Q2 2024 Shimmick Corp Earnings Call

Speaker Change: i

Operator: Greetings and welcome to Shimmick's second quarter 2024 earnings conference call. At this time, all participants are on a listen-only mode.

Speaker Change: i

Speaker Change: Greetings and welcome to SHMIC's second quarter 2024 earnings conference call.

Speaker Change: At this time, all participants are on a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.

Operator: A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Anthony Rasmus, Investor Relations. Please go ahead.

Speaker Change: As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Anthony Rasmus, Investor Relations. Please go ahead.

Anthony Rasmus: Good morning, and thank you for joining us on today's conference call to discuss Shimmick's second quarter 2024 results. Slides for today's presentation are available on the investor relations section of our website, www.shimmick.com. During this conference call, management will make forward-looking statements based on current expectations and assumptions, which are subject to risk and uncertainty. Actual results could differ materially from our forward-looking statements if any of our key assumptions are incorrect. We identify the principal risk and uncertainty 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 statement.

Anthony Rasmus: Good morning and thank you for joining us on today's conference call to discuss SHMIC second quarter 2024 results. Slides for today's presentation are available on the investor relations section of our website www.shmic.com

Speaker Change: During this conference call, management will make forward-looking statements based on current expectations and assumptions, which are subject to risks and uncertainties.

Speaker Change: Actual results could differ materially from our forward-looking statements if any of our key assumptions are incorrect.

Speaker Change: We had we identified the principal risk and uncertainty that may affect our performance and our Reports and filings with the Securities and Exchange Commission, which can also be found on our investor relations website

Speaker Change: We do not undertake a duty to update any forward-looking statements.

Speaker Change: Today's presentation also includes references to non-GAAP financial measures. You should refer to the information contained in the company's second quarter press release for definitional information and reconciliations of historical non-GAAP measures to the comparable GAAP financial measures.

Anthony Rasmus: Today's presentation also includes references to non-GAAP financial measures. You should refer to the information contained in the company's second quarter, Press release for definitional information and reconciliation of historical non-GAAP measures to the comparable GAAP financial measure. With that, it is my pleasure to turn the call over to Steve Richards, Shimmick's CEO. Good morning, and thank you all for joining us on today's call.

Speaker Change: With that, it is my pleasure to turn the call over to Steve Richards, Chemex CEO.

Steven Richards: I'm joined by Amanda Mobley, Shimmick's interim CFO. We settled one of the two Legacies Lots project claims for $33 million of cash to be paid sometime later this year, which will improve our liquidity. The settlement also eliminates distractions and continuing legal costs and is key to continuing our transformation. As part of the settlement, the quarter includes a $23 million reduction in legacy projects revenue, an additional $7 million in gross margin, which Amanda will further discuss later.

Steve Richards: Good morning, and thank you all for joining us on today's call. I'm joined by Amanda Mobley, Chemex Interim CFO.

Speaker Change: We settled one of the two Legacy Locks project claims for $33 million of cash to be paid sometime later this year, which will improve our liquidity. The settlement also eliminates distractions and continuing legal costs and is key to continuing our transformation.

Speaker Change: As part of the settlement, the quarter includes a $23 million reduction in legacy projects revenue and an additional $7 million in gross margin which Amanda will further discuss later.

Steven Richards: After accounting for the settlement, we delivered second quarter 2024 revenues of $91 million and experienced a net loss of $51 million with an adjusted EBITDA loss of $40 million. Project's revenue totaled $84 million in the second quarter versus $103 million a year ago, project growth margins were 5% for the quarter, a decline from 8% growth margin for the first quarter of 2023, driven by schedule extensions, pending change orders, and increased costs.

Amanda Mobley: After accounting for the settlement, we delivered second quarter 2024 revenues of $91 million and experienced a net loss of $51 million with an adjusted EBITDA loss of $40 million.

Amanda Mobley: Senate projects revenue totaled $84 million in the second quarter versus $103 million a year ago.

Amanda Mobley: Summit project growth margins were 5% for the quarter, a decline from 8% growth margin for the first quarter of 2023, driven by schedule extensions, pending change orders, and increased costs.

Steven Richards: That said, we're encouraged by the 6% sequential margin improvement as compared to the first quarter of 2024 on this front, and look forward to building off this momentum. As we did on our last call, we'll provide a breakdown of results between Shimmick projects, projects that began after the EECOM sale transaction, and legacy projects, those that started before the EECOM sale transaction. Amanda will provide more details specifically related to the breakdown of these results.

Amanda Mobley: That said, we're encouraged by the 6% sequential margin improvement as compared to the first quarter 2024 on this front, and look forward to building off this momentum.

Amanda Mobley: As we did on our last call, we'll provide a breakdown of results between Shimmick projects, projects that began after the EECOM sales transaction and legacy projects, those that started before the EECOM sales transaction.

Amanda Mobley: Amanda will provide more details specifically related to the breakdown of these results. However, of note, our overall gross margin was weaker in the second quarter, primarily related to the legacy project settlement agreement and cost overruns experienced as well as additional legal fees on the legacy loss projects.

Steven Richards: However, of note, our overall gross margin was weaker in the second quarter, primarily related to the legacy project settlement agreement and cost overruns experienced as well as additional legal fees on the legacy loss projects in order to continue to pursue the contract mods and recoveries from prior to donors. Although we are experiencing near-term headwinds due to project timing and cost issues with legacy projects, we remain encouraged by the progress we have seen converting our backlog to Shimmick projects versus legacy projects.

Amanda Mobley: in order to continue to pursue the contract mods and recoveries from prior to donors.

Speaker Change: Although we are experiencing near-term headwinds due to project timing and cost issues with legacy projects, we remain encouraged by the progress we have seen converting our backlog to shimmick projects versus legacy projects.

Steven Richards: At the end of the second quarter, Shimmick Projects continued to represent a larger portion of our backlog versus legacy projects. Additionally, our overall backlog remains strong at $923 million as of the end of the second quarter.

Amanda Mobley: At the end of the second quarter, CEMIT projects continue to represent a larger portion of our backlog versus legacy projects.

Amanda Mobley: Additionally, our overall backlog remained strong at 923 million dollars as of the end of the second quarter.

Steven Richards: 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. As we described on the last call, we added estimating personnel late in the second quarter to be responsive to this pipeline of work. We're beginning to see the uptick in our bidding efforts bear fruit. Most recently, following the end of the second quarter, we secured a win for a fourteen and a half million dollar project for Delta Diablo cogeneration system replacement in Antioch, California. The Delta Diablo operates an abyssin cogeneration system at the Wastewater Treatment Plant, once again reinforcing our go-forward focus on water-related projects.

Amanda Mobley: 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. As we described on the last call, we added estimating personnel late in the second quarter to be responsive to this pipeline of work.

Amanda Mobley: We are beginning to see the uptick in our bidding efforts bear fruit. Most recently, following the end of the second quarter, we secured a win for a $14.5 million project for Delta Diablo cogeneration system replacement in Antioch, California.

Amanda Mobley: The Delta Diabolo operates an existing cogeneration system at the Wastewater Treatment Plant, once again reinforcing our go-forward focus on water-related projects.

Steven Richards: The cogeneration system improvements project will include the demolition of the existing plant and replace with a new cogeneration engine, digester gas, conditioning equipment, exhaust systems, and boiler. This also includes upgrades to the electrical and control infrastructure and demolition of an existing digester gas storage sphere. Shimmick's work will aid the district's resource recovery capabilities, reduce grid power consumption and promote more efficient and reliable plant performance. More than 75% of our work is generated from repeat customers, public customers and associated public funding allows for a predictable long term flow of programs and projects.

Amanda Mobley: The Code Generation System Improvements Project will include the demolition of the existing plant and replace with a new Code Generation Engine, Digester Gas, Conditioning Equipment, Exhaustor Systems, and Boiler.

Amanda Mobley: This also includes upgrades to the electrical and control infrastructure and demolition of an existing digester gas storage sphere.

Chimex: Chimex's work will aid the district's resource recovery capabilities, reduce grid power consumption, and promote more efficient and reliable plant performance.

Speaker Change: More than 75% of our work is generated from repeat customers. Public customers and associated public funding allows for a predictable long-term flow of programs and projects.

Steven Richards: Shimmick's core market vision is coming to reality with a more asset-light, higher-margin, water-focused company targeting projects that make use of significant in-sourcing technical skills on projects that average three years in duration. I'd like also to take some time to address the update on Shimmick's transformation.

Speaker Change: STEM's core market vision is coming to reality with a more asset-light, higher margin, water-focused company targeting projects that make use of significant in-sourcing technical skills on projects that average three years in duration.

Speaker Change: I'd like also to take some time to address the update on SHMIC's transformation. As many of you are aware, SHMIC has a long history of successfully winning and delivering complex water and other critical infrastructure projects in the state of California.

Steven Richards: As many of you are aware, Shimmick has a long history of successfully winning and delivering complex water and other critical infrastructure projects in the state of California. The market for water and critical infrastructure projects in California has consistently grown each year with the size and complexity of projects forecasted to grow for decades. Today, the company announced initiatives as part of our transformation plan to increasing our focus on the California water and critical infrastructure market.

Speaker Change: The market for water and critical infrastructure projects in California has consistently grown each year, with the size and complexity of projects forecasted to grow for decades.

Steven Richards: These initiatives include increasing the bid activity by increasing the number of estimators in Southern and Northern California, right sizing our cost structure by reducing our overheads in non-core areas and redefining our operating model with a renewed focus on supporting the field to safely deliver projects on time and on budget for our clients across California. Our transformation at Shimmick is well underway, and we continue to work towards refocusing our operations to best position ourselves to capture the market we see in the California market.

Speaker Change: Today, the company announced initiatives as part of our transformation plan to increasing our focus on the California water and critical infrastructure market.

Speaker Change: These initiatives include increasing the bid activity by increasing the number of estimators in Southern and Northern California.

Speaker Change: Right-sizing our cost structure by reducing our overheads in non-core areas and redefining our operating model with a renewed focus on supporting the field to safely deliver projects on time and on budget for our clients across California.

Speaker Change: Our transformation at CHEMIC is well underway, and we continue to work towards refocusing our operations to best position ourselves to capture the market we see in the California market.

Steven Richards: Turning to the next slide, I'd like to take a moment to highlight our recently completed $42 million project at the Richmond Wastewater Treatment Plant, which has been a significant milestone for both Shimmick and the City of Richmond. In 2010, the Richmond facility was identified as needing critical rehabilitation due to its impact on the San Francisco Bay Area.

Speaker Change: Turning to the next slide, I'd like to take a moment to highlight our recently completed 42 million dollar project at the Richmond Wastewater Treatment Plant which has been a significant milestone for both Chemeke and the City of Richmond.

Speaker Change: In 2010, the Richmond facility was identified as needing critical rehabilitation due to its impact on the San Francisco Bay Area.

Steven Richards: To address this, Shimmick was brought in to execute a series of high-priority upgrades designed to improve treatment quality and meet both current and future environmental regulations. Shimmick constructed new buildings, upgraded the aeration basins with state-of-the-art forced air diffusion systems, and removed outdated and unused facilities. These strategic improvements have not only enhanced the operational efficiency of the plant, but also reduced its environmental footprint. Now, with the project successfully completed, the Richmond Wastewater System operates more efficiently. The new project has significantly reduced energy usage, chemical treatment needs, and greenhouse gas emissions while cutting costs for the city.

Speaker Change: To address this, CHEMIC was brought in to execute a series of high-priority upgrades designed to improve treatment quality and meet both current and future environmental regulations.

Speaker Change: Senate constructed new buildings, upgraded the aeration basins with state-of-the-art forced air diffusion systems, and removed outdated and unused facilities. These strategic improvements have not only enhanced the operational efficiency of the plant, but also reduced its environmental footprint.

Speaker Change: Now, with the project successfully completed, the Richmond Wastewater System operates more efficiently.

Speaker Change: The new project has significantly reduced energy usage, chemical treatment needs, and greenhouse gas emissions while cutting costs for the city. This means a cleaner environment, reduced odors, and overall improved quality of life for the residents of Richmond.

Steven Richards: This means a cleaner environment, reduced orders, and overall improved quality of life for the residents of Bridgeport. This project is a testament to Shimmick's commitment to delivering sustainable infrastructure solutions that benefit both communities and the environment. We are proud of the outcome and look forward to continuing our work in this vital sector. With that, I'd like to turn the call over to Amanda who will discuss our financial results. Thanks, Steve.

Amanda Mobley: This project is a testament to Chemeck's commitment to delivering sustainable infrastructure solutions that benefit both communities and the environment. We are proud of the outcome and look forward to continuing our work in this vital sector. With that, I'd like to turn the call over to Amanda who will discuss our financial results.

Amanda Mobley: All comparisons made today will be in a year over year basis compared to the same period in 2020. For the second quarter, we reported revenue of $91 million compared to $155 million for the prior year, primarily as a result of the Legacy Project Settlement mentioned earlier and discussed more on the next slide, and from lower activity on existing jobs and jobs winding down, partially offset by an increase in the revenue driven by a new water infrastructure, made a net loss of $51 million compared to a net loss of $10 million for the prior year.

Amanda Mobley: Thanks, Steve. All comparisons made today will be on a year-over-year basis compared to the same period in 2023.

Amanda Mobley: Again, largely as a result of the legacy project settlement, as well as equity and loss of unconsolidated. Second quarter adjusted EBITDA was a loss of $40 million compared to a loss of $2 million in the prior year.

Amanda Mobley: For the second quarter, we reported revenue of $91 million compared to $155 million for the prior year period.

Amanda Mobley: primarily as a result of the Legacy Project Settlement mentioned earlier and discussed more on the next slide, and from lower activity on existing jobs and jobs winding down, partially offset by an increase in the revenue driven by a new water infrastructure job.

Amanda Mobley: We had a net loss of $51 million compared to a net loss of $10 million for the prior year period, again, largely as a result of the legacy project settlement, as well as equity and loss of unconsolidated joint ventures.

Amanda Mobley: Second quarter adjusted EBITDA was a loss of $40 million compared to a loss of $2 million in the prior year period.

Amanda Mobley: Revenue recognized on foundations projects with $8 million in the second quarter 2024 compared to $9 million a year. The $1 million decline in revenue was the result of timing of jobs winding down. As a reminder, we entered into an agreement to sell the assets of non-core foundations projects and will wind down work during the year, growth margin recognized on foundations projects with a negative $2 million and a negative $7 million for the three month ended June 28th, 2024 and June 30th, 2023 respectively.

Amanda Mobley: Revenue recognized on foundations projects was eight million dollars in the second quarter 2024 compared to nine million dollars a year ago. The one million dollar decline in revenue was the result of timing of jobs winding down.

Amanda Mobley: As a reminder, we entered into an agreement to sell the assets of non-core foundations projects and will wind down work during the year.

Amanda Mobley: Gross margin recognized on foundations projects with a negative two million dollars and a negative seven million dollars for the three month ended June 28th 2024 and June 30th 2023 respectively

Amanda Mobley: The increase in the growth margin was the result of cost overruns incurred on two jobs during a three-month ended June 30, 2023, which were substantially completed during the 2023 fiscal year.

Amanda Mobley: The increase in the growth margin was a result of cost overruns incurred on two jobs during a three-month-ended June 30, 2023, which were substantially completed during the 2023 season. Legacy Projects revenue decreased by $44 million to a negative $2 million compared to 2023 and to growth margin of negative $34 million, primarily impacted by the Legacy Project Settlement and cost overruns, and continuously. As the legacy loss projects continue to wind down to completion, no further gross margin will be recognized, and in some cases, there may be additional costs associated with these projects, which will all be recognized in the future.

Amanda Mobley: Legacy Projects revenue decreased by 44 million dollars to a negative two million dollars compared to 2023 and to growth margin of negative thirty four million dollars. Primarily impacted by the Legacy Project settlement and cost overruns and continued legal costs.

Amanda Mobley: As the legacy loss projects continue to wind down to completion, no further growth margin will be recognized, and in some cases, there may be additional costs associated with these projects, which will all be recognized in the period.

Amanda Mobley: Revenue recognized on these legacy loss projects was a negative $7 million and $27 million for the three-month ended June 28, 2024, and June 30, 2023, respectively. Growth margin recognized on these legacy loss projects was a negative $32 million for the three months ended June 28, 2024, and a negative $1 million for the three months ended June 30, 2024. We continue to actively pursue all opportunities to offset, turning to the balance sheet.

Amanda Mobley: Revenue recognized on these legacy loss projects was a negative seven million dollars and twenty seven million dollars for the three months ended June 28th 2024 and June 30th 2023 respectively.

Amanda Mobley: Gross margin recognized on these legacy loss projects was a negative $32 million for the three-month ended June 28, 2024, and a negative $1 million for the three-month ended June 30, 2023.

Amanda Mobley: We continue to actively pursue all opportunities to offset these costs.

Amanda Mobley: Unrestricted cash and cash equivalents at June 28, 2024 totaled $22 million and availability under the revolving credit facility and credit facility totaled $7 million and $6 million respectively. Resulting in total equity of $35 million. Turning to the next slide, as Steve mentioned earlier.

Amanda Mobley: Turning to the balance sheet, unrestricted cash and cash equivalents at June 28, 2024 totaled $22 million and availability under the revolving credit facility and credit facility totaled $7 million and $6 million respectively.

Amanda Mobley: Resulting in total equity of $35 million.

Amanda Mobley: Turning to the next slide, as Steve mentioned earlier, we expect to receive 33 million dollars in cash related to a claim on a large legacy project later this year.

Amanda Mobley: We expect to receive $33 million in cash related to a claim on a large legacy project later this year. However, our second quarter results were impacted by a change in estimates from the settlement agreement and on the legacy loss project. As a result of the settlement and previously estimated contract revenue, the company recognized a net loss of $30 million, which includes a $23 million reduction to revenue and a $7 million adjustment to forward loss, recorded within the condensed consolidated statements of operations for the three and six months ended June 28, 2024.

Steve Richards: However, our second quarter results were impacted by a change in estimates from the settlement agreement and on the legacy loss project.

Speaker Change: As a result of the settlement and previously estimated contract revenue, the company recognized a net loss of $30 million, which includes a $23 million reduction to revenue and a $7 million adjustment to forward loss reserves.

Speaker Change: recorded within the condensed consolidated statements of operations for the three and six months ended June 28, 2024.

Amanda Mobley: While this obviously impacted our revenue recorded in the quarter, we expect to receive cash payment later this year, which has helped support our liquidity position and eliminates the continuation of litigation. On August 9, 2024, we completed the previously disclosed transaction for the sales lease back of our equipment yard in Tracy, California. The agreement culminated the sale of the equipment yard for $20.5 million and allows us to continue using the property under a seven-year lease.

Speaker Change: While this obviously impacted our revenue recorded in the quarter, we expect to receive cash payment later this year, which has helped support our liquidity position and eliminates the continuation of litigation costs.

Amanda Mobley: We received net proceeds of $17 million after adjustment, paid rent for February of 2026, and related clothing. Equipment Yard had a net book value of approximately $3 million and the remaining $17 million of net proceeds received from the transaction were used to repay borrowings under the revolving credit program.

Speaker Change: On August 9th, 2024, we completed the previously disclosed transaction for the sales lease back of our equipment yard in Tracy, California.

Speaker Change: The agreement culminated the sale of the equipment yard for $20.5 million and allows us to continue using the property under a seven-year lease.

Speaker Change: We received net proceeds of $17 million after adjustments for prepaid rent for February of 2026 and related closing costs.

Speaker Change: The equipment yard had a net book value of approximately $3 million, and the remaining $17 million of net proceeds received from the transaction were used to repay borrowings under the revolving credit facility.

Amanda Mobley: For the fiscal year ending January 3rd, 2025, after excluding non-core foundations projects revenue at $64 million for the fiscal year ending December 29th, 2023. We now expect that Shimmick Project's revenue to remain generally flat with gross margin between 4% to 9%. Legacy Projects Revenue of $55 to $65 million with negative growth margins. E.P, to the Legacy Loss Project. Additional costs reported for the Legacy Lost Project related to pending change orders and other cost overheads.

Speaker Change: For the fiscal year ending January 3rd, 2025, after excluding non-core foundations projects revenue of $64 million for the fiscal year ending December 29th, 2023.

Speaker Change: We now expect that Shimmick Project's revenue to remain generally flat with gross margin between 4% to 9%.

Speaker Change: Legacy projects revenue of 55 to 65 million dollars with negative growth margins of 80 to 90 percent due to the legacy loss project settlement. Additional costs reported for the legacy loss project related to pending change orders and other cost overruns.

Amanda Mobley: The guidance reflects our execution on our strategy, a robust pipeline, the improving quality of our backlog, and our continued operational execution, as well as our efforts to work off our legacy. We believe that our results will be back half-weighted in 2024 with further strong momentum for growth in 2025. With that, I'd like to turn it over now to Steve for some additional remarks. Thanks, Amanda.

Speaker Change: The guidance reflects our execution on our strategy, a robust pipeline, the improving quality of our backlog, and our continued operational execution, as well as our efforts to work off our legacy projects.

Speaker Change: We believe that our results will be back half-weighted in 2024 with further strong momentum for growth in 2025.

Speaker Change: With that, I'd like to turn it over now to Steve for some additional remarks.

Steven Richards: In conclusion, we are encouraged by the continued progress made in working off the legacy loss project backlog. It is important to note that we are approaching the finish line related to the legacy loss projects and hope to have these distractions behind us as we close 2024 and enter 2025. We expect a jury trial to be held in the second half of the year on claims on our other large legacy loss jobs. Senate projects are beginning to correct itself, albeit slower than we anticipated.

Steve Richards: Thanks, Amanda. In conclusion, we are encouraged by the continued progress made in working off the Legacy Loss Project backlog.

Steve Richards: It is important to note that we are approaching the finish line related to the Legacy Lost Projects and hope to have these extractions behind us as we close 2024 and enter 2025. We expect the jury trial to be held in the second half of the year on claims on our other large legacy lost jobs.

Steve Richards: Senate projects are beginning to correct itself, albeit slower than we anticipated.

Steven Richards: We believe these challenges to be short-term in nature as Shimmick continues to be favorably positioned to take advantage of the sizable market opportunities ahead, and we continue to expect new project startups to advance, is important to reinforce that our strategy for our core business remains unchanged. Our vertical integration minimizes risk and our strategic shift towards a higher margin, low capex portfolio coupled with potential M&A activities position us for enhanced margins and growth.

Steve Richards: We believe these challenges to be short-term in nature as Chima continues to be favorably positioned to take advantage of the sizable market opportunities ahead. We continue to expect new project startups to advance.

Steve Richards: It is important to reinforce that our strategy for our core business remains unchanged. Our vertical integration minimizes risk, and our strategic shift towards a higher-margin, low-capex portfolio, coupled with potential M&A activities, positions us for enhanced margins and growth.

Steven Richards: We want to once again thank our team for their tireless efforts as we work to transform Shimmick into one of America's best water infrastructure companies. Operator, you may now open the line for questions. Thank you. The floor is now open for questions. If you would like to ask a question, please press star 1 on your telephone keypad at this time. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue.

Speaker Change: We want to once again thank our team for their tireless efforts as we work to transform Chemeke into one of America's best water infrastructure companies.

Speaker Change: Operator, you may now open the line for questions.

Speaker Change: Thank you. The floor is now open for questions. If you would like to ask a question, please press star 1 on your telephone keypad at this time.

Speaker Change: A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star key.

Operator: For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star key. Our first question today is coming from Jerry Sweeney of Roth Capital Partners. Please go ahead. Yeah, good morning. Thanks for taking my call, a merger. Steve, I was wondering if you could give us a little bit of maybe qualitative background. The new projects out there, the activity, not so much. Projects that you won, but what you're seeing in terms of the final, Thoughts on how some of the, Well, we're seeing a lot of activity in the California market, Southern California, Northern California, both.

Speaker Change: Our first question today is coming from Jerry Sweeney of Roth Capital Partners. Please go ahead. Good morning. Thanks for taking my call.

Jerry Sweeney: Steve, I was wondering if you could give us a little bit of maybe qualitative background on you know

Speaker Change: The new projects out there, the activity, not so much projects that you won, but what you're seeing in terms of the funnel and...

Speaker Change: Maybe thoughts on how some of that translates over the next...

Speaker Change: extam three three four five

Speaker Change: Thanks for joining us.

Steve Richards: Well, we're seeing a lot of activity in the California market, Southern California, Northern California, both.

Operator: The projects fit our profile with the number of projects out there really having to filter them down to being those projects that we like in size, 50 to 150 million three-year average duration. So we've seen a lot of those projects. What I've been most encouraged about is that a good amount of that work is allowing us to self-perform up to our target amount of about 75%. So good pipeline. We're adding more estimators actually, Jerry, to take on the pipeline that we see both in the Northwest and Southwest divisions plus our electoral division of work. So pretty excited about it all.

Steve Richards: The project fits our profile with the number of projects out there really having to filter them down to being those projects that

Steve Richards: We liked in size, 50 to 150 million.

Steve Richards: 3-year average duration. So, I've seen a lot of those projects. What I've been most encouraged about is that a good amount of that work is allowing us to...

Steve Richards: and Jerry Maitreya, both here in the world of digital literacy.

Gerard Sweeney: And then obviously on the legacy projects, could you.., who gave a little bit of guidance on that front. Could you... Go over that again real quick and then I probably have some follow-up. Yeah, Amanda will jump in with me on this.

Speaker Change: And then obviously on the legacy projects, could you, I think you gave a little bit of guidance on that front, could you?

Speaker Change: Could you just go over that again real quick and then I probably have some follow-up questions on that front.

Steven Richards: But what we see happening, we mentioned in the our release that we see one of the legacy projects entering into a jury trial later this year. So we're encouraged by that to get by that claim from a backlog standpoint and working that job off. We've got the majority of the most difficult part of the job nearly complete. It'll finish off in spring and then we'll enter into a more traditional installation of a manufactured piece of the work. The other project, again, the interim milestones for the most difficult work are approaching completion by the end of 24.

Speaker Change: Yeah, Amanda will jump in with me on this, but what we see happening we mentioned in the our release that

Speaker Change: We see one of the legacy projects entering into a jury trial later this year, so we're encouraged by that to get by that claim from a backlog standpoint and working that job off.

Speaker Change: The majority of the most difficult part of the job, nearly complete, it will finish off in the spring and then we'll...

Speaker Change: enter into a

Speaker Change: more traditional installation of a manufactured piece of work.

Speaker Change: The other project, again, the interim milestones for the most difficult work are approaching completion by the end of 2024. Overall completion would be later in 2025 for the majority of the project. Amanda, do you want to add any color as far as...

Steven Richards: Overall completion would be later in 25 for the majority of the project. Amanda, do you want to add any color as far as backlog numbers and what's to burn on the legacy? Yeah, I hit on kind of the same remarks there that we'll continue to see the backlog winding down and the legacy jobs, the majority of that will be done through 2025 and a little going into 2026 there, continue to decrease about. Audit, and then... Obviously you had a settlement on the lock project and then you have this other project.

Amanda Mobley: Backlog Numbers and What's to Burn on the Legacy A content.

Amanda Mobley: Yeah, I hit on kind of the same remark there that we'll continue to see that the backlog winding down and the legacy jobs, the majority of that will be done through 2025 and a little going into 2026 there.

Amanda Mobley: continue to decrease the backlog.

Speaker Change: Got it, and then...

Speaker Change: Obviously you had a settlement on the lock project and and then you have this other project that you're going to trial on but I was curious if

Unknown Speaker: Unknown Speaker But I was curious if, uh, if there is an opportunity for any other or there's still claims outstanding. Yeah, sure. Normal course of business for us, we always see change orders coming through the system and they have the potential to improve not only margins, but certainly cash flow, got it. And how much, The Quarter Word Leaf.

Speaker Change: If there is an opportunity for any other or there's still claims outstanding that you could recoup some losses

Speaker Change: Yeah, sure. Normal course of business for us, we always see change orders coming through the system and they have that potential to improve not only margins but certainly cash flow.

Speaker Change: Got it. And how much...

Gerard Sweeney: And obviously, as you get closer to some of these trials, legal fees ramp up. I'm just curious. Normalized, even SG&A. Manif, do you want to hit on the legal fees that were incurred in the quarter? Yeah, I'm not sure that's readily available, but, Yeah, we're going to see more information in the queue that will come out later, but for the legal fees, about $2 million for the quarter.

Speaker Change: In the quarter were legal fees and obviously as you get closer to some of these trials legal fees ramp up but

Speaker Change: I'm just curious as to maybe a more normalized, even as GNA, once you get through some of this, you know, these settlements and this trial, what would sort of be a normalized GNA run rate?

Operator: Greetings and welcome to Shimmick's second quarter, 2024 Earnings Conference call. At this time, all participants are on a listen only mode. A question and answer session will follow the formal presentation.

Amanda Mobley: Amanda, do you want to hit on the legal fees that were incurred in the quarter?

Operator: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.

Speaker Change: I'm not sure that's readily available.

Amanda Mobley: Yeah, we're going to see more information in the queue that will come out later, but for the legal fees, about $2 million for the quarter.

Anthony Rosmos: It is now my pleasure to introduce your host, Anthony Rosmos, investor relations. Please go ahead.

Anthony Rosmos: Good morning, and thank you for joining us on today's conference call to discuss Shimmick's second quarter, 2024 results. Bives for today's presentation are available on the Investurulations section of our website, www.shimmick.com. During this conference call, management will make forward-looking statements based on current expectations and assumptions, which are subjects 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 principle risk 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-gap financial measures.

Speaker Change: Okay, got it.

Amanda Mobley: And you're right, Jerry, as we approach the trial, you know, the, for example, those those fees really ramp up from the standpoint of the legal activity, whether it be depositions, or just the press to be ready for the trial, normal run rate, what Amanda just described, we would see that fall off. And so it would be an improvement for job costs and over, got it. And just digging around here, you know, on the Shimm projects, you talked about maybe back half loaded, and you've made some sequential improvements. Barring weather or unforeseen circumstances that would slow things down, could we anticipate margins improving through the rest of the year? for when you say back at back half.

Speaker Change: Okay.

Speaker Change: and you're right Jerry as we approach the trial you know the for example those those fees really ramp up from the standpoint of the legal activity whether the depositions or just the press to be ready for the trial

Speaker Change: Norma run rate what Amanda just described we would see that fall off and so it would be an improvement for job costs and overhead.

Jerry: Got it. And just digging around here, you know, on the shim projects you talked about, maybe back half loaded, and you've made some sequential improvements on gross margins.

Speaker Change: Barring weather or unforeseen circumstances that would slow things down, could we anticipate margins improving through the rest of the year? Is that what you sort of infer when you say back half loaded?

Gerard Sweeney: Yeah, that's right. Our guidance, you know, what we just came through was lower end of the guidance and we've got the higher range still out there. So that would tell you that we see improvements over the next two quarters. Great. All right. I know I have a follow-up with you, so I'll jump back. All right. Thanks, Jay.

Anthony Rosmos: You should refer to the information contained in the company's second quarter press release for definitional information and reconciliation of historical non-gap measures to the comparable gap financial measures.

Speaker Change: Yeah, that's right. Our guidance, you know, what we just came through was lower end of the guidance and we've got the higher range still out there so that would tell you that we see improvements over the next two quarters.

Steve Richards: With that, is my pleasure to turn the call over to Steve Richards, Shimmick's CEO. Good morning, and thank you all for joining us on today's call. I'm joined by Amanda Wobley, Shimmick's Interim CFO. We settled one of the two legacy lots project claims for $33 million of cash to be paid sometime later this year, which will improve our liquidity. The settlement also eliminates distractions and continuing legal costs and is key to continuing our transformation.

Speaker Change: Okay, great. All right. I know I have a follow-up with you, so I'll jump back in line, but thanks.

Jay: All right. Thanks, Jay.

Operator: Thank you. Thank you. The next question is coming from Aaron Spychalla of Craig Hallam. Please go ahead.

Speaker Change: Thank you.

Speaker Change: Thank you. The next question is coming from Aaron Spahalla of Craig Hallam. Please go ahead.

Aaron Spychalla: Yeah, good morning, Steve and Amanda. Thanks for taking the questions. First, you know, you talked about a new operating model, can you just share a little more on what that entails? You know, you kind of hit targeted project size a little bit of 50 to 150 million. But just anything, you know, margins, anything else behind that would be helpful.

Aaron Spahalla: Yeah, good morning Steve and Amanda. Thanks for taking the questions first. You know you talked about a new operating model. Can you just

Aaron Spahalla: Share a little more on what that entails. You kind of hit targeted project size a little bit, 50 to 150 million. But just anything, you know, margins, anything else behind that would be helpful.

Steve Richards: As part of the settlement, the quarter includes a $23 million reduction in legacy projects revenue, an additional $7 million gross margin, which Amanda will further discuss later. After accounting for the settlement, we delivered second quarter 2024 revenues of $91 million and experienced a net loss of $51 million with an adjusted EBITDA loss of $40 million. Shimmick's project revenue totaled $84 million in the second quarter versus 103 million a year ago. Shimmick's project gross margins were 5% for the quarter, a decline from 8% gross margin for the first quarter of 2023, driven by schedule extensions, pending changes, and increased costs.

Steven Richards: Yeah, so geographically, we'll be focused on the California area, we're already set up there with our regional offices, headquarters in Irvine, and then our major regional office in Sassoon City, which is a little bit east of Oakland. So we've got the right geographic presence for not only our estimating teams that know the local supply chain, know the local market, but also our leadership and the key staff that are running the jobs.

Speaker Change: Geographically, we'll be focused on the California area. We're already set up there with our regional offices, headquarters in Irvine.

Speaker Change: a major regional office in Sassoon City, which is a little bit east of Oakland.

Speaker Change: We have the right geographic presence for not only our estimating teams that know the local supply chain, know the local market, but also our leadership and the key staff that are running the jobs. Feel really good about that. And the craft labor that is following us.

Steven Richards: So feel really good about that, and the craft labor that's following us, I think that from a margin standpoint, you know, we haven't seen a drop in margin opportunity as we're bidding work. And you know, for us, the key is that we find the right mousetrap to win a job to find that best way to finish the cost of it most efficiently, and we'll get our share of the market. So we see, you know, in that upper teen area still as being the target area for job margin.

Speaker Change: From a margin standpoint, you know, we haven't seen

Steve Richards: That said, we're encouraged by the 6% sequential margin improvement as compared to the first quarter 2024 on this front and look forward to building off this momentum. As we did on our last call, we'll provide a breakdown of results between Shimmick projects projects that began after the Econ sale transaction and legacy projects, those that started before the Econ sale transaction. Amanda will provide more details specifically related to the breakdown of these results.

Speaker Change: a drop in margin opportunity as we're bidingwork when you for us the key is that we find the right now triout to when it ought to find that best weight in

Speaker Change: Finish the cost of it most efficiently and we'll get our share of them of the markup, so we see you know in that upper teen area still as being the target area for job margins

Steven Richards: All right, thanks for that. And then just on the the addition of, you know, more estimating personnel with the pipeline you have today and just expected growth, you know, how are you feeling about just labor capacity and labor availability in the market and just kind of overall capacity for your business as you move forward? Right.

Speaker Change: Alright, thanks for that. And then just on the addition of, you know, more estimating personnel, with the pipeline you have today and just expected growth, you know, how are you feeling about just labor capacity and labor availability in the market and just kind of overall capacity for your business as you move forward?

Steve Richards: However, of note, our overall gross margin was weaker in the second quarter, primarily related to the legacy project settlement agreement and cost overruns experience as well as additional legal fees on the legacy loss projects in order to continue pursuit of contract mods and recoverage from Curtis. Although we are experiencing near term headwinds due to project timing and cost issues with legacy projects, we remain encouraged by the progress we have seen converting our backlog to Shimmick projects versus legacy projects.

Steven Richards: Well, what we're able to do with our teams, first of all, is we're able to work share across regions. And so we've got folks that are coming out of our, you know, the emphasis on the national market to be having them as additional support for our California pursuits. And so that's a value add immediately that we can transfer over. From the standpoint of recruiting other staff, you know, this is a great networking business.

Speaker Change: Right, well what we're able to do with our teams, first of all, is we're able to work share across regions and so we've got folks that are

Speaker Change: coming out of our, you know, de-emphasis on the national market to be

Steve Richards: At the end of the second quarter, Shimmick projects continue to represent a larger portion of our backlog versus legacy projects. Additionally, our overall backlog remains strong at $923 million as of the end of the second quarter. We continue to have a robust pipeline of future works, which we expect to grow alongside increases in federal funding and a growing demand for water. As we described on the last call, we had a decimating personnel late in the second quarter to be responsive to this pipeline of work. We are beginning to see the uptick in our bidding efforts to spare fruit.

Speaker Change: having them as additional support for our California pursuits. And so that's a value add immediately that we can transfer over. From the standpoint of recruiting other staff, you know, this is a great networking business. We've got a lot of connectivity in the industry and feel good about being able to get those right people. We're really scrutinizing the folks that we bring on. We want to bring those that have not only the talent, but the right culture fit for feel good about who we've recruited so far.

Steven Richards: We've got a lot of connectivity in the industry and feel good about being able to get those right people. We're really scrutinizing the folks that we bring on, we want to bring those that have not only the talent, but the right culture fit for Shimmick and feel good about what we've, who we've recruited so far.

Steven Richards: Alright, thanks for that. And then just on, you know, the new projects, I mean, you got the guidance out there, obviously, for the year in the back half, but it sounds like, you know, starting to see project execution improve after just some of the higher, you know, kind of startup costs and delays that you saw earlier this year. Yeah, that's what we've seen.

Speaker Change: Alright, thanks for that. And then just on, you know, the new projects.

Steve Richards: Most recently, following the end of the second quarter, we secured a win for a $14.5 million project for Delta Diablo cogeneration system replacement in Antioch, California. The Delta Diablo operates an existing cogeneration system at the waste water treatment plant, once again reinforcing our go-forward focus on water related projects. The cogeneration system improvements project will include the demolition of the existing plant and replace with a new cogeneration engine, digestive gas, conditioning equipment, exhaustor systems, and boiler.

Speaker Change: I mean, you got the guidance out there, obviously, for the year in the back half, but it sounds like, you know, starting to see project execution improve after just some of the higher, you know, kind of startup costs and delays that you saw earlier this year.

Steven Richards: We're seeing, for example, last year, we started the major project we won in Elsinore, and that job is well past mobilization now and into its run rate of revenues and margins are in keeping pace. So that would be a good example of what we see through the balance of the year on jobs that move the needle. All right, thanks. And then and then just maybe last question on cash flow, you know, can you just kind of talk about how you think that trends in the coming quarters and just kind of outlook as we head into into 2025?

Speaker Change: Yeah, that's what we see, yeah.

Speaker Change: We're seeing, for example, last year, we started...

Speaker Change: for the major project we won in Elsinore, and that job is well passed.

Speaker Change: mobilization now and into its run rate of revenues and margins d in keeping pace so that would be a good example what we see through the balance of year on one jobs that move the needle pce

Steve Richards: This also includes upgrades to electrical and control infrastructure and demolition of an existing digestive gas storage sphere. Stimic work will aid the district's recourse recovery capabilities, reduce grid power consumption, and promote more efficient and reliable plant performance. More than 75% of our work is generated from repeat customers. Public customers and associated public funding allows for a predictable long-term flow of programs and projects.

Speaker Change: All right, thanks. And then just maybe last question on cash flow, you know, can you just kind of talk about how you think that trends in the coming quarters and just kind of outlook as we head into 2025?

Steven Richards: Yeah, the activities over the last quarter have been significant, not only previously we had announced the asset purchase or sale of the foundation's business and those assets finishing that work, as Amanda mentioned in her remarks, finishing that work up later this year. So that provided some liquidity, and then in addition, the sale leaseback, the $17 million providing cash into the system, and then certainly the settlement with the Corps of Engineers for the $33 million sets us up nicely from a liquidity standpoint. So I feel very good about the decisions we made to improve the liquidity and set us up well for not only the balance of the year, but finishing those projects.

Steve Richards: Stimic core market vision is coming to reality with a more asset like higher margin, water focused company, targeting projects that make use of significant, in-sourcing technical skills on projects that average three years in duration.

Speaker Change: Yeah, the activities over the last quarter have been significant, not only previously we had announced the asset purchase.

Speaker Change: or a sale of the foundation's business and those assets finishing that work as Amanda mentioned in her remarks Finishing that work up later this year

Steve Richards: I'd like also to take some time to address the update on Stimic's transformation. As many of you are aware, Stimic has a long history of successfully winning and delivering complex water and other critical infrastructure projects in the state of California. The market for water and critical infrastructure projects in California has consistently grown each year with the size and complexity of projects forecasted a growth for decades.

Speaker Change: so that provides some liquidity and in addition the sale leaseback.

Speaker Change: The $17 million provides cash into the system and then certainly the settlement with the Corps of Engineers for the $33 million.

Speaker Change: INC.

Steve Richards: Today, the company announced initiative as part of our transformation plan to increasing our focus on the California water and critical infrastructure market. These initiatives include increasing the bid activity by increasing the number of estimators and southern northern California. Right sizing our cost structure by reducing our overheads in non-core areas and redefining our operating model with a renewed focus on supporting the field to safely deliver projects on time and on budget for our client across California. Our transformation at Stimic is well underway, and we continue to work towards reinforcing our operations to best position ourselves to capture the market we see in the California market.

Steven Richards: All right, sounds good. Thanks for taking the questions. I'll turn it over. Thank you. Ladies and gentlemen, that concludes today's question and answer session and today's conference call. We would like to thank you for your participation and interest in Shimmick Corporation. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.

Speaker Change: All right, sounds good. Thanks for taking the questions. I'll turn it over.

Speaker Change: Thank you. Ladies and gentlemen, that concludes today's question and answer session and today's conference call. We would like to thank you for your participation and interest in Shimmick Corporation. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.

Steve Richards: Turning to the next slide, I'd like to take a moment to highlight our recently completed $42 million project at the Richmond wastewater treatment plant, which has been a significant milestone for both Stimic and the city of Richmond. In 2010, the risk and facility was identified as needing critical rehabilitation due to a impact on the 10th and fiscal bay area. To address this, Shimmick was brought in to execute a series of high priority upgrades designed to improve treatment quality and meet crippled current and future environmental regulations.

Steve Richards: Shimmick constructed new buildings, upgraded the aeration basins with state-of-the-art forced-era diffusion system and removed outdated and unused facilities. These strategic improvements have not only enhanced the operational efficiency of the plant, but also reduced its environmental footprint. Now, with the project successfully completed, the Richmond Wage Fighter system operates more efficiently. The new project has significantly reduced energy usage, chemical treatment needs, and greenhouse gas emissions while cutting costs for the city. This seems a cleaner environment reduced orders and overall improved quality of life for the residents of Richmond. This project is a testament to Shimmick's commitment to delivering sustainable infrastructure solutions that benefit both communities and the environment.

Steve Richards: We are proud of the outcome and look forward to continuing the work in this vital sector.

Amanda Mobley: With that, I'd like to turn the call over to Amanda who will discuss our financial results. Thanks, Steve. All comparisons made today will be in a year over year basis compared to the same period in 2023. So the second quarter, we've reported revenue of $91 million compared to $155 million to the prior year period. Primarily, the results of the legacy project settlement mentioned earlier and discussed more on the next slide. And from lower activity on existing jobs and job funding down, partially offset by an increase in the revenue driven by a new water infrastructure job.

Amanda Mobley: We had a net loss of $51 million compared to a net loss of $10 million for the prior year period. Again, largely as a result of the legacy project settlement, as well as equity and loss of unsolidated joint ventures. Having quarter adjusted EBITDA was a loss of $40 million compared to a loss of $2 million in the prior year period. Revenue recognized on foundations projects with $8 million in the second quarter of 2024 compared to $9 million a year ago.

Amanda Mobley: The $1 million decline in revenue was the result of timing of jobs winding down. As a reminder, we entered into an agreement to sell the assets of non-core foundations projects and will wind down work during the year. Gross margin recognized on foundations projects with a negative $2 million and a negative $7 million for the three month ended June 28th, 2024 and June 30th, 2023 respectively. The increase in the gross margin was a result of cost overruns incurred on two jobs during the three month ended June 30th, 2023, which were substantially completed during the 2023 fiscal year.

Amanda Mobley: Legacy projects revenue decreased by $44 million to a negative $2 million compared to 2023 and to gross margins of negative $34 million. Primarily, impacted by the legacy project settlement and cost overruns and Elkot. As the legacy loss projects continue to wind down to completion, no further growth margin will be recognized, and in some cases there may be additional costs associated with these projects, which will be all be recognized in the period.

Amanda Mobley: Revenue recognized on these legacy loss projects was a negative $7 million and $27 million for the three months ended June 28th, 2024, and June 30th, 2023, respectively. Growth margin recognized on these legacy loss projects was a negative $32 million for the three months ended June 28th, 2024, and a negative $1 million for the three months ended June 30th, 2023. We continue to actively pursue all opportunities to offset these costs. Turning to the balance sheet, unrestricted cash and cash equivalent at June 28th, 2024, totaled $22 million, and availability under the revolving credit facility and credit facility, totaled $7 million and $6 million, respectively, resulting in total equities of $35 million.

Amanda Mobley: Turning to the next slide, as Steve mentioned earlier, we expect to receive $33 million in cash related to acclaim on a large legacy project later this year. However, our second quarter results were impacted by a change in estimate from the settlement agreement and on the legacy loss project. As a result of the settlement and previously estimated contract revenue, the company recognized the net loss of $30 million, which includes the $23 million reduction to revenue, and a $7 million adjustment to forward loss reserve.

Amanda Mobley: Recorded within the condensed consolidated statements of operations for the three and six months ended June 28th, 2024. While this obviously impacted our revenue recorded in the quarter, we expect to receive cash payment later this year, which has helped support our liquidity position and eliminates the continuation of litigation costs. On August 9th, 2024, we completed the previously disclosed transaction for the sales lease back of our equipment yard in Tracy, California. The agreement consummated the sale of the equipment yard for $20.5 million and allowed us to continue using the property under a seven year lease.

Amanda Mobley: We received net proceeds of $17 million after adjustment for pre-pray grants for February of 2026 and related closing costs. The equipment yard had a netbook value of approximately $3 million, and the remaining $17 million of net proceeds received from the transaction were used to repay borrowings under the Revolving Credit Facility. For the fiscal year ending, January 3rd, 2025, after excluding non-organization projects revenue, a $64 million for the fiscal year ending December 29th, 2023, we now expect that shimmyc projects revenue to remain generally flat with gross margins between 4% to 9%.

Amanda Mobley: Legacy projects revenue, a $65,000,000,000 with negative gross margins, of 80 to 90 percent due to the legacy-loss project settlement. Additional costs recorded for the legacy-loss project related to pending change routes and other cost overheads. The guidance reflects our execution on our strategy, our robust pipeline, the improving quality of our backlog and our continued operational execution as well as our efforts to work off our legacy projects.

Amanda Mobley: We believe that our results will be back half-lated in 2024 with further strong momentum for growth in 2025.

Steve Richards: With that, I'd like to turn it over now to seed for some additional remarks. Thanks, Amanda. In conclusion, we are encouraged by the continued progress made in working off the legacy-loss project backlog.

Steve Richards: It is important to note that we are approaching the finish line related to the legacy-loss projects, and hope to have these distractions behind us as we close 24 in the end of 2025. We expected jury trials to be held in the second half of the year on claims on our other large legacy-loss jobs. Other projects are beginning to correct itself, albeit slower than we anticipated. We believe these challenges to be short-term in nature as Shimmick continues to be a fairly positioned to take advantage of the market opportunities ahead, and we continue to expect new projects to start up to advance.

Steve Richards: It is important to reinforce that our strategy for our core business remains unchanged. Our vertical integration minimizes risk and our strategic shift towards a higher margin, low-cap export folio, coupled with potential lemma-na activities, positioned us for enhanced margins and growth.

Steve Richards: We want to once again thank our team for their tireless efforts as we work to transform Shimmick into one of America's best water infrastructure companies. Our operator may now open the line for questions. Thank you.

Operator: The floor is now open for questions. If you would like to ask a question, please press star one on your telephone keypad at this time. A confirmation tone will indicate your line is in the question queue.

Operator: You may press star two if you would like to remove your question from the queue. For participants using speaker equipment and may be necessary to pick up the handset before pressing the star key.

Jerry Sweeney: Our first question today is coming from Jerry Sweeney of Roth Capital Partners. Please go ahead. Good morning. Thanks for taking my call. Hey, Maranger.

Steve Richards: Steve, I was wondering if you could give us a little bit of maybe qualitative background on, you know, the new projects out there, the activity, not so much projects that you won, but what you're seeing in terms of the funnel and maybe thoughts on how some of that translates over the next three, three, four, five, six quarters. Well, we're seeing a lot of activity in the California market, seven California, Northern California, both.

Steve Richards: The projects fit our profile with the number of projects out there really having the self to them down to being those projects that we like in size, 50 to 150 million, three year average duration. So it's seen a lot of those projects that what I've been most encouraged about is that a good amount of that work is allowing us to self perform up to our target amount of about 75%. So good pipeline, we've, we're adding more estimators extra, Jerry, to take on the pipeline that we see both in the Northwest and Southwest divisions, plus our electrical division and work.

Steve Richards: So pretty excited about that. Scott.

Steve Richards: And then obviously on the legacy projects, could you give a little bit of guide from that front? Could you just go over that again real quick and then I probably have some follow-up questions from that front? Yeah, Amanda will jump in with me on this, but what we see happening, we mentioned in our release that we see one of the legacy projects entering into a jury trial later this year. So we're encouraged by that to get by that coin from a backlog standpoint and working that job off.

Steve Richards: We've got the majority of the most difficult part of the job, nearly complete, it'll finish off in spring, and then we'll enter into a more traditional installation of a manufacturer piece of the work. The other project, again the interim milestones for the most difficult work are approaching the completion by the end of 24 overall completion would be later in 25 for the majority of the project. Amanda, do you want to add any color as far as the backlog numbers and what's to burn on the legacy A content?

Steve Richards: Yeah, I think yeah, I hit on the kind of the same remarks there that will continue to see the backlog winding down in the legacy jobs. The majority of that will be done through 2025 in a little going into 2026 areas. Continue to decrease the backlog.

Jerry Sweeney: Got it, and then obviously you had a settlement on the log project and then you have this other project that you're going to trial on, but I was curious if there is an opportunity for any other, or there's still claims outstanding that you could include some losses. Yeah, sure, normal parts of business graphs, we always see change orders coming through the system and they have that potential to improve not only margins but certainly cash flow. Got it. And how much?

Amanda Mobley: In the quarter-world legal fees, and obviously as you get closer to some of more normalized, even SGNA, once you get through some of this settlement and this trial, what would sort of be a normalized GNA run rate? Man, if you want to hit on the legal fees that are returning the quarter? Yeah, I'm not sure that's readily available, but Yeah, we'll see more information in the queue that will come out later, but for the legal fees about two million dollars for the quarter.

Amanda Mobley: Okay, got it. In your right areas, as we approach the trial, the, for example, those fees really ramp up from the standpoint of the legal activity, whether the depositions or just the press to be ready for the trial, normal run rate, what, and Andrew's described, but we would see that call off, and so it would be an improvement for job costs and overhead. Got it.

Steve Richards: And just sticking around here, you know, on the SHIM projects, you talked about maybe back half loaded, and you've made some sequential. Devin Nordhagen, Aaron Spychalla, Unknown Executive,[inaudible] Yeah, that's what we see here. We were seeing, for example, last year, we started the major project we won in Elsonore, and that job is well-poused, mobilization now and into its run rate of revenues and margins during keeping pace. So that would be a good example of what we see through the bounce of the year on jobs that move the needle plants. All right, thanks.

Steve Richards: And then just maybe last question on cash flow. You know, can you just kind of talk about how you think that trends in the coming quarters and just kind of outlook as we head into 2025? Yeah, the activities over the last quarter of the incident are not only previously we had announced the asset purchase or sale of the foundation's business and those assets finishing that work as Amanda mentioned in her remarks, finishing that work up later this year.

Steve Richards: So that provides some liquidity. And then addition, the sale leaseback, the 17 million providing cash into the system, and then certainly the settlement with the core of engineers for the $33 million. That's what nicely from that liquidity standpoint. So, feel very good about the decisions we made to improve the liquidity and it's actually quite well for not only the balance of the year but finishing those projects.

Jerry Sweeney: All right, sounds good. Thanks for taking the questions. I'll turn it over. Thanks.

Operator: Thank you, ladies and gentlemen.

Operator: That concludes today's question and answer session and today's conference call. We would like to thank you for your participation and interest in Shimmick Corporation. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.