Southland Holdings, Inc. (SLND) FY 2024 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

References to the “Company,” “our,” “us,” “we,” or “Southland” refer to Southland Holdings, Inc. and its consolidated subsidiaries. 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 and certain risks included under the “Cautionary Note Regarding Forward-Looking Statements” and “Item 1A. Risk Factors” sections for a discussion of some of the uncertainties, 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 consolidated balance sheets, statements of cash flows, and results of operations. This information should be read in conjunction with the consolidated financial statements and the notes related thereto which are included in this Annual Report.

Overview

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 Company, Oscar Renda Contracting, Southland Contracting, Mole Constructors, and Heritage Materials. With the combined capabilities of these six primary subsidiaries, Southland has become a diversified industry leader with projects spanning North America in various end markets.

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Key Factors Affecting Results of Operations

Business Environment

Our Civil segment primarily 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 primarily 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.

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 we are well positioned to compete on new infrastructure projects in both the public and private sectors.

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. 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.

Many 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 further spending on infrastructure related to economic stimulus spending including the Infrastructure Investment and Jobs Act that was passed on 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 combination of skills 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 variation is the result of 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.

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Critical Accounting Policies and Estimates

The preparation of consolidated financial statements in conformity with the accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities as of the date of the financial statements and the reported amounts of revenues and expenses earned and incurred, respectively, during the reporting 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 by management. 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 differ significantly from these estimates. Changes in these estimates will be reflected in the consolidated financial statements in future periods. The following discussion addresses the items we have identified as our critical accounting estimates.

Revenue Recognition

We recognize revenue over time as we satisfy our performance obligations. We generally use an input method measured by comparing actual costs incurred to date to total estimated costs for the project to recognize revenue as it is the best available method to recognize the progress of satisfying our performance obligations and transfer of control to our customers.

Due to the nature of our industry the use of this method requires us to make material estimates and assumptions that are subject to a high degree of uncertainty. To determine estimated transaction price and estimated cost at completion we rely on our experience, and outside expert opinions on an as needed basis, with particular types of projects and customers using information that is reasonably available to us.

An estimated transaction price can be impacted by numerous items related to variable consideration, including but not limited to: claims, approved and pending changes orders, unpriced change orders, completion incentives, liquidated damages, penalties, and other contractual provisions. An estimated cost at completion may fluctuate based on numerous items, including but not limited to:

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We recognize the impact of any changes in estimated transaction price or estimated cost at completion on a cumulative catch-up basis. This can result in the recognition of revenue in a current period related to the satisfaction of performance obligations that occurred or partially occurred in a prior period. This can also result in the reversal of revenue recognized in a prior period, in the current period. If it is estimated that a project will have costs in excess of expected revenues, we recognize the full loss in that period and any adjustments to that expected loss in the period in which that change in expected loss may be identified.

Accounting for 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 FASB ASC 480, “Distinguishing Liabilities from Equity” (“ASC 480”), and ASC 815, “Derivatives and Hedging” (“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 Stock 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.

Recent Events

See section titled "Basis of Presentation” discussing the consummation of the Merger.

In December 2024, the Company agreed to issue an aggregate of 5,830,899 shares of common stock (the “Shares”), par value $0.0001 per share, in exchange for the full satisfaction and discharge of an aggregate of $20.0 million in outstanding amounts under certain promissory notes held by Frank Renda, Rudy Renda and Tim Winn (the “Transaction”) with a price per share of $3.43, calculated using the greater of (a) the volume-weighted average price per share of Common Stock, rounded to the nearest hundredth of a cent, on NYSE for the thirty consecutive trading days immediately preceding and ending on December 27, 2024 and (b) the closing price of Common Stock on NYSE on December 27, 2024. The $20.0 million conversion to shares of common stock was comprised of $13.2 million of secured notes and accrued interest thereupon along with $6.8 million of certain promissory notes and accrued interest thereupon. The Transaction was approved by the Company’s Audit Committee and Board of Directors.

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. In an effort to wind down this component of its Transportation segment and reallocate resources towards core operations, the Company sold various materials production assets. As a result, the Company recorded unfavorable charges during the year ended December 31, 2023 related to additional expected future costs associated with procuring and transporting materials from third parties. Southland recorded the increased estimated future costs to finish these projects during the year ended December 31, 2023, in accordance with GAAP. 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.

For the year ended December 31, 2024, M&P contributed $100.6 million to revenue and $83.1 million in gross loss. See the Transportation portion of the Segment Results section of this Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional information. This compares to the $188.3 million to revenue and $86.6 million to gross loss for the year ended December 31, 2023. As of December 31, 2024, approximately 6.3% of Southland’s Backlog was in M&P, and Southland estimates most of the active scope of this work to be substantially completed in the next twelve months.

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Results of Operations

Comparisons of the Year Ended December 31, 2024 to the Year Ended December 31, 2023

The following table sets forth our consolidated statements of operations for the years ended December 31, 2024 and December 31, 2023:

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Revenue

Revenue for the year ended December 31, 2024, was $980.2 million, a decrease of $180.2 million, or 15.5%, compared to the year ended December 31, 2023. The decrease was attributable to a $166.0 million decrease in revenue in our Transportation segment primarily due to impacts related to exiting the M&P business line and a $14.2 million decrease in our Civil segment primarily due to projects that were substantially completed in 2023 compared to 2024, which was partially offset by new projects started in 2024.

Cost of construction

Cost of construction for the year ended December 31, 2024, was $1,043.2 million, a decrease of $81.4 million, or 7.2%, compared to the year ended December 31, 2023. The decrease was comprised of a $102.1 million decrease in our Transportation segment due to impacts related to exiting the M&P business line and more projects nearing substantial completion in 2024 compared to 2023, and a $20.7 million increase in our Civil segment due to new projects started in 2024, partially offset by projects that were substantially completed in 2023 compared to 2024.

Gross profit (loss)

Gross loss for the year ended December 31, 2024, was $63.0 million, an increase of $98.9 million, or 276.0%, compared to the year ended December 31, 2023. The increase was primarily due to project delays and increases in the cost of materials which led to a $63.9 million increase in gross loss in our Transportation segment and a $35.0 million decrease in gross profit in our Civil segment.

Selling, general, and administrative costs

Selling, general, and administrative costs for the year ended December 31, 2024, were $63.3 million, a decrease of $3.9 million, or 5.8%, compared to the year ended December 31, 2023. The decrease was primarily driven by a $5.2 million decrease in compensation offset by a $1.4 million increase in professional fees.

Other income, net

Other income, net for the year ended December 31, 2024 was $3.6 million, a decrease of $19.9 million, or 84.6%, compared to the year ended December 31, 2023. The decrease was primarily driven by a reversal of a non-cash contingent liability in 2023 due to changes in the likelihood of earnout shares being issued based on 2023 performance.

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Interest expense

Interest expense for the year ended December 31, 2024, was $29.5 million, an increase of $10.0 million, or 51.6%, compared to the year ended December 31, 2023. The increase is primarily driven by an increase in external borrowings compared to the prior year and higher interest rates on the additional borrowings.

Income tax benefit

Income tax benefit for the year ended December 31, 2024, was $46.9 million or an effective tax rate of 30.8%. The primary differences from the federal statutory rate of 21% were (i) state income tax benefit of $7.6 million, (ii) the benefit of foreign tax rate differences of $13.2 million due to operations in jurisdictions like Canada and the Bahamas, (iii) the expense recorded for the valuation allowance against the net deferred tax assets for Johnson Bros. Corporation’s separate state filings and Southland Mole of Canada, and (iv) the benefit of the release of uncertain tax position liability previously recorded for American Bridge federal NOL and depreciation matters prior to 2020 tax year.

Income tax benefit for the year ended December 31, 2023, was $8.5 million, or an effective rate of 31.3%. The primary differences from the federal statutory rate of 21% were (i) the revocation of Subchapter S-corporation status by Southland Holdings, LLC and its Qualified Subchapter S Subsidiary group of entities inclusive of Southland Contracting, Johnson Bros., Mole Constructors, Heritage Materials, and Southland RE Properties of $4.8 million, (ii) the benefit from the change in valuation allowance of $3.2 million primarily due to the change in domestic filing structure and the subsequent removal of the valuation allowance on American Bridge domestic deferred tax assets, (iii) the benefit from foreign tax rate differences of $5.5 million due to operations in jurisdictions like Canada and the Bahamas with different effective tax rates, and (iv) the permanent inclusion difference of foreign income through Section 951A Global Intangible Low-Taxed Income (GILTI) of $8.2 million net of related deduction.

On August 16, 2022, the Inflation Reduction Act (“IRA”) was enacted in the United States. Among other provisions, the IRA included a new 15% Corporate Alternative Minimum Tax (“CAMT”) for corporations with financial income in excess of $1 billion and a 1% excise tax on corporate share repurchases. The CAMT is effective for tax years beginning on or after January 1, 2023. As of December 31, 2024, the excise tax on corporate share repurchases is not expected to impact the Company as the Company has no plans for repurchases in the coming year.

On December 14, 2023, the FASB issued ASU 2023-09 which established new income tax disclosure requirements. Public business entities must apply the guidance to annual periods beginning after December 15, 2024. This standard has not been elected for early adoption this period but will be implemented for the next annual period, as required.  We are currently evaluating the impact ASU 2023-09 will have on our consolidated financial statements and related disclosures.

Segment Results

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Civil

Revenue in our Civil segment for the year ended December 31, 2024, was $323.3 million, a decrease of $14.2 million, or 4.2%, compared to the year ended December 31, 2023. The decrease was primarily attributable to decreased revenues of $48.7 million from projects substantially completed in 2023, offset by increased revenues of $33.0 million on a water project in North Dakota, for the year ended December 31, 2024 versus the same period in 2023.

Gross profit in our Civil segment for the year ended December 31, 2024, was $16.7 million, or 5.2% of segment revenue, compared to $51.7 million, or 15.3% of segment revenue, for the year ended December 31, 2023. The decrease of $35.0 million for the year ended December 31, 2024, was due to project delays and increases in the cost of materials which led to decreases in profit contribution of $29.9 million from a tunnel and marine project in Canada, $10.0 million from a tunnel project in Texas and $4.2 million from a water pipeline project in Oklahoma, offset by an increase in profit contribution of $8.4 million from a water project in North Dakota, for the year ended December 31, 2024 versus the same period in 2023.

Transportation

Revenue in our Transportation segment for the year ended December 31, 2024, was $656.9 million, a decrease of $166.0 million, or 20.2%, compared to the year ended December 31, 2023. The decrease was primarily attributable to decreased revenues of $87.7 million from the M&P line, a net $65.8 million from two projects in the Bahamas as one is nearing completion and a second began construction activities and $11.2 million from projects substantially completed in 2023, for the year ended December 31, 2024 versus the same period in 2023.

Gross loss in our Transportation segment for the year ended December 31, 2024, was $79.8 million, or (12.1)% of segment revenue, compared to $15.9 million gross loss, or (1.9)% of segment revenue, for the year ended December 31, 2023. The increase of $63.9 million in gross loss was primarily due to project delays and increases in the cost of materials which led to decreases in profit contribution of $25.0 million from bridge project in the Midwest and $17.4 million from a street maintenance project in Texas, for the year ended December 31, 2024 versus the same period in 2023. The increase in gross loss was also primarily due to a project nearing completion which led to decreases in profit contribution of $20.7 million from a project in the Bahamas, for the year ended December 31, 2024 versus the same period in 2023.

Comparisons of the Year Ended December 31, 2023 to the Year Ended December 31, 2022

For discussion of the results of operations for the year ended December 31, 2023 compared to the year ended December 31, 2022, refer to Part II. Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2023.

Key Business Metrics

Non-GAAP Financial Measures

In addition to our results determined in accordance with GAAP, we believe the following non-GAAP measures are useful in evaluating our operational performance. We use the following non-GAAP measures to evaluate our ongoing operations and for internal planning, forecasting and compensation purposes. We believe that the non-GAAP financial information may be helpful in assessing our operating performance and facilitates an alternative comparison among fiscal periods. The non-GAAP financial measures are not, and should not be viewed as, a substitute for GAAP reporting measures.

EBITDA and Adjusted EBITDA

In our industry, it is customary to manage our business using earnings before interest expense, income taxes, depreciation and amortization (“EBITDA”). EBITDA assists management and the Board and may be useful to investors

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in comparing our operating performance consistently over time as it removes the impact of our capital structure and expenses that do not relate to our core operations.

Additionally, it is also customary to analyze our business using Adjusted EBITDA. Adjusted EBITDA is intended as a supplemental measure of our performance that is neither required by, nor presented in accordance with, GAAP. We believe that the use of Adjusted EBITDA provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing our financial measures with those comparable companies, which may present similar non-GAAP financial measures to investors. However, you should be aware that, when evaluating Adjusted EBITDA, we may have future activities similar to those excluded when calculating these measures. In addition, our presentation of these measures should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. Our computation of EBITDA and Adjusted EBITDA may not be comparable to other similarly titled measures computed by other companies, because all companies may not calculate EBITDA and Adjusted EBITDA in the same fashion.

Because of these limitations, non-GAAP financial measures should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and using non-GAAP financial measures on a supplemental basis. The reconciliation of net loss to non-GAAP financial measures below should be reviewed, and no single financial measure should be relied upon to evaluate our business. Below is a reconciliation of net loss to these non-GAAP financial measures.

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Comparisons of the Year Ended December 31, 2024 to the Year Ended December 31, 2023

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Comparisons of the Year Ended December 31, 2023 to the Year Ended December 31, 2022

For discussion of EBITDA and Adjusted EBITDA for the year ended December 31, 2023 compared to the year ended December 31, 2022, refer to Part II. Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations — EBITDA and Adjusted EBITDA” of our Annual Report on Form 10-K for the year ended December 31, 2023.

Backlog

We define Backlog as a measure of the total amount of revenue remaining to be earned on projects that have been awarded. Backlog consists of two components: (1) unearned revenue and (2) contracts awarded but not started. Unearned revenue includes the revenue we expect to record in the future on in-progress contracts, including 100% of our consolidated joint venture contracts and our proportionate share of unconsolidated joint venture contracts. Contracts that are awarded, but not yet started, are included in Backlog once a contract has been fully executed and/or we have received a formal “Notice to Proceed” from the project owner.

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Backlog should not be considered a comprehensive indicator of future revenue as many 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 or an authorized “Notice to Proceed.” In the event of a termination, we are typically reimbursed for all of our costs through a specific contractual date, our costs to demobilize from the project site, and in certain cases overhead costs and profit associated with the contract through the termination date. Costs may include preconstruction and engineering services as well as that of our subcontractors. Our contracts do not typically grant us rights to revenue reflected in Backlog. Projects may remain in the 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 are not included within our Backlog amount.

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Below is our Backlog by segment.

Civil

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Transportation

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Liquidity, Capital Commitments and Resources

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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 credit facility, (y) selling off unused or underutilized construction assets, or (z)

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expediting our claim settlements. However, we do not believe that the limited cash proceeds received in connection with the Business Combination have had a materially adverse impact on our operations or financial position.

We will receive the proceeds from any exercise of 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 February 24, 2025, the closing price of our Common Stock was $3.23 per share. To the extent the market price of our Common Stock remains below the Warrant 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, and other financing 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, our current contracts and Backlog. Our liquidity could be adversely affected by a disruption in the availability of credit. If such an event were to occur, we may be unable to borrow under our revolving credit facility 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. See “Item 1A. Risk Factors” for further discussion of related risks.

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 impact on our free cash flow and the financing needed to operate our business.

Cash Flows

Comparisons of the Year Ended December 31, 2024 to the Year Ended December 31, 2023

The following table sets forth summary change in cash, cash equivalent and restricted cash for the years ended December 31, 2024 and December 31, 2023:

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Net cash provided by operating activities was $1.9 million during the year ended December 31, 2024, compared to net cash used in operating activities of $10.3 million for the year ended December 31, 2023. During the year ended December 31, 2024, the primary drivers in the $1.9 million in cash provided by operating activities were a decrease of $70.7 million in contract assets, an increase of $56.4 million in contract liabilities and $23.3 million in depreciation and amortization, offset by $105.5 million in gross loss and $44.8 million in deferred taxes.

Net cash provided by investing activities was $3.2 million during the year ended December 31, 2024, compared to $4.5 million for the year ended December 31, 2023. During the year ended December 31, 2024, the primary drivers in the $3.2 million in cash provided by investing activities were $6.5 million in proceeds from sale of property and equipment and $4.1 million in distributions received from investees, offset by $7.4 million in purchases of property and equipment.

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Net cash provided by financing activities was $18.8 million during the year ended December 31, 2024, compared to net cash used in financing activities of $2.6 million for the year ended December 31, 2023. During the year ended December 31, 2024, the primary drivers in the $18.8 million cash provided by financing activities were $168.1 million of borrowing on notes payable and $42.5 million in proceeds from financing obligations, offset by $95.0 million in payments on the revolving credit facility, $89.8 in payments on notes payable and $8.0 million in payments of deferred financing costs.

Comparisons of the Year Ended December 31, 2023 to the Year Ended December 31, 2022

For discussion of cash flows for the year ended December 31, 2023 compared to the year ended December 31, 2022, refer to Part II. Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Cash Flows” of our Annual Report on Form 10-K for the year ended December 31, 2023.

As of December 31, 2024, we had long-term debt of $300.2 million, of which $44.5 million is due within the next twelve months.

Secured Notes

We enter into secured notes in order to finance growth within our business. In July 2023, we refinanced approximately $76.4 million of existing secured notes in exchange for a new equipment note in the amount of $113.5 million. The equipment note is secured by specific construction equipment assets and has a five-year fully amortizing term at a fixed rate of 7.25%. We incurred $0.3 million as deferred financing cost in connection with the refinancing. The deferred financing costs are included in long-term debt on our consolidated balance sheets. Additionally, as part of the refinancing, we incurred a loss on extinguishment of debt of $0.6 million, which was included in other income, net on our consolidated statements of operations and $0.6 million as bank service charges in connection with the refinancing. As of December 31, 2024, we had outstanding secured notes expiring between December 2025 and March 2033. Interest rates on the secured notes range between 0.00% and 12.90%. The secured notes are collateralized by certain assets of Southland’s fleet of equipment.

On September 30, 2024, the Company entered into a term loan and security agreement (the “Credit Agreement”) with Callodine Commercial Finance, LLC as administrative agent (“Administrative Agent”) and lender. The Credit Agreement provides for a four-year secured $160.0 million term loan facility (the “Credit Facility”), consisting of a $140.0 million initial draw term loan (the “Term Loan”) and a $20.0 million committed delayed draw term loan (the “Delayed Draw”). The Delayed Draw is a committed facility in which the Company may request all or a portion of the Delayed Draw to be available to the Company, subject to specified advance rates against eligible collateral and other criteria of the Credit Facility. As of December 31, 2024, there are no amounts eligible to be drawn under the Delayed Draw facility. The Delayed Draw can be drawn no more than once per quarter in minimum increments of $2.5 million, and once drawn, any repaid amounts of the Delayed Draw cannot be re-borrowed. Any undrawn portion of the Delayed Draw commitment will terminate on September 30, 2027, the third anniversary of the closing date. The Credit Facility has a maturity date of September 30, 2028. A portion of the proceeds from the Term Loan was used to pay in full all outstanding amounts under the revolving credit facility, and the revolving credit facility was terminated.

Subsequent to the year ended December 31, 2024, the Company and Administrative Agent entered into a first amendment to the Credit Facility that removed an Administrative Agent-requested borrowing base reserve amount in exchange for certain additional reporting obligations and a personal guarantee from Frank Renda, the Company’s President and Chief Executive Officer, on any draws made on the Delayed Draw. As such, the Company has access to the Delayed Draw facility as supported by the borrowing base calculation.

The Credit Agreement requires quarterly principal payments on the Term Loan, which commenced on December 31, 2024. The required principal amortization is as follows: (i) 5.0% in the first year (1.25% per quarter), (ii) 10.0% in the second year (2.50% per quarter), (iii) 15.0% in the third and fourth years (3.75% per quarter), and (iv) the remaining balance at maturity. The amortization for the Delayed Draw will also be paid quarterly and apply to each individual draw at the same prevailing quarterly rate that is in effect for the Term Loan and will commence with the first full quarter after the draw date of any Delayed Draw.

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The interest on amounts drawn under the Credit Facility is payable monthly at a rate of 7.25% per annum plus the higher of (i) 90-day Secured Overnight Financing Rate (“SOFR”) with a credit adjustment spread of 0.15% or (ii) 3%. The undrawn portion of the Delayed Draw is subject to a 3.75% commitment fee, payable monthly.

Any principal prepayments in the first three years, other than mandatory prepayments pursuant to the Credit Agreement, will be subject to additional fees. In the first year, any prepayments will incur fees of 3% or the make-whole premium, whichever is higher. The make-whole premium is the interest and fees that would have been earned for the full year less interest and fees paid to date during the year. In the second and third years, any prepayments will incur fees of 2% and 1%, respectively. There are no fees for prepayments made in the fourth year.

The Credit Agreement contains customary restrictive covenants and events of default, including financial covenants based on the Company’s Liquidity, as defined in the Credit Agreement, and trailing twelve-month earnings before interest expense, income taxes, depreciation and amortization (the “TTM EBITDA Covenants”). The TTM EBITDA Covenants will be tested and the Company must comply with the TTM EBITDA Covenants during any period where the Company’s Liquidity falls below $30.0 million until the Company’s Liquidity exceeds $30.0 million for a period of at least 30 days. The Credit Agreement requires the Company to maintain Liquidity of at least $20.0 million at all times. The Credit Agreement also stipulates that the outstanding principal cannot be greater than the specified advance rates against eligible collateral.

The obligations under the Credit Facility are unconditionally guaranteed by the Company and its subsidiaries. The obligations under the Credit Facility are secured by a first lien on all assets of the Company, subject to permitted liens and interests of other parties as described in the Credit Agreement.

As of December 31, 2024, the Company was in compliance with all financial covenants under the Credit Agreement.

In December 2024, in connection with the Transaction (see Note 2 of the Notes to the Consolidated Financial Statements), the Company exchanged $13.2 million of secured notes and accrued interest thereupon due to certain named executive officers in exchange for shares of common stock.

Mortgage Notes

We enter into mortgage notes in order to finance growth within our business. As of December 31, 2024, we had a mortgage note expiring in February 2029. The interest rate on the mortgage note was 5.99%. The mortgage note is collateralized by certain real estate owned by Southland.

Revolving Credit Facility

In July 2021, we entered into a revolving credit facility agreement (“Revolving Credit Facility”) 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. In August 2023, the Revolving Credit Facility was extended through January 15, 2025. In July 2024, the Company made a $3.0 million payment on the Revolving Credit Facility, in connection with a real estate transaction (see Note 2 of the Notes to the Consolidated Financial Statements).

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On August 9, 2024, a principal payment of $2.5 million was made and the Revolving Credit Facility limit was reduced to $84.5 million. An additional payment of $10.0 million was made on September 15, 2024, which further reduced the Revolving Credit Facility limit to $74.5 million. The Company used a portion of the Term Loan proceeds to pay in full outstanding amounts under the Revolving Credit Facility. Concurrently with the Company’s entry into the Credit Agreement, the Company terminated the Revolving Credit Facility.

Contractual Obligations

Our contractual obligations and commitments as of December 31, 2024, include:

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