Shimmick Corporation (SHIM) - Q2 2024 10-Q Summary
Business Context and Reporting Period
This report covers the quarterly period ended June 28, 2024. Shimmick Corporation is a leading provider of water and critical infrastructure solutions. The company is currently transitioning from a legacy portfolio of projects (inherited from AECOM) to a focused strategy on water infrastructure and self-performed complex projects. The company is classified as an Emerging Growth Company and a Smaller Reporting Company.
Key Financial Metrics
| Metric | Q2 2024 (3 Months) | Q2 2023 (3 Months) | YTD 2024 (6 Months) | YTD 2023 (6 Months) |
|---|---|---|---|---|
| Revenue | $90.6 million | $155.2 million | $210.6 million | $319.3 million |
| Gross Margin | $(31.1) million | $(0.5) million | $(47.0) million | $5.8 million |
| Gross Margin % | -34.4% | -0.3% | -22.3% | 1.8% |
| Net Loss | $(51.4) million | $(10.3) million | $(84.7) million | $(19.6) million |
| Diluted EPS | $(1.83) | $(0.47) | $(3.16) | $(0.90) |
| Cash & Equivalents | $22.4 million | $61.3 million | $22.4 million | $61.3 million |
| Total Debt (Net) | $67.6 million | $30.0 million | $67.6 million | $30.0 million |
| Operating Cash Flow | Not provided for Q2 | Not provided for Q2 | $(78.8) million | $(60.7) million |
Material Changes vs. Prior Period
- Revenue Decline: Revenue decreased 42% year-over-year in Q2 and 34% year-over-year YTD. This is primarily due to the winding down of "Legacy Projects" and "Foundations Projects" (non-core assets sold in Q2 2024).
- Significant Loss Recognition: The company recognized a net loss of $30 million in Q2 related to a settlement on a large Legacy Project. This included a $23 million non-cash reduction to revenue and a $7 million adjustment to the forward loss reserve.
- Joint Venture Performance: Equity in earnings of unconsolidated joint ventures swung from a $7.5 million gain in Q2 2023 to a $1.9 million loss in Q2 2024, driven by increased costs and schedule extensions.
- Debt Restructuring: In May 2024, the company entered a new $60 million Credit Facility (drawing $54 million) to replace/expand upon its previous Revolving Credit Facility. Total debt increased significantly to fund operations and repay prior facilities.
- Asset Sales: The company sold its non-core Foundations Projects assets for $17.5 million and completed a sale-leaseback of its Tracy, CA equipment yard for $20.5 million (net proceeds $17 million) in August 2024 (subsequent event).
Guidance, Outlook, and Risks
- Backlog: As of June 28, 2024, the company reported a backlog of $923 million, with over 50% comprised of water projects. 80% of this backlog is expected to be recognized within 24 months.
- Liquidity: Total liquidity (cash + available credit) stood at approximately $35 million as of June 28, 2024. The company expects to collect $33 million from the Legacy Project settlement in fiscal year 2024.
- Internal Controls: Management concluded that disclosure controls and procedures were not effective as of June 28, 2024, due to material weaknesses in internal control over financial reporting. A remediation plan is in place but has not yet been fully tested.
- Risks: Key risks include the ability to accurately estimate costs on fixed-price contracts, dependence on a limited number of customers (top two customers represented ~40% of revenue in Q2), and the impact of winding down legacy loss projects.
Investor Verification Checklist
- Legacy Project Settlement: Verify the timing and certainty of the $33 million cash collection from the U.S. Army Corps of Engineers settlement.
- Internal Control Remediation: Monitor progress on the remediation plan for material weaknesses in financial reporting controls.
- Debt Covenants: Review compliance with the new Credit Facility covenants, specifically the minimum liquidity requirement of $7.5 million and leverage ratios.
- Legacy Loss Projects: Assess the remaining exposure to "Legacy Loss Projects" and the potential for further cost overruns or loss provisions as these wind down.
- Customer Concentration: Evaluate the risk associated with the top two customers, which accounted for 35.7% and 17.7% of accounts receivable respectively.