A local, and newly public company focused on water infrastructure projects in the U.S. said its profit soared during its first-ever quarterly report on Wall Street.
Irvine-based Shimmick Corp. (Nasdaq: SHIM) on Dec. 19 reported that its adjusted net income jumped 70% to $37 million even though its revenue declined 5% to $175 million, due to a decrease in legacy jobs.
“Shimmick has become more profitable, as evidenced by the year-over-year expansion of our gross margin in the third quarter of 260 basis points,” Chief Executive Steve Richards said in a statement.
Shimmick says the nation’s water infrastructure represents an annual $48 billion market opportunity, repairing the nation’s 50,000 water systems, 91,000 dams and 12,000 miles of inland navigation channels.
The company went public in November at $7 a share. It netted about $18.5 million in proceeds, the most of any Orange County-based company that went public in 2023 via a traditional IPO.
The company says it will use proceeds from the offering to pay off debts, and for working capital and acquisitions. At press time, it sported a $167 million market cap with shares at $6.54 each.
Shimmick “executed well” during its third quarter, according to Roth Capital analyst Gerry Sweeney.
“Gross margins demonstrate an improving profitability within SHIM’s backlog,” he said. “We believe profitability can improve further in 2024.”
Sweeney estimated that Shimmick’s annual sales will climb about 10% to $721.5 million this year.
Hoover Ties
Shimmick, founded in 1990 by John Shimmick, grew partially through acquisitions, including a firm that was involved in building the Hoover Dam. In 2017, Shimmick itself was acquired by Aecom (NYSE: ACM), a Dallas-based infrastructure consulting firm with an $12.4 billion market cap.
Aecom is the third-largest engineering firm working in Orange County, reporting $138.5 million in local sales for the 12 months ended June 30, according to the Business Journal’s latest annual list.
That union didn’t work out as Aecom sold its civil construction unit in early 2021 to focus on its high margin service units.
The buyer was private equity firm Oroco Capital, whose manager since 2010 is Mitchell B. Goldsteen and who is now executive chairman of Shimmick.
Shimmick CEO Richards was previously executive vice president of Civil Construction at Aecom, where he was responsible for domestic and international construction operations.
After it became independent, Shimmick began a new strategy to build smaller and mid-sized projects “with less risk and higher margins” than it had under Aecom. Shimmick is anticipating a prolonged and growing demand due to rising coastal populations, climate change, drought and severe weather events, and increased activity along the inland waterways.
The company noted California delivers drinking water to around 40 million people through a network of water facilities. Its primary customers are water districts, sanitation districts and flood control districts including the Orange County Water District. Currently, it’s raising the main dam in Folsom, set for completion in 2027, that will enhance flood control in the greater Sacramento area.
In 2023, Shimmick was nationally ranked as a top 10 builder of water supply, dams and reservoirs, and water treatment and desalination plants.
JOBS Opportunity
Shimmick, which last year moved its headquarters from Oakland to Irvine, where it already had an office, had a $1.2 billion backlog as of Sept. 29.
The company says it has a “significant” market opportunity as the U.S. Congress in 2021 passed a $1.2 trillion bill called JOBS to improve the nation’s infrastructure.
These funds are just beginning to flow with funding hitting front-end engineering companies, according to Roth analyst Sweeney.
“This implies that JOBS Act money will likely only strengthen an already solid construction market,” Sweeney wrote in a Dec. 20 note to investors. “We believe this should drive a substantial increase in project funding for at least five-plus years” for Shimmick.
Shimmick will likely restart its acquisition efforts in the second half this year, targeting higher margin, capex-light companies in areas like smart water modeling/software and remediation-related, Sweeney said.
Sweeney has a $10 price target, which is about 4.6 times its estimated adjusted EBITDA estimate of $50 million this year, he said. The target price is on the low end of heavy civil construction companies’ trading metrics of 4.5-6.0 times, he said.
Newport Beach’s Roth Capital, the biggest investment bank based in Orange County, acted as sole book-running manager for Shimmick’s IPO; Craig-Hallum Capital Group LLC was co-manager.
New Board Member
In December, the company named Joe Del Guercio as the sixth member of its board of directors. Del Guercio, who has worked among other jobs as an M&A investment banker for Goldman Sachs, is the chief executive at Clark Enterprises, a Maryland-based private investment firm with a portfolio ranging from real estate to private equity.
“Joe’s proven tracker in a multitude of investment and financial leadership roles will help guide Shimmick’s growth strategy,” Richards said in a statement. “Joe brings a strong aptitude of the capital markets to our board, and we will benefit from his guidance with the backdrop of the tailwinds we see in the water infrastructure sector.”
Richards is also bullish about going public.
“Shimmick has been energized by the support we received from our new investors in our IPO. Being a public company will help Shimmick continue its growth trajectory,” Richards said.
