Southland Holdings (SLND) Q1 2025 earnings call transcript

Good morning everyone and welcome to the Southland First Quarter 2025 conference call. This is Alex Murray, Vice President of Corporate Development and Investor Relations. Joining me today are Frank Renda, President and Chief Executive Officer and Keith DeSanna, Chief Financial Officer. Before we begin, I'd like to remind everyone that this conference call may contain forward-looking statements within the meeting 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 neither historical facts nor assurances of future performance. Forward-looking statements are uncertain and outside of Southland's control. Southland's actual results and financial condition may differ materially from those projected in 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 factor section of our Form 10K for the year end of December 31st, 2024 that was filed with the SEC on March 5th, 2025, and discussion on Form 10Q for the quarter ended March 31st, 2025 that was filed with the SEC last night. We also refer to non-gapped financial measures. You'll find reconciliations in the press release relating to this conference call, which can be found on the investor relationship page of our website.

With that, I will not turn the call over to Frank.

Thank you, Alex. Good morning, and thank you for joining Southland's first quarter 2025 conference call. Before we dive into our quarterly results, I'd like to begin by highlighting the additions we have made to our leadership team. As previously announced, Keith Bassano has been appointed our chief financial officer. Keith brings more than 15 years of experience in the engineering and construction sector. Since joining the organization through our American Bridge subsidiary in 2008, he has consistently demonstrated outstanding leadership and financial discipline. We have also appointed Don Grall as chief strategy officer.

Don joined Southland following executive roles at AECOM Parsons, and most recently as chief executive officer of the branch group. With experience in infrastructure, construction, and engineering, Don has directly worked on some of the largest infrastructure projects worldwide, totaling over $60 billion in construction costs. These leadership additions are part of our broader strategic efforts to strengthen Southland and position ourselves for better performance over the long term. We believe Keith and Don's experience and leadership will be important assets for Southland moving forward, and I'm excited to have them in these key roles.

I'd also like to recognize a remarkable milestone within Southland. American Bridge Company founded in 1900 through a JP Morgan consolidation of several bridge and steel firms, celebrated its 125th anniversary this year. American Bridge has delivered many of the world's most iconic spans and steel landmarks, including the Oakland Bay Bridge, the Las Vegas High Roller, and so many more, consistently raising the bar for safety and engineering innovation.

AB's commitment to excellence has remained unmatched. On behalf of the entire Southland team, I congratulate the American Bridge workforce past and present on more than 125 years of world class performance. Now to discuss our quarterly results. We started the year with strong performance with revenue of $239 million, gross profit of $21.5 million, and positive cash flow from operations of $6.4 million. Consolidated gross profit margin was 9%, an increase from 7% in the prior year period.

This improvement was driven by strong performance in our civil segment, which delivered a gross profit margin of 22%. Despite the adverse weather we faced in some key markets, we produced the highest quarter consolidated gross profit margins before COVID. Starting with a broader economic backdrop, I'd like to share our view on the potential impact of recent tariff actions and federal spending cut announcements. Based on what we know today, we do not expect the current tariffs to have a material effect on our current book of business. As we mentioned on our last call, our direct exposure to cross-border material procurement is minimal.

While we don't anticipate a direct impact, there is a risk that tariffs could increase input cost over time. That said, South it remains well positioned. We have strong risk management practices in place, including the ability to lock in major material contracts early in project life cycles, which helps protect against cost escalations. We also do not believe that government spending cuts will affect demand. The bridges, water pipelines, tunnels, and treatment facilities we build are critical. We have not had a project and backlog be affected by any spending cuts, and we do not expect a material impact on our pipeline. Demand for our business remains extremely strong for federal and state clients, and we expect this trend to continue.

I'd also like to note that our historical client mix consists of approximately 80% government agencies and 20% private clients. Thanks to our diverse capabilities and strong relationships, we have the flexibility to adjust that mix in response to market demand. Because a substantial amount of our work is with government agencies and our projects are essential to the communities we work and live in, we are generally insulated from the effects of broader economic uncertainty. Combined with the sustained infrastructure investment robust demand, particularly at the federal and state levels, we believe these factors will serve as strong tailwinds for our business for years to come. During the quarter, we added approximately $137 million in new awards. This was led by two water resource projects totaling $97 million, bringing our total backlog to approximately $2.5 billion.

We continue to have strong visibility into the demand across our pipeline for both public and private clients. With a robust pipeline, we are well positioned to win high quality work while remaining selective in our pursuit strategy. Upcoming opportunities in our civil segment include a $450 million Black Creek tunnel in Toronto, packages from the $600 million Jordan Lake water supply program, packages from the $2 billion northern Colorado water glades reservoir program, and numerous water wastewater opportunities in the southwest and the southeast regions. Upcoming opportunities in our transportation segment include several ridge projects in the northeast and Florida. We also hope to continue to develop our dedicated sub-role to key with on the rebuild of Francis Scott Key Bridge in Baltimore.

In summary, we're off to a strong start in 2025, driven by a disciplined bidding approach, improved execution, driving strong margins, and continued strength in our core business. With a deep bench of leadership and a strong pipeline of critical infrastructure opportunities ahead, we're confident in our ability to deliver value for our clients and for our stakeholders over the long term.

Before turning it over to Keith, I would also like to thank our teams for participating in National Safety Week. Thanks to all employees for their continued commitment to safety. Your focus on making safety a priority every day is essential to our success. We appreciate the role each of you plays in maintaining safe job sites across the company.

With that, I'll now turn the call over to Keith for a financial update.

Thank you, Frank. Good morning, everyone. I will discuss an overview of our financial performance during the first quarter of 2025. You can find additional details and information in the financial statements, footnotes, and management's discussion and analysis that were filed on form 10Q last night. Revenue for the quarter was 239 million down 49 million from the same period in 2024.

Growth profit was 21.5 million, an increase of 1.1 million from the same period in 2024. Growth profit margin in the quarter was 9%, compared to 7.1% in the prior year.

Selling general and administrative costs in the first quarter were 16.5 million, an increase of 2.1 million compared to the same period in 2024. The increase was attributable to additional compensation expense and certain tax expense compared to the same period in 2024.

Interest expense for the first quarter totaled 8.9 million, up 3.2 million from the prior year. This increase was primarily driven by higher borrowing costs and additional interest expense related to a real estate transaction that closed in the second half of last year. As previously discussed, we anticipate interest expense to average approximately 9.5 million per quarter going forward.

Income tax benefit was 300,000 for the quarter compared to income tax expense of 300,000 in the same period last year. As noted in prior quarters, we expect our effective tax rate to be in the 20-24% range subject to the impact of tax credits on deductible expenses and state and local tax adjustments.

We reported a net loss of 4.5 million or a loss of 8 cents per share in the quarter compared to a loss of 400,000 or a loss of 1 cent per share in the same period last year. In the first quarter, we produced EBITDA or earnings before interest, taxes, depreciation, and amortization of 10.1 million compared to EBITDA of 10.9 million in the same period in 2024. Now to touch on segment performance for the quarter. Our civil segment had revenues of 103 million compared to revenue of 84 million in the same period in 2024. Our civil segment gross profit was 23 million and increase of 5 million from the same period in the prior year. As a percentage of revenue for the quarter, our civil segment had a gross profit margin of 22 percent compared to 21 percent in the same period in 2024.

For the quarter, our transportation segment had revenues of 137 million, a decrease of 67 million from the same period in 2024. Our transportation segment had a gross loss of 1 million, a decrease from a gross profit of 3 million in the same period in the prior year. As a percentage of revenue for the quarter, our transportation segment had negative gross profit margin of 1 percent compared to positive gross profit margin of 1 percent in the same period in 2024.

The materials and paving business line contributed 18 million to revenue and negative 9 million to gross profit in the first quarter. We experienced a non-cash charge of 3.5 million in connection with a scope finalization on a substantially complete paving project with the remainder of the materials and paving gross profit impact attributable to increased project costs. We still anticipate to substantially complete these projects by the end of 2025. Our core operating results in the segment, excluding materials and paving would have been 119 million of revenue and 8 million of gross profit for gross profit margin of 7 percent. Consolidated core results in the quarter, excluding materials and paving, would have been 221 million of revenue and 31 million of gross profit, for a gross profit margin of 14 percent.

We finished the quarter with approximately 2.5 billion in backlog, of which we expect to burn approximately 40 percent over the next 12 months. At the end of the quarter, we had approximately 139 million of remaining M&P backlog and approximately 59 million of non-M&P legacy backlog. We continue to make good progress winding down legacy projects and expect the pace of our revenue from legacy projects to increase as we head into our peak construction season. Our new core backlog makes up over 90 percent of our total backlog and we're excited about how the new core projects are performing. The new core projects continue to deliver strong double-digit margins and we believe they will have more of an impact on the overall results in the coming quarters.

Thank you for your time and interest in Southland. I'll pass the call back to the operator for questions.

Well, thank you. Good morning. Thanks.

No, Adam, you know, we're really excited about our civil business. You know, we had some pickups in the quarter from strong execution in the business, you know, but our core business is continuing to deliver strong double-digit margins. So when you don't have the impact from some of the legacy projects affecting a quarter, these types of returns without the impacts from legacy right now, this business can consistently deliver mid-team results. Yes, we did have the impact of seasonality in Q1, and we do expect the revenues to pick up in the later half of the year. Got it.

Yeah, Frank, if you don't mind, let me take that one. So in the quarter, the gross profit impact from M&P was $9 million, and as I mentioned on the call, $3.5 million of that was related to a non-cash contract close-out charge.

Yeah, we feel we have our arms wrapped around that backlog, and it's appropriately at least stands. Again, that said, we will always continue to have that risk as we close out that backlog.

But as we work through it, and we see the opportunity to really generate some positive operating cash flow as we work out the claims and disputes, not only related to M&P, but also to the legacy backlog as a whole.

Yeah, so transportation, booking specifically, there's a lot of work out there, Adam. We've got quite a few projects in the pipeline, as far as the Francis Scott Key Bridge, we were dedicated to Keywood on the project, and they've been selected or working through the design. It would be a bit before we would get out there and do any work if that does turn into a possible subcontract opportunity for us.

But as far as transportation in general, just really excited about the market. There's tons of tons of jobs in the northeast, the southeast, southwest that really make a lot of sense on the bridge side for us. So look for bidding to uptake in the second half of the year.

Thanks, Adam. You appreciate it.

Yeah, so we've picked up a couple of jobs on the Civil side. They're typically quicker you know, quick hitting jobs. But you know, as far as new awards, you know, we're adding new work selectively. We're focusing on projects where, you know, we have the right teams in place in a track record of success, particularly in markets where we've consistently delivered strong results and, you know, we're excited about the potential in both the civil and transportation businesses.

You know, we have teams that are performing well in both segments. And naturally, I think we may see a small shift towards civil projects versus transportation as we wind down the paving business. But overall, the demand remains strong. And we're confident in our ability to continue to win new projects in all markets and are very excited about the civil sector as well.

Yeah, so, you know, in the alternative delivery front, we've got the Winnipeg project and we have the Burnside Bridge project and both of those are continuing to progress well. You know, we're working along with our partners on those projects to develop that into a construction contract and hopefully continue to progress throughout the year and turn into an actual construction contract within a year. But all is progressing well, no bumps in the road so far.

Yeah, so, you know, obviously our surety partners play a critical role in our long-term success and we remain, you know, we maintain regular meetings with them to discuss, you know, various opportunities we're pursuing. It's important, you know, really important to do that right now because of all the work that's out there. So, as far as bonding, you know, targeting strategic projects in the civil and transportation segment and, you know, have a great relationship with our current, current sureties.

Thank you, Julia.

Yeah, so speaking specifically to the MMP work, we do anticipate having all that work substantially complete by the end of 2025. In terms of margin, you know, we feel really good about the 2.3 billion of new core backlog that I mentioned on the early remarks and the contributions that it's going to make in the coming quarters. So we still have risk on the remaining legacy work, but as we progress throughout the year and we continue to complete the projects, we're going to see less and less legacy impact. We continue to produce positive Yibita absent any non-cash impacts from settlement disputes, and I would also say, you know, one of the reasons we haven't provided guidance in the past is that those settlement disputes or dispute settlements rather can impact results significantly one way or the other and timing is just typically hard to predict.

Yeah, so as far as, you know, as far as liquidity and there's a lot far as liquidity is concerned, you know, we feel we have ample liquidity to pursue all these opportunities that are ahead of us. Again, we remain extremely selective and the market's been affording us the opportunity to do so. We've made significant process of progress, rather, to improve the balance sheet over the last couple quarters.

And if you look at the unrestricted cash position at the end of 2025, Q1, it's more than double, you know, where we were at the end of Q1 of last year. In addition to that, we also have access to the delayed draw facility, which gives us some additional capacity should be needed.

Good morning, Gene.

Yeah, so we're going to continue to focus on owners that we have a really good relationship with in the civil sector. And I think our teams have done an excellent job of getting the returns that we expect in the civil market, but I think mid-teens returns are more than achievable in the civil segment.

Yeah, and to add to that, the new court projects, again, producing the strong double digit margins and excluding MNP, the profit margin was 14% in the quarter.

Yeah, I kind of, on the transportation business, typically you have longer duration projects. It takes a little bit longer for some of these new court jobs to make more of an impact on results. And we have some new court transportation projects, like I mentioned, the $600 million shins bridge and the $400 million RK bridge in New York that are really starting to ramp up and are going to continue to contribute more to transportation margins as we progress around. You know, the MNP impacts and as we wind down, you know, it will have an impact on revenue as we exit that MNP business, but there's a lot of opportunity in the transportation side, on the bridge side.

Yeah, so, you know, we continue to work through and make small progress on settling legacy claims. We have no major updates on the larger claims to report this quarter, but we do expect a significant cash flow from these claims in the coming quarters. And we continue to work vigorously to collect every dollar that we erode. And, you know, it's important to remember, almost all of these claims are from jobs that we picked up pre-COVID in that 2017-18 and 19 timeframe.

Yeah, timing will remain uncertain on those, but again, as Frank mentioned, we continue to make progress towards settlements.

Yeah, so we had a good Q1 generating positive operating cash flow. And we're off to a good start. We expect that cash flow to be more heavily weighted towards the back half of the year.

Thank you.

Okay. Thank you, everyone, for your continued interest in Southland and look forward to speaking next quarter. This concludes today's conference. Thank you for participating. You may now disconnect.