Southland Holdings, Inc.

Q4 2022 Earnings Conference Call


spk_0: but my only for human and a researcher and they will be your cautious approach or three have to fight our like to work may want to this up my fourth quarter of would you to retire to earn as conference call always or be placed on had to pay rent and by corners of to this because we must there will be a question or sufficient if you like oscar question murray's pay to prosper forward and then we went on with the author keeper if you like to return to your question please post or to thank you alec you may be danger conference
spk_1: the morning everyone a welcome to the south and fourth quarter and four year twenty twenty two parties topic call it is alex murray director of corporate development an investor relations dirty me today or five render president and chief executive officer and forty gallardo executive vice president and chief financial officer before it began i'd like to remind everyone that this conference call may contain forward looking statements within the meaning of section twenty seven a of the securities act ninety thirty three section twenty one eve of the securities exchange act and ninety thirty four and a private securities litigation reform act and ninety ninety five for looking statements are neither sturgell facts nor assurances of future performance or looking statements are unsure in and outside of salford control and actual results and financial condition may differ materially from those projected and forward looking statements therefore you should not rely on any of these for looking statements and we do not undertake any duty to a the statements for discussion of some of the respect to the factor results see the risk factor section of our form mk of the year ended december thirty first place twenty two the filed with the fcc a march twenty first twenty twenty three we also refer to not get financial measures you will find reconciliation in the earnings release relating to this conference call with can be found on the investor relations page of our website with that i will not turn the call over to frank
spk_2: thank you alex more to your place you for joining assessments first call is a publicly traded company i want to start off by faking the generations of hard working individuals that made sapolu we are today and helped us to get to this historic milestone is a public company i recently had the opportunity during the opening bell than the york stock exchange the some of our longest tenured employees to celebrate this milestone was a great moment for all of our employees these dedication is puts out going in an optimal position to succeed for many years because thirty two are twenty twenty three results
spk_1: we executed on our strategic initiatives and achieved record financial results and bit a challenging macroeconomic backdrop and uncertainty
spk_2: our success is a testament to our toys persistence and expertise navigating challenging environments
spk_1: along with the increased demand for our services and strong secular tell wins driving growth in our industry
spk_2: we remain and a unique position as a company in an industry that has proven and continues to prove to be resilient direct and on it down thirds our employees alongside our customers accomplished a lot this past year i'd like to reflect on some of our success and twenty twenty two we achieve the highest bed and comedy but and country history we completed son tracks connected and automated vehicles test facility in florida we also finished suddenly one of the largest water drainage tunnels and north america and a water pipeline project the new mexico that brought ready access the water for many parts of the navajo nation for the first time we're also successfully executing our strategy and seeing increase margins as a result or gross margin and prove for nine percent and twenty twenty one the twelve percent and twenty twenty two although or year over year revenue decrease nine percent from approximately one point three billion dollars and twenty twenty one the one point two billion dollars and twenty twenty two we're encouraged by the improved profitability with iba increasing twenty three percent to one hundred and forty eight million dollars we will remain focus on margins and sustainable growth over the long term we believe this is the best approach to create value in long term returns for our shareholders we're seeing increase bidding opportunities with fewer competitors but we continue to be diligent and selective we're pursuing projects with increased blood margins in in previous years we have one point nine billion dollars of new project awards and twenty forty two which is the largest amount in a year and country he history is represented increase of two hundred and twenty percent compared to twenty twenty one we had the twenty twenty two with record backlog of nearly three billion dollars which is that thirty four percent year over year from two point two billion dollars we booked a quarterly record of eight hundred and seventy four million dollars and new projects in the fourth quarter alone
spk_1: that are backlog increase twenty five percent sequentially and two point four billion dollars at the end of the third quarter
spk_2: we want a great mix of new projects ranging cross or in market and geography use of weeks back to continue to ramp up as we head into the spring and summer months as a result of recent new awards record backlog and a robust pipeline we expect revenue the increase in twenty twenty three and beyond
spk_1: in line with our historical growth rates previous to twenty twenty two
spk_2: we recorded approximately five hundred million dollars a new project awards and our civil segment including several water resource projects in oklahoma and the southwest we're also awarded a seventy million dollar tunnel project for the denver international airports west gates expansion and one hundred and fifty five million dollar water treatment plant filter complex in dallas texas and our transportation segment we booked approximately one point four billion dollars and new project awards during the year we went to projects in florida including the five hundred and ninety six million dollar as are twenty three she and bridge and the two hundred and forty three million dollar us might the in pinellas county elevated roadway were also awarded to gate and locked replacement projects for the us army corps of engineers totaling approx lee two hundred million dollars roster great start and twenty twenty three with a hundred and fifty million dollars of publicly announce awards as well
spk_1: we cannot be more excited about our outlook in the opportunities and our market
spk_2: on the public client side were starting to see an increase in bidding opportunities it's fun to have begun flowing to state and local governments from the one point two trillion dollar bipartisan i j a bill that was passed by congress we expect this to be a catalyst for our business over the next several years in the case the months we expected them to the golden gate bridge rehab project in california and livingston bridge project in new york we also expect a large opportunity to bid on packages from the twenty billion dollar texas gulf coast resiliency flood protection program
spk_1: we're seeing an increase in the amount of water pipeline project weddings across the southwest as local water authorities are developed plans to increase ready access to water for their communities
spk_2: we're also seeing a shift in the way our public customers are delivering projects vs previous years some customers are moving away from the lovin model and using an alternative delivery method we believe this could lead to more cooperative relationship allowing us to partner with our customers earlier and
spk_1: project life cycles alternative delivery contracts typically get awarded based on a number of factors including price schedule resume and technical score
spk_2: roughly half of the new awards we want and twenty twenty two in terms of dollar value included another factor other than price in determining the project award we believe our resume and over a hundred and twenty year history of delivering specialty infrastructure projects will continue to position as well the compete and win an alternative delivery projects in the coming years on the private client side we're seeing a strong demand from recent resorting efforts for manufacturing semiconductor electric vehicle and electric vehicle battery plants were also see increased demand for several data centers and stadiums across the u s we expect the bet on package it's from the four billion dollar panasonic electric vehicle battery plant in kansas and the five billion dollar really and plant in georgia we're also seeing opportunities the bit on packages from the new tennessee titans in buffalo bills football stadiums in summary twenty twenty team was the challenging but record year for southward we remain optimistic about our outlook and the robust opportunities and our markets we feel that the diversity and our service offerings along with self performing capabilities position as well to capitalize on the greatest infrastructure rebuild of our generation over the next several years but that i will turn the call over to cody for a financial outlay thank you frank good morning everyone i'll discuss an overview of our financial performance during twenty twenty two last night we fall on form a k or management's discussion analysis and audited financial statements and footnotes
spk_3: you can find additional information related to southland and are twenty twenty two result from that filing further you fall on formed mk last tuesday evening additional information about southwards operations the environment risk factors and other information
spk_1: we're encouraged by a recent results for the twenty forty two fourth quarter and for the full year ended december thirty one forty forty two
spk_2: we achieved record net encounter sixty one million for the full year twenty twenty two this was up fifty six percent compared to thirty nine million for the year and forty forty one revenue for the fourth quarter was two hundred ninety five million down sixty nine million from the same period and twenty twenty one our full year revenue was one point two billion dollars down one hundred and eighteen million from the full year twenty twenty one this was primarily due to the time in between older project close out and new projects starts
spk_3: during the the nineteen pandemic there were fewer projects out for bit was created a gap and new projects coming online and resulted in lower revenues for the year and twenty twenty two as frank mentioned earlier we're seeing increased opportunities from years past being awarded a record amount of work over the last year
spk_2: we believe that the current market we're and will continue to support our recent growth trajectory and we have more line of sight and to continued increased infrastructure spend than we've had in a long time
spk_1: gross profit for the fourth quarter forty forty two was thirty six million dollars down from forty million dollars for the same period and twenty twenty one this was primarily due to lower volume in the fourth quarter gross profit margin in the quarter increased to twelve percent from eleven percent in the prior year gross profit for the year and and december thirty one twenty twenty two was one hundred and forty one million dollars an increase of forty seven million or twenty three percent compared to the prior year are gross profit margin increase from nine percent and forty forty one to twelve percent and forty forty two
spk_2: the main driver was attributable to a larger volume contribution from higher margin projects some of which were recently awarded we also had several lower margin projects close out or reach substantial completion and twenty twenty two
spk_1: selling general and administrative costs in the fourth quarter the fourteen point eight million a decrease of one point three million compared to the same period and forty forty one
spk_2: as today costs for the year ended december thirty one twenty forty two were essentially flat compared to the full year twenty forty one as seen a as percent of revenue were five percent for the year ended december thirty one forty twenty two compared to four to have percent of the four year twenty twenty one
spk_1: with that said we incurred approximately two point three million dollars of cost during the year and a twenty twenty two recorded in es una related to south when becoming a public company adjusted for the costs are as good as a percentage of revenue for the year and a twenty twenty two would be four point eight percent operating income in the quarter was twenty one million dollars down two point four million from forty forty one
spk_2: operating income for the year was eighty three million dollars which was up forty eight percent from fifty six million in the prior year interest expense for the year ended december thirty one twenty twenty two was a point nine million an increase of one point six million compared to twenty twenty one the difference was attributable to increase bar
spk_3: and costs on our variable rate vulgar facility
spk_2: income tax expense for the year was thirteen point three million which represents an effective tax rate of seventeen point six percent and a decrease of two point three million compared to the prior year
spk_3: the primary difference from the federal statutory rate of forty one percent were non taxable earnings of two point one million due to the as selections made by multiple of our entities in the utilization of foreign tax credits of two point five million and the inclusion of foreign income which decrease the worldwide effective tax rate by two point
spk_2: eight percent and three point three percent respectively on a go forward basis we expect the tax rate to be in the twenty to forty four percent range depending on certain tax credits non deductible items and certain state and local taxes
spk_3: now to touch on our segment performance
spk_2: for the full year ended december thirty one forty forty two our civil segment had revenues at three hundred and five million a decrease of eighty six million from full year twenty twenty one personal segment gross profit for the year was forty five million a decrease of five million from the four year twenty twenty one as a percentage of revenue for the full year and forty forty two or similar segment had gross profit of fourteen point nine percent improvement from ten point four percent from the prior period
spk_3: for the full year ended december thirty one forty four need to our transportation segment had revenues of eight hundred and fifty six million dollars a decrease of approximately thirty two million from the full year twenty twenty one our transportation segment gross profit for the year was ninety five million an increase of twenty two million dollars from full year twenty twenty one
spk_2: as a percentage of revenue for the full year and a twenty twenty two or transportation segment had gross profit eleven point two percent improvement from eight point three percent the prior period turn into the balance sheet as of december thirty one forty forty two we finish the year with net debt has two hundred and two million inclusive of cash and restricted cache of seventy two million dollars we pay down eleven million on are secured note and this fourth quarter we also increased our revolver capacity from seventy five million one hundred read million matured additional twenty million on are working capital facility in the porter as part of the closing of our transaction we converted previous preferred stock of twenty four point four million dead thus pro forma using december thirty one forty twenty two figures and the preferred stock conversion at december thirty one forty forty two we have pro forma two hundred and forty six million dollars and that that this compares with pro forma net debt of two hundred and thirty one million as of the end of the third quarter twenty twenty two at this time we will not be providing guidance for future periods we will continue to evaluate the decision to provide or not provide guidance and future periods and finally we're pleased to announce that are record earnings before interest taxes depreciation and amortization of one hundred and twenty eight point two million plus two point three million of costs related to south and becoming a public company total one hundred and thirty point five million the securely it she's are based are not target and
spk_3: will result in an additional three point four million shares being issued to the former ownership group thank you for your time and interest himself went on our past to call back to frank for closing remarks
spk_1: thanks cody to briefly summarize we finished twenty twenty two with record net income sixty one million dollars in a bit of a hundred and twenty eight million dollars or backlog increase thirty four percent sir record of nearly three billion dollars we look out to the unprecedented pipeline of new work opportunity
spk_2: across our in markets we believe the federal infrastructure bill will be an additional catalyst for more growth for our businesses funds are allocated over the next few years i'm very optimistic about the future south southland and i'm confident that we are positioned well to achieve even greater success and twenty twenty three and beyond thank you with that i will turn the call over to the operator for questions
spk_0: thank you nice young and will now begin the question and sensation as as a motion to hello question please for the thoughtful by the number one on the touchstone for to the wish to the come from the bone broth is spruce double by the number to your question will be pulled in the other the or we see you're using a speaker phone please leave the haunted me hopeless monkeys one moment please for your first question your first question comes from i'm tania from from somebody please go ahead
spk_4: hegemonic got congrats on a solid que for
spk_5: eight frankly said that them
spk_6: you said than twenty twenty three revenue growth will revert to pre twenty twenty two levels what what is that in your view
spk_2: his we we we just you know we see the prospects of what we picked up and it is in the sport you know last year and that in the fourth quarter really is it is a great backlog and and expect the collection good things from revenue this year
spk_7: know what god that they allowed from that
spk_8: oh go ahead frank i'm sorry i got ya
spk_9: oh no that that was it out
spk_6: okay hate and then what added that gonna shake out from the seasonality standpoint there there's a bigger jobs in a on that list like winter those really good ramped up
spk_1: adam so we're seeing the impact of some the recent awards that were picked up hidden to for forty forty two
spk_3: expect those just contribute significantly or as you get into twenty twenty three with obvious seasonality trends that that your customers and in the industry
spk_4: ago and then
spk_3: on on margins is a kind of the inverse of revenue like maybe revert back to to twenty twenty one levels as you're in the early stage of these jobs or the head of that shake out yes i think what what you're seeing adam you know we we have a hit historical growth trajectory that's going to be content with going to continue to be supported by the backlog that we picked up your in the best vidic environment that we've seen so we do believe the work that we have will significantly contribute to mate maintaining our historical performance
spk_4: in and look for to delivering on that forty three
spk_3: i guess i'll turn it over thanks guess
spk_0: thanks out of her
spk_10: and you know that question gone from the ingram years from the be with some the water
spk_11: i agree good morning how are you
spk_3: morty morty on for my first question i entered my you that puts a little bit of this but could you provide skin color on what contributed to the stronger margins this quarter despite despite the lower revenue yes i think in there's additional and from commentary on this information and the and the in a that we filed last night and we saw a pick up have an impact in higher margin work that factored into forty twenty two as well as the close out and substantial completion a profit projects that had lower margin earlier
spk_1: on and year
spk_3: and ah to talk about any plans for the but balance sheet over the near term ah or longer a said all influence in which projects your prioritize in pursuing today oh should keep their are taught me a little bit more the right direction of a with what part about two years yet last up
spk_1: oh just overall like is just the
spk_2: a
spk_3: i guess the one way to replace it is what regarding the balance sheet it is how is it a employees and are the type of projects you are privatizing to they are you are you looking for larger work or is that all based on just better margins
spk_1: yeah
spk_3: no it is far as the work that we're looking at you know we we going to balance sheets or suits what what we're looking at pretty well all sectors are great and we're going to focus our first and foremost that we have the right to you for the job in the right area for equality odor if those boxes or check with that and it's all about where we get the best return is that answered it's are you hurt your question yeah that makes sense and ah i guess one last one if i could ah
spk_0: i know you're not providing any sort of guidance but could you perhaps maybe talk about expectations for you did die at one two three does the company still see a hundred and fifty million in the just the buddha is are still attainable you know where we're really excited about the business we take that the work at we had is great prospects are or even better solar to couldn't be more excited about the backlog that the that we have as a huge there's there's additional disclosure we make about expected burn off with the backlog that we are charity
spk_12: your record backlog a year and we typically burn off about fifty percent of that in that in the following year
spk_13: so like frank said she'll feel very good about work without adding into twenty forty three
spk_12: brett appreciate time a whole back and give the give thank you
spk_1: thank you nathan human as a reminder to help with shot dispersed are one you're not split from from to the aroma from italy is worth it
spk_2: hey good morning frank cody alex
spk_1: tom
spk_2: i guess to start off on
spk_1: maybe more of a strategic question you mention you singing produce speeding opportunities and you also talked about bidding across a broad swath of in markets can you may be speak to projects election hear what what specifically are you looking for in terms of the projects you'd like to bid on and compete for
spk_2: you know it it really seems like right now every sector that we operate in this is really you know got got a tremendous amount of work in the pipeline
spk_12: and so we're were going to continue to stay focused on working for owners that that we know staying staying in our in our home markets where we have the resources to the to do the words in them being extremely selective to try to maximize their richard
spk_2: but he of transportation is great water water resources are there are great right now
spk_12: the and yet we still reform try to sell for for ninety percent of the
spk_2: critical path work that we look at so projects are all those boxes we're gonna we're going to move forward
spk_1: okay now that help alarm
spk_2: and just thinking about the operating environment how does the operating environment compare today as to save your how you in december it as far as the supply gotta supply chain and in regards to supply chain labour mp in whatnot across the board supply chain labour on
spk_12: a catch all kind of question
spk_1: yeah so you know what we're starting to see the supply chain or stabilize more and more you know suppliers are starting to her
spk_12: to get their schedules out and in the you get closer on the on delivery we you know we're both a large equipment sleep so
spk_1: so that that helps us out quite a quite a bit at owning our own equipment we don't have to depend on on others to to get new year new equipment or or to rent so that helps us
spk_2: control our schedules are a little bit better far as labour you know if it isn't you know it is an issue it's going to continue to be an issue with a we have a great rating program with her next vienna
spk_12: will we build some of the most iconic projects around with level we do and in the field that are people feel that energy and want to be a part of that in korea we are starting to see a a cooling in the housing market which which helps of the unskilled labor front as well
spk_14: understood and you know it clear that you not providing guidance just yeah maybe in your words what a successful twenty twenty three look like to you
spk_0: l r m everybody says safe and accounted for in continue to build some of the most iconic projects around picking up the certain some really good work and performing the way that we have in the past the way that we know we can perform
spk_15: okay and then maybe just last one is just an eight our son
spk_4: on
spk_16: callbacks expectations spare twenty three at all
spk_1: yeah so york are cap backs on along and basis while approximate art appreciation it's been low in recent years as or project the words had a little bit of a law do expect back to pick up in line with the significant increase in backlog that we've had in the end of the year
spk_2: okay very good i'm are backing you think are much
spk_6: thank you thank you
spk_3: thank you
spk_2: your next question comes i'm donna from on somebody with water oh and
spk_17: hey kodiak a similar similar that that was my question on the cap expert then i was gonna say get free cash flow in about half a twenty two so if i pull it down to free cash flow for twenty twenty three maybe give us a high level thoughts
spk_4: yeah mean we've
spk_6: the the bidding environment where and know we're very excited about the position we're in for favorable billy milestones he saw that in that pick up in the a and we had coming into the coming into the close of the year or so we do see that continuing to improve
spk_5: and and and look forward to delivering on that and forty three
spk_17: and that is there anything from you don't have much left from the kind of legacy american bridge project but you have a little just curious how that might impact twenty three
spk_8: yeah the the legacy portfolio i don't expect battle material impact the like ninety percent or plus of those jobs have been satisfactorily completed and closed out not some impressive new award that have been picked up by the american bridge tamer really excited about this
spk_2: he probably even more excited what's out there and in the bench that that that that brought us added aka latin for you frank the on
spk_5: and yet given on this long time am i perked up when you talked about alternative delivery and that was half of the projects
spk_2: for have the products that you one last year weren't just because you at a low price better and he also said you see and fewer bitters per jobs maybe can just high level opine on whether you seen this before how i miss my last or what the ultimate does it impact of this is i've i've never seen a market like this before you know you you come into a year and really five or ten projects a feature really well you think it's going to be a pretty good year
spk_4: that we've we've just got so so many more projects than that it that fits perfectly into your toy here we have over one hundred and twenty years experience you know have a pet one of the best resumes in the business in the be able to capitalize on man and these alternative delivery
spk_18: projects and programs or or or get to be extremely did official to so really excited about that excited about every every sector we will we work you know
spk_0: it has alternative delivery work i mean do they reach out to how earlier they reach out here
spk_19: you know prick pretty early right now but you know we're also seeing some programs that luba yeah so
spk_1: pretty early when when they're on the schedule
spk_9: objects in florida do to population shifted in kind of moved up a couple projects on the west coast that that that a move that the very early i typically it in the process though reach out and job on the west coast you'll see a a c ngc where you where you get involved in that you know can to help develop design ah design build
spk_2: you know little bit later and in the process but that very early on and in the process and and with our resume i think we get cause to sooner than than a lot in a lot of people went into or tap in our engineering ability engineering a technical ability
spk_20: got it thanks again
spk_3: exotics matter
spk_19: and you your next question i'm from worse from doing some on her i think again i'm so with all its feet a new opportunities coming on and you talked about you know they're the type of works that you're selecting how is the bidding negativity looking like is it more competitive or are you a strategically
spk_2: choosing worth and fits all your boss is that new know you may have an advantage or compared to your competitors
spk_1: and he
spk_2: yeah
spk_3: definitely
spk_2: you know if we don't feel we have a active imperative advantage right now you know where we're not moving forward he and we picked up about one point nine billion dollars mark a work in typically that was in a one to better situation so less competition but we're we're going to continue to be extremely selective in that prospects
spk_3: work out there are just incredible so big feel really really good about the about be able to continue to be select extremely selective and been on a lot of work are doing so
spk_14: which should increase in prove margin
spk_0: and
spk_2: is very i am one type of sector and the work they you're building daddy's us what corn corn your sweet spot or is just generally with all your arm
spk_0: capabilities

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