Southland Announces Second Quarter 2023 Results

Rhea-AI Summary

Southland Holdings, Inc. announces financial results for Q2 2023 with revenue of $257 million, down 5.9% YoY. Gross loss of $34 million and net loss of $13 million. Backlog increases to $2.7 billion, up 36% YoY. Positive cash flow of $24 million.

Positive

• Southland Holdings reports positive cash flow of $24 million for Q2 2023. Backlog increases to $2.7 billion, up 36% compared to the previous year. Revenue for the quarter was $257 million, down 5.9% YoY.

Negative

• Gross loss of $34 million and net loss of $13 million for Q2 2023.

GRAPEVINE, Texas--(BUSINESS WIRE)-- Southland Holdings, Inc. (NYSE American: SLND and SLND WS) (“Southland”), a leading provider of specialized infrastructure construction services, today announced financial results for quarter ended June 30, 2023.

• Revenue of $257 million for the quarter ended June 30, 2023, down 5.9% from $273 million for the quarter ended June 30, 2022.
• Gross loss of $34 million for the quarter ended June 30, 2023, compared to gross profit of $38 million for the quarter ended June 30, 2022.
• Net loss attributable to stockholders of $13 million, or $(0.27) per share for the quarter ended June 30, 2023, compared to a net income attributable to stockholders of $19 million for the quarter ended June 30, 2022.
• Adjusted net loss of $35 million, or $(0.76) per share for the quarter ended June 30, 2023, compared to an adjusted net income of $19 million for the quarter ended June 30, 2022.⁽¹⁾
• Adjusted EBITDA of negative $42 million for the quarter ended June 30, 2023, compared to $35 million for the quarter ended June 30, 2022. ⁽¹⁾
• Backlog of $2.7 billion, up 36% compared to $2.0 billion as of June 30, 2022.
• Positive cash flow from operating activities of $24 million for the quarter ended June 30, 2023.

(1)

Please refer to “Non-GAAP Measures” and reconciliations for our Non-GAAP financial measures, including, “Adjusted Net Loss,” “Adjusted Net Loss Per Share,” and “Adjusted EBITDA”

2023 Second Quarter Results

Southland incurred significant unfavorable charges during the quarter, primarily stemming from its legacy asphalt and concrete materials production and paving business. In an effort to wind down this component of its Transportation segment and reallocate resources towards core operations, the Company sold various materials production assets in the second quarter. As a result, the Company recorded unfavorable charges in the quarter related to additional expected future costs associated with procuring and transporting materials from third parties. While work is expected to be completed over the next one to two years, Southland has recorded the increased estimated future costs to finish these projects in this quarter in accordance with Generally Accepted Accounting Principles. The negative impact to gross margin from these charges were approximately $49 million for the second quarter. At the end of the second quarter, approximately 12% of Southland’s $2.7 billion backlog consists of legacy large-scale paving work.

Condensed Consolidated Statements of Operations (unaudited)
		Three Months Ended
(Amounts in thousands)		June 30, 2023			June 30, 2022
Revenue		$	256,927		$	273,016
Cost of construction			290,721			235,279
Gross profit (loss)			(33,794)			37,737
Selling, general, and administrative expenses			16,448			13,490
Operating income (loss)			(50,242)			24,247
Gain (loss) on investments, net			50			(259)
Other income (expense), net			24,007			(780)
Interest expense			(4,305)			(2,065)
Income (loss) before income taxes			(30,490)			21,143
Income tax expense (benefit)			(18,589)			1,815
Net income (loss)			(11,901)			19,328
Net income (loss) attributable to noncontrolling interests			925			(78)
Net income (loss) attributable to Southland Holdings Stockholders		$	(12,826)		$	19,406
Net loss per share attributable to common stockholders
Basic (1)		$	(0.27)
Diluted (1)		$	(0.27)
Weighted average shares outstanding
Basic (1)			46,870,890
Diluted (1)			46,870,890

(1)

The structure of Southland’s historical common equity structure was in the form of membership percentages and no shares were issued. As such, reporting periods prior to the three months ended March 31, 2023 will not present share or per share data. Basic net loss per share is the same as diluted net loss per share attributable to common stockholders for the three months ended June 30, 2023, because the inclusion of potential shares of common stock would have been anti-dilutive for the period presented.

Revenue for the three months ended June 30, 2023, was $256.9 million, a decrease of $16.1 million, or 5.9%, compared to the three months ended June 30, 2022.

Gross loss for the three months ended June 30, 2023, was $33.8 million, a decrease of $71.5 million, or 189.6%, compared to gross profit of $37.7 million for the three months ended June 30, 2022. Our gross profit margin decreased from 13.8% to a negative 13.2% for the three months ended June 30, 2023 compared to the three months ended June 30, 2022.

Selling, general, and administrative costs for the three months ended June 30, 2023 were $16.4 million, an increase of $3.0 million, or 21.9%, compared to the three months ended June 30, 2022. Selling, general, and administrative costs as a percent of revenue were 6.4% for the three months ended June 30, 2023 compared to 4.9% for the three months ended June 30, 2022.

Condensed Consolidated Statements of Operations (unaudited)
		Six Months Ended
(Amounts in thousands)		June 30, 2023			June 30, 2022
Revenue		$	531,756		$	531,502
Cost of construction			546,607			488,834
Gross profit (loss)			(14,851)			42,668
Selling, general, and administrative expenses			32,019			27,789
Operating income (loss)			(46,870)			14,879
Gain on investments, net			18			21
Other income (expense), net			21,408			(1,356)
Interest expense			(7,559)			(4,032)
Income (loss) before income taxes			(33,003)			9,512
Income tax expense (benefit)			(16,836)			3,157
Net income (loss)			(16,167)			6,355
Net income attributable to noncontrolling interests			1,323			550
Net income (loss) attributable to Southland Holdings Stockholders		$	(17,490)		$	5,805
Net loss per share attributable to common stockholders
Basic (1)		$	(0.38)
Diluted (1)		$	(0.38)
Weighted average shares outstanding
Basic (1)			46,043,878
Diluted (1)			46,043,878

(1)

The structure of Southland’s historical common equity structure was in the form of membership percentages and no shares were issued. As such, reporting periods prior to the three months ended March 31, 2023 will not present share or per share data. Basic net loss per share is the same as diluted net loss per share attributable to common stockholders for the six months ended June 30, 2023, because the inclusion of potential shares of common stock would have been anti-dilutive for the period presented.

Revenue for the six months ended June 30, 2023 was $531.8 million, an increase of $0.3 million, or 0.0%, compared to the six months ended June 30, 2022.

Gross loss for the six months ended June 30, 2022, was $14.9 million, a decrease of $57.5 million, or 134.8%, compared to gross profit of $42.7 million for the six months ended June 30, 2022. Our gross profit margin decreased from 8.0% to a negative 2.8% for the six months ended June 30, 2023 compared to the six months ended June 30, 2022.

Selling, general, and administrative costs for the six months ended June 30, 2023 were $32.0 million, an increase of $4.2 million, or 15.2%, compared to the six months ended June 30, 2022. Selling, general, and administrative costs as a percent of revenue were 6.0% for the six months ended June 30, 2023 compared to 5.2% for the six months ended June 30, 2022.

Segment Revenue
		Three Months Ended
(Amounts in thousands)		June 30, 2023					June 30, 2022
					% of Total					% of Total
Segment		Revenue			Revenue		Revenue			Revenue
Civil		$	65,567		25.5%		$	74,851		27.4%
Transportation			191,360		74.5%			198,165		72.6%
Total revenue		$	256,927		100.0%		$	273,016		100.0%
		Six Months Ended
(Amounts in thousands)		June 30, 2023					June 30, 2022
					% of Total					% of Total
Segment		Revenue			Revenue		Revenue			Revenue
Civil		$	138,556		26.1%		$	149,894		28.2%
Transportation			393,200		73.9%			381,608		71.8%
Total revenue		$	531,756		100.0%		$	531,502		100.0%
Segment Gross Profit
		Three Months Ended
(Amounts in thousands)		June 30, 2023					June 30, 2022
					% of Segment					% of Segment
Segment		Gross Profit			Revenue		Gross Profit			Revenue
Civil		$	5,906		9.0%		$	12,422		16.6%
Transportation			(39,700)		(20.7)%			25,315		12.8%
Gross profit (loss)		$	(33,794)		(13.2)%		$	37,737		13.8%
		Six Months Ended
(Amounts in thousands)		June 30, 2023					June 30, 2022
					% of Segment					% of Segment
Segment		Gross Profit			Revenue		Gross Profit			Revenue
Civil		$	14,672		10.6%		$	19,389		12.9%
Transportation			(29,523)		(7.5)%			23,279		6.1%
Gross profit (loss)		$	(14,851)		(2.8)%		$	42,668		8.0%

Adjusted EBITDA Reconciliation
		Three Months Ended						Six Months Ended
(Amounts in thousands)		June 30, 2023			June 30, 2022			June 30, 2023			June 30, 2022
Net income (loss) attributable to Southland Holdings Stockholders		$	(12,826)		$	19,406		$	(17,490)		$	5,805
Depreciation and amortization			8,176			11,973			16,736			23,640
Income taxes (benefit)			(18,589)			1,815			(16,836)			3,157
Interest expense			4,305			2,065			7,559			4,032
Interest income			(161)			—			(298)			(11)
EBITDA			(19,095)			35,259			(10,329)			36,623
Transaction related costs			559			—			1,594			—
Contingent earnout consideration non-cash expense reversal			(23,625)			—			(20,689)			—
Adjusted EBITDA		$	(42,161)		$	35,259		$	(29,424)		$	36,623

Backlog
(Amounts in thousands)		Backlog
Balance December 31, 2022		$	2,973,886
New contracts, change orders, and adjustments			262,088
Gross backlog			3,235,974
Less: contract revenue recognized in 2023			(538,464)
Balance June 30, 2023		$	2,697,510

Adjusted Net Loss and Adjusted Net Loss Per Share Attributable to Common Stock Reconciliation
		Three Months Ended						Six Months Ended
(Amounts in thousands except shares and per share data)		June 30, 2023			June 30, 2022			June 30, 2023			June 30, 2022
Reconciliation of adjusted net income (loss) attributable to common stock:
Net income (loss) attributable to common stock (GAAP as reported)		$	(12,826)		$	19,406		$	(17,490)		$	5,805
Adjustments:
Transaction related costs			559			—			1,594			—
Contingent earnout consideration non-cash expense			(23,625)			—			(20,689)			—
Income tax impact of adjustments (1)			463			—			(311)			—
Adjusted net loss attributable to common stockholders		$	(35,429)		$	19,406		$	(36,896)		$	5,805
Weighted average shares outstanding (2)
Basic and diluted (2)			46,870,890						46,043,878
Net loss per share attributable to common stockholders (2)		$	(0.27)					$	(0.38)
Adjusted net loss per share attributable to common stockholders (2)		$	(0.76)					$	(0.80)

(1)		The income tax impact of adjustments that are subject to tax is determined using the incremental statutory tax rates of the jurisdictions to which each adjustment relates for the respective periods.
(2)		The structure of Southland’s historical common equity structure was in the form of membership percentages and no shares were issued. As such, reporting periods prior to the three months ended March 31, 2023 will not present share or per share data. Basic net loss per share is the same as diluted net loss per share attributable to common stockholders for the three months and six months ended June 30, 2023, because the inclusion of potential shares of common stock would have been anti-dilutive for the period presented

Condensed Consolidated Balance Sheets (unaudited)
(Amounts in thousands, except share and per share data)		As of
ASSETS		June 30, 2023			December 31, 2022
Current assets
Cash and cash equivalents		$	39,124		$	57,915
Restricted cash			14,984			14,076
Accounts receivable, net			183,439			135,678
Retainage receivables			125,220			122,682
Contract assets			508,378			512,906
Other current assets			28,340			24,047
Total current assets			899,485			867,304
Property and equipment, net			102,340			114,084
Right-of-use assets			16,551			16,893
Investments - unconsolidated entities			119,029			113,724
Investments - limited liability companies			2,590			2,590
Investments - private equity			3,266			3,261
Deferred tax asset			21,458			—
Goodwill			1,528			1,528
Intangible assets, net			1,956			2,218
Other noncurrent assets			3,298			3,703
Total noncurrent assets			272,016			258,001
Total assets		$	1,171,501		$	1,125,305
LIABILITIES AND EQUITY
Current liabilities
Accounts payable		$	133,736		$	126,385
Retainage payable			38,369			33,677
Accrued liabilities			131,001			121,584
Current portion of long-term debt			51,326			46,322
Short-term lease liabilities			15,598			16,572
Contract liabilities			197,336			131,557
Total current liabilities			567,366			476,097
Long-term debt			233,218			227,278
Long-term lease liabilities			8,483			10,032
Deferred tax liabilities			2,985			3,392
Other noncurrent liabilities			96,583			48,622
Total long-term liabilities			341,269			289,324
Total liabilities			908,635			765,421
Commitment and contingencies (Note 7)
Stockholders' equity
Preferred stock, $0.0001 par value, authorized 50,000,000 share, none issued and outstanding in 2023			—			—
Preferred stock, $1.00 par value, 24,400,000 issued and outstanding in 2022			—			24,400
Common stock, $0.0001 par value, authorized 500,000,000 share, 47,856,114 and none issued and outstanding in 2023 and 2022, respectively			8			—
Additional paid-in-capital			269,436			—
Accumulated deficit			(17,490)			—
Accumulated other comprehensive income			(923)			(2,576)
Members’ capital			—			327,614
Total stockholders' equity			251,031			349,438
Noncontrolling interest			11,835			10,446
Total equity			262,866			359,884
Total liabilities and equity		$	1,171,501		$	1,125,305

Condensed Consolidated Statement of Cash Flows (unaudited)
		Six Months Ended
(Amounts in thousands)		June 30, 2023			June 30, 2022
Cash flows from operating activities:
Net income (loss)		$	(16,167)		$	6,355
Adjustments to reconcile net income (loss) to net cash used in operating activities
Depreciation and amortization			16,736			23,640
Deferred taxes			(21,866)			(92)
Change in fair value of earnout liability			(20,689)			—
Gain on sale of assets			(85)			(1,208)
Foreign currency remeasurement gain			(3,641)			191
Earnings from equity method investments			(140)			(3,803)
TZC investment present value accretion			(1,213)			(1,166)
Loss (gain) on trading securities, net			24			(357)
Changes in assets and liabilities:
Accounts receivable			(53,589)			(50,631)
Contract assets			4,803			(6,625)
Prepaid expenses and other current assets			(4,093)			(3,502)
ROU assets			343			2,347
Accounts payable and accrued expenses			21,700			(30,934)
Contract liabilities			65,774			(13,899)
Operating lease liabilities			(126)			(2,298)
Other			1,593			67
Net cash used in operating activities			(10,636)			(81,915)
Cash flows from investing activities:
Purchase of fixed assets			(4,953)			(2,679)
Proceeds from sale of fixed assets			7,214			2,726
Loss on investment in limited liability company			—			335
Proceeds from the sale of trading securities			(21)			814
Capital contribution to investees			—			(1,000)
Net cash provided by investing activities			2,240			196
Cash flows from financing activities:
Borrowings on line of credit			3,000			55,000
Borrowings on notes payable			248			695
Payments on notes payable			(27,701)			(21,294)
Advances from (to) related parties			215			(404)
Payments from related parties			5			7
Payments on finance lease			(2,396)			(3,430)
Distributions			(110)			(1,556)
Proceeds from merger of Legato II and Southland Holdings, LLC			17,088			—
Net cash provided by (used in) financing activities			(9,651)			29,018
Effect of exchange rate on cash			164			945
Net decrease in cash and cash equivalents and restricted cash			(17,883)			(51,756)
Beginning of period			71,991			111,242
End of period		$	54,108		$	59,486
Supplemental cash flow information
Cash paid for income taxes		$	2,903		$	4,127
Cash paid for interest		$	7,541		$	4,106
Non-cash investing and financing activities:
Lease assets obtained in exchange for new leases		$	8,528		$	6,771
Assets obtained in exchange for notes payable		$	6,667		$	580
Issuance of post-merger earn out shares		$	35,000		$	—
Dividend financed with notes payable		$	50,000		$	—

Conference Call

Southland will host a conference call at 10:00 a.m. Eastern Time on Tuesday, August 15, 2023. The call may be accessed here, or at www.southlandholdings.com. Following the conference call, a replay will be available on Southland’s website.

About Southland

Southland is a leading provider of specialized infrastructure construction services. With roots dating back to 1900, Southland and its subsidiaries form one of the largest infrastructure construction companies in North America, with experience throughout the world. The company serves the bridges, tunnelling, communications, transportation and facilities, marine, steel structures, water and wastewater treatment, and water pipeline end markets. Southland is headquartered in Grapevine, Texas.

For more information, please visit Southland’s website at www.southlandholdings.com.

Non-GAAP Financial Measures

This press release includes certain unaudited financial measures not presented in accordance with generally accepted accounting principles (“GAAP”), including but not limited to adjusted earnings before interest, taxes, depreciation, and amortization (“Adjusted EBITDA”), backlog, adjusted net loss, adjusted net loss per share and certain ratios and other metrics derived therefrom. Note that other companies may calculate these non-GAAP financial measures differently, and therefore such financial measures may not be directly comparable to similarly titled measures of other companies. Further, these non-GAAP financial measures are not measures of financial performance in accordance with GAAP and may exclude items that are significant in understanding and assessing financial results. Therefore, these measures should not be considered in isolation or as an alternative to net income, cash flows from operations or other measures of profitability, liquidity or performance under GAAP. Southland believes that these non-GAAP measures of financial results provide useful information to management and investors regarding certain financial and business trends relating to Southland’s financial condition and results of operations. Southland also believes that these non-GAAP financial measures provide an additional tool for investors to use in evaluating ongoing operating results and trends. These non-GAAP financial measures are subject to inherent limitations as they reflect the exercise of judgments by management about which items of expense and income are excluded or included in determining these non-GAAP financial measures.

Please see the accompanying tables for reconciliations of the following non-GAAP financial measures for Southland’s current and historical results: adjusted net loss per share attributable to common stock (a non-GAAP financial measure) to net loss per share attributable to common stock; and adjusted net loss attributable to common stock, and Adjusted EBITDA (non-GAAP financial measures) to net loss attributable to common stock.

Forward-Looking Statements

This press release contains “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on Southland’s current beliefs, expectations and assumptions regarding the future of Southland’s business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of Southland’s control. Southland’s actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements.

Any forward-looking statement made by Southland in this press release is based only on information currently available to Southland and speaks only as of the date on which it is made. Southland undertakes no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.

View source version on businesswire.com: https://www.businesswire.com/news/home/20230814666825/en/

Southland Contacts:

Cody Gallarda

EVP, Chief Financial Officer

cgallarda@southlandholdings.com

Alex Murray

Corporate Development & Investor Relations

amurray@southlandholdings.com

Source: Southland Holdings, Inc.

FAQ

What was the revenue for Q2 2023?

The revenue for Q2 2023 was $257 million, a decrease of 5.9% compared to the previous year.

What is the backlog for Southland Holdings?

The backlog for Southland Holdings is $2.7 billion, which is a 36% increase compared to the previous year.

Did Southland Holdings have positive or negative cash flow for Q2 2023?

Southland Holdings had positive cash flow of $24 million for Q2 2023.

What were the losses for Q2 2023?

Southland Holdings had a gross loss of $34 million and a net loss of $13 million for Q2 2023.