Cardinal Infrastructure Group Inc. (CDNL) October 13, 2026 Conference Transcript

Good morning, and welcome to the Cardinal Infrastructure Hughes Brothers Acquisition Conference Call. At this time, all participants are in a listen-only mode. As a reminder, this conference call is being recorded. I would now like to turn the call over to Mike Rout, Cardinal's Chief Financial Officer. Please go ahead.

Thank you, and good morning, everyone. Joining me today is Cardinal's Chief Executive Officer, Jeremy Spivey. This morning, we issued a press release announcing our entry into a dependent agreement to acquire Hughes Brothers, a leading heavy civil and site development contractor. Today's remarks will include forward-looking statements that are based on our current expectations. Actual results may differ materially due to varying risk and uncertainty. With that, I'd like to turn the call over to our Chairman and Chief Executive Officer, Jeremy Spivey. Thank you, Mike.

Good morning everyone and thank you for joining us. We're really excited to announce the acquisition of Hughes Brothers and our entry into Central Florida. When we look at a new platform there are a few things that really matter to us. It starts with the people, then we look at the customer relationships, the services they provide, how much work they self-perform, the equipment they own, and ultimately whether this is a business we can build around for a long time. When we looked at Hughes Brothers, we saw a lot of Cardinal. They have an experienced team of more than 500 employees, an own equipment fleet, strong wet utility and site development capabilities, and longstanding relationships with customers across residential, commercial, industrial, and municipal markets. Importantly, we're entering Central Florida with scale on day one. We have the people, equipment, customer relationships, and backlog already in place. Their average project is more than 80 acres, so this is a team accustomed to executing the type of large and complex site work that fits very well with how Cardinal operates. We've talked since the IPO about building Cardinal across the southeast. We started in Raleigh, expanded across the Carolinas, and entered Atlanta through ALGC. Florida is a natural next step, but the important thing for us was finding the right business and the right team to enter the market with. We believe Hughes gives us both. Just as importantly, Chad and Justin Hughes will continue leading the business. Our job isn't to come in on day one and change what has made Hughes successful. It's to support the team, bring Cardinals resources to the table, and identify opportunities over time to add capabilities, build density, and help the business grow faster. We've seen that playbook work with ALGC. We acquired an already strong grading and site development business, then began adding services, increasing density, and bringing work in-house that had previously been subcontracted. We see similar opportunities over time with Hughes, whether that's adding complementary capabilities, doing more with existing customers, expanding across end markets, or pursuing tuck-in acquisitions around the platform. This will be our fourth acquisition this year following ALGC, Piedmont Pipe, and Allied Paving. Hughes fits the platform framework we've laid out for investors. Strong local leadership, meaningful scale, wet utility capabilities, significant self-performance, and a financial profile that fits Cardinal very well. I'll turn it back to Mike to walk through the transaction details.

Thanks, Jeremy. We are acquiring Hughes Brothers for initial consideration of $357.5 million, funded through a combination of Cardinal Class A stock, $156 million in new debt, and cash on hand. At least 40% of the closing consideration will be funded with Cardinal Equity and shares issued to the selling shareholders will be subject to a 180-day lockup. The initial purchase price is consistent with the valuation framework we communicated for new market platform acquisitions. The structure also preserves balance sheet flexibility and keeps Hughes' ownership team aligned with Cardinal shareholders. From a leverage perspective, we expect pro forma net leverage of approximately 1.4 times. well below our stated maximum target of 2.5 times. This leaves us with meaningful flexibility to continue our disciplined organic and inorganic investment approach. Turning to Hughes' financial profile, the business has generated more than $220 million of revenue from the 12 in 12 months ended June 30th, and its adjusted EBITDA margin profile is immediately accretive to Cardinal's current guided margin range. huge also has 350 million of backlog providing strong visibility into future activity as we discussed the cardinal's own backlog project timing can move so investors shouldn't use that backlog as a precise quarter by quarter revenue schedule but it gives us confidence in both the activity level and the customer relationships we're acquiring the selling shareholders are also eligible to receive up to $97.5 million of additional consideration based on Hughes Brothers' 2026 adjusted EBITDA performance, payable in cash, and cardinal stock. Put simply, the additional consideration is tied directly to the financial performance of the business. The point I want to emphasize is that we like the economics of this transaction based on the business as it operates today. We're not underwriting the deal to a large synergy target or assuming we have to materially change use for the transaction to work. We certainly see opportunities to create additional value over time, but we view those as upside to an already attractive platform. I'll turn it back to Jeremy.

Thanks, Mike. I'll leave you with this. We're entering Central Florida with a strong business, an experienced local team, and the skill to compete from day one. Chad, Justin, and their team have already built a great company, and our job is to help them build on it. We've seen the Cardinal Playbook work across our existing markets, and we're excited to now bring that same approach to Central Florida. Operator, let's open the line for questions.

Certainly. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. And our first question will come from the line of Brian Brophy of Stiefel. Brian, your line is open.

Yeah, thanks. Good morning, everybody. Congrats on the deal. Just a couple of questions here. Can you give us a sense for the end market mix of Hughes? I would assume it's primarily residential.

And just given that, how has backlog been trending here over the past year or so? given some of the softness we've seen in florida's housing market thanks yeah good morning brian so hughes has a long-standing customer relationship across residential commercial industrial a little bit of municipal geared mostly towards residential given their location in central florida and the buyer profile that that is moving to that area and we sent we spent a meaningful amount of time on customer concentration during the diligence period and we're very comfortable with that profile the backlog as it is trended has been substantially moving higher it appears and I'll speak more to this later but it appears that the Florida markets cycle it's been timed differently than the rest of the southeast and given the in-market user and the and the buyer profile that's moving to central Florida, they appear to be on, you know, the upper side of the trough. So, you know, one of the other things that attracted to us is the breadth of customer relationships and then markets. So they do do a significant amount of C&I work and, you know, we're very excited about where they sit and how they're trending and how their forecast or their outlook into 2027 with pipeline of bid activity quotes.

Okay, that's helpful. And then I guess just any additional color on the earn out. I guess I'm a little surprised it's tied to 2026 EBITDA. Can you give us a sense, I guess, for what the benchmarks are there in order to hit that earn out?

Hey, Brian, Mike. Hey, like we said on the call, the initial consideration as well as the earnout is consistent with our valuation fragrance. We've already communicated for new market platforms acquisitions. It is completely performance-based. So in effect, at the end of 26, if their EBITDA goes up, it's just the difference between what the initial consideration was on the EBITDA and the difference is that the same multiple we were doing it for. We're not providing that multiple today. We're just going to communicate the framework, which we already have. And we believe that the additional consideration for this business is absolutely corresponding to financial performance, which we've remained disciplined about our valuation. And we believe the price approximately reflects the financial profile of this business, the customer relationships, the strategic value of Cardinal entering Central Florida with immediate scale, and then the scale and quality of the business.

Okay, that's helpful. And then, based on the answer, maybe you don't want to give too much color, but just any other detail you can provide on the EBITDA margin of Hughes. Thanks.

Yeah, we're not providing the EBITDA margin today. We said it's immediately accretive. We know it is. It is absolutely accretive to our current guided multiple range, and we still believe that by doing this, we are setting ourselves up for future success.

Okay, appreciate it. I'll pass it on.

And our next question will be coming from the line of Noah Levitt of William Blair. Your line is open, Noah.

Great, thanks, and congrats on the deal. Mike, Jeremy, I appreciate that you don't want to, like, exclusively comment on the margins, but assuming a stereotypical platform do multiple, it does imply mid to high 20% margins. Even if it's not as strong, it's still immediately accretive. Can you just provide some more color as to why the margins are so strong? Obviously, they do some self-perform work, but how vertically integrated are there? What have they done that perhaps there's best practices they can share? Just any more color as to why they've gotten to where they've gotten?

Yeah, I can. The quality and sustainability of these earnings are absolutely a major focus for us and why we looked at this business so wholeheartedly. During our diligence, we found out everything we wanted to find out, that these margins, the margin profile, they absolutely significantly self-perform like we do. They do it with customers they've had for a long time. These customers have enjoyed the quality of work they do, and that relationship has helped build them into a place where they're able to achieve these margins. They do large and complex projects. That helps as well. They have an experienced workforce, and they own their own equipment.

That's super helpful. And then just also just on broader margin picture, you say in the press release that the deal is accretive to your margin guidance. But can you give any color, now that the quarter's ended, how margins performed relative to your expectations? Just because the revised guidance you put out after Q2 assumed a pretty big step up sequentially. So I think it would be helpful, especially given, you know, if this deal closes in Q4, plus you have allied paving, just kind of help level set where you see yourselves at now that the quarter is closed.

Yeah, Noah, we're still in the middle of closing our quarter. We are not going to disclose or do anything related to the quarter performance at this point.

Okay, that's fine. And then I guess, Jeremy, for you, you have your ear very close to the ground across all the end markets, but in particular the residential end market. Are you and the Hughes brothers hearing similar things across this residential market, or are you seeing meaningful differences across North Carolina, Florida, and also you can loop in Georgia to this question?

We're seeing meaningful difference in the terms of timing. And so, you know, if you were to ask Justin Hughes about where they were in the cycle, you know, six months ago, eight months ago, it's a lot different than what's being reported by the rest of the Southeast. They seem to be experiencing some tailwinds. I think a lot of it has to do with a comment I said earlier was the buyer profile. This is a more established, older buyer profile that's moving into these markets of Central Florida. They're cash buyers. You know, it's not a workforce-based buyer pool. So the residential seems to be having some pretty good tailwinds in that specific market. And Florida's a huge market. So if you were around Florida, everybody had something different to report. But they seem to have a lot of confidence in 27 and the pipeline of work that's in front of them to bid and a lot of the commercial industrial opportunities they have as well. And, you know, we're going to go from there.

Great. Thanks, guys. It's all from me.

As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. Our next question will be coming from the line of Brent Thielman of Oppenheimer. Your line is open, Brent.

Hey, great. Hey, Jeremy, any sense for, like, market share for Hughes in the region and have you talked through kind of competitive dynamics of that particular market they operate in?

Yeah, so market share, you know, there's several companies at scale in the Central Florida market that they compete with you know obviously size and scale of projects dictate kind of who you're going to go with if you're if you have a level of importance based on execution and stuff like that and so the customer base that they work with is geared towards more the larger more complex projects same goes for CNI and you have several players and they all kind of do the same thing um where we intend to start to set ourselves apart as we grow and scale and then eventually move um across the region and with geographic expansion in florida is by integrating the services there's there's nobody in that market that that performs full turnkey and so where we will start to see acceleration with the existing the existing customer base and diversification in markets and those customers will be once we get in there, get level set through the integration, get SOP set up is to start integrating vertically and then start to go capture and then move across the forward markets.

Okay. And then I guess one other question, it sounds like growth's been pretty good there. Has that been organic? Has it been through a combination of acquisitions? Maybe just some clarity there.

Yeah, that's all been organic. They've not done any acquisitions. The belief is when we look at the opportunity to vertically integrate, we will tuck stuff in, but they have not done any acquisitions yet.

Yeah, Hughes has been 100% organic. Part of the attraction to each other was their desire to grow their business and their footprint, and create opportunities for their employees. And partnering with us, who has experience in doing it, was a natural marriage between the two. We come from the same background. We grew up the same way. We speak each other's language. So as they look for opportunities and next steps for their business, when we were introduced, we hit it off right off the bat. So we're excited for that.

Thank you. And I would now like to turn the call back to management for closing remarks.

Yeah, we are good with not having any closing remarks. We think we've done. We're good.

Okay. This concludes today's conference call. Thank you all for participating. You may now disconnect.