8-K: Shimmick Corporation Reports Q1 2024 Results, Faces Credit Facility Compliance Issues

Shimmick Corporation announced its first quarter 2024 financial results, revealing a net loss and challenges with its credit facility, while also detailing strategic asset sales.

Summary

• Shimmick Corporation reported a first quarter 2024 revenue of $120 million, which includes $90 million from Shimmick Projects.
• The company experienced a net loss of $33 million and an adjusted EBITDA loss of $24 million for the quarter.
• Legacy projects revenue declined to $23 million from $56 million last year, with a negative gross margin of $11 million due to increased costs and legal expenses.
• Shimmick is selling non-core assets, including foundation drilling projects and an equipment yard, expected to generate approximately $39 million.
• The company's backlog stands at over $1.0 billion, with 83% attributed to Shimmick Projects.
• Shimmick expects to delay filing its Quarterly Report on Form 10-Q due to ongoing negotiations with MidCap regarding compliance with its Revolving Credit Facility.
• The company's first quarter results were impacted by project delays and additional costs associated with legacy projects.
• Shimmick is working to simplify its business and focus on water infrastructure projects.

Sentiment

Score: 3

Explanation: The document reveals significant financial challenges, including a substantial net loss, negative gross margins, and non-compliance with a credit facility. While there are some positive aspects like asset sales and backlog, the overall tone is negative due to the financial distress and uncertainty.

Positives

• Shimmick's backlog remains strong at over $1.0 billion, indicating future revenue potential.
• The company is actively selling non-core assets to streamline operations and improve financial position.
• Shimmick is focusing on its core water infrastructure business, which is expected to improve growth and profitability.
• The company won several new jobs in the quarter, including a new ozonation water project and a drainage system.
• Shimmick is working to wind down legacy projects, which have been a drag on profitability.

Negatives

• The company reported a significant net loss of $33 million and an adjusted EBITDA loss of $24 million for the first quarter.
• Legacy projects continue to negatively impact gross margins, with a loss of $11 million in the quarter.
• Shimmick is not in compliance with its Revolving Credit Facility, potentially impacting its ability to continue as a going concern.
• The company is delaying the filing of its Quarterly Report on Form 10-Q due to ongoing negotiations with its lender.
• First quarter results were adversely affected by project delays and additional costs associated with legacy projects.

Risks

• Shimmick is not in compliance with its Revolving Credit Facility, which could lead to the lender accelerating repayment and potentially impacting the company's ability to continue as a going concern.
• The company's ability to obtain a waiver or new financing is uncertain, and failure to do so could force the company to curtail operations or reorganize its capital structure.
• Legacy projects continue to pose a risk to profitability due to cost overruns and legal expenses.
• The company's financial results are subject to revision as management completes its internal review.
• The company's independent registered public accounting firm has not finalized its review of the first quarter 2024 results.

Future Outlook

Shimmick reaffirms its fiscal year 2024 guidance, expecting 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 anticipates results will be back-half weighted in 2024 with further strong momentum for growth in 2025.

Management Comments

• Steve Richards, Chief Executive Officer, stated that first quarter results were adversely impacted by the timing of project starts and delays and additional costs associated with the legacy loss projects.
• Steve Richards also mentioned that the company is making progress in simplifying and evolving the business, as evident by recent actions taken to sell non-core assets and continue to wind down existing Legacy Projects.
• Devin Nordhagen, Chief Financial Officer, believes that the company's results will be back-half weighted in 2024 with further strong momentum for growth in 2025.

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 water projects aligns with industry trends, but its challenges with legacy projects and financial compliance highlight the risks associated with complex construction projects.

Comparison to Industry Standards

• Shimmick's negative gross margin of 13% for the quarter is significantly below industry averages for construction companies, which typically aim for gross margins between 10% and 20%.
• Companies like Granite Construction and Tutor Perini, which also operate in the infrastructure sector, have reported positive gross margins in recent quarters, indicating Shimmick's underperformance.
• Shimmick's reliance on fixed-price contracts, as mentioned in the document, is a common practice in the industry, but the company's inability to manage costs effectively has led to significant losses.
• The delay in filing the 10-Q and the potential for a going concern issue are unusual for a publicly traded company and suggest significant financial distress compared to industry peers.

Stakeholder Impact

• Shareholders are negatively impacted by the significant net loss and the potential for a going concern issue.
• Employees may be concerned about the company's financial stability and potential restructuring.
• Customers may be concerned about the company's ability to complete projects on time and within budget.
• Creditors are at risk due to the company's non-compliance with its Revolving Credit Facility.

Next Steps

• Shimmick will negotiate a waiver and amendment with MidCap regarding its Revolving Credit Facility.
• The company will pursue alternative financing arrangements with other potential lenders.
• Shimmick will complete the sale of non-core assets, including foundation drilling projects and an equipment yard.
• The company will continue to wind down legacy projects.
• Shimmick will file an extension on Form 12b-25 with the Securities and Exchange Commission for its Quarterly Report on Form 10-Q.

Key Dates

Keywords

Shimmick, water infrastructure, financial results, net loss, EBITDA, legacy projects, asset sales, credit facility, backlog, project delays