Q1 2025 Southland Holdings Inc Earnings Call
Good morning, My name is call me and I'll be a conference operator today at this time I would like to welcome everyone to the Southland first quarter 'twenty 25 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker.
Does your remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If he would like to withdraw your question. Please first apologies. Thank you Alex you may begin your conference.
Good morning, everyone and welcome to the South in the first quarter 2025 conference call.
This is Alex Murray, Vice President of corporate development and Investor Relations joining.
fragrant: Joining me today are fragrant, president and Chief Executive Officer.
Keith Disanto: Keith Disanto Chief Financial Officer.
Keith Disanto: Before we begin I'd like to remind everyone that this conference call may contain forward looking statements within the meaning of section 27, a Securities Act.
Keith Disanto: Section 21 E.
Keith Disanto: The Securities Exchange Act back in 34.
Keith Disanto: Private Securities Litigation Reform Act of 1995.
Keith Disanto: Forward looking statements are neither historical facts, nor assurances of future performance forward looking statements are uncertain and outside of southwest control cell.
Keith Disanto: <unk> actual results and financial condition may differ materially from those projected in forward looking statements.
Keith Disanto: Therefore, you should not rely on any of these forward looking statements and we do not undertake any duty to update these statements.
Keith Disanto: For a discussion of some of the risks that could affect results. Please see the risk factors section of our Form 10-K for the year ended December 31, 2024 that was filed with the SEC March 5th 2025 and discussion on Form 10-Q for the quarter ended March 31, 2025 that was filed with the SEC last night.
Keith Disanto: We also refer to non-GAAP financial measures.
Keith Disanto: Find reconciliations in the press release relating to this conference call, which can be found on the Investor Relations page of our website with that I will now turn the call over to Frank.
Frank: Thank you Alex good morning, and thank you for joining <unk> first quarter 2025 conference call before we dive into our quarterly results I'd like to begin by highlighting the additions we have made to our leadership team.
Speaker Change: As previously announced keep this auto has been appointed our Chief Financial Officer, Keith brings more than 15 years of experience in the engineering and construction sector since joining the organization through our American bridge subsidiary in 2008.
Speaker Change: He has consistently demonstrated outstanding leadership and financial discipline.
Speaker Change: We have also appointed Dan <unk> as Chief strategy Officer, Don joined Southland Following executive roles at E Com Parsons and most recently as Chief Executive Officer of the branch group.
Speaker Change: With experience and infrastructure construction and engineering gone is directly work from some of the largest infrastructure projects worldwide totaling over $60 billion in construction costs.
Speaker Change: These leadership additions are part of our broader strategic efforts district in Southland and position ourselves for better performance over the long term, we believe Keith and Don and his experience and leadership will be important assets for south, but moving forward and I'm excited to have them in these key roles.
I'd also like to recognize the remarkable milestone within Southwind Amir.
Speaker Change: American Bridge company founded in 1900 through at JP, Morgan and consolidation of several bridge and steel firms.
Speaker Change: Celebrated its 125th anniversary this year.
Speaker Change: American Bridge has delivered many of the world's most iconic spans of steel landmarks, including the Oakland Bay Bridge, the Las Vegas High roller and so many more consistently raising the bar for safety and engineering innovation.
Speaker Change: <unk> commitment to excellence is remains unmatched on.
Speaker Change: On behalf of the entire Southland team I congratulate the American bridge workforce past and present in more than 125 years of World class performance.
Speaker Change: Now to discuss our quarterly results, we started the year with strong performance with revenue of $239 million.
Speaker Change: Gross profit of 21 5 million.
Positive cash flow from operations of $6 4 million.
Speaker Change: Consolidated gross profit margin was 9% an increase from 7% in the prior year period.
Speaker Change: This improvement was driven by strong performance in our civil segment.
Speaker Change: Which delivered a gross profit margin of 22%.
Speaker Change: Despite the adverse weather we faced in some key markets. We produced the highest first quarter consolidated gross profit margins before COVID-19.
Speaker Change: Turning to the broader economic backdrop I'd like to share our view on the potential impact of recent tariff actions in federal spending cut announcements.
Speaker Change: Based on what we know today, we do not expect the current tariffs to have a material effect on our current book of business as we mentioned on our last call our direct exposure to cross border material procurement is minimal.
Speaker Change: While we don't anticipate a direct impact there is a risk that tariffs could increase input cost over time.
Speaker Change: That said south remains well positioned we have strong risk management practices in place, including the ability to walk in major material contracts early and project life cycles.
Speaker Change: Which helps protect against cost escalations.
Speaker Change: We also do not believe that government spending cuts will affect demand the bridges water pipelines tunnels and treatment facilities, we build are critical.
Speaker Change: We have not had a project in backlog be affected by any spending cuts and we do not expect a material impact on our pipeline.
Speaker Change: Demand for our business remains extremely strong for federal and state clients and we expect this trend to continue.
Speaker Change: I'd also like to note that our historical client mix consists of approximately 80% and government agencies and 20% private clients. Thanks to our diverse capabilities and strong relationships, we have the flexibility to adjust that mix in response to market demand.
Speaker Change: Because a substantial amount of our work is with government agencies and our projects are essential to the communities. We work and live in we are generally insulated from the effects of broader economic uncertainty combined.
Speaker Change: Combined with the sustained infrastructure investment robust demand, particularly at the federal and state levels. We believe these factors will serve a strong tailwind for our business for years to come.
Speaker Change: During the quarter, we added approximately $137 million in New awards.
Speaker Change: This was led by two water resource projects totaling $97 million.
Speaker Change: Bringing our total backlog to approximately $2 5 billion.
Speaker Change: We continue to have strong visibility into demand across our pipeline for both public and private clients with a robust pipeline, we are well positioned with high quality work, while remaining selective in our pursuit strategy.
Speaker Change: Coming opportunities in our civil segment include a $450 million tunnel in Toronto.
Speaker Change: Packaging from the $600 million Jordan Lake water supply program packages from the $2 billion in Northern Colorado water Glades reservoir program, and numerous water and wastewater opportunities in the southwest and the southeast regions.
Speaker Change: Upcoming opportunities in our transportation segment includes several bridge projects in the northeast and Florida. We also hope to continue to develop our dedicated sub role to key with on the rebuild at Francis Scott Key bridge in Baltimore.
Speaker Change: Summary, we're off to a strong start in 2025, driven by a disciplined bidding approach improved execution driving strong margins and continued strength in our core business with a deep bench of leadership and a strong pipeline of critical infrastructure opportunities ahead, we're confident in our ability to deliver <unk>.
Speaker Change: <unk> for our clients and for our stakeholders over the long term.
Speaker Change: Before turning it over to Keith I would also like to thank our teams for participating in National safety week.
Speaker Change: Thanks to all employees for their continued commitment to safety.
Speaker Change: You are focused on making safety a priority every day is essential to our success. We appreciate the role each of your plays in maintaining safe.
Speaker Change: Ladies and gentlemen, this is the operator, we used hold and the conference will resume momentarily.
Speaker Change: Hi.
Speaker Change: Sorry, everyone. We had some audio issues I'm going to turn it over to Keith for a financial update.
Keith Disanto: Thank you Frank and good morning, everyone.
Speaker Change: I will discuss an overview of our financial performance during the first quarter 2025.
You can find additional details and information in the financial statements footnotes and management's discussion and analysis that were filed on Form 10-Q last night.
Speaker Change: Revenue for the quarter was $239 million down $49 million from the same period in 2024.
Speaker Change: Gross profit was $21 5 million, an increase of $1 1 million from the same period in 2024.
Speaker Change: Gross profit margin in the quarter was 9% compared to seven 1% in the prior year.
Speaker Change: Selling general and administrative costs in the first quarter were $16 5 million, an increase of $2 1 million compared to the same period in 2024.
Speaker Change: The increase was attributable to additional compensation expense and certain tax expense compared to the same period in 2024.
Speaker Change: Interest expense for the quarter totaled $8 9 million up $3 2 million from the prior year.
Speaker Change: This increase was primarily driven by higher borrowing costs and additional interest expense related to a real estate transaction that was closed in the second half of last year.
Speaker Change: As previously discussed we anticipate interest expense to average approximately $9 5 million per quarter going forward.
Speaker Change: Income tax benefit was $300000 for the quarter compared to income tax expense of 300000 in the same period last year.
Speaker Change: As noted in prior quarters, we expect our effective tax rate to be in the 20% to 24% range subject to the impact of tax credits nondeductible expenses and state and local tax adjustments.
Speaker Change: We reported a net loss of $4 5 million or a loss of eight cents per share in the quarter compared to a net loss of 400000 or a loss of <unk> <unk> per share in the same period last year.
Speaker Change: Okay.
Speaker Change: In the first quarter, we produced EBITDA or earnings before interest taxes, depreciation and amortization of $10 1 million compared to EBITDA of $10 9 million for the same period in 2024.
Speaker Change: Touch on segment performance for the quarter.
Speaker Change: Our civil segment had revenues of $103 million compared to revenue of $84 million in the same period in 2024.
Speaker Change: Our signal civil South our civil segment gross profit was $23 million, an increase of $5 million from the same period in the prior year.
Speaker Change: As a percentage of revenue for the quarter, our civil segment had gross profit margin of 22% compared to 21% in the same period in 2024.
Speaker Change: For the quarter, our transportation segment had revenues of $137 million, a decrease of $67 million from the same period in 2024.
Speaker Change: Our transportation segment had a gross loss of $1 million a decrease of from a gross profit of $3 million in the same period in the prior year.
Speaker Change: As a percentage of revenue for the quarter, our transportation segment had a negative gross profit margin of 1% compared to a positive gross profit margin of 1% for the same period in 2024.
Speaker Change: Yes.
Speaker Change: The materials and paving business line contributed $18 million to revenue and negative 9 million to gross profit in the first quarter, we experienced a noncash charge of $3 $5 million in the connection with the scope finalization on a substantially complete paving project with the remainder of the material materials and Pavings gross profit impact.
Speaker Change: Attributable to increased project costs.
Speaker Change: We still anticipate to substantially complete these projects by the end of 2025.
Speaker Change: Our core operating results in this segment, excluding materials on paving would have been $119 million of revenue and $8 million of gross profit for gross profit margin of 7%.
Speaker Change: Consolidated core results in the quarter, excluding materials and paving would have been $221 million of revenue and $31 million of gross profit for our gross profit margin of 14%.
Speaker Change: We finished the quarter with approximately $2 5 billion of backlog of which we expect to burn approximately 40% over the next 12 months.
Speaker Change: At the end of the quarter, we had approximately $139 million of remaining MMP backlog and approximately $59 million of non MMP legacy backlog.
Speaker Change: We continue to make good progress winding down the legacy projects and expect the pace of revenue from our legacy projects to increase as we head into our peak construction season.
Speaker Change: Our new core backlog makes up over 90% of our total backlog and we're excited about how the new core projects are performing.
Speaker Change: The Nucor projects continue to deliver strong double digit margins and we believe they will have more of an impact on the overall results in the coming quarters.
Speaker Change: Thank you for your time and interest in Southland I'll now pass the call back to the operator for questions.
Speaker Change: Thank you ladies and gentlemen, we will now begin the question and answer session. If you would like to ask a question. Please press Star then the number one on your telephone keypad. If you are using a speaker phone. Please make sure. Your mute function is showing now to allow your signal to reach alber equipment.
Speaker Change: Dan Please press star one to ask a question and no pause photoshop moment to compile the Q&A roster.
Speaker Change: Our first question comes from the line of Adam Thalheimer from Thompson Davis. Your line is now open.
Adam Thalheimer: Hey, good morning, guys nice quarter and Keith welcome to the call.
Speaker Change: Thank you good morning, good morning, Adam.
Speaker Change: Good morning, So I wanted to start with.
Speaker Change: See maybe a question for Keith, but if you can give us a little bit of help.
Speaker Change: In the civil segment, how Youre thinking about top line and some years.
Speaker Change: The revenue in Q2, Q3, and civil dips versus Q1, I'm just curious if that's.
Speaker Change: The way you guys are modeling 2025.
Speaker Change:
Speaker Change: Perfect No Adam.
Speaker Change: We're really excited about our civil business, we had some pickups in the quarter from strong execution in the business.
Speaker Change: But our core business is continuing to deliver strong double digit margins. So when you don't have the impact from some of the legacy projects affecting a quarter.
Speaker Change: These types of returns are for what we could see 22% is a pretty high bar to Florida set, but we feel like without the impacts from legacy write downs for this business.
Speaker Change: Sisterly deliver a mid teen results, yes, we did have the impact of seasonality in Q1, and we do expect the.
Speaker Change: Our revenues to pick up in the later half of the year.
Speaker Change: Got it okay.
Speaker Change: And then.
Speaker Change: I wanted to ask about MMP.
Speaker Change: The burn is going to pick up considerably in the next three quarters just what are your early thoughts on.
Speaker Change: What the profit impact could be from that.
Yeah.
Speaker Change: Yes, Frank if you don't mind, Amit, let me take that one so in the quarter. The gross profit impact from M and P was $9 million and as I mentioned on the call about $3 5 million of that was related to a noncash contract closeout charge.
Speaker Change: Yes.
Speaker Change: We feel we have our arms wrapped around that backlog and it's appropriately at least stated.
Speaker Change: As it stands.
Speaker Change: That said.
Speaker Change: We will always.
Speaker Change: Continue to have that at risk as we close out that backlog.
Speaker Change: But as we work through it and we see the opportunity to really generate some some positive operating cash flow as we work out the claims and disputes not only related to MEP, but also to the legacy backlog as a whole.
Speaker Change: Right, Okay, and then just last one for me.
Speaker Change: Maybe for Frank Frank What's your outlook on.
Speaker Change: Transportation bookings, specifically and I think that's the first time I've heard you mentioned that the Baltimore bridge job.
Speaker Change: Yes, so transportation.
Bookings specifically.
Speaker Change: There's a lot of work out there Adam we've got we've got quite a few projects in the pipeline as far as the Francis Scott Key bridge, we were dedicated to keyword on the project.
Speaker Change: Been selected or working through the design.
Speaker Change: B.
Speaker Change: It would be a bit before we would get out there and do any work if that does turn into.
Speaker Change: Possible subcontract opportunity for for Us.
Speaker Change: But as far as transportation in general just really excited about the market there is tons of tons of jobs in the northeast.
Speaker Change: Southeast southwest that really make a lot of sense on on the bridge side for us so.
Speaker Change: Look look for bidding too.
<unk> in the second second half of the year.
Speaker Change: Alright, Thanks, guys. Good luck in Q2.
Speaker Change: Thanks, Ed I appreciate it.
Speaker Change: Our next question comes from the line of Julio Romero from Sidoti Your line is open.
Speaker Change: Thanks, Hey, good morning, Frank and echoing the same sentiments.
Speaker Change: Welcome Keith.
Speaker Change: Yes, so on civil nice uptick on bookings in the quarter. If you could talk about some recent wins, there and how you see bookings trending going forward.
Speaker Change: Yeah. So.
Speaker Change: We've picked up a we picked up a couple of jobs on on the civil side Theyre typically.
Speaker Change: They're typically.
Speaker Change: Quaker heater quick hitting jobs, but as far as new awards were adding new work selectively we're focusing on projects, where we have the right teams in place and a track record of success, particularly in markets, where we have consistently delivered strong results and we're excited about the potential in both the civil and transportation.
Speaker Change: And businesses, we have teams that are performing well in both segments.
Speaker Change: And.
Speaker Change: Naturally I think we may see a small shift towards civil projects versus transportation as we wind down the paving business, but overall the demand remains strong and we're confident in our ability to continue to win new projects.
Speaker Change: All markets.
Speaker Change: We're very excited about the civil sector as well.
Speaker Change: Alright.
Speaker Change: Yeah, absolutely makes sense and then.
Speaker Change: I wanted to ask on alternative delivery.
Speaker Change: Where are you guys with regards to the $750 million of pending alternative delivery projects that I believe you talked about last quarter.
Speaker Change: Yes, so on the alternative delivery front, we've got the the Winnipeg project and we have the Burnside Bridge project in both of those are continuing to progress well.
Speaker Change: We're working along with our partners on those projects too.
Speaker Change: Develop that into a construction contract in.
Speaker Change: Hopefully.
Speaker Change: Hopefully continue to do so.
Speaker Change: Our progress throughout the year and turn into actual construction contract within the year within a year.
Speaker Change: But.
Speaker Change: As Paul is progressing well no no bumps in the road.
Speaker Change: So far Julio.
Speaker Change: Excellent good to hear and then last one for me is just.
Where are you guys with regards to bonding capacity as it stands now.
Yeah. So obviously, our charity partners play a critical role in our long term success and we remain we maintain regular meetings with him discuss various opportunities where we are pursuing.
Speaker Change: Its important really important to do that right now because of all the work.
Speaker Change: Out there so as far as bond.
Speaker Change: Targeting strategic projects in the civil and transportation segment in.
Speaker Change: Have a great relationship with our current.
Speaker Change: Charities.
Speaker Change: Great. Thanks very much.
Speaker Change: Yeah.
Speaker Change: Our next question comes from the line of question is from Craig Hallum Capital Group. Your line is open.
Speaker Change: Yeah.
Speaker Change: Thanks for taking my questions great quarter.
Speaker Change: I guess my line got dropped unfortunately, so if this has been already address I'm sorry, but.
Speaker Change: As far as the work this summer and working off the.
Speaker Change: More of the legacy.
Speaker Change: Design wins.
Speaker Change: Did you give any clarity on what we should expect as we get into the busier market excuse me what the margin profile of the business would look like and a follow up to that is.
Speaker Change: So do we expect by the end of calendar 'twenty five to have.
Speaker Change: The vast majority of all of that work complete.
Speaker Change: Yes, so speaking specifically to the MMP work, we do anticipate having all of that work substantially complete by the end of 2025.
Speaker Change: In terms of margin, we feel really good about the $2 3 billion of new core backlog that I mentioned on the on the on the earlier remarks.
And the contributions that it then it's going to make in the coming quarters. So so we still have risk on the remaining legacy work.
Speaker Change: But as we progress throughout the ear and we continue to complete the projects and we're going to see less and less legacy impact.
Speaker Change: We continue to produce positive EBITDA absent any noncash impacts from settlement disputes.
Speaker Change: And I would also say one of the reasons, we haven't provided guidance.
Speaker Change: In the past is that those settlement disputes.
Speaker Change: Our dispute settlements rather can impact results significantly one way or the other and timing is just typically hard to predict.
Speaker Change: And one follow up to that Keith.
Speaker Change: We should start to see a couple of our large transportation projects start to start to really kick off Christian in the $600 million Sheehan's bridge and the $400 million RK bridge.
Speaker Change: And that to replace some of that sort.
Speaker Change: Some of that struggling MMP legacy work.
Speaker Change: Go forward basis.
Speaker Change: And.
Speaker Change: We may have one of the legacy projects.
Speaker Change: Going into 2026, but a lot less of a drag here at the end of the year and start start 26 with the legacy work.
Speaker Change: Great and then.
Speaker Change:
Speaker Change: As far as balance.
Speaker Change: Balance sheet strength, you guys feel like you.
Speaker Change: You're in a great position there.
Speaker Change: Yes, so as far as.
Speaker Change: As far as liquidity and.
Speaker Change: So far as liquidity is concerned we feel we have ample liquidity to pursue all of these opportunities are ahead of US again, we remain extremely selective in.
Speaker Change: The market's been affording us the opportunity to.
Speaker Change: Do so.
Speaker Change: We've made significant process progress rather to improve the balance sheet over the last couple of quarters.
Speaker Change: And if you look at the unrestricted cash position at the end of 2025 Q1, it's more than double.
Speaker Change: Where we were at the end of Q1 of last year.
Speaker Change: In addition to that we also have access to the the delayed draw facility, which gives us some additional capacity should we need it.
Speaker Change: Great no other questions. Thank you. Thanks.
Christian: Thanks Christian.
Speaker Change: Hi.
Speaker Change: Our next question comes from the line of Jean <unk> from D. A Davidson your line is open.
Hi, good morning, and thank you guys.
Hey, good morning, Jim Good morning.
Speaker Change: Just asking this I guess another way looking at the Civil segment, Yes, you guys had a terrific quarter.
Speaker Change: But looking at that profit swings that have been volatile over the past 12 months.
Speaker Change: How do you suggest approaching what are normal.
Speaker Change: Margin should be going forward for the segment, either the quarterly or annual basis, and I know you guys mentioned double digits.
Speaker Change: But I guess I just wanted to.
Speaker Change: Look for more color into it.
Speaker Change: Yeah, So we're going to continue to focus on.
Speaker Change: Owners that we have a really good relationship with.
Speaker Change: The civil sector, and I think our teams have done an excellent job of.
Speaker Change: Getting the returns that we expect in the civil market, but.
Speaker Change: I think mid teens returns or more than should be more than achievable in the civil segment.
Speaker Change: Okay.
Speaker Change: Add to that.
Speaker Change: The new core projects again, producing the strong double digit margins and excluding MMP. The profit margin was 14% in the quarter.
Speaker Change: Hi.
Speaker Change: Okay.
Speaker Change: And for transportation.
Given the current backlog should we expect contraction in segment revenue in 2025 or are there some things that could be booked near term that could get that could drive that segment growth in 2025.
Speaker Change: Yes.
Speaker Change: On the transportation businesses typically have longer duration projects. So it takes a little bit of longer little bit longer for some of these new core jobs to make more of an impact on results and.
Speaker Change: And we have some new core transportation projects like I mentioned, the $600 million Sheehan's bridge and the $400 million are RK bridge in New York that are really starting to ramp up and theyre going to continue to contribute more to transportation margins.
Speaker Change: We progressed.
Speaker Change: The MMP.
Speaker Change: Mmm impacts and as we wind down.
Speaker Change: It will have it will have an impact on revenue as we exit that Timothy business, but theres a lot of opportunity in the transportation side on the bridge side.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: And is there any update on upcoming claims or are the pending timelines. This year that could have a meaningful impact on the balance sheet.
Speaker Change: Yes, so we continue to work through and make small progress on settling legacy claims we have no no major updates on the larger claims to report this quarter, but we do expect a significant cash flow from these claims in the coming quarters and we continue to work vigorously to collect every dollar.
Speaker Change: That we are out there.
Speaker Change: It's important to remember almost all of these claims are from jobs that we picked up pre COVID-19 in that to 2017 18 and 19.
Speaker Change: Timeframe, yes timing will remain on certain on those but again as Frank mentioned, we continue to make make progress towards.
Speaker Change: Towards that with us.
Speaker Change: Okay.
Speaker Change: And just one last from me.
Speaker Change: Given everything we've heard about Jeff.
Speaker Change: M P drawing down and you increase in central and then better.
Speaker Change: Worked for transportation.
Speaker Change: How do you guys see free cash flow developing through 2025.
Speaker Change: Okay.
Speaker Change: Yeah. So so.
Speaker Change: I had a had a good Q1 generating positive operating cash flow and we're off to a good start we expect that cash flow to be more heavily weighted towards the back half of the year.
Speaker Change: Okay.
Speaker Change: Well I appreciate the time, thank you so much.
Speaker Change: Thank you. Thank you.
Speaker Change: All right.
Speaker Change: There are no questions at this time please continue.
Speaker Change: Thank you everyone for your continued interest in south fluid and look forward to speaking next quarter.
Speaker Change: This concludes today's conference. Thank you for participating you may now disconnect.
Speaker Change: [noise].