Business Overview and History

Shimmick Corporation (SHIM) has undergone a remarkable transformation, transitioning from a regional infrastructure contractor to a prominent national player in the crucial water infrastructure space. With a rich history dating back to 1990, the company has navigated the challenges of the industry, emerging as a trusted partner in delivering complex water projects across the United States.

Shimmick was founded in 1990 in California, initially operating as a regional infrastructure construction contractor. The company focused on projects such as water treatment plants, dams, and other critical infrastructure throughout California for nearly 30 years. In 2017, the company was acquired by AECOM, a global engineering and construction firm, which consolidated Shimmick’s operations with its existing construction services, including former operations from other legacy construction companies.

In January 2021, Shimmick was sold by AECOM and began operating as an independent company under new private ownership. Following this transaction, the company embarked on a strategic shift to focus on the growing demand for water and other critical infrastructure solutions. Shimmick also began concentrating on smaller complex projects that it could largely self-perform, believing this approach would lead to lower risk and higher margins.

Shimmick’s current leadership team, comprised of industry veterans with over 20 years of experience, has been instrumental in guiding the company’s transformation. The company’s focus on water infrastructure projects, along with its ability to self-perform many of these projects, has enabled it to compete for and deliver on complex, high-value contracts.

Financial Overview and Liquidity

As of the latest reported quarter, Shimmick had a backlog of projects totaling $923 million, with over half of that amount comprising water-related projects. The company’s focus on self-performing projects has enabled it to better control the critical aspects of its projects, reducing the risk of cost and schedule overruns.

Shimmick’s financial performance has been impacted by various challenges, including the ongoing COVID-19 pandemic, design issues, and legal costs associated with its legacy projects. In the fiscal year ended December 29, 2023, the company reported total revenue of $632.81 million and a net loss of $2.55 million. The company’s operating cash flow for 2023 was negative $88.10 million, with a free cash flow of negative $95.14 million.

For the most recent quarter (Q2 2024), Shimmick reported revenue of $166.04 million, a net loss of $1.56 million, operating cash flow of $12.67 million, and free cash flow of $10.30 million. The company experienced a year-over-year revenue decline of 22.9%, primarily due to the completion of several large legacy projects that started under AECOM’s ownership. However, Shimmick has been refocusing on water infrastructure and other critical infrastructure projects, which comprised over 83% of Q2 2024 revenue.

The company’s liquidity position, as of June 28, 2024, included unrestricted cash and cash equivalents of $22.38 million. Shimmick had $54.20 million outstanding under a new $60 million credit facility entered into in May 2024, and $14.95 million outstanding under a $2.8 million revolving credit facility. The company’s debt-to-equity ratio stood at 35.25, with a current ratio and quick ratio both at 0.795.

Recent Developments and Transformation Efforts

In May 2024, Shimmick entered into a series of transactions with AECOM and Berkshire Hathaway Specialty Insurance Company, which included a new $60 million credit facility, a mutual release and settlement of certain claims with AECOM, and the termination of the existing project financing agreement with Berkshire Hathaway.

Additionally, in August 2024, the company announced a $97 million settlement agreement with the United States Army Corps of Engineers related to the Golden Gate Bridge project, which was the last major outstanding legal claim from its legacy projects. This settlement, along with the company’s efforts to wind down its remaining legacy projects, is expected to provide greater focus and resources for Shimmick to execute on its water infrastructure strategy.

Shimmick’s transformation efforts have also included the sale of its non-core foundation drilling business and the sale-leaseback of its equipment yard in Tracy, California. These transactions have strengthened the company’s financial position and enabled it to redirect resources towards its core water infrastructure business.

Product Segments and Services

Shimmick Corporation operates in two main product segments: Water and Critical Infrastructure.

The Water segment, which is Shimmick’s core focus, accounts for over half of the company’s backlog as of June 28, 2024. In this segment, Shimmick provides a range of services, including expanding, rehabilitating, upgrading, building, and rebuilding water and wastewater treatment infrastructure, such as desalination plants. The company implements complex cleantech treatment technologies like ozonation, biological activated carbon, membrane filtration, reverse osmosis, chemical treatment, and oxidation. Shimmick also conducts facility commissioning for its water treatment projects. These services aim to ensure access to clean and safe drinking water, protect public health, and reduce waterborne diseases, while also contributing to sustainable water management and environmental protection by removing pollutants and contaminants from wastewater before it is released back into ecosystems.

The Critical Infrastructure segment encompasses Shimmick’s work on other types of vital infrastructure, such as mass transit, bridges, and military facilities. The company builds, retrofits, expands, rehabilitates, operates, and maintains these critical structures, which it believes are essential for economic growth, social connectivity, accessibility, and environmental sustainability.

Risks and Challenges

Shimmick’s business, like many in the construction industry, is subject to various risks and challenges. These include the impact of weather, natural disasters, and emergencies on project schedules and productivity, the company’s ability to successfully execute on its backlog of projects, and its reliance on obtaining new projects through competitive bidding processes.

Additionally, Shimmick’s ability to obtain necessary surety bonds and its exposure to fluctuations in commodity prices and rising inflation and interest rates could impact its financial performance. The company also faces competition from other well-established players in the water infrastructure space, as well as the potential for project delays or cancellations by its customers.

Outlook and Conclusion

Shimmick’s strategic shift towards water infrastructure projects, combined with its focus on self-performing complex projects, positions the company for growth in a market with significant demand. The company’s recent settlement of its last major outstanding legal claim, along with its divestiture of non-core business lines, have bolstered its financial strength and allowed it to dedicate resources to its core water-focused initiatives.

As Shimmick continues to navigate the challenges of the industry, its experienced management team, strong backlog of water-related projects, and commitment to delivering high-quality infrastructure solutions make it a compelling investment opportunity in the water infrastructure space. The company’s ability to self-perform many of its projects enables it to compete for complex contracts and differentiates it from competitors, while also allowing better control over critical aspects of projects and reducing the risk of cost and schedule overruns.

Shimmick’s focus on water infrastructure and critical projects, its efforts to streamline operations and resolve legacy issues, and its strong position in the growing market for infrastructure investment in the United States all contribute to its potential for future growth and success in the industry.

Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.