Shimmick Corporation

And welcome to SHMIC's first quarter 2024 earnings conference call. At this time, all participants are in listen-only mode. If anyone should require operator assistance during the conference, please press star then zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Anthony Rosnes, with Investor Relations at SHMIC. Please go ahead, sir.

Good afternoon, and thank you for joining us on today's conference call to discuss SHMIC's first quarter 2024 results. Slides for today's presentation are available on the investor relations section of our website, www.shmic.com. During this conference call, management will make forward-looking statements based on current expectations and assumptions, which are subject to risks and uncertainties. Actual results could differ materially from our forward-looking statements if any of our key assumptions are incorrect. We identified the principal risks and uncertainties that may affect our performance in our reports and filings with the Securities and Exchange Commission, which can also be found on our investor relations website. We do not undertake a duty to update any forward-looking statements. Today's presentation also includes references to non-GAAP financial measures. you should refer to the information contained in the company's first quarter press release for definitional information and reconciliations of historical non-GAAP financial measures to comparable GAAP financial measures. With that, it is my pleasure to turn it over to Steve Richards, SHMIC's CEO.

Thanks, Anthony, and good afternoon, everyone. Thank you all for joining today's call. I'm joined by Devin Nordhagen, SHMIC's CFO. As noted in our earnings press release issued earlier today, we are in the process of negotiating with one of our lenders a waiver of default under our credit facility. As a result, we do not expect to file our quarterly report on Form 10Q by the prescribed deadline and expect to file an extension on Form 12B25 with the Securities and Exchange Commission. While our first quarter results, which are based on currently available information, are subject to revision as management completes its internal review, we do not expect the waiver to result in changes to our first quarter 2024 results. Our independent registered public accounting firm has also not finalized its review of our first quarter 2024 results. Our first quarter results were challenged due to the combination of short-term delays and new projects commencing operations and the winding down of legacy projects. We delivered first quarter 2024 revenues of $120 million and experienced a net loss of $33 million with an adjusted EBITDA loss of $24 million. As we did in our last call, we'll provide a breakdown of results between SHMIC projects, projects that began after EECOM sales transaction, and legacy projects, those that started before the EECOM sales transaction. Devon will provide more details specifically related to the breakdown of these results. However, of note, our overall gross margin was weaker in the first quarter, primarily related to a subset of the legacy projects, those defined as legacy loss projects. that experienced cost overruns as well as additional legal fees in order to continue pursuit of contract modification and recoveries from project owners. It is important to note that these legacy loss projects, any change in the overall estimate to complete flows into the current period, not as actually incurred, and thus changes are front-end loaded. To refresh your memory on the specific accounting treatment for gross margin in our business, we have provided a detailed explanation in our 10-K. In summary, for the legacy loss projects, we have recognized the estimated cost to complete and the loss expected from those projects. If the estimate of cost to complete on fixed price contracts indicated further loss, the entire amount of the additional loss expected over the life of the project is recognized as the period cost and our cost of revenue. We continue to work down the legacy projects backlog with 23 million of revenue in the quarter, down from 56 million last year at this time. SHMIC project growth margins were slightly negative for the quarter as we incurred costs that have not yet received expected change orders. Regarding backlog, although we are experiencing near-term headwinds due to project timing and cost issues with legacy projects, we remain encouraged by the progress we've seen converting our backlog to SHMIC projects versus legacy projects. At the end of the first quarter, SHMIC projects represented over 80% of our backlog. Additionally, our overall pipeline remains at approximately 1 billion as of the end of the first quarter. I'm pleased to report that SHMIC secured two projects in the first quarter of 2024. SHMIC will construct a new box culvert to function as a new irrigation drainage ditch and storm drain for over 10,000 acres of land to accommodate future rail upgrades east of the San Francisco Bay near Stockton, California. In southwest of Stockton, at the Sonal Water Treatment Plant, CIMIC secured an electrical subcontract to support new advanced water treatment through the addition of new ozonation system. Here, CIMIC will install electrical systems at multiple new facilities, including an ozone generator building and electrical building in a large liquid oxygen and nitrogen facility. We continue to have a robust pipeline of future work, which we expect to grow alongside increases in federal funding and a growing demand for water. We added estimating personnel late in the first quarter to be responsive to this pipeline of work. More than 75% of our work is generated from repeat customers. Public customers and associated public funding allows for predictable long-term flow of programs and projects. Subsequent to quarter end, we entered into a transaction expected to raise $39 million in asset purchase agreement for the sale of our foundation drilling assets for a total consideration of approximately $17.5 million I know a lot of intent for the sale-lease of our equipment facility in Tracy, California, which we expect to receive approximately $22 million at closing. Both transactions are expected to close in the second quarter of fiscal 2024. We intend to use the net proceeds of both of these transactions to repay borrowings under our existing credit facility with MidCap. In addition, selling the foundation drilling assets, which are not core to our water business, enhances liquidity while lowering our annual capital expenditure requirements. Summit core market vision is becoming a reality with a more asset-light, higher-margin, water-focused company targeting projects that make use of significant insourcing technical skills and projects that average three years in duration. While the industry continues to face headwinds, including labor shortages and price inflation, modernizing water infrastructure was recently identified as a hotspot in a 2024 industry report published by GovWinds. The demand for this work is forecasted to grow faster than in any other sectors, in turn increasing demand for CIMIC services. According to the American Water Works Association, the U.S. needs to invest $1 trillion over the next 20-plus years to meet the water infrastructure needs of a growing population and economy. The investment, as previously reported, includes $50 billion from the bipartisan infrastructure law, plus an additional $5.8 billion announced last year from state revolving funds. Another identified hotspot is disaster response, which drives the demand for infrastructure required to mitigate or prevent damage from severe storms, hurricanes, droughts, and flooding, further driving demand for Chimic services. For both of these hotspots, modernizing water infrastructure and disaster response, California was identified as the second and fourth largest sender, respectively, by state, showing increased demand in Chimic's core geographic market. Spending on infrastructure is expected to strengthen in 2024, with IAJA funding peak still to come. According to S&P Global's first quarter analysis, the strong spending increase was in one of CHMA's core markets, the combined water and sewer segment, with a 23.3% year-over-year gain. Additionally, infrastructure spending in California is expected to remain robust. Straight to the next slide, I'd like to spend the time highlighting another one of our high-profile jobs, a $360 million water treatment facility, the North City Pier Water Treatment Facility and Pump Station in San Diego, California. CHMIC is implementing new technology to purify recycled water, providing a safe and sustainable water supply, which will reduce the city's dependence on imported water and also reduce wastewater discharge into the ocean. Schenck has finished most concrete activities and is now working on the mechanical and electrical elements of the facility, including electrical rooms, exterior conduit, fire protection, HVAC, and more. Treatment equipment, including ozone equipment, has been delivered and is being installed. We're a little over halfway complete with the project, and the work is progressing on schedule for the reverse osmosis and biological activated carbon treatment areas of the facility. This is just another example of the highly sophisticated level of installing and integrating technologies that our in-source team does every day. And with that, I'd like to turn the call over to Devin, who will discuss our financial results.