Good morning. My name is Cole, and I will be your conference operator today. I would like to welcome everyone to the Southland First Quarter 2024 Earnings Conference Call. Alex, you may begin your conference.

Good morning, everyone, and welcome to the Southland First Quarter 2024 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 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 Factors section of our Form 10-K for the year ended December 31, 2023, that was filed with the SEC on March 4, 2024, and discussion on Form 10-Q for the quarter ended March 31, 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. With that, I will now turn the call over to Frank.

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 CLA project in New Orleans just celebrated successfully working 1,350 days without a lost time incident. Congratulations to the 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 scheduled 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 Sabine pass, the Stanley Park funnel, the San Juan lateral water treatment facilities, and Ansal Pankforn 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 SR3 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 1 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 U.S., 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 2 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 making investments in marine and land developments. This includes several upcoming opportunities for our existing private clients in the travel, leisure, and entertainment sector. We are 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 challenged 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. 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 10-Q 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. A large driver of this decrease was onetime 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, nondeductible items, and certain state and local taxes. We reported a net loss of $400,000 or negative $0.01 per share in the quarter compared to a net loss of $5 million or negative $0.11 per share in the same period last year. We reported an adjusted net loss of $400,000 or negative $0.01 per share in the quarter compared to an adjusted net loss of $1.5 million or negative $0.03 per share in the same period last year. In the first quarter, we produced EBITDA or earnings before interest, taxes, depreciation, and amortization 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 noncash 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 a 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, excluding materials and paving 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 31, 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 5-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 and 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.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Our first question comes from Adam Thalhimer from Thompson Davis.

Congrats on the Q1 beat. 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 offset that and drive margin upside?

Yes. We've got a couple of jobs starting that we feel really good about. We've talked about the Shands bridge in the past, the U.S. 19 projects. So a lot of good work that we picked up in the 2022 time frame that really should start to produce some revenue there. As far as the legacy work, we've recorded reduced margins or loss contingencies for all that we know that's out there right now. We've maintained our estimated substantial completion date for M&P of mid-2025, and we expect the bulk of the work to be completed this year. So we're very confident in the new work that we've picked up and legacy work will be less and less of the backlog going forward in the mid-2025 completion date.

And Frank, it sounds like because you made that comment about less than 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.

Historically, quarter 1 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.

And Adam, just to clarify, that mid-2025 date 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 discontinued the M&T business line in Q2 of last year.

Correct. Okay. And then great margin in Civil, above 20% for the second straight quarter. What's your outlook for margins in the Civil segment?

Civil segment is an area that we've picked up a lot of work in recently. We talked about the $350 million that we've picked up throughout the first quarter, really good jobs in Portland, Oregon; sorry, that was what 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 are so many other opportunities out there for us on the Civil side throughout the country. A lot of great funnels, whether it's tunnels, water treatment plants, wastewater treatment plants, or pipelines. There are numerous jobs that we have and are submitting on in that sector. So excited about the potential for some really good healthy margins in the Civil segment.

Our next question comes from the line of Julio Romero from Sidoti.

I wanted to stay on Civil, if I could. 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 shorter burn work that helped intra-quarter? And does that continue?

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, several 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 new awards that we've had in transportation.

Okay. Got it. And what does the market mix look like these days within Civil? And is that contributing to the good execution there?

Yes. The end market mix solely within the 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 long-standing customer. So not concentrated in any one area with tunnel work 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.

No, I think that's good. Just last one, and it is on Civil again, as a quick refresher on what's the average project duration in Civil these days?

Yes. So we haven't disclosed kind of average project size and duration by Civil across the board of both segments, average project size, similar around that $100 million, $150 million number with a 2- to 2.5-year duration. That's the average; our median project size and duration are significantly lower than that. So the projects within Civil, 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.

Our next question comes from the line of Christian Schwab from Craig-Hallum Capital Group.

So last quarter, we talked about potentially completing about 40% of the current backlog at that time in 2024, and 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?

It is. We're still in that 40%, I think 42% backlog burn over the next 12 months from the end of the first quarter. So that rolling percentage has been maintained.

All right. Perfect. And then with the Infrastructure Investment and Jobs Act, is that really more of a big tailwind to backlog in '25, or are some of these projects that you highlighted because of that?

Yes. I think we're starting to see some of the funds being allocated from the IIJA, but we're still very early in that process. There hasn't been 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 expenditures. 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.

Okay. And then just my last question, another question on the Civil segment. It seems from Marchex that there's just a tremendous amount of work that needs to be done, which is causing, in some instances, less bidding 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 is that just not the reason? Is it more just great execution by the team?

Yes. I think the team is doing a great job in selecting the projects. The teams are doing a great job in 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 projects. 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.

Our next question comes from Jean Ramirez from D.A. Davidson.

This is John for Brent Thielman. Congrats on the quarter. 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 a lot of the bulk work happens in Q2 and Q3?

Yes. So we do expect the cadence on the legacy backlog to decline sequentially quarter-over-quarter moving forward, just as you would expect. Naturally, that work will tail off. And you're going to see the pivot point there, whereas the legacy work burns down, new work contributing will pick up, which we expect to drive positive cash flows as we move into the back half of the year. With that seasonality in mind, though, as you mentioned, so Q2 will typically see higher volumes, Q3 higher volumes, and then slow down typically as we head into the fourth quarter. So no reason that we would expect that cadence to be any different this year versus prior years.

And regarding cash flow, is that cadence similar to last year? Or do you expect to pick up a little more cash by the end of '24 compared to 2023?

Yes. So let me, I guess, break that into two-part questions. 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 strains as we're ramping up work coming out of the year-end and colder months. I think if you look at what our cash flow from operations has been in '21, '22, and '23, we continue to see improvement in cash flow from operations and expect that trend will continue to the end of 2024.

And I guess, with that, and you said backlog would increase sequentially. And correct me if I'm wrong, but you said that Q2 backlog should include $350 million of new awards. Is that correct?

So we've already announced $350 million of new awards in the second quarter. So that is correct. And 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.

There are no further questions at this time. I will now turn the call over to Mr. Frank Renda. Please go ahead.

Thank you, everyone, for joining us today, and I look forward to talking to you next quarter. Thanks, everyone.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.