CDNL — Q2 2026 Financial Report Analysis

Revenue more than doubled, but profit per dollar of work fell, and the full-year margin target came down

Cardinal Infrastructure Group does the groundwork that comes before a building goes up: clearing and grading land, laying water, sewer and stormwater pipe, blasting rock and paving, mostly for homebuilders and developers in North Carolina, South Carolina and Georgia. It went public in December 2025, so this is its second quarterly report as a listed company. In the second quarter of 2026 (April to June) revenue rose 114% to $226.9 million. Profit did not keep up. Income before tax was $10.1 million, about the same as a year earlier, because project costs, overhead and interest all grew faster than sales. Management raised its full-year revenue forecast by $210 million at the midpoint and, in the same release, cut its profit-margin target.

At a glance

• Revenue: $226.9M, up 114%. About $68.1 million of the $120.8 million increase came from the existing business ("organic" growth of about 64%). The other $52.7 million came from companies it bought.
• Operating margin: 6.8%, down from 11.1%. Operating margin is the share of revenue left after running the business, before interest and tax. Direct project costs took 84.1% of revenue, up from 78.7%.
• Backlog: $866M, up 35% on a year earlier. Backlog is signed or committed work not yet done. It was only $12 million higher than the $854 million reported at the end of March.

The numbers

*Before the December 2025 IPO the business was a private partnership, so the 2025 split of profit between owners is not comparable, and the company reports no earnings per share for periods before the IPO. "Net income (all owners)" includes the share belonging to the founders and other pre-IPO holders who still own most of the operating company directly. Their share is shown as "noncontrolling interests": $6.5 million this quarter.

Where the margin went

Revenue grew fast. The 10-Q gives three reasons each new dollar of revenue earned less than before:

• Bought-in labor and equipment. Cost of revenues rose 129%, faster than sales, "including increased subcontracted labor and equipment rental costs to support significant customer demand." Hiring subcontractors and renting machines costs more than using Cardinal's own crews and fleet. Profit after direct project costs, before depreciation (what the company calls adjusted gross margin), fell to 15.9% of revenue from 21.3%.
• A different mix of jobs. Cardinal is taking on more commercial and industrial work to rely less on homebuilders. The filing says this work "carries different deployment schedules and a lower initial margin profile" than its historical residential projects. Public-sector customers made up 9% of first-half revenue, up from 4%.
• Weather. The 10-Q says intense weather disruptions in parts of the Southeast "further weighed on results." The earnings release says the company expects to recover part of those costs in the second half.

Overhead also grew. General and administrative costs tripled to $9.0 million (4.0% of revenue, up from 2.8%). The company points to one-off acquisition costs, public-company compliance costs and hiring in estimating and corporate roles. Interest expense more than doubled to $3.5 million because it borrowed to fund acquisitions.

The quarter was also weaker than the first quarter. The adjusted EBITDA margin was 16.0% in Q1 and 12.4% in Q2, so the squeeze got worse during the half rather than easing.

What the headline numbers hide

• All of the net income growth came from tax. Pre-tax income was flat ($10.14M vs $10.16M). Net income rose $1.7 million because the tax line swung from a $0.7 million expense to a $1.0 million benefit. The 10-Q says the benefit partly reflects changed estimates on its tax agreement. That will not repeat every quarter.
• An accounting change made operating profit look better. From January 1, 2026, Cardinal switched from front-loaded (accelerated) depreciation of its equipment to straight-line. The 10-Q says this cut Q2 depreciation by about $2.4 million and added about $2.2 million to net income, or $0.05 per diluted share. Without the change, operating income would have been about $13.1 million, a 5.7% margin, and up about 11% on the year, not 32%.
• A non-cash charge went the other way. "Other expense" includes a $2.0 million increase in the liability under the tax receivable agreement, a deal signed at the IPO under which Cardinal pays pre-IPO owners 85% of certain future tax savings. This cost no cash in the quarter, and the company adds it back in adjusted EBITDA.
• Cash conversion is fine, but growth is using up cash. First-half operating cash flow was $22.0 million against net income of $22.6 million, about 97%. Customer receivables and contract assets (work done but not yet billed) absorbed $67 million of cash in the half. Larger supplier payables (+$39.6 million) and accrued expenses covered most of that. Capital spending was $34.0 million, so free cash flow (operating cash flow minus capital spending) was about -$12 million before acquisitions. Management says capital spending will be "materially higher" than in past years because it is building its own asphalt plant.
• Internal controls are not yet effective. Management concluded its disclosure controls were not effective because of material weaknesses, including "ineffective controls over the review of estimates to complete for construction contracts." This matters here because 99% of revenue comes from fixed-price contracts, where profit is booked based on estimates of how much of each job is finished.

Balance sheet: a $318M share sale at more than three times the IPO price

On June 24 Cardinal sold 4.6 million new Class A shares at $73.00 each, against the $21.00 IPO price six months earlier, for net proceeds of about $318.4 million. It used $33 million to pay down its bank loan. At June 30 it held $339.1 million in cash against $199.5 million of notes payable. In the first half it spent $133.4 million in cash on acquisitions: ALGC, a Georgia site-work contractor bought in February, and Piedmont Pipe, a Charlotte-area pipe contractor bought in May.

After the quarter:

• September 10: its lender group added a $250 million delayed-draw term loan (a loan it can draw on later) and raised the revolving credit line from $75 million to $100 million.
• October 1: it closed the purchase of Allied Paving Contractors, an Atlanta paving firm, for about $115.0 million: roughly $88.9 million in cash plus 1,006,796 Class A shares. The closing press release puts Allied's standalone revenue at about $100 million. Some of that is work for Cardinal's own projects, which will show up as higher margin rather than added revenue. When the deal was announced in August, the company said Allied earned a 20.3% adjusted EBITDA margin.

Outlook: guidance asks for a sharp margin recovery

With the Q2 results on August 11, management raised 2026 revenue guidance to $880–$900 million, from $675–$685 million in May. It cut the adjusted EBITDA margin target to 16–18%, from "20%+". The CEO said keeping pace with demand "cost more than we expected this quarter, resulting in margins below plan."

Our own arithmetic on that guidance: first-half revenue was $394.4 million and adjusted EBITDA was $54.9 million (13.9%). To land in the new ranges, the second half needs about $486–506 million of revenue and an adjusted EBITDA margin of roughly 17.7% (low end) to 21.2% (high end). Q2 ran at 12.4%. The release says the guidance excludes the effect of future acquisitions. It does not say directly whether Allied, announced the same day, is included.

Takeaway: Demand is not the problem: revenue doubled and backlog is up 35%. The problem is what Cardinal keeps from each dollar. Pre-tax profit was flat on twice the revenue, and an equipment-depreciation change flattered operating income by $2.4 million. Even the reduced margin guidance needs the second half to run at least 5 points above Q2, so whether Cardinal moves work from subcontractors and rented equipment back to its own crews matters more for the stock than the next revenue beat.

What to watch in Q3: whether the adjusted EBITDA margin climbs back toward the mid-to-high teens; whether backlog grows again after a flat Q1-to-Q2; how much of the weather-related cost is recovered, as management expects; and progress on fixing the material weakness in contract cost estimates.