Shimmick Corporation

Good afternoon, and thank you for joining us today on today's conference call to discuss Shemek's first quarter 2025 results. Slides for today's presentation are available on the investor relations section of our website, .shemek.com. During this 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 any 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 first quarter press release for definitional information and reconciliations of historical non-GAAP measures to comparable GAAP financial measures. With that, it is my pleasure to turn things over to your -y'all, Shemek CEO.

Good afternoon, and thank you all for joining us on today's call. I'm joined by Todd Yoder, Shemek's new CFO. I'm excited to introduce Todd on his first earnings call with Shemek. Todd joined Shemek earlier last month and brings a proven track record of financial leadership and strong collaboration with operations in the construction industry. Over the course of his career, his experience at other publicly traded companies has allowed him to align financial expertise with long-term operational execution excellence, which is exactly what we're looking to do in our business. And I wanna thank Amanda Mobley, who served as interim CFO over the course of the last few quarters. I'm excited that Amanda will continue her career at Shemek as chief accounting officer. She's an integral piece of our financial success going forward, and we appreciate all that she's doing to ensure a smooth transition and partnership with Todd. And with that, let's get started. I'm going to start by discussing our results for the first quarter and our progress on the strategy we put in place at the end of 2024. For the first quarter of 2025, we delivered revenues of 122 million with a gross margin of 5 million and an adjusted EBITDA of negative 3 million. Of the first quarter revenues, nearly 76% came from Shemek projects. These are the projects we won since we became an independent company after previous ownership. We've seen improved margins on Shemek projects since the last quarter as we put operational improvements in place, and we are starting to trend towards the margins we expect to see consistently as we continue to de-risk our backlog. On legacy and foundation projects, which are the projects dating back to previous ownership or were part of the knife divested foundations business, we continued to put work in place and draw down backlog, and so only nominal losses this quarter. Our liquidity remains strong as we finished the first quarter with a total liquidity of $71 million. Overall, while we have more work to do, we are encouraged to see more stability in our business and recording good trends towards our goals as we start to implement the new strategy we put in place earlier this year. Our backlog at the end of the first quarter was approximately $740 million, composed of 90% Shemek projects. We have been seeing slowdown in bidding for larger public projects and believe uncertainty around funding streams and tariffs has been a key contributing factor. This quarter, we have seen certain clients pause project awards and bids, waiting for certainty around funding availability, impacting our ability to replenish and grow our backlog. That said, this is already proving to be a brief pause, and we expect bidding activity to be higher than normal in Q2 and Q3 due to those paused projects being released to bid. In addition, we are starting to see clients accelerate their bid dates in anticipation of potential price increases due to the tariffs and trying to lock in prices before they go up. In response to the slowdown in bidding in Q1, we have increased our bidding frequency, which has translated to wins on smaller projects that we may have overlooked in the past. We almost tripled our bid activity since the last quarter and are seeing even higher levels of bidding in the second quarter. We have several projects in negotiation or execution phase, which are expected to add to our backlog in Q2 of this year. We continue to make progress working down the exposure of legacy projects in the backlog as well. At the end of the first quarter, legacy projects only accounted for roughly 10% of the backlog, down from 13% a quarter ago and 20% year over year. The investments we spoke about on the last call related to reorganizing our sales and estimating departments, substantially increasing our bid volume and improving our win rates, are starting to show some results in the second quarter. We have a robust proposal pipeline of roughly 2 billion of upcoming bids. We are confident that we are well positioned as the market for larger public projects comes back. However, we recognize the continued uncertainty in the market and although we are encouraged by the recent increased bidding activity, we are carefully watching this aspect of the business. Finally, I would like to discuss tariffs and their impacts on our current backlog. Our existing projects are generally in mature stages and all of the materials that may otherwise be impacted by tariffs are already under contracts with fixed prices, resulting in a minimal impact on our ongoing projects. For new projects, our disciplined bidding approach ensures that we pass price premiums to the customer. As a result, we don't expect negative impacts to our margins due to tariffs. However, in the longer term, rising prices could strain client budgets and may result in downscaling or cancellation of future projects due to funding shortages, in particular with public clients. Meanwhile, we are continuing to see strong activity on the private side and we are in close contact with all of our clients watching for new developments. One area where we have seen a pickup in activity is our electrical and technology-driven infrastructure market expansion, where we saw multiple wins the quarter in this quarter and recently. As we explained last quarter, we see electrical work taking a larger share of most construction projects due to technological improvements, along with growing needs in water, transit, data centers and other segments. With the investments we're making in estimating sales and operations, we expect electrical work to continue to grow in share of our backlog with a target of 30% by 2027 from approximately 15% today. I'm excited about the progress we've made so far in 2025. We are executing on our plan in our four key end markets, water infrastructure, climate resilience, technology and energy transition and sustainable transportation, leveraging our strong expertise and client relationships in these markets. The US water infrastructure market remains robust and well-funded, driven by aging assets, pollutant treatments and regional water scarcity. Climate resilience is a growing field due to intensifying weather events, with projects such as seawalls and flood mitigation gaining momentum. The rise of AI is fueling demand for data center infrastructure, presenting opportunities for our water, cooling and electrical capabilities. Despite some uncertainty in the energy sector, we continue to see investment in electrification and battery storage and have a strong pipeline of this coming up. To support growth, we've implemented three strategic pillars at the beginning of this year. Building a sustainable risk balance backlog with geographic diversification and increased use of collaborative delivery methods, driving operational excellence through system upgrades, improved risk management and discipline SG&A control and investing in people and culture with new incentive programs, clearer career paths and talent retention efforts. We remain optimistic about 2025, aiming to grow backlog, restore profitability and expand our addressable markets. With that, I'd like to turn to Todd, who will review our financials in more detail.

Thank you, Yoral. And thank you to those on the call for joining us today and for your interest in Shemek. To expand on Yoral's comments at the top of the call, I joined Shemek with nearly two decades of public company experience with 15 of those years working with some of the most talented in the construction industry in both finance and operations. This provides me with a unique perspective on what it takes to win in this business. You will hear me talk a lot about winning the right way, which I will expand on it in the future. But for now, I will say my guiding principles align lockstep with the three pillars Yoral has shared with you. Shemek has a rich history as an industry leader. And over the past month, I've had the opportunity to meet many of the talented people across the business who have been key to Shemek's strong reputation in the market, past success and rich history. As we begin the next chapter of Shemek's success and growth, I couldn't be more excited about the talented people, the strong capabilities and the market opportunities we have ahead of us. Let's jump into the first quarter. All comparisons made today will be on a year over year basis as compared to the same period in 2024. For the first quarter of 2025, we reported revenue of $122 million compared to $120 million for the prior year period. Revenue on Shemek projects was $93 million for the quarter as compared to $90 million a year ago. The increase in revenue was primarily the result of revenue from new water and infrastructure projects ramping up in the California Palisades Fire Cleanup Project. This was partially offset by decreases from lower activity on existing projects as they continue to wind down. Gross margin recognized on Shemek projects in the first quarter was $5 million as compared to a negative $1 million in the margin recognized a year ago. The increase in gross margin was primarily the result of $3 million in gross margin from new water and infrastructure projects ramping up and $3 million in gross margin from the California Palisades Fire Cleanup Project. Legacy and foundations projects revenue was $29 million for the first three months, ended April 4th, 2025. A decrease of $1 million as compared to the three months ended March 29th, 2024, as the company works to wind down these projects. Gross margin from legacy and foundations projects was negative $1 million for the first three months as compared to negative $15 million for the prior year quarter. This change was driven as a result of cost increases for time and design related schedule extensions identified during the first quarter of 2024, which did not reoccur during the first quarter of this year. As a reminder, these legacy projects continue to wind down to completion and no further gross margin will be recognized. Furthermore, in some cases, there may be additional costs associated with these projects, which will be recognized in the period. We also reported SG&A expenses of $14 million for the quarter down nearly $2 million or 11% versus the prior year quarter. This was driven as a result of continued implementation of Shemex transformational plan. Our net loss for the first quarter 2025 was $10 million compared to a net loss of $33 million for the prior year period. This material improvement was primarily due to improvement in gross margin of $21 million related to legacy projects. First quarter adjusted EBITDA was negative $3 million compared to negative $24 million in the prior year period. Turning to the balance sheet, unrestricted cash and cash equivalents ending the first quarter totaled $16 million. And availability under our credit agreements was $55 million resulting in total liquidity of $71 million. We feel comfortable that our liquidity position ending the first quarter provides the capital needed to carry out our strategic and operational plan. Our backlog remains strong and was $739 million at the end of the first quarter. The mix of our backlog continues to improve as Shemex projects now represent 90% of the total backlog ending the first quarter. We are committed to winning the right way. One of the three pillars that define our growth strategy is sustainable risk balance backlog, which centers around a disciplined approach to how we bid work while remaining focused on work that aligns with our core capabilities. We are pleased with our first quarter results and the momentum it provides us to start 2025. We grew our top line while achieving significant improvement in our gross margin and SG&A for the year over a quarter on a year over year basis. The results are a testament to the diligent work the team is doing to advance our strategy, which is centered around building sustainable backlog with a renewed focus on operational excellence in people and culture. While we continue to closely monitor the fluidity of tariff policy, at this point we are reaffirming our full year guidance and we expect to deliver results in our previously stated guidance ranges. We expect Shemex projects revenue to increase 10 to 15% with overall gross margin between nine and 12%. We expect legacy projects and foundation projects revenue between 50 million and 60 million with gross margin between negative five and negative 15% as we complete these projects. And we expect to achieve adjusted EBITDA between $15 million and $25 million. With that, I'd like to turn it over now to Yura for some closing remarks.

Last quarter, I stated our goal of making Shemex one of the nation's leading sustainable infrastructure companies. I'm excited to see the progress we are making on several fronts to achieve this goal. Despite the uncertainties we experienced in Q1 at the macro level, we have a resilient structure, strong backlog, and an exciting pipeline of opportunities ahead of us in 2025. As the strategic initiatives we are putting in place this year take hold, I expect to see stronger financial outcomes over the next several years. I want to express my appreciation to the entire Shemex team for their tireless efforts this quarter towards the great future we are building for our company. 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 raise 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 a panelist. Please accept, wait a moment, and once you have been promoted, you will hear your name called and you may unmute your video and audio and ask your question. We will now pause a moment to allow the team to gather and assemble the queue. Your first question comes from the line of Aaron Spichalla from Craig Hallam. Please unmute your audio and video and ask your question.

Yeah, hi, Roland Todd. Thanks for taking the questions. Maybe first for me, could you just kind of talk about visibility into the guidance for the year on the Shemek projects, both on revenue and gross margin, just given the performance in the first quarter, then maybe as part of that, just kind of, if you could elaborate on what you're seeing on the tariff side of things, it sounds like there kind of was a brief slowdown, but you're starting to see things kind of pick back up. If you could just give a little more color there, that'd be great.

Yep, thanks Aaron, good to see you. Yeah, so Shemek projects, we've seen some performance improvement in Q1. Obviously it's not where the guidance is yet, but we are making changes and operational improvements and looking at the backlog and where the work, what we have to put in place the rest of the year, we're still feeling good about the guidance we have on the Shemek project side, as well as the legacy project side. There are still some challenges there, but we're getting through them. And I think the 90% mark is a pretty big milestone for us. And we're really down to the end of it now for those projects. And there's only a few of them really. And then just touching on the tariffs and I'll let Todd chime in as well, but we saw a brief pause. And I think that's really related to just the uncertainty of it. Just there was a lot of uncertainty around where the funding streams were and staff at the federal level, as well as just making sure that our clients are feeling good about the funding, that it's still gonna be there. That resulted in a few bids and few clients pausing their bid dates or pushing their bid days or contract awards. But we're seeing that come right back as we see some stability now over the last month, month and a half. And in fact, like I mentioned earlier, there's a concern around prices going up with the tariffs and hey, let's get our bids as fast as we can to lock prices in on a lot of these projects. And we were starting to see a lot more activity than we had expected in Q2 because of that. So that gets us pretty optimistic. And then Todd, maybe you can touch on a tariff exposure we have right now.

Yeah, so tariffs is the word du jour these days, but really the way we look at that is we break it down into EPC language, which our business tends to be a lot stickier with three, sometimes four year projects. So pricing, you can't pass that on to clients like you can in some other businesses. So we look at commodity exposure, we look at inflation equipment prices, and what we wanna know is what exposure do we have to fix price work and then what we call bought out. So what percentage are we bought out on those exposures or committed, which means we already have those exposures locked in, those commodities, those items that could be impacted by inflation. And so running through that analysis, we believe we're around 96% bought out on most of those exposures. So we see with our existing backlog, we see that as a minimal exposure at this time.

All right, thanks for the color there. And then maybe second, can you just kinda, you mentioned new awards and extensions that are pending. You can just maybe quantify some of that, maybe give a little more detail. Have we seen them already here in the second quarter? Are they still to come? And then maybe just kind of a follow on with that. I mean, I saw the Palisades kinda was a good driver in the first quarter. Maybe if you could just touch on that project and kind of the potential size and contribution there.

Yeah, that project's ongoing. So then that's a cost plus. So we recognize that as it goes. So yes, that's part of what the activity we're gonna see in Q2, as well as like I mentioned, we have projects that we were a little bitter on. But again, through that pause that I discussed earlier, they have not been awarded, but we expect to start to see them in Q2. And we probably have the most, the busiest bidding activity we've had in a while, this May and June timeframe. So some of that may fall into Q2, some of it may not, but we're seeing really, really strong bidding activity along with certain contracts getting negotiated. And then there's a few change or larger change orders both on the Shemek side, as well as the legacy contract side that we are working to finalize. So generally positive. And I think the most positive part of it is this very high level of bidding activities extremely encouraging. It hasn't been this way earlier in the year. So I'm looking forward to it.

Good. And then, we have one more just on kind of capacity and liquidity. Sounds like you feel comfortable with the liquidity you have. I mean, just with what you've added on the estimating side and building out kind of the electrical piece of the business, can you just talk about what kind of revenue capacity or just the size the business could support today and just any other investments you're looking to make in the business?

Yeah, no, that's a great question. So we are comfortable with the liquidity. We have largely completed a lot of those investments. We've brought on, we've filled all the positions that we had expected to fill except for two at this point and brought and really expanded our sales and estimating team, business development estimating team. And they are hard at work now. So we're very hopeful that we're gonna see the benefits to that and honestly, it's the structure, the overnight structure we have right now, we can easily handle 600, 700, 750 million a year without adding significant additional overhead. So assuming we succeed in our, in this effort to increase our bid volume and win rates, I think we can, we have that excess capacity, especially on the critical side in the water and electrical piece that not everybody has at this point. Assuming we can deliver on the sales side, I think we have some really good opportunity here the rest of the year.

Got it. And then just maybe one last one, apologies, but you kind of talked about in the past, potentially accelerating some of the legacy projects into 2025. I mean, I see you kept the same guidance, maybe just an update there on that potential.

Yeah, we're trying on a couple of them. There are some good opportunities there. I can't say that I'm ready to declare them yet, but we're working towards them. But at the same time, towards the end of these projects, there's always scope growth, loose ends to tie up and the clients want certain things done in addition to the, as a change or to the contract. So there's a bit of that as well that might push it again back out. But the majority of the work, we are working very hard to bring it back as forward as possible, as much as we can.

All right, good. Thanks for taking the questions. I'll turn it over. Thanks, Aaron.

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

Thank you. As we stated, we are very excited for the rest of 2025 and what we've accomplished so far in the first quarter. A lot of the operational sales estimating and process improvements that we have put in place and we are continuing to put in place are starting to show good results. And our results in the first quarter are a good initial indication of what's to come. So we are very happy with our progress. We have a very strong new management team with Todd joining as well. And we see a lot of opportunity in 2025 into 2026. Even though we've had faced some uncertainty this quarter, we think that we have an opportunity to turn that into a positive the rest of the year and deliver the results that we had provided guidance for earlier in the year. Thank you for joining and thanks for your interest in Shemek.