3. Business Combinations

During the year ended December 31, 2025, the Company completed acquisitions of Purcell Construction, Inc. (“Purcell”) on January 3, 2025, Page & Associates, Inc. (“Page”) on May 30, 2025, and Red Clay Industries, Inc. (“Red Clay”) on October 1, 2025. Refer to Note 3 'Business Combinations' of the Company's 2025 Form 10-K for further information.

Acquisition of ALGC

On February 18, 2026 (the "Acquisition Date"), Cardinal acquired 100% of the membership interests of A.L. Grading Contractors, LLC, a Georgia limited liability company ("ALGC"), pursuant to a Membership Interests Purchase and Contribution Agreement (the "MIPA") among the the Company, Cardinal ("Purchaser"), Diamond Interests Group LLC ("Seller"), and the Anthony L. Wood, Jr. (“Anthony Wood”) and Benjamin A. Wood (“Benjamin Wood” and, together with Anthony Wood, the “Seller Owners”). The acquisition was structured as a purchase of membership interests for legal purposes; however, in accordance with the intended tax treatment provisions of the MIPA and as a result of a pre-closing Q-Sub election and entity conversion, the transaction is treated as a taxable asset acquisition for U.S. federal income tax purposes under Section 1001 of the Code, resulting in a step-up in the tax basis of ALGC's assets at closing. The acquisition was accounted for as a business combination under ASC 805, Business Combinations. ALGC is engaged in the business of construction grading and installation of underground utilities throughout Georgia and this acquisition further expands the Company's geographic footprint.

The acquisition was accounted for as a business combination under ASC 805, Business Combinations. Accordingly, the assets acquired and liabilities assumed were recorded at their estimated fair values as of the ALGC Acquisition Date.

The cash portion of the consideration was funded primarily through borrowings under the Company’s Credit Facility discussed in Note 7. In addition to the cash consideration, a significant portion of the purchase price was comprised of rollover equity issued to the sellers, as further described in Note 10. The ALGC purchase price allocation is as follows:

The fair value of receivables acquired approximated their gross contractual amounts. The Company’s best estimate at the acquisition date of contractual cash flows not expected to be collected was zero, as the Company expects to collect all amounts due.

The excess of purchase consideration over the fair value of net assets acquired was recorded as goodwill. The goodwill recognized is attributable to qualitative factors such as anticipated cost synergies and future growth in the combined business, as well as the value of the acquired assembled workforce.

For income tax purposes, the acquisition was structured as a taxable purchase of a portion of the assets of ALGC, combined with a tax-deferred contribution of equity by the sellers. Consequently, a portion of the goodwill recognized is expected to be deductible for tax purposes. The Company is currently evaluating the fair value of the assets acquired for tax purposes and has not yet finalized the specific amount of tax-deductible goodwill. Any adjustments resulting from the finalization of the tax basis will be reflected as measurement period adjustments.

The tax benefits associated with such deductions will primarily accrue to the holders of OpCo LLC units, including noncontrolling interest holders.

As part of the acquisition transaction, the Company entered into two separate 15‑year lease agreements with an entity under common control with the seller to lease the existing operating and office facilities of ALGC. The contractual lease payments under these agreements exceeded market rates at the acquisition date. As a result, the Company recorded an unfavorable lease fair value adjustment of $1,380,000, which was recognized as a reduction to the operating lease right‑of‑use asset as of the acquisition date.

ALGC Condensed Consolidated Statements of Cash Flows Reconciliation

ALGC Pro Forma Information (Unaudited)

The Company's results include $17,136,319 of revenue and approximately $1,237,070 of net income attributable to ALGC for the period from February 18, 2026 (the ALGC Acquisition Date) through March 31, 2026, which are included in the Company’s condensed consolidated statements of operations for the quarter ended March 31, 2026. The 2026 income amount includes $1,630,696 of amortization expense of acquired backlog and other intangible assets.

Fair Value of ALGC Intangible Assets

The Company recognized identifiable intangible assets for customer relationships, contractual backlog related to non‑cancellable construction contracts in place as of the acquisition date, and the ALGC tradename. These assets are included in "Other intangible assets" on the condensed consolidated balance sheets, and each asset is considered a finite‑lived intangible asset.

The fair value of the identifiable intangible assets was determined using a Level 3 fair value measurement under ASC 820, Fair Value Measurement, as the valuation relied on significant unobservable inputs. Management determined that customer relationships represent the most significant identifiable intangible asset acquired, and accordingly, disclosures focus primarily on this asset.

Customer Relationships Asset

The Company valued customer relationships using the multi‑period excess earnings method, which estimates the present value of after‑tax cash flows attributable to existing customers after deducting contributory asset charges. Customer relationships were disaggregated into commercial, industrial, and residential components due to differences in customer behavior and risk characteristics. Commercial customer relationships were valued using an attrition rate of 16.5 percent and a discount rate of 19 percent. Industrial customer relationships were valued using an attrition rate of 20.5 percent and a discount rate of 19 percent. Residential customer relationships were valued using an attrition rate of 8.5 percent and a discount rate of 19 percent.

Other key assumptions included projected revenues and operating margins for each customer class and a tax amortization period of 15 years. Based on these assumptions, the resulting aggregate fair value of customer relationships was $67.9 million.

A hypothetical 200 basis point decrease or increase in the customer attrition rates applied consistently across the commercial, industrial, and residential customer relationship populations would, in the aggregate, result in an approximately $9.3 million increase or decrease in the fair value of customer relationships. In addition, a hypothetical 100 basis point decrease or increase in the discount rate applied uniformly across all customer relationship populations would, in the aggregate, result in an approximately $4.6 million increase or decrease in the fair value of customer relationships.

Tradename Asset

The Company valued the trade name using the relief‑from‑royalty method, which estimates the present value of after‑tax royalty payments that the Company would otherwise be required to pay to license the trade name from a third party. The trade name was valued using a pre‑tax royalty rate of 1.0 percent applied to projected revenue, a discount rate of 18 percent, and an estimated useful life of 10 years. Other key assumptions included projected revenue attributable to the trade name and a tax amortization period of 15 years. Based on these assumptions, the resulting fair value of the trade name was $9.3 million.

A hypothetical 10 basis point decrease or increase in the royalty rate would result in an approximately $0.9 million

decrease or $1.0 million increase, respectively, in the fair value of the trade name. In addition, a hypothetical 100 basis point decrease or increase in the discount rate would result in an approximately $0.4 million increase or $0.3 million decrease, respectively, in the fair value of the trade name.

Intangible Asset Amortization

The ALGC intangibles assets will be amortized straight-line over their estimated useful lives of a weighted average of 11.6 years for the customer relationships (nine years for Commercial customers, eight years for Industrial customers, 13 years for Residential customers), 18 months for backlog, four years for non-compete agreements, and ten years for the tradename. Customer relationships, non-compete agreements, and tradename amortization is included in the Amortization expense caption of the condensed consolidated statement of income, while backlog amortization is included in the “Cost of revenues, excluding depreciation and amortization” caption.

Contingent Consideration (TRA and TBA)

Tax Receivable Agreement

In connection with its December 2025 initial public offering, PubCo entered into a Tax Receivable Agreement (the "TRA") dated December 9, 2025, among PubCo, Cardinal Civil Contracting Holdings LLC ("OpCo"), and the TRA Parties named therein. As part of the ALGC acquisition on February 18, 2026, Diamond Interests Group LLC and the Seller Owners became parties to the pre-existing TRA as Continuing Equity Holders upon the issuance of their 4,186,062 OpCo units (rollover equity). Under the TRA, PubCo is obligated to pay the Continuing Equity Holders 85% of the net cash tax savings that PubCo actually realizes from the tax basis step-up in OpCo's assets attributable to future exchanges of OpCo units for PubCo Class A common stock or cash, determined on a "with and without" methodology. Payments under the TRA are contingent upon (i) future exchanges of OpCo units actually occurring and (ii) PubCo generating sufficient taxable income to utilize the resulting tax attributes. The TRA includes provisions for early termination at PubCo's election (subject to independent director approval), change-of-control acceleration, and NOL carryforward mechanics capped at 80% of annual pretax income. Interest accrues on unpaid TRA payments at SOFR plus 100 basis points.

Tax Benefit Agreement

Concurrently with the ALGC acquisition on February 18, 2026, PubCo entered into a Tax Benefit Agreement (the "TBA") dated February 18, 2026, among PubCo, OpCo, and Diamond Interests Group LLC. Under the TBA, PubCo is obligated to pay 85% of the annual Cumulative Net Realized Tax Benefit (as defined in the TBA) arising from the basis step-up in ALGC's assets attributable to the portion of the acquisition treated as a taxable asset sale under IRC Section 1001. The Realized Tax Benefit (as defined in the TBA) is computed under a "with and without" method that assumes PubCo is allocated 80% of OpCo's amortization and depreciation deductions in respect of the Basis Adjustments as defined in the TBA. Unlike the TRA, TBA payments do not require future unit exchanges; rather, they depend on PubCo generating sufficient taxable income to utilize the amortization deductions, which arise over the applicable depreciable and amortizable lives of the stepped-up assets (including immediate expensing of fixed asset step-up under bonus depreciation and 15-year amortization of intangible assets under federal tax rules). Interest on unpaid TBA payments accrues at SOFR plus 100 basis points.

Fair Value Measurement and Recognition

Both the TRA and TBA represent contingent consideration in connection with the Acquisition, as the Purchase Consideration in the purchase agreement is explicitly stated to be increased by payments made to Seller Owners under or in respect of both agreements. Accordingly, the Company recognized the TRA and TBA obligations as contingent consideration at acquisition-date fair value.

The aggregate acquisition-date fair value of the TRA and TBA was $15.3 million ($8.2 million attributable to the TRA and $7.1 million attributable to the TBA), determined using a Monte Carlo simulation model with 100,000 trials. The key inputs to the model included: (i) management's projected pretax book income for fiscal years 2026 through 2030, extended through 2053 at a normalized long-term growth rate of 3.0%; (ii) book-to-tax adjustments to convert pretax book income to a tax basis, including immediate bonus depreciation of the fixed asset step-up and 15-year amortization of intangible assets; (iii) annual net operating loss carryforward mechanics capped at 80% of pretax income in any year; (iv) an 85% payment percentage applied to cumulative net realized tax benefits; and (v) an equity volatility assumption of 58.0%, derived from the observed 20-year average equity volatility of a group of guideline public companies and re-levered to reflect the Company’s capital structure, reflecting the equity-linked nature of the underlying cash flows. A metric risk premium was applied to adjust management's pretax income projections to a risk-neutral perspective, based on the Company’s cost of equity capital of 24.0% relative to the guideline public company median. This measurement is classified within Level 3 of the ASC 820 fair value hierarchy due to the use of significant unobservable inputs, including projected taxable income, future tax rates, and the timing of future OpCo unit exchanges.

A 200 basis point increase in the discount rate variable would decrease the combined value of the TRA and TBA by $790,000, while a 200 basis point decrease would increase the value by $780,000. A 500 basis point increase in the volatility variable would decrease the combined value of the TRA and TBA by $960,000, while a 500 basis point decrease would increase the value by $900,000.

The potential undiscounted payments under the TRA and TBA have no contractual maximum. The minimum potential payment under each agreement is $0, which would occur in scenarios where PubCo does not generate taxable income sufficient to utilize the relevant tax attributes or where no future exchanges of OpCo units occur under the TRA. The expected payment period runs through approximately 2041, reflecting the 15-year IRC Section 197 amortization period for intangible assets under the TBA and the assumed timing of future OpCo unit exchanges under the TRA. Subsequent changes in the fair value of these contingent consideration liabilities are recognized in earnings in the period of change.

Fair Value of Backlog

The Company recognized an identifiable intangible asset for contractual backlog related to non‑cancellable construction contracts in place as of the acquisition dates for ALGC. The backlog assets are included in "Other intangible assets" on the condensed consolidated balance sheets. The backlog represents the estimated future profit margin to be realized from these contracts and is considered a finite‑lived intangible asset.

The fair value of the backlog was estimated using the income approach (multi-period excess earnings method) that isolates the cash flows attributable to the backlog and discounts them to present value. The calculation began with the total gross backlog amount based on signed, non‑cancellable contracts as of the acquisition date. Estimated profit margin percentages were applied to derive expected pre‑tax cash flows. The estimated pre‑tax cash flows were discounted to present value using a rate that reflects the timing and risk profile of the expected realization period.

The backlog asset is classified as a Level 3 measurement within the fair value hierarchy due to the use of significant unobservable inputs, including management’s estimates of profit margin and risk adjustments.

ALGC Backlog: For the ALGC acquisition, unobservable inputs (Level 3) to the valuation included:

The most significant assumption in the ALGC valuation is the estimated gross margin. A hypothetical 200 basis point increase (decrease) in the profit margin assumption across each sector would increase (decrease) the combined fair value of the backlog asset by $2,700,000, and $2,400,000, respectively. Changes in the estimated realization period and discount rate would not have a material effect on the valuation given the short realization period.

The ALGC backlog intangible asset was amortized straight-line over its estimated realization period of approximately 18 months through August 2027, which reflects the pattern in which the economic benefits were expected to be consumed. Based on the ALGC backlog asset’s carrying amount at the acquisition date and its estimated 18 month useful life, $1,558,333 was recognized as amortization expense during the quarter ended March 31, 2026 in the condensed consolidated statements of operations, while $10,908,333 will be amortized in 2026 and $6,233,334 will be amortized in 2027.

ALGC and Red Clay Measurement Period

Red Clay acquisition remain within the measurement period, which is open through October 1, 2026, while the Company continues to evaluate information related to acquisition‑date fair values. The ALGC acquisition remains within the measurement period. The fair values assigned to contingent consideration, equipment, intangible assets, related deferred income tax balances, and goodwill amounts deductible for income tax purposes are preliminary and are based on the information available as of the ALGC Acquisition Date. The Company will continue to evaluate these items during the measurement period (up to 12 months from the ALGC Acquisition Date) and will record adjustments to the provisional amounts as necessary. Such adjustments may be material.