Southland (ticker not provided) has announced its financial results for the first quarter of 2024, reporting a revenue increase of 5% to $288 million compared to the same period last year. Despite the rise in revenue, the company faced a net loss of $400,000 for the quarter. The Civil segment of the business showed strength with a 21% gross profit margin, while the Transportation segment struggled, posting a 1% gross profit margin. Southland's backlog is substantial at $2.64 billion, with expectations of growth in the second quarter due to strong demand and the potential for new awards. The company is also looking to expand into the Canadian public infrastructure market.
Key Takeaways
- Southland's Q1 2024 revenue rose to $288 million, a 5% increase year-over-year.
- The Civil segment performed robustly with a 21% gross profit margin, contrasting with the Transportation segment's 1% margin.
- Southland reported a net loss of $400,000 and an EBITDA of $11 million.
- The company's backlog stands at $2.64 billion with $100 million in new awards booked in Q1.
- Expectations for increased backlog in Q2 are based on strong demand and new award potential.
- Southland is exploring expansion into the Canadian public infrastructure market.
- The company plans to pay down $46 million of debt in the next 12 months and is considering replacing its equipment notes.
- Revenue from the Shands Bridge and U.S. 19 Project is anticipated, with optimism for healthy margins in the Civil segment.
- Southland expects to burn more cash in Q2 and Q3 but predicts positive cash flows in the second half of the year.
- The company has announced $350 million of new awards in Q2 with more proposals pending.
Company Outlook
- Southland aims for growth while maintaining margins.
- The company is optimistic about upcoming projects contributing to healthy margins, particularly in the Civil segment.
- Positive cash flows are expected in the latter half of the year, despite anticipating higher cash burn in Q2 and Q3.
Bearish Highlights
- A net loss of $400,000 was reported for Q1.
- The Transportation segment is underperforming with a low gross profit margin of 1%.
Bullish Highlights
- Strong performance in the Civil segment with a 21% gross profit margin.
- The backlog is robust and expected to grow, indicating potential future revenue streams.
Misses
- The company did not meet profitability, resulting in a net loss for the quarter.
Q&A Highlights
- Management expressed confidence in project selection and execution, with favorable market conditions.
- They expect new work to contribute positively to cash flows in the second half of the year.
- The cadence of higher volumes in Q2 and Q3 is anticipated to align with previous years.
- Southland confirmed $350 million of new awards for Q2 with additional proposals in the pipeline.
Southland's first quarter of 2024 has been a mixed bag with revenue growth and a strong backlog, yet challenges in profitability and certain segments. The company's strategic focus on maintaining margins while growing and the positive outlook for the Civil segment suggest that Southland is positioning itself to leverage market opportunities, especially with the potential expansion into Canada. Investors and stakeholders will be watching closely to see if the anticipated projects and cash flow improvements materialize in the coming quarters.
InvestingPro Insights
Southland's recent financial performance and strategic initiatives have drawn the attention of analysts and investors alike. According to real-time data from InvestingPro, Southland has a market capitalization of $221.4 million, reflecting the size and value of the company in the marketplace. Despite the reported net loss for the first quarter of 2024, analysts on InvestingPro anticipate that the company's net income is expected to grow this year, which aligns with Southland's optimistic outlook for the latter half of the year.
However, the company's P/E ratio stands at -14.75, and when adjusted for the last twelve months as of Q1 2024, it improves slightly to -6.83, indicating challenges in profitability over the recent period. This is further supported by an InvestingPro Tip pointing out that Southland has not been profitable over the last twelve months. The gross profit margin data from InvestingPro also echoes the struggles in profitability, with a margin of only 3.18% for the last twelve months as of Q1 2024, which is in line with the low margin reported in the Transportation segment of the business.
InvestingPro Tips suggest that while Southland suffers from weak gross profit margins, the company's liquid assets exceed short-term obligations, providing some financial stability in the short term. Additionally, analysts predict that Southland will be profitable this year, which could be a key factor for investors considering the company's future prospects.
For investors seeking more detailed analysis and additional InvestingPro Tips, there are 6 more tips available on InvestingPro specifically for Southland, which can be accessed at https://www.investing.com/pro/SLND. These insights could provide a deeper understanding of the company's financial health and future potential. Remember to use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, offering a valuable resource for making informed investment decisions.
Full transcript - Legato Merger II (SLND) Q1 2024:
Operator: Good morning. My name is Chloe, and I will be your conference operator today. At this time, I would like to welcome everyone to the Southland First Quarter 2024 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] Alex, you may begin your conference.
Alex Murray: Good morning, everyone and welcome to the Southland first quarter 2024 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 that 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 on March 4, 2024 and discussion on Form 10-Q for the quarter ended March 31, 2024, 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 first quarter 2024 conference call. Before discussing our quarterly results, I'd like to extend gratitude to each of our employees for their contribution to maintaining our commitment to delivering high-quality work, while prioritizing safety. This past week was National Safety Week and our teams across the country took a moment to celebrate our safety successes. As an example, our team working on the SELA Project in New Orleans just celebrated successfully working 1,350 days without a lost time incident. Congratulations, team. We are proud to have an exemplary safety record and are always focused on what more we can do to protect our people. Now to discuss our quarterly results. We reported $288 million of revenue, up 5% from the same quarter last year. Gross profit was $20 million in the first quarter compared to $19 million last year. Consolidated gross profit margin was 7.1%, up slightly from 6.9% in the prior year. Our quarter was highlighted by continued strong results in our Civil segment, offset by challenges in our Transportation segment from legacy projects. Civil segment gross profit margin was 21% compared to 12% in the same period last year, despite more severe weather than typical in the quarter. Our Civil segment groups are executing very well. We are also seeing the benefit from newly awarded Civil segment projects that were won higher bid margins, ramping more quickly than our new transportation projects. Our Transportation segment's gross profit margin was 1% compared to 5% in the prior year. We faced challenges in the quarter due to schedule delays, increased project cost and impacts from weather in some key geographical areas in our Transportation segment. We've brought the remaining MMP backlog down to approximately $200 million or 8% of our backlog. We continue to expect to complete a substantial portion of the remaining work in 2024, with a smaller amount of work to be completed in 2025. Every day we get closer to putting this work behind us. We ended the quarter with $2.64 billion of backlog. We booked approximately $100 million of new awards during the quarter. This included a $56 million wastewater treatment plant in the Southwest. We've already announced over $350 million of new awards in the second quarter that were not included in the $2.64 billion backlog we had at the end of the first quarter. This includes the $202 million Bull Run Filtration Facility Project in Portland, Oregon and three new water resource projects totaling $150 million. We expect backlog to increase sequentially from the first to second quarter, given the strong start of new awards. We also have several proposals that we have submitted on and are waiting to hear back from customers on. This includes packages from the Galveston MATOC, Sabine Pass, the Stanley Park Tunnel, the San Juan Lateral Water Treatment facilities and Elm Fork tank farm facilities. Demand from both public, government agencies and private clients remains extremely healthy across our end markets. On the public side in the U.S., we are seeing strong demand from the IIJA and robust state and local programs. Among numerous other opportunities, we expect to submit proposals on the SR 30 DuPont (NYSE:DD) Bridge for the Florida Department of Transportation and the Montgomery Lock project for the U.S. Army Corps of Engineers. We are also tracking several tunnel and bridge projects that we expect to projects that we expect to bid in the coming months. Our primary focus is to capitalize on the incredible opportunities in the U.S. and our core end markets. We expect these opportunities to drive our business over the long-term. As a reminder, we also have a presence in major metro areas in Canada. We are currently in the final stages of the Ash Bridges Bay outfall tunnel in Toronto, which is one of the largest wastewater outfalls in Canada. We are also currently working on Phase 1 of the North End Treatment Plant in Winnipeg and several emergency projects in Vancouver. Although it is a relatively smaller portion of our total business today, we believe public work in Canada presents a unique opportunity for us over the next several years. Similar to the U.S., the Canadian Government is focused on improving and maintaining their aging infrastructure. We are tracking various water resource, tunnel and rail programs in the country. We expect to submit our final proposal on Phase 2 of the North End Treatment Plant in Winnipeg in the coming weeks and are shortlisted on a $750 million water program in Vancouver. On the private client side, we continue to see our blue chip private clients to make investments in marine and land developments. This includes several upcoming opportunities for our existing private clients in the travel, leisure and entertainment sector. We are also monitoring trends and longer-term opportunities from the strong demand for manufacturing facilities and data centers in the U.S. We believe, there will be opportunities for civil packages on the front end of these facilities over the coming years. In summary, we had a good start to the year, demonstrated by strength in our Civil business. We continue to get closer to getting our challenge projects behind us. We have announced over $350 million of awards early in the second quarter and expect backlog to grow from the first to second quarter. Demand in our end markets remains very strong and I'm optimistic about new award potential as we progress through the year. With that, I will now turn the call over to Cody for a financial update.
Cody Gallarda: Thank you, Frank, and good morning, everyone. I will discuss an overview of our financial performance during the first quarter of 2024. 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. Revenue for the quarter was $288 million, up $13 million from the same period in 2023. Gross profit for the first quarter was $20 million, an increase of $1.5 million from the same period in 2023. Gross profit margin in the quarter was 7.1% compared to 6.9% in the prior year. Selling general and administrative costs in the first quarter were $14 million, a decrease of $1.2 million compared to the same period in 2023. Large driver of this decrease was one-time expenses related to becoming a public company in the prior year's first quarter. Interest expense for the quarter was $6 million, an increase of $2.4 million compared to the same period in 2023. The difference was attributable to increased borrowing costs and higher debt balances. Income tax expense was $300,000 for the first quarter compared to $1.8 million in the same period last year. We expect our 2024 annual effective tax rate to be in the 18% to 22% range, depending on certain tax credits, non-deductible items and certain state and local taxes. We have reported a net loss of $400,000 or negative $0.01 per share in the quarter, compared to a net loss of $5 million or negative $0.11 per share in the same period last year. We reported an adjusted net loss of $400,000 or negative $0.01 per share in the quarter, compared to an adjusted net loss of $1.5 million or negative $0.03 per share in the same period last year. In the first quarter, we produced EBITDA or earnings before interest, taxes, depreciation and amortization of $11 million compared to EBITDA of $9 million for the same period in 2023. We produced adjusted EBITDA of $11 million compared to adjusted EBITDA of $13 million for the same period in 2023, after reversing out non-cash expenses from changes in the fair value of our earn-out liability and transaction related expenses in 2023. Now to touch on segment performance for the quarter. Our Civil segment had revenues of $84 million, an increase of $11 million from the same period in 2023. Our Civil segment gross profit was $18 million, an increase of $9 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 21%, compared to 12% in the same period in 2023. For the quarter, our Transportation segment had revenues of $204 million, an increase of $2 million from the same period in 2023. Our Transportation segment gross profit was $3 million, a decrease from $10 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 1%, compared to 5% for the same period in 2023. The materials and paving business line contributed $38 million to revenue and negative $10 million to gross profit in the first quarter. We experienced more severe weather than typical in the quarter, increased project costs and schedule delays that impacted the expected costs to finish these projects. We still anticipate, we will be substantially complete with these projects by mid-2025. Our core operating results in this segment, excluding materials and payment would have been $165 million of revenue and $12 million of gross profit for a gross profit margin 8%. Our consolidated core results in the quarter, which exclude materials and paving would have been $249 million of revenue and $31 million of gross profit for a gross profit margin of 12%. Turning to the balance sheet. As of March 31, 2024, we had net debt of $255 million inclusive of cash and restricted cash of $47 million. As a reminder, a substantial part of our debt consists of several fully amortizing five year equipment notes. We expect to pay down approximately $46 million of debt in the next 12 months with our existing debt structure. In recent years, we have typically paid down existing equipment notes monthly, then refinanced tranches to take advantage of equity in our equipment. We are currently evaluating potential options that will replace our equipment notes. The goal would be to simplify the debt structure with fewer facilities, lower the cash outlay for debt service with a more favorable amortization schedule and extend the maturities of our existing debt. We will share more details at the appropriate time. Thank you for your time and interest in Southland. I'll now pass the call back to the operator for any questions you may have.
Operator: [Operator Instructions] Our first question comes from the line of Adam Thalhimer from Thompson Davis. Please go ahead.
Adam Thalhimer: Good morning, guys. Congrats on the first quarter beat. I wanted to dive into transportation a little bit. How should we think about the prospect of the continued M&P losses? Is there anything starting in that segment that could drive -- that could offset that and drive margin upside?
Frank Renda: Yes, we have got a couple of jobs starting that we feel really good about. We have talked about the Shands Bridge in the past, the U.S. 19 Project. A lot of good work that we picked up in 2023 -- 2022 timeframe that really should start to produce some revenue there. As far as the legacy work, we've recorded reduced margins or loss contingencies for all that we know that's out there right now. We've maintained our estimated substantial completion date for M&P of middle of 2025, and we expect the bulk of the work to be completed this year. Very confident in the new work that we've picked up and legacy work will be less and less of the backlog going forward in mid-2025 completion date.
Adam Thalhimer: Frank, so it sounds like because you made that comment about less than the first half of '25 and in the remainder of '24. I guess that implies Q2, Q3, you're going to be burning more than $40 million a quarter, as you get into this construction season.
Frank Renda: Historically quarter one is a slow quarter coming out of the holidays. We had some weather in numerous areas, so we expect to pick up throughout the summer months.
Cody Gallarda: Adam, just to clarify that mid-25 days for the M&P completion that we've been disclosing that we continue to work through at the rate that we announced back when we discontinued the M&P business line in Q2 of last year.
Adam Thalhimer: And then great margin in civil above 20% for the second straight quarter. What's your outlook for margins in the Civil segment?
Frank Renda: Civil segment is an area that we've picked up a lot of work in recently. We talked about the $350 million that we've picked up throughout the first quarter. Really good jobs in Portland, Oregon, sorry, that was -- that we picked up in the second quarter, Adam. A lot of that is skewed to the civil side. Excited about that and there's so many other opportunities out there for us on the civil side throughout the country. A lot of great funnels, whether it's funnels, water treatment plants, wastewater treatment plants pipelines. There's numerous jobs that we have and are submitting on in that sector. Excited about the potential for some really good healthy margins in the Civil segment.
Operator: Our next question comes from the line of Julio Romero from Sidoti. Please go ahead.
Julio Romero: I wanted to stay on civil, if I could. Really solid execution in that quarter. It doesn't sound like there were any large project closeouts in the quarter. Maybe correct me, if I'm wrong. And then, secondly, did you have any pickup of like shorter burn work that helped intra-quarter? And does that continue?
Frank Renda: We definitely had some emergency projects that we were able to complete in Q1. However, that doesn't change our optimism and outlook for the Civil segment as a whole. Typically, civil projects are naturally smaller and shorter burn than our average transportation projects. You are going to see the newer awards in civil make contributions sooner than the newer awards that we've had in transportation.
Julio Romero: What is the end market mix look like these days within civil? And is that contributing to the good execution there?
Frank Renda: The end market mix solely within civil continues to be across all the areas that we specialize within that Civil segment. We are seeing projects from water and wastewater treatment, packages, pipelines, pump stations. We are very excited about some emergency work opportunities that we have with a long standing customer. Not concentrated in any one area within civil. The water side, lots of opportunities, same with the tunnel side as well. Albeit, the tunnel projects are a little fewer and further between but tracking some great prospects there. Any part of that question I need to expand on a little further, Julio?
Julio Romero: No. I think that's good. Just last one and it is on civil again is, quick refresher on what's the average project duration in civil these days?
Frank Renda: Yes. We haven't disclosed kind of average project size and duration by civil across the board of both segments, average project size is somewhere around that $100 million, $150 million with a two, two-and-a-half year duration. That's the average or our median project size and duration are significantly lower than that. The projects within civil you could certainly interpret that to be smaller quicker burn hitting projects, which is in line with the number of announcements that we've made recently.
Operator: Our next question comes from the line of Christian Schwab from Craig-Hallum Capital Group. Please go ahead.
Christian Schwab: Last quarter, we talked about potentially completing about 40% of the current backlog at that time, in 2024, which on our math at the time equated to a little bit over $1.1 billion in revenue. We've had some gyrations around that obviously at the start of the year and we talked about the big awards. Is that still plus or minus the right number that we should be thinking about for the year?
Frank Renda: It is. We're still in that 40% -- I think 42% backlog burn over the next 12 months from the end of the first quarter. So that rolling percentage has maintained.
Christian Schwab: And then with the Infrastructure Investment Jobs Act, is that really more of a big tailwind to backlog in '25? Or some of these projects that you highlighted because of that?
Frank Renda: Yes. I think we're starting to see some of the funds being allocated from the IIJA but we're still very early in that process. There hasn't been just a ton of impact to Southland. I think that going forward, we are going to see more and more of a tailwind from the IIJA and numerous other spends. But the state and local agencies continue just to put out a record number of projects. There's no shortage of projects to choose from right now. Christian, we are going to continue to be very selective and pick the perfect jobs that fit us to build our backlog.
Christian Schwab: And then just my last question, another question on the Civil segment. It seems from our checks that there's just a tremendous amount of work that needs to be done, which is causing in some instances less bidding on different projects. Is that part of the reason why the gross margins and your confidence and strength? Are you seeing a little less competition, given all the work? Or is that just not the reason? Is it more just great execution by the team?
Frank Renda: Yes. I think the team's is doing a great job in selecting the projects. The teams are doing a great job in completing the projects or setting up plans to complete the projects operationally. The market is really good for us to be able to select the perfect project, kind of the perfect storm of work is out there and we have the right teams in place to be able to take advantage of it.
Operator: [Operator Instructions] Our next question comes from the line of Jean Ramirez from D. A. Davidson. Please go ahead.
Jean Ramirez: This is Jean for Brent Thielman. Congrats on the quarter. I just want to pivot back to the legacy. Could you provide a little more color as how you see the impact on gross margins? I guess the cadence to gross margins as you proceed to 2024, given a lot of the bulk work happens in Q2 and Q3.
Cody Gallarda: Yes. We do expect the cadence on the legacy backlog to decline sequentially quarter-over-quarter moving forward just as you would expect nationally with that work tailing off. And you're going to see kind of the pivot point there whereas the legacy work burns down, new work contributing will pick up, which we expect to drive positive cash flows as we move in the back half of the year. With that seasonality in mind though, as you mentioned, so Q2 typically see higher volumes, Q3 higher volumes and then slowdown typically as we head into the finish of the year. No reason that we would expect that cadence to be any different this year versus prior years.
Jean Ramirez: Regarding cash flow, is that cadence similar to last year or do you expect to pick up a little more cash by the end of '24 compared to 2023?
Cody Gallarda: Yes. Let me break that into two part questions. We do expect to see positive cash flows coming in the latter half of the year as we have historically. Typically, the end of Q1 into Q2 are usually cash drains, as we're ramping up work coming out of the year end and colder months. I think if you look at what our cash flow from ops has been in '21, '22 and '23, we continue to see improvement in cash flow from operations and expect that trend will continue through the end of 2024.
Jean Ramirez: I guess, you said backlog would increase sequentially. Correct me, if I'm wrong, but you said that Q2 backlog should include $350 million of new awards. Is that correct?
Frank Renda: We've already announced $350 million of new awards in the second quarter. That is correct. We have a number of proposals pending and we expect a bit of a lot of work in the next few weeks. I'm excited for the new work potential as we progress through the year. The ability to grow is definitely there, but we want to grow in a measured way and not sacrifice any margin. We're focused on winning the highest profitable work we can through the resources that we have in place.
Operator: There are no further question at this time. I will now turn the call over to Mr. Frank Renda. Please go ahead.
Frank Renda: Thank you everyone for joining us today and look forward to talking to you next quarter. Thanks everyone.
Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
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