Business context and reporting period
Shimmick Corporation provides construction services for water treatment, water resources, and other critical infrastructure, primarily for public-sector customers. This Form 10-K reports the fiscal year ended December 29, 2023, compared with the year ended December 30, 2022; it is an annual filing, not a standalone 2022 fourth-quarter report.
The company completed its IPO in November 2023, selling 3.575 million shares at $7.00 per share. Net proceeds were approximately $19 million after underwriting discounts and offering expenses. Shimmick also sold non-core business contracts in 2023 and says the transaction supports its focus on core water infrastructure.
Financial results and liquidity
Amounts below are in millions of dollars unless otherwise stated.
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Revenue | $632.8 | $664.2 | Down 5% |
| Gross margin | $22.4 (3.5%) | $23.5 (3.5%) | Down $1.1 |
| Income from operations | $0.4 | $12.9 | Down $12.5 |
| Net income (loss), attributable to Shimmick | $(2.5) | $3.8 | Down $6.3 |
| Adjusted EBITDA (non-GAAP) | $30.1 | $47.0 | Down $16.9 |
| Operating cash flow | $(88.1) | $(3.1) | Greater cash use |
The consolidated net loss was $2.3 million; the loss attributable to Shimmick was $2.5 million. Adjusted net income, a non-GAAP measure, was $10.7 million versus $29.5 million. These adjusted measures exclude specified items and should be considered alongside GAAP results.
Revenue from newer Shimmick Projects rose 24% to $434.3 million, with gross margin of $29.0 million (7%). Legacy Projects revenue fell 37% to $198.5 million and produced a $6.7 million gross loss. Legacy Loss Projects generated $99 million of revenue and a $14 million gross loss in 2023; management says further gross margin will not be recognized on these projects as they wind down, though additional costs may occur.
Cash, cash equivalents, and restricted cash totaled $63.9 million at year-end, down $18.2 million. Operating cash use included approximately $65 million used by Legacy Loss Projects and a $67.8 million adverse change in contract capital. Investing activities provided $22.1 million, chiefly from asset and contract sales and joint-venture returns; financing provided $47.9 million, mainly from credit-facility borrowings and IPO proceeds.
Year-end cash and cash equivalents were $62.9 million, with another $1.0 million restricted. Current assets were $257.5 million and current liabilities $271.3 million (a $13.8 million working-capital deficit). Long-term debt, net, was $29.6 million, representing $29.9 million drawn under a $35 million revolving facility. The facility matures in 2028, carries interest at adjusted term SOFR (1% floor) plus 4.50%, and has a maximum leverage ratio covenant of 1.75:1. The company reported no covenant noncompliance at year-end. It says operating, investing, and financing resources should fund operations for at least 12 months, while cautioning that cash needs and future funding availability are uncertain.
Capital expenditures were $7.0 million versus $10.4 million in 2022. Total assets were $426.7 million and stockholders’ equity $70.5 million at year-end. The filing reports no income tax expense for 2023 and a full valuation allowance against net deferred tax assets.
Material changes versus FY2022
- Revenue declined $31.4 million, as Legacy Projects wound down; newer Shimmick Projects grew by $83.6 million.
- Gross margin dollars fell modestly, while the company moved from $3.8 million of attributable net income to a $2.5 million attributable loss.
- Equity in earnings of unconsolidated joint ventures dropped to $10.4 million from $52.5 million, primarily because $56 million of prior-year claim-settlement impact did not recur.
- A $31.8 million gain on asset sales in 2023, including a $30 million gain on non-core business contracts and a $2 million gain on an office building, partly offset weaker operating performance.
- Operating cash use increased substantially, and the company ended the year with revolving debt where it had none at the prior year-end.
- Backlog was approximately $1.1 billion at December 29, 2023, with over half in water projects. The filing does not provide a comparable prior-year backlog figure in the supplied text.
Outlook, management commentary, risks and contingencies
Management’s strategy is to prioritize water and other critical infrastructure, selectively bid on smaller or more specialized projects it expects to be lower-risk and higher-margin, and consider acquisitions. The company reports that 80% of backlog is estimated for recognition within 24 months and that its remaining performance obligations have a weighted-average life of 2.0 years. Backlog is not guaranteed revenue: substantially all contracts may be canceled or modified, and backlog estimates may change or prove unprofitable. No specific revenue, earnings, or margin guidance is provided.
- Contract and execution risk: 86% of backlog is fixed-price. Cost overruns, inflation, labor or material shortages, weather, delays, design issues, and estimates of costs to complete can reduce margins or require reversals of previously recorded revenue and profit.
- Customer and geographic concentration: More than half of 2023 revenue came from California. Three customers represented 44.1% of revenue; two customers accounted for 54.2% of year-end net accounts receivable.
- Legacy claims and AECOM: AECOM is seeking up to $40 million related to sharing recoveries on a Legacy Project claim; Shimmick disputes the claim and has asserted counterclaims. The dispute was not expected to be adjudicated until 2025. Shimmick also recorded $8.5 million of contingent consideration related to a separate claim-sharing arrangement, subject to actual recovery.
- Government investigation: A subsidiary received a Department of Justice Civil Investigative Demand in November 2023 concerning a False Claims Act investigation into work on the L 536 Levee Restoration Project. No claims had been asserted as of the filing. Shimmick says it believes the work met contract requirements and does not expect a material impact, and intends to cooperate.
- Controls and reporting: Management concluded disclosure controls were ineffective at year-end due to material weaknesses in internal control over financial reporting, including deficiencies in controls over certain account balances and COSO control principles. Remediation is underway but had not been fully tested. The auditor issued an unqualified opinion on the financial statements but did not audit internal-control effectiveness.
- Other exposures: Risks include joint-venture joint-and-several obligations, surety-bond availability, customer claims and collections, union labor and multiemployer pension plans, environmental liabilities, and dependence on government funding. The company reported no liability for multiemployer-plan underfunding at year-end.
- Subsequent financing: On March 26, 2024, Shimmick entered into a project financing agreement allowing up to $25 million of advances from Berkshire entities, secured by specified collateral and bearing interest at adjusted term SOFR (1% floor) plus 4.50%, if drawn.
Important facts for investors to verify
- Reconcile the sharp operating cash outflow with project-level collections, contract assets and liabilities, and the remaining cash requirements of Legacy Loss Projects.
- Track progress on control remediation and whether management can demonstrate effective internal controls in subsequent filings.
- Monitor the DOJ investigation and AECOM disputes, including potential cash payments, recoveries, and changes to recorded contingencies.
- Assess whether backlog converts to profitable revenue, particularly given its fixed-price mix, customer concentration, and cancellation provisions.
- Confirm current revolver borrowings, covenant headroom, liquidity needs, and whether the Berkshire project financing has been drawn.
- Separate recurring operating results from the 2023 asset-sale gain and from non-GAAP adjustments when assessing earnings quality.