Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
References to the “Company,” “our,” “us,” “we,” or “Southland” refer to Southland Holdings, Inc. and its consolidated subsidiaries. The following discussion and analysis contain forward-looking statements relating to future events or our future financial performance, which involve risk and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements. Please see the discussion regarding forward-looking statements and certain risks included under the “Cautionary Note Regarding Forward-Looking Statements” and “Item 1A. Risk Factors” sections for a discussion of some of the uncertainties, risks, and assumptions associated with these statements. The following discussion and analysis present information that we believe is relevant to an assessment and understanding of our consolidated balance sheets, statements of cash flows, and results of operations. This information should be read in conjunction with the consolidated financial statements and the notes related thereto which are included in this Annual Report.
Overview
Southland is a diverse leader in specialty infrastructure construction with roots dating back to 1900. The end markets for which we provide services cover a broad spectrum of specialty services within infrastructure construction. We design and construct projects in the bridges, tunnels, communications, transportation and facilities, marine, steel structures, water and wastewater treatment, and water pipelines end markets.
Southland is based in Grapevine, Texas. It is the parent company of Johnson Bros. Corporation, American Bridge Company, Oscar Renda Contracting, Southland Contracting, Mole Constructors, and Heritage Materials. With the combined capabilities of these six primary subsidiaries, Southland has become a diversified industry leader with projects spanning North America in various end markets.
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Key Factors Affecting Results of Operations
Business Environment
Our Civil segment primarily operates throughout North America and specializes in services that include the design and construction of water pipeline, pump stations, lift stations, water and wastewater treatment plants, concrete and structural steel, outfall, and tunneling.
Our Transportation segment primarily operates throughout North America and specializes in services that include the design and construction of bridges, roadways, marine, dredging, ship terminals and piers, and specialty structures and facilities. Our Transportation segment is responsible for the construction of bridges and structures including many of the most recognizable bridges, convention centers, sports stadiums, marine facilities, and Ferris wheels in the world.
Both our Civil and Transportation segments continue to identify new opportunities to grow our business, and the future outlook of the end markets we serve remains positive. Although risk and uncertainty exist, including, but not limited to, the items addressed within our forward-looking statements and risk factors, we believe that we are well positioned to compete on new infrastructure projects in both the public and private sectors.
Market Trends and Uncertainties
In both our Transportation and Civil segments, we have competitors within the individual markets and geographic areas in which we operate, ranging from small, local companies to larger regional, national, and international companies. Although the construction business is highly competitive, there are few, if any, companies which compete in all of our market areas, both geographically and from an end market perspective. The degree and type of competition is influenced by the type and scope of construction projects within individual markets. Equipment ownership and ability to self-perform across numerous disciplines are two of our significant competitive advantages. We believe that the primary factors influencing competition in our industry are price, reputation for quality, safety, schedule certainty, relevant experience, availability of field supervision and skilled labor, machinery and equipment, financial strength, as well as knowledge of local markets and conditions.
Many of our competitors have the ability to perform work in either the private or public sectors. When opportunities for work in one sector are reduced, competitors tend to look for opportunities in the other sector. This migration has the potential to reduce revenue growth and/or increase pressure on gross profit margins.
We have seen an increase in demand for specialty construction projects in recent years at the federal, state, and local level. We anticipate the further spending on infrastructure related to economic stimulus spending including the Infrastructure Investment and Jobs Act that was passed on 2021, and other federal, state, or local initiatives.
We believe that the combination of our experience, reputation, and technical expertise are unmatched among companies of our size. This combination of skills has allowed us to pursue complex projects with fewer competitors.
Seasonality, Cyclicality, and Variability
The results of our operations are subject to quarterly variations. Much of the variation is the result of weather, particularly rain, ice, snow, heat, wind, and named storms, which can impact our ability to perform construction activities. These weather impacts can affect revenue and profitability in either of our business segments. Any quarter can be affected either negatively or positively by atypical weather patterns in any part of North America, or other areas in which we operate. Traditionally, our first quarter is the most weather-affected; however, this may or may not necessarily be true in future periods.
Our business may also be affected by overall economic market conditions, including but not limited to declines in spending by project owners, delays in new projects, by changes in client schedules, or for other reasons.
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Critical Accounting Policies and Estimates
The preparation of consolidated financial statements in conformity with the accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities as of the date of the financial statements and the reported amounts of revenues and expenses earned and incurred, respectively, during the reporting period. Critical accounting estimates are fundamental to the portrayal of both our financial condition and results of operations and often require difficult, subjective, and complex estimates and judgments by management. We evaluate our estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which we believe to be reasonable under the circumstances. We adjust such estimates and assumptions when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in these estimates will be reflected in the consolidated financial statements in future periods. The following discussion addresses the items we have identified as our critical accounting estimates.
Revenue Recognition
We recognize revenue over time as we satisfy our performance obligations. We generally use an input method measured by comparing actual costs incurred to date to total estimated costs for the project to recognize revenue as it is the best available method to recognize the progress of satisfying our performance obligations and transfer of control to our customers.
Due to the nature of our industry the use of this method requires us to make material estimates and assumptions that are subject to a high degree of uncertainty. To determine estimated transaction price and estimated cost at completion we rely on our experience, and outside expert opinions on an as needed basis, with particular types of projects and customers using information that is reasonably available to us.
An estimated transaction price can be impacted by numerous items related to variable consideration, including but not limited to: claims, approved and pending changes orders, unpriced change orders, completion incentives, liquidated damages, penalties, and other contractual provisions. An estimated cost at completion may fluctuate based on numerous items, including but not limited to:
● Complexity in original design,
● Owner-directed changes,
● Differing site conditions,
● Productivity,
● Availability and cost of labor, equipment, or materials,
● Weather,
● Changes in technology,
● Governmental or environmental restrictions,
● Subcontractor and joint venture partner performance,
● Expected and unexpected cost of warranties,
● Insurance, legal, and consultant costs, and
● Time to recover, or not recover, additional contract costs.
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We recognize the impact of any changes in estimated transaction price or estimated cost at completion on a cumulative catch-up basis. This can result in the recognition of revenue in a current period related to the satisfaction of performance obligations that occurred or partially occurred in a prior period. This can also result in the reversal of revenue recognized in a prior period, in the current period. If it is estimated that a project will have costs in excess of expected revenues, we recognize the full loss in that period and any adjustments to that expected loss in the period in which that change in expected loss may be identified.
Accounting for Warrants
The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the instruments’ specific terms and applicable authoritative guidance in FASB ASC 480, “Distinguishing Liabilities from Equity” (“ASC 480”), and ASC 815, “Derivatives and Hedging” (“ASC 815”). The assessment considers whether the instruments are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the instruments meet all of the requirements for equity classification under ASC 815, including whether the instruments are indexed to the Company’s own Common Stock and whether the instrument holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, was conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the instruments are outstanding. The Company has concluded that the Public Warrants and Private Warrants issued pursuant to the warrant agreement qualify for equity accounting treatment.
Recent Events
See section titled "Basis of Presentation” discussing the consummation of the Merger.
In December 2024, the Company agreed to issue an aggregate of 5,830,899 shares of common stock (the “Shares”), par value $0.0001 per share, in exchange for the full satisfaction and discharge of an aggregate of $20.0 million in outstanding amounts under certain promissory notes held by Frank Renda, Rudy Renda and Tim Winn (the “Transaction”) with a price per share of $3.43, calculated using the greater of (a) the volume-weighted average price per share of Common Stock, rounded to the nearest hundredth of a cent, on NYSE for the thirty consecutive trading days immediately preceding and ending on December 27, 2024 and (b) the closing price of Common Stock on NYSE on December 27, 2024. The $20.0 million conversion to shares of common stock was comprised of $13.2 million of secured notes and accrued interest thereupon along with $6.8 million of certain promissory notes and accrued interest thereupon. The Transaction was approved by the Company’s Audit Committee and Board of Directors.
In the second quarter of 2023, Southland decided to discontinue certain types of projects in its Materials & Paving business line (“M&P”) and sold assets related to producing large scale concrete and asphalt. M&P is reported in the Transportation segment. 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. As a result, the Company recorded unfavorable charges during the year ended December 31, 2023 related to additional expected future costs associated with procuring and transporting materials from third parties. Southland recorded the increased estimated future costs to finish these projects during the year ended December 31, 2023, in accordance with GAAP. The Company has concluded this action with M&P does not qualify for Discontinued Operations treatment and presentation under ASC 205-20 as it does not represent a strategic shift in the Company’s business.
For the year ended December 31, 2024, M&P contributed $100.6 million to revenue and $83.1 million in gross loss. See the Transportation portion of the Segment Results section of this Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional information. This compares to the $188.3 million to revenue and $86.6 million to gross loss for the year ended December 31, 2023. As of December 31, 2024, approximately 6.3% of Southland’s Backlog was in M&P, and Southland estimates most of the active scope of this work to be substantially completed in the next twelve months.
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Results of Operations
Comparisons of the Year Ended December 31, 2024 to the Year Ended December 31, 2023
The following table sets forth our consolidated statements of operations for the years ended December 31, 2024 and December 31, 2023:
Selling, general, and administrative expenses 63,274 67,195
Gain (loss) on investments, net (225) 30
Net income (loss) attributable to noncontrolling interests (163) 538
Net loss attributable to Southland Stockholders $ (105,365) $ (19,253)
Revenue
Revenue for the year ended December 31, 2024, was $980.2 million, a decrease of $180.2 million, or 15.5%, compared to the year ended December 31, 2023. The decrease was attributable to a $166.0 million decrease in revenue in our Transportation segment primarily due to impacts related to exiting the M&P business line and a $14.2 million decrease in our Civil segment primarily due to projects that were substantially completed in 2023 compared to 2024, which was partially offset by new projects started in 2024.
Cost of construction
Cost of construction for the year ended December 31, 2024, was $1,043.2 million, a decrease of $81.4 million, or 7.2%, compared to the year ended December 31, 2023. The decrease was comprised of a $102.1 million decrease in our Transportation segment due to impacts related to exiting the M&P business line and more projects nearing substantial completion in 2024 compared to 2023, and a $20.7 million increase in our Civil segment due to new projects started in 2024, partially offset by projects that were substantially completed in 2023 compared to 2024.
Gross profit (loss)
Gross loss for the year ended December 31, 2024, was $63.0 million, an increase of $98.9 million, or 276.0%, compared to the year ended December 31, 2023. The increase was primarily due to project delays and increases in the cost of materials which led to a $63.9 million increase in gross loss in our Transportation segment and a $35.0 million decrease in gross profit in our Civil segment.
Selling, general, and administrative costs
Selling, general, and administrative costs for the year ended December 31, 2024, were $63.3 million, a decrease of $3.9 million, or 5.8%, compared to the year ended December 31, 2023. The decrease was primarily driven by a $5.2 million decrease in compensation offset by a $1.4 million increase in professional fees.
Other income, net
Other income, net for the year ended December 31, 2024 was $3.6 million, a decrease of $19.9 million, or 84.6%, compared to the year ended December 31, 2023. The decrease was primarily driven by a reversal of a non-cash contingent liability in 2023 due to changes in the likelihood of earnout shares being issued based on 2023 performance.
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Interest expense
Interest expense for the year ended December 31, 2024, was $29.5 million, an increase of $10.0 million, or 51.6%, compared to the year ended December 31, 2023. The increase is primarily driven by an increase in external borrowings compared to the prior year and higher interest rates on the additional borrowings.
Income tax benefit
Income tax benefit for the year ended December 31, 2024, was $46.9 million or an effective tax rate of 30.8%. The primary differences from the federal statutory rate of 21% were (i) state income tax benefit of $7.6 million, (ii) the benefit of foreign tax rate differences of $13.2 million due to operations in jurisdictions like Canada and the Bahamas, (iii) the expense recorded for the valuation allowance against the net deferred tax assets for Johnson Bros. Corporation’s separate state filings and Southland Mole of Canada, and (iv) the benefit of the release of uncertain tax position liability previously recorded for American Bridge federal NOL and depreciation matters prior to 2020 tax year.
Income tax benefit for the year ended December 31, 2023, was $8.5 million, or an effective rate of 31.3%. The primary differences from the federal statutory rate of 21% were (i) the revocation of Subchapter S-corporation status by Southland Holdings, LLC and its Qualified Subchapter S Subsidiary group of entities inclusive of Southland Contracting, Johnson Bros., Mole Constructors, Heritage Materials, and Southland RE Properties of $4.8 million, (ii) the benefit from the change in valuation allowance of $3.2 million primarily due to the change in domestic filing structure and the subsequent removal of the valuation allowance on American Bridge domestic deferred tax assets, (iii) the benefit from foreign tax rate differences of $5.5 million due to operations in jurisdictions like Canada and the Bahamas with different effective tax rates, and (iv) the permanent inclusion difference of foreign income through Section 951A Global Intangible Low-Taxed Income (GILTI) of $8.2 million net of related deduction.
On August 16, 2022, the Inflation Reduction Act (“IRA”) was enacted in the United States. Among other provisions, the IRA included a new 15% Corporate Alternative Minimum Tax (“CAMT”) for corporations with financial income in excess of $1 billion and a 1% excise tax on corporate share repurchases. The CAMT is effective for tax years beginning on or after January 1, 2023. As of December 31, 2024, the excise tax on corporate share repurchases is not expected to impact the Company as the Company has no plans for repurchases in the coming year.
On December 14, 2023, the FASB issued ASU 2023-09 which established new income tax disclosure requirements. Public business entities must apply the guidance to annual periods beginning after December 15, 2024. This standard has not been elected for early adoption this period but will be implemented for the next annual period, as required. We are currently evaluating the impact ASU 2023-09 will have on our consolidated financial statements and related disclosures.
Segment Results
Year Ended
% of Total % of Total
Segment Revenue Revenue Revenue Revenue
Year Ended
(Amounts in thousands) December 31, 2024 December 31, 2023
% of Segment % of Segment
Segment Gross Profit Revenue Gross Profit Revenue
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Civil
Revenue in our Civil segment for the year ended December 31, 2024, was $323.3 million, a decrease of $14.2 million, or 4.2%, compared to the year ended December 31, 2023. The decrease was primarily attributable to decreased revenues of $48.7 million from projects substantially completed in 2023, offset by increased revenues of $33.0 million on a water project in North Dakota, for the year ended December 31, 2024 versus the same period in 2023.
Gross profit in our Civil segment for the year ended December 31, 2024, was $16.7 million, or 5.2% of segment revenue, compared to $51.7 million, or 15.3% of segment revenue, for the year ended December 31, 2023. The decrease of $35.0 million for the year ended December 31, 2024, was due to project delays and increases in the cost of materials which led to decreases in profit contribution of $29.9 million from a tunnel and marine project in Canada, $10.0 million from a tunnel project in Texas and $4.2 million from a water pipeline project in Oklahoma, offset by an increase in profit contribution of $8.4 million from a water project in North Dakota, for the year ended December 31, 2024 versus the same period in 2023.
Transportation
Revenue in our Transportation segment for the year ended December 31, 2024, was $656.9 million, a decrease of $166.0 million, or 20.2%, compared to the year ended December 31, 2023. The decrease was primarily attributable to decreased revenues of $87.7 million from the M&P line, a net $65.8 million from two projects in the Bahamas as one is nearing completion and a second began construction activities and $11.2 million from projects substantially completed in 2023, for the year ended December 31, 2024 versus the same period in 2023.
Gross loss in our Transportation segment for the year ended December 31, 2024, was $79.8 million, or (12.1)% of segment revenue, compared to $15.9 million gross loss, or (1.9)% of segment revenue, for the year ended December 31, 2023. The increase of $63.9 million in gross loss was primarily due to project delays and increases in the cost of materials which led to decreases in profit contribution of $25.0 million from bridge project in the Midwest and $17.4 million from a street maintenance project in Texas, for the year ended December 31, 2024 versus the same period in 2023. The increase in gross loss was also primarily due to a project nearing completion which led to decreases in profit contribution of $20.7 million from a project in the Bahamas, for the year ended December 31, 2024 versus the same period in 2023.
Comparisons of the Year Ended December 31, 2023 to the Year Ended December 31, 2022
For discussion of the results of operations for the year ended December 31, 2023 compared to the year ended December 31, 2022, refer to Part II. Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2023.
Key Business Metrics
Non-GAAP Financial Measures
In addition to our results determined in accordance with GAAP, we believe the following non-GAAP measures are useful in evaluating our operational performance. We use the following non-GAAP measures to evaluate our ongoing operations and for internal planning, forecasting and compensation purposes. We believe that the non-GAAP financial information may be helpful in assessing our operating performance and facilitates an alternative comparison among fiscal periods. The non-GAAP financial measures are not, and should not be viewed as, a substitute for GAAP reporting measures.
EBITDA and Adjusted EBITDA
In our industry, it is customary to manage our business using earnings before interest expense, income taxes, depreciation and amortization (“EBITDA”). EBITDA assists management and the Board and may be useful to investors
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in comparing our operating performance consistently over time as it removes the impact of our capital structure and expenses that do not relate to our core operations.
Additionally, it is also customary to analyze our business using Adjusted EBITDA. Adjusted EBITDA is intended as a supplemental measure of our performance that is neither required by, nor presented in accordance with, GAAP. We believe that the use of Adjusted EBITDA provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing our financial measures with those comparable companies, which may present similar non-GAAP financial measures to investors. However, you should be aware that, when evaluating Adjusted EBITDA, we may have future activities similar to those excluded when calculating these measures. In addition, our presentation of these measures should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. Our computation of EBITDA and Adjusted EBITDA may not be comparable to other similarly titled measures computed by other companies, because all companies may not calculate EBITDA and Adjusted EBITDA in the same fashion.
Because of these limitations, non-GAAP financial measures should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and using non-GAAP financial measures on a supplemental basis. The reconciliation of net loss to non-GAAP financial measures below should be reviewed, and no single financial measure should be relied upon to evaluate our business. Below is a reconciliation of net loss to these non-GAAP financial measures.
Comparisons of the Year Ended December 31, 2024 to the Year Ended December 31, 2023
Year ended
Net loss attributable to Southland Stockholders $ (105,365) $ (19,253)
Transaction related costs — 1,594
Contingent earnout consideration non-cash expense reversal — (20,689)
Comparisons of the Year Ended December 31, 2023 to the Year Ended December 31, 2022
For discussion of EBITDA and Adjusted EBITDA for the year ended December 31, 2023 compared to the year ended December 31, 2022, refer to Part II. Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations — EBITDA and Adjusted EBITDA” of our Annual Report on Form 10-K for the year ended December 31, 2023.
Backlog
We define Backlog as a measure of the total amount of revenue remaining to be earned on projects that have been awarded. Backlog consists of two components: (1) unearned revenue and (2) contracts awarded but not started. Unearned revenue includes the revenue we expect to record in the future on in-progress contracts, including 100% of our consolidated joint venture contracts and our proportionate share of unconsolidated joint venture contracts. Contracts that are awarded, but not yet started, are included in Backlog once a contract has been fully executed and/or we have received a formal “Notice to Proceed” from the project owner.
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(Amounts in thousands) Backlog
New contracts, change orders, and adjustments 1,011,797
New contracts, change orders, and adjustments 718,125
Less: contract revenue recognized in 2024 (980,179)
Backlog should not be considered a comprehensive indicator of future revenue as many of our contracts can be terminated by our customers on relatively short notice, and Backlog does not include future work for which we may be awarded or new awards for which we are awaiting an executed contract or an authorized “Notice to Proceed.” In the event of a termination, we are typically reimbursed for all of our costs through a specific contractual date, our costs to demobilize from the project site, and in certain cases overhead costs and profit associated with the contract through the termination date. Costs may include preconstruction and engineering services as well as that of our subcontractors. Our contracts do not typically grant us rights to revenue reflected in Backlog. Projects may remain in the Backlog for extended periods of time as a result of schedule delays, regulatory requirements, project specific issues, or other reasons. Contract amounts from contracts where a transaction price cannot be reasonably estimated are not included within our Backlog amount.
Below is our Backlog by segment.
Civil
(Amounts in thousands)
New contracts, change orders, and adjustments 199,372
Less: contract revenue recognized in 2023 (325,077)
New contracts, change orders, and adjustments 643,433
Less: contract revenue recognized in 2024 (316,684)
Transportation
(Amounts in thousands)
New contracts, change orders, and adjustments 812,425
Less: contract revenue recognized in 2023 (825,639)
New contracts, change orders, and adjustments 74,692
Less: contract revenue recognized in 2024 (663,495)
Liquidity, Capital Commitments and Resources
Our principal sources of liquidity are cash generated from operations, funds from borrowings, and existing cash on hand. Our principal uses of cash typically include the funding of working capital obligations, debt service, and investment in machinery and equipment for our projects.
In connection with the closing of the Business Combination, holders of 25,296,280 shares of Common Stock, or 91.7% of the shares with redemption rights, exercised their right to redeem their shares at a redemption price of $10.30 per share. As a result, a substantial portion of the cash proceeds from our initial public offering we received in connection with the Business Combination were not available to us after giving effect to the Business Combination. Prior to the closing of the Business Combination, we planned to use the cash acquired in the Business Combination (i) to fund organic growth with increased working capital, (ii) to fund future potential acquisitions, and (iii) for general corporate needs including paying down debt. In light of the high level of redemptions, we may seek cash from (x) increasing institutional borrowings or increase the amount of our revolving credit facility, (y) selling off unused or underutilized construction assets, or (z)
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expediting our claim settlements. However, we do not believe that the limited cash proceeds received in connection with the Business Combination have had a materially adverse impact on our operations or financial position.
We will receive the proceeds from any exercise of Warrants for cash. We believe the likelihood that Warrant holders will exercise their Warrants, and therefore the amount of cash proceeds that we would receive, is dependent upon the trading price of our Common Stock. On February 24, 2025, the closing price of our Common Stock was $3.23 per share. To the extent the market price of our Common Stock remains below the Warrant exercise price of $11.50 per share, we believe that Warrant holders will be unlikely to exercise their Warrants for cash, resulting in little or no cash proceeds to us for any such exercise. To the extent we receive any cash proceeds, we expect to use such proceeds for general corporate and working capital purposes, which would increase our liquidity. However, we do not expect to rely materially on the cash exercise of Warrants to fund our operations.
Based on historical and anticipated future operating results, we believe cash flow from operations, available cash, and other financing will be adequate to meet our liquidity needs for at least the next twelve months, including any anticipated requirements for working capital, capital expenditures and scheduled debt service.
Our current and future liquidity is greatly dependent upon our operating results, which are largely determined by overall economic conditions, our current contracts and Backlog. Our liquidity could be adversely affected by a disruption in the availability of credit. If such an event were to occur, we may be unable to borrow under our revolving credit facility agreement or may be required to seek additional financing. In addition, we may be required to seek additional financing to refinance all or a significant portion of our existing debt on or prior to maturity. We may also seek to access the public or private equity markets to support our liquidity whenever conditions are favorable to us. There can be no assurance that we will be able to raise additional capital or obtain additional financing when needed or on terms that are favorable to us. See “Item 1A. Risk Factors” for further discussion of related risks.
We are exposed to market risks relating to fluctuations in interest rates and currency exchange risks. Significant changes in market conditions could cause interest rates to increase and have a material impact on our free cash flow and the financing needed to operate our business.
Cash Flows
Comparisons of the Year Ended December 31, 2024 to the Year Ended December 31, 2023
The following table sets forth summary change in cash, cash equivalent and restricted cash for the years ended December 31, 2024 and December 31, 2023:
Net cash provided by (used in) operating activities $ 1,927 $ (10,264)
Net cash provided by investing activities 3,228 4,488
Net cash provided by (used in) financing activities 18,781 (2,590)
Effect of exchange rate changes (195) 195
Net change in cash, cash equivalents, and restricted cash $ 23,741 $ (8,171)
Net cash provided by operating activities was $1.9 million during the year ended December 31, 2024, compared to net cash used in operating activities of $10.3 million for the year ended December 31, 2023. During the year ended December 31, 2024, the primary drivers in the $1.9 million in cash provided by operating activities were a decrease of $70.7 million in contract assets, an increase of $56.4 million in contract liabilities and $23.3 million in depreciation and amortization, offset by $105.5 million in gross loss and $44.8 million in deferred taxes.
Net cash provided by investing activities was $3.2 million during the year ended December 31, 2024, compared to $4.5 million for the year ended December 31, 2023. During the year ended December 31, 2024, the primary drivers in the $3.2 million in cash provided by investing activities were $6.5 million in proceeds from sale of property and equipment and $4.1 million in distributions received from investees, offset by $7.4 million in purchases of property and equipment.
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Net cash provided by financing activities was $18.8 million during the year ended December 31, 2024, compared to net cash used in financing activities of $2.6 million for the year ended December 31, 2023. During the year ended December 31, 2024, the primary drivers in the $18.8 million cash provided by financing activities were $168.1 million of borrowing on notes payable and $42.5 million in proceeds from financing obligations, offset by $95.0 million in payments on the revolving credit facility, $89.8 in payments on notes payable and $8.0 million in payments of deferred financing costs.
Comparisons of the Year Ended December 31, 2023 to the Year Ended December 31, 2022
For discussion of cash flows for the year ended December 31, 2023 compared to the year ended December 31, 2022, refer to Part II. Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Cash Flows” of our Annual Report on Form 10-K for the year ended December 31, 2023.
As of December 31, 2024, we had long-term debt of $300.2 million, of which $44.5 million is due within the next twelve months.
Secured Notes
We enter into secured notes in order to finance growth within our business. In July 2023, we refinanced approximately $76.4 million of existing secured notes in exchange for a new equipment note in the amount of $113.5 million. The equipment note is secured by specific construction equipment assets and has a five-year fully amortizing term at a fixed rate of 7.25%. We incurred $0.3 million as deferred financing cost in connection with the refinancing. The deferred financing costs are included in long-term debt on our consolidated balance sheets. Additionally, as part of the refinancing, we incurred a loss on extinguishment of debt of $0.6 million, which was included in other income, net on our consolidated statements of operations and $0.6 million as bank service charges in connection with the refinancing. As of December 31, 2024, we had outstanding secured notes expiring between December 2025 and March 2033. Interest rates on the secured notes range between 0.00% and 12.90%. The secured notes are collateralized by certain assets of Southland’s fleet of equipment.
On September 30, 2024, the Company entered into a term loan and security agreement (the “Credit Agreement”) with Callodine Commercial Finance, LLC as administrative agent (“Administrative Agent”) and lender. The Credit Agreement provides for a four-year secured $160.0 million term loan facility (the “Credit Facility”), consisting of a $140.0 million initial draw term loan (the “Term Loan”) and a $20.0 million committed delayed draw term loan (the “Delayed Draw”). The Delayed Draw is a committed facility in which the Company may request all or a portion of the Delayed Draw to be available to the Company, subject to specified advance rates against eligible collateral and other criteria of the Credit Facility. As of December 31, 2024, there are no amounts eligible to be drawn under the Delayed Draw facility. The Delayed Draw can be drawn no more than once per quarter in minimum increments of $2.5 million, and once drawn, any repaid amounts of the Delayed Draw cannot be re-borrowed. Any undrawn portion of the Delayed Draw commitment will terminate on September 30, 2027, the third anniversary of the closing date. The Credit Facility has a maturity date of September 30, 2028. A portion of the proceeds from the Term Loan was used to pay in full all outstanding amounts under the revolving credit facility, and the revolving credit facility was terminated.
Subsequent to the year ended December 31, 2024, the Company and Administrative Agent entered into a first amendment to the Credit Facility that removed an Administrative Agent-requested borrowing base reserve amount in exchange for certain additional reporting obligations and a personal guarantee from Frank Renda, the Company’s President and Chief Executive Officer, on any draws made on the Delayed Draw. As such, the Company has access to the Delayed Draw facility as supported by the borrowing base calculation.
The Credit Agreement requires quarterly principal payments on the Term Loan, which commenced on December 31, 2024. The required principal amortization is as follows: (i) 5.0% in the first year (1.25% per quarter), (ii) 10.0% in the second year (2.50% per quarter), (iii) 15.0% in the third and fourth years (3.75% per quarter), and (iv) the remaining balance at maturity. The amortization for the Delayed Draw will also be paid quarterly and apply to each individual draw at the same prevailing quarterly rate that is in effect for the Term Loan and will commence with the first full quarter after the draw date of any Delayed Draw.
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The interest on amounts drawn under the Credit Facility is payable monthly at a rate of 7.25% per annum plus the higher of (i) 90-day Secured Overnight Financing Rate (“SOFR”) with a credit adjustment spread of 0.15% or (ii) 3%. The undrawn portion of the Delayed Draw is subject to a 3.75% commitment fee, payable monthly.
Any principal prepayments in the first three years, other than mandatory prepayments pursuant to the Credit Agreement, will be subject to additional fees. In the first year, any prepayments will incur fees of 3% or the make-whole premium, whichever is higher. The make-whole premium is the interest and fees that would have been earned for the full year less interest and fees paid to date during the year. In the second and third years, any prepayments will incur fees of 2% and 1%, respectively. There are no fees for prepayments made in the fourth year.
The Credit Agreement contains customary restrictive covenants and events of default, including financial covenants based on the Company’s Liquidity, as defined in the Credit Agreement, and trailing twelve-month earnings before interest expense, income taxes, depreciation and amortization (the “TTM EBITDA Covenants”). The TTM EBITDA Covenants will be tested and the Company must comply with the TTM EBITDA Covenants during any period where the Company’s Liquidity falls below $30.0 million until the Company’s Liquidity exceeds $30.0 million for a period of at least 30 days. The Credit Agreement requires the Company to maintain Liquidity of at least $20.0 million at all times. The Credit Agreement also stipulates that the outstanding principal cannot be greater than the specified advance rates against eligible collateral.
The obligations under the Credit Facility are unconditionally guaranteed by the Company and its subsidiaries. The obligations under the Credit Facility are secured by a first lien on all assets of the Company, subject to permitted liens and interests of other parties as described in the Credit Agreement.
As of December 31, 2024, the Company was in compliance with all financial covenants under the Credit Agreement.
In December 2024, in connection with the Transaction (see Note 2 of the Notes to the Consolidated Financial Statements), the Company exchanged $13.2 million of secured notes and accrued interest thereupon due to certain named executive officers in exchange for shares of common stock.
Mortgage Notes
We enter into mortgage notes in order to finance growth within our business. As of December 31, 2024, we had a mortgage note expiring in February 2029. The interest rate on the mortgage note was 5.99%. The mortgage note is collateralized by certain real estate owned by Southland.
Revolving Credit Facility
In July 2021, we entered into a revolving credit facility agreement (“Revolving Credit Facility”) with Frost Bank for $50.0 million. As of December 31, 2022, the Revolving Credit Facility agreement had been amended and increased to $100.0 million. In August 2023, the Revolving Credit Facility was extended through January 15, 2025. In July 2024,the Company made a $3.0 million payment on the Revolving Credit Facility, in connection with a real estate transaction (see Note 2 of the Notes to the Consolidated Financial Statements).
On August 9, 2024, a principal payment of $2.5 million was made and the Revolving Credit Facility limit was reduced to $84.5 million. An additional payment of $10.0 million was made on September 15, 2024, which further reduced the Revolving Credit Facility limit to $74.5 million. The Company used a portion of the Term Loan proceeds to pay in full outstanding amounts under the Revolving Credit Facility. Concurrently with the Company’s entry into the Credit Agreement, the Company terminated the Revolving Credit Facility.
Contractual Obligations
Our contractual obligations and commitments as of December 31, 2024, include:
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
The information required by this Item is submitted as a separate section in the index on page F-1 of this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
It is management’s responsibility to establish and maintain adequate disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Disclosure controls and procedures are controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to management, including the company’s principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure.
Our management, including our Chief Executive Officer and our Chief Financial Officer, have reviewed and evaluated the effectiveness of Southland’s disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this Annual Report on Form 10-K. Following this review and evaluation, our management determined that as of the end of the period covered by this Annual Report on Form 10-K, Southland’s disclosure controls and procedures were effective to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, is a process designed by, or under the supervision of, our principal executive officer and our principal financial officer,
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and effected by the Board, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with GAAP and includes those policies and procedures that:
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to consolidated financial statements preparation and presentation. The scope of management’s assessment of the effectiveness of internal control over financial reporting includes our consolidated subsidiaries.
Management’s assessment of the effectiveness of our internal controls is based principally on our financial reporting as of December 31, 2024. In making our assessment of internal control over financial reporting, management used the criteria set forth in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of Southland’s internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, as of December 31, 2024. Based on this evaluation, management believes that, as of December 31, 2024, Southland’s internal control over financial reporting was effective.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the year ended December 31, 2024, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
During the fiscal quarter ended December 31, 2024, none of our officers or directors adopted or terminated any contract, instruction or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1 under the Exchange Act or any “non-Rule 10b5-1 trading arrangement” as defined in Item 408(c) of Regulation S-K.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
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PART III
Item 10. Directors, Executive Officers, and Corporate Governance
The information required by this Item 10 is incorporated by reference from the Company’s 2025 Proxy Statement under “Executive Officers” and “Information about the Board of Directors and Corporate Governance” to be filed with the SEC no later than 120 days after the fiscal year ended December 31, 2024.
Item 11. Executive Compensation
The information required by this Item 11 is incorporated by reference from the Company’s 2025 Proxy Statement under “Executive Compensation” and “Director Compensation” to be filed with the SEC no later than 120 days after the fiscal year ended December 31, 2024.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item 12 is incorporated by reference from the Company’s 2025 Proxy Statement under “Stock Ownership of Beneficial Owners and Certain Management” and “Equity Compensation Plan Information” to be filed with the SEC no later than 120 days after the fiscal year ended December 31, 2024.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item 13 is incorporated by reference from the Company’s 2025 Proxy Statement under “Certain Relationships and Related Party Transactions” and “Information About the Board of Directors and Corporate Governance” to be filed with the SEC no later than 120 days after the fiscal year ended December 31, 2024.
Item 14. Principal Accountant’s Fees and Services
The information required by this Item is incorporated by reference from the Company’s 2025 Proxy Statement under “Principal Accountant’s Fee and Services” to be filed with the SEC no later than 120 days after the fiscal year ended December 31, 2024.
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Part IV
Item 15. Exhibits and Financial Statement Schedules
(3) Exhibits.
Exhibit No. Description
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10.23* Promissory Note, dated March 15, 2024, to Rudolph V. Renda.
10.24* Promissory Note, dated March 15, 2024, to Frank S. Renda.
10.25* Promissory Note, dated March 15, 2024, to Walter T. Winn.
19* Insider Trading Policy.
21.1* Subsidiaries of the Company.
23.1* Consent of Grant Thornton LLP.
* Filed herewith.
** Furnished herewith.
+ Management contract or compensatory plan.
Item 16. Form 10-K Summary
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 4, 2025.
SOUTHLAND HOLDINGS, INC.
By: /s/ Frank Renda
Frank Renda
President, Chief Executive Officer
and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on March 4, 2025, by the following persons on behalf of the registrant and in the capacities indicated:
Signature Title
/s/ Frank Renda President, Chief Executive Officer
Frank Renda and Director
(Principal Executive Officer)
/s/ Cody Gallarda Executive Vice President, Chief Financial Officer
Cody Gallarda (Principal Financial and Accounting Officer)
/s/ Walter “Tim” Winn Executive Vice President and Co-Chief Operating
Walter “Tim” Winn Officer, Director
/s/ Greg Monahan Director
Gregory Monahan
/s/ Izilda “Izzy” Martins Director
Izilda “Izzy” Martins
/s/ Kyle Burtnett Director
Kyle Burtnett
/s/ Mario Ramirez Director
Mario Ramirez
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SOUTHLAND HOLDINGS, INC.
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Registered Public Accounting Firm (PCAOB ID: 248) F-2
Consolidated Balance Sheets as of December 31, 2024 and 2023 F-4
Notes to the Consolidated Financial Statements F-10
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Southland Holdings, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of Southland Holdings, Inc. and subsidiaries (the “Company”) as of December 31, 2024 and 2023, the related consolidated statements of operations, comprehensive income (loss), equity, and cash flows for each of the three years in the period ended December 31, 2024, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.
Basis for opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical audit matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Unresolved contract modifications and estimates to complete associated with long-term contracts
As described further in Notes 2 and 6 to the consolidated financial statements, revenue derived from long-term contracts is recognized as the performance obligations are satisfied over time. The Company uses the input method, measured by the percentage of cost incurred to date to estimated total costs for each project to recognize revenue. Under the input method, the determination of the progress towards completion requires management to prepare estimates of the costs to complete. In addition, the Company’s contracts may include variable consideration related to contract modifications through unresolved contract modifications, and management must estimate the timing and amount of unresolved contract modifications revenue to recognize. We identified unresolved contract modifications and estimates to complete associated with long-term contracts as a critical audit matter.
The principal consideration for our determination that estimates to complete associated with long-term contracts is a critical audit matter is that auditing management’s estimate of the progress toward completion of its projects was complex
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and subjective. This is due to the considerable auditor judgement required to evaluate management’s determination of the forecasted costs to complete its long-term contracts as future results may vary significantly from past estimates due to changes in facts and circumstances. In addition, the principal consideration for our determination that unresolved contract modifications associated with long-term contracts is a critical audit matter is that auditing the Company’s measurement of variable consideration is complex and highly judgmental and can have a material effect on the amount and timing of revenue recognized.
Our audit procedures related to the unresolved contract modifications and estimates to complete associated with long-term contractsincluded the following, among others:
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2022.
Dallas, Texas
March 4, 2025
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SOUTHLAND HOLDINGS, INC.
Consolidated Balance Sheets
(Amounts in thousands, except shares and per share data) As of
Current assets
Investments - limited liability companies 2,590 2,590
Investments - private equity 2,699 3,235
LIABILITIES AND EQUITY
Current liabilities
Current portion of long-term debt 44,525 48,454
Deferred tax liabilities 292 2,548
Financing obligations, net 41,468 —
Long-term accrued liabilities 58,075 49,109
Commitments and contingencies (see Note 17)
Stockholders' equity
Accumulated other comprehensive loss (3,902) (1,460)
See accompanying notes to the consolidated financial statements
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SOUTHLAND HOLDINGS, INC.
Consolidated Statements of Operations
Year Ended
Gain (loss) on investments, net (225) 30 (76)
Net income (loss) attributable to noncontrolling interests (163) 538 2,108
Net loss per share attributable to common stockholders
Basic (1) $ (2.19) $ (0.41)
Diluted (1) $ (2.19) $ (0.41)
Weighted average shares outstanding
See accompanying notes to the consolidated financial statements
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SOUTHLAND HOLDINGS, INC.
Consolidated Statements of Comprehensive Income (Loss)
Year Ended
Foreign currency translation adjustment, net of tax (3,032) 1,206 (1,718)
See accompanying notes to the consolidated financial statements
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SOUTHLAND HOLDINGS, INC.
Consolidated Statements of Equity
Accumulated
Shares other
Net income — — — — — 60,542 — 2,108 62,650
Issuance of shares - RSUs — 35,870 — — — — — — —
Share-based compensation — — — — — 891 — — 891
Net loss — — — — — — (105,365) (163) (105,528)
See accompanying notes to the consolidated financial statements
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SOUTHLAND HOLDINGS, INC.
Consolidated Statements of Cash Flows
Year Ended
Cash flows from operating activities:
Loss on extinguishment of debt 246 631 —
Change in fair value of earnout liability — (20,689) —
Share-based compensation 2,049 891 —
Foreign currency remeasurement loss (gain) (12) (109) 548
Loss (earnings) from equity method investments 415 (7,740) (9,299)
TZC investment present value accretion (3,367) (2,449) (2,355)
Loss (gain) on trading securities, net 224 (26) (260)
Changes in assets and liabilities:
Cash flows from investing activities:
Proceeds from sale of property and equipment 6,513 8,813 10,064
Loss on investment in limited liability company — — 336
Purchase of trading securities (89) — —
Proceeds from the sale of trading securities 401 61 927
Distributions received from equity method investees — 7,000 —
Distributions received from investees 4,069 — —
Capital contribution to unconsolidated investments (250) —
Capital contribution to equity method investees — (540) (1,000)
Net cash provided by investing activities 3,228 4,488 5,562
Cash flows from financing activities:
Borrowings on revolving credit facility 5,000 8,000 75,000
Payments on revolving credit facility (95,000) (13,000) —
Proceeds from financing obligations 42,500 — —
Payments of deferred financing costs (7,982) (565) —
Pre-payment premium (246) (471) —
Advances from (to) related parties 12 (242) (1,598)
Capital contributions from noncontrolling members 1,838 — —
Distribution to members — (110) (2,457)
Payment of taxes related to net share settlement of RSUs (206) — —
Proceeds from merger of Legato II and Southland LLC — 17,088 —
Effect of exchange rate on cash (195) 195 1,254
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Supplemental cash flow information
Non-cash investing and financing activities:
Assets obtained in exchange for notes payable $ 27,365 $ 10,884 $ 4,091
Related party payable exchanged for note payable $ 3,797 $ — $ —
Conversion of promissory notes payable to equity $ 20,000 $ — $ —
Dissolution of joint venture $ 276 $ — $ —
Issuance of post-merger earn out shares $ — $ 35,000 $ —
Dividend financed with notes payable $ — $ 50,000 $ —
See accompanying notes to the consolidated financial statements
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SOUTHLAND HOLDINGS, INC.
Notes to the Consolidated Financial Statements
Note 1. Description of Business
Southland Holdings, Inc. and its subsidiaries (“Southland”, the “Company”, “we”, “us”, or “our”) is a diverse leader in specialty infrastructure construction with roots dating back to 1900. We design and construct projects in the bridges, tunnels, transportation and facilities, marine, steel structures, water and wastewater treatment, and water pipelines end markets.
Southland is based in Grapevine, Texas. It is the parent company of Johnson Bros. Corporation, American Bridge Holding Company (“American Bridge”), Oscar Renda Contracting, Southland Contracting, Mole Constructors, Heritage Materials and other affiliates. American Bridge, a builder of specialty construction projects, was acquired in 2020. With the combined capabilities of these six primary subsidiaries and their affiliates, Southland has become a diversified industry leader with both public and private customers. The majority of our customers are located in the United States.
In the second quarter of 2023, Southland decided to discontinue certain types of projects in its Materials & Paving business line (“M&P”) and sold assets related to producing large scale concrete and asphalt. M&P is reported in the Transportation segment. The Company will not be pursuing production of concrete and asphalt products for use on self-performed paving projects where the majority of the scope of work contains large-scale concrete and asphalt production or sale of asphalt and concrete products to third parties. This operational shift will allow the Company to better focus its resources on more profitable lines of business. The Company has concluded this action with M&P does not qualify for Discontinued Operations treatment and presentation as it does not represent a strategic shift in the Company’s business.
As previously announced, on May 25, 2022, Legato Merger Corp. II, a Delaware corporation (“Legato II”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Legato Merger Sub Inc., a Delaware corporation and wholly owned subsidiary of Legato II (“Merger Sub”), and Southland Holdings LLC, a Texas limited liability company (“Southland LLC”).
On February 14, 2023 (the “Closing Date”), as contemplated by the Merger Agreement, Merger Sub merged with and into Southland LLC, with Southland LLC surviving the merger as a wholly owned subsidiary of Legato II (the “Merger”). The transactions contemplated by the Merger Agreement are referred to herein collectively as the “Business Combination.” In connection with the Business Combination, Legato II changed its name to “Southland Holdings, Inc.”
The Merger was accounted for as a reverse recapitalization with Southland LLC as the accounting acquirer and Legato II as the acquired company for accounting purposes. Accordingly, all historical financial information presented in the consolidated financial statements represents the accounts of Southland and its subsidiaries as if Southland had been the predecessor Company. 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.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
These consolidated financial statements have been prepared in conformity with United States Generally Accepted Accounting Principles (“GAAP”). The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) contains guidance that form GAAP. New guidance is released via Accounting Standards Update (“ASU”).
The consolidated financial statements include the accounts of Southland Holdings, Inc., and our majority-owned and controlled subsidiaries and affiliates as detailed below. All significant intercompany transactions are eliminated within the consolidations process. Investments in non-construction related partnerships and less-than-majority owned subsidiaries that we do not control, but where we have significant influence are accounted for under the equity method. Certain
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construction related joint ventures and partnerships that we do not control, nor do we have significant influence are accounted for under the equity method for the balance sheet and under the proportionate consolidation method for the statement of operations.
These consolidated financial statements include the accounts of Southland Holdings, Inc, Southland Holdings, LLC, Southland Contracting, Inc., Johnson Bros. Corporation, a Southland Company (“Johnson Bros. Corporation”), Mole Constructors, Inc., Oscar Renda Contracting, Inc. (“Oscar Renda Contracting”), Heritage Materials, LLC, American Bridge, Renda Pacific LLC, Southland Renda JV (“Southland Renda”), Southland Mole JV (“Southland Mole”), Southland RE Properties LLC, Oscar Renda Contracting of Canada, Ltd., Southland Mole of Canada Ltd. (“Southland Mole of Canada”), Southland Technicore Mole JV (“Southland Technicore Mole”), Southland Mole of Canada/Astaldi Canada Design & Construction JV (“Southland Astaldi”) and American Bridge/Commodore JV. In November 2024, the Company dissolved the Southland Technicore Mole joint venture.
Southland Holdings, LLC, Renda Pacific, LLC, Southland RE Properties, LLC, and Heritage Materials, LLC, are limited liability companies. The members’ liability is limited to our investments within those companies.
Reclassifications
Certain reclassifications have been made to the Company’s prior period consolidated financial information to conform to the current year presentation. These presentation changes did not impact the Company’s consolidated net income, consolidated cash flows, total assets, total liabilities or total equity.
Operating Cycle
Assets and liabilities related to long-term contracts are included in current assets and current liabilities in the accompanying consolidated balance sheets as they will be settled in the normal course of contract completion. Some of these contracts will require more than one year to settle.
Foreign Operations and Foreign Exchange Risk
Foreign operations are subject to risks inherent in operating under different legal systems and various political and economic environments. Among the risks are changes in existing tax laws, possible limitations on foreign investment and income repatriation, government price or foreign exchange controls, asset seizure, domestic and foreign import or export changes, and restrictions on currency exchange. Net assets of foreign operations for the years ended December 31, 2024, and December 31, 2023, are approximately 62% and 47%, respectively, of our total net assets.
The financial records of Southland Technicore Mole joint venture, Oscar Renda Contracting of Canada, Inc., Southland Mole of Canada, Southland Astaldi joint venture, and various consolidated American Bridge subsidiaries are maintained in local currencies. Results of foreign operations are translated from the local currency to the U.S. dollar (functional and reporting currency) using the average exchange rates during the period, while assets and liabilities are translated at the exchange rate in effect at the reporting date. Certain long-lived assets and liabilities are converted at historical rates. Resulting gains or losses from translating foreign currency financial statements are recorded as other comprehensive income (loss).
We enter foreign currency transactions when a transaction is denominated in currency other than our functional currency. A transaction is initially measured and recorded using the exchange rate on the date of the transaction. Transactions are then remeasured at the end of each reporting period using the exchange rate at that date. The resulting gains or losses are recorded in the consolidated statements of operations within other income, net.
Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during
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the reporting period. Actual results could differ from those estimates. Management periodically evaluates estimates used in the preparation of the consolidated financial statements for continued reasonableness. It is reasonably possible that changes may occur in the near term that would affect our estimates with respect to revenue recognition, the allowance for credit losses, recoverability of unapproved contract modifications, deferred tax assets, and other accounts for which estimates are required.
Segments
We manage our business using two distinct operating segments. Our chief operating decision maker (“CODM”) reviews financial information pertaining to our Transportation and Civil segments.
The classification of revenue, cost of construction and gross profit for segment reporting purposes is reliant on management judgment. At times, our segments undertake projects together or share resources and equipment. We also allocate some costs between segments which can include facility costs, equipment costs, and other operating expenses.
Concentration Risk
As of December 31, 2024, there were no customers who individually comprised 10% of our contract receivables. As of December 31, 2023, we had one customer that comprised 15% of our contract receivables.
The percentage of our labor force subject to collective bargaining agreements was 14%, 20%, and 26% as of December 31, 2024, December 31, 2023, and December 31, 2022, respectively. The collective bargaining agreements are due to expire by 2026.We consider our relationships with our employees and the applicable labor unions to be satisfactory.
During the year ended December 31, 2024, revenue earned from two customers individually exceeded 10% of annual revenue. Revenue from each customer was 13.9% and 10.1%.
During the year ended December 31, 2023, revenue earned from two customers individually exceeded 10% of annual revenue. Revenue from each customer was 17.3% and 13.7%.
During the year ended December 31, 2022, there were no customers who individually comprised 10% of annual revenue.
During the year ended December 31, 2024, revenue earned from operations in Florida, New York, Texas, and the Bahamas was approximately 22.7%, 14.8%, 13.7% and 13.6%, respectively. Remaining revenue earned was from operations in 28 other states, territories, or provinces. Foreign revenue earned was 17.2% of total revenue.
During the year ended December 31, 2023, revenue earned from operations in Florida, Texas, and the Bahamas was approximately 19.7%, 18.9%, and 17.3%, respectively. Remaining revenue earned was from operations in 29 other states, territories, or provinces. Foreign revenue earned was 22.9% of total revenue.
During the year ended December 31, 2022, revenue earned from operations in Texas and Florida was approximately 24.9% and 16.3%, respectively. Remaining revenue earned was from operations in 23 other states, territories, or provinces. Foreign revenue earned was 15% of total revenue.
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Revenue and Cost Recognition
We recognize revenue in accordance with FASB ASC 606 (“ASC 606”). In accordance with ASC 606, we follow the five-step process to recognize revenue:
1. Identify the contract
2. Identify performance obligations
3. Determine the transaction price
4. Allocate the transaction price
5. Recognize revenue
Most of our contracts consist of firm fixed-price and fixed-price per unit arrangements. The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Our contracts do not include a significant financing component. The transaction price for our contracts may include variable consideration, which includes increases to transaction price for approved, unapproved and unpriced change orders, claims, increased performance of units and incentives, and reductions to transaction price for decreased performance of units and liquidated damages.
Variable consideration is recognized when realization of the adjustment is probable, and the amount can be reasonably determined. We recognize adjustments in estimated profit on contracts under the cumulative catch-up method. Our performance obligations are generally satisfied over time as work progresses. Revenue is recognized over time using the input method, measured by the percentage of cost incurred to date to estimated total cost for each contract. This method is used because we believe expended cost to be the best available measure of progress on contracts. Because of the uncertainties in estimating costs, it is reasonably possible that the estimates used will change within the near term.
Cost of construction includes all direct material, subcontractor, equipment, and labor and certain other direct costs, as well as those indirect costs related to contract performance. Selling, general and administrative costs are charged to operations as directly incurred. Costs to fulfill contracts, such as costs to mobilize equipment to a jobsite, prior to substantive work beginning (“mobilization costs”) and costs to insure a contract (“bonds and insurance”) are capitalized as incurred and amortized over the expected duration of the contract. Capitalized contract costs are included as contract assets on the consolidated balance sheets and are amortized over the expected contract length. Provisions for estimated losses on incomplete contracts are made in the period in which such losses are determined. Changes in job performance, job conditions, and estimated profitability may result in revisions to revenues, costs and income, which are recognized in the period in which the revisions are determined. Changes in estimated job profitability are accounted for as changes in estimates in the current period.
Costs to fulfill contracts, net $ 31,171 $ 28,614
During the years ended December 31, 2024 and December 31, 2023, we amortized $12.5 million and $15.0 million, respectively, of mobilization and costs to insure contracts to cost of construction in the consolidated statements of operations.
Contract assets represent, in addition to costs to fulfill, revenues recognized in excess of amounts billed. We anticipate substantially all incurred costs associated with contract assets to be billed and collected within one year or the lifecycle of a construction project. Contract liabilities represents billings in excess of revenues recognized.
We report revenue net of any taxes collected from the customer and remitted to government agencies.
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Fair Value Measurement
FASB ASC 820, Fair Value Measurements and Disclosures, provides the framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobserved inputs (level 3 measurements). The three levels are defined as follows:
Level 1
Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that we have the ability to access.
Level 2
Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets in inactive markets, inputs other than quoted prices that are observable for the asset or liability, inputs that are derived principally from or corroborated by observable market data by correlation or other means. If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability.
Level 3
Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
All assets and liabilities have been valued using a market approach, except for Level 3 assets. Fair values for assets in Level 2 are estimated using quoted market prices for the funds’ investment assets in active and inactive markets. Fair values for assets in Level 3 are estimated based on estimated fair values of the funds’ underlying assets as provided by third-party pricing information without adjustment, which are believed to be illiquid. There were no significant transfers in or out of Levels 1, 2, or 3 during 2024 or 2023.
Cash, Cash Equivalents, and Restricted Cash
We consider all highly liquid instruments purchased with a maturity of three months or less as cash equivalents. We maintain our cash in accounts at certain financial institutions. The majority of our balances exceed federally insured limits.
We have not experienced any losses in these accounts, and we do not believe they are exposed to any significant credit risk.
Restricted cash and cash equivalents consist of amounts held in accounts in our name at certain financial institutions. These accounts are subject to certain control provisions in favor of various surety and insurance companies for purposes of compliance and security perfections.
Cash and cash equivalents at beginning of year $ 49,176 $ 57,915
Restricted cash at beginning of year 14,644 14,076
Cash and cash equivalents at end of year $ 72,185 $ 49,176
Restricted cash at end of year 15,376 14,644
Cash, cash equivalents, and restricted cash at end of year $ 87,561 $ 63,820
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Accounts Receivable, Net
We provide an allowance for credit losses, which is based upon a review of outstanding receivables, historical collection information, existing economic conditions and future expectations. Normal contracts receivable are due 30 days after the issuance of the invoice. Retainages are typically due 30 days after completion of the project and acceptance by the contract owner. Warranty retainage receivables, where applicable, are typically due two years after completion of the project and acceptance by the contract owner. Receivables past due more than 120 days are considered delinquent. Delinquent receivables are written off based on individual credit evaluation and specific circumstances of the customer.
We expect to collect $100.5 million of our outstanding retainage receivables, net, within the next twelve months.
In certain cases we can apply in writing at the time of substantial performance of the contract to substitute the amount retained as warranty receivable with a substitute bond of equal or greater value. It is at the discretion of the owners to accept a substitute bond.
As of December 31, 2024, and December 31, 2023, we had an allowance for credit losses of $2.0 million and $1.3 million, respectively.
Inventory
Inventory consists mainly of materials utilized for Heritage Materials’ materials producing plants, is stated at the lower of cost (first in, first out) or net realizable value and is reported in other current assets. As of December 31, 2024, and December 31, 2023, we had inventory of $4.5 million and $5.5 million, respectively.
Deferred Financing Costs
We capitalize costs related to the issuance of debt. Deferred financing costs are presented with noncurrent liabilities as a reduction of long-term debt on our consolidated balance sheets. The amortization of such costs is recognized as interest expense over the term of the respective debt instruments to which they pertain.
Property and Equipment
Depreciation on property and equipment is provided by the straight-line method over the estimated useful life of the assets and includes amortization of finance leases. Assets for certain joint ventures are depreciated over the estimated life of the contract. Maintenance and repairs are expensed as incurred, while replacements and improvements are capitalized.
In the case of property and equipment disposal, costs and related accumulated depreciation are eliminated from the accounts and any resulting gain or loss on a sale or retirement of property and equipment used in construction are recorded within cost of construction. Gains and losses related to all other property and equipment are reflected in other income, net in the consolidated statements of operations.
A summary of the estimated useful lives is as follows:
Buildings 40 years
Leasehold improvements Lesser of 15 years or lease term
Auto and trucks 3-7 years
Machinery and equipment 5-10 years
Office and safety equipment 3-7 years
Useful lives of property and equipment may be adjusted as differing equipment use and circumstances present.
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Goodwill and Indefinite-Lived Intangibles