Shimmick Corporation

Good afternoon, and welcome to Schimmick Corporation's fourth quarter and full year 2024 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I'd now like to turn the conference over to Anthony Rosmas, Investor Relations. Please go ahead.

Good afternoon, and thank you for joining us on today's conference call to discuss SHMIC's fourth quarter and full year 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 risk and uncertainties. Actual results could differ materially from our forward-looking statements if any of our key assumptions are incorrect. We identify 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 fourth quarter press release for definitional information and reconciliation of historical non-GAAP measures to the comparable GAAP financial measures. With that, it is my pleasure to turn the call over to Yiral Yal, SHMIC's CEO.

Good afternoon, and thank you all for joining us on today's call. I'm joined by Amanda Mobley, SHMIC's interim CFO. I'm excited to be speaking with you today on my first earnings call as SHMIC's new CEO. Over the last three months, I've had the opportunity to visit almost all of our active projects, meet our project and corporate staff, talk to our clients and our industry partners, and understand the challenges and opportunities that lie ahead of us. Building on these insights, I'm going to outline our strategy to make Shemek the leading premier infrastructure contractor. This strategy is designed around three strategic pillars, sustainable backlog, operational excellence, and people and culture. I will explain each of these in detail, but first let me address some of the key points of our operational and financial results. For the fourth quarter 2024 and full year, we delivered revenues of $104 million and $480 million, with an adjusted EBITDA of negative $27 million and full year 2024 EBITDA of negative $61 million. Of the fourth quarter revenues, nearly 77% came from SHIMIC projects, which we define as the projects we won after we became an independent company after ACOM ownership. SHIMIC projects also continued to report positive gross margins despite weather impacts and delays, and cost increases during the closeout phases on certain projects. We also achieved significant improvements in our SG&A costs in 2024, now trending towards industry benchmarks. Our backlog stands at $822 million, reflecting a 20-month runway to put our new strategy in motion. We also finished the year with a total liquidity of $100 million, a good sign of our forward momentum. We had some strong winds in the fourth quarter that aligned very well with our forward strategy. These wins include the wins in the City of Santa Cruz, the Murray Street Bridge Project, and the Wastewater Treatment Plant Headworks Rehabilitation, North Hollywood Bus Rapid Transit Project in Los Angeles, and our work at the California Palisades Fire Debris Removal Effort. These projects span water, climate resilience, and transportation markets, and are delivered through a range of project delivery methods and support our continued transformation into profitability and consistent results. Amanda will get deeper detail on the numbers shortly, but before I start the strategy discussion, I want to touch on the state of SHIMIC today. We are at the tail end of completing what we call legacy projects, which have continued to negatively impact our results in 2024. We see very positive market conditions ahead of us that align with our offering, but we also recognize the need to move quickly as we look to replace the revenues and margins from divested businesses as we simplify our operations in 2024. We have a well-known and respected brand, which is critical to our backlog expansion strategy, a rare set of capabilities that make us competitive and provide turnkey delivery options and a better value for our clients, and most importantly, an impressive technically savvy staff committed to the future of our company. We have a lot to offer to our clients in both public and private markets. While we have traditionally been more public client-focused, moving forward, we have an opportunity to balance our client portfolio continuing our long and successful relationships with municipal, state, and federal government agencies, while winning new clients in the utility, manufacturing, hyperscale, and industrial space. What I've heard from our customers through many conversations since I joined SHIMIC is that they've come to know us for our competitiveness, our delivery excellence, and our dependability. I'm confident that in today's construction market, challenged with skilled labor shortages and budget and time constraints, these are skills that will differentiate us and that we can build on. I would like to now do a deeper dive into our focus markets. To take the most advantage of this value we provide, we will expand our focus on delivering sustainable infrastructure solutions across four key end markets, water resources, climate resilience, energy transition and technology, and sustainable transportation. I will briefly discuss our approach on each of these markets. Water infrastructure is what we are known for and love. It includes water and wastewater treatment, as well as storage, access, and hydropower projects. It's a robust market across the U.S. and consistently sees predictable funding, even with changing administration priorities. Major drivers of water projects continue to be the needs to upgrade agent infrastructure, treatment of new pollutants in water as technology develops, as we have seen in the emergence of PFAS treatment across the nation, water scarcity across the West that requires more water recycling and storage options, and migration patterns that require construction and upgrading of new treatment facilities. We are very comfortable in this market and will continue to look for opportunities across the West Coast as well as in select growth markets where we can leverage our expertise. Second is climate adaptation and resilience. As the intensity and the frequency of weather events change and sea level rise continues, not only do we need to respond to emergencies and unexpected events, but the nation's infrastructure has to adapt to maintain our quality of life and our community's well-being. We recently started working on the debris removal efforts from the devastating L.A. fires, and we have already completed several flood mitigation projects in California, where we installed seawalls, gates, and levees to protect adjacent communities and businesses from severe weather events. We expect a strong pipeline of projects in this field, such as raising bridge elevations, upgrading storm drain systems, and weatherproofing existing facilities. Next is technology and energy transition. It is well known that the computing power needs, driven by rapid developments in AI technology, have created an exponential increase in data center infrastructure investments. This work is spread out across the country, has robust funding, and has the potential to generate sizable revenue streams in short periods of time. And the building shell generally is only a fraction of the cost of the facility. Where Chimic can provide value is the necessary water treatment, cooling, and electrical work associated with these facilities, which often represent 30% or more of the overall project cost and are well within our capability. In 2025, we will be looking to expand in this market and utilize our expertise and resources either in a specialty subcontracting role to general contractors that are undertaking this work or directly to the facility owners. While an amount of uncertainty has been introduced to the energy market with the new administration, Energy security and efficient use of all leading sources of energy remains a national priority, and we still see a robust growth opportunity here. For example, most of our West Coast transit and municipal clients have already started upgrading their bus and work vehicle fleets to electric and are upgrading their facilities to service these new fleets. Also, electrification at seaports and airports is continuing, and we see good opportunities for our turnkey offering in the battery storage sector. We are currently completing projects in this field at the Port of Tacoma in Washington and have done similar ones at LAX and at the Port of Long Beach. And finally, sustainable transportation. SHIMIC has a long history of delivering transportation solutions across the United States. We're seeing the merging of technology and demand for public transportation creating a steady stream of opportunities. These are once again opportunities where we can offer value to our clients with our turnkey solutions. We have a robust list of projects we will be targeting in 2025 in this field, mostly delivered through lower-risk alternative delivery contracts, and see this field as a key part of our diversification strategy. And the good news is that none of these markets are entirely new to us. We have delivered projects successfully and have good client relationship in many of these markets. With a strategic focus and an expanded bidding capacity, we have the opportunity to see growth in each of these markets. we are very optimistic about our addressable market for the next few years. The size of non-residential U.S. construction market is upwards of $1 trillion a year, and SHMIC's addressable market within that is about $269 billion. Adjusted for our market presence, we view the addressable market at roughly $106 billion per year. And with that backdrop, let me shift over to discuss our newly implemented strategic pillars and our key initiatives for 2025. Our first pillar is a sustainable risk balance backlog and a book of work. We are very focused on increasing our backlog as a percentage of our revenues while reducing its risk profile through marketing geographic diversification, project profile and size, and use of alternative project delivery methods. We are making investments in a reorganized estimating and bidding department and plan to substantially increase our bid volume and improve our win rates. In the past, we focused on projects in California And California will absolutely continue to be a major part of our business. But given the market opportunity and our capabilities, as I discussed earlier, our core presence moving forward will expand along the West Coast, in particular the state of Washington, where we have a strong history and existing market relationships. We're also targeting selective national expansion in growth markets, especially in water and electrical work, where we have transferable skills, resources, and experience. Along with this expanded geographical focus, another strategic initiative is to pursue and win collaborative delivery projects which align to industry trends. We believe that delivery methods such as progressive design-build and construction management risk, also known as alternative delivery methods, are going to be used in increasing frequency in the market. In fact, Design Building Institute of America is estimating majority of the volume in our markets to be delivered through alternative delivery methods by 2028. Our goal is to achieve a balanced portfolio between collaborative and fixed price delivery methods by 2028 as well. As a recent win, we secured the North Hollywood Bus Rapid Transit Project, a collaborative delivery contract with Los Angeles Metro, a long-time client of ours, giving us a running start with this initiative. This balanced approach of collaborative delivery and bidding aims to maintain our target margins while reducing project execution risk and allowing better management of our backlog through market fluctuations. Additionally, these projects are commonly delivered through joint ventures and strategic partnerships, allowing us to pursue larger, higher-value opportunities. Overall, this strategy provides more predictable project outcomes and sustained client relationships, which in turn enhance stakeholder value over the long term. On a third initiative, one I'm particularly excited about is our electrical and technology-driven infrastructure market expansion. Across the construction industry, we are seeing electrical work taking a larger share of most construction projects due to technological improvements, along with growing needs in water, transit, data centers, and other segments. We believe our self-performing electrical capabilities offer an advantage in the market and a great value to our clients. We will expand our electrical division and position it to pursue and win projects on its own, rather than just supporting the civil business as they had in the past. We also see subcontracting opportunities in new markets such as manufacturing and data centers, energy transition, industrial, transit, and healthcare. Electrical construction will grow to be a much larger contributor to our results than it is today, with an expected growth from 15% of our revenues today to a target of over 30% in 2027. The market continues to be competitive, and it's critical that we continue to improve our operations for consistent results. Therefore, our second strategic pillar is our operational excellence. In 2025, we are implementing several initiatives that we see as low-hanging fruit, designed to make immediate impact on our operations, such as upgrades to our ERP and sales and bidding systems, and efficiency improvements to our IT technology. Another area we're focused on is risk management. Fiscal 2024 was a successful year for SHMIC as far as resolving ongoing disputes on legacy projects, but we still have work to do. While it's not unusual for construction projects to experience scope growth, changes, and disputes, this year we're putting in place processes and measures that allow for early identification and resolution of these issues and a stronger and more structured collaboration with our clients, which we believe will have a positive impact on our cash flows and operating margins in 2025 and into the future. And finally, we are continuing our disciplined focus on rightsizing our SG&A after making great progress in 2024. We are continuing to make improvements in insurance, IT, equipment, procurement, human resources, and other corporate departments, and will continue to closely manage our SG&A as a function of our revenues. Third and final strategic pillar has to do with people and culture. I'm impressed every day with our employees' broad-based technical talent and strong commitment to the mission of SHMIC. Our performance and safety is impressive, with a record that's significantly better than industry average is, We have a strong quality program. We are known in the market as a contractor that delivers technically challenging and complex projects and is a good partner to our clients. With the near completion of legacy projects, settling of old issues, and a bright outlook on expanding our backlog, I'm focused on ensuring our people are taken care of to do what they do best. This year, we will continue to work on improvements in employee benefits. We have already introduced a new performance feedback process and we're aligning our incentive program to reward strong financial performance as well as contribution to the company goals and mission. We are retooling our title structure to ensure clear and achievable career paths for our employees, and finally introducing a high-potential employee retention program to reward and support our top performers, another initiative I'm very excited about. To wrap up this part of the presentation, I see 2025 as our year for setting building blocks of our future. We have a strong foundation to grow from with a wide base of existing and potential clients, a well-funded market that aligns with our skills, and we are finally in a position to emerge from the negative impacts of our challenging legacy projects. With recent wins and a solid backlog, we have a great opportunity to implement our new strategy. I'm extremely optimistic about our future. Our guidance for 2025, which Amanda is going to talk about in a minute, is informed by this positive outlook and our opportunity to get back to profitability, replace legacy revenue with lower risk new work, and build our backlog for the future. With that, I'd like to turn the call over to Amanda.