Shimmick Corporation Common Stock (SHIM) 14 Aug 252025 Q2 Earnings call transcript

Good afternoon, and thank you for joining us on today's conference call to discuss Shimmick's second quarter 2025 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 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 second quarter press release for definitional information and reconciliations of historical non-GAAP measures to the comparable GAAP financial measures. With that, it is my pleasure to turn the call over to Ural Yal, Shimmick.

Good afternoon, and thank you all for joining us on today's call. I'm joined by Todd Yoder, Shimmick's CFO. And let's get started. I'm going to start by discussing our results for the second quarter and the increasing momentum we are experiencing in our business.

For the second quarter of 2025, we delivered revenues of $128 million, the gross margin of $8 million and a nearly flat adjusted EBITDA of negative $234,000. Of the second quarter revenues, over 88% came from Shimmick projects, which is a 12% improvement from the first quarter of 2025. We've also tripled our gross margin on our shimming projects from prior year second quarter on the heels of the continued operational improvements we have been putting in place since the beginning of the year.

We expect our core business to generate higher margins as we continue to build our backlog.

We are now referring to the source of revenue previously defined as legacy and foundations projects within the income statement as noncore projects to better define our vision forward. In this quarter, similar to last quarter, these noncore projects, which are projects that date back to previous ownership or types of projects we no longer intend to pursue saw losses as we continue to work through that backlog.

However, the share of these projects are decreasing both in our backlog and in the end revenue quarter after quarter and replaced by projects that align with our go-forward strategy and profitable core business.

We also strengthened our liquidity position in the second quarter, finishing the quarter with a total liquidity of $73 million, a sequential increase of $2 million compared to the first quarter.

As we move through the second half of 2025, I'm pleased to report accelerating momentum in the business. This progress is the direct result of the revamped strategy we introduced at the beginning of the year. One centered on driving better margins through bidding projects aligned with our core competencies, deeper client engagement that drive improved project outcomes and sharper operational discipline that enhance employee satisfaction and effective execution.

We are especially encouraged to see strong positive activity in adding to our backlog, which I will discuss next.

We are now seeing our growth strategy take hold, starting with a significant uptick in bidding activity. Both the volume and the quality of opportunities have improved meaningfully over the last 2 quarters.

In fact, we hit our best month of bid volume per month recently, and our 12-month bidding outlook stands at over $4.5 billion, which supports our robust backlog growth based on our historical win rates. This is a strong indication of our ability to pursue larger volumes of work across our geographies and disciplines.

Our pipeline is large and well aligned with our core capabilities, targeting complex infrastructure projects where our self-perform model drives profits and adds value for our public and private clients.

We are also focused on developing our backlog with projects delivered through integrated, risk-balanced delivery models that over time will yield more consistent results for Shimmick.

Now with our investment in increased capacity and resources and work winning, we have the ability to pursue and win projects where we can perform, deliver and scale sustainably and profitably.

We are seeing good opportunities across water, electrical and public transportation fields, which we expect to capitalize on in the second half of the year.

In the second quarter, we added a few projects to our backlog, but we've seen greater momentum in the business post quarter close. To highlight a few of the project wins that we added to the backlog in the second quarter. These include an electrical power distribution system improvements project for Orange County sanitation district, another electrical project for Redwood Materials battery recycling facility in Nevada and a flood control project for the Sacramento area flood control agency.

Since the end of the second quarter, we've been awarded several projects and have been selected as preferred bidder on 2 others, which underscores the strength of our new positioning. At the end of July, we announced a $51 million contract for Bellota Weir modifications in Stockton, California. This project includes the construction of a gate ware, surface water intake and fish screens and ladders within a conveyance system. This project exemplifies how infrastructure can serve both people and the environment. By combining advanced water conveyance with ecological safeguards, we are helping shape the future of water management in California.

Additionally, we have been awarded several contracts for $70 million that added to our backlog in July and have been selected as preferred bidder on 2 additional projects for $164 million totaling $234 million across California and Washington, spanning different aspects of water, transportation and electrical infrastructure. These projects are expected to be awarded and commenced in the third quarter and reflect the growing demand for Shimmick's integrated delivery solutions, which includes civil, mechanical and electrical self-perform capabilities.

These not only reinforce our standing with existing clients, but also open stores with new partners and agencies that value dependable delivery. And with electrical work, nearly 30% of the contract value, these wins reflect another successful outcome of our strategy of increasing the share of electrical work in our backlog.

Turning to our electrical project focus. I'm pleased to share that we've officially announced Axia Electric in the second quarter, a dedicated electrical subsidiary designed to meet the growing market demand for specialized electrical and power distribution solutions. This new brand identity, which means value in Greek, not only aligns with how the market views us today, but also positions us for where we're headed and reflects our vision for Shimmick. Axia Electric will serve a range of infrastructure markets, including industrial, transportation, commercial and advanced manufacturing and data center construction in addition to our core water-related electrical work.

The subsidiary self-perform model, strong safety culture and the ability to deliver turnkey solutions offer our clients the best possible budget and schedule outcomes.

As a reminder, with the investments we're making in estimating sales and operations, we expect electrical work to continue to grow and share of our backlog with a target of 30% by 2027 from approximately 17% today.

Our business operates in a very active segment of the market. with a wide base of existing and potential clients, reflecting an addressable market of over $100 billion of annual spend based on our geographic focus and core capability markets. That said, I want to take a moment to address the quickly improving operating environments across our broader pipeline, particularly as it relates to the timing of work.

Last quarter, I talked about some of the delays in bidding and award activity by our clients due to uncertainties around the economy. In the second quarter, we have seen these concerns ease substantially and bidding activity recover.

We have seen this trend continue into the first couple of months of the third quarter and the good news is that we're taking advantage of this rebound. We're winning work and improving operationally through disciplined cost and risk management and our efforts towards attracting and retaining talent.

We are optimistic about our future and the quarters ahead. And in the meantime, we are focused on precise execution of our active work and preserving our ability to scale quickly.

I'm excited about the progress we've made so far in 2025.

Our business is strong and will continue to get stronger as we burn off our noncore backlog and continue to capitalize on favorable market conditions.

Looking ahead, we feel confident about the trajectory we're on. With a stronger pipeline and growing backlog and a sharper execution model, we're well positioned to carry this momentum into 2026 and beyond.

And with that, I'd like to turn it to Todd, who will review our financials in more detail.

Thank you, Ural. It was an amazing second quarter at Shimmick and a very productive first quarter for me.

During the quarter, I had the opportunity to visit many of our projects across the country and spend time with the talented men and women who are out on our project sites, making it happen every day. I want to thank all of you for the warm welcome to Shimmick and for the great work that you're all doing to make Shimmick safe and successful. And like Ural, I couldn't be more excited with the momentum and the opportunities we have going into the second half of the year.

With that, let's jump into the results for the second quarter. All comparisons made today will be on a year-over-year basis as compared to the same period in 2024.

So to kick off with revenue for the second quarter of 2025, we had $128 million. That's up 42% compared to $91 million for the second quarter of 2024. Shimmick project revenue for the second quarter 25 was $113 million, up 35% compared to $84 million last year. The $29 million increase in revenue was driven in part by $18 million of revenue from new water and infrastructure projects ramping up and $18 million of revenue from our California Palisades fire cleanup project. This was partially offset by $7 million of lower burn on a combination of existing projects and projects winding down.

Noncore project revenue for the second quarter was $16 million, up 129% compared to $7 million last year. The increase versus the prior year period was driven by the settlement of a claim on a large noncore loss project during the second quarter of 2024, which did not recur during the second quarter of 2025.

Gross margin for the second quarter of 2025 was $8 million, up 126% and compared to negative gross margin of $31 million for the second quarter of 2024. Gross margin recognized on Shimmick projects was $15 million up 226% compared to $5 million for the second quarter of 2024. The $10 million increase in gross margin was driven by $6 million in new -- from new water and infrastructure projects ramping up and $4 million from our California Palisades fire cleanup 1 project.

Gross margin recognized on noncore projects was negative $7 million for the second quarter. Favorable $29 million as compared to a negative gross margin of $36 million for the second quarter of 2024, driven by the claim settlement that occurred in the second quarter of 2024 that I mentioned earlier. This is a good time to remind our attendees as noncore projects in a loss position continue to wind down to completion. No further gross margin will be recognized. And in some cases, we could experience additional costs associated with the completion of these projects, all of which will be recognized in the period.

Moving on to G&A. Expenses for the second quarter of 2025 were $15 million, down 20% or nearly $4 million as compared to the second quarter of 2024. The lower G&A expense is a testament to our diligence and the continued implementation of our transformation plan. We reported a net loss for the second quarter of 2025 of $8 million compared to a net loss of $51 million for the second quarter of 2024. This $43 million improvement was driven by favorable gross margin of $39 million and the reduction in G&A expenses of $4 million that I mentioned earlier. Adjusted EBITDA, for the second quarter 2025 was nearly flat at negative $234,000 compared to negative adjusted EBITDA of $40 million in the second quarter.

Turning to the balance sheet. Unrestricted cash and cash equivalents at the end of the quarter totaled $21 million, and the availability under our credit agreements totaled $52 million. This results in our total liquidity position of $73 million ending in the second quarter. And I'll note that's a $2 million increase from where we ended the first quarter.

We feel comfortable that our liquidity position ending the second quarter provides the capital needed to continue executing on our strategic and operational priorities. We ended the second quarter of 2025 with backlog of $652 million. The mix of our backlog continues to improve as Shimmick's projects now represent 88% of the total backlog as of the end of the second quarter.

We are fully committed to winning the right way.

One of the 3 pillars that define our growth strategy is sustainable risk balanced backlog, which centers around a disciplined approach to how we bid work, what type of work we bid, where we bid work, all of this while remaining focused on risk balance pursuits that align with our core capabilities and strategic growth plan.

We are pleased with the second quarter progress and especially pleased and excited about the momentum we have going into the second half of the year.

Moving on to Slide 8, we experienced stronger revenue burn on both Shimmick projects and noncore projects during this first half of 2025.

As well as a slower ramp-up of new work as compared to our initial guidance. In our initial guidance, we estimated noncore projects would be approximately 10% of our total revenue in the second half and we now expect noncore project burn to be in the range of 14% to 18% in the second half of our total revenue.

Our first half gross margin for Shimmick projects was 10%, while our gross margin on these noncore projects was a negative 16% for the quarter -- for the first half. This creates an overall net negative mix impact on total Shimmick gross margin. We're updating our full year 2025 guidance, and we now expect Shimmick projects revenue in the range of $405 million to $415 million, up from our initial guidance of $392 million to $410 million. With an overall gross margin on Shimmick projects between 9% and 12%, noncore projects revenue we now expect in the range of $80 million to $90 million, up from our initial guidance of $50 million to $60 million with gross margin for noncore projects between negative 15% and negative 5%.

We now expect to achieve consolidated adjusted EBITDA of between $5 million and $15 million versus our initial guidance range of $15 million to $25 million. This is driven by the negative mix impact that I just mentioned earlier.

With that, I want to thank those of you who are joining us on the call today and for your continued interest in Shimmick.

Now back to Ural.

Last quarter, I stated our goal of making Shimmick one of the nation's leading sustainable infrastructure companies.

We are on our way towards that goal. To recap our investments towards growing our backlog is working. And as the share of our overall revenue represented by loss-generating noncore projects decline, we expect that our overall margins will continue to improve. And now with our newly established electrical subsidiary, we are able to target growth markets for even higher margin work in industrial, advanced manufacturing and data center markets in addition to our core water and wastewater work.

I'm encouraged by the positive signs of our strategy taking hold.

Over the upcoming quarters, I'm confident that we will show continued progress in getting through lost projects of the past, deliver stronger results on our core profitable work and quickly grow our backlog with work that is better aligned with our strengths.

As always, I want to express my appreciation for the entire Shimmick team for their enthusiasm and contributions to our company's bright future.

Operator, you may now open the line for questions.

[Operator Instructions] Our first question comes from Aaron Spychalla from Craig-Hallum.

Maybe first for me on the pipeline, $4.5 billion 12 months. Can you just maybe talk a little bit about how that compares to the past couple of quarters and then maybe just remind us of kind of your historical win rates or a targeted win rates as you kind of think about that over the next 3 to 4 quarters?

Yes. No, that's a great question.

So 4.5% is a mix of what I would call fixed price contracts and negotiated contracts.

So we have generally have had traditional different win rates between those 2.

So generally, we average around 15% on the fixed-price contracts and more like 20%-ish on the negotiated contracts.

So it will be a mix between those 2.

So from a from a backlog growth perspective, 4.5% is a sign of a great market. And I think our expanded geographical reach and access to electrical market is kind of growth, showing that increase over quarter after quarter as to what that number is. When we first started the beginning of the year, it was more in the $2 billion range.

So we've seen some significant growth there. And that's partly related to the market just not having that pause that I talked about.

So more projects are coming into the mix and into the pipeline. And we're just identifying more because we have access to more geographies and types of work than we did 8 months ago.

All right. And then maybe on the operational improvements, good to see the margins tick up this quarter for the Shimmick projects. Can you just maybe talk about where you're at in that progress there, confidence in that moving forward, what types of margins are in backlog today? And just maybe what you're targeting moving forward as you bid on projects?

Yes. It's -- yes.

So like Todd talked about the Shimmick margins are going up. We still -- we're still kind of saddled by the legacy noncore work margins that are in the negatives.

So that brings down the overall average. But we're -- I see a gradual increase over the next couple of quarters and probably as the work we're winning now kicks into and start -- really start generating revenue. It will accelerate the overall Shimmick margins. And then you have that dynamic where there's more -- there's less of the noncore work that's negative. There's more of the new Shimmick work that's positive and also a lot of these jobs are really just starting and not at the back end of them.

So overall slower increase in margins over the next couple of quarters and then into 2026, I see a faster increase through that.

While we're bidding ranges anywhere from 10% to 20% with a good average probably around that 14% range, 14%, 15% range right now. And market conditions are improving.

So I expect that to also go up as far as our bidding structure goes.

All right. And then maybe last for me, good to see some of the legacy activity moving into 2025. I mean, understand the dynamic on how that impacts the guidance. But can you just talk a little bit about how much is left for 2026 and just how comfortable you are at completing the remainder of that work generally on budget and maybe not seeing as much kind of volatility as past quarters?

Yes. Good question.

So on the -- there's really 2 sides to the noncore work. One is the foundations piece, which we've -- we're entirely done with the field work a couple of commercial issues that we need to close out, but they are not substantial. They won't -- so that part is I can comfortably say that, that part is done. And on the noncore work out of the 6 or 7 projects where it started a couple of years, 3 years ago, we're down to, I would call it, project, 1 of the 2 projects left, we are going to finish in the fourth quarter, possibly even in the back end of the third quarter.

And the second project is -- has another roughly 4 quarters left, maybe 5 quarters left and into middle of late 2026. There is still a bit of risk on that second project. But if I think about what the risk profile of noncore work looked like at the end of '24. When I first joined as to now, it's a gradual decrease on that front as well.

So every quarter, we're feeling more comfortable getting to the finish line.

Your next question comes from the line of Gerry Sweeney from ROTH.

I just want to dig in a little bit more on some of the noncore project work. It has expanded a little bit more, I guess, in the second half, which is changes in the mix of work and is impacting margins and some of your guidance, which I understand. But does that mean -- I'm just curious if that means less noncore work was going to be performed in 2026 that is being pulled forward? Or did the work -- was there an expansion in scope with some of that work?

It's both. That's a really good question. It is both. We pulled some of it forward, but there's also been some scope growth. I mean it's the job that especially the project that I mentioned at it's about 90%, 88%, 90% complete. And this stage of the project, when you're trying to kind of finalize and close it out, we generally see some scope growth.

So that's it. I would say it's a mixture of both that we've seen in this quarter, and we might see some of that in the next quarter as well as kind of pulling it forward. We're trying to get it done as fast as we can. Obviously, our clients want it done. We want it done.

So -- but yes, there is some scope growth there as well.

Is there any ability for change orders or collections or write-ups in any of these projects? Or are we through with that?

We have change orders that are in process that we're negotiating and talking to our clients around related to some of the scope growth.

So however, they tend to happen towards the end of the project or sometimes after the project is done.

So we don't expect anything immediate there. But certainly, there are change orders and change orders related to the scope growth that we expect to negotiate with our clients next year.

Got it. And I apologize. Aaron, maybe asked this. I had some connection issues and lost you for a couple of seconds. But as we look out to next year, I mean, next couple of years, we have negotiated work, we have Axia Electric working on.

We have more of a traditional water infrastructure work that's coming through. How should we think about margins trending over the next couple of years? I think you mentioned 14% to 15%. And I'm not sure if that is -- if there's a contingency built into that, and that's the numbers we're using in our model? Or we should use something else? And then how does it go from these levels? A little bit of long winded question.

Yes. No, that's a good question. It's -- so -- we -- I would say we -- as we win more Shimmick work, which we are now, which we're pretty happy about. And I think finally, we're at a point where we feel very strong around rapidly replacing and increasing our backlog with good Shimmick work. And that -- a lot of that's going to start playing out at the first of the year and Q4 and Q1, the work that we're winning right now.

So we'll see margins kick up. That's going to allow our margins to kick up and the wind down of the noncore work is going to allow us to also not have negative margin work.

So all of our margins are going to kick up.

I would say it's going to be more gradual because we still have other work to get through.

So if you're bidding at an average 14%, we guided 9% to 12%.

I think at the high end of that is where we're targeting. And I think we have a -- we're confident that we can work our way towards that. But also it's -- as a whole, we expect our revenues to grow and going into next year, and kind of take more advantage of our overhead structure that can handle a lot more work.

So we're -- there's a benefit to growing our revenues as well, which I really playing out in 2026, yes.

Got you. Axia, right? So the electrical opportunity -- on the slide, you highlighted some areas that I think are maybe nontraditional for you.

I think I saw just Tennessee or maybe the Southwest a little bit. How do you move into those markets, build that business in a sort of risk-adjusted way.

Yes.

So our electrical team and our Axia is a lot more, I would say, mobile than the rest of the Shimmick business.

So we tend to be a lot more regional.

We are California focused, we are West Coast focused, Washington focused, et cetera, for core Shimmick work. But Axia, that's a very -- that's more -- we can move people around a lot easier in that group. And a lot of the work is -- even though it's different than what we have done in the past, fundamentally, what you're doing is not that different. And we have a really strong team of over 150 people that have a lot of great talent and experience in that -- on that side of the business.

So going into markets like Texas and Georgia and Tennessee, where we see a lot of that advanced manufacturing data center type work. That's -- we have -- I have great confidence in our team. I've been very impressed.

We are also making some strategic hires in that part of the business.

So moving around and getting in there. And a lot of the times, the other aspect of that is you're not in a general contracted position there. We're generally subcontractors just doing the electrical work.

So going into a new job and managing it is a lot easier, a lot less complicated as long as we're able to move people around and get them to the right places.

So we're bidding work in Nevada. We're bidding work in Washington in that space, Georgia, Tennessee, Texas. Those are really strong markets for that kind of technology-related electrical work right now.

Got it. And final question. SG&A structure, I know you've been doing some work tweaking that. Is that all done? Or what should we be thinking about on SG&A on a go-forward basis?

We still have a little bit more work to do there with Todd here. We're doing a lot of deep dives and looking for better ways to go about things.

So I can see a little bit more efficiency and decrease there going into the next coming few quarters. But no, it's not going to be like the 20% we've achieved from 2024, it will be probably more modest.

I think what we're going to see going into next year is revenues increasing and SG&A not increasing at that same percentage or at all. And the percentages of SG&A to revenue will come into a lot more aligned with or better than industry average.

I would just say in second half there'll be some puts and takes in G&A.

So it was a huge improvement over prior year, slightly up from the first quarter, but there were some onetime events in the second quarter that won't repeat.

Got you.

So what would be maybe aspirational target for SG&A as a percentage of revenue. I mean I think it's running 11%, 11.5% for the quarter. Maybe 11%...

7.5% is where we want to be. 7.5% is the aspirational goal. That's where we're going to be.

Yes. I was going to say 10%, but I'll take 7.5%.

Well, You have to get to 10% to get to 7.5%.

So one step at a time.

Yes, so you're right, right in the middle Yes. All right. I appreciate it, guys. I know it's been a long road, and I dare I say, I think maybe some green shoots are coming up. And I know there's still some more work to do, but appreciate the quarter.

Thanks, Gerry. We're pretty excited definitely.

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

Thank you for joining our second quarter 2025 earnings call and presentation. Like we've expressed, we're excited about the future of our company. Excited about the progress we're making to get through past issues and move forward, increase our margins, grow our size and look to a strong couple of quarters next rest of the year and into 2026.

So thank you for your time.