Shimmick Corp Q1 FY2026 earnings call

Strategic Progress and Backlog Growth

• The company's core strategy focuses on growing high-quality aligned project backlog, winding down non-core legacy work, and improving execution to deliver consistent margins.
• The firm achieved a book-to-burn ratio of 2.6 in Q1 2026, the highest ratio since the company went public, reflecting strong demand for core services and improving project quality.
• Total backlog reached $944 million at the end of Q1 2026, the highest backlog level in over two years, with $289 million in new project awards booked during the quarter.

Core Market and Project Wins

• Strong momentum is seen across core geographies, with notable wins in Texas (driven by population growth and long-term infrastructure investment) and California (driven by climate resilience and water infrastructure investment).
• Notable new awards include the Vista Grande Drainage Basin Improvements Project (Northern California), flood protection work in Napa (California), and a wastewater treatment plant expansion in Austin (Texas).
• The data center end market is identified as a compelling long-term growth opportunity, with multiple active bids in Texas and Reno and strong inbound customer engagement, leveraging Axia's electrical construction capabilities.
• The 24-month bidding pipeline remains robust, with 600 million to 1 billion in expected monthly bidding volumes, supporting disciplined, selective project pursuit.

Operational and Leadership Improvements

• Sarah Thacker was appointed Executive Vice President and Chief Operating Officer in April 2026, strengthening the management team with scaled operational experience to improve disciplined execution and risk management.
• The firm has implemented enhanced project controls and technology to improve cost, schedule, and productivity visibility, enabling earlier issue identification and proactive performance management.
• Centralized procurement has been rolled out to improve purchasing efficiency and cost control by leveraging company scale and standardizing processes.
• Talent retention and acquisition remain a top priority to support execution in a competitive labor market.
• The company is expanding its use of collaborative, progressive design-build contracting models that enable earlier client partnership and more risk-balanced contract structures; a $50 million Southern California wastewater project was awarded post-quarter under this model.

Core SHMIC Projects: Q1 2026 revenue was $88 million, down from $93 million in Q1 2025. Gross margin was $10 million (11% of revenue), an 89% increase from $5 million (6% of revenue) in Q1 2025, representing 90.9% of total consolidated gross profit. Non-core Projects: Q1 2026 revenue was $200 thousand, down sharply from $29 million in Q1 2025. Gross margin was $1 million, an improvement from a -$1 million gross margin in Q1 2025. Non-core projects now represent less than 5% of total backlog. Consolidated: Total Q1 2026 revenue was $88 million, down from $122 million in Q1 2025. Total gross margin was $11 million (12% of revenue), a 132% increase from $5 million (4% of revenue) in Q1 2025. G&A expense remained flat at $14 million. Net loss was $4 million, a 55% improvement over the $10 million net loss in Q1 2025. Adjusted EBITDA was $3 million, up from -$3 million in Q1 2025. Axia Electric (electrical construction subsidiary): Continued strong operational performance, with growing momentum that supports its role as a long-term strategic growth pillar for the firm.

• Management reaffirmed its full-year 2026 guidance despite the termination of the non-core Chickamauga Lock Replacement Project, noting the strong Q1 new award activity offset any lost revenue from the project.
• Full-year 2026 consolidated revenue is expected to grow 12% to 22% year-over-year (17% at the midpoint), equaling $550 million to $600 million in total revenue for the full year; management noted revenue may trend toward the lower end of the range but remains fully achievable.
• Full-year 2026 adjusted EBITDA is expected to increase 200% to 500% year-over-year (350% at the midpoint), reaching a range of $15 million to $30 million.
• Management expects sequential quarter-over-quarter revenue and margin growth throughout 2026, with a visible revenue inflection expected in Q3 2026 as newly won projects ramp up to consistent execution.

• Disputes over scope and schedule on the non-core Chickamauga Lock Replacement Project with the U.S. Army Corps of Engineers have resulted in project termination, and the matter is proceeding through the customary federal dispute resolution process.
• Construction industry is exposed to commodity price inflation and fuel cost volatility, though management notes current bidding incorporates these cost impacts into project pricing.
• The construction sector faces ongoing competitive labor market pressures that can impact talent acquisition and retention, a key operational risk the firm is prioritizing.
• Construction revenue and margin performance can be lumpy quarter-to-quarter due to project ramping timelines and weather-related disruptions, as seen with slower winter 2026 project activity.

Q: What financial impact did the Chickamauga Lock Replacement Project termination have on full-year guidance, and will it affect the firm's ability to win new work from the U.S. Army Corps of Engineers? / A: Management notes the lost annual revenue from Chickamauga would have been $20 million to $30 million, but the $289 million in Q1 2026 new core awards fully offsets this loss. Revenue may trend slightly toward the lower end of the guided range, but the full 2026 guidance remains achievable. The firm continues to bid at the same historical pace, and the dispute does not impact its broader long-term relationship with the Army Corps, which has two other active projects progressing as planned.

Q: What is the outlook for core gross margins moving forward, and how is the company navigating higher commodity costs? / A: All commodity and fuel cost inflation is already built into pricing for newly bid projects, so no unexpected margin impact is expected for new work. With non-core legacy drag removed from the backlog and a larger high-quality core backlog, management expects core gross margins will continue rising from the 11% Q1 2026 level, reaching 12-13% as recently won projects ramp up. A stronger backlog position also allows the firm to be more selective and pursue higher-margin projects.

Q: What is the outlook for data center electrical work, and is it accurate to expect growing opportunities for Axia as data center development progresses through 2026 and 2027? / A: This assumption is correct. Most current data center development is concentrated in Texas and Reno, which are core growing geographies for SHMIC, creating strong aligned opportunity. SHMIC focuses on the electrical and mechanical scopes of data center projects (not early-stage concrete/earthwork), which come later in the development timeline matching the expected ramp-up of opportunities. Bidding is active now, with a timeline to award and project start similar to the firm's traditional public works projects.

Q: What is the cash flow outlook as new projects ramp up, after drag from legacy non-core work? / A: Management is very optimistic about improving cash flow in 2026. Legacy non-core work has historically been a drag on cash, so as that work is fully wound down, overall cash generation will improve. Core SHMIC projects have consistently generated cash, and new projects include upfront cash contributions that will further support liquidity. The firm ended Q1 with $34 million in total liquidity, including $15 million in unrestricted cash.