Southland Holdings, Inc. — FY2023 Form 10-K
Reporting period: Year ended December 31, 2023. This is an annual filing, not a standalone fourth-quarter report. Southland is a North American specialty infrastructure contractor, operating in Civil and Transportation. Its February 2023 business combination was accounted for as a reverse recapitalization, with Southland LLC as the accounting acquirer.
Financial performance
| Metric | FY2023 | FY2022 |
|---|---|---|
| Revenue | $1,160.4 million | $1,161.4 million |
| Gross profit / margin | $35.8 million / 3.1% | $140.9 million / 12.1% |
| Operating income (loss) | $(31.4) million | $82.7 million |
| Net income (loss) attributable to Southland stockholders | $(19.3) million | $60.5 million |
| Adjusted EBITDA (non-GAAP) | $2.0 million | $128.2 million |
| Cash from (used in) operating activities | $(10.3) million | $(66.2) million |
| Cash and cash equivalents at year-end | $49.2 million | $57.9 million |
| Total debt, net of financing costs | $300.4 million | $273.6 million |
Interest expense rose to $19.5 million from $8.9 million; the weighted-average rate on debt was 6.12%, versus 4.02%. Southland reported an $8.5 million income tax benefit for 2023, compared with $13.3 million of tax expense in 2022. The 2023 loss per share was $0.41; prior-year per-share figures are not presented because Southland’s pre-merger equity was membership interests.
Segments and material changes
- Civil: Revenue increased 10.5% to $337.5 million; gross profit rose to $51.7 million, or 15.3% of segment revenue, from $45.5 million, or 14.9%.
- Transportation: Revenue decreased 3.9% to $822.9 million. The segment moved from $95.5 million gross profit in 2022 to a $15.9 million gross loss in 2023.
- Materials & Paving (M&P): Southland discontinued certain large-scale concrete and asphalt activities and sold related assets. M&P generated $188.3 million of 2023 revenue and an $86.6 million gross loss, including unfavorable estimated costs to complete work using third-party materials. M&P remained in continuing operations; about 8.5% of year-end backlog related to this work, which the company expected to substantially complete within 18 months.
- Total backlog fell 4.7% to $2.835 billion from $2.974 billion. Civil backlog declined to $634.5 million from $760.2 million; Transportation backlog was $2.201 billion, versus $2.214 billion.
Other income included a $20.7 million non-cash reversal of a contingent earnout liability. Adjusted EBITDA excludes that reversal and transaction-related costs; it is a non-GAAP measure and should be considered alongside GAAP results.
Liquidity, debt and cash flow
- Year-end cash, cash equivalents and restricted cash totaled $63.8 million, including $14.6 million of restricted cash. Cash from operations remained negative despite improving from 2022, as increases in receivables and contract assets partly offset higher payables and contract liabilities.
- Debt totaled $300.4 million, with $48.5 million due within 12 months. The $100 million revolving facility had $90 million drawn and $10 million available at year-end; it was extended to January 15, 2025. A February 2024 amendment restructured covenant levels. The company reported covenant compliance under amended or waived terms, with a waiver period through December 31, 2024.
- In July 2023, Southland refinanced secured notes with a $113.5 million equipment note, amortizing over five years at a fixed 7.25%. The filing also lists $7.4 million of finance-lease and $12.8 million of operating-lease obligations at year-end.
- Management said operating cash flow, available cash, revolver capacity and other financing should meet liquidity needs for at least 12 months. It cautioned that liquidity depends on operating results and access to financing; additional capital may not be available on acceptable terms.
Outlook, risks and unusual items
Management described end-market prospects as positive and cited infrastructure investment and the company’s project experience, equipment fleet and self-performance capabilities. The filing provides no specific revenue, earnings or margin guidance. It expects to recognize approximately 40% of its $2.835 billion remaining performance obligations as revenue in the next 12 months; this is an estimate, and backlog may be delayed, adjusted or canceled.
- Key execution risks include fixed-price project overruns, inflation, labor and supply constraints, weather, schedule penalties, subcontractor performance and uncertain recovery of change orders and claims. Revenue depends on estimates of project costs and variable consideration; the auditor identified long-term contract claims and cost-to-complete estimates as a critical audit matter.
- At year-end, $139.6 million of unapproved contract modifications was included in transaction prices, and $306.4 million of claims was recorded across contract assets and investments. Recovery timing and amounts are uncertain and may affect cash flow and reported results.
- Customer concentration increased: two customers each provided more than 10% of 2023 revenue (17.3% and 13.7%); one customer represented 15% of contract receivables at year-end.
- Other disclosed risks include customer payment delays, debt and refinancing needs, bonding capacity, government-contract compliance, litigation, cybersecurity, foreign operations and climate-related events. The company said the aggregate reasonably possible loss range for disclosed legal matters was immaterial at year-end.
- Merger-related redemptions substantially reduced cash proceeds; Southland received $17.1 million of net merger proceeds. It does not expect warrant exercises to be a material funding source while the share price remains below the $11.50 exercise price.
Investor facts to verify
- Whether M&P projects are completed on schedule and without further material losses.
- Whether Civil growth and new awards can offset Transportation project completions and replenish backlog.
- Collection, timing and ultimate recoverability of contract assets, retainage and the recorded claims and unapproved modifications.
- Liquidity, cash conversion, debt maturities and compliance with amended covenants, especially as the revolver approaches its January 2025 maturity.
- Exposure to concentrated customers and the effects of labor, material, weather and project-cost pressures on margins.