026, following a follow-on equity offering in June.
• G&A Expenses -- $9 million or 4% of revenue, driven by costs to mature corporate infrastructure and public company compliance functions.
• Safety Performance -- Field teams completed 9,000-plus documented safety activities, representing a 60% increase year over year.
• Operating Cash Flow -- $12.7 million for the second quarter, up from $4.2 million in the prior year period.
• Debt Structure -- $195 million outstanding on a term loan with no draws on the $75 million revolving credit facility.
• Georgia Operations -- Backlog at ALGC increased 10% sequentially since March 31, 2026, despite weather-related deployment delays.

Need a quote from a Motley Fool analyst? Email pr@fool.com

RISKS

• CFO Mike Rowe stated, "subcontracted labor and equipment rental costs increased primarily in newer markets where we do not yet own full turnkey delivery capabilities," which negatively impacted adjusted gross margins.
• CEO Jeremy Spivey stated, "intense weather related impacts in Georgia ran ahead of plan," which slowed project deployment and margin realization at ALGC.
• CEO Jeremy Spivey noted that "some of the clients are asking for some pricing concessions from us," in the residential segment as national homebuilders face margin compression.

SUMMARY

Management reported second quarter revenue of $226.9 million and raised its full year revenue outlook to a range of $880 million to $900 million. The company attributed the top-line performance to 64% organic growth and the integration of recent acquisitions across the Southeast. Cardinal Infrastructure Group Inc. (NASDAQ:CDNL) announced a $120 million agreement to acquire Allied Paving in Atlanta, a move intended to internalize paving capabilities and compress project timelines. While total revenue doubled year over year, adjusted EBITDA margins declined due to increased reliance on subcontracted labor in developing markets, weather delays in Georgia, and accelerated investments in corporate governance and public company infrastructure.

• CEO Spivey confirmed the first asphalt manufacturing facility near Raleigh is operational, stating it "will reduce reliance on third party asphalt suppliers" and eventually serve outside customers.
• CFO Rowe noted that the revised full year revenue guidance includes approximately $28 million from the pending Allied Paving acquisition, which is expected to close in early October.
• CEO Spivey reported a shift toward commercial and industrial work, noting that "commercial retail and retail distribution additions in the quarter were meaningful."
• Management is implementing a new CRM system and scaling corporate staff to ensure compliance with SOX 404 standards while improving real-time visibility into consolidated financials.
• CEO Spivey noted that despite broader market compression, "national homebuilders continue to move forward with a large multiphase residential communities supported by the persistent structural undersupply of housing."
• COO Wood stated that internalizing paving through the Allied acquisition allows the company to "sequence paving directly behind our own grading and site work teams," improving overall margin capture.

INDUSTRY GLOSSARY

• ALGC: Atlanta Land Grading Company, an Atlanta-based subsidiary acquired by Cardinal in February 2026.
• Turnkey: A vertically integrated service model where a single contractor performs all phases of a site development project.
• Wet Utilities: The installation of essential underground infrastructure including water mains, sanitary sewers, and stormwater systems.
• Piedmont Pipe: A wet utility contractor based in Charlotte that was acquired by Cardinal in May 2026.
• SOX 404: Section 404 of the Sarbanes-Oxley Act, which requires public companies to document and test internal controls over financial reporting.
• CRM: Customer Relationship Management software used to track sales, project data, and operational metrics.
• C and I: The Commercial and Industrial end-market segment of the construction industry.

Full Conference Call Transcript

Operator: Good morning, ladies and gentlemen, and welcome to Cardinal Infrastructure Group's Second Quarter 26 Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a Q&A session. To ask a question during this session, you would need to press 1-1 on your telephone You would then hear an automated message that your hand is raised. To withdraw your question, please press 1-1 again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to Emily Lear, Cardinal's Director of Investor Relations. Please go ahead.

Emily Lear: Good morning, everyone, and welcome to Cardinal Infrastructure Group's Second Quarter 26 Earnings Conference Call and Webcast. I am pleased to be here today to discuss our results with Jeremy Spivey, Cardinal's Chairman and Chief Executive Officer, Benjie 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 of 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 will now turn the call over to Jeremy.

Jeremy Spivey: 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 our 2021 IPO. We closed our follow on equity offering just weeks ago. And we are already putting that capital to work. Quickly and on accretive terms. I will let Benjie 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 is been a little over 5 months since we closed the ALGC acquisition, and the team in Atlanta has absorbed how we operate. They sat with us through Piedmont Pike to see how we onboard and integrate, and now they have gone out and found, negotiated, and closed a deal themselves. that is the best proof point we could ask for. it is 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 are 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 these developers call first. And I am 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 in a relatively slower moving part of the broader C and 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 are raising the midpoint of our full year revenue guidance from $680 million to $890 million just shy of 100% year-over-year growth from where we ended 2025. We are gaining share diversifying our end markets, and seeing strong demand signals across the board. Along that raise, we are 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 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 for ourselves. This opportunity is bigger than anything we have seen, and we are not going to leave it on the table. Visibility into customers' multiyear capital deployment and investment plans is encouraging. And we are 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 homebuilders 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 mayor recently emphasized that the city is currently facing a severe 37 thousand-unit housing shortage. Declaring that increasing the housing supply is the top policy priority. A recent statewide housing analysis from the North Carolina Home Builders Association shows just how big this gap really is. Wait. Mecklenburg Counties are expected to face housing shortfalls of over 110 thousand homes each by 2029 as population growth in Raleigh and Charlotte significantly outpaced new construction.

This dynamic is not unique to Raleigh or Charlotte, According to the US Census Bureau's most recent population estimates, North Carolina and Georgia, the 2 states 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 of 84 thousand. That same data shows South Carolina, Tennessee, and Florida among the 10 fastest growing states. We are not 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 is 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 have 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% year-over-year revenue growth and 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 hit 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 have seen before, believe Cardinal is exceptionally well positioned for the second half of 26 and beyond. With that, I will hand over the call to our Chief Operating Officer, Benjie Wood, to discuss our operational execution and the details of today's acquisition announcement. Benjie, the floor is yours.

Benjamin A. Wood: Thank you, Jeremy, and good morning, everyone. I will 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 is a highlight of the day. Allied brings an experienced paving crew and complimentary 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 site work teams. Which compresses project timelines 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 have built in Raleigh where we control a project from start to finish. As Jeremy mentioned, this transaction was sourced and run by the ALGC team. Using the playbook and capital we built as a platform. We could not be more excited to have Allied join the team and our 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 would expect future platforms we may acquire to grow going forward.

And it is 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 reward. 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 are still early in its growth trajectory. Greensboro continues building toward that same turnkey capability. Our Georgia operations, while impacted by weather in the second quarter, are gaining significant momentum with backlog up 10% sequentially since March 31st. 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 to operational lessons from our first plant to our future asphalt plant build. We are 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 are 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 SOX 404 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 them now. Not just keeping pace with today's demand. As we take on larger, more complex projects and move into new markets, we are 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 are putting in place. During the quarter, our field teams completed over 9 thousand-plus documented safety activities, an increase of over 60% year over year. Across 57.8 thousand-plus individually inspected safety items, on weekly site inspections over 99% met our standards. And the deficiencies our crews proactively self identified triggered same day automated alerts to safety leadership for corrective action. That shows we do not sacrifice safety for speed whether on delivery, on integration, or otherwise. With that, I will pass the call over to Mike to cover the financials and our updated outlook.

Mike Rowe: Thank you, Benjie, and good morning, everyone. I will 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 25. Reflecting organic growth of approximately 56%. 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 gains and another quarter of 40%-plus organic growth. The depth of our crews and equipment led us to win Outsized Project Awards Even As Competition For Skilled Labor Increased Across The Region.

Our ability to deploy crews and source Labor And Equipment Quickly In The Areas Like Charlotte which also printed over 40% year-over-year growth, and Greensboro, with 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 reinforcing 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 expectation.

Gross profit was $24.5 million, up 67% from the prior year adjusted gross profit was $36 million, a year-over-year increase of 60%. Adjusted gross margins ended the quarter at 15.9%, down 400 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 newer 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 crew 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 markets. 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 a 20.3% adjusted EBITDA margin onto 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 would pursue.

Turning to our updated outlook for 2026 on slide 8, given the strong top line performance up 114% year-to-date, we are raising the revenue to a range of $880 million to $900 million, reflecting total year over year growth of 95% year-over-year 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 our 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 are bidding on and winning larger and more complex commercial and industrial that we have historically, including work that is 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 is worth noting even at this updated rate the size of our revenue raise means full year adjusted EBITDA is increasing versus our original guidance from roughly $136 million to over $150 million at the midpoint of today's range. We recognized 1-time 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 cost trend going forward. This corporate infrastructure investment reflects the 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 twenties is unchanged. And as we look ahead, without getting into 2027 guidance specifically, that trajectory only strengthens as we recognize synergies across the platform finalize vertical integration into our newer markets, and right size our cost structure as we scale. Separately, we have also been extremely active in the M&A front. 3 acquisitions this year alone, each with a different stage of integration. that is a lot happening across the platform at once, and we are staying disciplined about how we bring each 1 in.

As you heard from Jeremy and Benjie, we are incredibly optimistic about the road ahead We have record backlog, strong and strengthening customer relationships some of the best crews in the company and the opportunity to set ahead of us that we believe is unmatched. We are delivering on the strategy, that we built this business around incredible, strong organic growth solid and improving margins, a stronger balance sheet, and an acquisition pipeline that gives us multiple paths to compound from here. With that, I will turn the car over to Jeremy for some quick remarks before Q&A. Jeremy?

Jeremy Spivey: 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 our 2021 IPO. Sourced this time by our own team in Atlanta. Real proof that our platforms can grow their own businesses and free up the rest of us to keep executing. We are 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 is ever been. And we are gonna keep moving. I have never felt better about where this platform is headed because we are just getting started.

With that, let's turn it over to questions. Operator?

Operator: And to withdraw your question, please press 1-1 again. We ask that you please limit to 1 question and 1 follow-up. And the first question will come from Louie Dipalma with William Blair. Your line is now open.

Louie Dipalma: Jeremy, Benjie, Mike, and Emily, good afternoon. Hey, Louie. Hey. 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 markets?

Mike Rowe: Hey, 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 hurt us, and those 4 things were we talked about it increased 1-time labor, sub labor, subcontractor labor, rental cost, rental expense cost, we had to deploy to keep up with the customer pace. The operational improvements that we are going to make, and the recent acquisitions that we are doing are going to help to recover these onetime in nature costs. Then on top of that, we had deployment shifts from our diversified project mix and crew retention that went with that.

Finally, the weather in Georgia, which slowed deployment of our ALGC crews in that work. Hurt us as well. And then finally, the SG&A, let's not forget about it too. Being brand-new public company with the corporate maturity that requires those costs are coming in, and they are starting to level off, but they are still higher than we originally expected. And as such, that is the reason why we are also-- to the question I am addressing the same question at the same time. We are changing from 20%-plus to 16% to 18% for our margins And it is transitional. it is not structural. it is very much transitional.

Louie Dipalma: Louie. Great. And what is the visibility for the second half margin increase I think the guidance implies a margin in the nineteens range and the second half? And also, what is the visibility for the medium term target that you set in the low twenties.

Mike Rowe: Yeah. So both of those are the reasons why we have increased guidance for the second half. I mean, ALGC feels very strongly. We did feel strongly about their projection for the second half. Not only the revenue is higher and a bigger percent of our total revenue, their margins are gonna be much, much higher. And then on top of that, we just announced Allied. Allied's gonna have 3 months of revenue at a 20 plus percent adjusted EBITDA margin. Then finally, we have $1 million to $2 million of onetime cost that we can recover. Some we cannot recover, but that is gonna help us.

Then we have our costs that we have from the asphalt plant that are coming online 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 have got it aligned. Now it is coming together. Now we are not gonna have those same misses. Yeah.

Jeremy Spivey: Louie, this is Jeremy. We also had some delayed starts in Charlotte. With those projects now starting to kick off couple of very large projects. You know, that is a smaller growing market for us. So 2 projects with significant size having a delay had an impact, and those are getting started. So we will see those start to run through the second half of the year.

And that is why we are encouraged and believe in with conviction that we will hit the 16% to 18% guidance for adjusted EBITDA which at that midpoint allows us to say, going to be well above the $136 million implied that we had for our forecast, and that is at the midpoint of $890 million.

Louie Dipalma: 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, please. Okay. Great. And 1 final 1. As it relates to the demand environment, it is it is pretty staggering. Has that been spread across the Georgia market, ALGC, in addition to Raleigh and Greensboro and Charlotte, can you provide some like, market commentary in terms of the demand, Jeremy, and Benjie, and how sustainable do you see that demand going into 2027 and beyond?

Jeremy Spivey: Yeah. Louie, this is Jeremy. We continue to see uptake on C and I. We are seeing a lot more opportunity in that space across all the markets that we serve. The residential volume continues to at a reasonable pace. You know, obviously, they have had they have had the National Home Builders have had some margin compression. Macro. You know, we still have the same number of looks that we have had for probably the last 12 months.

That has not 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 are just determining if it is if it is a good fit for us or not. So the good news there is that we are not having to bid at low margin, but we are know, to be in the conversation, we are we are supplying our normal bids and then we are determining does, you know, does this make sense? Is there an opportunity for us to make up a reduced margin through schedule compression, additional resources, that kind of thing?

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. I will say that also you know, because of our high degree of involvement in the budgetary service for our residential clients, We have seen activity specifically in the tribal market, which is our largest, pick up almost 3x. 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 is 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 are seeing high activity across C and I. And, again, we I mentioned the in my reported call or comments, that we are seeing a lot of retail activity, which is which is quite uncommon. So we feel really good about the opportunity. it is very strong across all our MSAs we serve.

And, you know, as we continue to expand and move geographically, it is gonna start to smooth things out for us because where, again, 1 location gets impacted and it has an impact that is noticeable. Great. Thanks for the color, and thanks, everyone. Thank you.

Operator: And our next question will come from Brian Brophy with Stifel. Your line is open.

Analyst: Yes, thanks. Good morning, everybody. Wondering if you could touch on the data center end market. And pipeline How's execution on that first project going thus far? And just the latest thoughts on that opportunity in that end market. Thanks.

Jeremy Spivey: Yeah. Hey, Brian. Good morning. Yeah. So we where we are continuing on that project, going well. We are ahead of schedule. There has been a lot of revisions in and change of scope, adding work to this first contract of ours, as they get ready for the next phases. I cannot speak too much about what it is and where it is and who it is for, but, you know, it continues to go well. We are active in the Georgia market too 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 is a lot more effort going into the bidding process and it is not awarded really quickly. So takes a little bit longer. But we are we are very active there. We have a large distribution facility for very large retailer. that is getting started in the in the Atlanta market very similar in nature to a data center. In terms of size and complexity and schedule. That you know, have we not begun the integration process with ALGC when we did as quickly as we did in adding Allied as a component. I am not sure that we would have been very aggressive in 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 are gonna meet the scheduled demand from the client. So, you know, we are we are you know, we continue to see opportunity in the data center. it is new for us. The 1 that we are doing is it is going really well. Client's very happy, and we are looking forward to capturing more opportunities, throughout the next the next half of the year.

Analyst: that is 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 utilization challenges And is that related to 1 project, multiple projects, And is there any particular end market that it was concentrated? In? Thanks.

Mike Rowe: Yeah. It was in the Charlotte market. And it was not really concentrated with 1 customer really related to things that we had multiple customers that had delays on jobs With those delays, we had to absorb the all the cost that we could not deploy that in terms of the work being done. Now that work started, now that we given it a lot of attention, Brian, a lot of attention, We feel comfortable we are gonna see some improvement And long term, we feel really good about it.

Jeremy Spivey: Yeah. And from the from the subcontractor calls and research, 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, you know, 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 everything-- so we did not compromise schedule. And as we as we get back on plane there and you saw the Piedmont acquisition helps, to solve that issue, we are adding wet utility resources that we are having to subcontract out. Right?

And so as we get those tucked in and continue to our organic growth mission there in the Charlotte market it should it should do nothing but improve over the next quarter and year.

Analyst: Okay. I guess just 1 to that. it is as you look through July, have you seen kind of a decrease in the subcontractor cost and crew utilization bouncing back here? Thanks.

Mike Rowe: Very much so. Okay.

Analyst: And then just last 1 for me. In 1 of the prior answers you mentioned, so customers asking for pricing concessions. Did you see any impact from that in the quarter And are you expecting any impact from that in the back half?

Jeremy Spivey: No, we did not. If it does not meet our I mean, if it does not meet our requirement, we obviously have a red line. If, you know, we are if we have the opportunity to look at a project and see if there is anything that we can do with resources to maintain the margin and still execute for our client, we are gonna do it. And if it does not exist, we just we move on. So the ask has come. it is not from all our clients. it is from, you know, certain ones that is just the corp the corporate mandate is go out and ask for concessions, and that is across the board.

Whether it is you know, when we are in an isolated region. So we had not seen it up until recently, but it is come. it is asked, and we will we will take a look at it because, you know, we value relationships with our clients. But if it does not work out, it does not work out, and we just move on. Understood. Appreciate the color. I will pass it on. Thank you.

Operator: And the next question is coming from Brent Thielman with Oppenheimer. Your line is open.

Analyst: Hey, thanks. Good morning. Morning, Brent. Mike. Hey. Morning. Mike, on the guidance and the increase in revenue, it sounds like you have 3 months roughly of Allied Paving in there. Can you just clarify how much revenue you have baked into that?

Mike Rowe: Yeah. $28 million is what we baked in for that. Okay. And then it sounds like investments in CRM, some other back office things you need to make Maybe if you could just level set us on kind of what the new corporate overhead run rate should be, especially as we think of moving into next year? Yeah. Yeah. By the way, I am glad you brought that up. Even with the levels we are at for SG&A, we still believe and have seen we are ahead of our peers.

And we are gonna make sure we do all we have to make sure we do everything as a new public trading company that we are in where we need to be with compliance, where we need to be in terms of our systems and our processes and our information to help us make, see this stuff happening more real time. But that said, the percentage we had for the fourth for the second quarter was 4%. And I think that is probably a number that we are gonna be looking at in the future going forward. Okay.

Analyst: I guess this last 1, maybe Jeremy or Benjie, I think you mentioned 1 of the other aspects to the margin this quarter was maybe a bit of a shift towards customers outside of residential. And just want to understand what is different about those projects that require some of the investments you have had to make and what exactly causes that near term pressure as you look at that shift?

Jeremy Spivey: Yeah. So the deployment schedule is what has impact there. And we are shifting, you know, end markets and the timing that some of these larger, more complex and I mentioned with data centers, you see it across the C and I space. The start time and the schedule to utilize all the resources, get on the project, and get it on plan are just completely different the residential end market. As we shift to get more diversified, that all smooths out over time. And we will have a good mix and be able to bounce back and forth between customers and end markets where it has little to no impact. Okay. Great. Thank you. Thank you.

Operator: And the next question will come from Noah Levitz with William Blair. Your line is open.

Analyst: Great. Thanks, guys. My first question on the call or prepared remarks, you mentioned that you had secured land for the second asphalt plant. Given that you are about a month and a change, into having the first 1 operational, What have you learned so far? What are you liking, not liking? And then what is the ideal timing for Plant Number 2? And would this be, a, you know, different geography than you are in? Existing 1? How are you thinking about that?

Jeremy Spivey: What I do not like is the red tape with municipality approvals. When you meet all the requirements that you need in order to get the plant up and running operational. I mean, you know, I can just I feel for anybody who is in the entitlement space in any end market and any different municipality and the requirements that are ongoing and just come out of nowhere. But we you know, we are going to get this plant on plan.

The other plan is has the approvals for from a zoning standpoint and from a air quality permit standpoint, we have not begun the process of site plan or ordered the equipment We will probably give this 1 to 2 quarters of run before we completely have a full grasp on what size and model and all the you know, there is 100 different types of sizes of these plants. And once we really get our feet underneath us and get this thing going and seeing what it looks like on plan is when we will we will make that determination. But the land security's end. The permits are in place.

All we have to do is go get the site plan and construction approvals from the municipality. Great. And then would that be a similar just pure margin uplift situation, or would this second plan, in theory, be where you start selling material to third parties? It will be both. It will be both. And, again, you know, we are we anticipate this is gonna serve Aviator paving in the final market. So when this plant comes-- you know, our port first plant's online, we anticipate that bringing a lift to revenue eventually because we are gonna be able to do more work. You know, they compress we can spend a lot of time following this.

But having a plant compresses schedule and does a lot of things for us still allows us to do more work which equals more revenue. So once we get to a level where we can support it on our own is when we will pull the trigger. And then naturally, we will have additional capacity where we can start focusing on outside sales to third parties. And that will just be an added benefit to the and it is not modeled in our forecast. Gotcha. Thank you. And then my last question, it seems like Raleigh today is your full-- your only fully turnkey vertically integrated market. Charlotte, you have made 4 acquisitions now.

Georgia with ALGC, plus organic activity bringing in some crews from North Carolina plus now Allied Paving How turn key are your markets outside of Raleigh? Mike, what inning would you say they are in for Charlotte, Atlanta, and Greensboro? Thank you. Yeah. So Greensboro is in the, you know, the second inning. Charlotte's in the sixth or seventh inning. And Atlanta's probably in the fifth inning. We have a lot of specialized services that we start bringing in house, retaining walls, erosion control, some other things, clearing and grubbing. there is there is a lot of specialty services that complete the full mix.

You know, and in Charlotte, Piedmont helps us, you know, the only way to start adding all these specialized services and having it be running efficient with scale. And you cannot scale this business without the wet utilities. You have to have that capacity in house to keep everybody moving without gaps in schedule. And so as we get those to an elevated level, then we start layering in some of these smaller, more specialized services like retaining walls. Clearing and grubbing, clearing and grubbing and these others. So you know, again, I think Charlotte's in the sixth or seventh inning.

And ALGC in Georgia is probably in the fifth or sixth, and Greensboro, which is a very immature market for us, is in the in the second or third inning. And that 1, you know, all these will be responsibly scaling as we as we, you know, continue to focus also on other markets and other platforms that we want to enter into. Great. Thank you. Thank you.

Operator: And that concludes our question and answer. I would like to turn the call back to Jeremy for any closing remarks.

Jeremy Spivey: Thank you, operator, and thank you all for joining us this morning. I want to thank the Cardinal team again for everything they have accomplished so far this year. We have a lot of runway ahead of us, and we are gonna keep using it. Thank you, and I hope you have a great day.

Operator: Ladies and gentlemen, this does conclude today's conference call. We thank you for your participation and you may now disconnect. Have a great day.

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. Parts of this article were created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.