Shimmick Corp Q4 FY2025 Earnings Call

Good afternoon, and thank you for joining us on today's conference call to discuss Shimmick's Fourth Quarter and Full Year 2025 results. Slides for today's presentation are available on the Investor Relations section of the website, www.shimmick.com. During this conference call, management will make forward-looking statements based on current expectations and assumptions which are subject to risks and uncertainties. Actual results could differ materially from our forward-looking statements if any of our key assumptions are incorrect. We identified the principal risks 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-GAAP financial measures. You should refer to the information contained in the company's fourth quarter press release for definitional information and reconciliations of historical non-GAAP financial measures to comparable GAAP financial measures. With that, it's my pleasure to turn the call over to Ural Yal, Shimmick CEO.

Good afternoon, and thank you all for joining us on today's call. I'm joined by Todd Yoder, Shimmick CFO. Before I get started, I would like to recognize the women and men who work at Shimmick, safely and effectively delivering the projects we take on as good stewards of the communities where we work. Our work is supporting our nation's infrastructure, and we are all very proud of it. With that, I'm going to start by discussing our financial results for 2025. We finished 2025 strong and in line with our expectations in what was largely a transformational year for Shimmick. We made meaningful progress on the strategic priorities we introduced at the beginning of the year. As a reminder, our strategy remains centered on three pillars: one, growing the top line by bidding, winning and strategic risk-balanced work aligned with our expertise; two, completing and winding down legacy low-margin non-core projects; and three, driving operational improvements to deliver consistent margins and improved G&A leverage. We made substantial progress across all three pillars throughout the year and still believe we are in the early stages of the new Shimmick we're building. These priorities have strengthened our business fundamentally, evident by our 2025 results. As we turn to our 2025 results, for the full year, we delivered a consolidated revenue of $493 million, a 7% gross margin and adjusted EBITDA of $5 million. Full year 2025 Shimmick projects revenue was $395 million, a 12% increase year-over-year. These projects now represented 75% of our total revenue in 2025, highlighting the concentration of activity on more strategic work. In turn, we expanded our gross margin on Shimmick projects to 10%, a 400 basis point improvement over last year. For our non-core projects, 2025 revenue was $96 million compared to $125 million in 2024, reflecting our focus on effectively advancing the wind down of these projects. We also maintained a strong liquidity position, finishing the year with a total liquidity of $44 million. As you can see from our fiscal year results, we've made substantial progress executing our plan, specifically narrowing our focus to projects that leverage our core strengths. Now I'd like to spend some time speaking about that progress, providing an update on our wins, what we are seeing in the market and the operational improvements we are making. As we look at the market today, our momentum continues to build. Our core markets are continuing to see consistent investment and we're able to selectively bid projects that advance our strategy. This means we are increasingly able to improve our resilience by diversifying our customer base, focusing on growth markets geographically and lowering the risk profile of our book of work. Our backlog has grown meaningfully and remains well above a 1:1 book-to-burn ratio, which is an important indicator of the underlying strength in our demand and our ability to win. We expect our book-to-burn ratio in the first quarter of 2026 to remain well above 1 as well, reinforcing the trajectory we've been on. Looking ahead to 2026, our pipeline volumes continue to be a real strength, allowing us to grow our revenues and margins while being strategic about what we pursue. Our wins in this quarter, some of which you are seeing on the screen, continue to be aligned with our strategy and reflect the strength of the market. Our bidding activity has translated directly into backlog growth, which has increased to $793 million at the end of our fiscal year with $139 million in new awards and ended up near the numbers we started the year with, which shows the stabilization of our backlog as we continue to complete non-core projects. Additionally, we've been awarded contracts worth $128 million that have been added to our backlog so far in 2026. And lastly, after the year concluded, we've been selected as a preferred bidder on projects totaling $234 million, with projects that are predominantly in our core sectors of water and electrical construction and are mostly located in California and Texas. We are currently negotiating these contracts or waiting for awards from our clients, which we expect to happen over the upcoming weeks and months. From a commercial standpoint, the market environment looks relatively unchanged from last quarter with a strong and growing backlog, a healthy pipeline of new work and several pending items we expect to convert over the next quarter or two. Our overall 24-month pipeline remains robust, supporting $600 million to $1 billion of bidding volumes per month. Last year, we explained our approach to position Shimmick to compete and win in collaborative delivery markets. Those efforts are now paying off. This quarter, we expect to announce our first progressive design-build awards since I joined Shimmick. A milestone that reflects the credibility built and the value we bring to owners through early engagement and partnership. This project is valued at approximately $55 million, located in Southern California, and will allow us to bring our expertise in wastewater treatment as well as specialty electrical work. Instead of competing through low bid contracting, we will be working with the client to provide value through the preconstruction phase, building trust and alignment before construction begins. We expect to negotiate the construction contract at the end of 2026, with construction beginning in '27. This is exactly the kind of work we want to be doing. It derisks the business, improves predictability and aligns our interest with the client from day one. Another collaborative contracting method we are focused on is construction manager/general contracting, the CM/GC method. We have completed a few of these projects in the past and continue to see strong momentum in our pipeline for these lower-risk projects. One such project, an estimated $200 million effort that supports bus infrastructure as Los Angeles prepares for the 2028 Olympics, is approaching the construction phase. We expect to announce this milestone in the second quarter and start construction shortly thereafter. We're also progressing a number of opportunities in higher-growth verticals. The data center market continues to evolve quickly and while we're not yet in a position to announce a new contract, we are actively pursuing several meaningful opportunities. These include potential engagements with large operators in Texas, Washington, and Nevada. And should any of these materialize, they would represent significant contributions to our pipeline. I've talked about pairing the pipeline improvements with operational improvements over the last year. We are making progress on that front as well. We believe we can support strong top-line growth without significant increases to our SG&A spend, and we continue to adapt and transform how we do business and use those SG&A dollars effectively. We've strengthened our project controls, enhanced our procurement capabilities, and expanded the use of Power BI and other AI-based analytical tools to improve visibility, decision-making and accountability across the organization, spending on all of our critical functions like safety, quality and human resources. In project controls, we now have the capability to manage a much larger number of contracts with a higher level of rigor. The structure we put in place allows us to scale without sacrificing control, which is critical as our backlog continues to grow. On the procurement side, we've added expertise and systems that significantly de-risk the business. We are improving risk management, one of the biggest cost drivers in our operations, with more discipline and transparent oversight across the company. This gives us the ability to manage supply relationships more strategically and ensure we're extracting real value from our spend. We've also made real progress on the talent front. Our attrition rates continue to move in the right direction, which is a direct reflection of the work our teams are doing to strengthen employee experience and create a more supportive and performance-driven environment. Retaining top talent is critical to executing our long-term strategy. The data we're seeing gives us confidence that we're on the right track. In short, the market remains healthy. Our competitive position continues to strengthen and our backlog and pipeline dynamics are moving in the right direction. We are operating with greater efficiency, executing with more discipline and building the foundation for sustained growth. With that, I'd like to turn to Todd, who will review our financials in more detail.

Thank you for joining us today. We're pleased to report another solid quarter and a strong full year performance that reflects the operational improvements and disciplined execution Ural outlined earlier. Before I dive into the numbers, I want to thank the entire Shimmick team. Your focus on safety, your commitment to quality, and your consistency in executing with excellence have all played a critical role in our results this year. Thank you for everything you do. With that, let's jump into the financial results, beginning with Slide 8. As a reminder, all comparisons made today will be on a year-over-year basis as compared to the same period in 2024, unless otherwise noted. Shimmick project revenue for Q4 2025 was $84 million, up 4% compared to $81 million in Q4 of 2024. The net increase of $3 million was primarily driven by our new projects ramping up. Non-core project revenue for Q4 '25 was $16 million, down $24 million as compared to Q4 2024. This is reflective of the fact we have less non-core in our backlog to burn off, this year versus prior year. And I will point out that non-core projects in total were close to 90% complete ending 2025. Shimmick consolidated total revenue for Q4 '25 was $100 million as compared to $104 million in the prior year. Moving on to gross margin. Shimmick project gross margin was $10 million for Q4 '25, up $8 million or 400% compared to $2 million in Q4 '24. Gross margin as a percentage of revenue was 12% for Q4 2025 versus 3% in Q4 of 2024. The $8 million increase in gross margin was driven by $6 million from new awards and $2 million from existing projects. Non-core project gross margin was flat for Q4 2025 as compared to a negative $23 million for Q4 of 2024. The $23 million increase in gross margin was driven by cost overruns on non-core loss projects during Q4 of 2024 that did not recur this year. Shimmick consolidated total gross margin for Q4 2025 was $10 million, up $31 million compared to a negative $21 million gross margin in Q4 of 2024. Total gross margin as a percentage of revenue improved to 10%, from a negative 20% in Q4 of 2024. G&A expense for Q4 2025 was $11 million, down 32% or $5 million as compared to $16 million of G&A in Q4 of 2024. The favorable impact was the result of our continued transformation of the business. Net loss for Q4 2025 was $3 million, an improvement of $37 million as compared to a net loss of $38 million in Q4 of 2024. Adjusted EBITDA for Q4 '25 was $4 million as compared to negative $27 million in Q4 of '24. The improvement was primarily driven by the increase in gross margin combined with the decrease in SG&A. Turning to liquidity. If you recall, we ended Q3 '25 with $48 million of liquidity. We ended Q4 2025 with liquidity of $44 million. The $44 million consisted of unrestricted cash and cash equivalents of $20 million and availability under our credit agreements totaled $24 million. We remain comfortable that our liquidity position provides the capital needed to continue executing on our strategic and operational priorities. New awards booked during Q4 '25 were $135 million, a sequential increase of more than $39 million from Q3 2025, giving us a book-to-burn for the quarter of 1.4x. We ended the quarter with total backlog of $793 million. Turning to Slide 9 for the 2025 full year results. Shimmick projects gross margin was $397 million for the year, up $41 million or 12% compared to $357 million in 2024. Non-core project revenue was $96 million for the year compared to $125 million in 2024. Shimmick consolidated total revenue for 2025 was $493 million, up $13 million or 3% compared to $480 million in 2024. Shimmick project gross margin was $40 million or 10% as a percentage of revenue. This is a $28 million increase compared to $12 million or 3% in 2024. Non-core project gross margin was negative $7 million or negative 7% as a percentage of revenue. This is a $61 million increase compared to negative $68 million in 2024. Shimmick consolidated total gross margin was $34 million for 2025, making gross margin 7% of revenue overall. This is a $90 million increase compared to a negative $56 million gross margin in 2024. Adjusted net loss was negative $15 million in '25 as compared to negative $81 million in '24. Adjusted EBITDA for 2025 was $5 million, an improvement of $66 million from negative $61 million adjusted EBITDA in 2024. Again, new awards booked during Q4 2025 were $139 million, a sequential increase of $39 million from Q3, giving us the book-to-burn of 1.4x. We ended the quarter with a total backlog of $793 million. Our backlog mix continues to improve, with Shimmick projects now representing close to 90% of our total backlog ending 2025. Additionally, we have $128 million in new awards added to backlog as of the close of February 2026. And we have another $234 million of additional new awards that were pending fully executed contracts as of the end of February 2026. Turning to Slide 10 and our 2026 guidance. To set the stage, I want to call out that some Shimmick projects in California and Texas experienced slower burn due to unusual heavy rainfall in California and cold weather in Texas, which limited field activity. In addition, some of our newly awarded contracts have taken a bit longer to ramp up than normal. While these projects experienced some shift to the right, they are back on track. While we anticipate a slower start to the year due to this weather, we expect quarter-over-quarter sequential improvement throughout the year as new project awards ramp up and represent a growing share of our project mix. We expect Shimmick consolidated revenue to grow between 12% and 22%, 17% at the midpoint, representing approximately $550 million to $600 million of work put in place for the full year 2026. Adjusted EBITDA is projected to increase between 200% and 500%. That's 350% at the midpoint, putting adjusted EBITDA in the range of $15 million to $30 million for the full year. With that, we are confident 2026 will be a great year for Shimmick. I thank you for joining us today and for your interest in Shimmick. Now back to Ural.

2025 was a pivotal year for Shimmick. We delivered results in line with our expectations, executed with greater discipline and made meaningful progress on the strategic priorities we set out at the beginning of the year. Our focus on bidding and winning strategic risk-balanced work, winding down legacy non-core projects and driving operational improvements is reshaping the company and setting us up for long-term success. The improvements we're seeing in backlog growth, project execution, talent retention, procurement discipline and project controls all point to a business that is operating with more predictability, resilience and focus than a year ago. Our pipeline remains robust. Our market backdrop is healthy, and we're winning the right work, work that is aligned with our expertise and our long-term value proposition. While we recognize there is still more work to do, we are moving in the right direction, and our progress in 2025 gives us confidence in our ability to advance our journey to make Shimmick a top infrastructure provider in the market and delivering value to our shareholders. We look forward to updating you on our progress as we move forward in 2026. Operator, you may now open the line for questions.

Our first question comes from Gerry Sweeney with ROTH. Gerry is connecting now. One moment, please.

Good afternoon. I forgot I was going to be on video. Otherwise, I would have dressed up a little nicely. Congratulations on making nice progress and continuously moving some of the legacy business behind you. There are a lot of initiatives on the forefront. So, I have a couple of questions regarding gross margin as a key focus. I'm curious about the progressive design awards, CM/GC opportunities, and electrical opportunities. How do these elements play out, and what impact do they have on margins as we move towards 2026?

Yes, we expect gross margins to increase. This is influenced by the mix of projects we undertake. Some projects yield higher margins in the high teens, while others are lower in the teens. We are monitoring this balance closely to ensure continuous improvement in gross margins. Additionally, as we increase revenues, we are focused on keeping SG&A expenses at current levels through 2026, which will also contribute positively. It's not just about achieving higher gross margins; it's also about running a more efficient SG&A while managing a larger volume of business.

Got it. I had a question on SG&A, but before I get there, what about the bidding? I think you mentioned you were bidding $600 million to $1 billion a month, but how does the backlog look? Obviously, I think Texas has been very strong along with some of our other companies. There are always water projects to do in California. But what's your visibility and feeling on the overall spend in the macro environment across your territories?

Yes, that's a great question. We are very focused on California and Texas, along with the Pacific Northwest. Texas is quite active when it comes to water projects, and California remains consistently engaged as well. We are noticing numerous opportunities, and there's really no shortage of them expected over the next 12 to 24 months. While we may not need to pursue all of these opportunities, it allows us to be more selective and strategic in choosing the right projects in California, Texas, and the Pacific Northwest. This focus enables us to target jobs with less competition and potentially higher margins, which is beneficial for our future. Overall, our pipeline has remained strong and hasn’t slowed down at all in the past six months.

SG&A was just under $11 million. You mentioned that this might be a good figure to consider for 2026. Is that correct? Additionally, how much more revenue can be generated before we think about increasing investments in SG&A?

Yes. So I think what we had in 2025 is a reasonable number to assume for 2026 approximately.

Okay. So the $84.5 million...

Somewhere around there. And I think as we do that, the revenues are going to go up, that's what we're guiding. And to the second part of your question, I think we're going to be fine kind of in that range, plus or minus in that mid-50s range up until about $750 million honestly.

In the fourth quarter for 2026, the G&A was a bit lower than in previous quarters, but I believe that the 14 figure is a solid number and a healthy run rate as you project for 2026.

Our next question comes from Gerry Sweeney with ROTH. Apologies. This question comes from Aaron Spychalla with Craig Hallum Capital Group.

Maybe first for me on the guidance for 2026. Can you just kind of talk about some of the puts or takes there, especially on like the EBITDA range? And then just maybe how much of non-core revenue and kind of margin gross profit are you looking for, for the year?

Yes, that's a good question. We've simplified the guidance a bit this time. Regarding the non-core work, we expect to deplete almost all of it. It's currently around 11% of the backlog, and there will likely be very little remaining, if any, into 2027. We've already accounted for forward losses on those, so you can assume they will have no impact. However, this will still affect the overall aggregate margin. The key factor for gross margin will be how quickly we can get the new projects that we've won generating revenue and margins. That's the main focus for us in 2026. As for the backlog, we ended the year nearly where we started, having stabilized around that level. With the new contracts we've recently announced, we have a clear path to exceed $1 billion in backlog, and it will be about how quickly we can initiate those jobs throughout the summer. Did that address your question?

Yes, that was great. Regarding the electrical infrastructure, you mentioned in the release and the call some upcoming awards. It seems like you are beginning to gain some traction there. Could you provide more details on this and the significant potential you noted? Specifically, what kinds of projects and project sizes are you pursuing?

Our electrical business focuses on low-voltage and medium-voltage projects of varying sizes. We handle projects ranging from $5 million and $10 million to $200 million, particularly larger Shimmick projects. Texas is exceptionally strong for us, and we continue to bid extensively in California as well, supporting larger Shimmick projects with our electrical expertise. There's significant activity in this area, and I've noticed that the amount of Axia work we're bidding is increasingly becoming a larger part of our overall bids each month. We're gaining momentum on the bidding side, and I expect to see a notable increase in our backlog for Axia work, which will then convert to revenue in the next quarter or two.

Good. And then on the legacy or the non-core projects, good kind of execution this quarter, and it sounds like they're 90% wrapped up. You just kind of talk about it. It seems like you have a good handle on ramping those up. But maybe just a little bit of color there would be helpful.

Yes, we are progressing well. Currently, we have two active projects remaining, and we expect to complete them this year. While wrapping up larger and more complex projects can present some risks, including potential cost overruns, we are managing those effectively. We are confident that these issues will decrease as part of our revenue, particularly in the latter half of this year.

Yes. I would just add, it was nice to see flat gross margin, which you would expect to see outside of some minor costs related to legal and other factors. But these are non-core loss projects with a 0 margin. But when you look at our total gross margin over the year, quarter-over-quarter, 4%, 6%, 8%, 10%. So you see as that like you all mentioned the mix, right? So non-core is becoming such a small percentage of the mix. And especially given the strong wins with $330 million in new awards in the second half and already starting just through February, right, with $128 million and $234 million pending. So it's a step change, right? And so we'll see that favorable mix throughout '26.

Looking forward to it.

There are no more questions at this time. I'd now like to turn the call over to Ural for closing remarks.

We've had another strong quarter and a strong year to finish 2025. It was a year of change for Shimmick, and we've made a lot of operational improvements and made a lot of progress in getting through the non-core projects. So we're very optimistic about 2026 and beyond for our company, and these new awards that we've announced and booked are a good indication of that as we shift towards more of the work that we won in a risk-balanced and effective way. Our margins are going to improve in both bottom line and top line. So we're really looking forward to a great 2026. Thank you all for joining.