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spk00: a question and answer session if you would like to ask a question during this time simply press star followed by the number one on your telephone keypad if you would like to withdraw your question please press the star followed by number two thank you alex you may begin your conference good morning everyone and welcome to the southland first quarter 2024 conference call this is alex murray
spk06: Director of Corporate Development and Investor Relations. Joining me today are Frank Renda, President and Chief Executive Officer, and Cody Gallarda, 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 factor section of our Form 10-K for the year ended December 31st, 2023 that was filed with the SEC on March 4th, 2024. And discussion on Form 10-Q for the quarter ended March 31st, 2024 that was filed with the SEC last night. We will also refer to non-GAAP financial measures and you will find reconciliations in the press release relating to this conference call, which can be found on the investor relations page of our website. I will now turn the call over to Frank.
spk02: Thank you, Alex. Good morning, and thank you for joining Southland's first quarter 2024 conference call. Before discussing our quarterly results, I'd like to extend gratitude to each of our employees for their contribution to maintaining our commitment to delivering high-quality work while prioritizing safety. This past week was National Safety Week, and our teams across the country took a moment to celebrate our safety successes. As an example, our team working on the SELA project in New Orleans just celebrated successfully working 1,350 days without a lost time incident. Congratulations, team. We are proud to have an exemplary safety record and are always focused on what more we can do to protect our people. Now to discuss our quarterly results. We reported $288 million of revenue up 5% from the same quarter last year. Gross profit was $20 million in the first quarter compared to $19 million last year. Consolidated gross profit margin was 7.1%, up slightly from 6.9% in the prior year. Our quarter was highlighted by continued strong results in our civil segment, offset by challenges in our transportation segment from legacy projects. Civil segment gross profit margin was 21% compared to 12% in the same period last year, despite more severe weather than typical in the quarter. Our civil segment groups are executing very well. We're also seeing the benefit from newly awarded civil segment projects that were won with higher bid margins, ramping more quickly than our new transportation projects. Our transportation segment's gross profit margin was 1% compared to 5% in the prior year. We faced challenges in the quarter due to schedule delays, increased project costs, and impacts from weather in some key geographical areas in our transportation segment. We've brought the remaining M&P backlog down to approximately $200 million, or 8% of our backlog. We continue to expect to complete a substantial portion of the remaining work in 2024 with a smaller amount of work to be completed in 2025. Every day we get closer to putting this work behind us. We ended the quarter with $2.64 billion of backlog. We booked approximately $100 million of new awards during the quarter. This included a $56 million wastewater treatment plant in the southwest. We've already announced over $350 million of new awards in the second quarter that were not included in the $2.64 billion backlog we had at the end of the first quarter. This includes the $202 million Bull Run Filtration Facility project in Portland, Oregon, and three new water resource projects totaling $150 million. We expect backlog to increase sequentially from the first to second quarter, given the strong start of new awards. We also have several proposals that we have submitted on and are waiting to hear back from our customers on. This includes packages from the Galveston-Maytox-Sabean Pass, the Stanley Park Tunnel, the San Juan Lateral Water Treatment Facilities, and Ansall Tank Farm Facilities. Demand from both public government agencies and private clients remains extremely healthy across our end markets. On the public side in the U.S., we are seeing strong demand from the IIJA and robust state and local programs. Among numerous other opportunities, we expect to submit proposals on the SR 30 DuPont Bridge for the Florida Department of Transportation and the Montgomery Lock Project for the U.S. Army Corps of Engineers. We are also tracking several tunnel and bridge projects that we expect to bid in the coming months. Our primary focus is to capitalize on the incredible opportunities in the U.S. and our core end markets. We expect these opportunities to drive our business over the long term. As a reminder, we also have a presence in major metro areas in Canada. We are currently in the final stages of the Ash Bridges Bay upfall tunnel in Toronto. which is one of the largest wastewater outfalls in Canada. We are also currently working on phase one of the North End Treatment Plant in Winnipeg and several emergency projects in Vancouver. Although it is a relatively smaller portion of our total business today, we believe public work in Canada presents a unique opportunity for us over the next several years. Similar to the US, the Canadian government is focused on improving and maintaining their aging infrastructure. We are tracking various water resource tunnel and rail programs in the country. We expect to submit our final proposal on phase two of the North End Treatment Plant in Winnipeg in the coming weeks and are shortlisted on a $750 million water program in Vancouver. On the private client side, we continue to see our Blue Chip private clients make investments in marine and land developments. This includes several upcoming opportunities for our existing private clients in the travel, leisure, and entertainment sector. We're also monitoring trends and longer-term opportunities from the strong demand for manufacturing facilities and data centers in the U.S. We believe there will be opportunities for civil packages on the front end of these facilities over the coming years. In summary, we had a good start to the year demonstrated by strength in our civil business. We continue to get closer to getting our challenge projects behind us. We have announced over $350 million of awards early in the second quarter and expect backlog to grow from the first to second quarter. Demand in our end markets remains very strong, and I am optimistic about new award potential as we progress through the year. With that, I will now turn the call over to Cody for a financial update. Thank you, Frank, and good morning, everyone.
spk05: I will discuss an overview of our financial performance during the first quarter of 2024. You can find additional details and information in the financial statements, footnotes, and management discussion and analysis that were filed on Form 10Q last night. Revenue for the quarter was $288 million, up $13 million from the same period in 2023. Gross profit for the first quarter was $20 million, an increase of $1.5 million from the same period in 2023. Gross profit margin in the quarter was 7.1% compared to 6.9% in the prior year. Selling general and administrative costs in the first quarter were $14 million, a decrease of $1.2 million compared to the same period in 2023. Large driver of this decrease was one-time expenses related to becoming a public company in the prior year's first quarter. Interest expense for the quarter was $6 million, an increase of $2.4 million compared to the same period in 2023. The difference was attributable to increased borrowing costs and higher debt balances. Income tax expense was $300,000 for the first quarter, compared to $1.8 million in the same period last year. We expect our 2024 annual effective tax rate to be in the 18% to 22% range, depending on certain tax credits, non-deductible items, and certain state and local taxes. We reported a net loss of $400,000, or negative one cent, per share in the quarter. compared to a net loss of $5 million, or negative 11 cents per share, in the same period last year. We reported an adjusted net loss of $400,000, or negative 1 cent per share in the quarter, compared to an adjusted net loss of $1.5 million, or negative 3 cents per share, in the same period last year. of $11 million compared to EBITDA of $9 million for the same period in 2023. We produced adjusted EBITDA of $11 million compared to adjusted EBITDA of $13 million for the same period in 2023 after reversing out non-cash expenses from changes in the fair value of our earn-out liability and transaction-related expenses in 2023. Now to touch on segment performance for the quarter. Our civil segment had revenues of $84 million, an increase of $11 million from the same period in 2023. Our civil segment gross profit was $18 million, an increase of $9 million from the same period in the prior year. As a percentage of revenue for the quarter, our civil segment had gross profit margin of 21% compared to 12% in the same period in 2023. For the quarter, our transportation segment had revenues of $204 million, an increase of $2 million from the same period in 2023. Our transportation segment gross profit was $3 million, a decrease from $10 million in the same period in the prior year. As a percentage of revenue for the quarter, our transportation segment had a gross profit margin of 1% compared to 5% for the same period in 2023. The materials and paving business line contributed $38 million to revenue and negative $10 million to gross profit in the first quarter. We experienced more severe weather than typical in the quarter, increased project costs and schedule delays that impacted the expected costs to finish these projects. We still anticipate we will be substantially complete with these projects by mid-2025. Our core operating results in this segment would have been $165 million of revenue and $12 million of gross profit for a gross profit margin of 8%. Our consolidated core results in the quarter, which excluded materials and paving, would have been $249 million of revenue and $31 million of gross profit for a gross profit margin of 12%. Turning to the balance sheet, As of March 31st, 2024, we had net debt of $255 million, inclusive of cash and restricted cash of $47 million. As a reminder, a substantial part of our debt consists of several fully amortizing five-year equipment notes. We expect to pay down approximately $46 million of debt in the next 12 months with our existing debt structure. In recent years, we have typically paid down existing equipment notes monthly, then refinanced tranches to take advantage of equity in our equipment. We are currently evaluating potential options that will replace our equipment notes. The goal would be to simplify the debt structure with fewer facilities, lower the cash outlay for debt service with a more favorable amortization schedule, and extend the maturities of our existing debt. We will share more details at the appropriate time. Thank you for your time and interest in Southland. I'll now pass the call back to the operator for any questions you have.
spk01: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by one on your telephone keypad. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by two. If you're using a speakerphone, please lift the handset before pressing any keys. Our first question comes from the line of Adam Thalheimer from Thompson Davis. Please go ahead.
spk03: Hey, good morning, guys. Congrats on the Q1 beat. Hey, thanks.
spk08: Good morning, Adam.
spk03: Good morning, Adam. I wanted to dive into transportation a little bit. How should we think about the prospect of the continued M&P losses, and is there anything starting in that segment that could drive that could offset that and drive margin upside?
spk02: Yeah, we've got a couple of jobs starting that we feel really good about. You know, we've talked about the Shands Bridge in the past, the US 19 project. So a lot of good work that we picked up in the, you know, 2023, 2022 timeframe that really should start to produce some revenue there. As far as the legacy work, we've recorded reduced margins or lost contingencies for all that we know that's out there right now. We've maintained our estimated substantial completion date for M&P of middle of 2025. And we expect the bulk of the work to be completed this year. So very confident in the new work that we've picked up.
spk03: legacy work you know will be will be less and less uh of the backlog going forward and uh mid 2025 completion date and frank so it sounds like because you made that comment about um you know less in the first half of 25 than in the remainder of 24 so i guess that implies q2 q3 you're going to be earning more than 40 million a quarter as you get into this construction season
spk02: Historically, quarter one is a slow quarter coming out of the holidays. We had some weather in numerous areas, so we expect to pick up throughout the summer months.
spk05: And Adam, just to clarify, that mid-25 days for the M&P completion that we've been disclosing, that we continue to work through at the rate that we announced back when we did
spk02: to it last year correct okay and then great margin in in civil you know above 20% for the second straight quarter what's your outlook for margins in a civil segment you know civil segment is you know an area that we've picked up a lot of work in recently you know we talked about the 350 million dollars that we've picked up throughout the first quarter really good really good jobs in in Portland in Portland, Oregon. Sorry, that we picked up in the second quarter, Adam. So a lot of that is skewed to the civil side. So excited about that. And there's so many other opportunities out there for us on the civil side throughout the country. A lot of great tunnels, whether it's tunnels, water treatment plants, wastewater treatment plants, pipelines. There's numerous jobs that we have have and are submitting on in that sector. So excited about the potential for some really good healthy margins in the civil segment.
spk08: Okay. All right. I'll turn it over. Thanks, guys. Thanks, Adam.
spk01: Our next question comes from the line of Julio Romero from Siddhati. Please go ahead.
spk04: Thanks. Hey, good morning, Frank, Cody, and Alex. I wanted to stay on civil, if I could. You know, really solid execution in that quarter. It doesn't sound like there were any large project closeouts in the quarter. Maybe correct me if I'm wrong. And then secondly, did you have any pickup of like, you know, shorter burn work that helped intra-quarter? And does that continue?
spk05: So we definitely had some emergency projects that we were able to complete in Q1. However, that doesn't change our optimism and outlook for the civil segment as a whole. Typically, civil projects are naturally smaller and shorter burn than our average transportation projects, so you are going to see the newer awards in civil make contributions sooner than the newer awards that we've had in transportation.
spk08: Okay, got it.
spk04: And what does the in-market mix look like these days within civil? And is that contributing to the good execution there?
spk05: Yeah, the end market mix solely within civil continues to be across all the areas that we specialize within that civil segment. We're seeing projects from water and wastewater treatment, packages, pipelines, pump stations. We're very excited about some emergency work opportunities that we have with a longstanding customer. So not concentrated in any one area within civil, The water side, lots of opportunities, same with the tunnel side as well, albeit the tunnel projects are a little fewer and further between, but tracking some great prospects there. Any part of that question I need to expand on a little further, Julio?
spk04: No, I think that's good. Just last one, and it is on civil again, is a quick refresher on what's the average project duration in civil these days.
spk05: Yeah. So we haven't disclosed kind of average project size and duration by civil, you know, across the board of both segments, you know, average project size is somewhere around that hundred, hundred, $150 million number with a two, two and a half year duration. That's the average are our median project size and duration are significantly lower than that. So the projects within civil, you know, you could, you could certainly, interpret that to be smaller, quicker-burn hitting projects, which is in line with the number of announcements that we've made recently.
spk08: Understood. Really helpful. I'll pass it on. Thank you. Thank you, Julio.
spk01: Our next question comes from the line of Christian Schwab from Craig Kalem Capital Group. Please go ahead.
spk09: Hey, great. Thanks for taking my question. Solid quarter. So last quarter we talked about potentially completing about 40% of the current backlog at that time in 2024, which on our math at the time equated to a little bit over $1.1 billion in revenue. We've had some gyrations around that, obviously, at the start of the year, and we talked about the big awards. Is that still, plus or minus, the right number that we should be thinking about for the year? Yes.
spk05: It is. We're still in that 42% backlog burn over the next 12 months from the end of the first quarter. So that rolling percentage has maintained.
spk09: All right. Perfect. And then with the Infrastructure Investment Jobs Act, is that really more of a big tailwind to backlog in 25 or some of these projects that you highlighted because of that?
spk02: Yeah, I think, you know, we're starting to see some of the funds being allocated from the IIJA, but we're still very early, you know, in that process. There hasn't been just a ton of impact to Southland, so I think that going forward, we're going to see more and more of a tailwind from the IIJA and numerous other spins, but the state and local agencies continue just to put out a record number of projects. There's no shortage of projects to choose from right now. Christian, we're going to continue to be very selective and pick the perfect jobs that fit us to build our backlog.
spk09: Okay. And then just my last question, another question on the civil segment. It seems from our checks that there's just a tremendous amount of work that needs to be done. um which is causing in some instances less bidding uh on different projects is that part of the reason why the gross margins and your confidence and strength are you seeing a little less competition given all the work or or is that just uh not the reason is it more just great execution by the team yeah i think the team's doing a great job in selecting the projects the teams are doing a great job in
spk02: completing the projects or setting up the plans to complete the projects operationally. And the market is really good for us to be able to select the perfect project. So kind of the perfect storm of work is out there. And we have the right teams in place to be able to take advantage of it.
spk09: Fantastic. No other questions. Thank you. Thank you, Christian.
spk01: Again, as a reminder, if you wish to ask a question, please press star 1. Thank you. Our next question comes from the line of Gene Ramirez from DA Davidson. Please go ahead.
spk07: Good morning. This is John for Brent Thielman. Congrats on the quarter. Thanks. Good morning, John. I just want to pivot back to the legacy. Could you provide a little more color as how you see the impact on gross margins, I guess the cadence to gross margins as you proceed to 2024, given, you know, a lot of the bulk work happens in Q2 and Q3? Thank you.
spk05: Yeah. So, we do expect the cadence on the legacy backlog to decline sequentially quarter over quarter moving forward just as you as you would expect naturally with that work tailing off uh and you're going to see kind of the the the the pivot point there where as the legacy work you know burns down uh new work contributing will pick up which we expect to drive positive cash flows as we move in the back half of the year uh with that with that seasonality in mind though as you mentioned so q2 will typically see higher higher higher volumes q3 higher volumes and then slow down typically as we head into the finish of the year so no reason that we would expect that cadence to be any different this year versus prior years thank you and um regarding cash flow um is that cadence similar to last year or do you expect to pick up uh
spk07: a little more cash by the end of 24 compared to 2023?
spk05: Yeah, so let me, I guess, break that into two-part questions. You know, we do expect to see positive cash flows coming in the latter half of the year as we have historically. Typically, the end of Q1 into Q2 are usually cash drains as we're ramping up work coming out of, you know, the year-end and colder months. I think if you look at what our cash flow from ops has been in 21, 22, and 23, we continue to see improvement in cash flow from operations and expect that that trend will continue to the end of 2024.
spk07: Thank you. And I guess – excuse me with that. You said backlog would be – would increase sequentially.
spk02: um and correct me if i wrong but you said that q2 backlog should include 350 of new awards is that correct so so we we've already announced 350 million dollars of new awards um in the second quarter so that that is correct and you know we have a number of proposals pending and we expect to bid a lot of work in the next few weeks I'm excited for the new award potential as we progress through the year. The ability to grow is definitely there, but we want to grow in a measured way and not sacrifice any margin. So we're focused on winning the highest profitable work we can for the resources that we have in place.
spk07: Perfect. Thank you. I appreciate that. I'll jump back in the queue.
spk08: Thank you, John.
spk01: There are no further questions at this time. I will now turn the call over to Mr. Frank Renda. Please go ahead.
spk02: Thank you, everyone, for joining us today and look forward to talking to you next quarter. Thanks, everyone.
spk01: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect. then you may now disconnect.
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