Southland Holdings, Inc. (NYSE:SLND) Q4 2023 Earnings Call Transcript

Cody Gallarda: Yes. I think Christian just to maybe reiterate what we shared in some of the opening remarks, on an ex-M&P basis, we’re in that low-double-digit margin range, so we’ve obviously been able to produce those types of results in the past. Look forward getting back to that as we work through the legacy backlog burnout.

Christian Schwab: I mean the type of work that in the backlog, we touch about 40% burn of that backlog number throughout the course of the year. I mean is there any smaller project that will kind of be done intra-year with the backlog? And so they’re just kind of book and due faster or not.

Frank Renda: We definitely see some potential for that, particularly on the Civil side. Those projects are, by their nature, usually shorter burn and quicker starts than some of our longer lead transportation projects. So we do believe there’s some potential for that, particularly inside of new awards that we may pick up here early in 2024.

Christian Schwab: Great. And then what should be the appropriate expectation that we should be assuming for new awards or backlog wins throughout calendar 2024 of some of the things you’ve highlighted and other things are coming, I mean say, minus the 240 and legacy software even including it, should we see backlog? Would you be disappointed if backlog wasn’t to have a three handle on it? $3-plus billion by the time we exit 2024 and go into 2025, a lot of this money is finally being released.

Frank Renda: Yes. We see numerous opportunities out there, Christian. We’re sitting near a record backlog right now. We’re pursuing an incredible pipeline of opportunities and expect to pick up a good share of new work in 2024 and beyond. And as you remember, on the last call, we talked about $2 billion sitting out there and pending bids. We were able to convert that $2 billion into $600 million worth of contract wins. And we see the environment continuing to stay extremely healthy in all the segments that we operate in. So we’re very optimistic about winning good work. And our focus is going be to remain disciplined and focus on profitability first and then growing sustainably, so.

Christian Schwab: Great. Thank you. No other questions. Thanks, guys.

Frank Renda: Thanks, Christian.

Cody Gallarda: Thanks, Christian.

Operator: Thank you. The next question comes from Jean Ramirez at D.A. Davidson. Please go ahead.

Jean Ramirez: Hi. So next levels on the free cash flow, what are your expectations for free cash flow in 2024, and do you expect some working capital drag early in the year?

Cody Gallarda: Yes. So cadence wise with respect to seasonality, there’s always the potential for that as work starts to ramp up going into and through Q1. When you look at the trend of our year-over-year cash flow from operations, it’s continued to improve. We made some significant headway in Q4 with positive $25 million cash flow from ops, and we think that the net draw to the effect there is one on our working capital will naturally reverse itself out over the course of the year. And as Frank mentioned, we’ve been focused on selecting projects that have favorable cash flow curves and expect that to come to fruition as we move through 2024.

Jean Ramirez: Thank you. A lot of companies have talked about poor weather across the country to start the year. Is it having an initial impact on your business here in Q1? How should we handicap that?

Frank Renda: Yes. We had a pretty wet January, but we expect to pick up here in the coming months. So it could be a little bit of drag.

Jean Ramirez: Thank you. And one last for me, you talked about the cash claims, and sorry, that I’ve missed it, but what are the big ticket items embedded within your claims balance? And do you mind providing a little more color on when we can potentially see some resolutions?

Cody Gallarda: Yes. So great question with respect to the larger drivers of that, we’ve disclosed some of that information historically, and we do have several claims out there that have been built up over the years that we are seeing significant progress on. We do expect the opportunity to settle some of these in 2024, but are going to be responsible in determining what price we’re willing to settle those. We completed a lot of great projects in a very difficult time and deserve to be compensated for that. So no additional color or expectations as far as individual potential settlements go, but we do expect to get to the resolution table on some of it in 2024.

Jean Ramirez: Got it. And if I could one more, could you talk about the potential cadence of backlog in 2024? Should we expect the company to build off of these current levels?

Cody Gallarda: We had an impressive book-to-bill pickup in Q4 I think about 1.9. When you look on a year-over-year basis, we close to maintaining record backlog ample opportunity in the pipeline, but we’re going into all of these opportunities eyes wide open with respect to best return, profitability, and cash flow. So with that, we do see the potential for backlog to increase, but are going to be very responsible about doing so. Frank, anything you’d add to that?

Frank Renda: No.

Jean Ramirez: Great. Thank you. I appreciate the time. I’ll hop back in.

Frank Renda: Thank you.

Cody Gallarda: Thanks for your interest. Appreciate it.

Operator: Thank you. And the next question comes from Julio Romero at Sidoti & Company. Please go ahead.

Alex Hantman: Hi, good morning, Frank, Cody and Alex. This is Alex Hantman on for Julio.

Frank Renda: Good morning.

Cody Gallarda: Good morning.

Alex Hantman: Good morning, guys. First question is just a quick clarification, so on the M&P side, would you say the loss was more a function of procurement risk, or was it the actual execution of the job?

Frank Renda: Are you speaking specifically to Q4 of this or just M&P in general?

Alex Hantman: Yes, Q4.

Frank Renda: Yes, I would — Q4, I guess if you were choosing between those options, you could say it was execution risk. There was a specific change order that drove the bulk of that charge in Q4. We will continue to pursue recovery through other contractually available means as we work to complete that project. But this what — the Q4 charges were a specific event to change order negotiation.