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ROC

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 29, 2024

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-41867

 

Shimmick Corporation

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

84-3749368

( State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

530 Technology Drive

Suite 300

Irvine, CA

92618

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (833) 723-2021

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.01 per share

 

SHIM

 

NASDAQ

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of May 16, 2024, the registrant had 25,723,242 shares of Common Stock, par value $0.01 per share, outstanding.

 

 

 


FORWARD-LOOKING STATEMENTS

 

 

We make forward-looking statements in this Quarterly Report on Form 10-Q (“Form 10-Q”) within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are subject to risks and uncertainties. For these statements, we claim the protections of the safe harbor for forward-looking statements contained in such Sections. These forward-looking statements include information about possible or assumed future results of our business, financial condition, liquidity, results of operations, plans and objectives. When we use the words “believe,” “expect,” “anticipate,” “estimate,” “plan,” “continue,” “intend,” "project," "will," “should,” “may” or similar expressions, we intend to identify forward-looking statements. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future are forward-looking statements.

 

Forward-looking statements are subject to significant risks and uncertainties. Investors are cautioned against placing undue reliance on such statements. Actual results may differ materially from those set forth in the forward-looking statements. Accordingly, any such statements are qualified in their entirety by reference to, and are accompanied by, important factors included in the sections entitled “Forward Looking Statements” and “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 29, 2023 ("Form 10-K") and those described from time to time in our future reports with the SEC (in addition to any assumptions and other factors referred to specifically in connection with such forward-looking statements) that could have a significant impact on our operations and financial results, and could cause our actual results to differ materially from those contained or implied in forward-looking statements made by us or on our behalf in this Form 10-Q, in presentations, on our websites, in response to questions or otherwise. We believe these factors include, but are not limited to, the following:

 

our ability to accurately estimate risks, requirements or costs when we bid on or negotiate a contract,
the impact of our fixed-price contracts,
qualifying as an eligible bidder for contracts
the availability of qualified personnel, joint venture partners and subcontractors,
inability to attract and retain qualified managers and skilled employees and the impact of loss of key management,
higher costs to lease, acquire and maintain equipment necessary for our operations or a decline in the market value of owned equipment,
subcontractors failing to satisfy their obligations to us or other parties or any inability to maintain subcontractor relationships,
marketplace competition,
our inability to obtain bonding
our limited operating history as an independent company following our separation from AECOM,
our relationship and transactions with our prior owner, AECOM,
AECOM defaulting on its contractual obligations to us or under agreements in which we are beneficiary,
our limited number of customers,
dependence on subcontractors and suppliers of materials,
any inability to secure sufficient aggregates,
an inability to complete a merger or acquisition or to integrate an acquired company’s business,
adjustments in our contact backlog,
accounting for our revenue and costs involves significant estimates, as does our use of the input method of revenue recognition based on costs incurred relative to total expected costs,
any failure to comply with covenants under any current indebtedness, and future indebtedness we may incur,
the adequacy of sources of liquidity,
cybersecurity attacks against, disruptions, failures or security breaches of, our information technology systems,
seasonality of our business,

2


pandemics and health emergencies,
commodity products price fluctuations and rising inflation and/or interest rates,
liabilities under environmental laws, compliance with immigration laws, and other regulatory matters, including changes in regulations and laws,
climate change
deterioration of the U.S. economy, and
geopolitical risks, including those related to the war between Russia and Ukraine, the conflict in the Gaza strip and the conflict within the Red Sea Region.

 

Any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances, including, but not limited to, unanticipated events, after the date on which such statement is made, unless otherwise required by law. New factors emerge from time to time and it is not possible for management to predict all of such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained or implied in any forward-looking statement.

3


Table of Contents

 

 

 

Page

 

 

 

PART I.

FINANCIAL INFORMATION

5

 

 

 

Item 1.

Financial Statements (Unaudited)

5

 

Condensed Consolidated Balance Sheets

5

 

Condensed Consolidated Statements of Operations

6

 

Condensed Consolidated Statements of Stockholders' Equity

7

 

Condensed Consolidated Statements of Cash Flows

8

 

Notes to Condensed Consolidated Financial Statements

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

21

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

32

Item 4.

Controls and Procedures

32

 

 

 

PART II.

OTHER INFORMATION

34

 

 

 

Item 1.

Legal Proceedings

34

Item 1A.

Risk Factors

34

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

34

Item 3.

Defaults Upon Senior Securities

34

Item 4.

Mine Safety Disclosures

34

Item 5.

Other Information

34

Item 6.

Exhibits

35

 

 

 

4


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Shimmick Corporation

Condensed Consolidated Balance Sheets

(In thousands, except share data)

(unaudited)

 

 

 

March 29,

 

 

December 29,

 

 

 

2024

 

 

2023

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

Cash and cash equivalents

 

$

27,327

 

 

$

62,939

 

Restricted cash

 

 

912

 

 

 

971

 

Accounts receivable, net

 

 

49,700

 

 

 

54,178

 

Contract assets, current

 

 

136,031

 

 

 

125,943

 

Prepaids and other current assets

 

 

11,695

 

 

 

13,427

 

 

 

 

 

 

 

 

TOTAL CURRENT ASSETS

 

 

225,665

 

 

 

257,458

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

47,094

 

 

 

46,373

 

Intangible assets, net

 

 

8,600

 

 

 

9,244

 

Contract assets, non-current

 

 

46,703

 

 

 

48,316

 

Lease right-of-use assets

 

 

23,351

 

 

 

23,855

 

Investment in unconsolidated joint ventures

 

 

23,731

 

 

 

21,283

 

Deferred tax assets

 

 

-

 

 

 

17,252

 

Other assets

 

 

2,849

 

 

 

2,871

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

377,993

 

 

$

426,652

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

Accounts payable

 

$

77,683

 

 

$

81,589

 

Contract liabilities, current

 

 

110,204

 

 

 

115,785

 

Accrued salaries, wages and benefits

 

 

30,287

 

 

 

26,911

 

Accrued expenses

 

 

33,405

 

 

 

33,897

 

Other current liabilities

 

 

18,173

 

 

 

13,071

 

 

 

 

 

 

 

 

TOTAL CURRENT LIABILITIES

 

 

269,752

 

 

 

271,253

 

 

 

 

 

 

 

 

Long-term debt, net

 

 

31,489

 

 

 

29,627

 

Lease liabilities, non-current

 

 

14,855

 

 

 

15,045

 

Contract liabilities, non-current

 

 

2,704

 

 

 

3,215

 

Contingent consideration

 

 

15,725

 

 

 

15,488

 

Deferred tax liabilities

 

 

-

 

 

 

17,252

 

Other liabilities

 

 

5,350

 

 

 

4,282

 

 

 

 

 

 

 

 

TOTAL LIABILITIES

 

 

339,875

 

 

 

356,162

 

 

 

 

 

 

 

 

Commitments and Contingencies (Note 11)

 

 

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Common stock, $0.01 par value, 100,000,000 shares authorized as of March 29, 2024 and December 29, 2023; 25,738,857 and 25,493,877 shares issued and outstanding as of March 29, 2024 and December 29, 2023, respectively

 

 

257

 

 

 

255

 

Additional paid-in-capital

 

 

25,578

 

 

 

24,445

 

Retained earnings

 

 

13,204

 

 

 

46,537

 

Non-controlling interests

 

 

(921

)

 

 

(747

)

 

 

 

 

 

 

 

TOTAL STOCKHOLDERS' EQUITY

 

 

38,118

 

 

 

70,490

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

 

$

377,993

 

 

$

426,652

 

 

See accompanying notes to the condensed consolidated financial statements.

5


Shimmick Corporation

Condensed Consolidated Statements of Operations

(In thousands, except per share data)

(unaudited)

 

 

 

Three Months Ended

 

 

 

March 29,

 

 

March 31,

 

 

 

2024

 

 

2023

 

Revenue

 

$

120,043

 

 

$

164,108

 

Cost of revenue

 

 

135,903

 

 

 

157,886

 

Gross margin

 

 

(15,860

)

 

 

6,222

 

Selling, general and administrative expenses

 

 

15,524

 

 

 

15,558

 

Amortization of intangibles

 

 

644

 

 

 

658

 

Total operating expenses

 

 

16,168

 

 

 

16,216

 

Equity in earnings (loss) of unconsolidated joint ventures

 

 

263

 

 

 

(541

)

(Loss) gain on sale of assets

 

 

(26

)

 

 

1,540

 

Loss from operations

 

 

(31,791

)

 

 

(8,995

)

Other expense, net

 

 

1,543

 

 

 

338

 

Net loss before income tax

 

 

(33,334

)

 

 

(9,333

)

Income tax expense

 

 

 

 

 

 

Net loss

 

 

(33,334

)

 

 

(9,333

)

Net (loss) income attributable to non-controlling interests

 

 

(1

)

 

 

4

 

Net loss attributable to Shimmick Corporation

 

$

(33,333

)

 

$

(9,337

)

Net loss attributable to Shimmick Corporation per common share

 

 

 

 

 

 

Basic

 

$

(1.30

)

 

$

(0.43

)

Diluted

 

$

(1.30

)

 

$

(0.43

)

 

See accompanying notes to the condensed consolidated financial statements.

6


 

Shimmick Corporation

Condensed Consolidated Statements of Stockholders' Equity

(In thousands, except share data)

(unaudited)

 

 

 

Common Stock

 

 

Additional
Paid-in-

 

 

Retained

 

 

Non-Controlling

 

 

Total
Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Interests

 

 

Equity

 

Balance as of December 29, 2023

 

 

25,493,877

 

 

$

255

 

 

$

24,445

 

 

$

46,537

 

 

$

(747

)

 

$

70,490

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(33,333

)

 

 

(1

)

 

 

(33,334

)

Issuance of common stock related to share-based awards

 

 

244,980

 

 

 

2

 

 

 

135

 

 

 

 

 

 

 

 

 

137

 

Stock-based compensation

 

 

 

 

 

 

 

 

998

 

 

 

 

 

 

 

 

998

 

Distributions to non-controlling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(173

)

 

 

(173

)

Balance as of March 29, 2024

 

 

25,738,857

 

$

257

 

$

25,578

 

$

13,204

 

$

(921

)

$

38,118

 

 

 

 

Common Stock

 

 

Additional
Paid-in-

 

 

Retained

 

 

Non-Controlling

 

 

Total
Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Interests

 

 

Equity

 

Balance as of December 30, 2022

 

 

21,908,800

 

 

$

219

 

 

$

3,341

 

 

$

49,083

 

 

$

(1,048

)

 

$

51,595

 

Net (loss) income

 

 

 

 

 

 

 

 

 

 

 

(9,337

)

 

 

4

 

 

 

(9,333

)

Stock-based compensation

 

 

 

 

 

 

 

 

528

 

 

 

 

 

 

 

 

528

 

Balance as of March 31, 2023

 

 

21,908,800

 

$

219

 

$

3,869

 

$

39,746

 

$

(1,044

)

$

42,790

 

 

See accompanying notes to the condensed consolidated financial statements.

7


Shimmick Corporation

Condensed Consolidated Statements of Cash Flows

(In thousands)

(unaudited)

 

 

Three Months Ended

 

 

 

March 29,

 

 

March 31,

 

 

 

2024

 

 

2023

 

 

 

 

 

 

 

 

Cash Flows From Operating Activities

 

 

 

 

 

 

   Net loss

 

$

(33,334

)

 

$

(9,333

)

   Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Stock-based compensation

 

 

998

 

 

 

528

 

Depreciation and amortization

 

 

4,410

 

 

 

4,165

 

Equity in (earnings) loss of unconsolidated joint ventures

 

 

(263

)

 

 

541

 

Return on investment in unconsolidated joint ventures

 

 

284

 

 

 

5,762

 

Loss (gain) on sale of assets

 

 

26

 

 

 

(1,877

)

Other

 

 

279

 

 

 

270

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable, net

 

 

4,478

 

 

 

(8,511

)

Contract assets

 

 

(8,475

)

 

 

(6,902

)

Accounts payable

 

 

(8,901

)

 

 

9,919

 

Contract liabilities

 

 

(5,579

)

 

 

(9,703

)

Accrued expenses

 

 

(492

)

 

 

(21,070

)

Accrued salaries, wages and benefits

 

 

3,376

 

 

 

5,264

 

Other assets and liabilities

 

 

8,205

 

 

 

4,797

 

Net cash used in operating activities

 

 

(34,988

)

 

 

(26,150

)

Cash Flows From Investing Activities

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 

(4,620

)

 

 

(2,470

)

Proceeds from sale of assets

 

 

199

 

 

 

377

 

Unconsolidated joint venture equity contributions

 

 

(2,980

)

 

 

(1,550

)

Return of investment in unconsolidated joint ventures

 

 

-

 

 

 

1,535

 

Net cash used in investing activities

 

 

(7,401

)

 

 

(2,108

)

Cash Flows From Financing Activities

 

 

 

 

 

 

Net borrowings on revolving credit facility

 

 

1,835

 

 

 

22,808

 

Other

 

 

4,883

 

 

 

(77

)

Net cash provided by financing activities

 

 

6,718

 

 

 

22,731

 

Net decrease in cash, cash equivalents and restricted cash

 

 

(35,671

)

 

 

(5,527

)

Cash, cash equivalents and restricted cash, beginning of period

 

 

63,910

 

 

 

82,085

 

Cash, cash equivalents and restricted cash, end of period

 

$

28,239

 

 

$

76,558

 

Reconciliation of cash, cash equivalents and restricted cash to the

 

 

 

 

 

 

    Condensed Consolidated Balance Sheets

 

 

 

 

 

 

Cash and cash equivalents

 

 

27,327

 

 

 

72,145

 

Restricted cash

 

 

912

 

 

 

4,413

 

Total cash, cash equivalents and restricted cash

 

$

28,239

 

 

$

76,558

 

 

See accompanying notes to the condensed consolidated financial statements.

8


Shimmick Corporation

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

Note 1. Business and Organization

 

Shimmick Corporation ("Shimmick", the “Company”) was founded in 1990 in California and operated as a regional infrastructure construction contractor throughout California for nearly 30 years. In 2017, AECOM acquired Shimmick and consolidated it with its existing construction services, which included former legacy construction operations from Morrison Knudsen, Washington Group International, and others. In January 2021, we consummated the AECOM Sale Transactions and began operating as an independent company under new private ownership (the "AECOM Sale Transactions").

 

The accompanying condensed consolidated financial statements include the accounts of Shimmick Corporation and its subsidiaries (“Shimmick”, “we”, “our”, “us”, “its” or the “Company”), unless otherwise indicated. On September 12, 2023, the Company changed its name from SCCI National Holdings, Inc. to Shimmick Corporation.

 

On November 16, 2023, Shimmick completed its initial public offering of 3,575,000 shares of common stock at a price to the public of $7.00 per share (the "IPO"). The net proceeds to Shimmick from the IPO were approximately $19 million after deducting underwriting discounts and commissions of $2 million and other offering expenses of $4 million. Shimmick’s common stock began trading on the NASDAQ Global Market on November 14, 2023.

Note 2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”), and in conformity with the rules and regulations of the Securities and Exchange Commission. The information furnished reflects all adjustments, consisting of normal recurring adjustments, that are, in the opinion of management, necessary for a fair presentation of the results of operations, cash flows and financial position for the interim periods presented. A statement of comprehensive income is not presented as the Company’s results of operations do not contain any items classified as comprehensive income. All intercompany accounts and transactions have been eliminated. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted in accordance with such rules and regulations, although management believes the disclosures are adequate to prevent the information presented from being misleading. The accompanying condensed consolidated interim financial statements are unaudited and should be read in conjunction with the audited consolidated financial statements and notes in our Annual Report on Form 10-K for the fiscal year ended December 29, 2023 ("Form 10-K"). Because of the seasonal nature of some of the Company's operations, the results of operations for the three months ended March 29, 2024 are not necessarily indicative of the results of operations to be expected for the full fiscal year.

Change in Presentation

Certain prior period balances in the condensed consolidated balance sheets and statements of cash flows and accompanying notes have been combined or rounded to conform to current period presentation. These changes had no impact on net loss, cash flows, assets and liabilities, or equity previously reported.

Stock Split

On October 23, 2023, the Board of Directors (the "Board") approved an amendment to the Company’s Certificate of Incorporation in order to effect a stock split of the Company’s Common Stock. Further, the Board authorized 100,000,000 shares of Common Stock, with a par value of $0.01 par value per share and 25,000,000 shares of Preferred Stock, with a par value of $0.01 per share. Upon the effectiveness of the filing of the amendment, each share of common stock, par value $0.01 per share (the “Old Common Stock”), issued and outstanding automatically, without further action on the part of the Company or any holder of such Old Common Stock, was reclassified as and became 2.7386 validly issued, fully paid and non-assessable shares of Common Stock. There were no fractional shares issued with respect to the reclassification of shares of Old Common Stock. In lieu of fractional shares, the Company rounded up to the nearest whole number of shares of Common Stock. The Company has retro-actively applied the stock split made effective on October 23, 2023, to share and per share amounts in the condensed consolidated financial statements. Accordingly, any information related to or dependent upon the share amounts in the condensed consolidated financial statements and Note 8 - Stock-Based Compensation and Note 9 - Earnings Per Share have been updated to reflect the effect of the stock split.

 

Summary of Significant Accounting Policies

9


Our significant accounting policies are described in more detail in “Note 2 - Basis of Presentation and Summary of Significant Accounting Policies” of our Form 10-K.

Recently Issued Accounting Pronouncements

Accounting pronouncements not listed below were assessed and determined to be not applicable or are expected to have minimal impact on the condensed consolidated financial statements.

In November 2023, the FASB issued ASU 2023-07 to enhance disclosures of significant expense and segment profitability categories and amounts for reportable business segments. The amendment is effective in interim periods in the fiscal year beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the provisions of the amendments and the impact on its future condensed consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09 to improve disclosures and presentation requirements to the transparency of the income tax disclosures by requiring consistent categories and greater disaggregation of information in the rate reconciliation and income taxes paid disaggregated by jurisdiction. The amendment is effective in interim periods in the fiscal year beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the provisions of the amendments and the impact on its future condensed consolidated financial statements.

 

Note 3. Revenue, Receivables and Contract Assets and Liabilities

The following table presents the Company’s revenue disaggregated by contract types:

 

 

 

Three Months Ended

 

 

 

March 29,

 

 

March 31,

 

(In thousands)

 

2024

 

 

2023

 

Fixed-price

 

$

113,065

 

 

$

151,528

 

Cost reimbursable

 

 

6,505

 

 

 

10,843

 

Equipment and labor revenue

 

 

473

 

 

 

1,737

 

Total revenue

 

$

120,043

 

 

$

164,108

 

 

Projects started after the AECOM Sale Transactions ("Shimmick Projects") have focused on water infrastructure and other critical infrastructure. Projects that focus on foundation drilling are referred to as "Foundations Projects". Projects that started prior to consummation of the AECOM Sale Transactions are referred to as "Legacy Projects".

The following table presents the Company’s revenue disaggregated by Shimmick Projects, Foundations Projects and Legacy Projects:

 

 

 

Three Months Ended

 

 

 

March 29,

 

 

March 31,

 

(In thousands)

 

2024

 

 

2023

 

Shimmick Projects

 

$

90,292

 

 

$

88,099

 

Foundations Projects

 

 

6,640

 

 

 

20,104

 

Legacy Projects

 

 

23,111

 

 

 

55,905

 

Total revenue

 

$

120,043

 

 

$

164,108

 

 

Remaining performance obligations

The Company had $1.0 billion of remaining performance obligations yet to be satisfied as of March 29, 2024. Our remaining performance obligations have a weighted average life of 2.1 years as of March 29, 2024.

10


Contract Balances

The following table provides information about contract assets (also referred to as costs and estimated earnings in excess of billings on uncompleted contracts and retainage receivable) and contract liabilities (also referred to as billings on uncompleted contracts in excess of costs and estimated earnings and forward loss reserve), which include assets and liabilities that are dependent upon future activity:

 

 

 

March 29,

 

 

December 29,

 

 

 

 

 

 

2024

 

 

2023

 

 

Change

 

(In thousands)

 

 

 

 

 

 

 

 

 

Contract assets, current and non-current:

 

 

 

 

 

 

 

 

 

    Costs and estimated earnings in excess of billings on uncompleted contracts

 

$

136,031

 

 

$

125,943

 

 

$

10,088

 

    Retainage receivable

 

 

46,703

 

 

 

48,316

 

 

 

(1,613

)

        Total contract assets

 

 

182,734

 

 

 

174,259

 

 

 

8,475

 

 

 

 

 

 

 

 

 

 

 

Contract liabilities, current and non-current:

 

 

 

 

 

 

 

 

 

    Billings on uncompleted contracts in excess of costs and estimated earnings

 

 

(43,548

)

 

 

(48,841

)

 

 

5,293

 

    Forward loss reserve

 

 

(69,360

)

 

 

(70,159

)

 

 

799

 

        Total contract liabilities

 

 

(112,908

)

 

 

(119,000

)

 

 

6,092

 

        Net

 

$

69,826

 

 

$

55,259

 

 

$

14,567

 

 

Contract terms with customers include the timing of billing and payment, which usually differs from the timing of revenue recognition. As a result, the Company carries contract assets and liabilities within the condensed consolidated balance sheets. These contract assets and liabilities are calculated on a contract-by-contract basis and reported on a net basis at the end of each period and are classified as current or non-current. Many of the contracts under which the Company performs work also contain retainage provisions. Retainage refers to that portion of our billings held for payment by the customer pending satisfactory completion of the project. Unless reserved, the Company assumes that all amounts retained by customers under such provisions are fully collectible. These assets and liabilities are reported in the condensed consolidated balance sheets within “Contract assets, current,” “Contract assets, non-current,” “Contract liabilities, current" and “Contract liabilities, non-current." Costs and estimated earnings in excess of billings on uncompleted contracts consists of revenue recognized in excess of billings. Billings on uncompleted contracts in excess of costs and estimated earnings consists of billings in excess of revenue recognized. The Company recognized revenue of $18.9 million during the three months ended March 29, 2024 that was included in contract liabilities as of December 29, 2023.

 

The Company’s timing of revenue recognition may not be consistent with its rights to bill and collect cash from its clients. Those rights are generally dependent upon advance billing terms, milestone billings based on the completion of certain phases of work or when services are performed. The Company’s accounts receivable represents amounts billed to clients that have yet to be collected and represent an unconditional right to cash from its clients as presented below.

 

 

 

March 29,

 

 

December 29,

 

 

 

2024

 

 

2023

 

(In thousands)

 

 

 

 

 

 

Total accounts receivable, gross

 

$

50,630

 

 

$

55,202

 

Allowance for credit losses

 

 

(930

)

 

 

(1,024

)

Accounts receivable, net

 

$

49,700

 

 

$

54,178

 

 

Substantially all contract assets as of March 29, 2024 and December 29, 2023 are expected to be collected within the Company’s estimated operating cycle, except for retainage and claims pertaining to certain contracts. The Company’s operating cycle may extend beyond one year.

The Company is in the process of negotiating or awaiting approval of unapproved change orders and claims with its customers. The Company is proceeding with its contractual rights to recoup additional costs incurred from its customers based on completing work associated with change orders, including change orders with pending change order pricing, or claims related to significant changes in scope which resulted in substantial delays and additional costs in completing the work. The Company may take legal action if it and the customer cannot reach a mutually acceptable resolution.

11


Information about significant customers

 

Significant Customers as a Percentage of Accounts Receivable, Net

 

 

 

As of March 29, 2024

 

 

 

Customer one

 

29.6%

 

Customer two

 

17.2%

 

 

 

 

 

As of December 29, 2023

 

 

 

Customer one

 

32.5%

 

Customer two

 

21.7%

 

 

 

Significant Customers as a Percentage of Revenue

 

 

 

Three Months Ended March 29, 2024

 

 

 

Customer one

 

21.2%

 

Customer two

 

14.8%

 

 

 

 

 

Three Months Ended March 31, 2023

 

 

 

Customer one

 

19.1%

 

Customer two

 

18.4%

 

Customer three

 

16.5%

 

 

 

Revisions in Estimates

 

Changes in contract estimates resulted in net decreases in gross margin of $18 million for the three months ended March 29, 2024, primarily due to increased forecasted cost to complete loss jobs.

 

There were no material changes in estimates for the three months ended March 31, 2023.

 

Note 4. Joint Ventures and Variable Interest Entities

A summary of financial information of the consolidated joint ventures is as follows:

 

 

 

March 29,

 

 

December 29,

 

 

 

2024

 

 

2023

 

(In thousands)

 

 

 

 

 

 

Current assets

 

$

45,774

 

 

$

34,071

 

Non-current assets

 

 

-

 

 

 

8,971

 

Total assets

 

 

45,774

 

 

 

43,042

 

Current liabilities

 

 

61,543

 

 

 

59,602

 

Non-current liabilities

 

 

2,029

 

 

 

2,013

 

Total liabilities

 

$

63,572

 

 

$

61,615

 

 

 

 

 

Three Months Ended

 

 

 

March 29,

 

 

March 31,

 

 

 

2024

 

 

2023

 

(In thousands)

 

 

 

 

 

 

Revenue

 

$

4,004

 

 

$

4,614

 

 

 

The assets of the Company’s consolidated joint ventures are restricted for use only by the particular joint venture and are not available for the general operations of the Company.

12


A summary of financial information of the unconsolidated joint ventures, as derived from their financial statements, is as follows:

 

 

 

March 29,

 

 

December 29,

 

 

 

2024

 

 

2023

 

(In thousands)

 

 

 

 

 

 

Current assets

 

$

81,404

 

 

$

74,498

 

Non-current assets

 

 

12,862

 

 

 

14,333

 

Total assets

 

 

94,266

 

 

 

88,831

 

Current liabilities

 

 

40,928

 

 

 

42,817

 

Total liabilities

 

$

40,928

 

 

$

42,817

 

 

 

 

 

 

Three Months Ended

 

 

 

March 29,

 

 

March 31,

 

 

 

2024

 

 

2023

 

(In thousands)

 

 

 

 

 

 

Revenue

 

$

20,456

 

 

$

28,888

 

Cost of revenue

 

 

20,931

 

 

 

33,972

 

Gross margin

 

 

(475

)

 

 

(5,084

)

Net loss

 

$

(475

)

 

$

(5,084

)

 

As of March 29, 2024 and December 29, 2023, the Company’s investment in unconsolidated joint ventures was $24 million and $21 million, respectively.

The Company recognized equity in earnings of unconsolidated joint ventures of $263 thousand for the three months ended March 29, 2024 and equity in loss of unconsolidated joint ventures of $541 thousand for the three months ended March 31, 2023.

Contractually required support provided to the Company’s joint ventures is discussed in Note 11 - Commitments and Contingencies.

Related Party Transactions

We often provide construction management and other subcontractor services to the Company’s joint ventures and revenue includes amounts related to these services which is eliminated to the extent of our ownership. Revenue included related to services provided to unconsolidated joint venture related parties is as follows:

 

 

 

Three Months Ended

 

 

 

March 29,

 

 

March 31,

 

 

 

2024

 

 

2023

 

(In thousands)

 

 

 

 

 

 

Revenue

 

$

478

 

 

$

1,045

 

Amounts included in the condensed consolidated balance sheets related to services provided to unconsolidated joint ventures as of March 29, 2024 and December 29, 2023 are as follows:

 

 

 

March 29,

 

 

December 29,

 

 

 

2024

 

 

2023

 

(In thousands)

 

 

 

 

 

 

Accounts receivable, net

 

$

2,471

 

 

$

2,092

 

 

13


Note 5. Property, Plant and Equipment and Intangible Assets

The following table summarizes the components of property, plant and equipment as of March 29, 2024 and December 29, 2023.

 

 

March 29,

 

 

December 29,

 

(In thousands)

 

2024

 

 

2023

 

Building and land

 

$

3,993

 

 

$

4,002

 

Machinery, equipment, and vehicles

 

 

70,406

 

 

 

70,250

 

Office equipment, software and construction in progress

 

 

13,402

 

 

 

9,324

 

Property, plant and equipment, gross

 

 

87,801

 

 

 

83,576

 

Accumulated depreciation

 

 

(40,707

)

 

 

(37,203

)

Property, plant and equipment, net

 

$

47,094

 

 

$

46,373

 

 

 

 

Three Months Ended

 

 

 

March 29,

 

 

March 31,

 

 

 

2024

 

 

2023

 

(In thousands)

 

 

 

 

 

 

Depreciation expense

 

$

3,700

 

 

$

3,507

 

 

Depreciation is recorded within cost of revenue and selling, general and administrative expenses and is calculated using the straight-line method over the estimated useful lives of the assets, or in the case of leasehold improvements and capitalized leases, the lesser of the remaining term of the lease or its estimated useful life.

 

The following table presents the Company’s finite-lived intangible assets, including the weighted-average useful lives for each major intangible asset category and in total:

 

 

 

March 29, 2024

 

 

Weighted Average Remaining Useful Life

 

 

Intangible Assets, Gross

 

 

Accumulated Amortization

 

 

Intangible Assets, Net

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Trademark

 

 

3.8

 

 

$

10,600

 

 

$

(4,921

)

 

$

5,679

 

 

Customer contracts

 

 

2.8

 

 

 

6,373

 

 

 

(3,452

)

 

 

2,921

 

 

Total

 

 

 

 

$

16,973

 

 

$

(8,373

)

 

$

8,600

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 29, 2023

 

 

 

Weighted Average Remaining Useful Life

 

 

Intangible Assets, Gross

 

 

Accumulated Amortization

 

 

Intangible Assets, Net

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Trademark

 

 

4

 

 

$

10,600

 

 

$

(4,543

)

 

$

6,057

 

Customer contracts

 

 

3

 

 

 

6,527

 

 

 

(3,340

)

 

 

3,187

 

Total

 

 

 

 

$

17,127

 

 

$

(7,883

)

 

$

9,244

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Company’s estimated aggregate remaining amortization is as follows:

 

 

 

Amortization

 

 

 

Expense

 

(In thousands)

 

 

 

2024

 

$

1,932

 

2025

 

 

2,577

 

2026

 

 

2,577

 

2027

 

 

1,514

 

Total

 

$

8,600

 

 

Note 6. Debt

Total debt outstanding is presented on the condensed consolidated balance sheets as follows:

14


 

(In thousands)

 

March 29, 2024

 

 

December 29, 2023

 

Revolving Credit Facility

 

$

31,749

 

 

$

29,914

 

Total debt

 

 

31,749

 

 

 

29,914

 

Unamortized debt issuance costs

 

 

(260

)

 

 

(287

)

Long-term debt, net

 

$

31,489

 

 

$

29,627

 

Revolving Credit Facility

On March 27, 2023, we entered into the Revolving Credit Facility with MidCap Financial Services, LLC, which originally provided a total commitment of $30 million. The Revolving Credit Facility was subsequently amended on June 30, 2023, September 22, 2023 and May 20, 2024. As amended, the Revolving Credit Facility provides for a total commitment of $33 million and bears interest at an annual rate of adjusted term SOFR, subject to a 1.0% floor, plus 5.50%. Further, the Revolving Credit Facility is subject to an annual collateral management fee of 0.50% and an annual unused line fee of 0.50%. The Revolving Credit Facility includes certain financial operating covenants, including a minimum liquidity requirement of $5 million. As of March 29, 2024, we were not in compliance with the leverage covenant set forth in the Revolving Credit Facility prior to the May 20, 2024 amendment. As a result of the May 20, 2024 amendments, the leverage covenant was replaced with the aforementioned minimum liquidity requirement. As amended, we are currently in compliance with all covenants under the Revolving Credit Facility. The Revolving Credit Facility matures on September 30, 2024.

Project Financing Agreement

On March 26, 2024, we entered into a Project Financing Agreement (the "Project Financing Agreement") with Berkshire Hathaway Specialty Insurance Company, National Liability & Fire Insurance Company and National Indemnity Company (collectively "Berkshire") which provides an advance of up to $25 million in exchange for security interest in the assigned and secured collateral specified in the Project Financing Agreement. If drawn, the advance will be used to satisfy bond and bonded contract obligations and bears interest at an annual rate of adjusted term SOFR, subject to a 1.0% floor, plus 4.50%. All funds provided by Berkshire under the Project Financing Agreement as well as all accrued interest are due and payable in full on March 28, 2028.

In connection with our entry into the Credit Agreement (as defined below), we terminated the Project Financing Agreement. As a result, all obligations of the Company and its subsidiaries under the Project Financing Agreement were released and all security interests and liens granted by the Company and such subsidiaries to secure such obligations were terminated.

Credit Facility

On May 20, 2024, the Company, as guarantor, and its wholly-owned subsidiaries as borrowers (“Borrowers”), Alter Domus (US) LLC, as agent, and AECOM and BHSI as lenders, entered into a revolving credit facility (the “Credit Agreement”). The Credit Agreement provides borrowing capacity up to $60 million. The obligations under the Credit Agreement bear interest at a per annum rate equal to one month Term SOFR (as defined in the Credit Agreement), subject to a 1.00% floor, plus 3.50%. Interest on any outstanding amounts drawn under the Credit Agreement will be payable, in kind or in cash at the election of the Company, on the last day of each month and upon prepayment.

The Credit Agreement replaced the Project Financing Agreement. The Company expects to use the proceeds from the Credit Agreement for general corporate purposes. The Credit Agreement matures on May 20, 2029 (the “Maturity Date”), and the Borrowers may borrow, repay and reborrow amounts under the Credit Agreement until the Maturity Date.

Obligations of the Borrowers under the Credit Agreement are guaranteed by the Company and secured by a lien on substantially all assets of the Company and the Borrowers.

The Credit Agreement contains customary affirmative and negative covenants for a transaction of this type, including covenants that limit liens, asset sales and investments, in each case subject to negotiated exceptions and baskets. In addition, the Credit Agreement contains a maximum leverage ratio covenant that will be tested starting for the third quarter of fiscal year 2025. The Credit Agreement also contains representations and warranties and event of default provisions customary for a transaction of this type.

 

Note 7. Income Taxes

We compute the year-to-date income tax provision by applying our estimated annual effective tax rate to our year-to-date pre-tax income and adjust for discrete tax items in the period in which they occur.

The effective tax rate was 0% for the three months ended March 29, 2024, and March 31, 2023, respectively.

15


For the three months ended March 29, 2024 and March 31, 2023, the deferred tax provision resulting from the current year loss is completely offset by the change in valuation allowance, resulting in zero tax expense.

The Company generally anticipates a zero effective tax rate due to a full valuation allowance. However, the Company may recognize a current tax expense in a specific period if its taxable income, net of available deferred tax assets in that period, exceeds the allowable utilization of tax attributes such as NOL carryforwards. The allowable limitation typically restricts the use of NOL carryforwards to 80% of taxable income.

Deferred Tax Assets and Liabilities

We recognize deferred tax assets and liabilities for future tax consequences arising from differences between the carrying amounts of existing assets and liabilities under U.S. GAAP and their respective tax bases, and for net operating loss carryforwards and tax credit carryforwards. We evaluate the recoverability of our deferred tax assets, weighing all positive and negative evidence, and are required to establish or maintain a valuation allowance for these assets if we determine that it is more likely than not that some or all the deferred tax assets will not be realized.

As of each reporting date, we consider new evidence, both positive and negative, that could impact our view with regard to the future realization of deferred tax assets. We will maintain our positions with regard to future realization of deferred tax assets, including those with respect to which we continue maintaining valuation allowances, until there is sufficient new evidence to support a change in expectations. Such a change in expectations could arise due to many factors, including those impacting our forecasts of future earnings, as well as changes in the tax laws under which we operate and tax planning. It is not reasonably possible to forecast any such changes at the present time, but it is possible that, should they arise, our view of their effect on the future realization of deferred tax assets may impact materially our condensed consolidated financial statements.

After weighing all the evidence, giving more weight to the evidence that was objectively verifiable, a valuation allowance of $133 million and $124 million as of March 29, 2024 and December 29, 2023, respectively, has been recorded to recognize only the portion of the deferred tax asset that is more likely than not to be realized. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if the objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as our projections for growth.

Note 8. Stock-Based Compensation

On April 12, 2021, the Company’s Board approved the Company’s 2021 Stock Plan (the “2021 Stock Plan”). The 2021 Stock Plan reserves 5,477,200 of the Company’s shares for issuance of incentive instruments, including Incentive Stock Options (“ISOs”), Non-statutory Stock Options, Stock Appreciation Rights, Restricted Stock Awards, and Restricted Stock Unit Awards. ISOs granted under the Plan have a term of 10 years and vest over four years of service.

On November 13, 2023, the Company’s Board approved the Shimmick Corporation 2023 Equity Incentive Plan (the “2023 Omnibus Incentive Plan”). 3,729,149 is the maximum aggregate number of shares of Common Stock available under the 2023 Omnibus Incentive Plan (equal to ten percent (10%) of the Company’s Common Stock outstanding immediately following the completion of the Company’s IPO on November 16, 2023 plus (ii) the reserved and authorized shares for awards under the Company’s 2021 Stock Plan that were not granted as of November 13, 2023). The maximum aggregate number of shares of Common Stock that may be issued under the 2023 Omnibus Incentive Plan will automatically increase annually on the first day of each fiscal year, beginning with the 2024 fiscal year in an amount equal to five percent (5%) of Common Stock outstanding on the last day of the immediately preceding fiscal year unless the plan administration determines that a lesser amount should instead be issued. The shares reserved under the 2023 Omnibus Incentive Plan are for issuance of incentive instruments, including stock options, restricted stock awards, restricted stock units, stock appreciation rights, performance units and other share-based awards.

Total compensation expense related to stock-based grants was $1 million for each of the three months ended March 29, 2024 and March 31, 2023. Unrecognized compensation expense related to stock-based grants to employees of Shimmick outstanding as of March 29, 2024 and March 31, 2023 was $5 million and $4 million, respectively, to be recognized on a straight-line basis over the awards’ weighted average remaining vesting period of 1.1 years and 2.0 years, respectively.

16


For the three months ended March 29, 2024, stock option activity was as follows:

 

 

 

Stock Options

 

 

 

Number of shares

 

 

Weighted average exercise price per share

 

 

Weighted average grant date fair value

 

 

Weighted average years of remaining contractual term

 

Outstanding as of December 29, 2023

 

 

4,137,183

 

 

$

1.26

 

 

$

 

 

 

7.6

 

      Exercised

 

 

(195,864

)

 

 

1.26

 

 

 

0.66

 

 

 

 

  Forfeited & expired

 

 

(200,415

)

 

 

1.26

 

 

 

0.66

 

 

 

 

Outstanding as of March 29, 2024

 

 

3,740,904

 

 

 

1.26

 

 

 

0.66

 

 

 

7.1

 

Exercisable as of March 29, 2024

 

 

2,662,487

 

 

$

1.26

 

 

$

0.66

 

 

 

7.1

 

 

The following table summarizes the activities for unvested Shimmick restricted stock units for the three months ended March 29, 2024:

 

 

 

Restricted Stock Units