8-K: Shimmick Corporation Announces Second Quarter 2024 Results, Provides Update on Transformation Plan

Shimmick Corporation reported a net loss of $51 million for the second quarter of 2024, impacted by a settlement on a legacy project, while also highlighting progress in its transformation plan.

Summary

• Shimmick Corporation announced its financial results for the second quarter of 2024, ending June 28, 2024.
• The company reported a revenue of $91 million, which includes $84 million from Shimmick Projects and a $23 million reduction from Legacy Projects due to a settlement.
• A net loss of $51 million was recorded, with an adjusted EBITDA loss of $40 million, which includes a $30 million reduction in Legacy Projects gross margin related to the settlement.
• The company's backlog stands at over $923 million as of June 28, 2024, with more than 80% attributed to Shimmick Projects.
• Shimmick completed the sale of its Tracy Equipment Yard for $20.5 million, using the net proceeds of $17 million to pay down debt.
• A settlement agreement on a Legacy Loss Project resulted in $33 million in additional liquidity and avoided prolonged litigation.
• The company is continuing to pursue litigation on the second of two large Legacy Loss Projects, with a trial scheduled for later this year.
• Shimmick is focusing on the California water and critical infrastructure market, increasing regional estimators, right-sizing costs, and redefining its operating model.
• For the full 2024 fiscal year, Shimmick expects Shimmick Projects revenue to remain generally flat with gross margin between 4 to 9 percent.
• Legacy Projects revenue is expected to be between $55 to $65 million with a negative gross margin of (80%) to (90%).

Sentiment

Score: 4

Explanation: The sentiment is negative due to the significant net loss and adjusted EBITDA loss, as well as the negative impact of Legacy Projects. However, the company is taking steps to improve its financial position and focus on a growing market, which provides some optimism.

Positives

• The settlement agreement on a Legacy Loss Project will provide $33 million in additional liquidity and eliminates the cost and distraction of prolonged litigation.
• The sale of the Tracy Equipment Yard generated $17 million in net proceeds, which were used to pay down debt.
• Shimmick's backlog is over $923 million, indicating strong future revenue potential.
• The company is actively executing its transformation plan, focusing on the growing California water and critical infrastructure market.
• The company won a new cogeneration system replacement project, highlighting its strategy to focus on higher-margin projects.

Negatives

• Shimmick reported a significant net loss of $51 million for the second quarter of 2024.
• The adjusted EBITDA loss was $40 million for the quarter.
• The settlement on a Legacy Loss Project resulted in a $23 million reduction in revenue and a $30 million reduction in gross margin.
• Legacy Projects are expected to have a negative gross margin of (80%) to (90%) for the full 2024 fiscal year.
• The company is still pursuing litigation on another Legacy Loss Project, which could incur further costs and distractions.

Risks

• The company is still facing challenges with Legacy Projects, which are expected to have a significant negative impact on gross margin.
• Ongoing litigation on a Legacy Loss Project could result in further costs and distractions.
• The company's transformation plan may not be successful in improving profitability and efficiency.
• The company's financial performance is heavily influenced by the outcome of its fixed-price contracts.
• The company's ability to accurately estimate risks, requirements, or costs when bidding on contracts is critical to its success.

Future Outlook

Shimmick expects Shimmick Projects revenue to remain generally flat with gross margin between 4 to 9 percent for the full 2024 fiscal year. Legacy Projects revenue is expected to be between $55 to $65 million with a negative gross margin of (80%) to (90%) for the full 2024 fiscal year.

Management Comments

• With our transformation plan progress, the previously announced sale of the assets of the foundation business, the sale-leaseback of the equipment yard, and the Legacy Loss Project claim settlement, we have made progress to a more capital light focused business focused on capturing the growth opportunity in the California water and critical infrastructure market, said Steve Richards, Chief Executive Officer of Shimmick.
• We continue to make progress on bidding activity and are winning new projects.
• The recently awarded Delta Diablo contract for the Cogeneration System Replacement Project highlights our strategy to focus on winning higher-margin projects in the water space.
• These activities will position us to meet our long-term goals of driving gross margin expansion in the future.

Industry Context

Shimmick's focus on the California water and critical infrastructure market aligns with the expected growth in this sector. The company's transformation plan aims to capitalize on this trend by focusing on higher-margin projects and improving operational efficiency. The company is a top ten builder of water supply, dams and reservoirs, and water treatment and desalination plants.

Comparison to Industry Standards

• Shimmick's performance is mixed when compared to industry standards. While the company has a strong backlog and is focusing on a growing market, the significant losses and negative gross margins on Legacy Projects are concerning.
• Companies like Granite Construction and Tutor Perini, which also operate in the infrastructure sector, have shown more stable financial performance in recent quarters.
• Shimmick's adjusted EBITDA loss of $40 million is significantly worse than the industry average for companies of similar size, indicating operational challenges.
• The company's focus on water infrastructure is a positive, as this sector is expected to see continued growth, but the company needs to improve its project execution and cost management to compete effectively.

Legal Proceedings

• The company is continuing to pursue litigation on the second of the two large Legacy Loss Projects with a trial scheduled for later this year.

Stakeholder Impact

• Shareholders will be negatively impacted by the significant net loss and adjusted EBITDA loss.
• Employees may be affected by the company's cost-cutting measures and restructuring efforts.
• Customers may benefit from the company's focus on higher-margin projects and improved operational efficiency.
• Suppliers and creditors may be concerned about the company's financial performance and ability to meet its obligations.

Next Steps

• Shimmick will continue to execute its transformation plan, focusing on the California water and critical infrastructure market.
• The company will continue to pursue litigation on the second of two large Legacy Loss Projects.
• Shimmick will host an investor conference call on August 16, 2024, to discuss the results and provide further updates.

Key Dates

Keywords

water infrastructure, construction, legacy projects, settlement, transformation plan, EBITDA, backlog, revenue, net loss, California