Shimmick Corporation

Good afternoon, and thank you for joining us on today's conference call to discuss SHMIC's second quarter 2025 results. Slides for today's presentation are available on the investor relations section of our website, www.shmic.com. During this conference call, management will make forward looking statements based on current expectations and assumptions, which are subject to risk 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 Yoral Yal, SHMIC's CEO.

Good afternoon, and thank you all for joining us on today's call. I'm joined by Todd Yoder, Chimix CFO. 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 SHIMIC projects, which is a 12% improvement from the first quarter of 2025. We have also tripled our gross margin on SHIMIC projects from prior year's 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 non-core projects to better define our vision forward. In this quarter, similar to last quarter, these non-core 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 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 two 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-performed 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 Schimmick. Now with our investment in increased capacity and resources in 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 two others, which underscores the strength of our new positioning. At the end of July, we announced a $51 million contract for below-the-weir modifications in Stockton, California. This project includes the construction of a gate weir, a 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 worth $70 million that added to our backlog in July and have been selected as preferred bidder on two additional projects worth $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 Chimix integrated delivery solutions, which includes civil, mechanical, and electrical self-performed capabilities. These not only reinforce our standing with existing clients, but also opens doors 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 Axi 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 Chimek. 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's self-performed 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 and 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 environment 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. 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 non-core backlog and continue to capitalize on favorable market conditions. Looking ahead, we feel confident about the trajectory we're on. With a stronger pipeline, a 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 to Todd, who will review our financials in more detail.

Thank you, you're all. It was an amazing second quarter at SHMIC 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 SHMIC and for the great work that you're all doing to make SHMIC safe and successful. And like you're all, 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. SHMIC project revenue for the second quarter of 2025 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. Non-core 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 non-core 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 percent, compared to negative gross margin of $31 million for the second quarter of 2024. Gross margin recognized on SHMIC projects was $15 million, up 226 percent, compared to $5 million for the second quarter of 2024. The $10 million increase in gross margin was driven by 6 million from new water and infrastructure projects ramping up and $4 million from our California Palisades fire cleanup project. Gross margin recognized on non-core 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 non-core 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 GNA 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 2024. 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 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 Shemek 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 three 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 eight, We experienced stronger revenue burn on both SHMIC projects and non-core 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 non-core projects would be approximately 10% of our total revenue in the second half. And we now expect non-core 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 SHMIC projects was 10%, while our gross margin on these non-core projects was a negative 16% for the quarter, for the first half. This creates an overall net negative mix impact on total SHMIC gross margin. We're updating our pool year 2025 guidance, and we now expect SHMIC 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 SHMIC projects between 9% and 12%. Non-core projects revenue, we now expect in the range of 80 to $90 million, up from our initial guidance of 50 to $60 million, with gross margin for non-core 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 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 Shemek. Now back to you all.

Last quarter, I stated our goal of making Shemek 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 non-core 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 Chimic team for their enthusiasm and contributions to our company's bright future. Operator, you may now open the line for questions.

We will now move to our question and answer session. At this time, if you'd 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'll 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'll hear your name called and you may unmute your video and audio and ask your question. We will now pause a moment to assemble the queue. Our first question comes from Aaron Sparholler from Craig Hallam. Please unmute your line and go ahead.

Yeah. Hi, Jeroen and Tata. Thanks for taking the questions. You know, maybe first- Aaron, good to see you. Yeah, good to see you guys too. 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 targeted win rates as you kind of think about that over the next 10 to 12 quarters?

Yeah, no, that's a great question. So four and a half 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 two. So generally we average around 15% on the fixed price contracts and more like 20% on the negotiated contract. It will be a mix between those two. From a backlog growth perspective, 4.5% is a sign of a great market. 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 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 eight months ago.

All right. Thanks for that. And then maybe, you know, on the operational improvements, you know, good to see the margins tick up this quarter for the Schimmick projects. Can you just talk about where you're at in that progress there? Sure. You know, 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.

Yeah, so like I talked about, the SHMIC margins are going up. We're still kind of saddled by the legacy non-core work margins that are in the negatives. So that brings down the overall average. But I see a gradual increase over the next couple of quarters and probably as the work we're winning now kicks into and then starts 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 non-core work that's negative. 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. What we're bidding range is 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. Thanks for that. 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, you know, generally on budget and, you know, maybe not seeing as much kind of volatility as, you know, past quarters?

Yeah, good question. So there's really two things. sides to the non-core work. One is the foundations piece, which we've entirely done with the field work. A couple of commercial issues that we need to close out, but they are not substantial. I can comfortably say that that part is done. And on the non-core work out of the six or seven projects where it started a couple of years, three years ago, we're down to, I would call it project and a half. One of the two 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 has another roughly four quarters left, maybe five quarters left into the middle of late 2026. There's still a bit of risk on that second project, but if I think about what the risk profile of non-core 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.

All right, good. I appreciate the color and thanks for taking the questions. I'll turn it over.

Thank you.

Good to see you.

Your next question comes from the line of Jerry Sweeney from Roth. Please unmute your audio and video and ask your question.

Hey. Good afternoon, you all. And Todd.

Hi, Jerry.

How are you? I'm doing well. And you? Good, good. Some random hotel in St. Louis, so I apologize. But I just want to dig in a little bit more on some of the non-core project work. It is expanded a little bit more, I guess, in the second half, which is, you know, changes the mix 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 non-core 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, especially the project that I mentioned, 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 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, 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. But yeah, there's 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 these scope growths. However, they tend to happen towards the end of the project or sometimes after the project's done. So we don't expect anything immediate there, but certainly there are, there's change orders and change orders related to that scope growth that we expect to negotiate with our clients next year. Got it. And I apologize.

Aaron, maybe that's just I had some connection issues in Wall Street 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. Then we have more than traditional water infrastructure work that's coming through. How should we think about, you know, margins trending over the next couple of years? I think you mentioned 14 to 15 percent. And I'm not sure if there's contingency built into that, and that should be the numbers we're using in our model, or we should use something else, and then how does it go from those levels? A little bit of a long-winded question.

Yeah, I know. That's a good question. We I would 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 Chimic work. And that a lot of that's going to start playing out, start at 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 gonna allow our margins to kick up. And the wind down of the non-core work is gonna allow us to also not have negative margin work. So all around margins are gonna 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're confident that we can work our way towards that. But also, as a whole, we expect our revenues to grow going into next year and kind of take more advantage of our overhead structure that can handle a lot more work. So there's a benefit to growing our revenues as well, which I think is going to start really playing out in 2026, yeah.

Gotcha. Axia, right, so the electrical opportunity. On the slide, you highlighted some areas that I think are maybe non-traditional 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?

Yeah, so our electrical team and our Axia is a lot more, I would say, mobile than the rest of the Chimic business. So we tend to be a lot more regional and California-focused, West Coast-focused, Washington-focused, et cetera, for core Chimic 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 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, I have great confidence in our team. I've been very impressed. We're 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 contractor 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 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.

And I would just say in the second half, There'll be some puts and takes in G&A. So, you know, it was a huge improvement over prior year, slightly up from the first quarter. But there were some one-time events in the second quarter that won't repeat. I gotcha.

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

you know, maybe 11, 10% is where we want to be. Seven and a half percent is the aspirational goal. That's where we want to be. Yeah. I was going to say 10, but I'll take seven and a half. Well, you have to get through, you have to get through 10 to get to seven and a half. Yeah.

So you're all right, right in the middle.

Yeah. Alrighty. 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, and you know, I know there's still some more work to do, but I appreciate the quarter. Yeah, thanks, Gary.

We're pretty excited. Yeah, definitely. Thanks for the questions. Thank you.

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

Well, 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 quarter, next rest of the year and into 2026. So thank you for your time.