{"url_path":"/sec/slnd-wt/10-q/2026/item-2","section_key":"item-2","section_title":"Item 2 **Management’s Discussion and Analysis of Financial Condition and Results of Operations","topic":"sec","document":{"doc_type":"10-Q","doc_date":"2026-05-12","source_url":"https://www.sec.gov/Archives/edgar/data/1883814/0001104659-26-059468-index.html","accession_number":"0001104659-26-059468","cik":"0001883814","ticker":"SLND","issuer_name":"Southland Holdings, Inc.","edgar_url":"https://www.sec.gov/Archives/edgar/data/1883814/0001104659-26-059468-index.html","primary_entity_key":"0001883814","primary_entity_name":"Southland Holdings, Inc."},"word_count":6107,"has_tables":true,"body_markdown":"**Item 2.**Management’s Discussion and Analysis of Financial Condition and Results of Operations\n\nThe following discussion and analysis contains 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 uncertainties, risks, and assumptions associated with these statements.\n\n​\n\nThe following discussion and analysis present information that we believe is relevant to an assessment and understanding of our unaudited condensed consolidated balance sheets, statements of cash flows, and results of operations. This information should be read in conjunction with the unaudited condensed consolidated financial statements and the notes related thereto.\n\nOverview\n\nSouthland 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, data centers, transportation and facilities, marine, steel structures, water and wastewater treatment, and water pipelines end markets.\n\nSouthland 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.\n\n**Key Factors Affecting Results of Operations**\n\nBusiness Environment\n\nWe segregate our business into two reportable segments: Transportation and Civil. 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.\n\nOur 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.\n\nBoth 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.\n\nMarket Trends and Uncertainties\n\nIn 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.\n\n23\n\n[Table of Contents](#TOC)\n\nMany 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.\n\nWe have seen an increase in demand for specialty construction projects in recent years at the federal, state, and local level. We anticipate further 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.\n\nWe 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.\n\nDuring the first half of 2025, the U.S. government announced a variety of tariff actions in response to which many countries have announced retaliatory trade actions, including tariffs on U.S. exports. The tariffs and retaliatory trade actions have increased the cost of importing certain construction materials into the U.S. and have caused disruption and uncertainty to both international trade, supply chains and financial markets. It is unclear to what extent, when and for how long announced trade actions will be in place. To date, these trade actions have had no meaningful impact on the results of our operations or the projects currently underway as the construction materials and equipment used for our current projects have generally been sourced and/or secured upon project inception. However, we are evaluating the potential impacts of these proposed tariffs, including potential impacts to our customers, as well as our ability to mitigate their related impacts. In addition, economic experts and policy makers have expressed concerns that increased tariffs and retaliatory trade actions could increase inflation or the risk of a recession, which could also affect our customers’ use of capital and demand for our services.\n\nSeasonality, Cyclicality, and Variability\n\nThe 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.\n\nOur 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, changes in client schedules, or for other reasons.\n\nCritical Accounting Policies and Estimates\n\nThe preparation of financial statements in conformity with the United States Generally Accepted Accounting Principles (“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 financial statements in future periods. The following discussion addresses the items we have identified as our critical accounting estimates. There have been no material developments or changes from the policies and estimates discussed in our annual disclosures.\n\nMore information about our accounting policies can be found in Note 2 of our audited consolidated financial statements, and Management’s Discussion and Analysis, for the year ended December 31, 2025 on our Annual Report on Form 10-K, as filed with the SEC on March 26, 2026.\n\n24\n\n[Table of Contents](#TOC)\n\n**Materials and Paving**\n\nIn 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. 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.  \n\nFor the three months ended March 31, 2026, M&P contributed $11.0 million to revenue and $13.1 million to gross loss. There is additional information on the M&P gross loss in the Transportation portion of the Segment Results section of this Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. This compares to $18.1 million to revenue and $9.1 million to gross loss for the three months ended March 31, 2025. As of March 31, 2026, approximately 3.8% of Southland’s backlog was in M&P and Southland estimates most of this work to be substantially completed in 2026.\n\n**Results of Operations**\n\nThe following table sets forth summary financial information for the three months ended March 31, 2026 and 2025:\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n**Three Months Ended**\n\n*(Amounts in thousands)*\n\n​\n\n**March 31, 2026**\n\n**  ​ ​ ​**\n\n**March 31, 2025**\n\nRevenue\n\n​\n\n$\n\n172,405\n\n​\n\n$\n\n239,486\n\nCost of construction\n\n​\n\n \n\n177,161\n\n​\n\n \n\n218,006\n\n**Gross profit (loss)**\n\n​\n\n \n\n(4,756)\n\n​\n\n \n\n21,480\n\nSelling, general, and administrative expenses\n\n​\n\n \n\n14,943\n\n​\n\n \n\n16,465\n\n**Operating income (loss)**\n\n​\n\n \n\n(19,699)\n\n​\n\n \n\n5,015\n\nGain on investments, net\n\n​\n\n \n\n147\n\n​\n\n \n\n17\n\nOther income, net\n\n​\n\n \n\n74\n\n​\n\n \n\n743\n\nInterest expense\n\n​\n\n \n\n(8,681)\n\n​\n\n \n\n(8,874)\n\n**Losses before income taxes**\n\n​\n\n \n\n(28,159)\n\n​\n\n \n\n(3,099)\n\nIncome tax expense (benefit)\n\n​\n\n \n\n19\n\n​\n\n \n\n(313)\n\n**Net loss**\n\n​\n\n \n\n(28,178)\n\n​\n\n \n\n(2,786)\n\nNet income attributable to noncontrolling interests\n\n​\n\n \n\n174\n\n​\n\n \n\n1,766\n\n**Net loss attributable to Southland Stockholders**\n\n​\n\n$\n\n(28,352)\n\n​\n\n$\n\n(4,552)\n\n​\n\nRevenue\n\nRevenue for the three months ended March 31, 2026, was $172.4 million, a decrease of $67.1 million, or 28.0%, compared to the three months ended March 31, 2025. The decrease was attributable to a $68.0 million decrease in revenue in our Transportation segment primarily due to projects approaching completion, offset by a $0.9 million increase in revenue in our Civil segment primarily due to a new project substantially started after March 31, 2025.\n\nCost of construction\n\nCost of construction for the three months ended March 31, 2026, was $177.2 million, a decrease of $40.8 million, or 18.7%, compared to the three months ended March 31, 2025. The decrease was attributable to a $49.7 million decrease in our Transportation segment primarily due to projects approaching completion, offset by an $8.9 million increase in our Civil segment primarily due to new projects substantially started after March 31, 2025.\n\nGross profit (loss)\n\nGross loss for the three months ended March 31, 2026, was $4.8 million, a decrease in gross profit of $26.2 million, or 122.1%, compared to the three months ended March 31, 2025. The decrease was attributable to an $18.2 million increase in gross loss in our Transportation segment primarily due to unfavorable adjustments related to unfavorable dispute resolutions and an $8.0 million decrease in gross profit in our Civil segment primarily due to higher-than-expected project costs.\n\n25\n\n[Table of Contents](#TOC)\n\nSelling, general, and administrative expenses\n\nSelling, general, and administrative expenses for the three months ended March 31, 2026, were $14.9 million, a decrease of $1.5 million, or 9.2%, compared to the three months ended March 31, 2025. The decrease was primarily due to a $2.4 million decrease in compensation expense, a $0.6 million decrease in professional fees and a $0.5 million decrease in real estate and personal property taxes, offset by a $2.1 million increase in business transformation expenses, compared to the same period in 2025.\n\nInterest expense\n\nInterest expense for the three months ended March 31, 2026, was $8.7 million, a decrease of $0.2 million, or 2.2%, compared to the three months ended March 31, 2025. The decrease was primarily driven by the decrease of total debt compared to the same period in 2025.\n\nIncome tax expense (benefit)\n\nThe Company is in a net deferred tax asset position for both U.S. federal and state income tax as of March 31, 2026. The Company assesses available positive and negative evidence to estimate whether sufficient taxable income will be generated to permit use of existing deferred income tax assets. The Company has incurred three years of cumulative losses in various jurisdictions including the U.S. Such objective evidence and recent changes in forecasts resulted in the Company establishing a valuation allowance against the net deferred tax assets related to U.S. federal and state income tax as of September 30, 2025, with the exception of the net deferred tax assets related to separate state filings for certain subsidiaries. As of March 31, 2026, the Company has recorded a valuation allowance of approximately $123.8 million, inclusive of current year, related to its US federal and state net deferred tax assets, inclusive of current year activity, as they are determined to be more-likely-than-not to not be utilized\n\n​\n\nIncome tax expense for the three months ended March 31, 2026, had an effective rate of (0.1%). The primary differences between the federal statutory tax rate of 21% and the effective rate were valuation allowance adjustments against subsidiaries’ net deferred tax assets and state income taxes.\n\n​\n\nIncome tax benefit for the three months ended March 31, 2025, had an effective rate of 10.1%. The primary differences between the federal statutory tax rate of 21% and the effective rate were state income taxes, the recording of a valuation allowance against certain subsidiaries’ net deferred tax assets, federal tax credits, the income earned in foreign jurisdictions with a zero tax rate; however, that foreign income is included within U.S. taxable income through global intangible low taxed income (“GILTI”), and the impact of worldwide forecast on the interim calculations under ASC 740.    \n\n​\n\n**Segment Results**\n\n​\n\nThe following table sets forth segment information for the three months ended March 31, 2026 and 2025:\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n**Three Months Ended**\n\n \n\n*(Amounts in thousands)*\n\n​\n\n**March 31, 2026**\n\n  ​ ​ ​\n\n**March 31, 2025**\n\n \n\n​\n\n​\n\n​\n\n​\n\n  ​ ​ ​\n\n% of Total\n\n  ​ ​ ​\n\n​\n\n​\n\n  ​ ​ ​\n\n% of Total\n\n \n\nSegment\n\n​\n\nRevenue\n\n​\n\nRevenue\n\n​\n\nRevenue\n\n​\n\nRevenue\n\n \n\nCivil\n\n​\n\n$\n\n103,792\n\n \n\n60.2\n\n%  \n\n$\n\n102,916\n\n \n\n43.0\n\n%\n\nTransportation\n\n​\n\n \n\n68,613\n\n \n\n39.8\n\n%  \n\n \n\n136,570\n\n \n\n57.0\n\n%\n\nTotal revenue\n\n​\n\n$\n\n172,405\n\n \n\n100.0\n\n%  \n\n$\n\n239,486\n\n \n\n100.0\n\n%\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n**Three Months Ended**\n\n \n\n*(Amounts in thousands)*\n\n​\n\n**March 31, 2026**\n\n​\n\n**March 31, 2025**\n\n \n\n​\n\n​\n\n​\n\n​\n\n  ​ ​ ​\n\n% of Segment\n\n  ​ ​ ​\n\n​\n\n​\n\n  ​ ​ ​\n\n% of Segment\n\n \n\nSegment\n\n​\n\nGross Profit\n\n \n\nRevenue\n\n​\n\nGross Profit\n\n \n\nRevenue\n\n​\n\nCivil\n\n​\n\n$\n\n14,652\n\n \n\n14.1\n\n%  \n\n$\n\n22,631\n\n \n\n22.0\n\n%\n\nTransportation\n\n​\n\n \n\n(19,408)\n\n \n\n(28.3)\n\n%  \n\n \n\n(1,151)\n\n \n\n(0.8)\n\n%\n\nGross profit (loss)\n\n​\n\n$\n\n(4,756)\n\n \n\n(2.8)\n\n%  \n\n$\n\n21,480\n\n \n\n9.0\n\n%\n\n26\n\n[Table of Contents](#TOC)\n\nCivil\n\nRevenue for the three months ended March 31, 2026, was $103.8 million, an increase of $0.9 million, or 0.9%, compared to the three months ended March 31, 2025. The increase was primarily attributable to increased revenues of $14.3 million from a data center project in the West due to the project being substantially started after March 31, 2025, offset by a $6.4 million decrease from a tunnel project in the West due to the project approaching completion and a $6.2 million decrease from a water facility project in the Northwest due to the project approaching completion.\n\n​\n\nGross profit for the three months ended March 31, 2026, was $14.7 million, or 14.1% of segment revenue, compared to gross profit of $22.6 million, or 22.0%, of segment revenue, for the three months ended March 31, 2025. The primary driver to the decrease in gross profit of $8.0 million for the three months ended March 31, 2026 versus the same period in 2025 was primarily due to decreases in gross profit contributions of $3.1 million from a water facility project in the Northwest, $2.9 million from a water pipeline project in the Southwest and $2.7 million from a water treatment plant project in the Southwest, all of which decreased due to higher-than-expected project costs.\n\n​\n\nTransportation\n\nRevenue for the three months ended March 31, 2026, was $68.6 million, a decrease of $68.0 million, or 49.8%, compared to the three months ended March 31, 2025. The decrease was primarily attributable to decreased revenues of $23.6 million from an elevated roadway and bridge project in the Southeast, $9.0 million from a project in the Bahamas, $5.0 million from a Bridge project in the Southeast and $4.7 million from a bridge repair project in the West, all of which decreased due to the projects approaching completion. The decrease was also primarily related to decreased revenues of $13.0 million from a canal widening project in the South due to an unfavorable adjustment related to dispute resolutions and $7.1 million from the M&P business line.\n\n​\n\nGross loss for the three months ended March 31, 2026, was $19.4 million, or (28.3)% of segment revenue, compared to gross loss of $1.2 million, or (0.8)% of segment revenue, for the three months ended March 31, 2025. The primary driver to the increase in gross loss of $18.3 million was primarily due to decreases in profit contributions of $13.0 million from a canal widening project in the South and $6.4 million from a M&P project in the Southeast, both due to unfavorable adjustments related to dispute resolutions.\n\n​\n\n**Key Business Metrics**\n\n \n\n*Non-GAAP Financial Measures*\n\n​\n\nIn addition to our results determined in accordance with GAAP, we believe the following non-GAAP measures are useful in evaluating our operational performance. We use the following non-GAAP measures to evaluate our ongoing operations and for internal planning, forecasting and compensation purposes. We believe that the non-GAAP financial information may be helpful in assessing our operating performance and facilitates an alternative comparison between fiscal periods. The non-GAAP financial measures are not, and should not be viewed as, a substitute for GAAP reporting measures.\n\n​\n\n*EBITDA*\n\n​\n\nIn our industry, it is customary to manage our business using earnings before interest expense, income taxes, depreciation and amortization (“EBITDA”). EBITDA assists management and the Board of Directors and may be useful to investors in comparing our operating performance consistently over time as it removes the impact of our capital structure and expenses that do not relate to our core operations.\n\n​\n\nNon-GAAP financial measures should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and using non-GAAP financial measures on a supplemental basis. The reconciliation of net loss to non-GAAP financial measures below should be reviewed, and no single financial measure should be relied upon to evaluate our business. Below is a reconciliation of net loss to these non-GAAP financial measures.\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n27\n\n[Table of Contents](#TOC)\n\n​\n\n​\n\n**Three Months Ended**\n\n*(Amounts in thousands)*\n\n​\n\n**March 31, 2026**\n\n****​\n\n**March 31, 2025**\n\nNet loss attributable to Southland Stockholders\n\n​\n\n$\n\n(28,352)\n\n​\n\n$\n\n(4,552)\n\nDepreciation and amortization\n\n​\n\n \n\n5,644\n\n​\n\n \n\n6,525\n\nIncome tax expense (benefit)\n\n​\n\n \n\n19\n\n​\n\n \n\n(313)\n\nInterest expense\n\n​\n\n \n\n8,681\n\n​\n\n \n\n8,874\n\nInterest income\n\n​\n\n \n\n(98)\n\n​\n\n \n\n(450)\n\nEBITDA\n\n​\n\n​\n\n(14,106)\n\n​\n\n​\n\n10,084\n\n​\n\n*Backlog*\n\n \n\nWe define contract backlog (“Backlog”) as a measure of the total amount of revenue remaining to be earned on projects that have been awarded. Backlog consists of two components: (1) unearned revenue and (2) contracts awarded but not started. Unearned revenue includes the revenue we expect to record in the future on in-progress contracts, including 100% of our consolidated joint venture contracts and our proportionate share of unconsolidated joint venture contracts. Contracts that are awarded, but not yet started, are included in Backlog once a contract has been fully executed and/or we have received a formal “Notice to Proceed” from the project owner.\n\n​\n\n​\n\n​\n\n​\n\n*(Amounts in thousands)*\n\n​\n\n**Balance December 31, 2025**\n\n$\n\n**2,031,080**\n\nNew contracts, change orders, and adjustments\n\n \n\n18,887\n\nLess: contract revenue recognized in 2026\n\n \n\n(172,405)\n\n**Balance March 31, 2026**\n\n$\n\n**1,877,562**\n\n​\n\nBacklog should not be considered a comprehensive indicator of future revenue as many of our contracts can be terminated by our customers on relatively short notice, and Backlog does not include future work for which we may be awarded or new awards for which we are awaiting an executed contract or an authorized “Notice to Proceed.” In the event of a termination, we are typically reimbursed for all of our costs through a specific contractual date, our costs to demobilize from the project site, and in certain cases overhead costs and profit associated with the contract through the termination date. Costs may include preconstruction and engineering services as well as that of our subcontractors. Our contracts do not typically grant us rights to revenue reflected in Backlog. Projects may remain in the Backlog for extended periods of time as a result of schedule delays, regulatory requirements, project specific issues, or other reasons. Contract amounts from contracts where a transaction price cannot be reasonably estimated are not included within our Backlog amount.\n\n \n\nThe following tables set forth our Backlog by segment:\n\n​\n\n*Civil*\n\n​\n\n​\n\n​\n\n*(Amounts in thousands)*\n\n​\n\n**Balance December 31, 2025**\n\n$\n\n**798,818**\n\nNew contracts, change orders, and adjustments\n\n \n\n8,060\n\nLess: contract revenue recognized in 2026\n\n \n\n(103,170)\n\n**Balance March 31, 2026**\n\n$\n\n**703,708**\n\n​\n\n*Transportation*\n\n​\n\n​\n\n​\n\n*(Amounts in thousands)*\n\n​\n\n**Balance December 31, 2025**\n\n$\n\n**1,232,262**\n\nNew contracts, change orders, and adjustments\n\n \n\n10,827\n\nLess: contract revenue recognized in 2026\n\n \n\n(69,235)\n\n**Balance March 31, 2026**\n\n$\n\n**1,173,854**\n\n​\n\n​\n\nLiquidity, Capital Commitments and Resources\n\nOur principal sources of liquidity are cash generated from operations, funds from borrowings, including amounts funded to support projects under certain GIAs, 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.\n\n28\n\n[Table of Contents](#TOC)\n\n​\n\nWe will receive the proceeds from the 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 May 1, 2026, the closing price of our common stock was $1.18 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.\n\n​\n\nBased on historical and anticipated future operating results, we believe cash flow from operations, available cash, and other financing sources 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.\n\n​\n\nOur 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 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 required or conditions are favorable to us. We have filed a shelf registration statement on Form S-3 with the SEC that was declared effective by the SEC on April 8, 2024 (File No. 333-278008), which allows us to offer and sell up to an aggregate amount of $150.0 million of any combination of common stock, preferred stock, debt securities, warrants to purchase common stock, preferred stock or debt securities, or units of these securities from time to time subject to Instruction I.B.6 to Form S-3 which limits the aggregate market value of securities we may sell during any 12 consecutive months to one-third of our public float for so long as our public float is less than $75.0 million. 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.\n\n​\n\nWe 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 the financing needed to operate our business.\n\n​\n\nDuring the fourth quarter of the year ended December 31, 2025, the Company experienced certain liquidity-related challenges resulting primarily from an adverse court ruling related to the WSCC Project (defined below) that resulted in the Company being assessed a judgment of approximately $89.1 million, inclusive of principal, fees, and interest. The ruling limited the Company’s enforceable right to recover amounts previously expected to be realized from claims associated with the project.\n\nFollowing the adverse ruling, certain sureties of the Company purchased and assumed rights and obligations as lenders under the Company’s Credit Agreement. In connection with the sureties’ assumption of rights and obligations under the Credit Agreement, the Company entered into side letters with the sureties, pursuant to which the sureties waived all events of default and breaches of covenants and all principal and interest payments under the Credit Agreement until maturity.\n\nAdditionally, under existing GIAs, certain sureties advanced funds to support bonded project obligations and ongoing project performance. As of March 31, 2026 and December 31, 2025, the sureties had advanced $139.2 million and $14.1 million, respectively. These amounts are included in surety payable on our unaudited condensed consolidated balance sheets. Repayment of these amounts is not required prior to at least May 13, 2027.\n\nOn March 27, 2026, the Company entered into a settlement agreement on the WSCC Project. Certain sureties of the Company previously paid a portion of the judgement against the Company and are required to pay an additional amount under the settlement agreement. The Company and the sureties are negotiating repayment terms for the amounts paid by the sureties on behalf of the Company under a long-term financing agreement. The sureties have agreed to forbear on seeking repayment for these amounts until at least May 13, 2027. The $89.1 million judgment is included in surety payable on our unaudited condensed consolidated balance sheets as of March 31, 2026 and December 31, 2025.\n\n29\n\n[Table of Contents](#TOC)\n\nBased on the Company’s current cash position, expected operating cash flows, existing backlog, and the actions taken by management to address recent liquidity challenges, management believes that the Company has sufficient liquidity to meet its operational and financial obligations as they come due for at least the next twelve months.\n\nThe following table sets forth summary change in cash, cash equivalent and restricted cash for the three months ended March 31, 2026 and 2025:\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n**Three Months Ended**\n\n*(Amounts in thousands)*\n\n​\n\n**March 31, 2026**\n\n**  ​ ​ ​**\n\n**March 31, 2025**\n\nNet cash provided by (used in) operating activities\n\n​\n\n$\n\n(133,865)\n\n​\n\n$\n\n6,429\n\nNet cash provided by investing activities\n\n​\n\n \n\n1,319\n\n​\n\n \n\n1,117\n\nNet cash provided by (used in) financing activities\n\n​\n\n \n\n96,987\n\n​\n\n \n\n(13,989)\n\nEffect of exchange rate changes\n\n​\n\n \n\n43\n\n​\n\n \n\n(2)\n\nNet change in cash, cash equivalents, and restricted cash\n\n​\n\n$\n\n(35,516)\n\n​\n\n$\n\n(6,445)\n\n​\n\nNet cash used in operating activities was $133.9 million during the three months ended March 31, 2026. During the three months ended March 31, 2026, the primary drivers in cash used in operating activities were a decrease of $104.1 million in accounts payable, retainage payable and accrued liabilities and $28.2 million in net loss. Net cash provided by operating activities was $6.4 million during the three months ended March 31, 2025. During the three months ended March 31, 2025, the primary drivers in cash provided by operating activities were an increase of $10.4 million in accounts payable and accrued liabilities, a decrease of $8.6 million in accounts receivable, and an increase of $6.9 million in contract liabilities, offset by an increase of $10.7 million in contract assets and an increase of $7.5 million in other current assets.\n\n​\n\nNet cash provided by investing activities was $1.3 million during the three months ended March 31, 2026. During the three months ended March 31, 2026, the primary drivers in cash provided by investing activities were $1.0 million in proceeds from sale of property and equipment and by $0.3 million in distributions from other investments. Net cash provided by investing activities was $1.1 million during the three months ended March 31, 2025. During the three months ended March 31, 2025, the primary drivers in cash provided by investing activities were $2.9 million in proceeds from sale of property and equipment offset by $1.8 million in purchases of property and equipment.\n\n​\n\nNet cash provided by financing activities was $97.0 million for the three months ended March 31, 2026. During the three months ended March 31, 2026, the primary drivers in cash provided by financing activities were $125.1 million in proceeds from advancement of surety funds, offset by $27.4 million in payments on notes payable. Net cash used in financing activities was $14.0 million for the three months ended March 31, 2025. During the three months ended March 31, 2025, the primary drivers in cash used in financing activities were $13.6 million in payments on notes payable and $0.3 million in payments of finance lease and financing obligations.\n\n​\n\nAs of March 31, 2026, we had total debt of $230.8 million, of which $56.1 million is due within the next twelve months.\n\nSecured Notes\n\nWe enter into secured notes in order to finance growth within our business. As of March 31, 2026, we had outstanding secured notes expiring between March 2027 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.\n\nOn September 30, 2024, the Company entered into a term loan and security agreement (the “Credit Agreement”) with Callodine Commercial Finance, LLC as 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”).\n\nThe Credit Facility replaced the revolving credit facility with Frost Bank that was originally entered into in July 2021 (as subsequently amended, the “Revolving Credit Facility”). 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.\n\nAfter giving effect to the Assignment and Assumption Agreement (defined below), the Credit Facility has a maturity date of September 30, 2028.\n\n30\n\n[Table of Contents](#TOC)\n\nThe 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.\n\nThe 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%.\n\nAny 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.\n\nThe 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.\n\nThe 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.\n\nOn March 17, 2026, the Company entered into an assignment and assumption (the “Assignment and Assumption Agreement”) with Callodine Commercial Finance, LLC (the “Resigning Agent”), solely in its capacity as “Agent” under the Credit Agreement, lenders party to the Credit Agreement (individually, an “Assignor,” and collectively, the “Assignors”), the assignees parties thereto (individually, an “Assignee,” and collectively, the “Assignees”), and Alana Porrazzo, in her capacity as Trustee of the Southland Collateral Trust, as successor agent. The Assignees include the surety providers of the Company, Berkshire Hathaway Specialty Insurance Company (“Berkshire”), Markel Insurance Company (“Markel”) and Zurich American Insurance Company (“Zurich”), Western Surety Company, Euler Hermes North America Insurance Company, Federal Insurance Company, and Hartford Fire Insurance Company.\n\nPursuant to the Assignment and Assumption Agreement, the Company paid the Resigning Agent, for the benefit of the Resigning Agent and the Assignors, approximately $15.4 million with respect to the loans of which approximately $14.4 million consisted of principal and approximately $1.0 million consisted of accrued interest and fees. Also, each Assignor sold and assigned to the Assignees, and each Assignee purchased and assumed from the Assignors, all of each such Assignor’s (i) right, title and interest to loans under the Credit Agreement, and (ii) rights and obligations, solely as a lender, under the Credit Agreement and related loan documents (including the Assignor’s right, title and interest in any collateral securing obligations under the Credit Agreement) (the “Assigned Interest”). The aggregate principal amount of loans comprising the Assigned Interest is approximately $110.0 million, and the Assignees agreed to pay an aggregate purchase price of approximately $110.0 million to the Resigning Agent for the ratable benefit of the Assignors.\n\nConcurrently with the assignment of the Assigned Interests, the delayed draw term loan commitment under the Credit Agreement was terminated and is of no further force or effect.\n\nAdditionally, pursuant to side letters executed after the Assignment and Assumption Agreement, the Assignees have agreed to waive quarterly principal and monthly interest payments for all periods until maturity. In addition, the Assignees have agreed to waive any and all defaults and potential defaults and covenant violations under the Credit Agreement, including any violations that existed as of March 31, 2026 or December 31, 2025. As consideration for the foregoing, the Company has agreed to dispose of idle equipment and other assets and pursue claim collections to use the proceeds from the aforementioned transactions to make payments towards the principal balance of the loan prior to maturity.\n\n31\n\n[Table of Contents](#TOC)\n\nAs of March 31, 2026, the Company was in compliance with all applicable covenants under the Credit Agreement, as amended, and after giving effect to the waiver granted by the sureties.\n\nMortgage Notes\n\nWe enter into mortgage notes in order to finance growth within our business. As of March 31, 2026, 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."}