Management's Discussion and Analysis of Financial Condition and Results of Operations.
Management's Discussion and Analysis of Financial Condition and Results of Operations is intended to assist in understanding and assessing the trends and significant changes in our results of operations and financial condition. Historical results may not be indicative of future performance. The statements in this discussion regarding industry outlook, our expectations regarding our future performance, liquidity and capital resources and all other non-historical statements in this discussion are forward looking statements and are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those discussed in or implied by forward looking statements as a result of various factors, including those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in "Forward-Looking Statements" and "Risk Factors" as well as those described from time to time in our future reports with the SEC. This discussion should be read in conjunction with our audited consolidated financial statements and the notes thereto included elsewhere in this Annual Report on Form 10-K.
In this discussion, we use certain non-GAAP financial measures. Explanation of these non-GAAP financial measures and reconciliation to the most directly comparable GAAP financial measures are included in this Management's Discussion and Analysis of Financial Condition and Results of Operations. Investors should not consider non-GAAP financial measures in isolation or as substitutes for financial information presented in compliance with GAAP.
Overview
Shimmick is an industry leader in delivering turnkey infrastructure solutions that strengthen critical markets across water, energy, climate resiliency, and sustainable transportation. With a track record that spans over a century, Shimmick, headquartered in California, unites deep engineering heritage with entrepreneurial spirit to tackle today's most complex infrastructure challenges. We integrate technical excellence with collaborative project delivery methods to provide innovative, technology-driven infrastructure solutions that accelerate economic growth and empower communities nationwide.
We have a long history of successfully completing complex water projects, ranging from the world's largest wastewater recycling and purification system in California to the iconic Hoover Dam. According to Engineering News Record, in 2025, we are nationally ranked as a top fifteen builder of water supply (#12), dams and reservoirs (#8), and water treatment and desalination plants (#11). Our business includes construction operations from Morrison Knudsen and Washington Group International which were consolidated in 2017 by AECOM. In 2021, we were sold by AECOM and became an independent company under new private ownership (the "AECOM Sale Transaction"). In November 2023, we completed our initial public offering (the "IPO") and currently our stock is listed for trading on the Nasdaq Capital Market under the symbol "SHIM".
We selectively focus on the following types of infrastructure projects:
Water Treatment and Resources
Other Critical Infrastructure
We build, retrofit, expand, rehabilitate, operate and maintain our nation's critical infrastructure, including mass transit, bridges and military infrastructure. We work on projects that we believe are vital for economic growth, social connectivity, and accessibility. We believe our projects enable smooth and efficient movement of people and goods, foster trade, address environmental sustainability and improve quality of life for individuals and communities. Within critical infrastructure, we are focused primarily on the following types of projects:
As of January 2, 2026, we had a backlog of projects of approximately $793 million, mostly located in California, with ongoing projects in five other states. We self-perform many of these projects, which we believe allows us to better control critical aspects of construction, reduce cost and schedule risks, and deliver greater value to clients.
Our History and the AECOM Sale Transaction
Overview
Shimmick 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 construction operations from Morrison Knudsen, Washington Group International, and others.
In January 2021, we were sold by AECOM and began operating as an independent company under new private ownership ("AECOM Sale Transaction") under a December 2020 Purchase Agreement with SCC Group, a special purpose entity formed for the purpose of entering into and consummating the sale transaction including acquiring 100% of the stock of the Company and certain other assets related to our business and our subsidiaries to the extent owned by Seller Entities or their affiliates. After the transaction, we began a transformation to shift our strategy to meet the nation's growing need for water and other critical infrastructure and grow our business.
On November 16, 2023, the Company 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 the Company from the IPO were approximately $19 million, after deducting underwriting discounts and commissions and before estimated offering expenses payable by the Company. Shimmick's common stock began trading on November 14, 2023 and is currently listed for trading on the Nasdaq Capital Market under the symbol "SHIM".
Key Factors Affecting Our Performance and Results of Operations
We expect that our results of operations will be affected by a number of factors which we have discussed below.
Weather, natural disasters and emergencies. The results of our business in a given period can be impacted by adverse weather conditions, severe weather events, natural disasters or other emergencies, which include, among other things, heavy or prolonged snowfall or rainfall, hurricanes, tropical storms, tornadoes, floods, blizzards, extreme temperatures, wildfires, post-wildfire floods and debris flows, pandemics and earthquakes. These conditions
and events can negatively impact our financial results due to, among other things, the termination, deferral or delay of projects, reduced productivity and exposure to significant liabilities.
Seasonality. Typically, our revenue is lowest in the first quarter of the year because cold, snowy or wet conditions can create challenging working environments that are more costly for our customers or cause delays on projects. Second quarter revenue is typically higher than those in the first quarter, as some projects begin, but continued cold and wet weather can often impact productivity. Third quarter revenue is typically the highest of the year, as a greater number of projects are underway and operating conditions, including weather, are normally more accommodating. Project geographic location will also dictate how seasonality affects productivity and timing. Also, the holiday season and inclement weather can sometimes cause delays during the fourth quarter, reducing revenue and increasing costs.
Our Ability to Fulfill Backlog Orders. Our backlog consists of the estimated amount of services to be completed from future work on uncompleted contracts or work that has been awarded with contracts still being negotiated. It also includes revenue from change orders and renewal options. Most of our contracts are cancelable on short or no advance notice. Reductions in backlog due to cancellation by a customer, or for other reasons, could significantly reduce the revenue that we actually receive from contracts in backlog. In the event of a project cancellation, we may be reimbursed for certain costs, but we typically have no contractual right to the total revenues reflected in our backlog. Backlog amounts are determined based on target price estimates that incorporate historical trends, anticipated seasonal impacts, experience from similar projects and from communications with our customers. These estimates may prove inaccurate, which could cause estimated revenue to be realized in periods later than originally expected, or not at all. As a result, our backlog as of any particular date is an uncertain indicator of future revenue and earnings. In addition, contracts included in our backlog may not be profitable. If our backlog fails to materialize, our business, financial condition, results of operations and cash flows could be materially and adversely affected.
Our Ability to Obtain New Projects. We selectively bid on projects that we believe offer an opportunity to meet our profitability objectives or that offer the opportunity to enter promising new markets. The potential customers conduct rigorous competitive processes for awarding many contracts. We will potentially face strong competition and pricing pressures for any additional contract awards from other government agencies, and we may be required to qualify or continue to qualify under various multiple award task order contract criteria.
Our Ability to Successfully Expand our Footprint. We review our bidding opportunities to attempt to minimize concentration of work with any one customer, in any one industry, or in tight labor markets. We believe that by carefully positioning ourselves in markets that have meaningful barriers to entry, like those with highly technical or specialized scopes of work, we can continue to be competitive. For example, we target projects with significant, highly-technical work that we can self-perform. We believe this provides us with a distinct pricing advantage, as well as better risk management. In addition, as a result of federal and state-level infrastructure initiatives, we believe that funding for technical construction projects may exceed capacity, enabling us to opportunistically target smaller specialized projects with less risk at higher margins. Furthermore, on June 23, 2025 we announced the launch of Axia Electric, a dedicated electrical subsidiary designed to meet growing market demand for specialized, high-performance electrical and power distribution solutions, which represents an expansion of our electrical capabilities and positions us to expand to additional geographies such as Texas, Georgia and Tennessee. We may be limited in our ability to expand our footprint into these new project types and geographies by barriers to entry to new markets, competition, and availability of capital and skilled labor.
We primarily compete for new contracts independently, seeking to win and complete new projects directly for our customers. Our customers primarily award contracts using one of two methods: the traditional public "competitive bid" method, in which price is the major determining factor, or through a "best value" or collaborative contract proposal, where contracts are awarded based on a combination of technical qualifications, proposed project team, schedule, the ability to obtain surety bonds, past performance on similar projects and price, which we believe creates a barrier to entry. Many of our contracts are awarded on a fixed-price basis, and we earn and recognize revenue using an input measure of total costs incurred divided by total costs expected to be incurred.
Our Ability to Obtain Approval of Change Orders and Successfully Pursue Claims.We are subject to variation in scope and cost of projects from our original projections. In certain circumstances, we seek to collect or assert claims against customers, engineers, consultants, subcontractors or others involved in a project for additional costs exceeding the contract price or for amounts not included in the original contract price. Our experience has often been that public sector customers have been willing to negotiate equitable adjustments in the contract compensation or completion time provisions if unexpected circumstances arise. However, this process may result in disputes over whether the work performed is beyond the scope of the work included in the original project plans and specifications or, if the customer agrees that the work performed qualifies as extra work, the price that the customer is willing to pay for the extra work. Public sector customers may seek to impose contractual risk-shifting provisions more aggressively or there could be statutory and other legal prohibitions that prevent or limit contract changes or equitable adjustments.
Our Ability to Control Project Costs. Our costs primarily consist of payroll, equipment, materials, and other project related expenses. With a consistent focus on profitability by our management team, we leverage information technology and utilize financial systems to improve project execution and control costs. However, if we are unable to accurately estimate the overall risks, requirements or costs when we bid on or negotiate a contract that is ultimately awarded to us, we may achieve a lower than anticipated profit or incur a loss on the contract. Also, our labor and training expenses may increase as a result of a shortage in the supply of skilled personnel. We may not be able to pass these expenses on to our customers, which could adversely affect our profitability. To the extent that we are unable to buy construction equipment necessary for our needs, either due to a lack of available funding or equipment shortages in the marketplace, we may be forced to rent equipment on a short-term basis, which could increase the costs of performing our contracts. If we are unable to continue to maintain the equipment in our fleet, we may be forced to obtain third-party repair services, which could increase our costs. In addition, the market value of our equipment may unexpectedly decline at a faster rate than anticipated.
In addition, as is customary in the construction business, we are required to provide surety bonds to our customers to secure our performance under construction contracts. Our ability to obtain surety bonds primarily depends upon our capitalization, working capital, past performance, management expertise and reputation, as well as certain external factors, including the overall capacity of the surety market. Surety companies consider such factors in relationship to the amount of our backlog and their underwriting standards, which may change from time to time. Events that adversely affect the insurance and bonding markets generally may result in bonding becoming more difficult to obtain in the future, or being available only at a significantly greater cost. If we are unable to obtain adequate bonding or if the cost of bonding materially increases, it would limit the amount that we can bid on new contracts, limit the competitiveness of our bids, and could have a material adverse effect on our future revenue and business prospects.
Our Ability to Control Selling General and Administrative Costs. We incur significant expenses on an ongoing basis as a public company that we did not incur as a private company. Those costs include additional director and officer liability insurance expenses, stock exchange listing expenses, as well as third-party and internal resources related to accounting, auditing, Sarbanes-Oxley Act compliance, legal and investor and public relations expenses. These costs are generally selling, general and administrative expenses. We have also implemented the 2023 Omnibus Incentive Plan to align our equity compensation program with public company plans and practices, which increases our stock-based compensation expense.
Joint Ventures. We participate in various construction joint ventures in order to share expertise, risk and resources for certain highly complex, large, and/or unique projects. Generally, each construction joint venture is formed to accomplish a specific project and is jointly controlled by the joint venture partners. We select our joint venture partners based on our analysis of their construction and financial capabilities, expertise in the type of work to be performed and past working relationships, among other criteria. The joint venture agreements typically provide that our interests in any profits and assets, and our respective share in any losses and liabilities, that may result from the performance of the contract are limited to our stated percentage interest in the project. Under each joint venture agreement, one partner is designated as the sponsor. The sponsoring partner typically provides administrative, accounting and much of the project management support for the project and generally receives a fee from the joint venture for these services. We have been designated as the sponsoring partner in some venture projects and are a
non-sponsoring partner in others. We incur transaction and integration costs prior to fully realizing the benefits of acquisition synergies. Joint ventures often require significant investments before they begin operations and we incur many of these costs prior to realizing any gain on the investment in the joint venture. If we are unable to recoup these costs, it could have a significant impact on our business.
How We Assess Performance of Our Business
Revenue
We currently derive our revenue predominantly by providing infrastructure, operations and management services around the United States. We generally recognize revenue over-time as performance obligations are satisfied and control over promised goods or services are transferred to our customers.
Gross Margin
Gross margin represents revenue less contract costs. Contract costs consist of all direct and indirect costs on contracts, including raw materials, labor, equipment costs, and subcontractor costs. If the estimates of costs to complete fixed-price contracts indicate a further loss, the entire amount of the additional loss expected over the life of the project is recognized in the current period in cost of revenue.
Selling, General, and Administrative Expenses
Selling, general and administrative expenses consist primarily of salaries and personnel costs for our administrative, finance and accounting, legal, information systems, human resources and certain managerial employees. Additional expenses include audit, consulting and professional fees, travel, insurance, office space rental costs, property taxes and other corporate and overhead expenses.
Equity in Earnings (Loss) of Unconsolidated Joint Ventures
Equity in earnings (loss) of unconsolidated joint ventures includes our return on investment in unconsolidated joint ventures.
Net Loss
Net loss represents earnings after consideration of all operating expenses and other income and expenses to measure loss to allocate resources and assess financial performance.
Results of Operations
The following table sets forth selected financial data for the fiscal year ended January 2, 2026 compared to the fiscal year ended January 3, 2025:
Fiscal Year Ended | % of Revenue | |||||||||||||||||||||||
(In thousands, except percentage data) |
January 2, |
January 3, | $ Change | % Change |
January 2, |
January 3, | ||||||||||||||||||
Revenue | $ | 492,844 | $ | 480,236 | $ | 12,608 | 3 | % | 100 | % | 100 | % | ||||||||||||
Cost of revenue | 459,252 | 535,885 | (76,633 | ) | (14 | ) | 93 | 112 | ||||||||||||||||
Gross margin | 33,592 | (55,649 | ) | 89,241 | (160 | ) | 7 | (12 | ) | |||||||||||||||
Selling, general and administrative expenses | 54,576 | 63,966 | (9,390 | ) | (15 | ) | 11 | 13 | ||||||||||||||||
ERP pre-implementation asset impairment and associated costs | - | 15,708 | (15,708 | ) | (100 | ) | - | 3 | ||||||||||||||||
Total operating expenses | 54,576 | 79,674 | (25,098 | ) | (32 | ) | 11 | 17 | ||||||||||||||||
Equity in earnings (loss) of unconsolidated joint ventures | 1,508 | (4,728 | ) | 6,236 | (132 | ) | - | (1 | ) | |||||||||||||||
Gain on sale of assets | 75 | 20,725 | (20,650 | ) | (100 | ) | - | 4 | ||||||||||||||||
Loss from operations | (19,401 | ) | (119,326 | ) | 99,925 | (84 | ) | (4 | ) | (25 | ) | |||||||||||||
Interest expense | 6,660 | 5,426 | 1,234 | 23 | 1 | 1 | ||||||||||||||||||
Other (income) expense, net | (636 | ) | 959 | (1,595 | ) | (166 | ) | - | - | |||||||||||||||
Net loss before income tax | (25,425 | ) | (125,711 | ) | 100,286 | (80 | ) | (5 | ) | (26 | ) | |||||||||||||
Income tax benefit | - | 963 | (963 | ) | (100 | ) | - | - | ||||||||||||||||
Net loss | $ | (25,425 | ) | $ | (124,748 | ) | $ | 99,323 | (80 | )% | (5 | )% | (26 | )% | ||||||||||
Revenue and gross margin
The following table sets forth disaggregated data on revenues and gross margin for the fiscal year ended January 2, 2026 compared to the fiscal year ended January 3, 2025:
Fiscal Year Ended | |||||||||||||||
(In thousands, except percentage data) |
January 2, |
January 3, | $ Change | % Change | |||||||||||
Shimmick Projects | |||||||||||||||
Revenue | $ | 397,200 | $ | 355,683 | $ | 41,517 | 12 | % | |||||||
Gross Margin | $ | 40,141 | $ | 12,094 | $ | 28,047 | 232 | % | |||||||
Gross Margin (%) | 10 | % | 3 | % | |||||||||||
Non-Core Projects | |||||||||||||||
Revenue | $ | 95,644 | $ | 124,553 | $ | (28,909 | ) | (23 | )% | ||||||
Gross Margin | $ | (6,549 | ) | $ | (67,743 | ) | $ | 61,194 | (90 | )% | |||||
Gross Margin (%) | (7 | )% | (54 | )% | |||||||||||
Consolidated Total | |||||||||||||||
Revenue | $ | 492,844 | $ | 480,236 | $ | 12,608 | 3 | % | |||||||
Gross Margin | $ | 33,592 | $ | (55,649 | ) | $ | 89,241 | (160 | )% | ||||||
Gross Margin (%) | 7 | % | (12 | )% | |||||||||||
Shimmick Projects
Projects started after the AECOM Sale Transaction ("Shimmick Projects") have focused on critical infrastructure aligned with our strategy, including water, climate resilience, energy transition and sustainable transportation. Revenue recognized on Shimmick Projects was $397 million and $356 million for the fiscal years ended January 2, 2026 and January 3, 2025, respectively. The $42 million increase in revenue was primarily the result of $87 million of revenue from new higher margin projects ramping up and $31 million of revenue from a California Palisades fire clean-up project, partially offset by $77 million of decreases in revenue from lower activity on existing projects and projects winding down.
Gross margin recognized on Shimmick Projects was $40 million and $12 million for the fiscal years ended January 2, 2026 and January 3, 2025, respectively. The $28 million increase in the gross margin was primarily the result of $21 million in gross margin from new projects ramping up and $7 million in gross margin from a California Palisades fire clean-up project.
Non-Core Projects
As part of the AECOM Sale Transaction, we acquired projects and backlog that were started under prior ownership (formerly referred to as "Legacy and Foundations Projects"). Separately, the Company entered into an agreement to sell the assets of our foundation drilling Non-Core Projects in the second quarter of 2024 and continued to wind down the remaining work which is substantially completed.
Non-Core Projects revenue was $96 million and $125 million for the fiscal year ended January 2, 2026 and January 3, 2025, respectively. The $29 million decrease was primarily the result of the favorable GGB Project settlement which included a $31 million increase to revenue during the third quarter of 2024, which did not reoccur during the fiscal year ended January 2, 2026 as well as a result of projects winding down to completion. These impacts were partially offset by the settlement on a federal lock and dam Non-Core Project which included a $23 million reduction to revenue during the second quarter of 2024, which also did not reoccur during the fiscal year ended January 2, 2026.
Gross margin was $(7) million for the fiscal year ended January 2, 2026 as compared to $(68) million for the fiscal year ended January 3, 2025. The $61 million increase was primarily the result of the settlement on a federal lock and dam Non-Core Project discussed above which included a $30 million reduction to gross margin during the second quarter of 2024 as well as $19 million of cost increases for time and design-related schedule extensions identified
during the fiscal year ended January 3, 2025 which did not reoccur during the fiscal year ended January 2, 2026. These improvements in margin from prior period were partially offset by the favorable GGB Project settlement, which contributed $11 million to gross margin during the third quarter of 2024 and did not reoccur during the fiscal year ended January 2, 2026.
A subset of Non-Core Projects ("Non-Core Loss Projects") have experienced significant cost overruns due to the COVID pandemic, design issues, legal costs and other factors. In the Non-Core Loss Projects, we have recognized the estimated costs to complete and the loss expected from these projects. If the estimates of costs to complete fixed-price contracts indicate a further loss, the entire amount of the additional loss expected over the life of the project is recognized as a period cost in the cost of revenue. As these Non-Core Loss Projects continue to wind down to completion, no further gross margin will be recognized absent external factors and in some cases, there may be additional costs associated with these projects that could lower gross margin. Revenue recognized on these Non-Core Loss Projects was $74 million and $68 million for the fiscal year ended January 2, 2026 and January 3, 2025, respectively. Gross margin recognized on these Non-Core Loss Projects was $(2) million and $(45) million for the fiscal year ended January 2, 2026 and January 3, 2025, respectively. The change in gross margin was primarily the result of the settlement of the claims discussed above as well as cost increases for time and design-related schedule extensions during the fiscal year ended January 3, 2025 which did not reoccur during the fiscal year ended January 2, 2026.
Selling, general and administrative expenses
Selling, general and administrative expenses decreased by $9 million during the fiscal year ended January 2, 2026 primarily as a result of the continued implementation of our transformation plan.
Equity in earnings (loss) of unconsolidated joint ventures
Equity in earnings of unconsolidated joint ventures was $2 million for the fiscal year ended January 2, 2026 compared to equity in loss of unconsolidated joint ventures of $5 million for the fiscal year ended January 3, 2025 primarily as the result of increased costs due to schedule extensions experienced during the fiscal year ended January 3, 2025 which did not reoccur during the fiscal year ended January 2, 2026.
Gain on sale of assets
Gain on sale of assets, net decreased by $21 million during the fiscal year ended January 2, 2026 primarily due to the $17 million gain recognized on the transaction for the sale-leaseback of our equipment yard in Tracy, California and the $4 million gain recognized on the sale of the assets of our foundation drilling Non-Core Projects, each of which occurred during the fiscal year ended January 3, 2025 and did not reoccur during the fiscal year ended January 2, 2026.
Interest expense
Interest expense increased by $1 million primarily due to increased average borrowings on the Credit Agreement during the fiscal year ended January 2, 2026 as well as interest expense incurred on the ACF Credit Agreement and Ansley Loan Agreement entered into during the fiscal year ended January 2, 2026.
Other (income) expense, net
Other income, net was $1 million for the fiscal year ended January 2, 2026 compared to other expense, net of $1 million for the fiscal year ended January 3, 2025 primarily as the result of a $1 million loss recognized on the settlement of certain claims with AECOM as well as expenses recognized associated with the change in fair value of contingent consideration and other costs incurred during the fiscal year ended January 3, 2025 which did not reoccur during the fiscal year ended January 2, 2026.
Income tax benefit
Due to a tax loss for the fiscal year ended 2025, no income tax expense was recorded for the fiscal year ended January 2, 2026. Income tax benefit of $1 million was recognized for the fiscal year ended January 3, 2025, primarily as the result of a decrease in other taxes payable.
Net loss
Net loss decreased by $100 million to a net loss of $25 million for the fiscal year ended January 2, 2026, primarily due to an increase in gross margin of $89 million, a decrease in ERP pre-implementation asset impairment and associated costs of $16 million, a decrease in selling, general and administrative expenses of $9 million, an increase in equity in earnings (loss) of unconsolidated joint ventures of $6 million and an increase in other (income) expense, net of $2 million, partially offset by a decrease in gain on sale of assets of $21 million and an increase in interest expense of $1 million, all as described above.
Non-GAAP financial measures
We report our financial results in accordance with GAAP. However, management believes that certain non-GAAP financial measures provide investors with additional useful information in evaluating our performance. Therefore, to supplement our consolidated financial statements, we provide investors with certain non-GAAP financial measures, including Adjusted net loss and Adjusted EBITDA.
Adjusted net loss
Adjusted net loss represents Net loss attributable to Shimmick Corporation adjusted to eliminate stock-based compensation, ERP pre-implementation asset impairment and associated costs, legal fees and other costs for Non-Core Projects and transaction-related costs and changes in fair value of contingent consideration remaining after the impact of transactions with our prior owner. We have also made an adjustment for transformation costs we have incurred including advisory costs in connection with settling outstanding claims, exiting the Non-Core Projects and transforming the Company to shift our strategy to meet the nation's growing need for water and other critical infrastructure and grow our business.
We have included Adjusted net loss in this Annual Report on Form 10-K because it is a key measure used by our management and board of directors to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget and to develop short and long-term operational plans. In particular, we believe that the exclusion of the income and expenses eliminated in calculating Adjusted net loss can provide a useful measure for period-to-period comparisons of our core business. Accordingly, we believe that Adjusted net loss provides useful information to investors and others in understanding and evaluating our results of operations.
Our use of Adjusted net loss as an analytical tool has limitations, and you should not consider it in isolation or as a substitute for analysis of our financial results as reported under GAAP. Some of these limitations are:
Because of these and other limitations, you should consider Adjusted net loss alongside Net loss attributable to Shimmick Corporation, which is the most directly comparable GAAP measure.
Adjusted EBITDA
Adjusted EBITDA represents our Net loss attributable to Shimmick Corporation before interest expense, income tax benefit and depreciation and amortization, adjusted to eliminate stock-based compensation, ERP pre-implementation asset impairment and associated costs, legal fees and other costs for Non-Core Projects and transaction-related costs and changes in fair value of contingent consideration remaining after the impact of transactions with our prior owner. We have also made an adjustment for transformation costs we have incurred including advisory costs in
connection with settling outstanding claims, exiting the Non-Core Projects and transforming the Company to shift our strategy to meet the nation's growing need for water and other critical infrastructure and grow our business.
We have included Adjusted EBITDA in this Annual Report on Form 10-K because it is a key measure used by our management and board of directors to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget and to develop short and long-term operational plans. In particular, we believe that the exclusion of the income and expenses eliminated in calculating Adjusted EBITDA can provide a useful measure for period-to-period comparisons of our core business. Accordingly, we believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our results of operations.
Our use of Adjusted EBITDA as an analytical tool has limitations, and you should not consider it in isolation or as a substitute for analysis of our financial results as reported under GAAP. Some of these limitations are:
Because of these and other limitations, you should consider Adjusted EBITDA alongside Net loss attributable to Shimmick Corporation, which is the most directly comparable GAAP measure. See reconciliations below:
Fiscal Year Ended | ||||||||
January 2, | January 3, | |||||||
(In thousands) | 2026 | 2025 | ||||||
Net loss attributable to Shimmick Corporation | $ | (25,584 | ) | $ | (124,748 | ) | ||
Transformation costs (1) | 1,790 | 7,067 | ||||||
Stock-based compensation | 5,237 | 6,130 | ||||||
ERP pre-implementation asset impairment and associated costs(2) | - | 15,708 | ||||||
Legal fees and other costs for Non-Core Projects (3) | 3,204 | 14,030 | ||||||
Other (4) | 517 | 828 | ||||||
Adjusted net loss | $ | (14,836 | ) | $ | (80,985 | ) | ||
Fiscal Year Ended | ||||||||
January 2, | January 3, | |||||||
(In thousands) | 2026 | 2025 | ||||||
Net loss attributable to Shimmick Corporation | $ | (25,584 | ) | $ | (124,748 | ) | ||
Interest expense | 6,660 | 5,426 | ||||||
Income tax benefit | - | (963 | ) | |||||
Depreciation and amortization | 12,998 | 15,132 | ||||||
Transformation costs(1) | 1,790 | 7,067 | ||||||
Stock-based compensation | 5,237 | 6,130 | ||||||
ERP pre-implementation asset impairment and associated costs(2) | - | 15,708 | ||||||
Legal fees and other costs for Non-Core Projects(3) | 3,204 | 14,030 | ||||||
Other(4) | 517 | 828 | ||||||
Adjusted EBITDA | $ | 4,822 | $ | (61,390 | ) | |||
(1) Consists of transformation-related costs we have incurred including advisory costs in connection with settling outstanding claims in connection with exiting certain Non-Core Projects as part of the Company's growth strategy to address and capitalize on the nation's growing need for water and other critical infrastructure.
(2) Reflects a strategic decision to enhance the Company's current ERP system rather than implementing a new platform which, due to prior capitalized costs and remaining contractual obligations, resulted in a one-time charge of $16 million in the third quarter of fiscal 2024.
(3) Consists of legal fees and other costs incurred in connection with claims relating to Non-Core Projects.
(4) Consists of transaction-related costs and changes in fair value of contingent consideration remaining after the impact of transactions with our prior owner.
Liquidity and Capital Resources
Capital Requirements and Sources of Liquidity
During the fiscal year ended January 2, 2026, our capital expenditures were approximately $6 million compared to $10 million for the fiscal year ended January 3, 2025. Historically, we have had significant cash requirements in order to organically expand our business to undertake new projects. Our cash requirements include costs related to increased expenditures for equipment, facilities and information systems, purchase of materials and production of materials and cash to fund our organic expansion into new markets, including through joint ventures. Our working capital needs are driven by the seasonality and growth of our business, with our cash requirements greater in periods of growth. Additional cash requirements resulting from our growth include the costs of additional personnel, enhancing our information systems, our compliance with laws and rules applicable to being a public company and, in the future, our integration of any acquisitions. Unrestricted cash and cash equivalents at January 2, 2026 totaled $20 million and availability under the Credit Agreement and ACF Credit Agreement totaled $17 million and $7 million, respectively, resulting in total liquidity of $44 million.
We have historically relied upon cash available through operating activities, in addition to credit facilities and existing cash balances, to finance our working capital requirements and to support our growth.
However, we regularly monitor other potential capital sources, including equity and debt financing, in an effort to meet our planned expenditures and liquidity requirements. Our future success will be highly dependent on our ability to access outside sources of capital.
As is customary in our business, we are required to provide surety bonds to secure our performance under our contracts. Our ability to obtain surety bonds primarily depends upon our capitalization, working capital, past performance, management expertise and reputation and certain external factors, including the overall capacity of the surety market. Surety companies consider such factors in relationship to the amount of our backlog and their underwriting standards, which may change from time to time. We have pledged proceeds and other rights under our contracts to our bond surety company. Events that affect the insurance and bonding markets may result in bonding becoming more difficult to obtain in the future, or being available only at a significantly greater cost.
We believe that our operating, investing and financing cash flows are sufficient to fund our operations for at least the next twelve months and thereafter for the foreseeable future. However, future cash flows are subject to a number of variables, and significant additional expenditures will be required to conduct our operations. There can be no assurance that operations and other capital resources will provide cash in sufficient amounts to maintain planned or future levels of expenditures. In the event we make one or more acquisitions and the amount of capital required is greater than the amount we have available for acquisitions at that time, we could be required to reduce the expected level of expenditures and/or seek additional capital. If we seek additional capital, we may do so through joint ventures, asset sales, offerings of debt or equity securities or other means. We cannot guarantee that this additional capital will be available on acceptable terms or at all. If we are unable to obtain the funds we need, we may not be able to complete acquisitions that may be favorable to us or finance the expenditures necessary to conduct our operations.
Total debt outstanding is presented on the consolidated balance sheets as follows:
(In thousands) |
January 2, |
January 3, | ||||||
Credit Agreement | $ | 46,424 | $ | 11,503 | ||||
ACF Credit Agreement | 8,194 | - | ||||||
Ansley Loan Agreement | 12,971 | - | ||||||
Unamortized debt issuance costs | (3,130 | ) | (2,025 | ) | ||||
Total debt, net | 64,459 | 9,478 | ||||||
Less: Current portion of long-term debt, net | 4,143 | - | ||||||
Long-term debt, less current portion, net | $ | 60,316 | $ | 9,478 | ||||
Credit Agreement
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 Berkshire Hathaway Specialty Insurance Company ("BHSI") as lenders, entered into a revolving credit facility (the "Credit Agreement"), which was most recently amended on March 9, 2026 to, among other things, waive the specified noncompliance of the Material Project Documents covenant regarding entering into non-bonded contracts. As amended, 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 our election, on the last day of each month and upon prepayment. Payment-in-kind interest accrued and capitalized shall not constitute loan outstanding amounts for the purposes of calculating loan availability.
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 as tested quarterly commencing with the close of the second quarter of 2027. The Credit Agreement also contains representations and warranties and event of default provisions customary for a transaction of this type. The Company is not aware of any instances of noncompliance with non-financial or financial covenants as of January 2, 2026.
ACF Credit Agreement
On March 12, 2025, we entered into a credit agreement ("ACF Credit Agreement") with ACF FINCO I LP, which provides a total commitment of $15 million and bears interest at an annual rate of adjusted term SOFR (as defined in the ACF Credit Agreement), subject to a 2.0% floor, plus 4.50%. Further, the ACF Credit Agreement is subject to an annual unused line fee of 0.50%. The ACF Credit Agreement includes certain financial operating covenants, including a minimum liquidity requirement of $5 million. The ACF Credit Agreement matures on the earlier of March 12, 2028 or 90 days prior to the maturity date of the Credit Agreement. As of January 2, 2026, we are not aware of any instances of noncompliance with non-financial or financial covenants.
Ansley Loan Agreement
On March 31, 2025, we entered into a loan and security agreement (the "Ansley Loan Agreement") with Ansley Park Capital LLC which provides for a borrowing capacity of $15.0 million as evidenced by two promissory notes (each, a "Promissory Note," and together, the "Promissory Notes").
Each Promissory Note has a maturity date of April 1, 2031, and accrues interest at a rate of 12.50% per annum. Pursuant to the terms of the Ansley Loan Agreement, we granted a security interest in (a) certain items of equipment
described therein, (b) all leases, rental contracts, chattel paper, accounts, security deposits and general intangibles relating thereto and (c) and any and all proceeds thereof as collateral for the payments under the Ansley Loan Agreement. The Ansley Loan Agreement contains customary affirmative and negative covenants for a transaction of this type. In connection with the Ansley Loan Agreement, we entered into a separate guaranty agreement (each, a "Guaranty Agreement," and together, the "Guaranty Agreements") in favor of the Ansley Park Capital LLC unconditionally guaranteeing our liabilities and the liabilities of one of our wholly-owned subsidiaries under the
Ansley Loan Agreement. As of January 2, 2026, we are not aware of any instances of noncompliance with non-financial or financial covenants.
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 terminated on March 12, 2025 upon execution of the ACF Credit Agreement.
During the fiscal year ended January 2, 2026, the Company paid $2 million in cash interest, and accrued $3 million in non-cash payment-in-kind interest as of January 2, 2026.
ATM Agreement
On September 8, 2025, the Company entered into an At The Market Offering Agreement (the "Sales Agreement") with Roth Capital Partners, LLC (the "Sales Agent"). Under the Sales Agreement, the Sales Agent may, at the Company's discretion, sell up to $7.8 million of shares of the Company's common stock, in "at the market offerings" as defined in Rule 415 under the Securities Act of 1933, as amended. The shares will be sold pursuant to the Company's Registration Statement on Form S-3 (File No. 333-288513), declared effective by the SEC on July 10, 2025, and the related prospectus supplement (the "Prospectus Supplement") dated September 8, 2025 filed with the SEC in connection with the offer and sale of the shares.
The Company is not obligated to make any sales of shares under the Sales Agreement, and no assurance can be given that the Company will sell any shares under the Sales Agreement, or, if the Company does, as to the price or amount of shares that the Company will sell, or the dates on which any such sales will take place. The Company or the Sales Agent, under certain circumstances and upon notice to the other, may suspend the offering of the shares under the Sales Agreement. The offering of the Shares pursuant to the Sales Agreement will terminate upon the sale of shares in an aggregate offering amount equal to $7.8 million, or sooner if either the Company or the Sales Agent terminates the Sales Agreement. The Company will pay the Sales Agent a cash commission in an amount up to 3% of the gross proceeds from each sale of Shares sold pursuant to the Sales Agreement and will reimburse the Sales Agent for the documented fees and costs of its legal counsel reasonably incurred in connection with entering into the transactions contemplated by the Sales Agreement in an amount not to exceed $50,000 in the aggregate.
The Company made certain customary representations, warranties and covenants in the Sales Agreement concerning the Company and its subsidiaries and the Registration Statement, Prospectus, Prospectus Supplement and other documents and filings relating to the offering of the shares. In addition, the Company has agreed to indemnify the Sales Agent against certain liabilities, including liabilities under the Securities Act. The shares to be sold under the Sales Agreement, if any, will be issued and sold pursuant to the Company's Registration Statement, and its Prospectus Supplement related thereto.
Cash Flows Analysis
The following table sets forth our cash flows for the periods indicated:
Fiscal Year Ended | ||||||||
January 2, | January 3, | |||||||
(In thousands) | 2026 | 2025 | ||||||
Net cash used in operating activities | $ | (65,114 | ) | $ | (21,259 | ) | ||
Net cash provided by investing activities | 1,124 | 15,041 | ||||||
Net cash provided by (used in) financing activities | 50,054 | (21,897 | ) | |||||
Net decrease in cash, cash equivalents and restricted cash | (13,936 | ) | (28,115 | ) | ||||
Cash, cash equivalents and restricted cash, beginning of period | 35,795 | 63,910 | ||||||
Cash, cash equivalents and restricted cash, end of period | $ | 21,859 | $ | 35,795 | ||||
Operating Activities
During the fiscal year ended January 2, 2026, net cash used in operating activities was $65 million, compared to net cash used in operating activities of $21 million for the fiscal year ended January 3, 2025. Cash flows used in operating activities were driven by a net loss, adjusted for various non-cash items and changes in accounts receivable, contract assets, contract liabilities, accounts payable and accrued expenses balances, accrued salaries and wages and other assets and liabilities as discussed below.
Operating assets and liabilities - The change in operating assets and liabilities varies due to fluctuations and timing in operating activities and operating assets and liabilities. The changes in the components of operating assets and liabilities during the fiscal years ended January 2, 2026 and January 3, 2025 were as follows:
Fiscal Year Ended | ||||||||
January 2, | January 3, | |||||||
(In thousands) | 2026 | 2025 | ||||||
Accounts receivable, net | $ | 12,809 | $ | 11,190 | ||||
Contract assets | (40,156 | ) | 104,139 | |||||
Accounts payable | 23,067 | (35,114 | ) | |||||
Contract liabilities | (48,764 | ) | (13,260 | ) | ||||
Accrued expenses | (4,384 | ) | 9,940 | |||||
Other assets and liabilities | (8,892 | ) | 6,349 | |||||
Changes in operating assets and liabilities, net | $ | (66,320 | ) | $ | 83,244 | |||
During the fiscal year ended January 2, 2026, the decrease in operating assets and liabilities was $66 million, which was primarily driven by decreases in contract liabilities and increases in contract assets, partially offset by increases in accounts payable. The Company's operating assets and liabilities fluctuations are impacted by the mix of projects in backlog, seasonality, the timing of new awards and related payments for work performed and the contract billings to the customer as projects are completed. Operating assets and liabilities are also impacted at period end by the timing of accounts receivable collections and accounts payable payments for projects.
Investing Activities
For the fiscal year ended January 2, 2026, net cash provided by investing activities was $1 million, which was primarily driven by proceeds from the sale of assets of $5 million and return of investment in unconsolidated joint ventures of $3 million, partially offset by purchases of property, plant and equipment of $7 million.
For the fiscal year ended January 3, 2025, net cash provided by investing activities was $15 million, which was primarily driven by proceeds from the sale of assets of $32 million, partially offset by purchases of property, plant and equipment of $10 million and contributions to unconsolidated joint ventures of $6 million.
Financing Activities
For the fiscal year ended January 2, 2026, net cash provided by financing activities was $50 million, which primarily consisted of borrowings on credit and loan agreements of $129 million, partially offset by repayments on credit and loan agreements of $75 million, $2 million of debt issuance costs incurred for the ACF Credit Agreement and
Ansley Loan Agreement entered into during the first quarter of 2025 and $2 million of payments associated with tax withholdings related to the vesting of restricted stock units.
For the fiscal year ended January 3, 2025, net cash used in financing activities was $22 million, which primarily consisted of net repayments to credit facilities of $20 million and $2 million of debt issuance costs incurred for the Credit Agreement and associated amendment entered into during the second and third quarters of 2024.
Letters of Credit
We obtain standby letters of credit as required from time to time by our insurance carriers. The Company did not have any letters of credit outstanding as of January 2, 2026 or January 3, 2025.
Contractual Obligations
Contractual obligations of the Company consisted of liabilities associated with remaining lease payments through the fiscal years ending January 3, 2030 of approximately $6 million, $4 million, $4 million, $3 million and $2 million, respectively, and approximately $1 million in the aggregate thereafter based on balances outstanding as of January 2, 2026. See Note 10 - Leases, of the notes to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.
Backlog
Our backlog consists of the remaining unearned revenue on awarded contracts, including our pro-rata share of work to be performed by unconsolidated joint ventures, less the joint venture partners' pro-rata share of work to be performed by consolidated joint ventures. We include in backlog estimates of the amount of consideration to be received, including bonuses, awards, incentive fees, fixed-price awards, claims, unpriced change orders, penalties, minimum customer commitments on cost-plus arrangements, liquidated damages and certain time and material arrangements in which the estimated value is firm or can be estimated with a reasonable amount of certainty in both timing and amounts. As construction on our contracts progresses, we increase or decrease backlog to take account of changes in estimated quantities under fixed-price contracts, as well as to reflect changed conditions, change orders and other variations from initially anticipated contract revenue and costs, including completion penalties and bonuses. Substantially all of the contracts in our backlog may be canceled or modified at the election of the customer.
As of January 2, 2026, we had a backlog of projects of approximately $793 million.
The following tables present the Company's percentage of backlog by customer type, contract type and backlog recognized:
As of | ||||
January 2, 2026 | ||||
Backlog by customer type: | ||||
State and local agencies | 63 | % | ||
Federal agencies | 20 | % | ||
Private owners | 17 | % | ||
Total backlog | 100 | % | ||
As of | ||||
January 2, 2026 | ||||
Backlog by contract type: | ||||
Fixed-price | 88 | % | ||
Cost reimbursable | 12 | % | ||
Total backlog | 100 | % | ||
As of | ||||
January 2, 2026 | ||||
Estimated backlog recognized: | ||||
0 to 24 months | 87 | % | ||
25 to 36 months | 6 | % | ||
Beyond 36 months | 7 | % | ||
Total backlog | 100 | % | ||
Off-Balance Sheet Arrangements
In our joint ventures, the liability of each partner is usually joint and several. This means that each joint venture partner may become liable for the entire risk of performance guarantees provided by each partner to the customer. Typically, each joint venture partner indemnifies the other partners for any liabilities incurred in excess of the liabilities the other party is obligated to bear under the respective joint venture agreement. We are unable to estimate the maximum potential amount of future payments that we could be required to make under outstanding performance guarantees related to joint venture projects due to a number of factors, including but not limited to, the nature and extent of any contractual defaults by our joint venture partners, resource availability, potential performance delays caused by the defaults, the location of the projects, and the terms of the related contracts.
Critical Accounting Estimates
The discussion of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. We evaluate our estimates and assumptions on an ongoing basis. The results of our analysis form the basis for making assumptions about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, and the impact of such differences may be material to our consolidated financial statements.
Revenue Recognition and Estimated Costs to Complete Projects
The Company recognizes revenue from signed contracts with customers, change orders (approved and unapproved) and claims on those contracts that we conclude to be enforceable under the terms of the signed contracts. Many of the Company's contracts have one clearly identifiable performance obligation. However, some contracts provide the customer an integrated service that includes two or more of services associated with construction, operations and management. The determination of the number of performance obligations in a contract requires significant judgment and could change the timing of the amount of revenue recorded for a given period.
Determination of the contract price is dependent upon a number of factors, including the accuracy of a variety of estimates made at the consolidated balance sheet date, such as estimated costs at completion. Additionally, the Company is required to make estimates for the amount of consideration to be received, including variable compensation such as bonuses, awards, incentive fees, claims, unapproved change orders, unpriced change orders, penalties, and liquidated damages. The Company's estimates of variable consideration and determination of whether to include such amounts in the contract price are based largely on the Company's assessment of legal enforceability, anticipated performance, and any other information (historical and forecasted) that is reasonably available to the Company. Management continuously monitors factors that may affect the quality of its estimates and makes adjustments accordingly.
The Company has numerous contracts that are in various stages of completion which require estimates to determine the forecasted costs at completion. Due to the nature of the work left to be performed on many of the Company's contracts, the estimation of total cost at completion ("EAC") for fixed-price contracts is complex, subject to many variables and requires significant judgment. Estimates of total cost at completion are made each period and changes in these estimates are accounted for prospectively as cumulative adjustments to revenue recognized in the current period. If estimates of costs to complete fixed-price contracts indicate a loss, a provision is made through a contract write-down for the total loss anticipated in the cost of revenue.
Change Orders
Contracts are often modified to account for changes in contract specifications and requirements. Most of the Company's contract modifications are for goods or services that are not distinct from existing contracts due to the significant integration provided in the context of the contract and are accounted for as if they were part of the original contract. The effect of a contract modification on the transaction price and the Company's measure of progress for the performance obligation to which it relates are recognized as an adjustment to revenue (either as an increase or decrease) on a cumulative catch-up basis during the period the modification occurs and throughout the remainder of the contract.
Claims Recognition
Sometimes the Company seeks claims for amounts in excess of the contract price for delays, errors in specifications and designs, contract terminations, change orders in dispute or other causes of additional costs incurred. Costs attributable to claims from customers are treated as costs of contract performance as incurred.
Income Taxes
The Company accounts for income taxes under the asset and liability method prescribed by the Accounting Standards Codification Topic 740 - Income Taxes ("ASC 740"). This method requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements. Under this method, the Company determines deferred tax assets and liabilities on the basis of the differences between the consolidated financial statements and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse.
The Company recognizes deferred tax assets to the extent that its management believes these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If the Company determines that it would be able to realize its deferred tax assets in the future in excess of their net recorded amount, it will make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
Emerging Growth Company and Smaller Reporting Company
We are an "emerging growth company," as defined in the JOBS Act. For so long as we are an emerging growth company, we will, among other things:
In addition, Section 107 of the JOBS Act provides that an emerging growth company can use the extended transition period provided in Section 7(a)(2)(B) of the Securities Act, for complying with new or revised accounting standards. This permits an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.
We will continue to qualify as an emerging growth company until the earliest of:
We are also a smaller reporting company as defined in the Exchange Act. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as our voting and non-voting common stock held by non-affiliates is less than $250.0 million measured on the last business day of our second fiscal quarter, or our annual revenue is less than $100 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is less than $700 million measured on the last business day of our second fiscal quarter.