Annual Report for Fiscal Year Ending 12-31, 2025 (Form 10-K)

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, data centers, 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, Heritage Materials and Mole Constructors. 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.

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.

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:

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.

Valuation Allowances for Deferred Tax Assets

We record income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our financial statements or tax returns. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets and liabilities are expected to be realized or settled. We assess the likelihood that our deferred tax assets will be recoverable based on expected future taxable income. To the extent that we

determine it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized, we establish a valuation allowance.

To the extent valuation allowances are established or increased in a period, we include an expense within the tax provision in our consolidated statements of operations. These valuation allowances may be released in future years when it is more likely than not that some portion or all of the deferred tax assets will be realized. In making such a determination, we will periodically evaluate whether or not all available evidence, such as future income and reversal of temporary differences, tax planning actions, and recent results of operations, provides sufficient positive evidence to offset any other negative evidence that may exist at such time. In the event the deferred tax valuation allowance is released, we would record an income tax benefit for a portion or all of the deferred tax valuation allowance released.

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 American for the thirty consecutive trading days immediately preceding and ending on December 27, 2024 and (b) the closing price of Common Stock on NYSE American 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.

Appointment of Chief Transformation Officer

On December 17, 2025, the Company appointed Nick Campbell as the Chief Transformation Officer ("CTO") pursuant to an engagement letter with Meru, LLC ("Meru") dated as of December 17, 2025. In his capacity as CTO and in accordance with such engagement letter, Mr. Campbell will provide strategic guidance on the Company's review of financial and operational alternatives to improve the Company's financial position and create long-term value for its stakeholders, while ensuring alignment with the strategic objectives of the Board of Directors of the Company. In providing guidance to the Company, Mr. Campbell will advise on material and non-ordinary course asset sales, executive compensation matters, and strategic or financial alternatives. In addition, in conjunction with Meru, Mr. Campbell will assist with cash management strategies.

Advancement of Surety Funds

The Company is generally required to provide surety performance and payment bonds guaranteeing the Company's completion of projects and guaranteeing payment to subcontractors and suppliers. Berkshire Hathaway Specialty Insurance Company ("Berkshire"), Markel Insurance Company ("Markel") and Zurich American Insurance Company ("Zurich"), surety providers of the Company (collectively, the "Surety Syndicate"), have agreed to advance funds ("Surety Funds") under general indemnity agreements ("GIAs") for the payment of bonded construction contract obligations and for the continued progress of such projects. As of December 31, 2025, the Surety Syndicate advanced an aggregate of $14.1 million.

Subsequent to December 31, 2025, and through the date of this filing, the Surety Syndicate and other sureties of the Company have advanced an additional $102.1 million under GIAs. The Company is actively working with the Surety Syndicate and other sureties on long-term financing under which the advanced funds will be repaid.

Assignment and Assumption Agreement

The Company and its subsidiaries are parties to the term loan and security agreement dated as of September 30, 2024 (as amended, the "Credit Agreement"). On March 16, 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 Syndicate.

Pursuant to the Assignment and Assumption Agreement, 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 $110.0 million, and the Assignees agreed to pay an aggregate purchase price of $110.0 million to the Resigning Agent for the ratable benefit of the Assignors. The Company also paid the Resigning Agent, for the benefit of the Resigning Agent and the Assignors, $15.4 million with respect to the loans of which $14.4 million consisted of principal and $1.0 million consisted of accrued interest and fees.

Concurrently 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.

Washington State Convention Center Project

On December 1, 2025, we received an adverse ruling in the case of American Bridge Company v. Clark/Lewis Joint Venture, et al. relating to the construction of the Washington State Convention Center Project (the "WSCC Ruling"). The Superior Court of the State of Washington for King County, by order dated January 15, 2026, ruled in favor of Clark/Lewis Joint Venture ("CLJV") and entered a judgment against American Bridge and certain of its sureties, jointly and severally, in the principal amount of $57.1 million. Interest and fees were assessed by the court at a later date. The order of the court constitutes a change in facts and circumstances that significantly impacts American Bridge's enforceable right to consideration. Since the adverse ruling makes the likelihood of recovering the claimed amount and collectability of the related consideration no longer probable, the Company derecognized contract assets as of December 31, 2025 on our consolidated balance sheet, resulting in a $40.3 million non-cash charge to revenue on our consolidated statement of operations for the year ended December 31, 2025.

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While the Company intended to appeal as of December 31, 2025, certain of its sureties entered into negotiations with CLJV on behalf of the Company subsequent to December 31, 2025, in accordance with certain rights available to the sureties included in certain GIAs. Any settlement that is agreed to will be paid by certain of our sureties under the respective GIAs with the sureties. The sureties agreed to forbear on seeking repayment of any settlement related to WSCC Ruling until at least March 27, 2027. Based on these negotiations and due to the events occurring prior to December 31, 2025, that led to the adverse ruling, we recorded a long-term accrued liability of $89.1 million within other noncurrent liabilities related to the principal judgement, fees, sanctions and interest, and a reduction to retainage receivables of $6.4 million on our consolidated balance sheets as of December 31, 2025. This resulted in a decrease in revenue of $6.4 million and an increase of $89.1 million in cost of construction on our consolidated statements of operations for the year ended December 31, 2025. We expect that any potential settlement arrangement funded by certain of our sureties would include favorable repayment terms, including conditional repayment, subject to terms to be agreed in a financing agreement currently being negotiated with certain sureties of the Company. There can be no assurances that a resolution for a long-term financing arrangement will be reached.

The total impact to our consolidated statements of operations from the WSCC Ruling is $135.8 million, of which $46.7 million is recorded as a reduction of revenue and $89.1 million is recorded in cost of construction. The total impact to our consolidated balance sheets is a $40.3 million reduction in contract assets, a $6.4 million reduction in retainage receivables, and a $89.1 million increase in other noncurrent liabilities.

Materials and Paving

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, 2025, M&P contributed $52.1 million to revenue and $42.8 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 $100.6 million to revenue and $83.1 million to gross loss for the year ended December 31, 2024. As of December 31, 2025, approximately 3.7% of Southland's Backlog was in M&P, with most of the active scope of this work being substantially complete and three projects extending into 2026.

Results of Operations

Comparisons of the Year Ended December 31, 2025 to the Year Ended December 31, 2024

The following table sets forth our consolidated statements of operations for the years ended December 31, 2025 and December 31, 2024:

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Revenue

Revenue for the year ended December 31, 2025, was $772.2 million, a decrease of $208.0 million, or 21.2%, compared to the year ended December 31, 2024. The decrease was attributable to a $227.1 million decrease in revenue in our Transportation segment primarily due to projects approaching completion offset by a $19.0 million increase in our Civil segment primarily due to projects substantially started after December 31, 2024.

Cost of construction

Cost of construction for the year ended December 31, 2025, was $927.4 million, a decrease of $115.8 million, or 11.1%, compared to the year ended December 31, 2024. The decrease was attributable to a $135.2 million decrease in our Transportation segment primarily due to projects nearing completion offset by a $19.4 million increase in our Civil segment primarily due to projects substantially started after December 31, 2024.

Gross loss

Gross loss for the year ended December 31, 2025, was $155.3 million, an increase of $92.2 million, or 146.3%, compared to the year ended December 31, 2024. The increase in gross loss was attributable to a $91.8 million increase in gross loss in our Transportation segment primarily due to an unfavorable adjustment related to the WSCC Ruling and a $0.4 million decrease in gross profit in our Civil segment primarily due to unfavorable adjustments related to claims.

Selling, general, and administrative costs

Selling, general, and administrative costs for the year ended December 31, 2025, were $61.6 million, a decrease of $1.7 million, or 2.6%, compared to the year ended December 31, 2024. The decrease was primarily driven by a $2.4 million decrease in compensation expense, offset by a $0.9 million increase in business transformation expense.

Other income, net

Other income, net for the year ended December 31, 2025 was $1.7 million, a decrease of $1.9 million, or 52.0%, compared to the year ended December 31, 2024. The decrease was primarily driven by the absence of prior year present value accretion related to the Tappan Zee Constructors investment.

Interest expense

Interest expense for the year ended December 31, 2025, was $37.0 million, an increase of $7.5 million, or 25.4%, compared to the year ended December 31, 2024. The increase was primarily driven by a $1.9 million increase in amortization of deferred financing costs, $1.0 million increase in interest expense related to the real estate transaction described in Note 2 of the consolidated financial statements and $4.6 million due to the increase of interest rates on external borrowings, compared to the same period in 2024.

Income tax expense (benefit)

Income tax expense for the year ended December 31, 2025, was $56.5 million or an effective tax rate of (22.4)%. The primary differences from the federal statutory rate of 21% were (i) an increase in valuation allowance of $95.9 million for U.S. federal and foreign, (ii) state income tax expense of $10.1 million, net of valuation allowance (iii) the benefit of foreign tax rate differences of $0.2 million due to operations in jurisdictions like Canada and the Bahamas plus $0.9 million impact of the inclusion of foreign low taxed earnings into domestic taxable income through Section 951A Global Intangible Low-Taxed Income (GILTI).

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.

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, 2025, 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 been adopted for the year ended December 31, 2025.

Segment Results

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Civil

Revenue in our Civil segment for the year ended December 31, 2025, was $342.3 million, an increase of $19.0 million, or 5.9%, compared to the year ended December 31, 2024. The increase was primarily attributable to increased revenues of $41.7 million from a water pipeline project in the Southwest, $34.0 million from a water facility project in the Pacific Northwest, $14.8 million from a wastewater treatment plant project in the Southwest and $12.7 million from a wastewater treatment plant improvement project in the Southwest, all of which increased due to the projects being substantially started after December 31, 2024. These increases were offset by decreased revenues of $25.0 million from a water pipeline project in the Southwest, $23.0 million from a water project in the West, both primarily due to the projects approaching completion, and $14.6 million from a tunnel project in the Southwest due to project delays. The increases were also offset by decreased revenues of $19.8 million in unfavorable adjustments related to claims during the three months ended December 31, 2025.

Gross profit in our Civil segment for the year ended December 31, 2025, was $16.3 million, or 4.8% of segment revenue, compared to $16.7 million, or 5.2% of segment revenue, for the year ended December 31, 2024. The decrease of $0.4 million for the year ended December 31, 2025, was due to the decrease in profit contribution of $20.1 million in unfavorable adjustments related to claims during the three months ended December 31, 2025, and $12.9 million from a tunnel project in the Southwest due to project delays. These decreases were offset by an increase in profit contribution of $25.9 million from a tunnel project in Canada due to prior year net unfavorable adjustments of $29.0 million, compared to current year net unfavorable adjustments of $3.0 million primarily driven by project delays. The decreases in profit contribution were also offset by the increase in profit margin of $6.3 million from a tunnel and water pipeline project in the Southwest driven by the project being substantially started after December 31, 2024.

Transportation

Revenue in our Transportation segment for the year ended December 31, 2025, was $429.8 million, a decrease of $227.1 million, or 34.6%, compared to the year ended December 31, 2024. The decrease was primarily attributable to decreased revenues of $95.3 million from a project in Bahamas, $54.2 million from an elevated roadway and bridge project in the Southeast and $45.5 million from a bridge project in the Southeast, all of which decreased due to the projects approaching completion. The decrease was also primarily attributable to decreased revenues of $47.8 million from the WSCC Ruling due to an unfavorable adjustment related to claims. These decreases were offset by increased revenue of $31.5 million from a bridge project in the Southeast primarily due to the project being substantially started after December 31, 2024.

Gross loss in our Transportation segment for the year ended December 31, 2025, was $171.6 million, or (39.9)% of segment revenue, compared to $79.8 million gross loss, or (12.1)% of segment revenue, for the year ended December 31, 2024. The increase of $91.8 million in gross loss was primarily due to the decrease in profit contribution of $132.2 million from the WSCC Ruling driven by an unfavorable adjustment related to claims. The decrease in profit

contribution was offset by an increase in profit contribution of $35.3 million from an M&P project due to prior year net unfavorable adjustments of $40.3 million, compared to current year net unfavorable adjustments of $5.0 million primarily driven by project delays.

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

For discussion of the results of operations for the year ended December 31, 2024, compared to the year ended December 31, 2023, 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, 2024.

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

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 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.

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, 2025 to the Year Ended December 31, 2024

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

For discussion of EBITDA and Adjusted EBITDA for the year ended December 31, 2024 compared to the year ended December 31, 2023, 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, 2024.

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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As of December 31, 2025, the Company had cash and cash equivalents of $52.7 million and positive working capital of approximately $79.0 million. Our principal sources of liquidity are cash on hand, cash generated from operations, and cash flows anticipated from our existing backlog. Based on contractual billings and expected costs associated with this backlog, the Company anticipates generating positive operating cash flows over the next twelve months. 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, (y) selling unused or underutilized construction assets, or (z) settling our outstanding disputes and claims. 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 March 20, 2026, the closing price of our Common Stock was $0.92 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. 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.

During the fourth quarter of 2025, the Company experienced certain liquidity-related challenges resulting primarily from an adverse court ruling related to the WSCC Project, which limited the Company's enforceable right to recover amounts previously expected to be realized from claims associated with the project. This ruling negatively impacted the Company's liquidity based financial covenant, as well as a reduction in availability under the Delayed Draw in the Credit Agreement. These conditions required management to take actions to preserve liquidity and address near-term capital requirements.

Subsequent to December 31, 2025, but prior to the issuance of these financial statements, a series of transactions occurred that we believe significantly improved the Company's liquidity profile. On March 17, 2026, certain sureties assumed the lender positions under the Company's Credit Agreement and waived all potential defaults and covenant violations. In addition, the sureties waived all principal and interest payments under the Credit Agreement until maturity, which is expected to result in cash savings of approximately $30.2 million over the next twelve months.

Additionally, under existing GIAs, the sureties advanced funds to support bonded project obligations and ongoing project performance. During the year ended December 31, 2025, approximately $14.1 million was advanced, and subsequent to December 31, 2025, an additional $102.1 million was advanced. Repayment of these amounts is not required prior to at least March 27, 2027.

Based 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.

Cash Flows

Comparisons of the Year Ended December 31, 2025 to the Year Ended December 31, 2024

The following table sets forth summary change in cash, cash equivalent and restricted cash for the years ended December 31, 2025 and December 31, 2024:

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Net cash provided by operating activities was $16.6 million during the year ended December 31, 2025, compared to $1.9 million for the year ended December 31, 2024. During the year ended December 31, 2025, the primary drivers in the $16.6 million in cash provided by operating activities were a decrease of $116.8 million in contract assets, the increase of $89.1 million increase in other noncurrent liabilities, deferred taxes of $57.3 million, an increase of $23.6 million in accounts payable, retainage payable and accrued liabilities, $23.2 million in depreciation and amortization and a decrease of $23.0 million in accounts receivable, offset by $308.4 million in net loss.

Net cash provided by investing activities was $3.4 million during the year ended December 31, 2025, compared to $3.2 million for the year ended December 31, 2024. During the year ended December 31, 2025, the primary drivers in the $3.4 million in cash provided by investing activities were $6.5 million in proceeds from sale of property and equipment and $0.9 million in distributions received from investees, offset by $3.8 million in purchases of property and equipment.

Net cash used in financing activities was $40.2 million during the year ended December 31, 2025, compared to net cash provided by of $18.8 million for the year ended December 31, 2024.During the year ended December 31, 2025, the primary drivers in the $40.2 million in cash used in financing activities were $50.7 million in payments on notes payable offset by $14.1 million in proceeds from advancement of surety funds.

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

For discussion of cash flows for the year ended December 31, 2024, compared to the year ended December 31, 2023, 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, 2024.

As of December 31, 2025, we had long-term debt of $257.7 million, of which $53.7 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, 2025, 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.

On September 30, 2024, the Company entered into the Credit Agreement with Callodine Commercial Finance, LLC as administrative agent and lender.

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The Credit Agreement provides for a four-year secured $140.0 million term loan facility (the "Credit Facility"), consisting of a $140.0 million initial draw term loan (the "Term Loan"). 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.

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 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%.

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.

Subsequent to December 31, 2025, on March 17, 2026, the Company entered into the Assignment and Assumption Agreement with the Resigning Agent, solely in its capacity as "Agent" under the Credit Agreement, the Assignors, the Assignees, and Alana Porrazzo, in her capacity as Trustee of the Southland Collateral Trust, as successor agent.

Pursuant 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 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.

Concurrently 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.

Additionally, 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 potential defaults and covenant violations under the Credit Agreement, including any violations that existed as of 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.

Mortgage Notes

We enter into mortgage notes in order to finance growth within our business. As of December 31, 2025, 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, 2025, include:

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