Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

The 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.

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The 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.

Overview

Southland Holdings, Inc. ("Southland") is a diverse leader in specialty infrastructure construction with roots dating back to 1900. The end markets for which we provide services cover a broad spectrum of specialty services within infrastructure construction. We design and construct projects in the bridges, tunnels, communications, 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, 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.

Key Factors Affecting Results of Operations

Business Environment

We 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.

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 we believe 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 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 capacity and 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 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.

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.

During 2025 and continuing through the first half of 2026, the U.S. government announced or imposed a variety of tariff or trade actions. In response many countries announced or imposed retaliatory tariff or trade actions, including tariffs on U.S. exports. These tariffs and trade actions have increased the cost of importing certain construction materials into the U.S. and have caused disruption and uncertainty in international trade and supply chains contributing to volatility in the financial markets. Significant uncertainty remains regarding the status of existing and newly announced tariffs, potential changes or pauses to such tariffs, the extent of tariffs, and whether further additional tariffs or other retaliatory trade actions may be imposed, modified, or suspended. 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. To date, these tariff and 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 continue to evaluate the potential impacts of these tariffs and trade actions, including potential impacts to our customers and our ability to mitigate their related impacts.

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, changes in client schedules, or for other reasons.

Critical Accounting Policies and Estimates

The 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.

More 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.

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. 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 three months ended September 30, 2026, M&P contributed $17.4 million to revenue and $10.2 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 $22.9 million to revenue and $3.0 million in gross loss for the three months ended September 30, 2025. For the nine months ended September 30, 2026, M&P contributed $40.1 million to revenue and $39.6 million to gross loss. This compares to $62.7 million to revenue and $15.9 million to gross loss for the nine months ended September 30, 2025. As of September 30, 2026, approximately 1.2% of Southland's backlog was in M&P and Southland estimates most of this work to be substantially completed in 2026.

Results of Operations

Comparisons of the Three Months Ended September 30, 2026 to the Three Months Ended September 30, 2025

The following table sets forth summary financial information for the three months ended September 30, 2026 and 2025:

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Revenue

Revenue for the three months ended September 30, 2026, was $233.8 million, an increase of $20.4 million, or 9.6%, compared to the three months ended September 30, 2025. The increase was attributable to a $12.6 million increase in revenue in our Transportation segment and a $7.9 million increase in revenue in our Civil segment primarily due to new projects being substantially started after September 30, 2025.

Cost of construction

Cost of construction for the three months ended September 30, 2026, was $213.2 million, an increase of $1.8 million, or 0.8%, compared to the three months ended September 30, 2025. The increase was attributable to a $4.0 million increase in our Civil segment primarily due to new projects being substantially started after September 30, 2025, offset by a $2.2 million decrease in our Transportation segment primarily due to projects approaching completion.

Gross profit

Gross profit for the three months ended September 30, 2026, was $20.6 million, an increase in gross profit of $18.6 million, or 960.6%, compared to the three months ended September 30, 2025. The increase was attributable to a $14.7 million increase in gross profit in our Transportation segment primarily due to the absence of certain prior year net unfavorable adjustments and a $3.9 million increase in gross profit in our Civil segment primarily due to new projects being substantially started after September 30, 2025.

Selling, general, and administrative expenses

Selling, general, and administrative expenses for the three months ended September 30, 2026, were $13.6 million, a decrease of $1.0 million, or 6.6%, compared to the three months ended September 30, 2025. The decrease was primarily due to a $1.9 million decrease in compensation expense offset by a $0.9 million increase in business transformation expenses, compared to the same period in 2025.

Other income, net

Other income, net for the three months ended September 30, 2026, was $32.4 million, an increase of $30.4 million, or 1540.8%, compared to the three months ended September 30, 2025. The increase was primarily driven by a $28.7 million increase related to the Liberty settlement in connection with the WSCC Project. See Note 6 in Item 1 to this Quarterly Report on Form 10-Q for additional details.

Interest expense

Interest expense for the three months ended September 30, 2026, was $4.1 million, a decrease of $5.1 million, or 55.2%, compared to the three months ended September 30, 2025. The decrease was primarily driven by a $2.8 million adjustment to previously recorded interest expense related to the retroactive decrease in the interest rate on the Term Loan after entering into the Second Amendment to the Credit Agreement. See Note 5 in Item 1 to this Quarterly Report on Form 10-Q for additional details.

Income tax expense

The Company is in a net deferred tax asset position for both U.S. federal and state income tax as of September 30, 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 in the quarter ended September 30, 2025, with the exception of the net deferred tax assets related to separate state filings for certain subsidiaries. As of September 30, 2026, the Company has recorded a valuation allowance of approximately $137.8 million, inclusive of current year, related to its U.S. federal and state net deferred tax assets, as they are determined to be more-likely-than-not to not be utilized.

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The effective tax rate for the three months ended September 30, 2026 was 1.5%. 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.

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The effective tax rate for the three months ended September 30, 2025 was (289.0%). The primary differences between the federal statutory tax rate of 21% and the effective rate were state income taxes, the recording of valuation allowances against domestic subsidiaries' net deferred tax assets, the income earned in foreign jurisdictions with different tax rates than the domestic rate; however, that foreign income is included within U.S. taxable income through Section 951A Global Intangible Low-Taxed Income ("GILTI") when the foreign rate is less than 90% of the domestic rate, and the impact of worldwide forecast on the interim calculations under ASC 740.

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Comparisons of the Nine Months Ended September 30, 2026 to the Nine Months Ended September 30, 2025

The following table sets forth summary financial information for the nine months ended September 30, 2026 and 2025:

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Revenue

Revenue for the nine months ended September 30, 2026, was $519.5 million, a decrease of $148.7 million, or 22.3%, compared to the nine months ended September 30, 2025. The decrease in revenue is primarily due to unfavorable changes in estimates related to certain unresolved contract modifications and claims. During the quarter ended June 30, 2026, which impacted the results for the nine months ended September 30, 2026, management performed a comprehensive reassessment of expected recoverability of claims on several projects, including substantially completed projects, in light of recent developments and updated information available regarding the timing and amounts of potential recoveries. As a result of this reassessment, the Company reduced the estimated value of certain claims and recorded a cumulative catch-up adjustment, which negatively impacted revenue by $102.3 million. While the Company continues to pursue recovery of amounts it believes are contractually due, the timing and ultimate resolution of these matters remains uncertain. The contract adjustments resulted in decreases in revenue of $53.4 million and $48.9 million in our Civil and Transportation segments, respectively. The decrease in revenue was also attributable due to projects approaching completion in both our Civil and Transportation segments.

Cost of construction

Cost of construction for the nine months ended September 30, 2026, was $574.9 million, a decrease of $57.9 million, or 9.2%, compared to the nine months ended September 30, 2025. The decrease was attributable to a $71.4 million decrease in our Transportation segment primarily due to projects approaching completion, offset by a $13.5 million increase in our Civil segment primarily due to new projects substantially started after September 30, 2025.

Gross profit (loss)

Gross loss for the nine months ended September 30, 2026, was $55.4 million, a decrease in gross profit of $90.8 million, or 256.6%, compared to the nine months ended September 30, 2025. The decrease in gross profit is primarily due to unfavorable changes in estimates related to certain unresolved contract modifications and claims. During the three months ended June 30, 2026, which impacted the results for the nine months ended September 30, 2026, management performed a comprehensive reassessment of expected recoverability of claims on several projects, including substantially completed projects, in light of recent developments and updated information available regarding the timing and amounts of potential recoveries. As a result of this reassessment, the Company reduced the estimated value of certain claims and recorded a cumulative catch-up adjustment, which negatively impacted gross profit by $93.6 million. While the Company continues to pursue recovery of amounts it believes are contractually due, the timing and ultimate resolution of these matters remains uncertain. The contract adjustments resulted in decreases in gross profit of $49.6 million and $44.0 million in our Transportation and Civil segments, respectively.

Selling, general, and administrative expenses

Selling, general, and administrative expenses for the nine months ended September 30, 2026, were $45.3 million, an increase of $0.7 million, or 1.5%, compared to the nine months ended September 30, 2025. The increase was primarily due to a $4.2 million increase in business transformation expenses, a $3.2 million increase in bad debt expense, offset by a $6.1 million decrease in compensation expense and a $0.8 million decrease in financing expense, compared to the same period in 2025.

Other income, net

Other income, net for the nine months ended September 30, 2026, was $38.9 million, an increase of $34.6 million, or 806.5%, compared to the nine months ended September 30, 2026. The increase was primarily driven by a $28.7 million increase related to the Liberty settlement in connection with the WSCC Project. See Note 6 in Item 1 to this Quarterly Report on Form 10-Q for additional details.

Interest expense

Interest expense for the nine months ended September 30, 2026, was $20.1 million, a decrease of $7.9 million, or 28.2%, compared to the nine months ended September 30, 2025. Interest expense decreased $4.4 million due to the decrease in the Term Loan balance, compared to the same period in 2025. The decrease is also attributable to a $2.8 million adjustment to previously recorded interest expense related to the retroactive decrease in the interest rate on the Term Loan after entering into the Second Amendment to the Credit Agreement. See Note 5 in Item 1 to this Quarterly Report on Form 10-Q for additional details.

Income tax expense (benefit)

The Company is in a net deferred tax asset position for both U.S. federal and state income tax as of September 30, 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 in the quarter ended September 30, 2025, with the exception of the net deferred tax assets related to separate state filings for certain subsidiaries. As of September 30, 2026, the Company has recorded a valuation allowance of approximately $137.8 million, inclusive of current year, related to its U.S. federal and state net deferred tax assets, as they are determined to be more-likely-than-not to not be utilized

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The effective tax rate for the nine months ended September 30, 2026 was 1.3%. 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.

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The effective tax rate for the nine months ended September 30, 2025 was (173.0%). The primary differences between the federal statutory tax rate of 21% and the effective rate were state income taxes, federal tax credits, valuation allowances recorded against domestic subsidiaries' net deferred tax assets, and income earned in a foreign jurisdiction with different income tax rates from the domestic rate; however, that foreign income is included within U.S. taxable income through GILTI.

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Segment Results

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Comparisons of the Three Months Ended September 30, 2026 to the Three Months Ended September 30, 2025

The following table sets forth segment information for the three months ended September 30, 2026 and 2025:

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Civil

Revenue for the three months ended September 30, 2026, was $107.3 million, an increase of $7.9 million, or 7.9%, compared to the three months ended September 30, 2025. The increase was primarily attributable to increased revenues of $19.8 million from a data center project in the Southwest and $7.6 million from a wastewater treatment plant project in the Southwest that were substantially started after September 30, 2025, offset by an $18.0 million decrease from a water project in the Midwest due to project approaching completion.

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Gross profit for the three months ended September 30, 2026, was $14.3 million, or 13.3% of segment revenue, compared to gross profit of $10.4 million, or 10.5%, of segment revenue, for the three months ended September 30, 2025. The primary drivers to the increase in gross profit of $3.9 million for the three months ended September 30, 2026 versus the same period in 2025 were increases in gross profit contributions of $10.8 million from a data center project in the Southwest and a wastewater treatment plant project in the Southwest due to the projects being substantially started after September 30, 2025. The increases in gross profit were offset by a decrease in gross profit contributions of $7.8 million from a water project in the Midwest due to project approaching completion.

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Transportation

Revenue for the three months ended September 30, 2026, was $126.4 million, an increase of $12.6 million, or 11.0%, compared to the three months ended September 30, 2025. The increase was primarily attributable to increased revenues of $23.8 million from a bridge project in the Southeast and $5.2 million from a project in the Bahamas that were substantially started after September 30, 2025, offset by decreased revenues of $13.8 million from a project in the Bahamas and $4.7 million from a bridge project in the Northeast due to the projects approaching completion.

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Gross profit for the three months ended September 30, 2026, was $6.3 million, or 5.0% of segment revenue, compared to gross loss of $8.5 million, or (7.4)% of segment revenue, for the three months ended September 30, 2025. The primary drivers to the increase in gross profit of $14.7 million were increases in profit contributions of $7.8 million from a bridge project in the Southeast and $6.9 million from a bridge project in the Midwest due to the absence of certain prior year net unfavorable adjustments, $5.5 million from a bridge project in the Southeast due to the project being substantially started after September 30, 2025 and $3.6 million from two water dam projects in the South mostly due to improved operating performance. The increases in gross profit were offset by a decrease in gross profit contributions of $10.5 million from an M&P project due to project delays.

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Comparisons of the Nine Months Ended September 30, 2026 to the Nine Months Ended September 30, 2025

The following table sets forth segment information for the nine months ended September 30, 2026 and 2025:

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Civil

Revenue for the nine months ended September 30, 2026, was $252.1 million, a decrease of $31.8 million, or 11.2%, compared to the nine months ended September 30, 2025. The decrease was primarily attributable to decreased revenues of $26.4 million from a water facility project in the Northwest and $19.2 million from a water drainage project in the South, due to management's comprehensive reassessment of expected recoverability of claims in the three months ended June 30, 2026. The decrease was also attributable to decreased revenues of $24.3 million from a wastewater treatment plant project in Canada due to the project approaching completion and higher-than-expected project costs and $14.7 million from a water project in the Midwest due to the project approaching completion. The decreases in revenue were offset by increased revenues of $53.1 million from a data center project in the Southwest due to the project being substantially started after September 30, 2025.

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Gross profit for the nine months ended September 30, 2026, was $1.9 million, or 0.7% of segment revenue, compared to gross profit of $47.2 million, or 16.6%, of segment revenue, for the nine months ended September 30, 2025. The primary drivers to the decrease in gross profit of $45.3 million for the nine months ended September 30, 2026 versus the same period in 2025 were decreases in gross profit contributions of $13.4 million from a water project in the Northeast, $11.6 million from a water facility project in the Northwest and $9.8 million from a water drainage project in the South, due to management's comprehensive reassessment of expected recoverability of claims in the three months ended June 30, 2026. The decrease in gross profit was also attributable to a decrease in gross profit contributions of $12.7 million from a wastewater treatment plant project in Canada due to higher-than-expected project costs.

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Transportation

Revenue for the nine months ended September 30, 2026, was $267.4 million, a decrease of $116.9 million, or 30.4%, compared to the nine months ended September 30, 2025. The decrease was primarily attributable to decreased revenues of $34.6 million from an elevated roadway and bridge project in the Southeast and $32.5 million from a project in the Bahamas due to the projects approaching completion. The decrease was also primarily related to decreased revenues of $31.1 million from a project in the Southeast due to management's comprehensive reassessment of expected recoverability of claims.in the three months ended June 30, 2026, and $13.2 million from a canal widening project in the South due to an unfavorable adjustment related to dispute resolutions.

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Gross loss for the nine months ended September 30, 2026, was $57.3 million, or (21.4)% of segment revenue, compared to gross loss of $11.8 million, or (3.1)% of segment revenue, for the nine months ended September 30, 2025. The primary drivers to the increase in gross loss of $45.5 million were decreases in profit contributions of $35.1 million from a project in the Southeast due to management's comprehensive reassessment of expected recoverability of claims in the three months ended June 30, 2026. The increase in gross loss was also attributable to decreases in gross profit contributions of $13.2 million from a canal widening project in the South due to an unfavorable adjustment related to dispute resolutions.

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Key Business Metrics

Non-GAAP Financial Measures

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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 between fiscal periods. The non-GAAP financial measures are not, and should not be viewed as, a substitute for GAAP reporting measures.

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EBITDA

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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 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.

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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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Backlog

We 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.

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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.

The following tables set forth our Backlog by segment:

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Civil

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Transportation

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Liquidity, Capital Commitments and Resources

Our principal sources of liquidity are cash generated from operations, funds from borrowings, including amounts funded to support projects under GIAs and the Financial Assistance Agreement, 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. On August 13, 2026, the Company entered into the Financial Assistance Agreement and the Second Amendment to the Credit Agreement, which document and implement continuing financing arrangements with certain sureties and provide Credit Agreement relief as described below.

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We 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 November 6, 2026, the closing price of our common stock was $0.68 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.

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Our current and future liquidity is greatly dependent upon our operating results, which are largely determined by overall economic conditions, our current contracts and Backlog. Our liquidity could be adversely affected by a disruption in the availability of credit. If such an event were to occur, we may be 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.

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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 the financing needed to operate our business.

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During the fourth quarter of the year ended December 31, 2025, the Company experienced certain liquidity challenges resulting primarily from an adverse court ruling related to the WSCC Project. The ruling resulted in 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. In addition, under GIAs, certain sureties advanced funds to support bonded project obligations and ongoing project performance. Certain sureties also funded a portion of the WSCC Project judgment and are obligated to fund additional amounts pursuant to a settlement agreement entered into by the Company on March 27, 2026.

On August 13, 2026, the Company, certain sureties as lenders, and the agent under the Credit Agreement entered into the Second Amendment. The Second Amendment documents the post-assignment restructuring of the Credit Agreement and provides interest, amortization, covenant and prepayment relief unless and until such time that the pre-assignment terms are reinstated due to events of default or acceleration events as set forth in the Second Amendment.

On August 13, 2026, the Company entered into the Financial Assistance Agreement to document and implement the Company's ongoing financing arrangements with certain sureties in respect of certain bonded construction projects. As of September 30, 2026, the total amount of Bonding Surety Financing was $65.3 million and the total amount of Non-Bonding Financing was $168.6 million.

On August 26, 2026, certain subsidiaries of Southland entered into the Settlement Agreement, pursuant to which the Company paid $5.0 million to Liberty on September 28, 2026, to fully resolve and settle approximately $36.4 million of losses incurred by Liberty as a surety in connection with the WSCC Project, of which approximately $34 million relates to the WSCC Project judgment.

The Company is negotiating repayment terms for amounts paid by Zurich on behalf of the Company in connection with the WSCC Project. As of September 30, 2026, the Company had $55.4 million related to the WSCC Project settlement funded by Zurich included in surety payable on the unaudited condensed consolidated balance sheets. Zurich has agreed to forbear from seeking repayment of the amounts related to the WSCC Project settlement until at least November 13, 2027.

As of September 30, 2026, the Company had aggregate surety payables of $55.4 million after giving effect to the Financial Assistance Agreement and the Settlement Agreement. Approximately $209.8 million of amounts previously reported as surety payables were reclassified to long term debt on the unaudited condensed consolidated balance sheets pursuant to the Financial Assistance Agreement.

The Company and certain sureties entered into a tolling agreement pursuant to which such sureties agreed to forbear from seeking repayment of surety payables relating to advances made under GIAs until December 31, 2042.

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.

As previously reported, on September 23, 2026, the Company received notification (the "Notice") from NYSE Regulation ("NYSE Regulation") of NYSE American that the Company is not currently in compliance with NYSE American's continued listing standards set forth in Sections 1003(a)(i) and 1003(a)(ii) of the NYSE American Company Guide (the "Company Guide"). As required by the Company Guide, the Company submitted a detailed plan on October 22, 2026. The detailed plan advised NYSE Regulation of actions the Company has taken or intends to take to regain compliance with the continued listing standards by the compliance deadline of March 23, 2028.

If NYSE Regulation accepts the Company's plan, the Company expects to be able to continue its listing during the plan period and will be subject to continued periodic review by the NYSE Regulation staff. If the Company does not submit a plan or if the plan is not accepted, delisting proceedings will commence. Furthermore, if the plan is accepted but the Company is not in compliance with the continued listing standards by March 23, 2028, or if the Company does not make progress consistent with the plan during the plan period, NYSE Regulation staff will initiate delisting proceedings as appropriate. The Company may appeal a staff delisting determination in accordance with the Company Guide. The receipt of the Notice does not affect the Company's business operations or its reporting obligations with the SEC.

The following table sets forth summary change in cash, cash equivalent and restricted cash for the nine months ended September 30, 2026 and 2025:

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Net cash used in operating activities was $183.7 million during the nine months ended September 30, 2026. During the nine months ended September 30, 2026, the primary drivers in cash used in operating activities were a decrease of $174.6 million in accounts payable, retainage payable and accrued liabilities, $80.6 million in net loss and a decrease of $70.8 million in contract liabilities and $28.7 million in gain on extinguishment of surety payable, offset by a decrease of $109.4 million in contract assets, a decrease of $49.3 million in accounts and retainage receivable and $16.1 million in depreciation and amortization. Net cash provided by operating activities was $6.9 million during the nine months ended September 30, 2025. During the nine months ended September 30, 2025, the primary drivers in cash provided by operating activities were $57.2 million in deferred taxes, an increase of $28.2 million in accounts payable and accrued liabilities and an increase of $18.5 million in contract liabilities, offset by $89.7 million in net loss and an increase of $11.1 million in contract assets.

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Net cash provided by investing activities was $12.1 million during the nine months ended September 30, 2026. During the nine months ended September 30, 2026, the primary driver in cash provided by investing activities was $13.1 million in proceeds from sale of property and equipment, offset by $1.5 million in purchases of property and equipment. Net cash provided by investing activities was $3.1 million during the nine months ended September 30, 2025. During the nine months ended September 30, 2025, the primary drivers in cash provided by investing activities were $6.3 million in proceeds from sale of property and equipment, offset by $3.4 million in purchases of property and equipment.

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Net cash provided by financing activities was $151.0 million for the nine months ended September 30, 2026. During the nine months ended September 30, 2026, the primary drivers in cash provided by financing activities were $220.7 million in advancement of surety funds, offset by $67.9 million in payments on notes payable. Net cash used in financing activities was $40.3 million for the nine months ended September 30, 2025. During the nine months ended September 30, 2025, the primary drivers in cash used in financing activities were $39.0 million in payments on notes payable and $0.8 million in payments of finance lease and financing obligations.

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As of September 30, 2026, we had total debt of $426.1 million, of which $39.6 million is due within the next twelve months.

Credit Agreement and Second Amendment

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

The Credit Agreement provided for a four-year secured $160.0 million term loan facility, consisting of a $140.0 million initial draw term loan and a $20.0 million committed delayed draw term loan with a maturity date of September 30, 2028.

On March 17, 2026, the Company entered into the Assignment and Assumption Agreement. 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 (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. In addition, concurrently with the assignment of the Assigned Interests, the Delayed Draw was terminated and of no further force or effect. As consideration for the foregoing, the Company agreed to sell idle equipment and other assets and pursue claim collections, with the proceeds from such transactions going towards payment of the principal balance of the loan prior to maturity.

On August 13, 2026, the Company entered into the Second Amendment, with a retroactive date of March 17, 2026. The Second Amendment documents the post-assignment restructuring of the Credit Agreement and provides the Company with interest, amortization, covenant and prepayment relief unless and until such time that the pre-assignment terms are reinstated due to events of default or acceleration events as set forth in the Second Amendment. During the relief period, loans and other monetary obligations bear interest at a fixed rate of 4.00% per annum, accrued interest is capitalized as payment-in-kind interest and added to principal, scheduled quarterly amortization payments are suspended, and certain early termination premium obligations are suspended, subject to reinstatement and related recalculation provisions upon specified events of default or acceleration events. The Second Amendment also revises certain mandatory prepayment and reinvestment provisions and modifies certain borrowing base, liquidity, cash-management and related reporting requirements. The Credit Agreement continues to mature on September 30, 2028, unless accelerated earlier.

Due to the retroactive decrease in the interest rate on the Term Loan resulting from the Second Amendment, a $2.8 million adjustment was made to previously recorded interest expense in the quarter ended September 30, 2026.

During the three and nine months ended September 30, 2026, the Company paid down $3.1 million and $34.6 million on the Term Loan, respectively. As of September 30, 2026, the balance of the Term Loan was $93.3 million. During the three and nine months ended September 30, 2025, the Company paid down $4.5 million and $10.4 million on the Term Loan, respectively.

As of September 30, 2026, the Company was in compliance with all applicable covenants under the Credit Agreement, as amended.

Financial Assistance Agreement

On August 13, 2026, the Company entered into the Financial Assistance Agreement, effective as of October 1, 2025, to document and implement the Company's ongoing financing arrangements with such sureties in respect of certain bonded construction projects. The Financial Assistance Agreement provides for, among other things, cash-management arrangements, reaffirmation of indemnity, reimbursement and subrogation obligations under existing GIAs and related surety arrangements, covenants and events of default, and the restructuring of certain surety financing arrangements outstanding.

Under the Financial Assistance Agreement, any surety providing bonds after October 1, 2025 is deemed to be providing "Bonding Surety Financing," and any surety providing financing that is not Bonding Surety Financing is deemed to be providing "Non-Bonding Financing." The Financial Assistance Agreement provides for the terms of certain Non-Bonding Financing arrangements with the Non-Bonding Sureties, including the conversion of certain Non-Bonding Financing into Preferred Shares in accordance with the Preferred Shares Term Sheet. The Preferred Shares may be issued to certain sureties based on a portion of expected project losses, with remaining Non-Bonding Financing treated as unsecured indebtedness of the indemnitors, subject to specified payment, forgiveness, release and revocation provisions. The Financial Assistance Agreement also provides that Bonding Surety Financing bears interest at the rate of four percent (4%) per annum, and accrued interest is capitalized and added to the principal amount of financial assistance giving rise thereto on the first day of each calendar year. As of September 30, 2026, the total amount of Bonding Surety Financing was $65.3 million and the total amount of Non-Bonding Financing was $168.6 million. Approximately $209.8 million of amounts previously reported as surety payables were reclassified to long term debt on the unaudited condensed consolidated balance sheets pursuant to the Financial Assistance Agreement.

Under the terms of the Financial Assistance Agreement, each applicable surety panel, which consists of a lead surety and any participating co-sureties for each project, has determined the expected loss for Non-Bonding Financing to fund to completion the outstanding bonded projects for the applicable surety panel. The Preferred Shares Term Sheet contemplates that the amount initially converted and issued as the Preferred Shares equals the lesser of the Non-Bonding Financing amount as of June 30, 2026, and 50% of the expected funding for each surety panel. The Preferred Shares will have a stated value of $1,000 per share and a liquidation preference equal to such stated value, will rank senior to any other class or series of equity of the

Company, and will not be convertible into any other securities of the Company. The remaining portion of Non-Bonding Financing for which the Preferred Shares are not issued will constitute unsecured indebtedness of the indemnitors, will bear no interest, and will not be subject to mandatory amortization payments; however, the indemnitors are required to make specified payments in respect of such Non-Bonding Financing, including certain net cash proceeds from claims on bonded projects and 5% of annual operating cash flow. On September 30, 2026, the Company entered into the first amendment to the Financial Assistance Agreement, pursuant to which the date by which the Preferred Shares are required to be issued was extended to no later than November 13, 2026.

Subsequent to September 30, 2026, the Company entered into the second amendment to the Financial Assistance Agreement, effective as of November 11, 2026, pursuant to which the date by which the Preferred Shares are required to be issued was extended to no later than December 18, 2026.

The Financial Assistance Agreement required an initial funding commitment by the sureties of not less than $10.0 million, subject to the conditions set forth therein, which has been satisfied through the advancement of surety funds. Except for the initial funding commitment, the sureties have no obligation to provide additional funding or financial assistance, and any additional financial assistance is subject to the sureties' discretion. The Financial Assistance Agreement also provides for the grant of certain collateral to secure specified obligations, including Bonding Surety Financing, and excludes from such collateral any monetary recovery or other funds received in connection with the WSCC Project litigation, to the extent such funds are applied toward the settlement of such litigation.

The Second Amendment to the Credit Agreement, Financial Assistance Agreement and the WSCC Project settlement funded by Zurich were accounted for as a TDR in accordance with ASC 470-60, as the Company was experiencing financial difficulties and the lenders granted concessions, including a reduction in the effective interest rate. The principal changes to the financing arrangements included a reduction in interest rate, changes to scheduled payments and waivers of any and all defaults, potential defaults and covenant violations under the Credit Agreement. The total undiscounted future cash payments were more than the carrying amount of the existing debt immediately prior to the restructuring; accordingly, no gain was recognized during the three and nine months ended September 30, 2026. The carrying amount of the debt was not reduced, and the Company established a new effective interest rate based on the revised contractual cash flows. The accounting treatment will be reevaluated for any subsequent amendments to these agreements.

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Secured Notes

We enter into secured notes in order to finance growth within our business. As of September 30, 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.

Unsecured Notes

We enter into unsecured notes in order to finance growth within our business. As of September 30, 2026, we had outstanding secured notes expiring March 2033. Interest rates on the unsecured notes are 4.00%.

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Mortgage Notes

We enter into mortgage notes in order to finance growth within our business. As of September 30, 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.