Good morning! My name is Chloe and I will be your conference operator today. At this time, I would like to welcome everyone to the Southland First Quarter 2025 Earnings Conference Call. All lines have been placed on me to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask the 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 pound you. Thank you. Alex, you may begin your conference.

Good morning, everyone, and welcome to the Southland First Quarter 2025 conference call. This is Alex Murray, Vice President of Corporate Development and Investor Relations. Joining me today are Frank Renda, President and Chief Executive Officer, and Keith DeSano, 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 31st, 2024 that was filed with the SEC on March 5th, 2025, and discussion on Form 10Q for the quarter ended March 31, 2025 that was filed with the SEC last night. We also refer to non-GAAP financial measures. You'll 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 not turn the call over to Frank. Thank you, Alex. Good morning

and thank you for joining Southland's first quarter 2025 conference call. Before we dive into our quarterly results, I'd like to begin by highlighting the additions we have made to our leadership team. As previously announced, Keith Bassano has been appointed our chief financial officer. Keith brings more than 15 years of experience in the engineering and construction sector. Since joining the organization through our American Bridge subsidiary in 2008, he has consistently demonstrated outstanding leadership and financial discipline. We have also appointed Don Grawl as Chief Strategy Officer. Don joined Southland following executive roles at AECOM, Parsons, and most recently as Chief Executive Officer of the Branch Group. With experience in infrastructure construction and engineering, Don has directly worked on some of the largest infrastructure projects worldwide, totaling over $60 billion in construction costs. These leadership additions are part of our broader strategic efforts to strengthen Southland and position ourselves for better performance over the long term. We believe Keith and Dawn's experience and leadership will be important assets for Southland moving forward, and I'm excited to have them in these key roles. I'd also like to recognize a remarkable milestone within Southland. American Bridge Company, founded in 1900 through a J.P. Morgan consolidation of several bridge and steel firms, celebrated its 125th anniversary this year. American Bridge has delivered many of the world's most iconic spans and steel landmarks, including the Oakland Bay Bridge, the Las Vegas High Roller, and so many more, consistently raising the bar for safety and engineering innovation. AB's commitment to excellence has remained unmatched. On behalf of the entire Southland team, I congratulate the American Bridge workforce, past and present, on more than 125 years of world-class performance. Now to discuss our quarterly results. We started the year with strong performance with revenue of $239 million, gross profit of $21.5 million, and positive cash flow from operations of $6.4 million. Consolidated gross profit margin was 9%, an increase from 7% in the prior year period. This improvement was driven by strong performance in our civil segment, which delivered a gross profit margin of 22%. Despite the adverse weather we faced in some key markets, we produced the highest first quarter consolidated gross profit margin since before COVID. Turning to the broader economic backdrop, I'd like to share our view on the potential impact of recent tariff actions and federal spending cut announcements. Based on what we know today, we do not expect the current tariffs to have a material effect on our current book of business. As we mentioned on our last call, our direct exposure to cross-border material procurement is minimal. While we don't anticipate a direct impact, there is a risk that tariffs could increase input cost over time. That said, Southland remains well positioned. We have strong risk management practices in place, including the ability to lock in major material contracts early in project life cycles, which helps protect against cost escalations. We also do not believe that government spending cuts will affect demand. The bridges, water pipelines, tunnels, and treatment facilities we build are critical. We have not had a project and backlog be affected by any spending cuts, and we do not expect a material impact on our pipeline. Demand for our business remains extremely strong for federal and state clients, and we expect this trend to continue. I'd also like to note that our historical client mix consists of approximately 80 percent government agencies and 20 percent private clients. Thanks to our diverse capabilities and strong relationships, we have the flexibility to adjust that mix in response to market demand. Because a substantial amount of our work is with government agencies and our projects are essential to the communities we work and live in, we are generally insulated from the effects of broader economic uncertainty. combined with the sustained infrastructure investment robust demand particularly at the federal and state levels we believe these factors will serve as strong tailwinds for our business for years to come during the quarter we added approximately 137 million dollars in new awards this was led by two water resource projects totaling 97 million dollars bringing our total backlog to approximately $2.5 billion. We continue to have strong visibility into demand across our pipeline for both public and private clients. With a robust pipeline, we are well-positioned to win high-quality work while remaining selective in our pursuit strategy. Upcoming opportunities in our civil segment include the $450 million Black Creek Tunnel in Toronto, packages from the $600 million Jordan Lake Water Supply Program, packages from the $2 billion Northern Colorado Waterglades Reservoir Program, and numerous water and wastewater opportunities in the southwest and the southeast regions. Upcoming opportunities in our transportation segment include several bridge projects in the northeast in Florida. We also hope to continue to develop our dedicated subrole to Kiewit on the rebuild of francis scott key bridge in baltimore in summary we're off to a strong start in 2025 driven by a disciplined bidding approach improved execution driving strong margins and continued strength in our core business with a deep bench of leadership and a strong pipeline of critical infrastructure opportunities ahead we're confident in our ability to deliver value for our clients and for our stakeholders over the long term. Before turning it over to Keith, I would also like to thank our teams for participating in National Safety Week. Thanks to all employees for their continued commitment to safety. Your focus on making safety a priority every day is essential to our success. We appreciate the role each of you plays in maintaining safe job sites across the company. With that, I'll now turn the call over to Keith

for a financial update. Thank you, Frank. Good morning, everyone. I will discuss an overview of our financial performance during the first quarter of 2025. You can find additional details and information in the financial statements, footnotes, and management's discussion and analysis that were filed on Form 10-Q last night. Revenue for the quarter was $239 million, down $49 million from the same period in 2024. Gross profit was $21.5 million, an increase of $1.1 million from the same period in 2024. Gross profit margin in the quarter was 9% compared to 7.1% in the prior year. Selling, general, and administrative costs in the first quarter were $16.5 million, an increase of $2.1 million compared to the same period in 2024. The increase was attributable to additional compensation expense and certain tax expense compared to the same period in 2024. Interest expense for the first quarter totaled $8.9 million, up $3.2 million from the prior year. This increase was primarily driven by higher borrowing costs and additional interest expense related to a real estate transaction that closed in the second half of last year. As previously discussed, we anticipate interest expense to average approximately $9.5 million per quarter. Income tax benefit was $300,000 for the quarter compared to income tax expense of $300,000 in the same period last year. As noted in prior quarters, we expect our effective tax rate to be in the 20 to 24% range subject to the impact of tax credits, non-deductible expenses, and state and local taxes. We reported a net loss of $4.5 million or a loss of $0.08 per share in the quarter compared to a loss of $400,000 or a loss of $0.01 per share in the same period last year. In the first quarter, we produced EBITDA or earnings before interest, taxes, depreciation, and amortization of $10.1 million compared to EBITDA of $10.9 million in the same period in 2024. Now to touch on segment performance for the quarter. Our civil segment had revenues of $103 million compared to revenue of $84 million in the same period in 2024. Our civil segment gross profit was $23 million, an increase of $5 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 22% compared to 21% in the same period in 2024. For the quarter, our transportation segment had revenues of $137 million, a decrease of $67 million from the same period in 2024. Our transportation segment had a gross loss of $1 million, a decrease from a gross profit of $3 million in the same period in the prior year. As a percentage of revenue for the quarter, our transportation segment had negative gross profit margin of 1% compared to positive gross profit margin of 1% in the same period in 2024. The materials and paving business line contributed $18 million to revenue and negative $9 million to gross profit in the first quarter. We experienced a non-cash charge of $3.5 million in connection with a scope finalization on a substantially complete paving project, with the remainder of the materials and paving gross profit impact attributable to increased project costs. We still anticipate to substantially complete these projects by the end of 2025. Our core operating results in this segment, excluding materials and paving, would have been $119 million of revenue and $8 million of gross profit for a gross profit margin of 7%. Consolidated core results in the quarter, excluding materials and paving, would have been $221 million of revenue and $31 million of gross profit for a gross profit margin of 14%. We finished the quarter with approximately $2.5 billion in backlog, of which we expect to burn approximately 40% over the next 12 months. At the end of the quarter, we had approximately $139 million of remaining M&P backlog and approximately $59 million of non-M&P legacy backlog. We continue to make good progress winding down legacy projects and expect the pace of our revenue from legacy projects to increase as we head into our peak construction season. Our new core backlog makes up over 90% of our total backlog, and we're excited about how the new core projects are performing. The new core projects continue to deliver strong double-digit margins, and we believe they will have more of an impact on the overall results. Thank you for your time and interest in Southland. I'll now pass the call back to the operator for questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you would like to ask the question, please press start and the number 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned out to allow your signal to reach our equipment. Again, please press start once you ask the question and we'll pause for the same moment to compile the Q&A roster. Our first question comes from the line of Adam Floheimer from Thompson-Davis. Your line is open.

hey good morning guys nice quarter and uh keith welcome to the call well thank you good morning thanks good morning adam uh morning so i wanted to start with um see maybe a question for keith but if you can give us a little bit of help in the civil segment how you're thinking about top line in some years um the revenue in q2 q3 in civil dips versus Q1. I'm just curious if that's the way you guys are modeling 2025. Perfect. No, Adam,

we're really excited about our civil business. We had some pickups in the quarter from strong execution in the business, but our core business is continuing to deliver strong double-digit margins. So when you don't have the impact from some of the legacy projects affecting a quarter, these types of returns are what we could see. 22% is a pretty high bar to set, but we feel like without the impacts from legacy write-downs, this business can consistently deliver mid-team results.

Yeah, so we did have the impact of seasonality in Q1, and we do expect the revenues to pick up

in the later half of the year. Got it, okay. And then I wanted to ask about M&P. The burn is going to pick up considerably the next three quarters. Just what are your early thoughts on what the profit impact could be from that?

Yeah, Frank, if you don't mind, let me take that one. So in the quarter, the gross profit impact from M&P was $9 million, and as I mentioned on the call, about $3.5 million of that was related to a non-cash contract closeout charge. we feel we have our arms wrapped around that backlog and it's appropriately at least stated as it stands again that said we will always continue to have that risk as we close out that backlog but as we work through it and we see the opportunity to really generate some positive operating cash flow as we work out the claims and disputes, you know, not only related to M&P, but also to the legacy backlog as a whole.

And then a last one for me, maybe for Frank. Frank, what's your outlook on transportation booking specifically? And I think that's the first time I've heard you mention the Baltimore Bridge job.

Yeah, so transportation booking specifically, you know, there's a lot of work out there, Adam. And we've got, you know, we've got quite a few projects in the pipeline. As far as the Francis Scott Key Bridge, you know, we were a dedicated sub to Keywood on the project. And, you know, they've been selected or working through the design. It would be, you know, it would be a bit before we would get out there and do any work if that does turn into a, you know, possible subcontract opportunity for us. But as far as transportation in general, just really excited about the market. There's tons of jobs in the northeast, the southeast, southwest that really make a lot of sense on the bridge side for us. So look for bidding to, you know, uptick in the second half of the year.

All right. Thanks, guys. Good luck in Q2.

Thanks, Adam. Thank you. Appreciate it.

Our next question comes from the line of Julio Romero from Cedote. Your line is open.

Hey, good morning, Frank, and echoing the same sentiments, welcome Keith. Yeah, so on civil, nice uptick on bookings in the quarter. If you could talk about some recent wins there and how you see bookings trending going forward.

Yeah, so, you know, we've picked up a couple of jobs on the civil side. They're typically, you know, quicker hitter, you know, quick hitting jobs. But, you know, as far as new awards, you know, we're adding new work selectively. We're focusing on projects where, you know, we have the right teams in place and a track record of success, particularly in markets where we've consistently delivered strong results. And, you know, we're excited about the potential in both the civil and transportation businesses. You know, we have teams that are performing well in both segments. And naturally, I think we may see a small shift towards civil projects versus transportation as we wind down the paving business. But overall, the demand remains strong and we're confident in our ability to continue to win new projects in all markets and are very excited about the civil sector as well.

Yeah, absolutely. Makes sense. And then, you know, I wanted to ask about alternative delivery. You know, where are you guys with regards to the $750 million of pending alternative delivery projects that I believe you talked about last quarter?

Yeah, so, you know, on the alternative delivery front, we've got the Winnipeg project, and we have the Burnside Bridge project. And both of those are continuing to progress well. You know, we're working along with our partners on those projects to develop that into a construction contract and hopefully continue to progress throughout the year and turn into an actual construction contract within the year, within a year.

All is progressing well. No bumps in the road so far.

Excellent. Good to hear. And then the last one for me is just where are you guys with regards to bonding capacity as it stands now?

Yeah, so, you know, obviously our surety partners play a critical role in our long-term success, and we maintain regular meetings with them to discuss various opportunities we are pursuing. It's important, you know, really important to do that right now because of all the work that's out there. So as far as bonding, you know, targeting strategic projects in the civil and transportation segment and, you know, have a great relationship with our current sureties.

Great. Thanks very much. Thank you, Julia.

Our next question comes from the line of Christian Squaf from Craig Halum Capital Group. Your line is open.

Thanks for taking my questions, Greg Corder. um i guess my line got dropped unfortunately so if this has been uh already addressed i'm sorry but um as far as the work this summer and working off the uh more of the legacy um design wins um did you get any clarity of what we should expect as we get into the busier working season and what the margin profile of the business would look like. And a follow-up to that is, did we expect by the end of calendar 25 to have the vast majority of all of that work complete?

Yeah, so speaking specifically to the M&P work, we do anticipate having all that work substantially complete by the end of 2025. In terms of margin, you know, we feel really good about the $2.3 billion of new core backlog that I mentioned on the earlier remarks and the contributions that it's going to make in the coming quarter. So we still have risk on the remaining legacy work. But as we progress throughout the year and we continue to complete the projects, you know, we're going to see less and less legacy impact. We continue to produce positive EBITDA absent any non-cash impacts from settlement disputes. And I would also say, you know, one of the reasons we haven't provided guidance in the past is that those settlement disputes or dispute settlements, rather, can impact results significantly one way or the other. And timing is just typically hard to predict.

Yeah. And one follow up to that, Keith, is, you know, we should start to see a couple of our large transportation projects start to start to really kick off Christian and the six hundred million dollars Shands Bridge and the four hundred million dollar RK Bridge. And that'll replace, you know, some of that some of that struggling M&P legacy work on a go forward basis.

And, you know, we may have, you know, one of the legacy projects, you know, going into 2026, but a lot less of a drag here at the end of the year and start to start 26 with the legacy work.

Great. And then as far as balance sheet strength, you guys feel like you're in a great position there.

Yeah, so as far as liquidity and as far as liquidity is concerned, we feel we have ample liquidity to pursue all these opportunities that are ahead of us. Again, we remain extremely selective, and the market's been affording us the opportunity to do so. We've made significant progress to improve the balance sheet over the last couple quarters. And if you look at the unrestricted cash position at the end of 2025 Q1, it's more than double where we were at the end of Q1 of last year. In addition to that, we also have access to the delayed draw facility, which gives us some additional capacity should be needed.

Great. No other questions. Thank you. Thanks, Christian.

Our next question comes from the line of Gene Vellis from DA Davidson. Your line is open.

Hi, good morning, and thank you, guys. Good morning, Gene.

Just asking this, I guess, another way, looking at the civil segment, yeah, you guys had a terrific quarter, but looking at the profit swings that have been volatile the past 12 months, how do you suggest approaching what a normal margin should be going forward for the segment, either in the quarterly or annual basis? And I know you guys mentioned double digits, but I guess I just want to look for more color into it.

Yeah, so we're going to continue to focus on owners that we have a really good relationship with in the civil sector, and I think our teams have done an excellent job of getting the returns that we expect in the civil market. But, you know, I think mid-teens returns are more than – should be more than achievable in the civil segment.

Yeah, and to add to that, the new core projects, again, producing the strong double-digit margins and excluding MNP, the profit margin was 14% in the quarter.

Okay. And for transportation, given the current backlog, do we expect contraction and segment revenue in 2025, or are there some things that could be booked near term that could drive the segment growth in 2025?

Yeah, I kind of on the transportation business, typically you have longer duration projects. So it takes a little bit longer for some of these new core jobs to make more of an impact on results. And we have some new core transportation projects. Like I mentioned, the $600 million Shenz Bridge and the $400 million RK Bridge in New York that are really starting to ramp up and are going to continue to contribute more to transportation margins. As we progress around, you know, the M&P impacts and as we wind down, you know, it will have an impact on revenue as we exit that M&P business.

But there's a lot of opportunity in the transportation side and the bridge side.

Thank you. And are there any updates on outstanding claims, or are there pending timelines this year that could have a meaningful impact on the balance sheet?

Yeah, so, you know, we continue to work through and make small progress on settling legacy claims. We have no major updates on the larger claims to report this quarter, but we do expect a significant cash flow from these claims in the coming quarters. And we continue to work vigorously to collect every dollar that we are owed. And, you know, it's important to remember almost all of these claims are from jobs that we picked up pre-COVID in that 2017, 18 and 19 time frame.

Yeah, timing will remain uncertain on those. But again, as Frank mentioned, we continue to make make progress towards towards settlements.

And just one last from me, given everything we've heard about just M&P drawing down and you increase in civil and then better work for transportation, how do you guys see free cash flow developing through 2025?

five. Yeah. So, you know, I had a good Q1 generating positive operating cash flow. I mean, we're off to a good start. We expect that cash flow to be more heavily weighted towards the

back half of the year. Okay. Well, I appreciate the time. Thank you so much. Thank you. Thank you.

There are no questions at this time. Please continue.

Hey, thank you everyone for your continued interest in Southland and look forward to

speaking next quarter. This concludes today's conference. Thank you for participating. You may now disconnect.