Shimmick Corp (SHIM) Q2 2026 Earnings Call Transcript

Good day and welcome to Schimmick Corporation's second quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. Question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. At this time, I'd like to turn the call over to Anthony Rosmus. Please go ahead.

Good afternoon, and thank you for joining us on today's conference call to discuss Schimmick's second quarter 2026 results. Slides for today's presentation are available on the Investor Relations section of our website, www.shimmick.com. During this conference call, management will make forward-looking statements based on current expectations and assumptions, which are subject to risks and uncertainties. Actual results could differ materially from our forward-looking statements if any of our key assumptions are incorrect. We identify 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 the 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 second quarter press release for definitional information and reconciliation of historical non-GAAP measures to the comparable GAAP financial measures. With that, it is my pleasure to turn the call over to Yeral Yal, Shimek's CEO.

Good afternoon, and thank you all for joining us on today's call. I'm joined by Todd Yoder, Shimek's CFO. 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 non-core 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 activity levels continue to improve, and several projects that had longer ramp-up timelines 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 two 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 non-core 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 this market, 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 built in West Virginia is now transitioning into the pre-construction 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 sub-segments 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 a 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 2026. 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 and 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 Myers-Chimic joint venture, along with Axia Electric, advanced into the construction phase of LA Metro's 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 Plan expansion in Texas, further expanding our presence in one of the nation's fastest growing water infrastructure markets. Finally, in energy and electrification, Axie Electric was awarded a $20 million project at UC Berkeley's electrified heating and cooling plant, supporting the university's transition to a modernized all-electric energy system. Collectively, these awards reflect the strength of our customer relationships, our technical capabilities, and 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. 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 25 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've worked 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 pre-construction 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, discipline 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 over to Todd, who will review our financials in more detail.

Thank you, Ural, and thank you for joining us on today's call. The Shimek 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 improvements, but more importantly, they're establishing the foundation for continued growth and profitability moving forward. Before we hit the financials, I want to echo you, Ra, in thanking all of the talented men and women across Schimmick 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, unless otherwise noted. SHMIC project revenue for Q2 2026 was $96 million, versus $113 million in Q2 2025. 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. Non-core project revenue for Q2 2026 was $11 million, down from $16 million in Q2 2025. A $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 non-core projects to completion. I've discussed the negative gross impact from non-core on our total gross margin on prior calls, and I couldn't be more excited to end the quarter with non-core 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. Shimek consolidated total revenue for Q2 2026 was $107 million as compared to $128 million in Q2 2025. Shimek 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. Non-core project gross margin was $2 million for Q2-26 as compared to negative $7 million for Q2 of 2025. The $9 million increase in gross margin for non-core was driven by cost overruns on non-core loss projects during Q2 of 2025 that did not recur in this year. Schimmick consolidated total gross margin for Q2-26 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 2025. This was driven by higher one-time 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 2025. 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 were $138 million, giving us a book-to-burn of 1.4 times, 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 on 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 non-core 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 non-core 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 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 Shemek, and I'll turn it back to your own.

Thanks, Tal. Overall, we are encouraged by the progress we 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, enhanced cost discipline, and continued 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 position to deliver improved results, and we look forward to updating you on our progress. Operator, you may now open the line for questions.

We will now move to our question and answer session. At this time, if you would like to ask a question, please click on the raised hand button, which can be found on the black bar at the bottom of your screen. You may remove yourself from the queue at any time by lowering your hand. When it is your turn, you will receive a message on your screen asking to be promoted to panelists. Please accept. Wait a moment, and once you have been promoted, you will hear your name called. You may unmute your video and audio and ask your question. We will now pause a moment to assemble the queue. Your first question comes from Jerry Sweeney with Roth Capital. Please unmute your audio and ask your question.

Good afternoon, you're all in Todd. Thanks for taking my call.

Good afternoon, Jerry. How are you?

I apologize for the right 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 of 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?

Yeah, 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 a billion. And with the awards we announced, we expect to exceed a billion in the next quarter uh that people already announced so uh we're what happened is we generally expect a three to four months uh startup period on these projects once we get once we're selected on a couple of these projects larger ones uh in this last couple of quarters it took a little bit longer towards the six or seven months range and that's kind of slowed our 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 expect as those projects continue to ramp up and the new projects continue to ramp up, we expect 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. Yeah, it's that three to four month ramp up period generally holds true. But we had a few that was not in our control. Some of the clients with permitting and et cetera. The projects are there. They're funded. They're starting now, but it just took a little bit longer than we expected.

That's part for the course. And, you know, 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, you know, what that number is and how does Shimmick grow into that over the next couple of years? yeah i think it's it's our our overhead structure our processes uh we're we were a 750 million dollar company before and i think that's what we're trying to get back to uh and and with this backlog we're going to see gradual improvement on on top line revenues and uh we're confident we're going to be able to hold these margins and improve them uh so what you're going to see is SG&A is starting, 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 in queue. Obviously, data centers and or electrical work is a great area to be in. I know you've been bidding on it. I think you even, in the prepared remarks, talked about West Virginia. Maybe a little bit more details on what's happening in that space and the opportunities and whether or not timelines maybe towards success.

Yeah, we're very pleased. we started a we launched a mission critical division just because we're seeing such great opportunities so West Virginia is hopefully the first one 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 so we think that this is going to start becoming a sizable chunk of the business at least in the in the in the next 12 months and uh but meanwhile uh axia is doing really well on other fronts as well uh we're winning uh water waste water work we're winning uh electrification work and uh so uh 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 it's it's heavy on the on the electrical side which is uh which is great for the electrical business where we've launched and uh those are higher margins strong jobs and and we're pretty excited about them higher margins like 15 to 20 percent thrust margin higher margins yeah that's where that's where we're headed yep all right thanks i'll jump back in my text thanks jerry our next question comes from aaron spahala from craig hallam please unmute your audio and video and ask your question yeah hi you're all and todd thanks for taking the questions um you know first for us maybe on just kind of the geographical expansion i mean you touched a little bit on on texas but can you just talk about that opportunity how it's unfolding and just some of the growth that you see in these other markets as you kind of diversify the business further here moving forward yep yep we'll do and uh so we're we're pretty focused on as far as kind of core markets we're very focused on california texas and washington uh and those are are uh where we're really focused on bidding uh texas market is uh really great right now it's uh lots and lots of water opportunities uh we don't even have to bid a whole lot else other than water just because there's the pipeline is so strong uh and then combining that with with the data center opportunities that are uh coming out uh that's makes texas very very attractive and we are continuing to win work there so uh we're going to continue to grow the percentage of backlog that's in texas as a quarter after quarter so pretty excited about texas in that in that sense And then beyond those three states, we're taking a more kind of cautious approach. We're kind of following clients, looking at every project on a case-by-case basis. If you think we can execute, if we can resource a project, then we're bidding them. And then we started this mission critical division just so we can service those projects because a lot of those out-of-state projects tend to be the mission-critical types.

Thanks. Thanks for the color on that. And then, you know, you mentioned kind of holding SG&A at this type of a level with some nice growth.

Can you just kind of talk about, you know, investments in the business, kind of labor availability and things along those lines as you just think about the growth here in the next couple of years? yeah we've uh you know we've we're very focused on uh keeping sgna there but we're also very focused on investing in the business uh we've we've done a lot of investment in 2025 to uh as we were still doing transformational work we've uh invested a lot in the the sales and bidding as the part of the business so that's why we're able to now handle 500 to a billion dollars of bidding every quarter, every month, and maintaining pretty high win rates. Meanwhile, we're continuing to, it's all about operations, so we're continuing to improve IT, we're continuing to improve, we're making good use of AI, and looking at cost controls, finance controls, et cetera, so that we can maintain and improve our gross margin rates as well. But generally, I think I said this before, I think the company can handle a lot bigger volume, even at these levels, just because we have the backbone already ready. We had those kinds of revenues in the past. We're just kind of getting back, growing back into our size. Right.

Okay. And then maybe last for us, just on free cash flow, can you kind of talk about some of the dynamics there in the quarter and just the outlook for improvements as some of these projects start up and, you know, assume kind of better profitability, better cash flow on those?

Yeah, yeah. Yeah. I mean, it's no secret. We've we had those legacy projects that had pretty significant negative cash flows. And second quarter was the last quarter where we were demobilizing out of the project in Tennessee. So the numbers start to show it's only under 3% of what's left in the books is legacy work. And the new projects are performing quite well so far. So we expect cash flow liquidity to improve quarter after quarter moving forward. And we are very focused on making sure that the projects that we're taking on start and stay cash positive uh and and uh and that should contribute to the uh to the overall uh cash position pre-cash position where we want to we want to we want to get to a good net income level and then with with a good pre-cash conversion as well right okay and then just sorry maybe one last one for me just on on legacy projects um you know anything else to kind of look for on on the tennessee project or is that just still kind of um going through that process and just the remainder of the business is just kind of that one project that should be wrapping up here in the next couple of quarters yeah that's that's really it it's uh we've completely demobilized out of the tennessee project and the one that's left is going to go for another couple quarters but in decreasing volumes every quarter after quarter so uh and and we don't see any any risk or any uh any issue there and the Tennessee project is going to just run its course. And again, I'm confident that we'll get to a amicable solution with the client there and sort that out, but it's going to take a little while.

Okay, great. Thanks for the color. I'll turn it over.

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

We've shown another quarter of strong results and with record backlog and growing revenues. We expect the next two quarters and into 2027 for the company to be very strong. Our gross margins are where we want them to be and growing. And we're very excited about the quarters to come. And thank you for joining us