SHIM Q3 2026 Earnings - SHIMMICK CORP

Good afternoon, and thank you for joining us on today's conference call to discuss Chimic's third quarter 2026 results. Slides for today's presentation are available on the Investor Relations section of our website, www.chimic.com. During this conference call, management will make forward-looking statements based on the current expectations and assumptions, which are subject to risks and uncertainties. Actual results could differ materially from our forward-thinking statements if any of our key assumptions are incorrect. We identify the principal risks and uncertainty 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 third quarter press release for definitional information and reconciliations of historical non-GAP measures to the comparable GAAP financial met measures. With that, it is my pleasure to turn the call over to Yiral Yal, Schimmick's CEO. Good afternoon, and thank you all for joining us on today's call. I'm joined by Todd Yoder, Schimmicks CFO. For those newer to Schimmack, we are a leading contractor delivering complex water, energy, and critical infrastructure with turnkey self-performance across civil, mechanical, and electrical work. We focus on three markets, water resources, treatment, and climate resilience, power and electrification, and mission-critical infrastructure. We have more than 900 employees, are active in 10 states and licensed in 21, have delivered over 140 water, wastewater and flood protection projects, and on average we self-perform 77% of our revenue. The project pictured is our $116 million river trunk realignment and pump station in Modesto, California, where we are building a new 40 million gallon per day pump station, enhancing local water supply and reliability. I want to open by acknowledging the dedication of our people across the company. Every day, they bring an unwavering focus to safety and on delivering for our clients. And that focus is the foundation of everything we're building. With that, let me start with the three key messages from our third quarter. The third quarter marked an important operating and financial inflection point for Schumach. There are three messages I'd like you to take from this quarter. First, a profitability inflection, positive gap net income for the first time in 12 quarters, and a fifth consecutive quarter of positive adjusted EBITDA. Second, growth with visibility, backlog and pending awards of 1.3 billion, up 33% year over year, with 614 million of awards booked over the past four quarters. And a third, a de-risk portfolio that is delivering results. Non-core projects are now under 2% of our backlog, liquidity has improved, and we expect positive operating cash flow in 2027. We delivered total revenue of $136 million, with Shimik project revenue up 28% year-over-year, expanded Shimik Project gross margin by 78%, lifting total gross margin to 12.5% from 7.6% a year ago, and grew adjusted EBITDA to $8.9 million, up $4.6 million from a year ago, representing our fifth consecutive quarter with positive adjusted EBITda and brought our trailing 12-month adjusted EBitda to $20 million. Importantly, we returned to positive net income for the first time since the third quarter of 2023, generating approximately $0.9 billion, a $5.2 million improvement from a loss a year ago. This quarter's result reflects improvement in the underlying performance of the business, including stronger Shimmick project margins and the continued wind down and close out of non-core work. We've also strengthened our liquidity position. Liquidity ended the quarter at $53 million, an increase of $20 million from the second quarter. This increase includes certain one-time items related to the timing of receivables and closeout of projects that we have recently finished, but also reflects a growing ability to convert EBITDA to liquidity. We generated 10 million of cash from operations, our first positive quarter since the fourth quarter of 2024, and working capital turned positive at 11 million the first time since we went public. This is an important proof that the improvement in operating performance is beginning to translate into stronger financial position. While we still have work ahead of us, we believe the quality of our earnings is improving, as a stronger portfolio of SHIMIC projects contributes to our results. Overall, our results reflect the priorities we laid out. Exiting low-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 address the markets where we see the greatest opportunities ahead, and then to our backlog. Turning to our end markets, our approach rests on the three focus areas on this slide. First, scope. We are growing in water and wastewater treatment, flood protection, water resources, electrical, and mission-critical infrastructure, the work that aligns with our strengths. Second, customers and geography. We're expanding in California, Texas, and Washington while pursuing strategic opportunities nationwide for trusted customers. Third, risk-balanced contracts. Because our existing backlog gives us long-term visibility, we can choose favorable contract terms, lower our project risk profiles, and drive higher margins as we continue to build our backlog. Water infrastructure continues to represent a substantial and well-funded opportunity in California and in Texas, which remains an important growth market. The project pictured, our $51 million Belota Weir project for the Stockton East Water District, is nearing completion and is a good example of the complex water work we self-perform for trusted clients. Mission-critical infrastructure represents another significant opportunity. In this segment, we are generally pursuing projects where we act as a specialty subcontractor. These projects are funded and permitted and often already under construction, and we have not seen a slowdown in our pipeline of work. Importantly, the strength of the mission critical opportunity extends beyond data centers. We continue to see attractive demand in defense, critical minerals, advanced manufacturing, and electrification of infrastructure assets. We maintain a robust opportunity pipeline that allows us to remain selective and focus our resources on opportunities offering the best combination of customer quality, project economics, strategic fit, and risk-adjusted returns. Overall, we believe the durability of demand across our target markets, combined with our technical capabilities and disciplined bidding process, provides a solid foundation for sustainable growth. Our quarter-end backlog was approximately $907 million, with Schimmick projects representing more than 98% of that total. This represents a substantially cleaner portfolio and demonstrates how far we've progressed in reducing our exposure to non-core work. We booked $48 million of new awards in the third quarter, a 0.4 book to burn, which reflects the timing of contract execution rather than demand. At quarter end, we had 401 million in awards pending executed contracts, which brings backlog plus pending awards to 1.3 billion. We expect the majority of these to convert to backlog over the next 90 days. Over the past quarters, we have booked 614 million in new awards, and our year-to-date book-to burn is 1.30. With pending awards I mentioned, we expect our backlog to expand over the next two quarters. We remain confident in our underlying demand environment and our ability to convert the opportunity pipeline into backlog, revenue, earnings, and cash flow over time. The quality of the backlog is also important. Our focus is not simply on increasing the absolute dollar amount. We are working to build a portfolio of projects with more appropriate risk profiles and the potential for more consistent margins and cash generation. Conversion of that backlog into project activity has begun, and we are already seeing the evidence. Scheming project revenue increased by approximately $40 million sequentially in the third quarter, driven by the ramp-up of recently awarded projects. Now, as we look ahead, our outlook rests on three points on this slide. First, favorable market conditions. Continued state and federal investment in water infrastructure in California and Texas, together with strong demand for data center and electrification work, gives us a deep opportunity set, allowing us to be selective about the work we take on, and selectivity is what drives our profitability. We pursue projects where we can price risks appropriately and put our self-performed capabilities to work. The project pictured is a good example. At the Port of Seattle's Terminal 18, our own electrical crews are installing the substations, feeders, and vessel connections that will let cargo ships run on shore power while at berth. Second, reliable margin performance. Project margins have stabilized and we are executing consistently across our portfolio. With non-core projects now less than 2% of our backlog, our results are increasingly driven by work we bid and structured under our current operating discipline. As the projects we won over the last 12 months ramp up, we expect more predictable returns, along with better absorption of our overhead. Third, efficient execution. And that starts with safety, where our performance continues to track ahead of 2025 levels. levels. Beyond safety, process improvements in cost and project controls in sales and in our use of AI are helping us optimize SG&A. And that gives us confidence we can hold overhead stable as revenue grows. Ramp up timing can still create quarter to quarter variability and conversion has taken longer than we had initially expected. But a higher quality backlog, strong end market demand and discipline execution position us to deliver progressively higher revenue and more consistent returns. With that, I'll turn over to Todd to walk through the financials in more detail. Good afternoon, and thank you for joining us today. The Schimmick team delivered another strong quarter of progress, and it's exciting to see the strategic and operational changes we've made translate into improved financial performance. Most notably, we returned to positive net income. We delivered our fifth consecutive quarter of positive adjusted EBITDA and significantly strengthened our liquidity position. All comparisons I make will be on a quarter over quarter basis as compared to Q3 of 2025 unless otherwise noted. I will also talk about performance for the quarter and reference information that's not included in the slides, but is available in our 10-Q, which is posted to our investor website. Slide 9 summarizes revenue, gross margin, and adjusted EBITDA performance. To begin with revenue, SHMIC gap revenue for Q3 was $136 million, compared to $107 million in Q3 of 2025. This is an increase of $29 million, or 27%. The increase was driven by $69 million of revenue growth from new projects ramping up, offset by $26 million of lower burn on a mix of projects that are winding down, and a $14 million impact related to the completion of a lower-margin O&M project. Our proportionate share of revenue from joint ventures was approximately $10 million for the quarter. This brings our total revenue, including work put in place, to $146 million forthe quarter. Moving to gross margin, total gross margin was $17 million forthequarter. This is compared to $11 million in Q3 of 2025, representing an increase of $6 million on a year-over-year basis. The improvement was driven by new projects ramping up and favorable mix. Total gross margin on a percentage basis was 12% for the quarter, as compared to total gross margin of 8% in Q2 of 2025. SG&A was $14.3 million for the quarter and flat compared to Q3 of 2025. This reflects our continued commitment to cost discipline as we grow the business. Net income was $1 million or $0.02 of earnings per diluted share. This is compared to a net loss of $4 million or $0.12 per diluted share in Q3 of 2025. The $5 million year-over-year improvement in net income was driven by a $6 million increase in gross margin and a $1 million improvement in equity earnings from unconsolidated joint ventures. This was partially offset by higher interest expense. The higher interest expense was driven by the accelerated recognition of unamortized debt issuance costs following the early repayment of an equipment loan that we made during the quarter. We refinanced this equipment loan at a fixed rate approximately 320 basis points lower than the prior loan. This will have a favorable impact on interest expense going forward. Adjusted net income was $4 million for the quarter, or $0.08 per diluted share, compared to an adjusted net loss of approximately $200,000, or 1% per diluded share, in Q3 of 2025. Adjusted EBITDA was $9 million, compared with $4.0 million in Q2 of 2025, and adjusted EBITDAS also improved 106% sequentially. This quarter was our fifth consecutive quarter of positive adjusted EBITDA. Year-to-date, adjusted EBIDDA was approximately $16 million. This is surpassing the low end of our full-year guide for adjusted EBidDA. We ended Q3 with $53 million of liquidity. This is up $20 million from our $30 million liquidity position ending the second quarter. We ended the quarter with cash and cash equivalents of approximately $34 million. And cash flow from operations for the quarter was positive $10 million. This is the first positive quarter since Q4 of 2024. as you're all mentioned backlog just to cover again you know we're we're really excited about so new awards for q3 were 48 million we ended the quarter with 907 million of backlog booked with non-core representing less than two percent of our total backlog we also had another 401 million of projects that were pending a fully executed contract. So if you take the $907 million and the $401 million on a combined basis, this is near an all-time company high at just over $1.3 billion. We're encouraged by the quality of our new project awards as well and the favorable gross margin mix we expect as these new projects continue ramping up and become a greater percentage of our total overall burn. Moving on to slide 10, we're encouraged by the strong momentum we have moving into the fourth quarter. We have greater visibility now into non-core work as of the last quarter, and we are now able to narrow our guidance. We expect full-year revenue to come in between $500 and $525 million, which is a 4% increase on a year-over-year basis at the midpoint. Because the lower revenue was driven by non-core work that was not expected to contribute any gross margin, it has no impact on our profitability. Thus, we are increasing and narrowing our full year 2026 adjusted EBITDA guidance, And we now expect adjusted EVA to come in between $20 and $25 million for the full year. This represents a 350% increase on a year-over-year basis at the midpoint. Now, before I hand it back to you all, most importantly, I want to thank the talented men and women across Schemmich. Your commitment to our strategy, to safety, to quality, and operational excellence continues to drive our success. Your contributions position us to continue growing the business and winning the right way. Now back to you all. Thank you, Todd. Let me close where I started with the three messages from this quarter. First, profitability has turned. We are GAAP profitable for the first time in 12 quarters. We have delivered five straight quarters of positive adjusted EBITDA, and we have narrowed our full-year adjusted EBITA guidance to $20 to $25 million. Second, we have growth with visibility. Backlog plus pending awards stands at $1.3 billion, up 33% from a year ago, and much of the work we have won over the last 12 months is only now ramping into active construction. Third, we are de-risking our portfolio, and the balance sheet shows it. Non-core is under 2% of backlog, liquidity is up, and working capital is positive for the first time since we went public. We expect overall positive operating cash flow in 2027. The transformation we seek out to deliver is now visible in our results. Our job from here is execution, converting backlog, holding margins, and keeping overheads stable as we grow into 2027. I want to thank our employees for their focus on safety and on our clients every day, and our shareholders for their continued support. Operator, please open the line for questions. Thank you. At this time, if you would like to ask a question, please click on the raise hand button, which can be found at the black bar at the bottom of your screen. When it is your turn, you'll receive a message on your screen inviting you to join as a panelist. Please accept and wait until you are promoted to panelist, please unmute your audio, turn on your camera and ask your question. We will now pause a moment to allow the queue to form. Our first question comes from Aaron Spachala with Craig Hallam Capital Group. Your line is open, please. Unmute and ask a question. Yeah, good afternoon, Jeral and Todd. Thanks for taking the questions. Maybe first for us on orders. Can you just kind of walk through some of the dynamics there on timing? It sounds like still really nice opportunity with some of what's been awarded, but not yet contracted. um you know kind of more of a fourth quarter first quarter dynamic and um you know just talk about the the kind of bid pipeline that you're seeing there you kind of talked about being able to be a little bit more selective and what that might mean for margins yeah so um yeah we it's it's there's been a lot of timing issues uh some of the contracts that we showed as as a pending award last quarter and into this quarter uh we were able to convert a good portion of those since the quarter end uh so we're feeling much better now around uh again continuing to grow the backlog um and and we're adding to those pending awards uh uh column as well as we as we get through this next uh the next uh weeks of the weeks of this quarter um so generally bidding environment wise We're in great shape, continuing to bid profitable work. The 12-24-month outlook's great. And I think we're confident we're going to not only get this $1.3 billion into construction, $1,3 billion in contracts, but also continue to add to it. But the ability to be selective is also really nice because we have a really strong backlog right now where we can go, we can go pick the ones that we can make a little bit more gross margin on. All right. Thanks for that. And then on margins, obviously good performance this quarter. And can you just kind of talk a littlebit about what you're seeing in the market today with commodity costs and what customers are saying on that front and just the outlook as we move into 2027. It sounds like you expect continued improvement with what's in the backlog and kind of what you're seeing in the market. Yeah, it hasn't slowed down. Obviously, there's some pressure on the inflationary side, fuel prices, etc. But we generally either put contingency in our bids to cover those or just directly pass them on to our customers. So from a gross margin perspective we don't get impacted from uh from that from that pressure necessarily uh you know it's it's there's always the risk that down the road uh that could cut into uh especially public uh public sectors budgets as far as how much money they have and what they can actually continue to build because what they're building right now is costing more money uh but we haven't seen signs of that just yet uh we have robust outlook the the three are three focused states are going very robust in california washington and texas uh so we're we haven't we haven't seen uh we see good good outlook for 12 24 months so generally uh we're optimistic around keeping and growing the the gross margin profile as we get through 2027 good that's that's good to hear and then maybe last for me just on mission critical you know can you give us an update there and what bidding activity is looking like? I know there was a project last quarter you were hoping to close on. And just what have been some of the gating factors there as you kind of look at that opportunity coming in here moving forward? Yeah, great. Yeah, good question. It's really been the timing. About the $401 million we showed as our pending contracts, about half of that's mission-critical work. so we expect a bunch of those to get added to our backlog here very shortly and then there's a series of others that are not in that 401 that we are actively pursuing and expect to kind of put in that pending awards column here next quarter Alright that sounds good, thanks for taking the questions I'll turn it over Good to see you Thank you. Our next question comes from Brandon Rogers with Roth Capital. Your line is open. Please unmute your audio, turn on your camera, and ask your question. Hello. Thanks for taking my questions. I'm on for Jerry Sweeney. Aaron asked a good amount of my questions, but just in terms of monthly bidding activity and then overall demand environment for your Axia electrical division, just given all the data center, noise post-election, any update on that? Yeah, so I'll start with the second one. We haven't seen any slowdown in the data center. We haven seen that noise affect our bidding activity so far. A lot of the existing builds are going just as strong and we are kind of, we are a specialty subcontractor there. So we kind of show up after the project is already permitted and funded and not really speculative anymore. So from that perspective, we have a robust set of opportunities that we're working on and we're hoping we'll convert to contracts here this next quarter. So from THAT perspective, we feel very optimistic and good about our ability to grow the data center market or mission critical market in general and kind of tying back to your earlier question that is a big most of that work that we're pursuing and winning in the data center market is electrical work so it's uh as we go forward uh we expect the electrical backlog to significantly increase as part of the overall backlog of the company uh and go from the the high teens to 30% or more in 2027, which had been a goal that we had set about a year ago, which we are, we are accomplishing now. And very happy to see the growth of our electrical business as we, as we go forward. All right. Thanks. Thanks, you're all on Todd. I appreciate it. So I had. Thank you. Thank you all. there are no further questions at this time i will now hand the call over to you all for closing remarks um thank you uh we we uh posted another quarter that reflects our ability to ability to complete non-core work and move into more profitable higher gross margin work and that generates free cashflow. And we are optimistic about our future and 2027, going into 2027 that our transformation is going to continue to yield good results. So thank you for your interest in Shemek and have a good day.