Southland Holdings, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Financial statements are unaudited; comparisons are with Q1 2023 unless otherwise stated. Southland is a specialty infrastructure contractor operating through Civil and Transportation segments.
Financial results and liquidity
| Metric | Q1 2024 | Q1 2023 | Change / context |
|---|---|---|---|
| Revenue | $288.1 million | $274.8 million | Up 4.8% |
| Gross profit / margin | $20.4 million / 7.1% | $18.9 million / 6.9% | Margin up 0.2 percentage points |
| Operating income | $6.0 million | $3.4 million | Improved, helped by lower SG&A |
| Net income (loss) | $0.5 million | $(4.3) million | Consolidated result; $0.9 million was attributable to noncontrolling interests |
| Net loss attributable to Southland stockholders | $(0.4) million; $(0.01) per share | $(4.7) million; $(0.11) per share | Improved year over year |
| Adjusted EBITDA | $10.9 million | $12.7 million | Down 14%; non-GAAP measure |
| Cash from operating activities | $(9.9) million | $(34.8) million | Use of cash narrowed |
At March 31, 2024, cash and cash equivalents were $31.2 million and restricted cash was $15.3 million. Current assets were $967.1 million and current liabilities $606.3 million. Total debt, net of financing costs, was $302.0 million, including $46.4 million current; $95.0 million was drawn on the revolving facility. The weighted-average debt rate was 6.21%, versus 6.12% at year-end 2023. Cash, cash equivalents, and restricted cash together declined $17.3 million in the quarter to $46.5 million.
Material changes and segment performance
- Civil: Revenue rose 15.5% to $84.3 million; gross profit increased to $17.9 million from $8.8 million, with margin expanding to 21.2% from 12.0%. The filing cites stronger contributions from several water and other projects.
- Transportation: Revenue increased 1.0% to $203.8 million, but gross profit fell to $2.6 million from $10.2 million and margin declined to 1.3% from 5.0%. A Midwest bridge project had lower profitability.
- Materials & Paving (M&P): Q1 revenue was $38.6 million and gross loss was $10.4 million, compared with revenue of $58.1 million and gross loss of $10.6 million in Q1 2023. Southland is winding down certain large-scale concrete and asphalt activities; M&P represented about 7.7% of backlog and is expected to be substantially completed within 15 months.
- SG&A decreased 7.6% to $14.4 million, attributed to lower public-company costs and incentive compensation. Interest expense rose 73.8% to $5.7 million, primarily due to higher borrowings and borrowing costs.
Backlog, outlook, risks, and unusual items
- Backlog was $2.639 billion at March 31, 2024, down from $2.835 billion at December 31, 2023. Remaining unsatisfied performance obligations were also reported as $2.639 billion; about 42% is expected to be recognized as revenue in the next 12 months. Backlog can be delayed, revised, or canceled and is not a guarantee of future revenue.
- Management describes end-market prospects as positive and believes operating results, available cash, and financing sources will meet liquidity needs for at least 12 months. This is not quantified earnings guidance. Management also notes that delayed settlement of claims and change orders and losses on M&P and other projects have pressured liquidity.
- The revolving facility was amended in February and May 2024. The May amendment extended maturity to April 15, 2025, reset certain covenant terms, and waived specified covenant noncompliance as of March 31. The facility limit was reduced to $95 million, fully drawn at quarter-end, and required a $5 million cash-collateral deposit by June 15, 2024. Southland said it was in compliance under the amended or waived covenants and projected compliance through March 31, 2025.
- Operating cash use reflected increases in receivables ($32.1 million) and contract assets ($16.2 million), partly offset by increased payables. Contract assets totaled $570.1 million. Unapproved contract modifications included in transaction prices were $162.9 million, up from $139.6 million at year-end; claims-related amounts recorded as assets totaled $323.3 million. Accrued loss provisions were $16.1 million.
- Risks include estimating costs and margins on long-term fixed-price contracts, collection and negotiation of claims and change orders, project delays and weather, labor and competition, interest rates, liquidity and refinancing, and litigation or government inquiries. The filing says the aggregate reasonably possible loss range for disclosed legal matters was immaterial; outcomes remain uncertain.
- Southland has an effective shelf registration statement allowing offers of up to $150 million in securities. It says it does not expect to rely materially on cash proceeds from warrant exercises; the $11.50 exercise price exceeded the May 9 share closing price of $4.69.
Important facts for investors to verify
- Whether the $5 million cash-collateral deposit was made by the stated June 15, 2024 deadline and whether covenant compliance is being maintained.
- Actual cash conversion, collections, and progress in resolving the $162.9 million of unapproved modifications and $323.3 million of claims-related assets.
- Whether Transportation margins recover, including performance of the Midwest bridge project, and whether M&P losses and remaining backlog decline as planned.
- The filing reports the revolver’s applicable interest margin as 3.00% in Note 6 but 2.10% in the MD&A; investors may wish to verify the governing rate and borrowing cost.
- Whether backlog converts to revenue on schedule, given its exposure to delays, scope changes, and cancellation.