Southland Holdings, Inc. (SLND) is a leading provider of specialized infrastructure construction services, with roots dating back to 1900. Over the past century, the company has evolved from a regional player to a diversified industry leader, delivering complex projects across North America in various end markets. As Southland navigates through a challenging period, the company's unwavering commitment to operational excellence, disciplined project selection, and strategic initiatives has positioned it for long-term success.
Southland's Expansive History and Diversified Capabilities Southland Holdings, Inc. is a diverse leader in specialty infrastructure construction based in Grapevine, Texas. The company serves as the parent organization for several subsidiaries, including Johnson Bros. Corporation, American Bridge Company, Oscar Renda Contracting, Southland Contracting, Mole Constructors, and Heritage Materials. This network of subsidiaries allows Southland to offer a comprehensive range of services and expertise across various sectors of the infrastructure construction industry.
Throughout its long history, Southland has consistently expanded its capabilities and market presence. The company has designed and constructed projects across a wide range of end markets, including bridges, tunnels, transportation and facilities, marine, steel structures, water and wastewater treatment, and water pipelines. This diverse portfolio has enabled Southland to adapt to changing market conditions and capitalize on opportunities in different sectors of the infrastructure industry.
A significant milestone in Southland's growth trajectory came in 2020 with the acquisition of American Bridge, a renowned builder of specialty construction projects. This strategic move not only expanded Southland's capabilities but also solidified its position as a diversified industry leader. The combined expertise of Southland's six primary subsidiaries has allowed the company to take on increasingly complex and high-profile infrastructure projects across the United States and Canada.
Despite its long-standing success, Southland has faced challenges in recent years. In 2023, the company made a strategic decision to discontinue certain types of projects in its Materials Paving business line and sold assets related to producing large-scale concrete and asphalt. This operational shift was aimed at allowing Southland to better focus its resources on more profitable lines of business. Additionally, like many companies in the industry, Southland has been involved in various legal proceedings and government inquiries in the ordinary course of its business, highlighting the complex regulatory environment in which infrastructure construction companies operate.
Navigating Challenges and Positioning for the Future In recent years, Southland has faced several challenges that have impacted its financial performance. The company's Materials Paving (M&P) business line, which contributed a significant portion of its backlog, has been a significant drag on the company's results. Southland made the strategic decision to discontinue certain types of projects within the M&P business and sell related assets, a move aimed at refocusing the company on its core operations and higher-margin opportunities.
The company has also had to navigate the resolution of several legacy projects, which have resulted in unfavorable adjustments and increased completion costs. These challenges have weighed heavily on Southland's financial results, with the company reporting a net loss of $105.4 million, or $2.19 per share, for the full year 2024, compared to a net loss of $19.0 million, or $0.41 per share, in the prior year.
Despite these headwinds, Southland has remained steadfast in its commitment to executing its core projects with precision, winding down legacy work, and strengthening its position in its core markets. The company has a robust pipeline of new core projects, including the $600 million Shands Bridge in Florida, the $410 million Robert F. Kennedy Bridge rehab in New York, and the $243 million US 19 project in Florida, which are expected to have a meaningful impact on the company's results in the coming years.
Moreover, Southland has taken proactive steps to bolster its balance sheet, including the conversion of $20 million in promissory notes due to management into common stock, further demonstrating the leadership's confidence in the company's long-term potential.
Financial Performance and Liquidity Southland's financial performance in 2024 was impacted by the challenges mentioned earlier, with revenue declining to $980.2 million from $1.1 billion in the prior year. Gross profit margin turned negative, reaching -6.4% in 2024 compared to a positive 3.1% in 2023. The company reported a net loss of $105.4 million for the full year 2024, a significant increase from the net loss of $19.0 million in 2023.
In the most recent quarter, Southland reported revenue of $267.3 million, down $49 million or 15.5% year-over-year. The net loss for the quarter improved to $4.2 million, compared to a net loss of $6 million in Q4 2023. This improvement in quarterly performance suggests that the company's strategic initiatives may be starting to yield positive results.
Despite these headwinds, the company maintains a strong liquidity position, with $88 million in cash and restricted cash as of December 31, 2024. Southland's net debt position stood at $213 million, providing the company with the financial flexibility to execute its strategic initiatives and weather the current challenges. The company's debt-to-equity ratio is 1.96, while its current ratio and quick ratio stand at 1.42 and 1.41, respectively, indicating a reasonable short-term liquidity position.
In September 2024, Southland entered into a new $160 million senior secured credit facility, consisting of a $140 million term loan and a $20 million delayed draw option. This new facility provides additional financial flexibility for the company as it navigates its current challenges and positions itself for future growth.
The company's backlog remains healthy, standing at $2.6 billion as of the end of 2024, with approximately 39% expected to be burned in 2025. Southland has also identified $750 million in pending alternative delivery contracts, which are not currently included in the backlog but represent additional opportunities for the company.
Southland operates primarily in the United States, with some international work. In the third quarter of 2024, revenue earned outside the US accounted for 11% of total revenue, down from 25% in the same period of 2023. This shift in geographic revenue mix reflects the company's focus on its core domestic markets.
Segment Performance Southland operates in two main business segments: Civil and Transportation.
The Civil segment, which includes subsidiaries such as Oscar Renda Contracting, Mole Constructors, and Southland Contracting, focuses on water-related infrastructure projects. For the nine months ended September 30, 2024, this segment generated revenue of $219.49 million, representing 30.8% of total revenue. However, gross profit for the segment decreased to $8.69 million (4.0% of segment revenue) from $27.14 million (11.8% of segment revenue) in the same period of 2023. This decline was primarily due to reduced contributions from key projects in Canada and Texas.
The Transportation segment, comprising American Bridge, Heritage Materials, and Johnson Bros. Corporation, specializes in bridge construction, roadways, and marine projects. This segment accounted for 69.2% of total revenue in the first nine months of 2024, generating $493.44 million. However, the segment reported a gross loss of $79.40 million (16.1% of segment revenue), a significant decline from a gross profit of $12.46 million in the same period of 2023. The increase in gross loss was primarily driven by challenges in the Materials Paving line of business and decreased profit contributions from several key projects.
Outlook and Conclusion As Southland navigates the challenges it has faced, the company remains focused on delivering operational excellence, maintaining a disciplined approach to project selection, and strengthening its position in its core markets. The company's strategic priorities, which include executing its core projects with precision, winding down legacy work, and capitalizing on the favorable industry environment, position Southland for long-term success.
Looking ahead, Southland expects to return to positive EBITDA by the end of 2025, although the quarterly progression remains uncertain. The company anticipates burning approximately 39% of its $2.6 billion backlog in 2025 and is confident in converting approximately $750 million in pending alternative delivery contracts into construction awards. Southland expects the majority of its non-M&P legacy work to be completed by the end of 2025, with one project potentially extending into 2026.
The company also anticipates generating strong cash flow from operations in 2025, with seasonality skewed towards the second half of the year. Importantly, Southland does not expect tariffs and supply chain disruptions to have a material impact on its business, providing some stability in an uncertain economic environment.
Despite the headwinds, the company's extensive pipeline of opportunities, particularly in its Civil and Transportation segments, and the ongoing capital infusion from the Infrastructure Investment and Jobs Act, provide a favorable tailwind for Southland's business in the years ahead. The company also sees strong state and local infrastructure funding, particularly in key markets such as Texas and Florida, as a positive factor for future growth.
As the company continues to execute its strategic initiatives and leverage its strong reputation and technical expertise, investors can expect Southland to emerge as a more resilient and profitable player in the infrastructure construction industry. While challenges remain, particularly in winding down legacy projects and improving profitability in the Transportation segment, Southland's diversified capabilities, strong backlog, and strategic focus position it well for long-term success in the dynamic infrastructure construction market.