On Thursday, Southland Holdings (AMEX:SLND) discussed second-quarter financial results during its earnings call. The full transcript is provided below.
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Summary
Southland Holdings Inc reported second quarter 2026 revenue of $113 million, a significant decrease from $215.4 million in the same period in 2025, due to non-cash adjustments related to legacy dispute resolutions.
The company finalized a Financial Assistance Agreement with its sureties, providing $59 million in bonding surety financing and $151 million in non-bonding financing, which will be converted into senior non-voting preferred shares.
Southland Holdings secured a $190 million contract for Phase Three of the Winnipeg North End Sewage Treatment Plant, indicating improved bonding capacity and strategic growth in core markets.
The company reported a net loss of $84.3 million, driven by a $93.6 million non-cash adjustment, and an EBITDA of negative $73.4 million, reflecting challenges with legacy projects.
Future outlook includes expectations of increased bonding support and bidding activity, with a backlog of $1.68 billion, positioning the company for potential awards and growth in infrastructure sectors.
Full Transcript
Dara, Operator
Good morning. My name is Dara and I'll be your conference operator today. At this time, I would like to welcome everyone to the Southland second quarter 2026 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad.
If you'd like to withdraw your question, press star one again. Alex, you may begin your conference.
Alex Murray, VP Corporate Development and Investor Relations
Good morning everyone and welcome to the Southland second quarter 2026 conference call. This is Alex Murray, Vice President of Corporate Development and Investor Relations. Joining me today are Frank Retta, President and Chief Executive Officer, and Keith Bassano, Chief Financial Officer. Before we begin, I'd like to remind everyone that this conference call may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are neither historical facts nor assurances of future performance. Forward-looking statements are uncertain and outside of Southland's control. Southland's actual results and financial condition may differ materially from those projected in forward-looking statements. Therefore, you should not rely on any of these forward-looking statements and we do not undertake any duty to update these statements. For a discussion of some of the risks that could affect results, please see the Risk Factors section of our Form 10-K for the year ended December 31, 2025 that was filed with the SEC on March 26, 2026 and the discussion in our Form 10-Q for the quarter ended June 30, 2026 that was filed with the SEC last night. We will also refer to non-GAAP financial measures and you will find reconciliations in the press release related to this conference call which can be found on the Investor Relations page of our website. With that, I will now turn the call over to Frank.
Frank Retta, President and Chief Executive Officer
Thank you, Alex. Good morning and thank you for joining Southland's second quarter 2026 conference call. I will provide an overview of the series of agreements we entered into with our sureties. I will then review our quarterly results including the legacy dispute adjustments recorded during the quarter, progress on the wind down of legacy projects and the strength of our current pipeline of opportunities. Turning to our strategic plan and capital structure, as you know, our sureties have been providing support both through direct funding and by acquiring our term loan facility.
We formalized that ongoing commitment into a Financial Assistance Agreement and a second amendment to our term loan facility. Together, these agreements give us the runway we need to complete our bonded work while putting the company in a much more sustainable capital structure. The Financial Assistance Agreement governs the terms on which our sureties have provided and will continue to provide financing with respect to our bonded construction projects.
As part of this agreement, the terms depend on whether certain sureties are providing go-forward bonding or not. Any surety that is party to the Financial Assistance Agreement that has provided bonds to us after the retroactive effective date and is expected to continue to issue bonds to us is considered a bonding surety. Financing provided by those sureties is referred to as bonding surety financing. Bonding surety financing bears interest at 4% per annum with accrued interest capitalized and added to principal each year.
As of June 30, 2026, total bonding surety financing was approximately $59 million. Sureties providing financing that are not providing go-forward bonding are considered non-bonding sureties and their funding is referred to as non-bonding financing. As of June 30, 2026, total non-bonding financing was approximately $151 million. The agreement documents the terms of our non-bonding financing arrangements with our non-bonding sureties, including the future conversion of certain non-bonding financing into senior non-voting preferred shares in accordance with a preferred share term sheet attached to the agreement.
Under the agreement, each applicable surety panel has determined the expected loss for the non-bonding financing expected to fund that panel's outstanding bonded projects through completion. The preferred shares term sheet contemplates that the amount initially converted into preferred shares equals the lesser of the non-bonding financing provided as of June 30, 2026 or 50% of that panel's expected loss based on non-bonding financing. As of June 30, we expect to convert and issue approximately $151 million of preferred shares allocated among the sureties based on their respective participation on the applicable panel.
These preferred shares carry a stated value of $1,000 per share with a liquidation preference equal to that stated value. They rank senior to any other class or series of our equity, have a perpetual maturity and are not convertible into any other securities of the company. We're required to issue them no later than September 30th of this year and they can't be primed by any other equity without the applicable surety panel's consent. The preferred shares will be adjusted upward or downward based on actual loss once the applicable sureties’ projects are completed, with the final preferred share amount limited to 50% of that actual loss, and to the extent the amount initially issued exceeds 50% of the actual loss, that excess converts back to unsecured indebtedness, so the aggregate preferred shares outstanding equals 50% of actual loss at completion. The remaining portion of the non-bonding financing for which preferred shares are not issued will constitute unsecured indebtedness, will bear no interest, and will not be subject to mandatory amortization payments other than certain net cash flows from claims and 5% of annual operating cash flow at time of substantial completion of sureties’ bonded projects, provided that we are not in default at the applicable time.
Each surety will forgive the portion of its non-bonding financing that is unsecured indebtedness if its bonded projects achieve substantial completion or all project dispositions with respect to such projects are consummated within 20% of the applicable expected loss amount. As part of the agreement, we also reached terms on an amendment to our senior credit facility. So long as we remain in compliance with the facility, the amendment sets the interest rate at a fixed 4% with accrued interest capitalized and added to principal and suspends both the scheduled principal payments and the early termination premium.
If that relief were to end early, the original interest rate would apply retroactively. Together, this represents approximately $27 million of cash debt service relief over the next 12 months. During the second quarter, our surety partners advanced approximately $71 million to support active bonded projects, bringing total surety advances to $210 million exclusive of the Washington State Convention Center. Their continued support reflects confidence in both our plan and execution strategy.
Turning to this quarter's results, second quarter revenue was $113 million inclusive of a revenue reversal of approximately $102 million from non-cash adjustments related to legacy dispute negotiations and resolutions. Gross loss for the quarter was $71 million, primarily driven by the unfavorable adjustment from legacy disputes which impacted gross loss by approximately $94 million. We continue to actively pursue all avenues to collect the amounts owed to us and expect to make progress throughout the remainder of 2026 in resolving these matters and converting them into cash.
Our legacy portfolio also continues to shrink. We are down to $46 million of Materials and Paving backlog and $35 million of non-M&P legacy backlog remaining. The market backdrop across our core end markets also remains strong. Federal, state and local infrastructure funding continues to translate into active procurement for water, bridge, marine and tunnel work. Moving along the backlog, we finished the quarter with $1.68 billion of backlog, down from $2.03 billion at year end.
With the financing agreement now in place, we expect bonding support and bidding activity to continue increasing. We expect the combination of improving financial flexibility, a shrinking legacy portfolio and strong market demand positions us well to convert upcoming opportunities into awards over the coming months. This is evidenced in the recently announced Phase Three Winnipeg North End Sewage Treatment Plant award, which we secured alongside our partners Akon and MWH, representing approximately $190 million in contract value for Southland.
Active pursuits in our pipeline include additional packages at the Winnipeg North End Sewage Treatment Plant, the Claiborne Pell Bridge rehabilitation in Rhode Island, the I-10 Calcasieu approach bridges in Louisiana, the MoDOT Liberty Bend Bridge design-build in Missouri, the Bermuda Swing Bridge replacement, the MTA Bronx-Whitestone Bridge rehabilitation in New York, the Outerbridge Crossing repairs for the Port Authority, and multiple tunnel, marine and bridge opportunities across our core markets.
In summary, we have reached final agreement on a central element of the strategic plan we outlined in March. Our surety partners have provided capital to support execution, our senior credit facility has been restructured to provide meaningful cash debt service relief and the broader financing agreement is now in place. With that, I'll now turn the call over to Keith for financial updates.
Keith Bassano, Chief Financial Officer
Thank you Frank, and good morning everyone. I will discuss an overview of our financial performance during the second quarter of 2026. You can find additional details and information in the financial statements, footnotes and Management's Discussion and Analysis that were filed on Form 10-Q last night. Revenue in the second quarter was $113.3 million compared to $215.4 million in the same period in 2025. Gross loss in the quarter was $71.2 million compared to gross profit of $13 million in the second quarter of 2025.
This was driven by unfavorable adjustments related to claims across several legacy projects. During the three months ended June 30, 2026, we performed a comprehensive reassessment of expected recoverability of claims on several projects, including substantially completed projects. In light of recent developments and updated information available regarding the timing and the amount of potential recoveries, as a result of this reassessment, we reduced the estimated value of certain claims and recorded a cumulative catch-up adjustment that negatively impacted revenue and gross profit for the quarter of $102.3 million and $93.6 million, respectively.
While the company continues to pursue recovery of amounts it believes contractually due, the timing and the ultimate resolution of these matters remains uncertain. These adjustments reflect the derecognition of claim positions on work that is already constructed. Our contract assets balance declined to $272.3 million at the quarter end from $389.4 million at year end. The vast majority of that balance relates to legacy projects where construction activities are already completed.
Selling, general and administrative expenses in the second quarter were $16.7 million, an increase of $3.1 million, or 23.1%, compared to the same period in 2025. The increase was primarily driven by a $3.2 million increase in bad debt expense associated with legacy adjustments, partially offset by lower compensation expense. Selling, general and administrative expense in the second quarter included $1.2 million of business transformation expense.
Interest expense for the quarter totaled $7.3 million, a decrease of $2.7 million, or 26.5%, compared to the same period in 2025, primarily due to lower total debt outstanding. Cash interest in the quarter was $4 million compared to $8.5 million in the first quarter, the difference primarily attributable to the suspended interest service on our senior term loan. Other income was $6.4 million compared to $0.6 million in the prior year period, primarily driven by gains on asset sales.
These gains are the result of progress made toward an initiative under our strategic plan to monetize non-core assets and reduce our debt. We recorded an income tax benefit of approximately $1.6 million for the quarter compared to a $61,000 benefit in the same period last year. Our effective tax rate for the quarter was approximately 2%. As we discussed on our last call, we recorded a valuation allowance against our domestic deferred tax assets in the third quarter of 2025, which now stands at approximately $147 million as of the second quarter of 2026.
As a reminder, that valuation allowance does not limit our ability to use those deferred tax assets in the future. Net loss attributable to Southland stockholders in the second quarter was $84.3 million, or a loss of $1.55 per diluted share, compared to a net loss of $10.3 million, or a loss of $0.19 per diluted share, in the second quarter of 2025. EBITDA in the second quarter was negative $73.4 million compared to a positive $4.2 million in the second quarter of 2025.
As I mentioned earlier, this quarter's EBITDA was largely impacted by non-cash unfavorable adjustments of $93.6 million related to our comprehensive reassessment of recoverability of claims. Now to touch on segment performance for the quarter. Our Civil segment had revenue of $41 million compared to $81.5 million in the same period in 2025. Civil had a gross loss of $27.1 million compared to a gross profit of $14.3 million in the prior year period.
Our Transportation segment had revenue of $72.3 million compared to $133.9 million in the same period in 2025. Transportation had a gross loss of $44.2 million compared to a gross loss of $1.3 million in the same period in the prior year. The Materials and Paving business line contributed $11.7 million in revenue and a gross loss of $16.3 million in the second quarter compared to revenue of $21.7 million and a gross loss of $3.8 million in the same period in 2025.
M&P now represents approximately 3% of total backlog. We finished the quarter with approximately $1.68 billion of backlog, of which we expect to recognize approximately 38% as revenue over the next 12 months. During the quarter, our surety partners advanced approximately $70.6 million under our General Indemnity Agreements to support ongoing project performance, bringing total advances under those agreements to $209.8 million, excluding the Washington State Convention Center.
Including amounts funded in connection with the Washington State Convention Center judgment, total surety payables were $298.9 million at quarter end. Repayment of these amounts is not required prior to at least August 13, 2027. Repayment terms regarding the Washington State Convention Center are still being negotiated. As Frank noted, we also reached terms on a second amendment to our senior credit facility. The amendment sets the interest rate at a fixed 4% and defers payment of that interest so it is capitalized as payment-in-kind interest and added to principal rather than paid in cash.
The credit amendment suspends the scheduled quarterly amortization payments and the early termination premium, and it eliminates certain early maturity triggers tied to our other indebtedness. The facility continues to mature in September of 2028. The amendment also removes our financial covenants on a going forward basis. Our facility previously required us to maintain liquidity of at least $20 million at all times and tested a minimum EBITDA covenant in defined circumstances.
As amended, those requirements apply only to periods prior to March of this year. While we are encouraged to finalize these agreements, our focus remains on closing out our legacy work, improving the balance sheet through asset monetization and the surety partnership, and executing on our core business. I'll now return the call back to the operator for questions.
Dara, Operator
We will now begin the question and answer session. Please limit yourself to one question and one follow up. If you'd like to ask a question, please raise your hand by pressing star one. Your first question comes from Julio Romero with Sidoti & Company, LLC. Your line is open. Please go ahead.
Julio Romero, Analyst at Sidoti & Company, LLC
Great, thanks. Hey, good morning. Frank, Keith and Alex. Thanks so much for taking the questions.
Alex Murray, VP Corporate Development and Investor Relations
Morning, Julio.
Julio Romero, Analyst at Sidoti & Company, LLC
Morning. Hi. So, you know, congratulations on completing the Financial Assistance Agreement and the second amendment. Now that those are executed, could you maybe help investors understand kind of what changes for Southland from here from a go-forward liquidity basis, whether you anticipate needing additional surety funding beyond what's being provided and what this all means for bonding capacity on new work going forward?
Keith Bassano, Chief Financial Officer
Yeah, so let me—this is Keith here. Let me start off with liquidity. So what this agreement does for the company is provides the liquidity that we need to execute on our bonded work. The sureties have been extremely supportive and you saw that even further this quarter with an additional $70 million of surety payable support to help support the bonded work. We, you know, we have seen consistent support from the sureties and this agreement formalizes that support.
Alex Murray, VP Corporate Development and Investor Relations
On the bonding front, Julio, you know, we spent the first half of the year bidding with constrained bonding support as we worked through the deal. Now that the deal is finalized, we expect a comprehensive bonding program that supports the long-term plan. The Winnipeg North End award we announced in July is approximately $190 million contract value that's going to be included in Q3 awards and we expect bidding to pick up now that the deal is finalized.
Julio Romero, Analyst at Sidoti & Company, LLC
Excellent. Thanks for the color there. And then for my follow up here, it's just, you know, on the preferred shares, you expect to issue $151 million. How should common shareholders kind of think about that? Is that going to be permanent in the capital structure? Is that a temporary kind of stabilization tool that you expect to redeem? Just help frame that for the common shareholder, if you could.
Keith Bassano, Chief Financial Officer
Yeah. So these are perpetual shares. We will negotiate optional redemption terms; however, that's under negotiation at this time. And these are non-convertible.
Julio Romero, Analyst at Sidoti & Company, LLC
Okay, great. Excellent. Thanks for taking the questions and I'll turn it over.
Dara, Operator
Your next question comes from Christian Schwab with Craig-Hallum Capital Group. Your line is open. Please go ahead.
Ben Taxal, Analyst at Craig-Hallum Capital Group
Hey guys, it's Ben Taxal on for Christian Schwab here. I just had one question on the legacy dispute adjustments and, specifically on a go-forward basis, do you guys internally have like an idea of when the adjustments will be over and kind of business will get back to normal business, I guess, simply.
Keith Bassano, Chief Financial Officer
Yeah. So during the quarter, again, these were the result of a comprehensive reassessment of expected recoverability on our claims in the portfolio of projects. We, you know, entering into these agreements was critical for the company and critical for the business. We now have additional stakeholders in the claim recoveries. As a result, you know, we performed this reassessment and, you know, we'll continue to evaluate claims on a quarterly basis, but we view this as a one-time adjustment in the quarter.
Ben Taxal, Analyst at Craig-Hallum Capital Group
All right, guys, that was the only question. Thank you.
Keith Bassano, Chief Financial Officer
Thank you.
Dara, Operator
There are no further questions at this time. We'll take another question from Julio Romero. Your line is open. Please go ahead.
Julio Romero, Analyst at Sidoti & Company, LLC
Hi, guys, thanks for taking the follow up question here. The award on the joint venture that you received last month, that enters your Civil backlog here in the third quarter, what is your portion of the project? When is that expected to convert to revenue? What's the expected duration of that project? And then any other projects that are similar to Winnipeg in terms of engagements in prior years that might convert to construction awards or future phases of awards in the future?
Alex Murray, VP Corporate Development and Investor Relations
Yeah, so the Winnipeg project, you know, we are working on Phase One, this is Phase Two of the project and there's multiple phases, you know, that we hope to tender on in the coming, you know, months and years. But our portion, you know, is $190 million of construction contract. $190 million contract that will conclude in 2030.
Julio Romero, Analyst at Sidoti & Company, LLC
Okay, thanks very much.
Alex Murray, VP Corporate Development and Investor Relations
Julio, could you repeat that second portion of the question?
Julio Romero, Analyst at Sidoti & Company, LLC
Yeah. Hey, can you hear me? Yes. Okay. Yep. Just, you know, if there's other projects that are similar to Winnipeg in the sense that, you know, you kind of engaged or bidded on them with a joint venture, you know, in the '23–'24 time frame that, you know, you're not actively bidding on, you know, projects of that size now, or I would think you weren't in the earlier part of this year. But, you know, any other projects that are similar to that in the sense that they might actually, you know, progress towards an award here in the coming, you know, back half of the year or '27.
Alex Murray, VP Corporate Development and Investor Relations
Yeah, there's quite a few projects, you know, that we have that are similar. We've got a couple of projects that we expect to turn into potential construction contracts in the back half of the year, early next year.
Julio Romero, Analyst at Sidoti & Company, LLC
Okay. Okay, great. And then I guess since I'm on anyway, I guess if you have a couple of other projects, I guess that would be interpreted as a positive statement about the continued support you're getting from the surety partners that you have and your bonding capacity.
Alex Murray, VP Corporate Development and Investor Relations
Yes, we expect bidding to, you know, to ramp up in the last half of the year and going forward. There's a lot of demand in our industry—water, wastewater, bridges, marine—all sectors that we're going to strategically target. We're going to continue to hit those short-duration projects and there's multiple to choose from and surety support going forward is going to be really helpful.
Julio Romero, Analyst at Sidoti & Company, LLC
Great. And then, and then geographically, where are you seeing private sector demand for those services?
Alex Murray, VP Corporate Development and Investor Relations
There's a lot of work—and there's really a lot of work all over the country right now. You know, you hear the data centers really kicking off all over. But as far as infrastructure projects, you know, Texas, Florida, the Northeast, all of our core markets have a lot of work to choose from.
Julio Romero, Analyst at Sidoti & Company, LLC
Excellent. Well, thanks for taking the follow up questions. I appreciate it.
Alex Murray, VP Corporate Development and Investor Relations
Thanks, Julio.
Dara, Operator
Thank you. There are no further questions at this time. I'll now turn the call back to Frank for closing remarks.
Frank Retta, President and Chief Executive Officer
Before we wrap up today, I'd like to thank our employees for their continued commitment and dedication to building some of the most challenging infrastructure projects across North America, especially as we worked through this transition. I'd also like to thank our surety partners for their continued support and partnership as we work together to put Southland on a stronger path forward. Thank you all for joining today and I look forward to updating you on our next call. Thanks everyone.
Dara, Operator
This concludes today's call. Thank you for attending. You may now disconnect.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.
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