Yahoo Finance Southland Holdings, Inc. (NYSE:SLND) Q4 2023 Earnings Call Transcript
Southland Holdings, Inc. (NYSE:SLND) Q4 2023 Earnings Call Transcript March 5, 2024
Southland Holdings, Inc. isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning. My name is Joanna and I will be your conference operator today. At this time, I would like to welcome everyone to the Southland Fourth Quarter and Full Year 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you. Alex, you may begin conference.
Alex Murray: Good morning, everyone, and welcome to the Southland fourth quarter and full year 2023 conference call. This is Alex Murray, Director of Corporate Development and Investor Relations. Joining me today are Frank Renda, President and Chief Executive Officer; and Cody Gallarda, Executive Vice President and Chief Financial Officer. Before we begin, I'd like to remind everyone, this conference call may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, and the Private Securities Litigation Reform Act of 1995. Forward-looking statements are neither historical facts nor assurances of future performance. Forward-looking statements are uncertain and outside of Southland's control.
Southland's actual results and financial condition may differ materially from those projected in forward-looking statements. Therefore, you should not rely on any of these forward-looking statements and we do not undertake any duty to update these statements. 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, 2023, that was filed with the SEC last night. We will also refer to non-GAAP financial measures, and you will 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 Renda: Thank you, Alex. Good morning, and thank you for joining Southland's fourth quarter and full year 2023 conference call. Before discussing our quarterly and annual results, I'd like to take a moment to extend my gratitude to our exceptional teams throughout North America. Our employees, subcontractors and clients have achieved significant milestones in the past year. Let's take a moment to highlight some of our operational successes in 2023. We completed the construction of 28 bridges as part of the expansive Brightline Rail project in Florida, marking the much anticipated start of rail services from Miami to Orlando. We received multiple awards for our outstanding work, including ENR, Merit Project of the Year awards for our Suntrax Connected/Automated Vehicle Test Facility and the San Juan Lateral Water Supply project.
Our Bear Creek Tunnel Rehabilitation Project in Michigan also secured the AWWA Project of the Year award showcasing our proficiency and emergency repair work. Our corporate equipment team was also honored by T-Mobile for our excellence in employee enablement during the year. These accomplishments underscore the commitment and capability of our teams across North America, demonstrating our unwavering dedication to delivering the highest quality work. Turning to our fourth quarter and full year results, we reported $316 million of revenue and a gross profit of $21 million in the fourth quarter. Revenue for the year was $1.2 billion and gross profit was $36 million. We posted mixed results in the fourth quarter driven by positive cash flow from operations including $6 million and strong performance in our Civil segment offset by impacts in our Transportation segment from unfavorable charges from our materials and paving business.
We have brought the remaining MMP backlog down to approximately $240 million or 8.5% of our backlog and expect to complete a substantial portion of the remaining work in 2024, with a smaller amount of work to be completed in 2025. We acknowledge that challenges from our legacy projects persist and we continue to face headwinds completing this work. We continue to make progress on completing these projects and expect to have the opportunity to settle a considerable number of legacy claims with a focus on generating cash in 2024. We also continue to gain momentum with new projects in our core business, which are demonstrating strong performance. We anticipate this trend to continue bolstering our confidence and sustained success moving forward.
The projects that we won late in 2022 are ramping up and we expect them to contribute a larger amount to overall results in 2024 compared to 2023. This includes the $596 million SR 23 or Shands Bridge in Jacksonville, Florida, the $70 million Denver International Airport Westgate Fund Expansion Project, the $42 million Atoka Water Pipeline Project in Oklahoma, the $243 million U.S. 19 Pinellas County Project in Clearwater, Florida, and the $155 million Elm Fork Water Treatment Plant Filter Complex in Dallas, Texas. We also continue to win work in a very favorable bidding environment with limited competition. We had $1 billion of new project awards in 2023. We ended the year with $2.8 billion of backlog. On our last call, we mentioned we had over $2 billion of bids or proposals pending.
We did a great job converting on those opportunities and booked $600 million of new awards in the fourth quarter alone. Our backlog increased 12% sequentially from $2.54 billion at the end of the third quarter. In our Transportation segment, we booked approximately $460 million of new awards during the quarter. This included the Robert F. Kennedy Bridge rehab project in New York City that was discussed on our last call. We constructed the original bridge, formerly known as the Triborough Bridge in 1936. We were also awarded the San Francisco - Oakland Bay Bridge Main Cable and Suspender Ropes Rehab Project in California. We also built the original western span of this bridge in 1936 and completed the eastern span of this bridge in 2014. These two projects demonstrate the need to upgrade and rehab these structures that were originally built nearly 100 years ago.
We are seeing opportunities like this from aging infrastructure across the country. In our Civil segment, we booked approximately $140 million of new awards during the quarter. This included a $77 million phase of the Red River Valley Water Supply Project in North Dakota. This project is an initial phase of the over $1 billion program. We also were awarded a tunnel project in Dallas and several water resource projects during the quarter. We continue to see a healthy bidding environment in all of our end markets. Local and state agencies are spending on critical infrastructure projects across the country. We've also seen an uptick in bidding opportunities in the past few months from the $1.2 trillion bipartisan IIJA Bill that was passed by Congress but are still in the early innings of the impact from this spending.
Recently announced allocations from this bill include the $5.8 billion of funding for clean water infrastructure. The IIJA provides $50 billion of funding to support upgrades to the nation's water and wastewater infrastructure. This is the largest investment in clean water in American history, and less than half of the funding has been allocated. The Biden administration also recently announced a $16.4 billion allocation from the IIJA to repair and replace rail infrastructure in the Northeast to support 25 bridge and tunnel projects for Amtrak's Northeast Corridor. We expect to bid on certain packages from these recent allocations as they come out to bid in the coming years. We are also tracking several components of large programs in some of our key geographical markets in the South, including Texas and Florida.
These states are expanding transportation and water resource infrastructure in response to strong population growth in recent years. The states are utilizing substantial budget surpluses and grants from federal funding to expand critical infrastructure for their communities. In the coming months, we expect to bid on several billion dollars of work. This includes the San Juan Lateral Water Treatment Plant, which we expect to bid in March. We also expect to bid on packages from the Galveston MATOC civian [ph] pass in Texas and the SR 30 DuPont Bridge in Florida. In summary, 2023, was a challenging year for Southland, but I'm proud of the operational successes our teams accomplished. Our results were weighed down primarily by issues in our materials and paving business, which we continue to wind down.
We look forward to putting these legacy issues behind us in the coming quarters and focusing solely on the great opportunities in our core business. We maintain a positive outlook about the robust opportunities in our markets and are excited about what local, state and federal spending will have on our business over the coming years. With that, I will now turn the call over to Cody for a financial update.
Cody Gallarda: Thanks, Frank, and good morning, everyone. I will discuss an overview of our financial performance during the fourth quarter and full year ended 2023. You can find additional details and information in the financial statements, footnotes, and Management's Discussion & Analysis that were filed on Form 10-K last night. With respect to the fourth quarter, revenue was $316 million, up $21 million from the same period in 2022. Gross profit for the fourth quarter was $21 million, down from $36 million for the same period in 2022, due to unfavorable charges in the quarter of $16 million in our materials and paving business. Gross profit margin in the quarter was 6.7% compared to 12.2% in the prior year. Selling, general and administrative costs for the fourth quarter were $20 million, an increase of $5.1 million compared to the same period in 2022.
This was mainly driven by additional public company expenses, compensation-related expenses, including non-cash stock compensation and bad debt expense. Interest expense for the quarter was $6 million, an increase of $3.1 million compared to the same period in 2022. The difference was attributable to increased borrowing costs and higher debt balances. Income tax expense was $3 million for the quarter compared to a tax benefit of $500,000 in the same period last year. While we recognized an income tax expense in the quarter on a pre-tax loss, this was due primarily to the true-up of forecasted year-end results used in interim periods during 2023. As discussed in prior earnings calls, our 2022 tax status included numerous subchapter S-elections which were no longer available to us in 2023.
More information around the revocation of the S-elections, valuation allowance changes, guilty inclusion, and more can be found in our recently filed Form 10-K. We reported a net loss of $6 million, or negative $0.12 per share in the quarter, compared to net income of $20 million in the same period last year. In the fourth quarter, we produced EBITDA or earnings before interest, taxes, depreciation and amortization of $9 million compared to EBITDA of $32 million for the same period in 2022. Now to touch on segment performance for the quarter. Our Civil segment had revenues of $108 million, an increase of $24 million from the same period in 2022. Our Civil segment gross profit was $24 million, an increase of $7 million from the same period in the prior year.
As a percentage of revenue for the quarter, our Civil segment had gross profit margin of 23% compared to 20% the same period in 2022. For the quarter, our Transportation segment had revenues of $208 million, a decrease of $3 million from the same period in 2022. Our Transportation segment gross loss was $3 million, a decrease from a gross profit of $19 million in the same period in the prior year. As a percentage of revenue for the quarter, our Transportation segment had a gross profit margin of negative 1.6% compared to positive 8.9% for the same period in 2022. The materials and paving business line contributed $46 million to revenue and negative $16 million to gross profit in the fourth quarter. The additional charges in M&P were primarily driven by a rejected change order on a paving project in Texas that impacted past, current and future segments of work.
Our core operating results in this segment, excluding materials and paving would have been $162 million of revenue and $12 million of gross profit for a gross profit margin of 7.6%. Consolidated core results in the quarter results, excluding materials and paving would have been $270 million of revenue and $37 million of gross profit for a gross profit margin of 13.7%. Now to touch on full year 2023 results. Our full year revenue was $1.2 billion flat from the full year 2022. Gross profit for the year ended December 31, 2023, was $36 million, a decrease from $141 million in the prior year. Our gross profit margin was 3% in 2023 compared to 12% in 2022. The main driver was attributable to unfavorable charges of $87 million from the materials and paving business during the year.
SG&A costs for the year ended December 31, 2023, were $67 million, an increase of $9 million compared to the prior year. The increase was primarily driven by a $5 million increase in compensation-related expenses, including non-cash stock compensation expense, $2 million in public company costs, and $2 million increase in bad debt expense. SG&A costs as a percentage of revenue were 5.8% for the year ended December 31, 2023, compared to 5% for the full year 2022. Interest expense for the year ended December 31, 2023, was $19 million, an increase of $10 million compared to 2022. The difference was attributable to increased borrowing costs and higher debt balances. We reported an income tax benefit for the year of $9 million on a pre-tax loss of $27 million, which represents an effective tax rate of 30%.
This compares to tax expense of $13 million on pre-tax income of $76 million, or an effective tax rate of 18% in 2022. As discussed in prior calls, our 2022 tax position included numerous subchapter S-elections which were no longer available to us in 2023. More information around the revocation of the S-elections, valuation allowance changes, guilty inclusion, and more can be found in our recently filed Form 10-K. On a go-forward basis, we expect the tax rate to be in the 20% to 24% range depending on certain tax credits, non-deductible items, and certain state, local and international taxes. We reported a GAAP net loss of $19 million, or negative $0.41 per share in the year compared to net income of $61 million last year. We reported an adjusted net loss of $39 million, or negative $0.82 per share in the year after backing out other income from changes in the fair value of the earn out liability for 2023, offset by transaction -related expenses.
This compares to an adjusted net income of $61 million last year. Now to touch on our segment performance for the full year ended 2023. For the full year ended December 31, 2023, our Civil segment had revenues of $338 million, an increase of $32 million from full year 2022. Our Civil segment gross profit for the year was $51 million, a decrease of $6 million from full year 2022. As a percentage of revenue for the full year ended 2023, our Civil segment had gross profit margin of 15.3%, an improvement from 14.9% for the prior period. For the full year ended December 31, 2023, our Transportation segment had revenues of $823 million, a decrease of approximately $33 million from full year 2022. Our Transportation segment gross loss for the year was $15 million, compared to a gross profit of $95 million from full year 2022.
As a percentage of revenue for the full year ended 2023, our Transportation segment had gross profit margin of negative 1.9% compared to 11.2% last year. The materials and paving business line contributed $188 million to revenue and negative $87 million to gross profit in the year. Our core operating results in this segment, which excludes materials and paving would have been $635 million of revenue and $72 million of gross profit for a gross profit margin of 11.3%. Consolidated core results in the year excluding materials and paving would have been $972 million of revenue and $124 million of gross profit for a gross profit margin of 12.7%. Turning to the balance sheet, as of December 31, 2023, we finished the year with net debt of $237 million, inclusive of cash and restricted cash of $64 million.
We paid down $9 million on our secured notes this quarter net of new borrowings. As part of closing our transaction early in 2023, we converted previous preferred stock of $24.4 million to debt. Thus, pro forma using December 31, 2022, figures and the preferred stock conversion, we had $226 million of net debt at the end of 2022. This compares with net debt of $237 million as of the end of 2023. We ended 2023 with $2.83 billion in backlog. We expect to burn approximately 40% of this backlog in 2024. As Frank highlighted in his prepared remarks, we remain encouraged with our biding outlook and new award potential. Thank you for your time and your interest in Southland. I'll now pass the call back to the operator for your questions.
See also 30 Most Educated Cities In The World and 15 European Cities with the Best Public Transportation.
To continue reading the Q&A session, please click here.
