Cardinal Withdraws 2026 Guidance After Adjusted Margin Falls and $11 Million Loss

Key Facts

Cardinal Infrastructure withdrew its 2026 revenue and adjusted EBITDA margin guidance after profitability declined in the third quarter despite revenue growth, according to a company statement issued on November 12. Revenue rose 65.1% year over year to $201.9 million, but the company posted a net loss of $11.0 million, compared with net income of $10.1 million in the year-earlier period. Management also said it expects adjusted earnings to improve in the fourth quarter compared with the third, without providing a specific revenue or margin forecast. The withdrawal ends the annual estimates the company announced in August. Shares fell 33% in premarket trading after the results.

Revenue increased by $79.6 million during the quarter, including $23.9 million from organic growth and $55.7 million from acquired companies, according to Cardinal's statement. That means most of the increase came from acquired businesses, while sales growth did not prevent profitability from declining. Gross margin fell 10.5 percentage points to 5.4%, compared with 15.9% a year earlier. The company said revisions to estimates of the costs to complete certain projects reduced gross profit by $13.2 million. The quarterly result shifted from net income in the year-earlier period to a loss, reflecting the gap between revenue growth and operations' ability to convert it into profit.

The company attributed the decline in adjusted EBITDA margin to a range of operating pressures, with the margin down 13.3 percentage points from the third quarter of the prior year. It said project estimate revisions accounted for about 6.5 percentage points of the decline. Residential pricing pressure and lower initial bid margins in commercial and industrial work added about 3.6 percentage points, it said. Higher fuel and transportation costs contributed about 3.5 percentage points, while other factors offset about 0.3 percentage point. Chief Executive Jeremy Spivey called the results "unacceptable," saying they underscored the need to strengthen project estimating, management and execution across the company.

Results for the first nine months weakened despite revenue growth of 92.2% to $596.4 million, compared with $310.2 million in the same period a year earlier. Net income fell to $11.7 million from $26.2 million, while adjusted EBITDA margin declined to 10.6% from 17.9%. In an August 11 update, Cardinal had raised its full-year revenue guidance to a range of $880 million to $900 million and set adjusted EBITDA margin guidance at 16% to 18%. The annual guidance withdrawal follows that update, amid the third-quarter margin decline. In the second quarter, the company reported revenue of $226.9 million, up 114% year over year, but adjusted EBITDA margin was 12.4%, versus 18.6% in the year-earlier period; the chief executive said at the time that accelerating investment in enterprise infrastructure was reshaping margin expectations.

Backlog stood at $815.5 million on September 30, up 26.2% from the year-earlier period, with the company attributing the increase mainly to the ALGC acquisition. On the same date, Cardinal had $335.0 million in cash and cash equivalents, against total debt of $198.5 million, resulting in net cash of $136.5 million. It also reported $100.0 million available under a revolving credit facility and $250.0 million under a delayed-draw term loan. These figures show the scale of booked work and available financial resources at the end of September as the company focuses on addressing declining profitability. Management said the chief operating officer will take a larger direct role in standardizing operations, with a focus on project selection, estimating, review and accountability, and that the company will engage an independent adviser to support the changes and assess its estimating and review procedures.

As part of a shift in operating priorities, Cardinal said it had decided with Hughes Brothers to defer the proposed acquisition, and that its near-term priority is to strengthen execution in existing operations and capitalize on businesses it has already acquired. The results statement did not set a new date for completing the deal. The board also authorized a Class A share repurchase program of up to $50 million during the twelve months following the November 12 announcement, with no obligation for the company to buy a specific amount. On the finance leadership front, Chief Financial Officer Mike Rowe informed the company on November 9 that he had decided to resign once a successor is appointed, and will remain in his role until his successor joins. The company has retained Spencer Stuart to find a replacement, and management was scheduled to discuss the results and outlook on an investor call on November 12 at 10:30 a.m. Eastern time.