Cardinal Infrastructure Group Inc. Class A Common StockCDNL

Key highlights

• Revenue outlook raised: Management raised its full year revenue forecast to a range of $880 million to $900 million, which is a $210 million increase at the midpoint compared to previous expectations. This suggests the company is on track to nearly double its size this year as it aggressively buys up smaller competitors and wins more projects.
• Expansion into Atlanta: The company agreed to buy Allied Paving for $120 million, a deal that adds $108 million in annual revenue and brings paving work in-house to improve local project timelines. This is the third acquisition this year and follows a strategy of owning every step of a construction project to keep more of the profit.
• Growth vs margins: Organic revenue grew 64% as demand for infrastructure work stayed high, but the adjusted EBITDA margin, a measure of core profitability, fell to 12.4% from 18.6% a year ago. The company spent more on rental equipment and temporary labor to keep up with the fast pace of work, which ate into its earnings.
• Backlog at record levels: The total value of signed work waiting to be started reached $866 million, a 35% increase from the prior year. While this provides a steady stream of future work, the company still needs to prove it can turn these orders into profit more efficiently than it did this quarter.
• Southeast weather impact: Heavy storms in the Southeast contributed to the gross profit margin falling to 10.8% from 13.9% last year. These weather disruptions delayed work and increased costs, though the company expects to recover some of those expenses as those projects get back on schedule later this year.

Our take: This was a complicated quarter where breakneck growth came at the expense of profits. Revenue more than doubled to $227 million, but the company is leaning on expensive outside help to handle the volume. While the backlog and new acquisitions look promising, management must show they can scale without these high costs dragging down the bottom line.