8-K: Shimmick Corporation Reports Mixed Fiscal Year 2023 Results Amidst Strategic Shift

Shimmick Corporation announced its fiscal year 2023 results, highlighting a 24% revenue increase in Shimmick Projects but an overall net loss, as the company navigates a transition from legacy projects.

Summary

• Shimmick Corporation reported a revenue of $633 million for fiscal year 2023, which includes $434 million from Shimmick Projects, a 24% increase compared to the previous year.
• The company experienced a net loss of $2.5 million for the year, and a diluted loss per common share of $0.11.
• Adjusted diluted earnings per common share were $0.48 for the fiscal year.
• The company's backlog stands at approximately $1.1 billion as of December 29, 2023, with an 18% increase in Shimmick Projects backlog compared to the previous year.
• Shimmick's gross margin for the year was $22 million, down from $23 million in the previous year.
• The company's adjusted EBITDA was $30 million for the year, compared to $47 million in the previous year.
• Legacy Projects revenue decreased by $114 million, and had a negative gross margin of $7 million for the fiscal year.
• Shimmick Projects revenue increased by $83 million and gross margin increased by $5 million for the fiscal year.
• The company completed its Initial Public Offering in November 2023.
• For fiscal year 2024, Shimmick expects Shimmick Projects revenue to grow 7 to 13 percent with gross margin between 7 to 13 percent, and Legacy Projects revenue to decrease by 45 to 55 percent with negative gross margin of 5 to 10 percent.

Sentiment

Score: 5

Explanation: The sentiment is neutral to slightly negative. While there are positive aspects like revenue growth in Shimmick Projects and a strong backlog, the overall net loss, decreased profitability, and negative gross margin on Legacy Projects temper the positive outlook. The company is in a transition phase, and future performance will depend on how well it manages the wind-down of legacy projects and the ramp-up of new projects.

Positives

• Shimmick Projects revenue saw a significant increase of 24% year-over-year, indicating success in the company's strategic shift.
• The company's backlog increased by 18% for Shimmick Projects, suggesting future revenue growth.
• Shimmick secured a major $200+ million project, demonstrating its ability to win large contracts.
• The company successfully completed its Initial Public Offering in November 2023.
• Shimmick Projects gross margin increased by 20% for the fiscal year ended December 29, 2023.
• The company is focused on higher quality, shorter duration projects with improved margins.

Negatives

• The company reported a net loss of $2.5 million for the fiscal year 2023.
• Diluted loss per common share was $0.11 for the fiscal year.
• Adjusted EBITDA decreased to $30 million from $47 million in the previous year.
• Legacy Projects revenue decreased by $114 million and had a negative gross margin of $7 million for the fiscal year.
• The company's overall gross margin decreased to $22 million from $23 million in the previous year.
• Equity in earnings of unconsolidated joint ventures decreased $42 million, or 80%, primarily due to a $56 million impact from the settlement of claims for three infrastructure projects during the fiscal year ended December 30, 2022 that did not re-occur in the fiscal year ended December 29, 2023.

Risks

• The company faces risks associated with accurately estimating costs when bidding on contracts.
• Fixed-price contracts could impact profitability if costs exceed estimates.
• The company's limited operating history as an independent company poses a risk.
• There are risks associated with disputes with the prior owner, AECOM.
• The company is dependent on subcontractors and suppliers.
• The company is exposed to risks related to commodity price fluctuations, inflation, and interest rates.
• The company is exposed to risks related to geopolitical events.
• The company is exposed to risks related to climate change.
• The company is exposed to risks related to cybersecurity attacks.
• The company is exposed to risks related to pandemics and health emergencies.

Future Outlook

For fiscal year 2024, Shimmick expects Shimmick Projects revenue to grow 7 to 13 percent with gross margin between 7 to 13 percent, and Legacy Projects revenue to decrease by 45 to 55 percent with negative gross margin of 5 to 10 percent. The company believes that its results will be back-half weighted in 2024 with further strong momentum for growth in 2025.

Management Comments

• We are executing on our strategy as we laid out in our IPO by focusing on higher quality, shorter duration projects with improved margins, said Steve Richards, Chief Executive Officer of Shimmick.
• We believe we sit in a unique position in the space, constantly displaying our competitive advantage and are primed to execute on the many opportunities we see in a large total addressable market, continued Richards.
• As we continue to work through and wind down the Legacy Projects and ramping up our new Shimmick Projects, our quarter to quarter results will fluctuate, said Devin Nordhagen, Chief Financial Officer of Shimmick.
• We are excited to see our Shimmick Projects backlog building and our water infrastructure-focused strategy come to life, said Devin Nordhagen, Chief Financial Officer of Shimmick.

Industry Context

Shimmick operates in the water infrastructure sector, which is experiencing growth due to increasing demand for water treatment and supply solutions. The company's focus on higher-margin projects aligns with industry trends towards more efficient and sustainable infrastructure development. Shimmick is ranked as a top ten builder of water supply, dams and reservoirs, and water treatment and desalination plants by Engineering News Record.

Comparison to Industry Standards

• Shimmick's 24% revenue growth in Shimmick Projects is a strong performance compared to some of its peers in the construction industry, although specific comparisons are difficult without detailed competitor data.
• The company's backlog of $1.1 billion is a positive indicator of future revenue, but its profitability is impacted by legacy projects.
• Companies like AECOM, which Shimmick was previously part of, and other large infrastructure firms such as Fluor Corporation and Kiewit Corporation, often have more diversified portfolios, which can provide more stable results.
• Shimmick's focus on water infrastructure is a niche market that could provide a competitive advantage, but also exposes it to specific risks related to that sector.
• The negative gross margin on Legacy Projects is a significant issue that needs to be addressed, as it is impacting overall profitability.

Stakeholder Impact

• Shareholders may be concerned about the net loss and decreased profitability, but encouraged by the growth in Shimmick Projects and backlog.
• Employees may be impacted by the company's strategic shift and the wind-down of Legacy Projects.
• Customers may benefit from the company's focus on higher quality projects.
• Suppliers and subcontractors may be affected by the company's changing project portfolio.

Next Steps

• Shimmick will continue to execute its strategy of focusing on higher quality, shorter duration projects with improved margins.
• The company will work to wind down its Legacy Projects.
• Shimmick will focus on selectively bidding jobs that achieve targeted gross margins.
• The company will host an investor conference call on March 28th, 2024, to discuss the results.

Key Dates

Keywords

water infrastructure, Shimmick Projects, Legacy Projects, revenue, gross margin, backlog, EBITDA, IPO, construction, infrastructure