Business context and reporting period
This is Legato Merger Corp. II’s unaudited Form 10-Q for the quarter and six months ended June 30, 2022, filed August 4, 2022. Despite the request metadata, the filing is by Legato, a blank-check company—not Southland Holdings. Legato signed a merger agreement with Southland Holdings LLC on May 25, 2022; the transaction had not closed by quarter-end. Legato reported no operating business or revenue.
Financial results and liquidity
- Three months ended June 30: operating costs were $495,216; trust investment income was $293,122; income tax expense was $57,000; net loss was $259,094, or $0.01 per share.
- Six months ended June 30: operating costs were $749,695; trust investment income was $378,596; income tax expense was $64,350; net loss was $435,449, or $0.01 per share.
- Cash flow: six-month operating cash use was $664,178; investing activities provided $84,983; cash declined by $579,195 to $520,836.
- June 30 balance sheet: total assets were $281.3 million, including $280.5 million in the trust account. Total liabilities were $9.8 million, including $9.66 million of deferred underwriting commissions. Working capital was $703,680. The company reported no long-term debt or working-capital loans.
- Compared with December 31, 2021, cash decreased from $1.10 million to $520,836, while trust investments increased from $280.16 million to $280.46 million. Redeemable shares were carried at $280.30 million. Margins are not meaningful because Legato had no revenue.
Merger, outlook, and risks
The proposed transaction would give Southland members $343 million in common stock consideration, up to $50 million in cash consideration, and up to $105 million in additional shares tied to performance. Earnout targets are based on Adjusted EBITDA: for 2022, $125 million for the base award and $145 million for the bonus level; for 2023, $145 million and $165 million, respectively. Closing was expected in the second half of 2022, subject to stockholder and Southland member approvals and other conditions; this was an expectation, not a guarantee.
Legato’s business-combination deadline was May 24, 2023, absent a stockholder-approved extension. Management stated that failure to complete a transaction by the deadline would require liquidation and raised substantial doubt about the company’s ability to continue as a going concern. Management planned to complete the Southland transaction and said available working capital and borrowing capacity should meet needs through a transaction or one year from filing, while also warning that additional financing might be needed and was not assured. The filing noted potential uncertainties from COVID-19 and the Russia-Ukraine conflict but said their specific effects could not be determined. Management assessed disclosure controls as effective at June 30, 2022.
Key facts for investors to verify
- Whether the merger closed, and the final terms, approvals, financing, and any changes to consideration.
- Public-share redemptions and the resulting trust cash, liquidity, ownership, and dilution at closing.
- Southland’s financial performance and whether the stated Adjusted EBITDA earnout thresholds are achieved.
- Legato’s remaining cash outside the trust, transaction expenses, and any need for additional funding before closing.
- The May 24, 2023 business-combination deadline and any extension or liquidation developments.