Shimmick Corporation (SHIM) Earnings Call Transcript & Summary

Good afternoon, and thank you all for joining us on today's call. I'm joined by Todd Yoder, Shimmick's CFO. We I'd like to start with recognizing our team's unwavering efforts and commitment towards delivering the work we undertake safely and to the satisfaction of our clients as we build our nation's infrastructure. With that, I'm going to start by discussing our financial results for the second quarter of 2026. During the second quarter, we continued to execute on our strategy by making further progress winding down noncore projects while driving operational improvements across the business that enhance efficiency, improve execution and support consistent margins. We delivered consolidated revenue of $107 million expanded gross margin to 12% and grew adjusted EBITDA to $4 million. What's encouraging is that active levels continue to improve and several projects that had longer ramp-up time lines are now beginning to move forward. with others approaching the start of execution. I will touch on that more in a bit. We added $138 million in new work booked in the second quarter, which brings our total backlog to $991 million, its highest level in 2 years. And subsequent to quarter end, we secured $221 million in additional new awards, which will contribute to our backlog in 2026. Our second quarter book-to-burn ratio was 1.4%, reflecting our fourth consecutive quarter with a positive book to burn. Looking ahead, we expect activity levels to increase across both existing and newly awarded projects. As an example, a large project we secured in February only commenced in July, illustrating the longer lead times we have been experiencing and providing confidence that project activity is beginning to translate into execution. Also to demonstrate the strength of our demand, we've only converted less than 10% of the backlog booked over the past 12 months into revenue to date. Providing meaningful visibility and supporting our expectations for continued revenue growth in the upcoming quarters. We continue to secure new work in our core and mission-critical end markets, and our teams are well positioned to execute on that backlog and drive consistent revenue growth. Overall, our results reflect continued execution against the priorities we laid out. exiting lower-margin noncore work, increasing bidding activity, growing backlog, driving operational improvements and positioning the business for sustainable growth. With that as context, let me turn to some of our recent project wins and the markets where we see the greatest opportunities ahead. Turning to our end markets. We remain encouraged by the opportunities we're seeing across our core and mission-critical sectors. Demand remains strong across mission-critical infrastructure. To further strengthen our positioning in these markets, we have established a dedicated mission-critical business unit focused on pursuing and executing these opportunities, allowing us to better serve customers and capitalize on the growing demand we're seeing. The data center market continues to be a significant area of focus. We have several large outstanding opportunities and continue to see strong bidding activity. One of those projects, the data center build in West Virginia is now transitioning into the preconstruction phase this month, and construction work is anticipated to start in the next 60 days. We are gaining traction with customers and are encouraged by the progress we've made across the mission-critical segment which also includes advanced manufacturing, defense, renewables, critical minerals and other subsegments that contain work scopes that fit our skill set very well. More broadly, bidding activity remains robust. With monthly bid volume consistently ranging between approximately $500 million and $1 billion. Importantly, our win rates continue to perform in line with historical levels, providing confidence in both the quality of the opportunities we're pursuing and the discipline of our bidding process. Geographically, we continue to see strong opportunities across our core markets of California, Texas and Washington. While we while we also -- while also following key customers to adjacent regions as they expand their investment programs, especially through our new mission-critical business unit. Our focus remains on projects that align with our core capabilities that provide lower risk profiles and opportunities for higher margin, where we believe we can deliver the greatest value and generate attractive and consistent long-term returns. Taken together, we believe the strength of our pipeline, consistent bidding activity and growing presence in the mission-critical markets position us well for future growth. Our backlog grew once again to $991 million at the end of second quarter of 2020. This represents our highest backlog level since the first quarter of 2024, reflecting both improved win rates and continued discipline around the work we pursue. Subsequent to core close, we announced more than $265 million of new awards across our water, industrial and Energy & Infrastructure segments. These wins further strengthen our backlog, and highlight continued demand for the specialized infrastructure solutions we provide across some of the most attractive end markets in the country. Consistent with our focus on building higher quality backlog through lower-risk collaborative delivery projects, our Myer Schimek joint venture, along with AXCElectric advanced into the construction phase of LA Metro North Hollywood to Pasadena Bus Rapid Transit project. The award, which contributed approximately $80 million to backlog, strengthens our strategic industry partnerships and demonstrates our ability to execute complex multidisciplinary infrastructure projects. Expanding our leadership in water infrastructure and climate resiliency, we were selected for the $124 million Coyote Creek flood protection project in Northern California, where we'll deliver critical flood mitigation improvements that enhance community resilience. We also secured a $42 million contract on the Walnut Creek wastewater treatment plant expansion in Texas. Further expanding our presence in 1 of the nation's fastest-growing water infrastructure markets. Finally, in Energy and electrification, Axia Electric was awarded a $20 million project at UC Berkeley's electrified heating and cooling plant supporting the universities transition to a modernized all electric energy system. Collectively, these awards reflect the strength of our customer relationships, our technical capabilities, our disciplined approach to pursuing complex infrastructure opportunities. Just as importantly, they continue to build our backlog in key growth markets, including water, transportation, power and electrification providing increased visibility and supporting our long-term growth strategy. And beyond our project wins and backlog growth, we are continuing to make meaningful progress on the operational side of the business. First, safety remains our top priority, and we're encouraged by the improvements we've achieved this year. Our safety performance is tracking ahead of 2025 levels, reflecting the focus and discipline our teams bring to every project. Strong safety performance is not only important for our people, but it's also a key indicator of operational excellence across the organization. We're also seeing benefits of our enhanced project controls and cost management initiatives. Over the last several quarters, we work to strengthen execution, improve oversight and maintain disciplined cost control across our portfolio. Those efforts are contributing to the consistency we've seen in our margins despite a dynamic operating environment. Looking ahead, we believe there is additional opportunity for margin expansion as more recently awarded projects move from backlog into active construction. A portion of our backlog today remains in the preconstruction or early phases, where revenue and margin contribution are more limited. Importantly, we have converted less than 10% of the backlog booked over the past 12 months into revenue to date, providing significant runway as these projects advance into execution. As these projects ramp and begin burning work at the pace we expect, we anticipate improved absorption of overhead and greater contribution from high-quality work entering the portfolio, supporting both margin expansion and future revenue growth. Taken together, the combination of improved safety performance, stronger project controls, disciplined execution and the ramp-up of recently awarded projects gives us confidence in our ability to continue improving operational performance and drive further margin enhancement over time. With that, I'd like to turn it over to Todd, who will review our financials in more detail.

Thank you, oral, and thank you for joining us on today's call. Shimmick team has delivered another strong quarter of performance, and we're seeing our strategic changes continue to drive results. not only the year-over-year improvement, but more importantly, they're establishing the foundation for continued growth and profitability moving forward. Before we hit the financials, I want to echo your in thanking all of the talented men and women across Shimmick for your continued commitment to executing our strategy. Your focus on safety, the quality of the work we deliver to our clients and your dedication to executing with excellence. Your contributions continue to have a significant impact on the achievements we've made and put us in a strong position to continue growing the business and winning the right way. Now let's jump into the financial results. I have revenue and gross margin overview in Slide 8, but I'll talk to the overall performance for the quarter and reference information that's not included in the slides, but it is available in our 10-Q filing, which is posted on our website. All comparisons I make will be on a quarter-over-quarter basis as compared to the same period in 2025. And unless otherwise noted. Shipment project revenue for Q2 2026 was $96 million versus $113 million in Q2 2025 and the net difference of $17 million was driven by projects reaching or nearing completion during 2025 and some winding down this year. This is partially offset by the significant new project awards that are ramping up and will continue to ramp up throughout 2026. Noncore project revenue for Q2 2026 was $11 million, down from $16 million in Q2 2025. The $5 million decrease was driven by the termination of the Chick lock replacement project during Q1 of 2026 as well as the continued progress we've made in moving all noncore projects to completion. I've discussed the negative growth impact from noncore -- on our total gross margin on prior calls. And I couldn't be more excited to end the quarter with noncore backlog now, less than 3% of our total backlog. What this means is we'll continue to see favorable mix impact on our total gross margin moving forward on a year-over-year basis. Shimmick consolidated total revenue for Q2 2026 was $107 million as compared to $128 million in Q2 of 2025. Shimmick project gross margin was $11 million for Q2 2026, down $4 million compared to $15 million in Q2 2025. The $4 million decrease in gross margin was driven by $11 million decrease in margin from projects winding down. This was partially offset by a $7 million increase in margin from newer projects that are continuing to ramp up. Noncore project gross margin was $2 million for Q2 as compared to negative $7 million for Q2 of 2025. The $9 million increase in gross margin for noncore was driven by cost overruns on noncore loss projects during Q2 of 2025 that did not recur in this year. Shipment consolidated total gross margin for Q2 2026 was $12 million. That's up $4 million or 53% as compared to $8 million of gross margin in Q2 of 2025. Total gross margin as a percent of revenue improved to 12% from 6% in Q2 in 2025. G&A expense for Q2 was $16 million, up $1 million from $15 million during Q2 of 2025. This was driven by higher onetime legal costs and costs related to equity issuance during the quarter. We remain committed to optimizing our overhead costs while we continue to grow the top line with a higher-margin project wins. Net loss for Q2 2026 was $5 million, favorable $4 million or 44% favorable as compared to a net loss of $9 million in Q2 of 2025. Adjusted EBITDA for Q2 2026 was $4 million as compared to negative $234,000 in Q2 of 2021. Turning to liquidity. We ended Q2 with $33 million of liquidity. This consisted of unrestricted cash and cash equivalents of $17 million, and another $16 million of availability under our credit agreements. New awards booked during Q2 and were $138 million, giving us a book-to-burn of 1.4x, which is our fourth consecutive quarter with a positive book-to-burn ratio. We ended the quarter with total backlog of $991 million and another $221 million of awards pending fully executed contracts, which on a combined basis is over $1.2 billion. Moving to the guidance slide. As I described in our last call, we have significantly grown backlog over the past few quarters. These new higher-margin projects will continue to gain momentum in the coming quarters, driving higher quarter-over-quarter sequential improvement in our overall results with a favorable mix impact on a year-over-year basis. In summary, we are very pleased with the strong momentum of our new higher-margin Shimmick project awards. As we now have greater visibility into noncore work that we removed from our backlog last quarter, we are updating our full year 2026 revenue guidance to approximately $525 million to $575 million, representing approximately 12% growth on a year-over-year basis at the midpoint. Importantly, this noncore work was not expected to contribute gross margin, and therefore, has no impact on our profitability expectations for the full year. Thus, we are reaffirming our full year 2026 adjusted EBITDA guidance of $15 million to $30 million, which at the midpoint represents approximately 350% growth over the prior year. With that, I thank you all for joining us today. and for your interest in Shimmick, and I'll turn it back to Ural.

Thanks, Don. Overall, we are encouraged by the progress we've made in the first half of the year and increasingly confident in our outlook for the back half of 2026 going into 2027. We've strengthened backlog quality, improved project controls, enhance cost discipline and continue to execute safely across the business. As our newly booked projects begin burning work at the pace we expect, we believe they will drive stronger revenue and gross margin performance over the upcoming quarters. Combined with the operational improvements over the last several quarters, we believe the business is well positioned to deliver improved results, and we look forward to updating you on our progress. Operator, you may now open the line for questions.

[Operator Instructions] Your first question comes from Gerry Sweeney with Roth Capital.

I apologize for the right behind me. But obviously, margins were very nice in the quarter. and revenue was maybe a little bit below our expectations, but I just want to dig into a little bit. Obviously, backlog continues to grow. I think it bottomed in 2Q 2025. Can you give us maybe a little bit more detail as to what we should anticipate in the second half of this year? And are the margins we're seeing in 2Q representative of what is in the rest of the backlog as we move forward.

Yes. No, thanks for the question. So generally, what happened is, like you said, we dipped in Q2 of 2025 at about $600 million and change, and now we're almost EUR 1 billion. And with the awards we announced, we expect to exceed EUR 1 billion in the next quarter that we've already announced. So we're -- what happened is we generally expect a 3 to 4 months start-up period on these projects once we get -- once we're selected, on a couple of these projects, larger ones in this last couple of quarters, it took a little bit longer towards the 6 or 7 months range. And that's kind of slowed our momentum a little bit from a revenue perspective. But we're very pleased with the margins, like you said. And I think the rest of the backlog represents these kinds of margins and more -- so we're -- we expect -- as those projects continue to ramp up and the new projects continue to ramp up. We expect a pretty significant improvement the rest of the year and into '27.

And suffice to say, obviously, the backlog and pipeline just continue to fill up. So we're probably in the early stages of revenue acceleration.

Yes. Yes. It's that 3- to 4-month ramp-up period generally holds true, but we had a few that not -- was not in our control, some of the clients with permitting, et cetera. The projects are there. They're funded. They're starting now, but it just took a little bit longer than what we expected.

That's par for the course. And we've always talked about Shimmick is built for a bigger piece of business or a bigger revenue base. Maybe can you talk a little bit towards what that number is? And how does Sumit grow into that over the next couple of years?

Yes. I think it's our overhead structure, our processes. We were a $750 million company before, and I think that's what we're trying to get back to. And with this backlog, we're going to see gradual improvement on top line revenues, and we're confident we're going to be able to hold these margins and improve them. So what you're going to see is staying roughly the same, not improving -- increasing as the top line increases. So we're going to start to see some real net income and then top line growth translating into pretty strong EBITDA numbers as we go.

Got it. And final question, then I'll jump back to Ken obviously, data centers and/or electrical work is a great area to be in. I know you've been bidding on -- I think you even in the prepared remarks, talked about West Virginia, maybe a little bit more detail on what's happening in that space and the opportunities and whether or not we'll time lines may be towards success.

Yes. We're very pleased. We started -- we launched the Mission Critical division just because we're seeing such great opportunities. So West Virginia is hopefully the first 1 in the line. And once we get going on that, we have several other states where we're bidding work, especially in Texas, really good opportunities there. So we think that this is going to start becoming a sizable chunk of the business, at least in the next 12 months. And but meanwhile, Axia is doing really well on other fronts as well. We're winning water waste water work. We're winning electrification work. And so we're also diversifying the business on the electrical side. But I would say the mission-critical work we're winning is probably about 80% on the electrical side. So it's heavy on the electrical side, which is which is great for the electrical business we've launched, and those are higher margins, strong jobs, and we're pretty excited about them.

Higher margins like 15% to 20% gross margin, higher margins?