Southland Holdings, Inc. Price & Performance (SLND)

Good morning, everyone, and welcome to the Southland fourth quarter and full year twenty twenty four conference call. This is Alex Murray, Director of Corporate Development and Investor Relations. Joining me today are Frank Renda, President and Chief Executive Officer and Cody Galarano, Executive Vice President and Chief Financial Officer. Before we begin, I like to remind everyone that this conference call may contain forward looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, and the Private Securities Litigation Reform Act of 1995. Forward looking statements are either historical facts nor assurances of future performance. Forward looking statements are uncertain and outside of South America control. Southland's actual results and financial condition may differ materially from those projected the forward looking statements. Therefore, you should not rely on any of these forward looking statements and we do not undertake any duty to update these statements. For a discussion of some of the risks that could affect results, please see the Risk Factors section or Form 10 ks for the year ended 12/31/2024, was filed with the SEC last leg. We will also refer to non GAAP financial measures and you will find reconciliations of these non GAAP financial measures in the press release relating to this conference call which can be found on the Investor Relations page of our website.

With that, I will now turn the call over to Freddie. Thank you, Alex. Good morning and thank you for joining Southland's fourth quarter and full year twenty twenty four conference call. As we reflect on the year, I'd like to highlight and commend how our team has continued to push forward despite challenges. Delivering key projects, maintaining operational excellence, and reinforcing our commitment to safety and community impact. We have successfully delivered several high profile projects during the year We completed the SR-eighty Bridge in Palm Beach, Florida also known as the Mar A Lago Bridge. We also recently opened the East Adams Bridge in Connecticut, improving connectivity and regional [indiscernible] We completed a cruise destination project for a private entertainment client in The Caribbean which demonstrates our ability to deliver complex infrastructure that enhances local economies. In our Water Resources Group, we continue to expand our reach with the completion of the San Juan lateral project for the Bureau of Reclamation providing essential water infrastructure to support communities in need. We also completed the Romeo Armed Lift Line project in the Michigan, Beyond our technical expertise, our strong safety culture makes these successes possible. I'm pleased to report that multiple projects including Ashbridges, Bay Al Ciela 26 and Mill Creek Drainage Relief Tunnel, have each surpassed 1,000,000 safe work hours without a lost time incident.

A testament to the dedication of our teams and our unwavering commitment [indiscernible] as the foundation of everything we do. Additionally, this year marked the fiftieth anniversary of two of our subsidiaries a milestone that not only honors our rich history, but also strong foundation we have established over many decades which sets us up well to succeed for years to come. While this has been a demanding period, our team's resilient and ability to execute at a high level have positioned us for future success. I want to thank our employees and stakeholders for their commitment and continued trust in us. With that, let's turn to the quarter's results. Fourth quarter revenue was $267,000,000 with a gross profit of $8,000,000 Excluding unfavorable adjustments from the M and P business, and certain legacy projects, our gross profit in the quarter was $35,000,000 The unfavorable adjustments negatively impacted our results by $27,000,000 The unfavorable adjustments were driven by dispute resolutions and increased completion cost on certain legacy projects. At the end of the quarter, we had approximately $163,000,000 of remaining M and P backlog and approximately $83,000,000 of non M and P legacy backlog. We are encouraged by the continued strong performance of our new core projects, which delivered double digit margins in the quarter.

We ended the quarter with $2,570,000,000 of backlog I'd also like to note that we currently have approximately $750,000,000 of pending alternative delivery contracts not included in backlog. For which preconstruction phases are already underway. Notable alternative delivery projects include the earthquake ready Burnside Bridge in Portland, Oregon and Phase two of the North End treatment plant in Winnipeg. We are currently working on Phase one of this project. Our new core work makes up a approximately $2,300,000,000 of backlog. We have several new core projects that we expect to ramp this year, and create a more significant impact on results. This includes the $600,000,000 Shands Bridge in Florida the $410,000,000 Robert F. Kennedy Bridge Rehab in New York, and the $243,000,000 U. S. Twenty nineteen project in Florida. Which we are in the early stages of their project life cycles. We also have several quicker burn water resource projects with strong margins that we expect to have a meaningful impact on 2025 results. We booked approximately $105,000,000 new awards during the quarter This included a $60,000,000 wastewater treatment plant in the Southland several water resource emergency projects and a broadband project for a private client. We continue to see a large pipeline of opportunities particularly from our longstanding federal, state and local clients.

The ongoing capital infusion from the Infrastructure Investment and Jobs Act Combined with historically strong state and local infrastructure programs, provides a favorable tailwind for our business in the years ahead. Texas and Florida remain at the forefront of state driven infrastructure investment with record setting funding levels aimed at addressing critical transportation water and resilience needs Given the sustained economic growth and population we anticipate continued prioritization of large scale infrastructure projects With our established presence and deep expertise in these key markets, we are well positioned to capitalize on these opportunities. In recent years, the timing of new project awards has been somewhat uneven with the tendency to ramp up in the back half of the year. We anticipate a similar pattern this year as project timelines and funding cycles influence the flow of opportunities. The demand in our core markets remains robust. Driven by ongoing infrastructure needs and strong public and private sector investments. Given this favorable environment, we will remain disciplined in our approach prioritizing projects that align with our strategic goals operational strength, and margin expectations Our extensive pipeline of opportunities positions us well secure a healthy share of projects while maintaining a selective quality over quantity approach to bidding.

As we move forward, we are confident in our ability to capitalize on the right opportunities and drive long term success. Upcoming opportunities in our Civil segment in include the $7,000,000,000 Iona Island wastewater treatment plant program in Vancouver, and the $2,000,000,000 Northern Colorado Water Glade Reservoir Program In Fort Collins. We're also tracking the $600,000,000 Jordan Lake water supply program in North Carolina and additional phases of the Winnipeg North End treatment plant in Canada. In our transportation segment, we also expect to bid on the Verazano Narrows Bridge rehab to New York and the Washington Bridge in Providence, Rhode Island. During the fourth quarter, we also successfully executed another strategic initiative to bolster our balance sheet. We converted $20,000,000 of certain promissory notes due to myself and the two other founders of Southland Tim Wynn and Lee Renda, the common stock. We feel strongly about the long term potential of Southland This transaction reinforces our confidence in the business while improving the balance sheet. In closing, our strong new core backlog pipeline and the continued strong execution on new core projects give us confidence in our long term trajectory. We are focused on delivering operational excellence maintaining a disciplined approach to project selection and driving sustainable profitability over the long term.

As we move into 2025, our strategic priorities remain clear. Executing our core projects with precision, winding down legacy work, and strengthening our position in our core markets. With a talented and dedicated team, a favorable industry environment, we are well equipped to deliver long term value to our stakeholders. With that, I will now turn the call over to Cody for a financial update. Thanks, Frank, and good morning, everyone. Will discuss an overview of our financial performance, for the fourth quarter and full year ending 2024. You can find additional details and information in the financial statements footnotes and management's discussion and analysis that were filed with the Securities and Exchange Commission on Form 10 ks last night. With respect to the fourth quarter, revenue was $267,000,000 down $49,000,000 from the fourth quarter of twenty twenty three. Gross profit for the fourth quarter was $8,000,000 down from $21,000,000 for the fourth quarter of twenty twenty three. Gross profit margin in the fourth quarter of twenty twenty four was 3% compared to 6.7% in the fourth quarter of twenty twenty three. Selling, general and administrative expenses for the fourth quarter were $16,000,000 a decrease of $4,200,000 compared to the fourth quarter of twenty twenty three.

This reduction was primarily driven by reduced compensation expense. Interest expense for the fourth quarter was $9,600,000 an increase of $3,900,000 compared to the fourth quarter for 2023. The increase was attributable to higher debt balances and elevated borrowing costs. As previously discussed, we expect interest expense to remain in the $9,500,000 per quarter range going forward. Income tax benefit was $14,000,000 for the quarter compared to an income tax expense of $2,900,000 in the same period last year. This was primarily driven by changes in our effective tax rate, the recognition of certain deferred tax liabilities and the cumulative catch up impacts of adjustments to forecasted versus actual year end results. More information regarding the changes in our effective tax rate valuation allowance adjustments, deferred tax liabilities, and the impact of prior tax election changes can be found in our Form 10 ks filing. We reported a net loss of $4,000,000 or negative $0.09 per share in the fourth quarter compared to a net loss of $6,000,000 or negative $0.12 per share in the fourth quarter of twenty twenty three. In the fourth quarter, we produced EBITDA or earnings before interest, taxes, depreciation and amortization negative $3,000,000 compared to EBITDA of $9,000,000 for the fourth quarter of twenty twenty three. [indiscernible] Now to touch on segment performance for the fourth quarter.

Our Civil segment had revenues of $104,000,000 a decrease of $4,000,000 from the fourth quarter of twenty twenty three. Our Civil segment's gross profit was $8,000,000 a decrease from $25,000,000 from the fourth quarter of twenty twenty three. As a percentage of revenue for the quarter, our Civil segment had gross profit margin of 8% compared to 23% in the fourth quarter of twenty twenty three. For the quarter, our transportation segment had revenues of $163,000,000 a decrease from $2.00 $8,000,000 from the fourth quarter of twenty twenty three. Our Transportation segment's gross loss was $400,000 an improvement from a gross loss of 3,000,000 in the fourth quarter of twenty twenty three. As a percentage of revenue for the quarter, our transportation segment had a gross profit margin of negative 0.2% compared to negative 1.6% for the fourth quarter of twenty twenty three. Within the Transportation segment, the M and P business line contributed $36,000,000 to revenue and approximately negative $8,000,000 to gross profit in the fourth quarter Our core operating results in this segment which excludes M and P, would have been $127,000,000 of revenue and $8,000,000 of gross profit for a gross profit margin of approximately 6%. Consolidated core results in the quarter which excludes M and P, would have been $231,000,000 of revenue and approximately $15,000,000 of gross profit for an approximate gross profit margin percentage of 6.5%.

Now to touch on results for the full year ended December 31, 2024. Our full year revenue was $980,000,000 down from the full year 2023. Gross profit for the full year ended 12/31/2024 was negative $63,000,000 a decrease from a positive $36,000,000 from the full year 2023. Our gross loss margin was negative 6.4% in 2024 compared to a positive 3.1% in 2023. SG and A expenses for the year ended 12/31/2024 were $63,000,000 a decrease of $4,000,000 compared to the prior year The decrease was primarily driven by a decrease in compensation related expenses. SG and A expenses as a percentage of revenue were 6.5% for the year ending 12/31/2024, compared to 5.8% for the full year 2023. Interest expense for the year ended 12/31/2024 was $30,000,000 an increase of $10,000,000 compared to 2023. [indiscernible] difference was attributable to increased borrowing costs, and higher debt balances. We reported an income tax benefit for the year of $47,000,000 on a pre tax loss of $152,000,000 which represents an effective tax rate of 31%. This compares to a tax benefit of $9,000,000 on a pre tax loss of $27,000,000 also for an effective tax rate of 31% in 2023. As discussed on prior calls, our 2023 tax position was impacted by numerous revocations of subchapter S selection which were no longer available to us.

More information around the revocation of the S elections valuation allowance changes GILTI inclusions, and more can be found in our recently filed Form 10 ks. On a go forward basis, we expect the tax rate to be in the 20% to 24% range depending on certain tax credits, non deductible items and certain state, local and international taxes. We reported a GAAP net loss of $105,000,000 or negative $2.19 per share in the year compared to a net loss of $19,000,000 or negative $0.41 per share last year. For the year ended 12/31/2024, we reported an adjusted net loss of $105,000,000 or negative $2.19 per share. This compares to an adjusted net loss of $39,000,000 or negative $0.82 per share in 2023 after backing out other income from changes in the fair value of an earn out liability for 2023, offset by transaction related expenses. Now to touch on our segment performance. For the full year ended 2024. For the full year ending 12/31/2024, our Civil segment had revenues of $323,000,000 a decrease of $14,000,000 from full year 2023. Our Civil segment gross profit for the year was $17,000,000 a decrease from $52,000,000 from full year 2023. As a percentage of revenue for the full year ended 2024, our Civil segment had gross profit margin of 5.2% compared to 15.3% for 2023.

For the full year ending 12/31/2024, our Transportation segment had revenues of $657,000,000 a decrease of approximately $166,000,000 from full year 2023. Our Transportation segment gross loss for the year was $80,000,000 compared to a gross loss of $16,000,000 from full year 2023. As a percentage of revenue for the full year ended 2024, our Transportation segment had gross profit margin of negative 12% compared to negative 1.9% in 2023. Within the Transportation segment, the M and P business line contributed $101,000,000 to revenue, and negative $83,000,000 to gross profit in 2024. Our core operating results in this segment which excludes M and P, was $556,000,000 of revenue and $3,000,000 of gross profit. Consolidated core results in the year excluding M and P, would have been $879,000,000 of revenue and $20,000,000 of gross profit. As of 12/31/2024, M and P backlog makes up approximately $163,000,000 and non M and P legacy work makes up approximately $83,000,000 of backlog. Said differently, our legacy and M and P backlog makes up less than 10% of our total backlog. And we are optimistic about the results expected to be produced from $2,300,000,000 of new core backlog. Turning to the balance sheet. As of 12/31/2024, we finished the year with net debt of $213,000,000 inclusive of cash and restricted cash of $88,000,000 We ended 2024 with just under $2,600,000,000 in backlog.

And we expect to burn approximately 39% of this backlog 2025 Thank you for your time and interest in Southland. I'll now pass the call back to the operator for your questions.

Ladies and gentlemen, we will now begin the question and answer session. Your first question comes from Adam Dahlheimer from Thompson Davis. Please go ahead.

Hey, Cody. I just wanted to follow-up on start where you left off, which is the 39% of the backlog burns in 2025. Curious how you see the Book and burn work trending this year. Yeah. So I'll start and then let Frank lead into where he sees bidding activity going. Obviously, we had a lower lower than one book to burn ratio in Q4, but are excited about the $100,000,000 that we did pick up.

We do expect to see that back weighted cadence that we've seen in prior years. And are looking forward to announcing some impressive wins in 2025.

Yes, Adam. And I guess this is a place to kind of address maybe why not more awards as we see the market is really healthy. And we don't see the demand slowing anytime soon. We've been winding down a business unit that was over 30% of our backlog and our focus was on completing this transition and returning to higher profitability. We're adding work in a disciplined manner ensuring that we have the right resources for the project and prioritizing high quality backlog in our core markets where we have historically performed very well. Demand is really good and we expect this trend to continue. We're confident in winning our fair share of new projects and we remain committed to protecting margins rather than pursuing growth at any cost The timing of these new awards could be a little bit uneven, and we [indiscernible] We also have approximately $750,000,000 in pending alternative delivery contracts. And we're confident that these will convert into construction awards.

Got it. And then The Street and myself are going to model EBITDA this year As we sit here in March, I mean, is the expectation for the full year that we'll have positive EBITDA? And maybe you can comment on how you see the quarterly cadence shaking out? Yes. So I'll echo some of what we mentioned on our last call, Adam, we expect to return to positive EBITDA [indiscernible] the end of this year, whether that means Q1 looks positive, Q2 looks positive, either leading to your question, there are some unknowns around the cadence of that.

But with the the decreasing legacy and M and P backlog, which is down to less than 10%, what we picked up in new work and potential and expected new awards going into the end of the year. We were looking forward to a much stronger finish to 25 Great. Then just lastly for me, The process of bringing down contract assets, does that really ramp up as 2025 progresses? So the there's a couple of different ways to look at that question, Adam. I want to address it from both the contract asset side in the context of the the net contract position side, which takes out contract liabilities, When you look at where contract assets has been over the last couple of years, we've had meaningful decreases with collections as well as some of the unfortunate profit saves that we've had. But I really want to highlight the significant growth that we've seen in contract liabilities which offsets that net balance sheet position.

So looking at it from a net perspective, we're slightly over $200,000,000 of net contract position at year end. So I bring that up to say, to make two points.

The first being everything that Frank has commented and we've shared and been talking about publicly on new work having positive upfront cash flows. Is being realized But then also to directly answer your question, there can be an increase in contract assets as we pursue closing out some of these troubled jobs where there are where there are claim pursuits. So want to be transparent on both sides of that equation. Yes. And I think on the claims, Adam, most of these these claims were on jobs that happened. 2017, 2018 and 2019.

And so we're at the table and a lot of those claims and we continue to work through and make small progress on settling the legacy claims No major updates, I guess, on larger claims to report this quarter. But we do expect a significant amount of cash flow from these claims in the coming quarters and that should take that number down when that happens.

Great. Thanks guys. Good luck in Q1. Thanks Adam. Thanks Adam.

Thank you. Your next question comes from Giulio Romero from Sidoti Company. Thanks. Hey, good morning. Frank, Cody, Alex.

Maybe to start hey, good morning. On the Civil segment, solid performance there and a nice sequential rebound from the third quarter.

Maybe just talk about the drivers of the gross profit there? And I guess you did realize less issues on non M and P legacy work in the fourth quarter compared to the third quarter?

Yes. I guess first on the civil margins, really excited about the civil work. We picked up some great civil projects over the last couple of quarters and unfortunately, we had an unfavorable ruling on a dispute dispute on a legacy civil project that significantly impacted results this quarter. But the core work continues to produce strong double digit margins We also continue to pick up smaller quick burning civil projects that are producing strong margins and just feel really really good about about where we're at in the civil sector On the legacy updates, our non M and P legacy backlog has been reduced to around $80,000,000 and a significant portion of the challenges we faced in this portfolio during 2024 stems from a bridge project in the Midwest. We recently achieved a major milestone by opening this new bridge There's some demolition work that remains, but reaching this milestone is significant step forward for us and it meaningfully reduces the risk further project fade on this project.

Got it. That's helpful. And then That non M and P legacy number went down by 22,000,000 compared to last quarter Is that due to the unfavorable ruling on the dispute you just mentioned? Or is that due to the the bridge project in the Midwest? Just trying to think about that number there. Are you speaking specifically to the civil segment, Julio? I'm just speaking I should speak about non MMP legacy probably more broadly. Non MMP legacy. Okay. Thank you.

Sorry.

We were down from Yes.

So it's I think we were 105 last quarter. [indiscernible] progressing work.

And as time moves on, that number is going to continue to dwindle from a a backlog perspective. And then if I understood maybe a nuance of the other part of your question, there's some additional detail into the profit activity in the MD and A that we filed last night.

Got it. I'm just trying to get a sense for is $22,000,000 a quarter Should we be through this non M and P legacy by by end of twenty twenty five or does it go up longer than that?

So we do expect to complete the majority of the non legacy M and P work by the end of twenty twenty five, there is one project that can tail into 20 that we're working to accelerate, but no additional commentary beyond that at this time.

Okay, got you. And then I guess how should we be expecting cash flow to trend in 2025?

Yes. So we certainly do expect to produce strong cash flow from operating that that turn over time happening, there's definitely going to be seasonality that you see with cash flow more weighted towards the back half of the year. Think of the meaningful driver behind that is going to be new core project contribution that continues to contribute very healthy margins. But can be swayed by dispute dispute resolutions on some of our legacy projects But all of that being said, we expect to generate strong cash flow from operations this year.

Got it. Very helpful. I'll pass it on.

Thank you.

Your next question comes from Christian Schwab from Craig Hallum Capital Group. Please go ahead.

Great. Thanks for taking my question. So I guess I need to ask with the kind of fast pace of change that's going on in our government today, And people being told they can't get money or may not get federal funding money or are you guys seeing any anxiety about some of these projects that you're excited about that that maybe those funds will not be able to be allocated to them?

Hey, good morning, Christian. Great question. Listen to kind of listen to the administration's feed last night and heard some really positive things in there and some things that got you thinking, but the good thing about the kind of work that we do is it benefits a lot of communities both sides of the aisle and we all know how critical this work is for our country. We put it off for a long time and As we sit today, we do not we don't expect any recent spending cuts from those to materially impact our business. In fact, we're optimistic about the ideas coming from this administration about cutting down on some of the red tape to get these projects off the ground. If they're able to come through with that, it will be beneficial to our business.

And we're in the middle innings of IIJ spending and we expect that to be a tailwind for our business for many years to come.

And even at the state level, Texas and Florida just continue to have historic levels of spending. Overall, we just feel really good about pipeline and opportunities out there.

And expect to win our fair share of of them. The other things that we heard last night were were manufacturing and bringing some of that back and maybe some tax cuts on that end. But one thing that we do Christian, that a lot of groups don't do is we manufacture our own TBMs. We manufacture our own steel support some gates, false work and If there were to be some cutbacks in tariffs, I think that That's an avenue that we have a real advantage on as well. So we feel optimistic about the future.

Fantastic. No other question. Thanks guys. Thanks, Chris. Appreciate it.

Thank you. Your next question comes from Brent Thielman from Davidson. Please go ahead.

Yes, I guess a question just in terms of the direct or indirect impact at tariffs overall disruption to supply chain, I mean, we're starting to see the oil prices move a lot higher, could be some upward pressure around other gas or things that you guys use in your in your day to day projects, maybe you can just talk about your position on contracts in light of that. Is there risk? Are you protected? It'd be helpful to hear.

Yes. Thanks. Good morning. On tariffs, the good thing about a majority of our projects is we're required to procure made in America materials already. So we're already purchasing products in The U. S. And we really have minimal cross border exposure We try to lock in our material pricing, large large purchase orders at the beginning of the projects, but we're monitoring the new developments here and taking it into consideration on new bids. Overall, we do not expect this to have a business. Of course, on on some materials and parts for equipment, we've got a little bit of exposure out there, but again, don't expect it to have a material impact on on the business at this point.

Okay.

Maybe just from a seasonal perspective, certainly heard some things from other companies been a bit of a rough start to the year. I don't know if you guys could comment on that.

Know there's been some weather down in Texas among other places.

More unusual than you've seen in prior years or we need to consider there?

Yes, a couple of things. Obviously, we had a we had a couple of storms kind of come through We've had some unusual weather pattern, I guess, that has affected us a little bit.

But as far as seasonality, we expect an uptick in new work starts and really getting into some of the larger projects that I kind of touched on in the remarks like the Southland Bridge [indiscernible] the Kennedy Bridge there in New York to really start producing some material results later on in the year. And I've [indiscernible] I would say that what we can continue to and expect to continue to be impacted by weather in various geographies in which we work. But I think if you look at the dispersion of projects that we have currently active, We don't we We don't expect all areas of the country North America that we work in to be hit at the same time. So So hopefully there is minimal disruption across the industry for us and for all of our competitors with respect to weather. But to the extent, there likely will be we believe we'll certainly have continuing operations in other areas that are unaffected. Brett, about the last thing that I expected going into to this year was 11 inches of snow on the ground in Beaumont. Texas and Lake Charles, Louisiana.

It was quite a scene on our two projects out there. Sure. Always fun with the kids. Appreciate it guys. Thank you.

Thank you. There are no further questions at this time. I will now hand the call over to Frank Render. Please continue.

Thanks everyone for joining today and thanks for your interest in Southland Southland look forward to talking again next quarter.

Have a great day.

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