UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
FORM 10-Q☒
(MARK ONE)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended Septemberquarterly period ended: June 30, 20212023
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-41090
Commission file number: 001-41090
LEGATO MERGER CORP. IISouthland Holdings, Inc.
(Exact Namename of Registrantregistrant as Specifiedspecified in Its Charter)its charter)
| | |
Delaware |
| 87-1783910 |
(State or other jurisdiction of
incorporation or organization)
| | (I.R.S.IRS Employer
Identification No.)
|
777 Third Avenue, 37th Floor1100 Kubota Dr.
New YorkGrapevine, NY10017TX76051
(Address of principal executive offices)
(Zip Code)
(212)319-7676(817) 293-4263
(Issuer’sRegistrant’s telephone number)
number, including area code)
Securities registered pursuantRegistered Pursuant to Section 12(b) of the Act:
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Title of each classEach Class | | Trading Symbol(s) Symbol | | Name of each exchangeEach Exchange on which registered Which Registered |
Units, each consisting of one share of Common Stock and one-half of one redeemable warrant | | LGTOU | | The Nasdaq Stock Market LLC |
Common Stock, par value $0.0001 per share | | LGTOSLND
| | The Nasdaq Stock MarketNYSE American LLC
|
Redeemable warrants, exercisable for shares of Common Stockcommon stock at an exercise price of $11.50 per share | | LGTOWSLND WS
| | The Nasdaq Stock MarketNYSE American LLC
|
CheckIndicate by check mark whether the issuerregistrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the pastpreceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒Yes☐No ☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒Yes☐ ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”,filer,” “accelerated filer”,filer,” “smaller reporting company”,company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | ☐ | | Accelerated filer | ☐ |
Non-accelerated filer | ☒ | | Smaller reporting company | ☒ |
| | | Emerging growth company | ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Act ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-212b-2 of the Exchange Act). ☐Yes☒ ☒ No ☐
As of December 16, 2021,August 9, 2023, there were 35,911,00047,856,114 shares of common stock, par value $0.0001 per share, issued and outstanding.
Unless otherwise stated in this Quarterly Report on Form 10-Q (this “Quarterly Report”), references to the “Company,” “our,” “us,” “we,” or “Southland” refer to Southland Holdings, Inc.
PART I - FINANCIAL INFORMATION
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (the “Securities Act”), as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements are based on the reasonable beliefs and assumptions of our management. Forward-looking statements are inherently subject to risks, uncertainties and assumptions. Generally, statements that are not historical facts, including statements concerning possible or assumed future actions, business strategies, events or results of operations, are forward-looking statements. These statements may be preceded by, followed by or include the words “believes,” “estimates,” “expects,” “projects,” “forecasts,” “may,” “will,” “should,” “seeks,” “plans,” “scheduled,” “anticipates,” “intends” or similar expressions. Forward-looking statements contained in this Quarterly Report include, but are not limited to, statements about our ability to:Item 1. Interim Financial Statements.
LEGATO MERGER CORP. II
UNAUDITED CONDENSED BALANCE SHEET
SEPTEMBER 30, 2021
| | | | | |
| ASSETS | | | |
| Current assets: | | | | |
| Cash | | $ | 9,614 | |
| Total current assets | | $ | 9,614 | |
| Deferred offering costs | | | 105,942 | |
| Total assets | | $ | 115,556 | |
| | | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | |
| Current liabilities: | | | | |
| Notes payable to stockholder | | $ | 65,000 | |
| Deferred offering costs payable | | | 25,235 | |
| Total current liabilities | | $ | 90,235 | |
| | | | | |
| Commitments and contingencies | | | | |
| | | | | |
| Stockholders’ equity: | | | | |
| Preferred stock, $.0001 par value; 1,000,000 shares authorized; NaN issued and outstanding | | | | |
| Common stock, $.0001 par value; 50,000,000 shares authorized, 7,140,000 shares issued and outstanding(1) (2) | | | 714 | |
| Additional paid-in capital | | | 25,156 | |
| Accumulated deficit | | | (549 | ) |
| Total stockholders’ equity | | | 25,321 | |
| Total liabilities and stockholders’ equity | | $ | 115,556 | |
| (1)● | This number includes an aggregateAccess, collect and use personal data about consumers; |
| ● | Execute our business strategy, including monetization of 900,000 sharesservices provided and expansions in and into existing and new lines of common stock subject to forfeiture bybusiness; |
| ● | Anticipate the initial stockholderimpact of the novel coronavirus (“COVID-19”) pandemic and its effect on our business and financial condition; |
| ● | Manage risks associated with operational changes in response to the extent that the underwriters’ over-allotment option is not exercised in full. (Note 7). The underwriters fully exercised their over-allotment option on November 29, 2021; as a result 900,000 shares were no longer subject to forfeitureCOVID-19 pandemic; |
| (2)● | On November 22, 2021,Anticipate the Company effected a stock dividenduncertainties inherent in the development of 0.2 shares for each outstanding, resulting in 7,140,000 shares issuednew business lines and outstanding (see Note 7). All shares and per-share amounts have been retroactively restated to reflect the share dividend.business strategies; |
The accompanying notes are an integral part of these financial statements.
LEGATO MERGER CORP. II
UNAUDITED CONDENSED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JULY 14, 2021 (INCEPTION) THROUGH SEPTEMBER 30, 2021
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| Formation and operational costs | | $ | 549 | |
| | | | | |
| Net loss | | $ | (549 | ) |
| | | | | |
| Weighted average shares outstanding, basic and diluted(1) (2) | | | 6,240,000 | |
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| Basic and diluted net loss per common share | | $ | (0.00 | ) |
| (1)● | Excludes an aggregateRetain and hire necessary employees; |
| ● | Increase brand awareness; |
| ● | Attract, train and retain effective officers, key employees or directors; |
| ● | Upgrade and maintain information technology systems; |
| ● | Acquire and protect intellectual property; |
| ● | Meet future liquidity requirements and comply with restrictive covenants related to long-term indebtedness; |
| ● | Effectively respond to general economic and business conditions; |
| ● | Maintain the listing of 900,000 sharesour securities on the NYSE American LLC (“NYSE”) or another national securities exchange; |
| ● | Obtain additional capital, including use of common stock subjectthe debt market; |
| ● | Enhance future operating and financial results; |
| ● | Anticipate rapid technological changes; |
| ● | Comply with laws and regulations applicable to forfeiture byour business, including laws and regulations related to data privacy and insurance operations; |
| ● | Stay abreast of modified or new laws and regulations applying to our business; |
| ● | Anticipate the initial stockholdersimpact of, and respond to, new accounting standards; |
| ● | Anticipate any rise in interest rates which would increase our cost of capital; |
| ● | Anticipate the significance and timing of contractual obligations; |
| ● | Maintain key strategic relationships with partners and distributors; |
| ● | Respond to uncertainties associated with product and service development and market acceptance; |
| ● | Anticipate the ability of the renewable sector to develop to the extent thatsize or at the underwriters’ over-allotment option is not exercised in full (Note 7). The underwriters fully exercised their over-allotment option on November 29, 2021; as a result, 900,000 shares were no longer subject to forfeiturerate it expects; |
| (2)● | On November 22, 2021, the Company effected a stock dividend of 0.2 shares for each outstanding, resulting in 7,140,000 shares issued and outstanding (see Note 7). All shares and per-share amounts have been retroactively restatedManage to reflect the share dividend.finance operations on an economically viable basis; |
The accompanying notes are an integral part of these financial statements.
LEGATO MERGER CORP. II
UNAUDITED CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE PERIOD FROM JULY 14, 2021 (INCEPTION) THROUGH SEPTEMBER 30, 2021
| | | | | | | | | | | | | | | | | | | | | |
| | | Common Stock | | | Additional
Paid-In | | | Accumulated | | | Stockholders’ | |
| | | Shares | | | Amount | | | Capital | | | Deficit | | | Equity | |
| Balance at July 14, 2021 (inception) | | | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | |
| Common shares issued to initial stockholders(1) (2) | | | 6,900,000 | | | | 690 | | | | 24,310 | | | | | | | | 25,000 | |
| | | | | | | | | | | | | | | | | | | | | |
| Issuance of Representative Shares(2) | | | 240,000 | | | | 24 | | | | 846 | | | | | | | | 870 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net loss | | | | | | | | | | | | | | | (549 | ) | | | (549 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Balance at September 30, 2021 | | | 7,140,000 | | | $ | 714 | | | $ | 25,156 | | | $ | (549 | ) | | $ | 25,321 | |
| (1)● | This number includes an aggregateAnticipate the impact of 900,000 shares of common stock subject to forfeiture bynew U.S. federal income tax law, including the initial stockholder to the extent that the underwriters’ over-allotment option is not exercised in full. (Note 7). The underwriters fully exercised their over-allotment optionimpact on November 29, 2021; as a result 900,000 shares were no longer subject to forfeituredeferred tax assets; and |
| (2)● | On November 22, 2021, the Company effected a stock dividend of 0.2 shares for each outstanding, resulting in 7,140,000 shares issued and outstanding (see Note 7). All shares and per-share amounts have been retroactively restated to reflect the share dividend.Successfully defend litigation. |
The accompanying notes are an integral part of these financial statements.
LEGATO MERGER CORP. II
UNAUDITED CONDENSED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JULY 14, 2021 (INCEPTION) THROUGH SEPTEMBER 30, 2021
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| Cash flow from operating activities | | | |
| Net loss | | $ | (549 | ) |
| Net cash used by operating activities | | | (549 | ) |
| | | | | |
| Cash flows from financing activities | | | | |
| Proceeds from sale of shares of common stock to initial stockholder | | | 12,500 | |
| Offering costs paid | | | (67,337 | ) |
| Proceeds from stockholder note | | | 65,000 | |
| Net cash provided by financing activities | | | 10,163 | |
| | | | | |
| Net increase in cash and cash equivalents | | | 9,614 | |
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| Cash at beginning of period | | | 0 | |
| Cash at end of period | | $ | 9,614 | |
| | | | | |
| Supplemental disclosure of non-cash financing activities: | | | | |
| Deferred offering costs paid by the initial stockholder in exchange for common stock | | $ | 12,500 | |
| Issuance of Representative Shares (see Note 7) | | $ | 870 | |
The accompanying notes are an integral part of these financial statements.
LEGATO MERGER CORP. II
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(Unaudited)
Note 1 — OrganizationForward-looking statements are not guarantees of performance and Plan of Business Operations
Legato Merger Corp. II (the “Company”) was incorporated in Delaware on July 14, 2021speak only as a blank check company whose objective is to acquire, through a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization or other similar business combination, one or more businesses or entities (a “Business Combination”).
At September 30, 2021 the Company had not yet commenced any operations. All activity through September 30, 2021 relates to the Company’s formation and the proposed public offering described below. The Company has selected December 31 as its fiscal year-end. The registration statement for the Company’s Initial Public Offering was declared effective on November 22, 2021. On November 24, 2021 the Company consummated the Initial Public Offering of 24,000,000 units at $10.00 per Unit, generating gross proceeds of $240,000,000 which is described in Note 3, (“Proposed Public Offering”). Simultaneously with the closing of the Initial Public Offering, the Company consummated the sale of 1,045,500 units, at a price of $10.00 per unit in a private placement to certain holders of the Company’s founder shares (“Initial Stockholders”) and EarlyBirdCapital, Inc., the representative of the underwriters in the Initial Public Offering (“EBC”), generating gross proceeds of $10,450,000 (“Private Units”), which is described in Note 4. Transaction costs amounted to $13,680,526, consisting of $4,800,000 in underwriting fees, $8,400,000 of deferred underwriting fees and $480,526 of other offering costs. In addition, as of November 24, 2021, cash of $1,716,429 was held outside of the Trust Account (as defined below) and is available for the payment of offering costs and for working capital purposes. On November 29, 2021, the underwriters exercised their over-allotment option in full to purchase an additional 3,600,000 Units. As a result, on December 1, 2021, the Company sold an additional 3,600,000 Units at $10.00 per Unit for an aggregate amount of $36,000,000. In connection with the underwriters’ exercise of their over-allotment option, the Company also consummated the sale of an additional 126,000 private units at $10.00 per unit, generating total proceeds of $1,260,000. Transaction costs associated with the underwriters’ full exercise of their over-allotment option amounted to $15,660,526, consisting of $5,520,000 in cash underwriting fees and $9,660,000 of deferred underwriting fees. A total of $36,540,000 was deposited into the Trust Account, bringing the aggregate proceeds held in the Trust Account to $280,140,000.
All of the proceeds the Company receives from the sale of Private Units willdate hereof. While we believe that these forward-looking statements are reasonable, there can be placed in the trust account described below. The Company’s management has broad discretion with respect to the specific application of the net proceeds of this Proposed Public Offering and the sale of Private Units, although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination. The Company intends to apply to have the Units listed on the Nasdaq Global Market (“NASDAQ”). Pursuant to the NASDAQ listing rules, the Company’s initial Business Combination must be with a target business or businesses whose collective fair market value is at least equal to 80% of the balance in the trust account at the time of the execution of a definitive agreement for such Business Combination (net of taxes payable and deferred underwriting commissions), although this may entail simultaneous acquisitions of several target businesses. There is no assurance that we will achieve or realize these plans, intentions, or expectations. You should understand that the Company will be ablefollowing important factors, in addition to effect a Business Combination successfully.
Followingthose discussed under the closingheading “Item 1A. Risk Factors” to Part I of our Annual Report on Form 10-K for the year ended
December 31, 2022 (the “Annual Report”) “Item 1A. Risk Factors” to Part II of the Initial Public Offering, the over-alottmentQuarterly Report and the private placement, $280,140,000 ($10.15 per Unit) from the net proceeds of the sale of the Units in the Initial Public Offering and the sale of the Placement Units was placed in a trust account (the “Trust Account”) and will be invested in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act, with a maturity of 185 daysother reports or less, or in any open-ended investment company that holds itself out as a money market fund selected by the Company meeting the conditions of Rule 2a-7 of the Investment Company Act, as determined by the Company, until the earlier of: (i) the consummation of a Business Combination; (ii) the redemption of any Public Shares in connection with a stockholder vote to amend the Company’s Amended and Restated Certificate of Incorporation to modify the substance or timing of the Company’s obligation to redeem 100% of its Public Shares if it does not complete an initial Business Combination within 15 months from the consummation of the Initial Public Offering (or 18 months from the closing of the Proposed Public Offering if the Company has executed a definitive agreement for a Business Combination within such 15-month period) (the “Combination Period”); or (iii) the distribution of the Trust Account, as described below, except that interest earned on the Trust Account can be released to pay the Company’s tax obligations, if the Company is unable to complete an initial Business Combination within the Combination Period or upon any earlier liquidation of the Company. The Company’s management has broad discretion with respect to the specific application of the net proceeds of its Initial Public Offering and Private Units, although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination. NASDAQ rules provide that the Company’s initial Business Combination must be with one or more target businesses that together have a fair market value equal to at least 80% of the balance in the Trust Account (less taxes payable) at the time of the signing a definitive agreement in connection with a Business Combination. The Company will only complete a Business Combination if the post-Business Combination company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient for it not to be required to register as an investment company under the Investment Company Act. There is no assurance that the Company will be able to successfully effect a Business Combination.
The Company will provide its stockholdersdocuments we file with the opportunity to redeem all or a portion of their Public Shares upon the completion of a Business Combination either (i) in connection with a stockholder meeting called to approve the Business Combination or (ii) by means of a tender offer. The decision as to whether the Company will seek stockholder approval of a Business Combination or conduct a tender offer will be made by the Company, solely in its discretion. The stockholders will be entitled to redeem their Public Shares for a pro rata portion of the amount then on deposit in the Trust Account (initially approximately $10.15 per Public Share, plus any pro rata interest earned on the funds held in the Trust Account and not previously released to the Company to pay its tax obligations). There will be no redemption rights upon the completion of a Business Combination with respect to the Company’s warrants.
The Company will proceed with a Business Combination if the Company has net tangible assets of at least $5,000,001 either immediately prior to or upon such consummation of a Business Combination and, if the Company seeks stockholder approval, a majority of the outstanding shares voted are voted in favor of the Business Combination. If a stockholder vote is not required by law and the Company does not decide to hold a stockholder vote for business or other legal reasons, the Company will, pursuant to its Amended and Restated Certificate of Incorporation, conduct the redemptions pursuant to the tender offer rules of the U.S. Securities and Exchange Commission (“SEC”), could affect our future results and file tender offer documents withcould cause those results or other outcomes to differ materially from those expressed or implied in the SEC priorforward-looking statements in this Quarterly Report:
| ● | Litigation, complaints, product liability claims and/or adverse publicity; |
| ● | The impact of changes in consumer spending patterns, consumer preferences, local, regional and national economic conditions, crime, weather, demographic trends and employee availability; |
| ● | Increases and decreases in utility and other energy costs, increased costs related to utility or governmental requirements; |
| ● | Privacy and data protection laws, privacy or data breaches or the loss of data; and |
| ● | The impact of the COVID-19 pandemic and its effect on business and financial conditions. |
These and other factors that could cause actual results to completingdiffer from those implied by the forward-looking statements in this Quarterly Report are more fully described under the heading “Item 1A. Risk Factors” in the Annual Report and elsewhere in this Quarterly Report. The risks described under the heading “Item 1A. Risk Factors” in the Annual Report are not exhaustive. Other sections of this Quarterly Report may describe additional factors that could adversely affect our business, financial condition or results of operations. New risk factors emerge from time to time and it is not possible to predict all such risk factors, nor can we assess the impact of all such risk factors on the business, nor the extent to which any factor or combination of facts may cause actual results to differ materially from those contained in any forward-looking statements. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing cautionary statements. We undertake no obligations to update or revise publicly any forward-looking statements, whether as a Business Combination. If, however, stockholder approvalresult of new information, future events or otherwise, except as required by law.
In addition, statements of belief and similar statements reflect our reasonable beliefs and opinions on the relevant subject. These statements are based upon information available to us, as applicable, as of the transaction is required by law,date of this Quarterly Report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or the Company decidesincomplete, and such statements should not be read to obtain stockholder approval for businessindicate that we have conducted an exhaustive inquiry into, or other legal reasons, the Company will offerreview of, all potentially available relevant information. These statements are inherently uncertain, involve risks and are subject to redeem shareschange based on various factors, including those discussed under “Item 2. Management Discussion and Analysis of Financial Condition and Results of Operations” in conjunction with a proxy solicitation pursuant to the proxy rules and not pursuant to the tender offer rules. If the Company seeks stockholder approval in connection with a Business Combination, the Company’s officers, directors and initial stockholders (the “Insiders”) have agreed to vote their Founder Shares (as defined in Note 5), the shares of common stock included in the Placement Units (the “Placement Shares”) and any Public Shares held by them in favor of approving a Business Combination. Additionally, each public stockholder may elect to redeem their Public Shares irrespective of whether they vote for or against the proposed transaction.this Quarterly Report.
The Company will also provide its stockholders with the opportunity
SOUTHLAND HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Liquidity and Capital Resources
As of September 30, 2021, the Company had $9,614 in cash.
The Company’s liquidity needs prior to the consummation of the Initial Public Offering were satisfied through the payment of $25,000 from our initial stockholder exchange for issuance of Founder Shares (as defined in Note 5), and loan proceeds from Eric Rosenfeld, the Company’s Chief SPAC Officer, as of September 30, 2021, of $65,000 under the Note (as defined in Note 5). The Note balance was settled shortly after the consummation of the Initial Public Offering. Subsequent to the consummation of the Initial Public Offering, the Company’s liquidity has been satisfied through the net proceeds held outside of the Trust Account.
Note 2 — Summary1.Description of Significant Accounting PoliciesBusiness
Overview
Southland Holdings, Inc. (“Southland”) is a diverse leader in specialty infrastructure construction with roots dating back to 1900. The end markets for which we provide services cover a broad spectrum of specialty services within infrastructure construction. We design and construct projects in the bridges, tunnels, communications, transportation and facilities, marine, steel structures, water and wastewater treatment, and water pipelines end markets.
Southland is based in Grapevine, Texas. It is the parent company of Johnson Bros. Corporation, American Bridge Holding Company (“American Bridge”), Oscar Renda Contracting, Southland Contracting, Mole Constructors, Heritage Materials and other affiliates. With the combined capabilities of these six primary subsidiaries and their affiliates, Southland has become a diversified industry leader with both public and private customers. The majority of our customers are located in the United States.
In the second quarter of 2023, Southland decided to discontinue certain types of projects in its Materials & Paving business line (“M&P”) and sold assets related to producing large scale concrete and asphalt. M&P is reported in the Transportation segment. The Company will not be pursuing production of concrete and asphalt products for use on self-performed paving projects where the majority of the scope of work contains large-scale concrete and asphalt production or sale of asphalt and concrete products to third parties. This operational shift will allow the Company to better focus its resources on more profitable lines of business. The Company has concluded this action with M&P does not qualify for Discontinued Operations treatment and presentation under ASC 205-20 as it does not represent a strategic shift in the Company’s business.
Merger
As previously announced, on May 25, 2022, Legato Merger Corp. II, a Delaware corporation (“Legato II”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Legato Merger Sub Inc., a Delaware corporation and wholly owned subsidiary of Legato II (“Merger Sub”), and Southland Holdings LLC, a Texas limited liability company (“Southland LLC”).
On February 14, 2023 (the “Closing Date”), as contemplated by the Merger Agreement, Merger Sub merged with and into Southland LLC, with Southland LLC surviving the merger as a wholly owned subsidiary of Legato II (the “Merger”). The transactions contemplated by the Merger Agreement are referred to herein collectively as the “Business Combination.” In connection with the Business Combination, Legato II changed its name to “Southland Holdings, Inc.”
Basis of Presentation
The accompanyingMerger was accounted for as a reverse recapitalization with Southland as the accounting acquirer and Legato II as the acquired company for accounting purposes. Accordingly, all historical financial information presented in the unaudited condensed consolidated financial statements represents the accounts of Southland and its subsidiaries as if Southland had been the predecessor Company. The structure of Southland’s historical common equity structure was in the form of membership percentages and no shares were issued. As such, reporting periods prior to the three months ended March 31, 2023 will not present share or per share data.
COVID-19 Considerations
Certain impacts to public health conditions particular to the coronavirus (“COVID-19”) outbreak have had a significant negative impact on our operations and profitability. The continuing extent of the impact to our financial performance will depend on future developments, including (i) the duration and spread of the outbreak, (ii) the restrictions and advisories, (iii) the effects on the financial markets, and (iv) the effects on the economy overall, all of which are presented inhighly uncertain and cannot be predicted. If our financial performance is impacted because of these developments for an extended period, our results may be materially adversely affected. We cannot anticipate how the potential widespread distribution of a vaccine will mitigate this impact on either
COVID-19 or on future variants of the disease.
Consolidated U.S. dollarsGAAP Presentation
These interim unaudited condensed consolidated financial statements have been prepared in conformity with United States generally accepted accounting principles generally accepted in the United States of America (“GAAP”) for interim. The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) contains guidance that form GAAP. New guidance is released via Accounting Standards Update (“ASU”).
The unaudited condensed consolidated financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X andstatements have been prepared by us pursuant to the rules and regulations of the SEC.SEC regarding interim financial reporting. Accordingly, they do not include all of thecertain information and footnotesfootnote disclosures required by GAAP.GAAP for complete financial statements have been condensed or omitted in accordance with such rules and regulations. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the unaudited condensed consolidated financial statements reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the balances and results for the period presented. Operating results for the period from July 14, 2021 (inception) through September 30, 2021, are not necessarily indicative of the results that may be expected through December 31, 2021 or any future periods.
The accompanyinghave been included. These unaudited condensed consolidated financial statements should be read in conjunction with our Annual Report which was filed on Form 8-K/A on March 22, 2023.
The accompanying balance sheet and related disclosures as of December 31, 2022, have been derived from the audited8-K/A filed on March 22, 2023. The Company’s financial condition as of June 30, 2023, and operating results for the three and six months ended June 30, 2023, are not necessarily indicative of the financial conditions and results of operations that may be expected for any future interim period or for the year ended December 31, 2023.
The unaudited condensed consolidated financial statements include the accounts of Southland Holdings, Inc., and notes thereto includedour majority-owned and controlled subsidiaries and affiliates. All significant intercompany transactions are eliminated within the consolidations process. Investments in non-construction related partnerships and less-than-majority owned subsidiaries that we do not control, but where we have significant influence are accounted for under the final prospectusequity method. Certain construction related joint ventures and partnerships that we do not control, nor do we have significant influence are accounted for under the equity method for the balance sheet and the Current Report on Form 8-K filed byproportionate consolidation method for the Company with the SEC on December 1, 2021statement of operations.
Based on the foregoing, management believes that the Company will have sufficient working capital and borrowing capacity to meet its needs through the earlier of the consummation of a Business Combination or one year from this filing. Over this time period, the Company will be using the funds held outside of the Trust Account for paying offering costs including existing accounts payable and accrued expenses, identifying and evaluating prospective initial Business Combination candidates, performing due diligence on prospective target businesses, paying for travel expenditures, selecting the target business to merge with or acquire, and structuring, negotiating and consummating the Business Combination.
Emerging Growth Company
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Use of Estimates
The preparation of the consolidated financial statementstatements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amountsamount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statementstatements and the reported amounts of revenues and expenses during the reporting period.
Making Actual results could differ from those estimates. Management periodically evaluates estimates requires management to exercise significant judgment.used in the preparation of the consolidated financial statements for continued reasonableness. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statement, which management considered in formulating its estimate, could changechanges may occur in the near term duethat would affect our estimates with respect to one or more future confirming events. Accordingly, the actual results could differ significantly from those estimates.input method, the allowance for credit losses, recoverability of unapproved contract modifications, deferred tax assets, and other accounts for which estimates are required.
Cash, and Cash Equivalents, and Restricted Cash
The company considersWe consider all short-term investmentshighly liquid instruments purchased with an originala maturity of three months or less when purchasedas cash equivalents. We maintain our cash in accounts at certain financial institutions. The majority of our balances exceed federally insured limits.
We have not experienced any losses in these accounts, and we do not believe they are exposed to be aany significant credit risk.
Restricted cash equivalent. The Company had 0and cash equivalents as of September 30, 2021.
Offering Costs
The Company complies with the requirements of Financial Accounting Standard Board (FASB) Account Standard Codification (ASC) 340-10-S99-1. Offering costs consist of legal, accounting, underwriting fees and other costs incurred that directly related to the Initial Public Offering. Offering costs are allocated to the separableamounts held in accounts in our name at certain financial instruments issued in the Initial Public Offering based on a relative fair value basis, compared to the total proceeds received. Upon the completion of the Initial Public Offering, costs associated with the common stock issued were charged against their carrying value. The Company classifies deferred underwriting commissions as non-current liabilities as their liquidation is not reasonably expected to require the use of current assets or require the creation of current liabilities.
Net Loss per Common Share
Net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period, excluding shares of common stock subject to forfeiture. Weighted average shares were reduced for the effect of an aggregate of 900,000 shares of common stock thatinstitutions. These accounts are subject to forfeiture if the over-allotment option is not exercised by the underwriters (see Note 7). At September 30, 2021, the Company did not have any dilutive securitiescertain control provisions in favor of various surety and other contracts that could, potentially, be exercised or converted into common stockinsurance companies for purposes of compliance and then sharesecurity perfections.
Goodwill and Intangibles
Goodwill and indefinite-life intangibles are tested for impairment annually in the earningsfourth quarter, or more frequently if events or circumstances indicate that goodwill or indefinite-lived intangibles may be impaired. We evaluate goodwill at the reporting unit level (operating segment or one level below an operating segment). We identify our reporting unit and determine the carrying value of the Company. As a result, diluted loss per share isreporting unit by assigning the same as basic loss per share for the period presented.
Income Taxes
The Company complies with the accounting and reporting requirements of ASC Topic 740 “Income Taxes,” which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities, are computed for differences betweenincluding the financial statementexisting goodwill and tax bases of assets and liabilities that will result in future taxable or deductible amounts,indefinite-lived intangibles, to the reporting unit. Our reporting units are based on enacted tax lawsour organizational and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
ASC Topic 740 prescribesreporting structure. We currently identify three reporting units. We begin with a recognition thresholdqualitative assessment using inputs based on our business, our industry, and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of September 30, 2021. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position.
The Company may be subject to potential examination by federal, state and city taxing authorities in the areas of income taxes. These potential examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance with federal, state and city tax laws. The Company’s management does not expectoverall macroeconomic factors. If our qualitative assessment deems that the total amount of unrecognized tax benefits will materially change over the next twelve months. The Company is subject to income tax examinations by major taxing authorities since inception. Deferred tax assets were deemed de minimis as of September 30, 2021.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consistfair value of a cash account inreporting unit is more likely than not less than its carrying amount, we then complete a financial institution, which, at times, may exceedquantitative assessment to determine the Federal Depository Insurance Corporation coverage limit of $250,000. The Company has not experienced losses on this account and management believes the Company is not exposed to significant risks on such account.
Fair Value of Financial Instruments
The fair value of the Company’s assetsreporting unit and liabilities, which qualify as financial instruments under ASC 820, “Fair Value Measurement,” approximatescompare it to the carrying amounts representedamount of the reporting unit. During the three and six months ended June 30, 2023 and 2022, there was no impairment recorded.
Long-Lived Assets
We review long-lived assets, including finite-lived intangible assets subject to amortization, for impairment upon the occurrence of events or changes in circumstances that would indicate that the balance sheet, primarilycarrying value of the asset or group of assets may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset or group of assets to the future net cash flows expected to be generated by the asset or group of assets. If such assets are not considered to be fully recoverable, any impairment to be recognized is measured by the amount by which the carrying amount of the asset or group of assets exceeds its respective fair value. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. During the three and six months ended June 30, 2023 and 2022, we did not identify any triggering events that would require a quantitative assessment.
Accounts Receivable, Net
We provide an allowance for credit losses, which is based upon a review of outstanding receivables, historical collection information, existing economic conditions, and future expectations. Normal contracts receivable are typically due within 10-30 days after the issuance of the invoice and may vary by customer. Retainages are due after completion of the project and acceptance by the contract owner. We may be able to their short-term nature.negotiate release of some retainages upon meeting certain milestones. Warranty retainage receivables are due after the expiration of the warranty period, if applicable. Receivables past due more than 120 days are considered delinquent. Delinquent receivables are written off based on individual credit evaluations and specific circumstances of the customer.
As of June 30, 2023, and December 31, 2022, we had an allowance for credit losses of $1.5 million.
RecentRecently Adopted Accounting Pronouncements
In AugustMarch 2020, the FASB issued Accounting Standards ASU 2020-04, Reference Rate Reform (“Topic 848”): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“Update (“ASU”) No. 2020-06, Debt — debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’ Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’ Own Equity (“ASU 2020-06”2020-04”), which simplifies accountingprovides optional expedients and exceptions for convertible instrumentsapplying U.S. GAAP principles to contracts, hedging relationships, and other transactions affected by removing major separation models required under current GAAP.reference rate reform if certain criteria are met. The ASU also removes certain settlement conditionsamendments in Update 2020-04 apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. We adopted Topic 848 as of January 1, 2021. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected optional expedients for and that are required for equity-linked contracts to qualify forretained through the derivative scope exception, and it simplifies the diluted earnings per share calculation in certain areas. The Company adopted ASU 2020-06 on July 14, 2021 (inception) using a modified retrospective method for transition. Adoptionend of the ASUhedging relationship. The provisions in Update 2020-04 are effective upon issuance and can be applied prospectively through December 31, 2022. Our adoption of Update 2020-04 did not impact the Company’s financial position, results of operations or cash flows.
The Company’s management does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effectimpact on our consolidated financial statements and related disclosures. We no longer have any debt that references LIBOR.
In June 2016, FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments, (“Topic 326”). The standard requires the accompanyingimmediate recognition of estimated credit losses expected to occur over the life of financial statement.assets rather than the current incurred loss impairment model that recognizes losses when a probability threshold is met. Topic 326 is effective for annual periods beginning after January 1, 2023, and interim periods within those fiscal years. The implementation of Topic
326 in 2023 did not have a material impact on our consolidated financial statements given the nature of our contracts and our historical loss experience.
Significant Accounting Policies
AccountingThe significant accounting policies followed by the Company are set forth in Note 2 to the 8-K/A filed on March 22, 2023, and contained elsewhere herein, other than the policy for Warrants:warrants, which is included below. For the three and six months ended June 30, 2023, there were no significant changes in our use of estimates or significant accounting policies.
Warrants
The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the instruments’ specific terms and applicable authoritative guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)FASB ASC 480, Distinguishing“Distinguishing Liabilities from EquityEquity” (“ASC 480”), and ASC 815, Derivatives“Derivatives and HedgingHedging” (“ASC 815”). The assessment considers whether the instruments are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the instruments meet all of the requirements for equity classification under
ASC 815, including whether the instruments are indexed to the Company’s own common shares and whether the instrument holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, was conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the instruments are outstanding. The Company has concluded that the Public Warrants and Private Warrants issued pursuant to the warrant agreement qualify for equity accounting treatment.
3. Recapitalization
As discussed in Note 1 – Description of Business, on the Closing Date, the Company issued 33,793,111 shares of Common Stock to the former members of Southland (“Southland Members”) in exchange for their membership interests in Southland (“Southland Membership Interests”). Southland received net proceeds of $17.1 million. Transaction costs of $9.9 million directly related to the Merger, are included in additional paid-in capital in the condensed consolidated balance sheet as of June 30, 2023. Prior to the Merger, Southland LLC declared a $50.0 million dividend to be payable to Southland Members, which is recorded in other noncurrent liabilities on the condensed consolidated balance sheets. Southland Members, in lieu of cash payment, agreed to receive a promissory note for payment in the future. The notes have a four-year term and accrue interest at 7.0%. Southland, at its discretion, may make interim interest and principal payments during the term.
Note 3 — Initial Public Offering
PursuantImmediately after giving effect to the Initial Public Offering, on November 24, 2021, the Company sold 24,000,000 Units, atBusiness Combination, there were 44,407,831 shares of Common Stock and 14,385,500 warrants, each exercisable for a purchase price of $10.00 per Unit. Each Unit consists of one share of common stock and one-half of one redeemable warrant (“Public Warrant”). Each whole Public Warrant entitles the holder to purchase one share of common stockCommon Stock at an exercise price of $11.50$11.50 per share subject(including public and private placement warrants) (“Warrants”), outstanding.
Earnout Shares
Pursuant to adjustment (see Note 7).
Note 4 — Private Placement
Simultaneously with the Initial Public Offering,Merger Agreement, Southland Members have the initial stockholders and EBC purchased an aggregatepotential to be issued additional consideration of up to 10,344,828 1,045,000shares Private Units, at $10.00 per Private Unit for a total purchase price of $10,450,000. Each Private Unit consists of one share of common stock or “private share,”for attaining certain performance targets for the years ended December 31, 2022, and one-half of one warrant or “private warrant”. The proceeds from the Private Units were added to the proceeds from the Initial Public Offering held in the Trust Account. If the Company does not complete a Business Combination within the required time period, the proceeds from the sale of the Private Units will be used to fund the redemption of the Public Shares (subject to the requirements of applicable law) and the Private Warrants will expire worthless. There will be no redemption rights or liquidating distributions from the Trust Account with respect to the private warrants.
December 31, 2023.
Note 5 — Related Party Transactions
Founders Shares
In July 2021, the CompanyOn April 27, 2023, Southland issued an aggregate of 5,750,0003,448,283 shares of common stock (the “Founder Shares”) for an aggregate purchase price of $25,000. On November 22, 2021, the Company effected a stock dividend of 0.2 shares for each share outstanding, resulting in 6,900,000 Founder Shares being issued and outstanding. The Founder Shares include an aggregate of up to 900,000 shares subject to forfeiture by the holders to the extent thatSouthland Members pursuant to the over-allotment is not exercised in full or in part, so that the holders will collectively own 20%attainment of the Company’s issued and outstanding shares after the Initial Public Offering (assuming the initial stockholders do not purchase any Public Shares in the Initial Public Offering and excluding the Representative Shares2022 Base Target (as defined in Note 7))the Merger Agreement).
Many of our contracts require contract modifications resulting from a change in contract scope or requirements. Change orders are issued to document changes to the original contract. We can have approved and unapproved change orders. Unapproved change orders are contract modifications for which we or our customers have not agreed to terms, scope and price. Contract modifications are necessary for many reasons, including but not limited to, changes to the contract specifications or design from the customer, modification to the original scope, changes to engineering drawings, or other required deviation from the original construction plan. Contract modifications may also be necessary for reasons including, but not limited to, other changes to the contract which may be out of our control, such as rain or other weather delays, incomplete, insufficient, inaccurate engineering drawings, different site conditions from information made available during the estimating process, or other reasons. An unapproved change order may turn into a formal claim if we cannot come to an agreement with the owner but are contractually entitled to recovery of costs and profits for work performed. Costs incurred related to contract modifications are included in the estimated costs to complete and are treated as project costs when incurred. Unless the contract modification is distinct from the other goods and services included within the project, the contract modification is accounted for as part of the existing contract. The effect of any modifications on the transaction price, and our measure of the percentage-of-completion on specific performance obligations for which the contract modification relates, is recognized as a cumulative catch-up adjustment to revenue recognized. In some cases, contract modifications may not be fully settled until (i) the earlier of 180 days after the completion of a Business Combinationwork as specified in the original contract.
We review and update our contract estimates regularly. Any adjustments in estimated profit on contracts is recognized under the cumulative catch-up method. Under this method, the cumulative impact of the profit adjustment is recognized in the period the adjustment is identified. Revenue and profit in future periods are then recognized using an updated estimate that uses inputs consisting of the remaining transaction price, the remaining contract term, and the dateremaining costs to be incurred on the project.
If a contract is deemed to be in a loss position, the projected loss is recognized in full, including any previously recognized margin, in the period in which the closingchange in estimate is made. Losses are recognized as an accrued loss provision on the consolidated balance sheets in the accrued liabilities caption. For contract revenue after the date that the loss is accrued, the accrued loss provision is adjusted so that the gross profit for the contract remains zero in future periods, subject to future adjustments to the overall expected profit or loss as determined at such time. As of June 30, 2023 and December 31, 2022, we had $21.4 million and $9.4 million, respectively, in accrued loss provision.
As of June 30, 2023, and December 31, 2022, we had $192.0 million and $144.2 million, respectively, of unapproved contract modifications included within our various projects’ transaction prices. These modifications are in negotiation with our customers or other third parties.
We estimate the likelihood of collection during the bidding process for new contracts. Customers with history of late or non-payment are avoided in the bidding process. We consider the necessity for write-down of receivable balances in conjunction with GAAP when evaluating our estimates of transaction price and estimated costs to complete our projects.
We bill our customers in conjunction with our contract terms. Our contracts have three main categories, (i) contracts that are billed based on a specific timeline, (ii) contracts that are billed upon the completion of certain phases of work, or milestones, and (iii) contracts that are billed as services are provided. Some of our contracts are billed following the recognition of certain revenue. This creates an asset on our consolidated balance sheets captioned “contract assets.” Other contracts’ schedules allow us to bill customers prior to recognizing revenue. These contracts create a liability on our consolidated balance sheets captioned “contract liabilities.”
We segregate our business into two reportable segments: Transportation and Civil. Our Chief Operating Decision Maker (“CODM”) uses these segments in order to operate the business. Our segments offer different specialty infrastructure services. Our CODM regularly reviews our operating and financial performance based on these segments. Each of our reportable segments is composed of similar business units that specialize in specialty infrastructure projects that are unique.
Our business is managed using revenue and gross profit primarily. Our CODM regularly uses this information to review operating results, plan future bids, allocate resources, target customers, and plan future growth and capital allocations. To determine reportable segment gross profit, certain allocations, including allocations of shared and indirect costs, such as facility costs, equipment costs, and indirect operating expenses, were made.
Our Civil segment is comprised of Oscar Renda Contracting, Inc., Mole Constructors, Inc., Southland Contracting, Inc., Southland Holdings, LLC, Renda Pacific, LLC, Southland Renda JV, Southland RE Properties, Oscar Renda Contracting Canada, Southland Mole of Canada, Southland Technicore Mole joint venture, and Southland Astaldi joint venture. This segment focuses on projects throughout North America that include the design and construction of water pipeline, pump stations, lift stations, water and wastewater treatment plants, concrete and structural steel, outfall, and tunneling.
Our Transportation segment is comprised of American Bridge, Heritage Materials, LLC, and Johnson Bros. Corporation. This segment operates throughout North America and specializes in services that include the design and construction of bridges, roadways, marine, dredging, ship terminals, and piers, and specialty structures and facilities.
Total assets by segment are not presented as our CODM, as defined by ASC 280, does not review or allocate resources based on segment assets. We do not have material intersegment revenue or gross profit. Joint ventures are classified into the segment with which the projects align.
Segment Revenue
Revenue by segment for the three and six months ended June 30, 2023 and 2022, was as follows:
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | Six Months Ended | |
(Amounts in thousands) | June 30, 2023 | | June 30, 2022 | | | June 30, 2023 | | June 30, 2022 | |
| | | | % of Total | | | | | % of Total | | | | | | % of Total | | | | | % of Total | |
Segment | Revenue | | Revenue | | Revenue | | Revenue | | | Revenue | | Revenue | | Revenue | | Revenue | |
Civil | $ | 65,567 | | 25.5 | % | $ | 74,851 | | 27.4 | % | | $ | 138,556 | | 26.1 | % | $ | 149,894 | | 28.2 | % |
Transportation | | 191,360 | | 74.5 | % | | 198,165 | | 72.6 | % | | | 393,200 | | 73.9 | % | | 381,608 | | 71.8 | % |
Total revenue | $ | 256,927 | | 100.0 | % | $ | 273,016 | | 100.0 | % | | $ | 531,756 | | 100.0 | % | $ | 531,502 | | 100.0 | % |
Segment Gross Profit
Gross profit by segment for the three and six months ended June 30, 2023 and 2022, was as follows:
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | Six Months Ended | |
(Amounts in thousands) | June 30, 2023 | | June 30, 2022 | | | June 30, 2023 | | June 30, 2022 | |
| | | % of Segment | | | | % of Segment | | | | | % of Segment | | | | | % of Segment | |
Segment | Gross Profit | | Revenue | | Gross Profit | | Revenue | | | Gross Profit | | Revenue | | Gross Profit | | Revenue | |
Civil | $ | 5,906 | | 9.0 | % | $ | 12,422 | | 16.6 | % | | $ | 14,672 | | 10.6 | % | $ | 19,389 | | 12.9 | % |
Transportation | | (39,700) | | (20.7) | % | | 25,315 | | 12.8 | % | | | (29,523) | | (7.5) | % | | 23,279 | | 6.1 | % |
Gross profit | $ | (33,794) | | (13.2) | % | $ | 37,737 | | 13.8 | % | | $ | (14,851) | | (2.8) | % | $ | 42,668 | | 8.0 | % |
Revenue earned outside of the common shares equals or exceeds $12.50 per share (as adjustedUnited States was 22% and 23% for share splits, share capitalizations, reorganizationsthe three and recapitalizations)six months ended June 30, 2023, respectively, and 6% for any 20 trading days within any 30-trading day period commencing aftereach of the three and six months ended June 30, 2022.
Long-term debt and credit facilities consisted of the following as of June 30, 2023, and December 31, 2022:
| | | | | |
| As of |
(Amounts in thousands) | June 30, 2023 | | December 31, 2022 |
Secured notes | $ | 185,956 | | $ | 177,914 |
Mortgage notes | | 803 | | | 901 |
Revolving credit facility | | 98,000 | | | 95,000 |
Equipment notes | | — | | | 31 |
Total debt | | 284,759 | | | 273,846 |
Unamortized deferred financing costs | | (215) | | | (246) |
Total debt, net | | 284,544 | | | 273,600 |
Less: Current portion | | (51,326) | | | (46,322) |
Total long-term debt | $ | 233,218 | | | 227,278 |
The weighted average interest rate on total debt outstanding as of June 30, 2023, was 4.56%. As of June 30, 2023, and December 31, 2022, we were in compliance with all debt covenants.
Revolving Credit Facility
In July 2021, we entered into a Business Combinationrevolving credit agreement with Frost Bank for $50.0 million. As of December 31, 2022, the revolving credit facility agreement had been amended and (ii) if, subsequentincreased to $100.0 million. The revolving credit facility agreement bears interest on drawn balances at 1-month SOFR, subject to a Business Combination,floor of 0.90%, plus an applicable margin rate of 2.10%. As of June 30, 2023, $98.0 million was drawn on the Company completesrevolver, and we had $2.0 million available.The revolver is collateralized by certain real estate assets, unencumbered assets, and a liquidation, merger, share exchange or other similar transaction which results in alljunior lien position on certain assets of the Company’s stockholders having the right to exchange their ordinary shares for cash, securities or other property.Southland.
Secured Notes
Administrative Service Fee
The Company presently occupies office space provided by an entity controlled by Crescendo Advisors II, LLC. Such entity agreed that until the Company consummates a Business Combination, it will make such office space, as well as general and administrative services including utilities and administrative support, available to the Company as may be required by the Company from time to time. The Company will agree to pay an aggregate of $15,000 per month to Crescendo Advisors II, LLC, an entity controlled by a related party for such services commencing on the effective date of the Initial Public Offering. No amounts have been paid or accrued as of September 30, 2021.
Note — Related Party
On August 23, 2021, Eric Rosenfeld, the Company’s Chief SPAC Officer, issued a $65,000 principal amount unsecured promissory note to the Company. The note is non-interest bearing and became payable on the consummation of the Initial Public Offering. Due to the short-term nature of the note, the fair value of the note approximates the carrying amount. As of September 30, 2021, there was $65,000 outstanding under the promissory note. The note balance was settled shortly after the consummation of the Initial Public Offering.
On November 5, 2021, Eric Rosenfeld, the Company’s Chief SPAC Officer, issued a $31,500 principal amount unsecured promissory note to the Company. The note is non-interest bearing and became payable on the consummation of the Initial Public Offering. Due to the short-term nature of the note, the fair value of the note approximates the carrying amount. The note balance was settled shortly after the consummation of the Initial Public Offering.
Working Capital Loans
InWe enter into secured notes in order to finance transaction costsgrowth within our business. As of June 30, 2023, we had outstanding secured notes scheduled to expire between November 2023 and March 2033. Interest rates on the secured notes range between 1.29% and 8.00%.The secured notes are collateralized by certain assets of Southland’s fleet of equipment.
Mortgage Notes
We also enter into mortgage notes in order to finance growth within our business. As of June 30, 2023, we had outstanding mortgage notes scheduled to expire between October 2023 and February 2029. Interest rates on the mortgage notes range between 3.84% and 5.99%. The mortgage notes are collateralized by certain real estate owned by Southland.
Equipment OEM Notes
We enter into equipment notes in order to complete certain specialty construction projects. As of June 30, 2023, we did not have any outstanding equipment OEM notes that are collateralized by certain equipment owned by Southland.
7. | Commitments and Contingencies |
Litigation
In the ordinary course of business, we and our affiliates are involved in various legal proceedings alleging, among other things, liability issues or breach of contract or tortious conduct in connection with a Business Combination, the Initial Shareholders,performance of services and/or materials provided, the Company’s officersoutcomes of which cannot be predicted with certainty. We and directorsour affiliates are also subject to government inquiries in the ordinary course of business seeking information concerning our compliance with government construction contracting requirements and various laws and regulations, the outcomes of which cannot be predicted with certainty.
Some of the matters in which we or theirour joint ventures and affiliates are involved may butinvolve compensatory, punitive, or other claims or sanctions that, if granted, could require us to pay damages or make other expenditures in amounts that are not obligatedcurrently probable to loan the Company funds from time to timebe incurred or atcannot currently be reasonably estimated. In addition, in some circumstances, our government contracts could be terminated, we could be suspended or incur other administrative penalties or sanctions, or payment of our costs could be disallowed. While any time, asof our pending legal proceedings may be required (“Working Capital Loans”). Each Working Capital Loan wouldsubject to early resolution as a result of our ongoing efforts to resolve the proceeding, whether or when any legal proceeding will be evidenced by a promissory note. The Working Capital Loans would eitherresolved is neither predictable nor guaranteed.
Accordingly, it is possible that future developments in such proceedings and inquiries could require us to (i) adjust existing accruals, or (ii) record new accruals that we did not originally believe to be paid upon consummationprobable or that could not be reasonably estimated. Such changes could be material to our financial condition, results of a Business Combination, without interest.operations, and/or cash flows in any particular reporting period. In addition to matters that are considered probable for which the eventloss can be reasonably estimated, disclosure is also provided when it is reasonably possible and estimable that a Business Combination does not close, the Company may use a portion of the proceeds held outside the Trust Account to repay the Working Capital Loans, but no proceeds held in the Trust Account wouldloss will be used to repay the Working Capital Loans. As of September 30, 2021, no Working Capital Loans were outstanding.
Note 6 — Commitments and Contingencies
Risks and Uncertainties
Management continues to evaluate the impact of the COVID-19 pandemic on the industry and has concluded that whileincurred, when it is reasonably possible that the virus couldamount of a loss will exceed the amount recorded, or a loss is probable but the loss cannot be estimated.
Liabilities relating to legal proceedings and government inquiries, to the extent that we have a negative effectconcluded such liabilities are probable and the amounts of such liabilities are reasonably estimable, are recorded on the Company’s financial position, resultsconsolidated balance sheets. A certain number of its operations, and/or searchthe claims are insured but subject to varying deductibles, and a certain number of the claims are uninsured. The aggregate range of possible loss related to (i) matters considered reasonably possible, and (ii) reasonably possible amounts in excess of accrued losses recorded for a target company, the specific impact is not readily determinableprobable loss contingencies was immaterial, as of June 30, 2023, and December 31, 2022. Our estimates of such matters could change in future periods.
Surety Bonds
We, as a condition for entering into a substantial portion of our construction contracts, had outstanding surety bonds as of June 30, 2023, and December 31, 2022. We have agreed to indemnify the date ofsurety if the financial statement. The financial statement does not include any adjustments that might result from the outcome of this uncertainty.
Registration Rights
The holders of the founders’ shares and representative shares issued and outstandingsurety experiences a loss on the datebonds of this prospectus, as well as the holdersany of the private units and any units our initial stockholders, officers, directors or their affiliates may be issued in payment of working capital loans made to us (and all underlying securities), will be entitled to registration rights pursuant to an agreement to be signed prior to or on the effective date of this offering. The holders of a majority of these securitiesaffiliates.
Self-Insurance
We are entitled to makeself-insured up to two demands that we register such securities. The holders of the majority of the founders’ shares can elect to exercise these registration rights at any time commencing three months prior to the date on which these shares of common stock are to be released from escrow. The holders of a majority of the representative shares, private units and units issued to our initial stockholders, officers, directors or their affiliates in payment of working capital loans made to us (or underlying securities) can elect to exercise these registration rights at any time after we consummate a business combination. Notwithstanding anything to the contrary, EBC may only make a demand on one occasion and only during the five-year period beginning on the effective date of the registration statement of which this prospectus forms a part. In addition, the holders have certain “piggy-back” registration rightslimits with respect to registration statements filed subsequentworkers’ compensation, and general liability and vehicle liability matters, and health insurance. We maintain accruals for self-insurance retentions based upon third-party data and claims history.
Prior to our consummationthe Merger, Southland LLC, and various domestic subsidiaries, elected to be taxed as an S-corporation, under the provisions of a business combination; provided, however, that EBC may participate in a “piggy-back” registration only during the seven-year period beginning on the effective dateSubchapter S of the registration statement of which this prospectus forms a part. We will bearInternal Revenue Code. As such, their respective earnings were not subject to entity level income tax, but instead, the expenses incurred in connection with the filing of any such registration statements.
Underwriting Agreement
The underwritersowners were paid a cash underwriting discount of 2.00%liable for federal income taxes on their respective shares of the gross proceedsapplicable income. American Bridge and Oscar Renda, two domestic subsidiaries of the Initial Public Offering, or $Southland LLC, had historically been taxed as a C-corporation and their income subject to entity-level tax.
4,800,000 upon
Following the closing of the Proposed Public Offering.
The underwriters are also entitledMerger on February 14, 2023, Southland LLC, along with various domestic subsidiaries, elected to a deferred underwriting commission of 3.50% of the gross proceeds of the Initial Public Offering.
On November 29, 2021, the underwriters exercisedvoluntarily revoke their over-allotment option in full to purchase an additional 3,600,000 Units.S-corporation status effective January 1, 2023. As a result, Southland LLC, and their domestic subsidiaries, will elect to file a consolidated corporate income tax return for the 2023 calendar year.
The federal statutory tax rate is 21%. Southland’s effective tax rate was 61.0% and 8.6% for the three months ended June 30, 2023 and 2022, respectively. The primary differences between the statutory rate and the effective rate for the three months ended June 30, 2023 were due to state income taxes, the permanent book to tax differences related to earnouts as well as income earned in a foreign jurisdiction with a zero tax rate; however, that foreign income is included within U.S taxable income through GILTI. The effective tax rate was 51.0% and 33.2% for the six months ended June 30, 2023 and 2022, respectively. The primary differences between the statutory rate and the effective rate for the six months ended June 30, 2023 were due to state income taxes, the release of the valuation allowance recorded on American Bridge’s U.S. and state net deferred tax assets, permanent book to tax difference related to earnouts, and a lower effective rate on overall foreign earnings.
The change in filing structure as a result of the Merger required recording deferred tax assets and liabilities related to entities previously not subject to income tax with $5.0 million being recorded to income tax expense for the six months ended June 30, 2023. As the Merger did not require acquisition accounting under U.S. GAAP, the recording of these deferred tax assets and liabilities was recorded to current operations in accordance with the requirements under ASC 740. Additionally, $1.1 million was recorded to income tax expense for the six months ended June 30, 2023 due to the change in the state effective tax rate applied to both American Bridge and Oscar Renda deferred tax assets and liabilities.
As a result of the new U.S. consolidated filing structure, Southland LLC is in a net deferred tax asset position for both federal and state income tax due to net operating losses recorded in the three and six month period ended June 30, 2023. Southland LLC is in a three-year cumulative book income position after adjusting for permanent and one-time items and is forecasting that the net deferred tax assets, including net operating losses, are more-likely-than-not to be fully utilized. Therefore, a valuation allowance is not deemed necessary as of June 30, 2023. The valuation allowance related to American Bridge federal and state net deferred tax assets previously recorded at the year ended December 31, 2022 has been removed resulting in a benefit to income tax of $3.8 million recorded in the three months ended March 31, 2023 and no change was recorded to this in the six months ended June 30, 2023.
As of June 30, 2023, and December 31, 2022, we had recorded $319.0 million and $260.8 million, respectively, related to claims. The classification of these amounts are represented on the consolidated balance sheets as of June 30, 2023, and December 31, 2022, as follows:
| | | | | |
(Amounts in thousands) | June 30, 2023 | | December 31, 2022 |
Costs in excess of billings | $ | 214,174 | | $ | 156,127 |
Investments | | 104,791 | | | 104,643 |
Claims asset total | $ | 318,965 | | $ | 260,770 |
On January 1, 2021,2022, we had contract liabilities of $111.3 million, of which $31.9 million and $90.7 were recognized as revenue during the three and six months ended June 30, 2022.
On January 1, 2023, we had contract liabilities of $131.6 million, of which $25.1 million and $99.3 were recognized as revenue during the three and six months ended June 30, 2023.
11. | Noncontrolling Interests Holders |
Southland has several controlling interests including both joint ventures and partnerships. We have controlling interests and allocate earnings and losses in those entities to the noncontrolling interest holders based on our ownership percentages.
We owned an 84.7% interest in Oscar Renda Contracting, Inc. (“Oscar Renda”), as of June 30, 2023, and June 30, 2022.
We owned a 65.0% interest in the Southland Technicore Mole joint venture and a 70.0% interest in the Southland Astaldi joint venture as of June 30, 2023, and June 30, 2022.
We consolidated each of Oscar Renda Contracting of Canada, Southland Technicore Mole joint venture, and Southland Astaldi joint venture because of our control of the entity through our ownership percentage over the joint venture operations. We have fully consolidated revenue, cost of construction, and other costs on our unaudited condensed consolidated statements of operations and balances on the unaudited condensed consolidated balance sheets.
12. Related Party Transactions
Southland occasionally enters into subcontracts with a subcontractor in which certain employees hold a minority ownership. Cost of construction related to this subcontractor was $0.8 million and $0.0 million for the three months ended June 30, 2023 and 2022, respectively, and $1.3 million and $0.0 million for the six months ended June 30, 2023 and 2022, respectively. Accounts payable balance due to this subcontractor was $0.7 million and $0.1 million as of June 30, 2023 and December 31, 2022. The terms on which Southland enters into agreements with this related party are substantially the same as terms the Company sold an additional 3,600,000 Units at $10.00 per Unit for an aggregate amount of $36,000,000. In connection with the underwriters’ exercise of their over-allotment option, the Company also consummated the sale of an additional 126,000 private units at $10.00 per unit, generating total proceeds of $1,260,000. The underwriters are now entitled $5,520,000 in cash underwriting fees and $9,660,000 of deferred underwriting fees.
Note 7 — Stockholders’ Equity
Preferred Stock
The Company is authorized to issue 1,000,000 shares of preferred stockwould enter into with a par value of $0similar, unrelated party.
.0001
13. Earnings (Loss) per share with such designation, rightsShare
Basic and preferences as may be determined from time to time by the Company’s board of directors. As of September 30, 2021, there are no shares of preferred stock issued or outstanding.
Common Stock
The Company is authorized to issue 50,000,000 shares of common stock with a par value of $0.0001 per share. As of September 30, 2021, 7,140,000 shares of common stock were issued and outstanding, comprised of 240,000 Representative Shares (as described below) and 6,900,000 Founder Shares, of which 900,000 shares are subject to forfeiture to the extent that the over-allotment option is not exercised in full so that the holders of the Founder Shares will own 20% of the issued and outstanding common shares after the Proposed Public Offering. On November 22, 2021, the Company effected a stock dividend of 0.2 shares for each share outstanding, resulting in 6,900,000 Founder Shares and 240,000 Representative Shares being issued and outstanding. All share and per-share amounts have been retroactively restated to reflect the share transaction.
All of the Founder Shares will be placed into an escrow account on the closing of the Proposed Public Offering. Subject to certain limited exceptions, these shares will not be released from escrow until the earlier of one year after the date of the consummation of an initial Business Combination and the date on which the closing price of the common stock exceeds $12.50diluted net loss per share for any 20 trading days within a 30-trading day periodthe three and six months ended June 30, 2023 consisted of the following the consummation(in thousands, except shares and per share amounts):
| | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, 2023 | | June 30, 2023 |
Numerator: | | | |
Net loss | $ | (11,901) | | $ | (16,167) |
Less net income attributable to noncontrolling interests | | 925 | | | 1,323 |
Net loss attributable to common stockholders, basic and diluted | | (12,826) | | | (17,490) |
| | | | | |
Denominator: | | | |
Weighted average common shares outstanding — basic and diluted | | 46,870,890 | | | 46,043,878 |
Basic and diluted net loss per share | $ | (0.27) | | $ | (0.38) |
| (1) | The structure of Southland’s historical common equity structure was in the form of membership percentages and no shares were issued. As such, reporting periods prior to the three months ended March 31, 2023 will not present share or per share data. |
Due to the Company’s initial Business Combination,net losses for the Company consummates a subsequent liquidation, merger, share exchange or other similar transaction which results in all ofthree and six months ended June 30, 2023, the Company’s stockholders havingpotential dilution from the right to exchange theirWarrants converting into 14,385,500 shares of common stock for cash, securities or other property.both periods have been excluded from the number of shares used in calculating diluted net loss per share, as their inclusion would have been antidilutive.
As a result of the underwriters’ election to fully exercise their over-allotment option, a total of 900,000 Founder Shares are 0 longer subject to forfeiture.
Representative Shares
The Company has issued to the designees of EBC 240,000 shares of common stock (the “Representative Shares”) for a nominal consideration, paid to the Company, shortly after the IPO. The Company accounted for the Representative Shares as an offering cost of the Proposed Offering, with a corresponding credit to stockholders’ equity. The Company estimated the fair value of Representative Shares to be $870 based upon the price of the Founder Shares issued to the Initial Stockholders. The holders of the Representative Shares have agreed not to transfer, assign or sell any such shares until the completion of a Business Combination. In addition, the holders have agreed (i) to waive their redemption rights with respect to such shares in connection with the completion of a Business Combination and (ii) to waive their rights to liquidating distributions from the Trust Account with respect to such shares if the Company fails to complete a Business Combination within the Combination Period.
The Representative Shares have been deemed compensation by FINRA and are therefore subject to a lock-up for a period of 180 days immediately following the effective date of the registration statement related to the Proposed Offering pursuant to Rule 5110(e)(1) of FINRA’s NASD Conduct Rules. Pursuant to FINRA Rule 5110(e)(1), these securities will not be the subject of any hedging, short sale, derivative, put or call transaction that would result in the economic disposition of the securities by any person for a period of 180 days immediately following the effective date of the registration statement related to the Proposed Offering, nor may they be sold, transferred, assigned, pledged or hypothecated for a period of 180 days immediately following the effective date of the registration statement related to the Proposed Offering except to any underwriter and selected dealer participating in the Proposed Offering and their bona fide officers or partners.
Warrants
As of September 30, 2021, there were no warrants outstanding. In connection with the Company’s Initial Public Offering, and subsequent over-allotment, as of November 24, 2021, the Company has 12,000,000 Public Warrants and 522,500 Private Placement Warrants outstanding. The Public Warrants and Private Placement Warrants are identical except as described below. Warrants may only be exercised for a whole number of shares. No fractional Warrants will be issued upon separation of the Units and only whole Warrants will trade. The Warrants will become exercisable 30 days after the completion of a Business Combination; provided that the Company has an effective registration statement under the Securities Act covering the issuance of the shares of common stock issuable upon exercise of the Warrants and a current prospectus relating to them is available and such shares are registered, qualified or exempt from registration under the securities, or blue sky, laws of the state of residence of the holder (or the Company permits holders to exercise their warrants on a cashless basis under the circumstances specified in the warrant agreement). The Company agreed that as soon as practicable after the closing of a Business Combination, the Company will use its best efforts to file with the SEC a registration statement covering the issuance of the shares of common stock issuable upon exercise of the Warrants, and use its best efforts to cause the same to become effective as soon as possible and to maintain the effectiveness of such registration statement and a current prospectus relating to those shares until the Warrants expire or are redeemed.
The Warrants have an exercise price of $11.50 per share, subject to adjustments, and will expire five 5 years after the completion of a Business Combination or earlier upon redemption or liquidation. In addition, if (x) the Company issues additional shares or equity-linked securities for capital raising purposes in connection with the closing of the initial Business Combination at an issue price or effective issue price of less than $9.20 per share (with such issue price or effective issue price to be determined in good faith by the Company’s board of directors, and in the case of any such issuance to the Company’s initial stockholders or their affiliates, without taking into account any founders’ shares held by them prior to such issuance) (the “Newly Issued Price”), (y) the aggregate gross proceeds from such issuances represent more than 60% of the total equity proceeds, and interest thereon, available for the funding of the initial Business Combination on the date of the completion of the initial Business Combination (net of redemptions), and (z) the volume weighted average trading price of the common stock during the 20 trading day period starting on the trading day prior to the day on which the Company consummates its initial Business Combination (such price, the “Market Value”) is below $9.20 per share, the exercise price of the Warrants will be adjusted (to the nearest cent) to be equal to 115% of the higher of the Market Value and the Newly Issued Price.
The Private Placement Warrants are identical to the Public Warrants underlying the Units sold in the Initial Public Offering, except that the Private Placement Warrants will not be transferable, assignable or salable until after the completion of a Business Combination, subject to certain limited exceptions.
Redemption of Warrants: Once the Warrants become exercisable, the Company may redeem the outstanding warrants:
14. | - | in whole and not in part; |
| | |
| - | at a price of $0.01 per warrant; |
| | |
| - | upon a minimum of 30 days’ prior written notice of redemption to each warrant holder; and |
| | |
| - | if, and only if, the last reported sale price of common stock equals or exceeds $18.00 per share (as adjusted) for any 20 trading days within a 30 trading day period commencing once the Warrants become exercisable and ending three business days before the Company sends the notice of redemption to the warrant holders.Subsequent Events |
On July 5, 2023, Southland refinanced approximately $76.4 million of existing secured notes in exchange for a new equipment note in the amount of $113.5 million. The new equipment note is secured by specific construction equipment assets and has a five-year fully amortizing term at a fixed rate of 7.3%. Approximately $8.0 million of these proceeds were used to pay down the Company’s revolving line of credit facility.
On August 11, 2023, Southland and Frost Bank agreed to extend the Company’s revolving line of credit through January 2025.
The Company will not redeem the Warrants as described above unless an effective registration statement under the Securities Act covering the common stock issuable upon exercise of the Warrants is effective and a current prospectus relating to those of shares is available throughout the 30-day redemption period or the Company has elected to require the exercise of the warrants on a “cashless basis”.
Note 8 — Subsequent Events
The Company evaluated subsequent events and transaction that occurred up to the date the unaudited condensed interim financial statements were issued. Other than as described and disclosed in these unaudited condensed interim financial statements, and in relation to Initial Public Offering and the Over-Allotment, the Company did not identify any subsequent events that would have required adjustment or disclosure in the unaudited condensed interim financial statements.
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
References in this report (the “Quarterly Report”) to “we,” “us” or the “Company” refer to Legato Merger Corp. II. References to our “management” or our “management team” refer to our officers and directors. The following discussion and analysis contain forward-looking statements relating to future events or our future financial performance, which involve risk and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements. Please see the discussion regarding forward-looking statements included under the “Cautionary Note Regarding Forward-Looking Statements” section for a discussion of some of the Company’s financial conditionuncertainties, risks, and assumptions associated with these statements.
The following discussion and analysis present information that we believe is relevant to an assessment and understanding of our condensed consolidated balance sheets, statements of cash flows, and results of operationsoperations. This information should be read in conjunction with the condensed consolidated financial statements and the notes thereto contained elsewherethereto.
Overview
Southland Holdings, Inc. (“Southland”) is a diverse leader in this Quarterly Report. Certain information containedspecialty infrastructure construction with roots dating back to 1900. The end markets for which we provide services cover a broad spectrum of specialty services within infrastructure construction. We design and construct projects in the discussionfollowing end markets: bridges, tunnels, communications, transportation and analysis set forth below includesfacilities, marine, steel structures, water and wastewater treatment, and water pipelines.
Southland is based in Grapevine, Texas. We are the parent company of Johnson Bros. Corporation, American Bridge Company, Oscar Renda Contracting, Southland Contracting, Mole Constructors, and Heritage Materials. With the combined capabilities of these six primary operating subsidiaries and their affiliates, Southland has become a diverse industry leader with both public and private customers.
Business Environment
Both our Civil and Transportation segments continue to identify new opportunities to grow our business, and the future outlook of the end markets we serve remains positive. Although risk and uncertainty exist, including, but not limited to, the items addressed within our forward-looking statements and risk factors, we believe that involve riskswe are well positioned to compete on new infrastructure projects in both the public and uncertainties.private sectors. We believe that we have the operational excellence, reputation, and technical skill to continue to grow our business.
Our Civil segment operates throughout North America and specializes in services that include the design and construction of water pipeline, pump stations, lift stations, water and wastewater treatment plants, concrete and structural steel, outfall, and tunneling.
Our Transportation segment operates throughout North America and specializes in services that include the design and construction of bridges, roadways, marine, dredging, ship terminals and piers, and specialty structures and facilities. Our Transportation segment is responsible for the construction of bridges and structures including many of the most recognizable bridges, convention centers, sports stadiums, marine facilities, and ferris wheels in the world.
Market Trends and Uncertainties
In both our Transportation and Civil segments, we have competitors within the individual markets and geographic areas in which we operate, ranging from small, local companies to larger regional, national, and international companies. Although the construction business is highly competitive, there are few, if any, companies which compete in all of our market areas, both geographically and from an end market perspective. The degree and type of competition is influenced by the type and scope of construction projects within individual markets. Equipment ownership and ability to self-perform across numerous disciplines are two of our significant competitive advantages. These two advantages contribute to what sets us apart from our competition. We believe that the primary factors influencing competition in our industry are price, reputation for quality, safety, schedule certainty, relevant experience, availability of field supervision and skilled labor, machinery and equipment, financial strength, as well as knowledge of local markets and conditions. We believe that we can compete favorably in all of these factors.
Special Note Regarding Forward-Looking StatementsMany of our competitors have the ability to perform work in either the private or public sectors. When opportunities for work in one sector are reduced, competitors tend to look for opportunities in the other sector. This migration has the potential to reduce revenue growth and/or increase pressure on gross profit margins.
We have seen an increase in demand for specialty construction projects in recent years at the federal, state, and local level. We anticipate the additional spending on infrastructure related to economic stimulus spending including the Infrastructure Investment and Jobs Act that was passed in 2021, and other federal, state, or local initiatives.
We believe that the combination of our experience, reputation, and technical expertise are unmatched among companies of our size. This Quarterly Report includes “forward-looking statements” within the meaningcombination of Section 27Askills has allowed us to pursue complex projects with fewer competitors.
Seasonality, Cyclicality, and Variability
The results of our operations are subject to quarterly variations. Much of the Securities Actvariation is the result of 1933,weather, particularly rain, ice, snow, heat, wind, and named storms, which can impact our ability to perform construction activities. These weather impacts can affect revenue and profitability in either of our business segments. Any quarter can be affected either negatively or positively by atypical weather patterns in any part of North America, or other areas in which we operate. Traditionally, our first quarter is the most weather-affected; however, this may or may not necessarily be true in future periods.
Our business may also be affected by overall economic market conditions, including but not limited to declines in spending by project owners, delays in new projects, by changes in client schedules, or for other reasons.
Key Business Metrics
Backlog
In our industry, backlog is an indicator of future revenue streams for work that has been awarded but not completed. We define backlog as amended (the “Securities Act”) and Section 21Ea measure of the Exchange Acttotal amount of revenue remaining to be earned on projects that have been awarded. We only include a project in our backlog once we have an executed contract, or authorized notice to proceed. As a result, we believe our backlog is firm, although cancellations or scope adjustments may occur.
Backlog should not be considered a comprehensive indicator of future revenue as any of our contracts can be terminated by our customers on relatively short notice, and backlog does not include future work for which we may be awarded. In the event of a cancelation, we are not historical facts, and involve risks and uncertainties that could cause actual resultstypically reimbursed for all of our costs through a specific contractual date, as well as our costs to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Form 10-Q including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materiallydemobilize from the events, performanceproject site. Costs may include preconstruction and results discussedengineering services as well as that of our subcontractors. Our contracts do not typically grant us rights to revenue reflected in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipatedbacklog. Projects may remain in the forward-looking statements, please refer to the Risk Factors sectionbacklog for extended periods of the Company’s final prospectus for its Initial Public Offering filed with the U.S. Securities and Exchange Commission (the “SEC”). The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whethertime as a result of new information, future eventsschedule delays, regulatory requirements, project specific issues, or otherwise.other reasons. Contract amounts from contracts where a transaction price cannot be reasonably estimated are not included within our backlog amount.
Overview
We are a blank check company formed under the laws of the State of Delaware on July 14, 2021, for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. We intend to effectuate our Business Combination using cash from the proceeds of the Initial Public Offering and the sale of the Private Units, our capital stock, debt or a combination of cash, stock and debt.
We expect to continue to incur significant costs in the pursuit of our acquisition plans. We cannot assure you that our plans to raise capital or to complete our initial Business Combination will be successful.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date. Our only activities through September 30, 2021 were organizational activities and those necessary to prepare for the Initial Public Offering. We do not expect to generate any operating revenues until after the completion of our Business Combination, at the earliest. We generate non-operating income in the form of interest income on marketable securities held in the Trust Account. We incur expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses.
For the period from July 14, 2021 (inception) to September 30, 2021, we had a net loss of $549, solely consisting of general and administrative expenses.
Other Non-GAAP Financial Measures
Liquidity
In addition to financial results determined in accordance with GAAP, in our industry, it is customary to manage our business using earnings before interest expense, income taxes, depreciation and Capital Resources
On November 24, 2021, the Company consummated the Initial Public Offering of 24,000,000 units at $10.00 per Unit, generating gross proceeds of $240,000,000 Simultaneously with the closing of the Initial Public Offering, the Company consummated the sale of 1,045,000 units, at a price of $10.00 per unit in a private placement to certain holders of the Company’s founder sharesamortization (“Initial Stockholders”) and EarlybirdCapital, Inc., the representative of the underwriters in the Initial Public Offering (“EBC”), generating gross proceeds of $10,450,000 (“Private Units”EBITDA”). On November 29, 2021, the underwriters fully exercised their over-allotment option, resulting in the sale on December 1, 2021 of an additional 3,600,000 Units issued for an aggregate amount of $36,000,000. In connection with the underwriters’ exercise of their over-allotment option, the Company also consummated the sale of an additional 126,000 private units at $10.00 per unit, generating total proceeds of $1,260,000.
Following the Initial Public Offering and the sale of the Private Units, a total of $280,140,000 was placed in the Trust Account and we had $1,716,429 of cash held outside of the Trust Account, after payment of costs related to the Initial Public Offering, and available for working capital purposes. We incurred $15,660,526 in transaction costs, including $5,520,000 in cash underwriting fees, 9,660,000 of deferred underwriting fees, and $480,526 of other offering costs.
We intend to use substantially all of the funds held in the Trust Account (excluding deferred underwriting commissions and interest to pay taxes) to acquire a target business or businesses and to pay our expenses relating thereto. To the extent that our common stock is used in whole or in part as consideration to affect our Business Combination, the remaining proceeds held in the Trust Account as well as any other net proceeds not expended will be used as working capital to finance the operations of the target business or businesses.
Until the consummation of a Business Combination, theThe Company will be using funds held outside of the Trust Account for paying existing accounts payable, identifying and evaluating prospective acquisition candidates, performing business due diligence on prospective target businesses, travelingalso utilize certain adjustments to and from the offices, plants or similar locations of prospective target businesses, reviewing corporate documents and material agreements of prospective target businesses, selecting the target business to acquire and structuring, negotiating and consummating the business combination. If the Company’s estimates of the costs of identifying a target business, undertaking in-depth due diligence and negotiating a Business Combination are less than the actual amount necessary to do so, the CompanyEBITDA (“Adjusted EBITDA”), which may have insufficient funds available to operate its business prior to a Business Combination. Moreover, the Company may need to obtain additional financing either to complete a Business Combination or because it becomes obligated to redeem a significant number of its public shares upon completion of a Business Combination, in which case the Company may issue additional securities or incur debt in connection with such Business Combination. In order to finance transaction costs in connection with a Business Combination, our officers, directors and initial stockholders and their affiliates may, but are not obligated to, loan us funds as may be required. If the Company completes a Business Combination, the Company would repay such loaned amounts. In the event that a Business Combination does not close, the Company may use any funds available to it outside of the Trust Account to repay any such loaned amounts.
If the Company is unable to raise additional capital, it may be required to take additional measures to conserve liquidity, which could include but not necessarily be limited to suspendingcertain non-cash charges, stock-based compensation, and other one-time income or expenses. EBITDA and Adjusted EBITDA assist management and our Board and may be useful to investors in comparing our operating performance consistently over time as it removes the pursuitimpact of a potential transaction. The Company cannot provide any assuranceour capital structure and expenses that new financing will be available to it on commercially acceptable terms, if at all.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of September 30, 2021.
Contractual Obligations
We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities.relate to our core operations.
Critical Accounting Policies
The preparation of condensed financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of AmericaGAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities atas of the date of the financial statements and incomethe reported amounts of revenues and expenses earned and incurred, respectively, during the periods reported. Actualreporting period. Critical accounting estimates are fundamental to the portrayal of both our financial condition and results of operations and often require difficult, subjective, and complex estimates and judgments. We evaluate our estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which we believe to be reasonable under the circumstances. We adjust such estimates and assumptions when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could materially differ significantly from thosethese estimates. There have been no significantChanges in these estimates resulting from the continuing changes in the economic environment will be reflected in the financial statements in future periods. With respect to our critical accounting policies asand estimates, there have been no material developments or changes from the policies and estimates discussed in our annual disclosures.
More information about our accounting policies can be found in Note 2 of our audited financial statements, and Management’s Discussion and Analysis, for the year ended December 31, 2022 on our Current Report on Form 8-K, and the final prospectusas originally filed by us with the SEC on December 1, 2021February 14, 2023 and November 23, 2021, respectively.as subsequently amended on March 22, 2023.
Recent Events
In the second quarter of 2023, Southland decided to discontinue certain types of projects in its Materials & Paving business line (“M&P”) and sold assets related to producing large scale concrete and asphalt. M&P is reported in the Transportation segment. As a result of this change, Southland recognized a $49.0 million negative impact to gross loss in the second quarter of 2023 related to the expected increased costs in procuring and transporting material from third parties for the remainder of its M&P projects. In the first quarter of 2023, M&P contributed $11.0 million to gross loss. As of June 30, 2023, approximately 12% of Southland’s backlog was in M&P, and Southland estimates this work to be completed over the next two years. The Company will not be pursuing production of concrete and asphalt products for use on self-performed paving projects where the majority of the scope of work contains large-scale concrete and asphalt production or sale of asphalt and concrete products to third parties. This operational shift will allow the Company to better focus its resources on more profitable lines of business. The Company has concluded this action with M&P does not qualify for Discontinued Operations treatment and presentation under ASC 205-20 as it does not represent a strategic shift in the Company’s business.
Results of Operations
The following table sets forth summary financial information for the three months ended June 30, 2023 and 2022:
| | | | | |
| Three Months Ended |
(Amounts in thousands) | June 30, 2023 | | June 30, 2022 |
Revenue | $ | 256,927 | | $ | 273,016 |
Cost of construction | | 290,721 | | | 235,279 |
Gross profit (loss) | | (33,794) | | | 37,737 |
Selling, general, and administrative expenses | | 16,448 | | | 13,490 |
Operating income (loss) | | (50,242) | | | 24,247 |
Gain (loss) on investments, net | | 50 | | | (259) |
Other income (expense), net | | 24,007 | | | (780) |
Interest expense | | (4,305) | | | (2,065) |
Income (loss) before income taxes | | (30,490) | | | 21,143 |
Income tax expense (benefit) | | (18,589) | | | 1,815 |
Net income (loss) | | (11,901) | | | 19,328 |
Net income (loss) attributable to noncontrolling interests | | 925 | | | (78) |
Net income (loss) attributable to Southland Holdings Stockholders | $ | (12,826) | | $ | 19,406 |
Revenue
Revenue for the three months ended June 30, 2023, was $256.9 million, a decrease of $16.1 million, or 5.9%, compared to the three months ended June 30, 2022. The decrease was primarily attributable to decreased revenues in both our Civil and Transportation segments.
Cost of construction
Cost of construction for the three months ended June 30, 2023, was $290.7 million, an increase of $55.4 million, or 23.6%, compared to the three months ended June 30, 2022.
Gross profit (loss)
Gross loss for the three months ended June 30, 2023, was $33.8 million, a decrease of $71.5 million, or 189.6%, compared to the three months ended June 30, 2022. The decrease was primarily attributable to activity related to the M&P business line discussed in the Recent Events section.
Selling, general, and administrative costs
Selling, general, and administrative costs for the three months ended June 30, 2023, were $16.4 million, an increase of $3.0 million, or 21.9%, compared to the three months ended June 30, 2022. The increase was related to increased costs of becoming a public company.
Gain (loss) on investments, net
Gain on investments, net for the three months ended June 30, 2023, was $0.1 million compared to $0.3 million loss on investments, net for the three months ended June 30, 2022.
Interest expense
Interest expense for the three months ended June 30, 2023, was $4.3 million, an increase of $2.2 million, or 108.5%, compared to the three months ended June 30, 2022. The difference is primarily driven by an increase in external borrowings compared to the prior year and higher interest rates on the additional borrowings. We also experienced increased borrowing costs on our revolving line of credit compared to the same period in 2022.
Income tax expense (benefit)
Income tax benefit for the three months ended June 30, 2023, was $18.6 million, or an effective rate of 61.0%. The primary differences between the federal statutory tax rate of 21% and the effective rate were state income taxes, the permanent book to tax differences related to earnouts as well as income earned in foreign jurisdiction with a zero tax rate, however, that foreign income is included within U.S taxable income through GILTI.
Income tax expense for the three months ended June 30, 2022, was $1.8 million, or an effective rate of 8.6%. The primary differences between the statutory rate and the effective rate were due to state income taxes and a valuation allowance recorded on American Bridge’s U.S. and state net deferred tax assets, offset with inclusion of earnings from certain filing entities being taxed as pass-through entities and a lower effective rate on overall foreign earnings.
The following table sets forth summary financial information for the six months ended June 30, 2023 and 2022:
| | | | | |
| Six Months Ended |
(Amounts in thousands) | June 30, 2023 | | June 30, 2022 |
Revenue | $ | 531,756 | | $ | 531,502 |
Cost of construction | | 546,607 | | | 488,834 |
Gross profit (loss) | | (14,851) | | | 42,668 |
Selling, general, and administrative expenses | | 32,019 | | | 27,789 |
Operating income (loss) | | (46,870) | | | 14,879 |
Gain on investments, net | | 18 | | | 21 |
Other income (expense), net | | 21,408 | | | (1,356) |
Interest expense | | (7,559) | | | (4,032) |
Income (loss) before income taxes | | (33,003) | | | 9,512 |
Income tax expense (benefit) | | (16,836) | | | 3,157 |
Net income (loss) | | (16,167) | | | 6,355 |
Net income attributable to noncontrolling interests | | 1,323 | | | 550 |
Net income (loss) attributable to Southland Holdings Stockholders | $ | (17,490) | | $ | 5,805 |
Revenue
Revenue for the six months ended June 30, 2023, was $531.8 million, an increase of $0.3 million, or 0.0%, compared to the six months ended June 30, 2022. The increase was primarily attributable to increased revenues in our Transportation segment which were partially offset by decreased revenues in our Civil segment.
Cost of construction
Cost of construction for the six months ended June 30, 2023, was $546.6 million, an increase of $57.8 million, or 11.8%, compared to the six months ended June 30, 2022.
Gross profit (loss)
Gross loss for the six months ended June 30, 2023, was $14.9 million, a decrease of $57.5 million, or 134.8%, compared to the six months ended June 30, 2022. The decrease was primarily attributable to activity related to the M&P business line discussed in the Recent Accounting StandardsEvents section.
Selling, general, and administrative costs
Selling, general, and administrative costs for the six months ended June 30, 2023, were $32.0 million, an increase of $4.2 million, or 15.2%, compared to the six months ended June 30, 2022. The increase was related to increased costs of becoming a public company.
Gain (loss) on investments, net
Gain on investments, net for the six months ended June 30, 2023 and the six months ended June 30, 2022 both was $0.0 million.
Interest expense
Interest expense for the six months ended June 30, 2023, was $7.6 million, an increase of $3.5 million, or 87.5%, compared to the six months ended June 30, 2022. The difference is primarily driven by an increase in external borrowings compared to the prior year and higher interest rates on the additional borrowings. We also experienced increased borrowing costs on our revolving line of credit compared to the same period in 2022.
Income tax expense (benefit)
Income tax benefit for the six months ended June 30, 2023, was $16.8 million, or an effective rate of 51.0%. The primary differences from the federal statutory tax rate of 21% was driven by state income taxes, the change in the U.S. consolidated filing structure as a result of the Merger, permanent book and tax differences related to earnouts, income earned in foreign jurisdiction with zero tax rate, however included within U.S taxable income through GILTI, and elections made by various subsidiaries to voluntarily revoke their S-corporation status effective January 1, 2023.
Income tax expense for the six months ended June 30, 2022, was $3.2 million, or an effective rate of 33.2%. The primary differences between the statutory rate and the effective rate were due to state income taxes and a valuation allowance recorded on American Bridge’s U.S. and state net deferred tax assets, offset with inclusion of earnings from certain filing entities being taxed as pass-through entities and a lower effective rate on overall foreign earnings.
Segment Results
The following table sets forth segment information for the three months ended June 30, 2023 and 2022:
| | | | | | | | | | |
| Three Months Ended | |
(Amounts in thousands) | June 30, 2023 | | June 30, 2022 | |
| | | | % of Total | | | | | % of Total | |
Segment | Revenue | | Revenue | | Revenue | | Revenue | |
Civil | $ | 65,567 | | 25.5 | % | $ | 74,851 | | 27.4 | % |
Transportation | | 191,360 | | 74.5 | % | | 198,165 | | 72.6 | % |
Total revenue | $ | 256,927 | | 100.0 | % | $ | 273,016 | | 100.0 | % |
| | | | | | | | | | |
| Three Months Ended | |
(Amounts in thousands) | June 30, 2023 | | June 30, 2022 | |
| | | | % of Segment | | | | | % of Segment | |
Segment | Gross Profit | | Revenue | | Gross Profit | | Revenue | |
Civil | $ | 5,906 | | 9.0 | % | $ | 12,422 | | 16.6 | % |
Transportation | | (39,700) | | (20.7) | % | | 25,315 | | 12.8 | % |
Gross profit (loss) | $ | (33,794) | | (13.2) | % | $ | 37,737 | | 13.8 | % |
In August 2020, the FASB issued Accounting Standards Update (“ASU”) No. 2020-06, Debt — debt with Conversion and Other Options (Subtopic 470-20) and Derivatives andja Hedging — Contracts in Entity’ Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’ Own Equity (“ASU 2020-06”), which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU also removes certain settlement conditions that are required for equity-linked contracts to qualifyCivil
Revenue for the derivative scope exception,three months ended June 30, 2023, was $65.6 million, a decrease of $9.3 million, or 12.4%, compared to the three months ended June 30, 2022. This was primarily attributable to decreased revenue of $16.4 million from a project in the southwest and it simplifiesa project on the diluted earnings per share calculationeast coast as they are approaching completion and had lower activity in certain areas.the three months ended June 30, 2023 versus the same period in 2022. Offsetting these decreases were increased revenue of $5.4 million from a new pipeline project start in the midwest for the three months ended June 30, 2023 versus the same period in 2022.
Gross profit for the three months ended June 30, 2023, was $5.9 million, or 9.0% of segment revenue, compared to $12.4 million, or 16.6% of segment revenue, for the three months ended June 30, 2022. The Company adopted ASU 2020-06primary contributions to
the decrease of $6.5 million for the three months ended June 30, 2023 versus the same period in 2022 were decreases in profit contributions of $3.3 million from a project in the southwest and a project on July 14, 2021 (inception) usingthe east coast as they are approaching completion and had lower activity, $1.6 million from a modified retrospective method for transition. Adoptionplant project in Canada resulting from weather impacting outside work, and $1.2 million from a tunnel project in the northeast that incurred delays near the end of the ASU did not impact the Company’s financial position, results of operations or cash flows.project.
Transportation
Revenue for the three months ended June 30, 2023, was $191.4 million, a decrease of $6.8 million, or 3.4%, compared to the three months ended June 30, 2022. The decrease was primarily attributable to decreased revenues of $16.2 million as we completed projects in M&P, and $18.6 million as we made progress completing the takeover work related to the American Bridge acquisition, in the three months ended June 30, 2023 versus the same period in 2022. These decreases were offset by increased volume on a project in the Bahamas of $29.8 million in the three months ended June 30, 2023 versus the same period in 2022.
Gross loss for the three months ended June 30, 2023, was $39.7 million, or 20.7% of segment revenue, compared to gross profit of $25.3 million, or 12.8% of segment revenue, for the three months ended June 30, 2022. The primary contributions to the decrease of $65.0 million for the three months ended June 30, 2023 versus the same period in 2022 were decreases in profitability of $35.5 million in M&P, $12.2 million in loss recognition on a bridge project in the midwest, and $8.9 million as we make progress completing the takeover work related to the American Bridge acquisition.
The following table sets forth segment information for the six months ended June 30, 2023 and 2022:
| | | | | | | | | | |
| Six Months Ended | |
(Amounts in thousands) | June 30, 2023 | | June 30, 2022 | |
| | | | % of Total | | | | | % of Total | |
Segment | Revenue | | Revenue | | Revenue | | Revenue | |
Civil | $ | 138,556 | | 26.1 | % | $ | 149,894 | | 28.2 | % |
Transportation | | 393,200 | | 73.9 | % | | 381,608 | | 71.8 | % |
Total revenue | $ | 531,756 | | 100.0 | % | $ | 531,502 | | 100.0 | % |
| | | | | | | | | | |
| Six Months Ended | |
(Amounts in thousands) | June 30, 2023 | | June 30, 2022 | |
| | | | % of Segment | | | | | % of Segment | |
Segment | Gross Profit | | Revenue | | Gross Profit | | Revenue | |
Civil | $ | 14,672 | | 10.6 | % | $ | 19,389 | | 12.9 | % |
Transportation | | (29,523) | | (7.5) | % | | 23,279 | | 6.1 | % |
Gross profit (loss) | $ | (14,851) | | (2.8) | % | $ | 42,668 | | 8.0 | % |
Civil
Revenue for the six months ended June 30, 2023, was $138.6 million, a decrease of $11.3 million, or 7.6%, compared to the six months ended June 30, 2022. This was primarily attributable to decreased revenue of $17.7 million from a project in the southwest and a project on the east coast as they are approaching completion and had lower activity in the six months ended June 30, 2023 versus the same period in 2022. Offsetting these decreases were increased revenue of $7.9 million from a new pipeline project start in the midwest for the six months ended June 30, 2023 versus the same period in 2022.
Gross profit for the six months ended June 30, 2023, was $14.7 million, or 10.6% of segment revenue, compared to $19.4 million, or 12.9% of segment revenue, for the six months ended June 30, 2022. The Company’s management doesprimary contributions to the decrease of $4.7 million for the six months ended June 30, 2023 versus the same period in 2022 were decreases in profit contributions of $5.4 million from three projects as they are approaching completion and had lower activity, and $3.8 million from a tunnel project in the northeast that incurred delays near the end of the project. Offsetting these decreases was an increase in profit contribution of $3.9 million for a project in the midwest that incurred a negative adjustment in the six months ended June 30, 2022.
Transportation
Revenue for the six months ended June 30, 2023, was $393.2 million, an increase of $11.6 million, or 3.0%, compared to the six months ended June 30, 2022. The increase was primarily attributable to increased contributions during the six months ended June 30, 2023, of $58.3 million from a project in the Bahamas. This increase was offset by decreases for the six months ended June 30, 2023, versus the same period in 2022, of $30.1 million as we make progress completing the takeover work related to the American Bridge acquisition and $19.9 million from M&P.
Gross loss for the six months ended June 30, 2023, was $29.5 million, or 7.5% of segment revenue, compared to gross profit of $23.3 million, or 6.1% of segment revenue, for the six months ended June 30, 2022. The primary contributions to the decrease of $52.8 million for the six months ended June 30, 2023, versus the same period in 2022 were decreases $34.9 from M&P, $14.0 million as we make progress completing the takeover work related to the American Bridge acquisition, and $5.6 million in loss recognition from a project in the midwest. Offsetting these decreases was an increase in profit contribution of $9.4 million from a project in the Bahamas for the six months ended June 30, 2023 versus the same period in 2022.
Adjusted EBITDA Reconciliation
In our industry, it is customary to manage our business using Adjusted EBITDA. Below is a reconciliation of net income to Adjusted EBITDA.
| | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
(Amounts in thousands) | June 30, 2023 | | June 30, 2022 | | June 30, 2023 | | June 30, 2022 |
Net income (loss) attributable to Southland Holdings Stockholders | $ | (12,826) | | $ | 19,406 | | $ | (17,490) | | $ | 5,805 |
Depreciation and amortization | | 8,176 | | | 11,973 | | | 16,736 | | | 23,640 |
Income taxes (benefit) | | (18,589) | | | 1,815 | | | (16,836) | | | 3,157 |
Interest expense | | 4,305 | | | 2,065 | | | 7,559 | | | 4,032 |
Interest income | | (161) | | | — | | | (298) | | | (11) |
EBITDA | | (19,095) | | | 35,259 | | | (10,329) | | | 36,623 |
Transaction related costs | | 559 | | | — | | | 1,594 | | | — |
Contingent earnout consideration non-cash expense reversal | | (23,625) | | | — | | | (20,689) | | | — |
Adjusted EBITDA | $ | (42,161) | | $ | 35,259 | | $ | (29,424) | | $ | 36,623 |
Adjusted EBITDA for the three months ended June 30, 2023, decreased to negative $42.2 million from $35.3 million compared to the three months ended June 30, 2022, due primarily to activity related to the M&P business line discussed in the Recent Events section and the reversal of contingent earnout consideration.
Adjusted EBITDA for the six months ended June 30, 2023, decreased to negative $29.4 million from $36.6 million compared to the six months ended June 30, 2022, due primarily to activity related to the M&P business line discussed in the Recent Events section and the reversal of contingent earnout consideration.
Liquidity, Capital Commitments and Resources
Our principal sources of liquidity are cash generated from operations, funds from borrowings, and existing cash on hand. Our principal uses of cash typically include the funding of working capital obligations, debt service, and investment in machinery and equipment for our projects.
In connection with the closing of the Business Combination, holders of 25,296,280 shares of Common Stock, or 91.7% of the shares with redemption rights, exercised their right to redeem their shares at a redemption price of $10.30 per share. As a result, a substantial portion of the cash proceeds from our initial public offering we received in connection with the Business Combination were not available to us after giving effect to the Business Combination. Prior to the closing
of the Business Combination, we planned to use the cash acquired in the Business Combination (i) to fund organic growth with increased working capital, (ii) to fund future potential acquisitions, and (iii) for general corporate needs including paying down debt. In light of the high level of redemptions, we may seek cash from (x) increasing institutional borrowings or increase the amount of our revolving loan, (y) selling off unused or underutilized construction assets, or (z) expediting or sell our claim settlements. However, we do not believe that the limited cash proceeds received in connection with the Business Combination will have a materially adverse impact on our operations or financial position.
We will receive the proceeds from any exercise of any Warrants for cash. We believe the likelihood that Warrant holders will exercise their Warrants, and therefore the amount of cash proceeds that we would receive, is dependent upon the trading price of our Common Stock. On August 9, 2023, the closing price of our Common Stock was $8.33 per share. To the extent the market price of our Common Stock remains below the exercise price of $11.50 per share, we believe that Warrant holders will be unlikely to exercise their Warrants for cash, resulting in little or no cash proceeds to us for any such exercise. To the extent we receive any cash proceeds, we expect to use such proceeds for general corporate and working capital purposes, which would increase our liquidity. However, we do not expect to rely materially on the cash exercise of Warrants to fund our operations.
Based on historical and anticipated future operating results, we believe cash flow from operations, available cash, amounts available to us under the revolving credit agreement, and other recently issued, butfinancing will be adequate to meet our liquidity needs for at least the next twelve months, including any anticipated requirements for working capital, capital expenditures, and scheduled debt service.
Our current and future liquidity is greatly dependent upon our operating results, which are largely determined by overall economic conditions and our current contracts and backlog. Our liquidity could be adversely affected by a disruption in the availability of credit. If such a material adverse event were to occur, we may be unable to borrow under our revolving credit agreement or may be required to seek additional financing. In addition, we may be required to seek additional financing to refinance all or a significant portion of our existing debt on or prior to maturity. We may also seek to access the public or private equity markets to support our liquidity whenever conditions are favorable to us. There can be no assurance that we will be able to raise additional capital or obtain additional financing when needed or on terms that are favorable to us.
We previously included projected financial information regarding Southland LLC for fiscal years 2022, 2023 and 2024 in the proxy statement/prospectus filed with the SEC on February 1, 2023 (the “Business Combination Prospectus”) in connection with the proposed Business Combination. Southland LLC provided Legato II with certain initial forecasted financial information prior to entering into the Merger Agreement (the “Initial Forecasted Financial Information”). Southland LLC subsequently realized lower revenues, lower costs, and higher gross margin performance through September 30, 2022 than initially anticipated, and Southland LLC provided updated certain forecasted financial information to Legato II in October 2022 (the “Updated Forecasted Financial Information,” and together with the Initial Forecasted Financial Information, the “Forecasted Financial Information”). The Forecasted Financial Information was prepared solely for internal use for various purposes, including for Legato II’s board of directors to assess the Business Combination and for workforce staffing, resource allocation and other management objectives, is subjective in many respects and is therefore susceptible to varying interpretations and the need for periodic revision based on actual experience and business developments. The Forecasted Financial Information was not yet effective, accounting standards if currently adopted wouldintended to be looked upon as “guidance” of any sort and was not intended for third-party use, including by investors or holders. The Forecasted Financial Information was based on numerous variables and assumptions made by Legato II and Southland LLC management at the time and prepared with respect to matters specific to the Business Combination. The Forecasted Financial Information was not based on Public Company Accounting Oversight Board compliant audited financials.
For the fiscal year ended December 31, 2022, our revenue was approximately $1,161.4 million, which was below our projected revenue for fiscal year ended December 31, 2022 of $1,520 million contained in the Initial Forecasted Financial Information and $1,200 million contained in the Updated Forecasted Financial Information, primarily due to the timing of completion of certain projects. For the fiscal year ended December 31, 2022, our EBITDA was approximately $128.3 million, which was below our projected EBITDA for fiscal year ended December 31, 2022 of $135.0 million contained in both the Initial Forecasted Financial Information and the Updated Forecasted Financial Information, primarily due to lower than anticipated revenues due to the timing of completion of certain projects. Our actual revenue and EBITDA
being lower than projected revenue and EBITDA had a negative impact on our cash and cash equivalents position. However, we do not believe that it is expected to have a materially adverse impact on our operations or financial position.
We are exposed to market risks relating to fluctuations in interest rates and currency exchange risks. Significant changes in market conditions could cause interest rates to increase and have a material effectimpact on the accompanying financial statement.financing needed to operate our business.
The following table sets forth summary change in cash, cash equivalent and restricted cash for the six months ended June 30, 2023 and 2022:
| | | | | | |
| Six Months Ended | |
(Amounts in thousands) | June 30, 2023 | | June 30, 2022 | |
Net cash used in operating activities | $ | (10,636) | | $ | (81,915) | |
Net cash provided by investing activities | | 2,240 | | | 196 | |
Net cash provided by (used in) financing activities | | (9,651) | | | 29,018 | |
Effect of exchange rate changes | | 164 | | | 945 | |
Net change in cash, cash equivalents, and restricted cash | $ | (17,883) | | $ | (51,756) | |
Net cash used in operating activities was $10.6 million during the six months ended June 30, 2023, compared to $81.9 million for the six months ended June 30, 2022. During the six months ended June 30, 2023, the primary differences in cash used in operating activities compared to the six months ended June 30, 2022, were increases in accounts payable of $52.6 million, increases in contract liabilities of $79.7 million and decreases in contract assets of $11.4 million, which were partially offset by increases in net loss of $22.5 million and increases in accounts receivables of $3.0 million.
Net cash provided by investing activities was $2.2 million during the six months ended June 30, 2023, compared to $0.2 million for the six months ended June 30, 2022. During the six months ended June 30, 2023, the primary difference in cash provided by investing activities compared to the six months ended June 30, 2022, was an increase in proceeds from sale of fixed assets of $4.5 million, which were partially offset by increases in purchase of fixed assets of $2.3 million.
Net cash used in financing activities was $9.7 million for the six months ended June 30, 2023 compared to $29.0 net cash provided by financing activities for the six months ended June 30, 2022. During the six months ended June 30, 2023, the primary difference in cash provided by or used in financing activities compared to the six months ended June 30, 2022, was a decrease of $52.0 million in borrowing on a line of credit that was offset by the $17.1 million in proceeds from the Merger.
As of June 30, 2023, we had long-term debt of $284.5 million, of which $51.3 million is due within the next twelve months.
Revolving Credit Facility
In July 2021, we entered into a revolving credit agreement with Frost Bank for $50.0 million. As of December 31, 2022, the revolving credit facility agreement had been amended and increased to $100.0 million. The revolving credit facility agreement bears interest on drawn balances at 1-month SOFR, subject to a floor of 0.90%, plus an applicable margin rate of 2.10%. As of June 30, 2023, $98.0 million was drawn on the revolver, and we had $2.0 million available.
On August 11, 2023, Southland and Frost Bank agreed to extend the Company’s revolving line of credit through January 2025.
Secured Notes
We enter into secured notes in order to finance growth within our business. As of June 30, 2023, we had outstanding secured notes scheduled to expire between November 2023 and March 2033. Interest rates on the secured notes range between 1.29% and 8.00%.
On July 5, 2023, Southland refinanced approximately $76.4 million of existing secured notes in exchange for a new equipment note in the amount of $113.5 million. The new equipment note is secured by specific construction equipment assets and has a five-year fully amortizing term at a fixed rate of 7.3%. Approximately $8.0 million of these proceeds were used to pay down the Company’s revolving line of credit facility.
Mortgage Notes
We also enter into mortgage notes in order to finance growth within our business. As of June 30, 2023, we had outstanding mortgage notes scheduled to expire between October 2023 and February 2029. Interest rates on the mortgage notes range between 3.84% and 5.99%.
Equipment OEM Notes
We enter into equipment notes in order to complete certain specialty construction projects. As of June 30, 2023, we did not have any outstanding equipment OEM notes that are collateralized by certain equipment owned by Southland.
Backlog
We define backlog as a measure of the total amount of revenue remaining to be earned on projects that have been awarded. We only include a project in our backlog once we have an executed contract, or authorized notice to proceed. As a result, we believe our backlog is firm, although cancellations or scope adjustments may occur.
In our industry, backlog is an indicator of future revenue streams for work that has been awarded but not completed. We define backlog as anticipated revenue from the uncompleted portion of existing contracts and therefore can be estimated.
| | |
(Amounts in thousands) | Backlog |
Balance December 31, 2022 | $ | 2,973,886 |
New contracts, change orders, and adjustments | | 262,088 |
Gross backlog | | 3,235,974 |
Less: contract revenue recognized in 2023 | | (538,464) |
Balance June 30, 2023 | $ | 2,697,510 |
Backlog should not be considered a comprehensive indicator of future revenue as any of our contracts can be terminated by our customers on relatively short notice, and backlog does not include future work for which we may be awarded or new awards for which we are awaiting an executed contract of authorized notice to proceed. In the event of a cancelation, we are typically reimbursed for all of our costs through a specific contractual date, as well as our costs to demobilize from the project site. Our contracts do not typically grant us rights to revenue reflected in backlog. Projects may remain in backlog for extended periods of time as a result of schedule delays, regulatory requirements, project specific issues, or other reasons. Contract amounts from contracts where a transaction price cannot be reasonably estimated may not be included within our backlog amount.
Segment Backlog
Below is our Backlog by segment.
Transportation
| | |
(Amounts in thousands) | Backlog |
Balance December 31, 2022 | $ | 2,213,723 |
New contracts, change orders, and adjustments | | 232,476 |
Gross backlog | | 2,446,199 |
Less: contract revenue recognized in 2023 | | (401,219) |
Balance June 30, 2023 | $ | 2,044,980 |
Civil
| | |
(Amounts in thousands) | Backlog |
Balance December 31, 2022 | $ | 760,163 |
New contracts, change orders, and adjustments | | 29,612 |
Gross backlog | | 789,775 |
Less: contract revenue recognized in 2023 | | (137,245) |
Balance June 30, 2023 | $ | 652,530 |
Item 3. Quantitative and QualitativeQualitative Disclosures About Market Risk
Not applicable.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
It is management’s responsibility to establish and maintain adequate disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Disclosure controls and procedures are controls and other procedures of a company that are designed with the objective of ensuringto ensure that information required to be disclosed by the company in ourthe reports filedthat it files or submits under the Exchange Act such as this Report, is recorded, processed, summarized and reported within the time periodperiods specified in the SEC’s rules and forms. Disclosure controls are alsoand procedures include, without limitation, controls and procedures designed withto ensure that information required to be disclosed by a company in the objective of ensuringreports that such informationit files or submits under the Exchange Act is accumulated and communicated to our management, including the chiefcompany’s principal executive officer and chiefprincipal financial officer,officers, as appropriate, to allow timely decisions regarding required disclosure.
Our management, evaluated, with the participation ofincluding our current chief executive officerChief Executive Officer and chief financial officer (our “Certifying Officers”),our Chief Financial Officer, have reviewed and evaluated the effectiveness of our disclosure controls and procedures, as of September 30, 2021, pursuant to Rule 13a-15(b)defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based upon thatAct, as of the end of the period covered by this Quarterly Report. Following this review and evaluation, our Certifying Officers concludedmanagement determined that as of September 30, 2021,the end of the period covered by this Quarterly Report, our disclosure controls and procedures were effective.effective to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the fiscal quarter ended June 30, 2023 covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ThereDuring the fiscal quarter ended March 31, 2023, we completed the Business Combination and the internal controls of Southland LLC became our internal controls. We have designed and implemented our internal control over financial reporting in a manner commensurate with the scale of our operations subsequent to the Business Combination, including the enhancement of our internal and external technical accounting resources.
Other than disclosed above, there were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act)that occurred during the most recent fiscal period covered by this Quarterly Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II -— OTHER INFORMATION
Item 1. Legal Proceedings
See Note 7 – “Commitments and Contingencies”, included in the notes to our unaudited condensed consolidated financial statements included under Part I of this Quarterly Report.
Item 1A. Risk Factors
Other than as set forth below, there have been no additional risk factors identified and no material changes with regard to the risk factors previously disclosed under “Item 1A. Risk Factors” to Part I of our Annual Report on Form 10-K as of the fiscal year ended December 31, 2022.
Sales of our Common Stock, or the perception of sales of our Common Stock, by the Company or our stockholders in the public market, including pursuant to the prospectus contained in our Registration Statement on Form S-1 (File No. 333-271057) (the “Registration Statement”), could cause the market price of our securities to decline, and certain of the selling securityholders named in the prospectus contained in the Registration Statement (the “Selling Securityholders”) may still experience a significant return on investment.
If we or our stockholders sell or indicate an intention to sell substantial amounts of our securities in the public market, including through sales pursuant to the prospectus contained in the Registration Statement, the trading price of our securities could decline. In addition, shares underlying any outstanding options and restricted stock units will become eligible for sale if exercised or settled, as applicable, to the extent permitted by the provisions of various vesting agreements and Rule 144 of the Securities Act. All the shares of Common Stock reserved for issuance under our equity incentive plan have been registered on Form S-8 under the Securities Act and will be eligible for sale in the public markets, subject to Rule 144 limitations applicable to affiliates. If these shares are sold, or if it is perceived that they will be sold, in the public market, the trading price of our Common Stock could decline.
Although the stockholders of Legato II prior to Legato II’s initial public offering (the “Initial Stockholders”) and certain Southland Members are subject to certain restrictions regarding the transfer of their shares of Common Stock, these shares may be sold after the expiration of their respective lock-ups. As restrictions on transfer have expired, the market price of our Common Stock could decline if the holders of currently restricted shares sell them or are perceived by the market as intending to sell them.
In connection with the closing of the Business Combination, holders of 25,296,280 shares of Common Stock, or 91.7% of the shares with redemption rights, exercised their right to redeem their shares. The shares of Common Stock being offered for resale pursuant to the prospectus contained in the Registration Statement by the Selling Securityholders represent approximately 88% of potential shares outstanding (which includes in the denominator, shares outstanding, shares reserved for issuance upon exercise of the Warrants, shares earned for hitting certain targets outlined in the Merger Agreement, and shares reserved for issuance under equity incentive plans) as of April 27, 2023. Given the substantial number of shares of Common Stock being registered for potential resale by Selling Securityholders pursuant to the prospectus contained in the Registration Statement, the sale of shares by the Selling Securityholders, or the perception in the market that the Selling Securityholders of a large number of shares intend to sell shares, could cause the trading price of our securities could decline.
In addition, some of our Selling Securityholders acquired the securities being registered for resale pursuant to the prospectus contained in the Registration Statement at prices significantly lower than the per unit purchase price paid by public stockholders in our initial public offering of $10.00 per unit. As a result, despite the decline in the public trading price since our initial public offering, some of the Selling Securityholders may still experience a positive return on investment and may have an incentive to sell shares of our Common Stock. For example, the Initial Stockholders purchased 5,750,000 shares of Common Stock prior to our initial public offering at $0.005 per share and subsequently acquired 1,150,000 additional shares for no additional consideration as a result of a stock dividend of 0.2 shares for each share outstanding. In addition, EarlyBirdCapital, Inc. acquired 200,000 shares of Common Stock at $0.0001 per share and subsequently acquired 40,000 additional shares for no additional consideration as a result of a stock dividend of 0.2 shares
for each share outstanding. By way of example only, if all 5,750,000 shares of Common Stock originally issued to the Initial Stockholders were sold at a price of $8.33 per share, which was the closing price of our Common Stock as reported on NYSE on August 9, 2023, the Initial Stockholders would experience a gain equal to $8.33 per share. Investors in our initial public offering who acquired shares of Common Stock in connection with the purchase of units at $10.00 per unit would not be expected to experience a similar return on investment.
The Warrants may never be in the money, and may expire worthless.
We believe the likelihood that Warrant holders will exercise their Warrants, and therefore the amount of cash proceeds that we would receive, is dependent upon the trading price of our Common Stock. On August 9, 2023, the closing price of our Common Stock was $8.33 per share. To the extent the market price of our Common Stock remains below the exercise price of $11.50 per share, we believe that Warrant holders will be unlikely to exercise their Warrants for cash, resulting in little or no cash proceeds to us for any such exercise. There is no way to ensure that the market price of our Common Stock will exceed the exercise price of the Warrants following the time they become exercisable and prior to their expiration. As a result, the Warrants may expire worthless, and we may not receive any proceeds from the exercise of the Warrants.
If we do not file and maintain a current and effective prospectus relating to the Common Stock issuable upon exercise of the Warrants, holders will only be able to exercise such Warrants on a “cashless basis.”
If we do not file and maintain a current and effective prospectus relating to the Common Stock issuable upon exercise of the Warrants at the time that holders wish to exercise such Warrants, they will only be able to exercise them on a “cashless basis” provided that an exemption from registration is available. As a result, the number of shares of Common Stock that holders will receive upon exercise of the Warrants will be fewer than it would have been had such holder exercised his Warrant for cash. Further, if an exemption from registration is not available, holders would not be able to exercise on a cashless basis and would only be able to exercise their Warrants for cash if a current and effective prospectus relating to the Common Stock issuable upon exercise of the warrants is available. Under the terms of the Warrant Agreement with American Stock Transfer & Trust Company, as warrant agent, we have agreed to use our best efforts to meet these conditions and to file and maintain a current and effective prospectus relating to the common stock issuable upon exercise of the Warrants until the expiration of the Warrants. However, we cannot assure you that we will be able to do so. If we are unable to do so, the potential “upside” of the holder’s investment in our company may be reduced or the Warrants may expire worthless.
An investor will only be able to exercise a Warrant if the issuance of shares of Common Stock upon such exercise has been registered or qualified or is deemed exempt under the securities laws of the state of residence of the holder of the Warrants.
No Warrants will be exercisable and we will not be obligated to issue shares of Common Stock unless the shares of Common Stock issuable upon such exercise has been registered or qualified or deemed to be exempt under the securities laws of the state of residence of the holder of the Warrants. If the shares of Common Stock issuable upon exercise of the Warrants are not qualified or exempt from qualification in the jurisdictions in which the holders of the warrants reside, the Warrants may be deprived of any value, the market for the Warrants may be limited and they may expire worthless if they cannot be sold.
We may amend the terms of the Warrants in a manner that may be adverse to holders with the approval by the holders of at least a majority of the then outstanding Warrants.
Our Warrants have been issued in registered form under the Warrant Agreement between American Stock Transfer & Trust Company, as warrant agent, and us. The Warrant Agreement provides that the terms of the Warrants may be amended without the consent of any holder to cure any ambiguity or correct any defective provision. The Warrant Agreement requires the approval by the holders of at least a majority of the then outstanding Warrants in order to make any change that adversely affects the interests of the registered holders.
We may redeem your unexpired Warrants prior to their exercise at a time that is disadvantageous to you, thereby making your Warrants worthless.
We have the ability to redeem outstanding Warrants at any time after they become exercisable and prior to their expiration, at a price of $0.01 per warrant, provided that the last reported sales price of Common Stock equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations and recapitalizations) for any 20 trading days within a 30 trading-day period commencing at any time after the Warrants become exercisable and ending on the third business day prior to proper notice of such redemption provided that on the date we give notice of redemption and during the entire period thereafter until the time we redeem the Warrants, we have an effective registration statement under the Securities Act covering the shares of Common Stock issuable upon exercise of the Warrants and a current prospectus relating to them is available. If and when the Warrants become redeemable by us, we may exercise our redemption right even if we are unable to register or qualify the underlying securities for sale under all applicable state securities laws. Redemption of the outstanding Warrants could force you (i) to exercise your Warrants and pay the exercise price therefor at a time when it may be disadvantageous for you to do so, (ii) to sell your Warrants at the then-current market price when you might otherwise wish to hold your Warrants or (iii) to accept the nominal redemption price which, at the time the outstanding Warrants are called for redemption, is likely to be substantially less than the market value of your Warrants.
Our management’s ability to require holders of our Warrants to exercise such Warrants on a cashless basis will cause holders to receive fewer shares of Common Stock upon their exercise of the Warrants than they would have received had they been able to exercise their Warrants for cash.
If we call our Warrants for redemption after the redemption criteria described elsewhere in this Quarterly Report have been satisfied, our management will have the option to require any holder that wishes to exercise his Warrant (including any Private Warrants) to do so on a “cashless basis.” If our management chooses to require holders to exercise their Warrants on a cashless basis, the number of shares of Common Stock received by a holder upon exercise will be fewer than it would have been had such holder exercised his Warrant for cash. This will have the effect of reducing the potential “upside” of the holder’s investment in the Company.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.Proceeds
The information required by this Item 2 is contained in our Current Report on Form 8-K, as originally filed with the SEC on February 14, 2023 and as subsequently amended on March 22, 2023.
Item 5. Other Information
During the last fiscal quarter, none of our directors or officers adopted or terminated any “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as those terms are defined in Regulation S-K, Item 408.
On November 24, 2021, we consummated the Initial Public Offering of 24,000,000 Units, at a price of $10.00 per Unit, generating total gross proceeds of $240,000,000. EarlyBirdCapital, Inc. acted as the sole book-running manager of the Initial Public Offering. The securities in the offering were registered under the Securities Act on registration statements on Form S-1 (Nos. 333-260816 and 333-261260). The Securities and Exchange Commission declared the registration statements effective on November 22, 2021.
Simultaneous with the consummation of the Initial Public Offering, we consummated the private placement of an aggregate of 104,500 Private Units to our initial stockholders and EarlyBirdCapital at a price of $10.00 per Private Unit, generating total proceeds of $10,450,000. The issuance was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.
On November 29, 2021, the underwriters fully exercised their over-allotment option, resulting in the sale on December 1, 2021 of an additional 3,600,000 Units issued for an aggregate amount of $36,000,000. In connection with the underwriters’ exercise of their over-allotment option, we also consummated the sale of an additional 126,000 Private Units at $10.00 per unit, generating total proceeds of $1,260,000.
Of the gross proceeds received from the Initial Public Offering including the over-allotment option, and the Private Units, $280,140,000 was placed in the Trust Account.
Transaction costs associated with the underwriters’ full exercise of their over-allotment option amounted $15,660,526 in transaction costs, including $5,520,000 in cash underwriting fees, 9,660,000 of deferred underwriting fees, and $480,526 of other offering costs.
For a description of the use of the proceeds generated in our Initial Public Offering, see Part I, Item 2 of this Form 10-Q.
Item 6. Exhibits
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
| | Description of Exhibit |
| |
Exhibit No. | Description |
2.1 | Agreement and Plan of Merger, dated as of May 25, 2022, by and among the Company, Legato Merger Sub, Inc. and Southland Holdings, LLC (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on May 25, 2022). |
3.1 | Second Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on February 14, 2023). |
3.2 | Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed with the SEC on February 14, 2023). |
4.1 | Specimen Warrant Certificate (incorporated by reference to Exhibit 4.3 to the Company’s Registration Statement on Form S-1 (File No. 333-260816) filed with the SEC on November 5, 2021). |
4.2 | Warrant Agreement between American Stock Transfer & Trust Company and the Company (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on November 23, 2021). |
4.3 | Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-1 (File No. 333-260816) filed with the SEC on November 5, 2021). |
31.1* |
| Certification of Principal Executive Officer Pursuantpursuant to Securities Exchange Act Rules 13a-14(a),13a-14 and 15d-14, as adopted Pursuantpursuant to Section 302 of the Sarbanes-OxleySarbanes Oxley Act of 20022002. |
31.2* |
| Certification of Principal Financial Officer Pursuantpursuant to Securities Exchange Act Rules 13a-14(a),13a-14 and 15d-14, as adopted Pursuantpursuant to Section 302 of the Sarbanes-OxleySarbanes Oxley Act of 20022002. |
32.1** |
| Certification of Principal Executive Officer Pursuantpursuant to Section 18 U.S.C. Section 1350, as adopted Pursuantpursuant to Section 906 of the Sarbanes-OxleySarbanes Oxley Act of 20022002. |
32.2** |
| Certification of Principal Financial Officer Pursuantpursuant to Section 18 U.S.C. Section 1350, as adopted Pursuantpursuant to Section 906 of the Sarbanes-OxleySarbanes Oxley Act of 20022002. |
101.INS*101* | | The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2023, formatted in Inline XBRL Instance Document XBRL: (i) Condensed Consolidated Balance Sheets (Unaudited); (ii) Condensed Consolidated Statements of Operations (unaudited); (iii) Condensed Consolidated Statements of Comprehensive Income (unaudited); (iv) Condensed Consolidated Statements of Equity (unaudited); (v) Condensed Consolidated Statements of Cash Flows (unaudited); and (vi) Notes to Condensed Consolidated Financial Statements (unaudited), tagged as blocks of text and including detailed tags. |
101.SCH*104* | | Inline XBRL Taxonomy Extension Schema Document |
101.CAL* | | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF* | | Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB* | | Inline XBRL Taxonomy Extension Labels Linkbase Document |
101.PRE* | | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104* | | Cover Page Interactive Data File (formatted asin Inline XBRL and contained in Exhibit 101)
. |
*Filed herewith.
**Furnished herewith.
SIGNATURES
In accordance with
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrantRegistrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: August 14, 2023
| | |
| | SOUTHLAND HOLDINGS, INC. |
Date: December 16, 2021
| By:
| /s/ Gregory Monahan
|
| Name: By: | Gregory Monahan/s/ Frank Renda |
| Title:Name: | Frank Renda |
| Title: | President, Chief Executive Officer |
| | (Principal Executive Officer) |
| | |
Date: December 16, 2021
| By: | /s/ Adam Jaffe Cody Gallarda |
| Name: | Adam JaffeCody Gallarda |
| Title: | Executive Vice President, Chief Financial Officer |
| | (Principal Financial and Accounting Officer) |
| | |