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. [Operator Instructions] 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 Frankie Renda, President and Chief Executive Officer; and Keith Bassano, 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, 2024, that was filed with the SEC on March 5, 2025, and discussion on Form 10-Q 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 now turn the call over to Frankie.

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 Graul 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 Don'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 JPMorgan 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 a…

Please hold, and the conference will wish you momentarily.

Sorry, everyone. We had some audio issues. I'm going to turn it over to Keith for a financial update now.

Thank you, Frank, and good morning, everyone. I'll discuss an overview of our financial performance during the first quarter 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 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 was closed in the second half of last year. As previously discussed, we anticipate interest expense to average approximately $9.5 million per quarter going forward. 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, nondeductible expenses and state and local tax adjustments. We reported a net loss of $4.5 million or a loss of $0.08 per share in the quarter compared to a net 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,…

[Operator Instructions] Our first question comes from the line of Adam Thalhimer from Thompson, Davis.

Nice quarter. And Keith, welcome to the call. So, I wanted to start with 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, the revenue in Q2, Q3 in Civil dips versus Q1. I'm just curious if that's the way you guys are modeling 2025.

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-teen results.

Yes. So, we did have the impact of seasonality in Q1, and we do expect the revenues to pick up in the latter half of the year.

And then I wanted to ask about M&P. The burn is going to pick up considerably in the next 3 quarters. Just what are your early thoughts on what the profit impact could be from that?

Yes, 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 noncash 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'll 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, not only related to M&P but also the legacy backlog as a whole.

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

Yes. So, transportation booking specifically, there's a lot of work out there, Adam. We've got quite a few projects in the pipeline. As far as the Francis Scott Key Bridge, we were a dedicated sub to keyword on the project, and they've been selected or working through the design. It would be a bit before we would get out there and do any work if that does turn into a 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 uptick in the second half of the year.

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

Echoing the same sentiments, welcome Keith. 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?

Yes. So, we picked up a couple of jobs on the Civil side. They're typically, they're typically quicker quick hitting jobs. But as far as new awards, we're adding new work selectively. We're focusing on projects where we have the right teams in place and a track record of success, particularly in markets where we've consistently delivered strong results, and we're excited about the potential in both the civil and transportation businesses. 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.

And then I wanted to ask about alternative delivery. Where are you guys with regards to the $750 million of pending alternative delivery projects that I believe you talked about last quarter?

Yes. So, 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. 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. But all is progressing well. No bumps in the road so far, Julio.

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

Yes. So 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 -- really important to do that right now because of all the work that's out there. So as far as bonding, targeting strategic projects in the Civil and Transportation segment and have a great relationship with our current sureties.

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

Great quarter. I guess I got dropped, unfortunately. So, if this has been already addressed, I'm sorry. But as far as the work this summer and working off the -- more of the legacy design wins, did you give any clarity of what we should expect as we get into the busier working season, what the margin profile of the business would look like? And a follow-up to that is, do we expect by the end of calendar '25 to have the vast majority of all of that work complete?

Yes. 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, 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 quarters. So, we still have risk on the remaining legacy work. But as we progress throughout the year and we continue to complete the projects, we're going to see less and less legacy impact. We continue to produce positive EBITDA absent any noncash impacts from settlement disputes. And I would also say 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.

Yes. And one follow-up to that, Keith, is we should start to see a couple of our large transportation projects start to really kick off, Christian, and the $600 million Shands Bridge and the $400 million RK bridge, and that will replace some of that struggling M&P legacy work on a go-forward basis. And we may have one of the legacy projects going into 2026, but a lot less of a drag here at the end of the year and start '26 with the legacy work.

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

Yes. 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 has been affording us the opportunity to do so. We've made significant process, or progress rather to improve the balance sheet over the last couple of 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 we need it.

Our next question comes from the line of Jean Veliz from D.A. Davidson.

Just asking this, I guess, another way, looking at the Civil segment, yes, you guys had a terrific quarter. But looking at the profit swings that have been volatile over the past 12 months, how do you suggest approaching what a normal margin should be going forward for the segment, either on a 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.

Yes. 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 I think mid-teens returns are more than -- should be more than achievable in the Civil segment.

Yes. And to add to that, the new core projects, again, producing the strong double-digit margins. And excluding M&P, the profit margin was 14% in the quarter.

And for transportation, given the current backlog, should we expect contraction in segment revenue in 2025? Or are there some things that could be booked near-term that could give -- that could drive the segment growth in 2025?

Yes. I kind of -- in 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 Shands 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 throughout the year. The M&P impacts, and as we wind down, 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 on the bridge side.

And is there any update on upcoming claims? Or are there pending time lines this year that could have a meaningful impact on the balance sheet?

Yes. So, 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 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.

Yes. Timing will remain uncertain on those. But again, as Frankie mentioned, we continue to make progress towards settlements.

And just one last for 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?

Yes. So 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.

There are no questions at this time. Please continue.

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.