Shimmick Corporation Aims To Fill Its Coffers With $50 Million U.S. IPO (Pending:SHIM)

A Quick Take On Shimmick Corporation

Shimmick Corporation (SHIM) has filed to raise $50 million in an IPO of its common stock, according to an SEC S-1 registration statement.

The firm constructs water and related infrastructure projects throughout the United States.

Shimmick Corporation has produced highly variable operating results in recent years.

I’ll provide a final opinion when we learn more about the IPO.

Shimmick Overview

Irvine, California-based Shimmick Corporation was founded in 1990, was acquired in 2017 by AECOM and separated from AECOM in 2021. The company provides a range of water infrastructure construction and repair services nationwide.

Management is headed by Chief Executive Officer Steven E. Richards, who has been with the firm since March 2020 and was previously SVP of Operations Civil Construction & Mining Group at AECOM and has held a number of senior positions in the infrastructure industry.

The company’s primary capabilities include the following:

• Water treatment infrastructure

• Water resources

• Other critical infrastructure.

As of June 30, 2023, Shimmick has booked fair market value investment of $4.6 million from investors, including GOHO, LLC.

Shimmick Customer Acquisition

The firm bids on public and private water-related and critical infrastructure projects in California and elsewhere and its customers include municipal, state and federal agencies in addition to private companies.

In 2022, greater than half of its revenues were generated from projects in California, and management says its 2022 revenue was:

less than 10% of the total California water market, indicating ample opportunity for us to grow our market share in California, where we believe we possess significant competitive advantages.

Selling, G&A expenses as a percentage of total revenue have trended lower as revenues have increased, as the figures below indicate:

Click to enlarge

(Source – SEC.)

The Selling, G&A efficiency multiple, defined as how many dollars of additional new revenue are generated by each dollar of Selling, G&A expense, fell to 0.8x in the most recent reporting period, as shown in the table below:

Click to enlarge

(Source – SEC.)

Shimmick’s Market & Competition

According to a 2023 market research report by Grand View Research, the global market for water treatment systems was an estimated $23.1 billion in 2022 and is forecasted to reach $69.7 billion by 2030.

This represents a forecast CAGR of 14.8% from 2023 to 2030.

The main drivers for this expected growth are a growing need to reduce contamination and an increasing demand for virus-free water.

Also, the chart below shows the historical and projected future growth trajectory of the U.S. water treatment systems market through 2030:

The company also operates in other water infrastructure markets with substantial addressable market sizes.

Major competitive or other industry participants across its major business segments include the following:

• Barnard Construction Company

• Ames Construction

• Dragados USA

• Flatiron Construction Corp.

• Fluor Corporation

• Michels Corporation

• Granite Construction

• Kiewit Corporation

• Skanska USA

• Traylor Bros.

• Walsh Construction Group

• C. Overaa & Co.

• Pacific Hydrotech Corporation

• J.F. Shea Co.

• Western Weather Constructors

• Steve P. Rados, Inc.

• Myers and Sons Construction

• Anvil Builders.

Shimmick Corporation Financial Performance

The company’s recent financial results can be summarized as follows:

• Declining top line revenue growth

• Variable gross profit and gross margin

• A swing to operating loss

• High cash used in operations.

Below are relevant financial results derived from the firm’s registration statement:

Click to enlarge

(Source – SEC.)

As of June 30, 2023, Shimmick had $61.3 million in cash and $410.7 million in total liabilities.

Free cash flow during the twelve months ending June 30, 2023, was negative ($48 million).

Shimmick Corporation IPO Details

Shimmick intends to raise $50 million in gross proceeds from an IPO of its common stock, although the final figure may vary.

No existing shareholders have indicated an interest in purchasing shares at the IPO price.

The firm has elected to be a “smaller reporting company” and an “emerging growth company” per the JOBS Act.

These designations allow management to reduce the amount of information it provides to the investing public.

Management says it will use the net proceeds from the IPO as follows:

As of the date of this prospectus, we cannot specify with certainty all of the particular uses for the net proceeds we receive from this offering. However, we currently intend to use the net proceeds of this offering to repay all outstanding borrowings under our Revolving Credit Facility, with the remaining amounts for working capital and other general corporate purposes, including the potential funding of future opportunistic acquisitions.

(Source – SEC.)

Management’s presentation of the company roadshow is not available.

Regarding outstanding legal proceedings, management says that any current legal claims would not have a material adverse effect on its operations or financial condition.

The sole listed bookrunner of the IPO is Roth Capital Partners.

Commentary About Shimmick’s IPO

SHIM is seeking U.S. public capital market investment to pay down debt and fund its working capital needs.

The firm’s financials have shown dropping topline revenue growth, fluctuating gross profit and gross margin, a swing to operating loss and substantial cash used in operations.

Free cash flow for the twelve months ending June 30, 2023, was negative ($48 million).

Selling, G&A expenses as a percentage of total revenue have trended lower as revenue has increased; its Selling, G&A efficiency multiple fell to 0.8x in the most recent reporting period.

The firm currently plans to pay no dividends and to retain any future earnings for reinvestment back into the firm’s growth initiatives and working capital requirements.

SHIM’s recent capital spending history indicates it has continued to spend on capital expenditures despite its negative operating cash flow.

The market opportunity for providing water infrastructure services is large and growing. It may continue to expand under the Infrastructure Investment and Jobs Act passed in 2021, which provided $55 billion for water infrastructure.

Business risks to the company’s outlook as a public company include the high risk of project bidding and execution in an inflationary environment and the current and projected availability of qualified personnel.

When we get more information about the firm’s capital structure and IPO pricing and valuation assumptions, I’ll provide a final opinion on Shimmick Corporation.

Expected IPO Pricing Date: To be announced.