Southland Announces Third Quarter 2022 Results

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

[email protected]

Alex Murray

Corporate Development & Investor Relations

[email protected]