SHIM Q3 2026 Earnings - SHIMMICK CORP

Financial Performance:

• Reported Q3 2026 revenue of $136 million, a 28% year-over-year increase driven by $69 million from new projects ramping up, partially offset by $26 million in wind-downs and $14 million from completed lower-margin O&M work.
• Total gross margin improved to 12.5% (up from 7.6% YoY), with $17 million in gross profit; Shimmick project gross margins expanded 78% sequentially.
• Adjusted EBITDA reached $8.9 million, up $4.6 million from the prior year period, marking the fifth consecutive quarter of positive adjusted EBITDA.
• GAAP Net Income returned to positive territory at approximately $0.9 million (a $5.2 million improvement YoY), the first time in 12 quarters.
• Liquidity strengthened to $53 million, up $20 million from Q2; cash and cash equivalents were $34 million.
• Cash flow from operations turned positive at $10 million, the first positive quarter since Q4 2024.
• Working capital turned positive at $11 million, the first time since the company went public.
• SG&A expenses remained flat at $14.3 million year-over-year, reflecting cost discipline.
• Interest expense increased due to accelerated recognition of unamortized debt issuance costs from early repayment, though refinancing at rates ~320 basis points lower will benefit future periods.
• Trailing 12-month adjusted EBITDA reached $20 million.

Guidance and Future Outlook:

• Revised full-year 2026 revenue guidance to $500–$525 million, representing a 4% YoY increase at the midpoint.
• Revised full-year 2026 Adjusted EBITDA guidance to $20–$25 million, a 350% YoY increase at the midpoint, surpassing the prior low-end target.
• Expects positive operating cash flow to be achieved in 2027 as high-quality backlog converts to revenue.
• Backlog plus pending awards reached $1.3 billion, up 33% YoY, with $401 million in pending awards expected to convert to backlog within 90 days.
• Anticipates electrical work (Axia division) growing from high teens to 30%+ of total backlog by 2027.
• Outlook remains robust for the 12–24 month horizon, supported by continued state and federal infrastructure investment and stable demand in data centers and mission-critical sectors.

Business Segments and Product Lines:

• Focus remains on three core markets: Water Resources/Treatment/Climate Resilience, Power/Electrification, and Mission-Critical Infrastructure.
• Non-core projects now constitute less than 2% of the total backlog, significantly de-risking the portfolio.
• Q3 included $48 million in new awards, resulting in a 1.30 year-to-date book-to-burn ratio.
• Shimmick project revenue increased by approximately $40 million sequentially in Q3.
• Key project highlights include the $116 million River Trunk realignment in Modesto, CA, and the $51 million Belota Weir project in Stockton, CA.
• The company self-performs 77% of revenue, maintaining control over civil, mechanical, and electrical scopes.

Market and Competitive Landscape:

• Strong demand persists in water infrastructure (California, Texas) and mission-critical sectors (data centers, defense, advanced manufacturing, critical minerals).
• No observed slowdown in data center demand or bidding activity despite post-election market noise; work is predominantly permitted and funded.
• Management maintains a disciplined bidding process, allowing the company to be selective on projects to maximize risk-adjusted returns and profitability.
• Geographic expansion continues in California, Texas, and Washington, with strategic nationwide pursuit opportunities.
• Commodity price inflation (fuel, materials) is being managed through contingency pricing or direct pass-throughs to customers, minimizing gross margin impact.

Risks and Challenges:

• Conversion timing of backlog into project activity has been slower than initially anticipated, potentially causing quarter-to-quarter revenue variability.
• Potential future budget constraints in public sectors if inflation drives up project costs without corresponding budget increases.
• Remaining risks include the execution of the 2027 cash flow targets and sustaining margin stability as revenue scales.
• Interest expense variability due to debt issuance cost amortization timing, though long-term rates are favorable post-refinancing.

Management Commentary and Tone:

• CEO Jay Yal and CFO Todd Yoder projected a confident and positive tone, characterizing Q3 as an "operating and financial inflection point."
• Emphasis was placed on the successful execution of strategic priorities: exiting low-margin work, improving bid discipline, and stabilizing operations.
• Management highlighted "profitability inflection," "growth with visibility," and "de-risked portfolio" as the three key themes of the quarter.
• Safety performance was noted as tracking ahead of 2025 levels, serving as a foundational metric for operational success.

Analyst Questions and Answers:

• Aaron Spachala (Craig Hallam): Asked about order timing and margin selectivity. Management confirmed a favorable bidding environment with a strong 12–24 month outlook, noting that pending awards (including mission-critical work) will convert to backlog soon, enabling continued margin selectivity.
• Brandon Rogers (Roth Capital): Inquired about the electrical/Axia division and data center demand. Management confirmed no slowdown, with a robust pipeline; they expect the electrical segment to grow to 30%+ of the backlog by 2027 as new contracts are signed.

Other Key Points:

• The company operates in 10 states with licenses in 21, employing over 900 people.
• Approximately $401 million of the $1.3 billion total pipeline is in "pending awards" (not yet fully contracted), with roughly half attributed to mission-critical work.
• The improvement in financial results is attributed to the wind-down of non-core work and the ramp-up of higher-margin Shimmick projects.
• The company is utilizing AI and process improvements in sales and project controls to optimize SG&A and overhead absorption as revenue grows.