Southland Holdings, Inc.

Good morning, my name is Joelle and I will be your conference operator today. At this time, I would like to welcome everyone to the Southland first quarter 2023 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the one on your telephone keypad. If you would like to withdraw your question, please press star 2. Thank you. Alex, you may begin your conference.

Good morning, everyone, and welcome to the Southland First Quarter 2023 Earnings Conference Call. This is Alex Murray, Director of Corporate Development and Investor Relations. Joining me today are Frank Renda, President and Chief Executive Officer, and Cody Gallardo, Executive Vice President and Chief Financial Officer. Before we begin, I'd like to remind everyone that this conference call may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, and the Private Securities Litigation Reform Act of 1995. Forward-looking statements are neither historical facts nor assurances of future performance. Forward-looking statements are uncertain and outside of Southland's control. Southland's actual results and financial condition may differ materially from those projected in forward-looking statements. Therefore, you should not rely on any of these forward-looking statements, and we do not undertake any duty to update these statements. For a discussion of some of the risks that could affect results, please see the risk factors sections of Form 10-K for the year ended December 31st, 2022 and filed with the SEC on March 21st, 2023. Our annual report filed on amended Form 8-K and filed with the SEC on March 22nd, 2023. and our form PENQ for the quarter ended March 31st, 2023, that was filed with the SEC last night. We will also refer to certain non-GAAP financial measures. Reconciliations of these non-GAAP financial measures can be found in the earnings release that was filed on Form 8K last night and on the investor relations page of our website. With that, I'll now turn the call over to Frank.

Thank you, Alex. Good morning, everyone. To start the call, I would like to thank the nearly 3,000 Southland employees across North America and the Caribbean that are building some of the most critical infrastructure projects for our communities. Their dedication to constructing quality and safe projects were recently highlighted during National Safety Week. Seeing our teams reflect on safety successes while continuing to empower each other through our Protect My Family culture was incredible. Turning to our results, we started the year on a positive note, with revenue increasing 6% from last year to $275 million, driven by an increase in new project starts in the first quarter. It is important to note that we typically expect the first quarter to be seasonally slower for us. We anticipate increased quarterly revenue as we progress through the middle to back half of the year. We are encouraged by another quarter of increased year-over-year margins. Our gross profit margin increased from 2% last year to 7% this quarter, and our gross profit increased from $5 million to $19 million this quarter. This was driven by a more favorable mix of new higher profit work starting this year. This includes the $243 million US-19 elevated roadway in Clearwater, Florida, the $42 million Atoka water pipeline and the $50 million slip lining pipeline rehabilitation project in Detroit for the Great Lakes Water Authority. Additionally, we have begun construction on an innovative $70 million tunnel project for Denver International Airport. The operating environment is starting to show signs of stabilizing and is more favorable than we experienced in the last two years. We are experiencing shorter wait times on materials and equipment, and overall availability has improved. While the labor market remains tight, wages are starting to stabilize, which is a positive trend. We expect to benefit from the improving operating environment and continued robust demand for our services. During the first quarter, we had $170 million of new awards, which compares to $41 million of new awards in the first quarter last year. Our backlog decreased slightly from $3 billion at the end of 2022 to $2.9 billion at the end of this quarter. This was expected due to a typically slower pace of bidding opportunities for the first few months of the year. Year over year, our backlog increased 43% from $2 billion at the end of the first quarter last year, which is very encouraging. We expect new awards to accelerate in the second half of the year, similar to last year. Our core end markets are thriving and we remain very optimistic about their potential. The signature bridge, marine, water pipeline, water and wastewater treatment, and tunnel markets are showing strength right now. These end markets continue to be our main focus and we are excited about the robust demand and limited competition in these areas. We are also seeing unique opportunities from federal funding and competing on projects that we did not compete on in years past. We won two broadband projects, like recently announced District 1 middle mile broadband network project for Caltrans. This project includes installing 210 miles of the middle mile broadband network. It is expected to create an affordable broadband infrastructure, enabling network connectivity and equitable high-speed service to unserved and underserved communities. We were selected for pre-construction services, and the construction phase is expected to be valued between $65 and $80 million and added to our backlog in 2024. Installing broadband aligns well with our core capabilities and is a natural extension of our existing skill sets. Increased state and federal broadband spending have created a valuable opportunity for us to leverage our world-class underground expertise and establish a strong presence in this space. We feel there is an incredible opportunity from the federal spending from the capital projects funds and the IIJA, which have allocated more than $75 billion to expand broadband infrastructure across the country. In the near term, we see promising opportunity in California, as the state has moved more quickly to utilize state and federal spending on broadband compared to other states. Approximately 15% of households in California do not have access to broadband, And the state plans to spend $6.5 billion to mitigate this problem. Each state is set to receive at least $100 million for broadband infrastructure from federal spending. And we anticipate further opportunities to develop across the country as other states leverage this funding. We also continue to target alternative delivery contracts, like the CMGC model used by Caltrans. where we win projects based on factors other than just low price. Our diverse in-market experience is attractive to our customers and gives us a true competitive advantage in alternative delivery projects. We also believe working with our customers early in the project life cycles will be beneficial to everyone involved. As we mentioned on the seeing strong demands on the private client side for manufacturing semiconductor plants, data centers, EV battery plants, and sports stadiums. We do not expect a slowdown in demand from our private clients for the foreseeable future. We are pursuing over two dozen large private programs with a pipeline of over $100 billion. We did not see these type of opportunities in years past. Recent commentary and excitement about artificial intelligence technology from companies such as Meta, Alphabet, and Taiwan Semi highlights the increased need for semiconductors and data centers to support the computing power and storage requirements AI demands. Geopolitical tensions overseas coupled with federal spending from the CHIPS Act and the IRA give us confidence that many blue chip private clients will continue to invest in their domestic capabilities and we are at the beginning stages of a substantial build-out of manufacturing facilities in the U.S. This creates a great opportunity for us. Although the customers are different than in years past, the scope of work is consistent and fits our core capabilities perfectly. Many of the new semi-plants and data centers are being built in rural areas where there's not enough capacity from existing infrastructure. Most of these facilities need on-site water treatment plants, water pipelines to connect to local water systems, and additional enhancements to local water treatment plants. We are well positioned to provide these critical solutions to our private customers and expect this market to drive growth for our business. In summary, the first quarter was a good start to the year. We maintain our positive outlook for the business and are tracking the largest opportunity pipeline we have ever seen. We also continue to find innovative ways to expand our capabilities while leveraging our existing skill sets that will create long-term value for our stakeholders. With that, I will now turn the call over to Cody for a financial update. Thank you, Frank, and good morning, everyone.