Business context and reporting period
Southland Holdings, Inc. filed this Form 10-K for the year ended December 31, 2022. The filing’s audited financial statements are for Legato Merger Corp. II, the pre-merger blank-check company—not Southland’s operating construction business. Southland LLC’s audited predecessor financial statements were not included in this filing; the filing says they were expected in a separate Form 8-K. Southland’s merger with Legato closed on February 14, 2023.
Southland’s businesses specialize in civil and transportation infrastructure, including water and wastewater projects, bridges, tunnels, roadways, marine facilities and steel structures.
Financial and operating metrics
| Metric | Reported information |
|---|---|
| Southland revenue recognized in 2022 | $1.138 billion, as reported in the backlog reconciliation; the filing does not provide Southland’s full operating income statement here. |
| Southland backlog at December 31, 2022 | $2.974 billion, versus $2.219 billion at December 31, 2021, an increase of about 34%. |
| Backlog additions and adjustments | $1.893 billion in 2022, versus $592.4 million in 2021. |
| Legato 2022 results | No operating revenue; $1.282 million of general and administrative costs, $4.014 million of trust-account investment income, $800,905 of income tax expense, and $1.931 million of net income. |
| Legato cash and trust account at year-end | $231,519 in cash and $283.320 million held in trust. Legato reported $1.727 million of cash used in operating activities for 2022. |
| Southland debt and liquidity | Southland’s debt, cash flow, margins, and balance-sheet liquidity are not clearly quantified in this filing. Management stated that operating cash flow, cash on hand, revolver availability and other financing were expected to cover needs for at least 12 months. |
The Legato net income and cash-flow figures describe the pre-merger shell company and should not be treated as Southland’s operating performance. The filing provides no Southland gross margin, operating profit, net income, or operating cash flow figures for 2022.
Material changes and transaction items
- Southland backlog rose about 34% year over year, while revenue recognized in the backlog reconciliation declined about 10.5%, from $1.271 billion in 2021 to $1.138 billion in 2022.
- At the February 2023 merger closing, Legato issued 33.793 million shares to former Southland members; 25.194 million Legato shares were redeemed. The company reported 44.408 million common shares outstanding after the transaction.
- The company issued $50 million of merger consideration notes bearing 7% interest, due February 14, 2028. It also issued $4.831 million of underwriter notes bearing 8% interest, due February 14, 2024; specified equity-financing proceeds trigger mandatory prepayments.
- Southland LLC had related-party notes to Frank and Rudy Renda with aggregate principal of approximately $8.354 million and accrued interest of approximately $716,000 at December 31, 2022. The 2018 notes were due November 30, 2023, and the 2016 notes were due December 31, 2025.
Outlook, risks, and unusual items
Management said end-market outlook remained positive and cited anticipated infrastructure spending, including the Infrastructure Investment and Jobs Act, as an opportunity. The filing gives no quantified Southland revenue, earnings, or cash-flow guidance.
Key risks include fixed-price project cost overruns, inflation, labor shortages, supply-chain constraints, delays or cancellations that reduce backlog, weather, customer payment and change-order disputes, bonding and financing needs, and competition. Backlog is not guaranteed revenue and may be delayed, changed, or cancelled. The filing states that increased costs had not materially affected profitability in 2020–2022, but cautions that future impacts may occur.
The filing reports no legal proceedings expected to have a material adverse effect individually or in aggregate. It also says Legato’s disclosure controls and internal control over financial reporting were effective at December 31, 2022; that assessment concerns the shell company and is not an audit opinion on Southland’s operating-company controls.
Important facts for investors to verify
- Review Southland LLC’s separate audited financial statements and subsequent filings for actual 2022 revenue, earnings, cash flow, debt, liquidity, and segment results.
- Confirm the composition, timing, cancellation exposure, and expected profitability of the $2.974 billion backlog.
- Review post-merger debt and liquidity, including the $50 million merger notes, underwriter notes, revolver terms, and related-party obligations and maturities.
- Check whether merger earnout targets were achieved: the filing describes 2022 and 2023 Adjusted EBITDA thresholds but does not report their outcome.
- Assess project-estimate revisions, claims and change orders, customer collections, cost escalation protections, and exposure to labor and supply constraints.