Southland Announces Third Quarter 2022 Results

Grapevine, Texas, UNITED STATES


GRAPEVINE, Texas, Nov. 21, 2022 (GLOBE NEWSWIRE) -- Southland Holdings, LLC (“Southland”) announced financial results for the quarter ended September 30, 2022.

  • Revenue of $335 million, an increase of 6% compared to the quarter ended September 30, 2021
  • Operating income increased 228% to $46.8 million for the three months ended September 30, 2022, compared to $14.3 million in the three months ended September 30, 2021
  • Operating income increased 89% to $61.7 million for the nine months ended September 30, 2022, compared to $32.6 million in the nine months ended September 30, 2021
  • EBITDA increased 143% to $59.6 million for the three months ended September 30, 2022, compared to $24.6 million in the three months ended September 30, 2021
  • EBITDA increased 44% to $96.2 million for the nine months ended September 30, 2022, compared to $66.6 million in the nine months ended September 30, 2021
  • Gross profit margin of 19% for the three months ended September 30, 2022, compared to 9% in the quarter ended September 30, 2021
  • Gross profit margin of 12% for the nine months ended September 30, 2022, compared to 8% in the nine months ended September 30, 2021
  • Backlog increased to $2.37 billion as of September 30, 2022, from $1.98 billion as of June 30, 2022
  • Record new awards of $1.6 billion, year to date through the date of this press release, an increase of approximately 154% compared to the same period in the prior year. Approximately $900 million of these awards were included in backlog as of September 30, 2022

Frank Renda, Southland’s CEO said, “We are extremely pleased with our third quarter results and our team’s execution throughout North America. Revenue increased 6% compared to the same quarter last year, which was driven by an increase in new project starts in the quarter. We achieved record EBITDA in the quarter and our gross profit margin expanded from 8% to 12% through the first nine months of the year compared to the first nine months of last year. We continue to see an improved bidding environment and a robust project pipeline. We have been awarded $1.6 billion of new work through today’s date for the year, which is an increase of 154% compared to new awards through the same date in the prior year. Backlog increased to $2.37 billion at the end of the quarter compared to $1.98 billion last quarter as a result of strong awards.”

“As we get closer to the consummation of our merger with Legato, our strong financial performance, recent project awards, and future opportunities continue to demonstrate the positive outlook we see for Southland,” Mr. Renda continued. “The tailwinds of needed investment in critical infrastructure across the geographies we serve remain at an all-time high. Our Transportation segment was recently awarded several bridge and lock projects and our Civil segment was awarded various water pipeline and water treatment projects across the country. We look forward to not only what these projects will do for our customers, but their ability to deliver value to our shareholders.”

2022 Third Quarter Results

Condensed Consolidated Statements of Operations (unaudited)

       
  Three Months Ended
(Amounts in thousands) September 30, 2022 September 30, 2021
Revenue $335,125  $315,411 
Cost of construction  272,715   285,985 
Gross profit  62,410   29,426 
Selling, general, and administrative expenses  15,606   15,151 
Operating income  46,804   14,275 
(Loss) gain on investments, net  (100)  475 
Other expense (income), net  2,292   659 
Interest expense  (2,285)  (1,579)
Earnings before income taxes  46,711   13,830 
Income tax expense  10,588   2,393 
Net income  36,123   11,437 
Net income attributable to noncontrolling interests  924   2,476 
Net income attributable to Southland Holdings $35,199  $8,961 


Revenue for the three months ended September 30, 2022, was $335.1 million, an increase of $19.7 million, or 6%, compared to the three months ended September 30, 2021.

Gross profit for the three months ended September 30, 2022 was $62.4 million, an increase of $33.0 million, or 112%, compared to the three months ended September 30, 2021. Our gross profit margin increased from 9% to 19% for the three months ended September 30, 2022 compared to the three months ended September 30, 2021.

Selling, general, and administrative costs for the three months ended September 30, 2022 were $15.6 million, an increase of $0.5 million, or 3%, compared to the three months ended September 30, 2021.

Condensed Consolidated Statements of Operations (unaudited)

        
  Nine Months Ended 
(Amounts in thousands) September 30, 2022 September 30, 2021 
Revenue $866,627  $915,560  
Cost of construction  761,549   840,950  
Gross profit  105,078   74,610  
Selling, general, and administrative expenses  43,395   42,021  
Operating income  61,683   32,589  
(Loss) gain on investments, net  (79)  752  
Other expense (income), net  936   1,570  
Interest expense  (6,317)  (5,321) 
Earnings before income taxes  56,223   29,590  
Income tax expense  13,745   2,215  
Net income  42,478   27,375  
Net income attributable to noncontrolling interests  1,474   3,489  
Net income attributable to Southland Holdings $41,004  $23,886  


Revenue for the nine months ended September 30, 2022 was $866.6 million, a decrease of $48.9 million, or 5%, compared to the nine months ended September 30, 2021.

Gross profit for the nine months ended September 30, 2022, was $105.1 million, an increase of $30.5 million, or 41%, compared to the nine months ended September 30, 2021. Our gross profit margin increased from 8% to 12% for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021.

Selling, general, and administrative costs for the nine months ended September 30, 2022 were $43.4 million, an increase of $1.4 million, or 3%, compared to the nine months ended September 30, 2021. Selling, general, and administrative costs as a percent of revenue were 5% for the nine months ended September 30, 2022 compared to 4.6% for the nine months ended September 30, 2021.

Segment Revenue

            
  Three Months Ended 
(Amounts in thousands) September 30, 2022 September 30, 2021 
    % of Total   % of Total 
Segment Revenue Revenue Revenue Revenue 
Civil $71,409 21.3%$112,161 35.6%
Transportation  263,716 78.7% 203,250 64.4%
Total revenue $335,125 100.0%$315,411 100.0%


            
  Nine Months Ended 
(Amounts in thousands) September 30, 2022 September 30, 2021 
     %of Total     % of Total 
Segment Revenue Revenue Revenue Revenue 
Civil $221,303 25.5%$293,282 32.0%
Transportation  645,324 74.5% 622,278 68.0%
Total revenue $866,627 100.0%$915,560 100.0%


Segment Gross Profit

            
  Three Months Ended 
(Amounts in thousands) September 30, 2022 September 30, 2021 
     % of Segment    %of Segment  
Segment Gross Profit Revenue Gross Profit Revenue 
Civil $8,926 12.5%$33,822  30.2 %
Transportation  53,484 20.3% (4,396) (2.2)%
Gross profit $62,410 18.6%$29,426  9.3 %


            
  Nine Months Ended 
(Amounts in thousands) September 30, 2022 September 30, 2021 
    %of Segment     %of Segment  
Segment Gross Profit Revenue Gross Profit Revenue 
Civil $28,315 12.8%$42,713 14.6%
Transportation  76,763 11.9% 31,897 5.1%
Gross profit $105,078 12.1%$74,610 8.1%


EBITDA Reconciliation

             
  Three Months Ended Nine Months Ended
(Amounts in thousands) September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021
Net income $35,199  $8,961  $41,004  $23,886 
Depreciation and amortization  11,523   11,675   35,163   35,251 
Income taxes  10,587   2,393   13,745   2,215 
Interest expense  2,285   1,579   6,317   5,321 
Interest income  (18)  (44)  (29)  (64)
EBITDA $59,576  $24,564  $96,200  $66,609 


Backlog

    
(Amounts in thousands) Backlog
Balance December 31, 2021 $2,218,573 
New contracts, change orders, and adjustments  1,018,825 
Gross backlog  3,237,398 
Less: contract revenue recognized in 2022  (866,977)
Balance September 30, 2022 $2,370,421 

Condensed Consolidated Balance Sheets (unaudited)

       
  As of
(Amounts in thousands) September 30, 2022 December 31, 2021
Cash and cash equivalents $43,306  $63,342 
Restricted cash  14,218   47,900 
Accounts receivable, net  148,125   126,702 
Retainage receivables  116,122   110,971 
Contract assets  447,549   374,624 
Other current assets  23,976   22,977 
Total current assets  793,296   746,516 
       
Property and equipment, net  126,893   156,031 
Right-of-use assets  14,636   15,816 
Investments - unconsolidated entities  110,395   103,610 
Investments - limited liability companies  2,590   1,926 
Investments - private equity  3,345   3,925 
Goodwill  1,528   1,528 
Intangible assets, net  2,470   3,215 
Other noncurrent assets  3,626   3,186 
Total noncurrent assets  265,483   289,237 
Total assets  1,058,779   1,035,753 
       
Accounts payable $132,806  $146,455 
Retainage payable  34,533   32,706 
Accrued liabilities  124,371   115,057 
Current portion of long-term debt  44,678   41,333 
Short-term lease liabilities  16,444   20,048 
Contract liabilities  81,930   111,286 
Total current liabilities  434,762   466,885 
       
Long-term debt  219,713   195,597 
Long-term lease liabilities  9,750   13,496 
Deferred tax liabilities  5,601   5,962 
Other noncurrent liabilities  48,579   51,462 
Total long-term liabilities  283,643   266,517 
Total liabilities  718,405   733,402 
       
Noncontrolling Interest  10,155   11,057 
Members’ capital  308,422   267,831 
Preferred stock  24,400   24,400 
Accumulated other comprehensive income  (2,603)  (937)
Total equity  340,374   302,351 
Total liabilities and equity $1,058,779  $1,035,753 



Condensed Consolidated Statement of Cash Flows (unaudited)

        
  Nine Months Ended 
(Amounts in thousands) September 30, 2022 September 30, 2021 
Cash flows from operating activities:       
Net income $42,478  $27,375  
Adjustments to reconcile net income to net cash used in operating activities       
Depreciation and amortization  35,163   35,251  
Deferred taxes  (440)  (77) 
Gain on sale of assets  (1,343)  (4,225) 
Earnings from equity method investments  (7,346)  (5,439) 
Foreign currency remeasurement loss  746   108  
Gain on trading securities, net  (257)  (1,285) 
Increase in accounts receivable  (24,167)  (46,111) 
(Increase) decrease in contract assets  (72,703)  25,677  
(Increase) decrease in prepaid expenses and other current assets  (1,001)  5,839  
Decrease in ROU assets  930   3,621  
(Decrease) increase in accounts payable, accrued expenses, and other current liabilities  (6,997)  23,469  
Decrease in contract liabilities  (29,591)  (126,297) 
Decrease in operating lease liabilities  (1,206)  (3,663) 
Other  (5,202)  173  
Net cash used in operating activities  (70,936)  (65,584) 
        
Cash flows from investing activities:       
Purchase of property and equipment  (4,384)  (16,104) 
Proceeds from sale of property and equipment  3,897   10,066  
Loss on investment in limited liability company  336   248  
Proceeds from the sale of trading securities  840     
Purchase of interest of other investments     (150) 
Capital contribution to unconsolidated investments  (1,000)  (835) 
Net cash used in investing activities  (311)  (6,775) 
        
Cash flows from financing activities:       
Borrowings on line of credit  55,000   41,000  
Payments on line of credit     (72,000) 
Borrowings on notes payable  115   204,819  
Payments on notes payable  (31,161)  (141,785) 
Payments of deferred financing costs     412  
Payments to related parties  (405)  (674) 
Advances from related parties     1,225  
Payments on capital lease  (6,298)  (3,585) 
Capital contributions from noncontrolling members     926  
Distributions  (1,556)  (573) 
Preferred stock dividends     (97) 
Net cash provided by financing activities  15,695   29,668  
        
Effect of exchange rate on cash  1,834   (1,769) 
        
Net decrease in cash and cash equivalents and restricted cash  (53,718)  (44,460) 
Beginning of period  111,242   180,396  
End of period $57,524  $135,936  
        
Supplemental cash flow information       
Cash paid for income taxes $6,153  $13,882  
Cash paid for interest $6,464  $5,538  
Non-cash investing and financing activities:       
Lease assets obtained in exchange for new leases $12,537  $10,296  

About Southland

Southland is a leading provider of specialized infrastructure construction services across North America including bridges, tunneling, transportation and facilities, marine, steel structures, water and wastewater treatment, and water pipeline end markets. 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. Southland is headquartered in Grapevine, Texas.

On May 25th, 2022, Southland entered into an Agreement and Plan of Merger (the “Agreement”) with publicly-traded Legato Merger Corp. II, a special purpose acquisition company (NASDAQ: LGTO, LGTOU, and LGTOW) (“Legato”). Pursuant to the terms of the Agreement, a subsidiary of Legato will merge with and into Southland, with Southland surviving the merger as a wholly-owned subsidiary of Legato. The existing Southland management team will remain in place upon the closing of the merger. At such time, Legato’s name is expected to change to Southland Holdings, Inc.

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 earnings before interest, taxes, depreciation, and amortization (“EBITDA”) 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 believes that these non-GAAP financial measures provide an additional tool for investors to use in evaluating ongoing operating results and trends, and in comparing Southland’s financial measures with those of other similar companies. 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. The non-GAAP measures may also be presented differently in the SEC filings by Legato due to SEC rules.

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.

Southland Contacts:

Cody Gallarda
EVP, Chief Financial Officer
cgallarda@southlandholdings.com

Alex Murray
Corporate Development & Investor Relations
amurray@southlandholdings.com