Shimmick's Q3 2025: Contradictions Emerge on Axia Pipeline, Data Center Bids, and Non-Core Margins

Date of Call: October 03, 2025

Financials Results

• Revenue: $142 million, down 15% YOY vs $166M in Q3'24; excluding one-time GGB settlement, like-for-like revenue grew ~5% YOY
• Gross Margin: $11 million, down $1M YOY vs $12M in Q3'24; excluding GGB settlement, like-for-like gross margin improved ~$10M; Shimmick projects GM $10M, up 61% YOY

Guidance:

• Reaffirm full-year 2025 outlook: Shimmick project revenue $405M–$415M
• Consolidated gross margin expected between 9%–12%
• Noncore project revenue $80M–$90M with gross margin between -15% and -5%
• Consolidated adjusted EBITDA expected $5M–$15M (company expects revenue toward higher end of range and EBITDA toward lower end)

Business Commentary:

* Revenue and Margin Improvement: - Shimmick reported revenue of $142 million for Q3 2025, with a gross margin of $11 million and adjusted EBITDA of $4 million. - The improvement was driven by an increase in Shimmick projects, which accounted for 75% of the revenue, and operational improvements that enhanced gross margins.

• Backlog and Bidding Activity Growth:
• Shimmick grew its backlog by over $100 million (15% sequentially) to reach $754 million as of October 3, 2025.
• This growth was supported by robust bidding activity, including $1 billion in bidding volumes in September and October, and a book-to-burn ratio of 1.7.

• Electrical and Water Market Expansion:
• The company is actively pursuing opportunities in the electrical and water sectors, driven by demand for water treatment and electrical projects like shore power improvements.
• This expansion is supported by favorable market conditions and the company's strong presence in Texas and the West Coast.

• Noncore Projects Decline:
• Noncore project revenue decreased to $35 million in Q3 2025, a 46% decline from the previous year.

• This decline is attributed to the company's strategic shift to focus on core projects that align with its strengths and market differentiators.

• Liquidity and Financial Positioning:

• Shimmick maintained a strong liquidity position with $48 million in total liquidity at the end of the quarter.
• This position is supported by the company's disciplined execution of its transformation strategy and backlog growth.

Sentiment Analysis:

Overall Tone: Positive

• Management: "we are making progress" and "transformation is clearly hitting its stride." Backlog grew >$100M sequentially to $754M, book-to-burn 1.7x, achieved positive adjusted EBITDA this year, and finished Q3 with $48M total liquidity.

Q&A:

• Question from Aaron Spychalla (Craig-Hallum Capital Group): How much of the pipeline/backlog does Axia represent today and expected growth/end markets?
  Response: Axia represents mid-teens percentage of bidding/backlog (~15–16%) and is growing, driven by electrification and industrial electrical work (including water treatment, data centers), with Texas a key market.

• Question from Aaron Spychalla (Craig-Hallum Capital Group): Do you have data center projects, markets, sizing and margin profile?
  Response: Actively bidding for data center and mission-critical electrical work in Texas, Tennessee and Georgia; pursuing multiple opportunities to add higher-margin work to backlog.

• Question from Aaron Spychalla (Craig-Hallum Capital Group): Can you discuss cash flow dynamics this quarter and outlook as legacy projects wind down?
  Response: Cash flow is lumpy due to legacy non-core projects but impact should decline as those projects finish (targeted completion by end of 2026); company comfortable with $48M liquidity.

• Question from Gerard Sweeney (ROTH): What gives you confidence to hit the lower end of the $5M–$15M adjusted EBITDA range (implying a strong Q4)?
  Response: Higher-margin new work is starting to ramp and will increasingly offset loss-generating noncore projects, supporting stronger results into Q4.

• Question from Gerard Sweeney (ROTH): How is the shift toward negotiated work progressing?
  Response: Negotiated work is becoming a larger portion of bid volume, with several projects in negotiation and electrical opportunities often delivered via negotiated contracts.

• Question from Gerard Sweeney (ROTH): Is the move to negotiated work a multiyear process?
  Response: Yes; management expects meaningful benefits to materialize by 2027.

• Question from Gerard Sweeney (ROTH): Any target percentage for negotiated work in backlog?
  Response: Target is roughly 50% negotiated work to achieve a balanced, lower-risk backlog mix.

• Question from Gerard Sweeney (ROTH): The non-core work had positive gross margins this quarter — is that sustainable?
  Response: Margins improved primarily from scope growth and project closeouts; management aims to keep margins roughly even but expects remaining non-core work to continue through 2026.

Contradiction Point 1

Axia's Representation in the Pipeline

It directly impacts expectations regarding the growth and significance of Axia in the company's pipeline, which could influence strategic planning and investor expectations.

What is the current size of Axia's pipeline or backlog, and what growth do you anticipate in the coming quarters? - Aaron Spychalla(Craig-Hallum Capital Group)

20251114-2025 Q3: Right now, Axia represents about 15-16% of what we're bidding on a monthly basis. - Ural Yal(CEO)

How much of the current pipeline or backlog is attributed to Axia today? - Aaron Spychalla(Craig-Hallum Capital Group LLC, Research Division)

2025Q3: Axia represents about 15%, 16-ish percentage-like the mid-teens, a little bit higher maybe. - Ural Yal(CEO)

Contradiction Point 2

Data Center Activity and Opportunities

It involves differing views on the company's presence and work in the data center market, which impacts strategic positioning and potential growth opportunities.

Do you have any data center projects? Which markets are you active in, and what are their projected size and margin profiles? - Aaron Spychalla(Craig-Hallum Capital Group)

20251114-2025 Q3: We are actively bidding in Texas, Tennessee, and Georgia. There's a big shortage, and there's a lot of work in the data center arena. - Ural Yal(CEO)

Regarding data centers, are there any active projects? Which markets are seeing activity? And what is the size and margin profile of these projects? - Aaron Spychalla(Craig-Hallum Capital Group LLC, Research Division)

2025Q3: Texas has quite a few of those. So we're actively bidding in Texas. We're bidding in the Tennessee, Georgia area. - Ural Yal(CEO)

Contradiction Point 3

Non-Core Work and Gross Margins

It affects financial expectations and the company's ability to maintain consistent profitability, which is crucial for investors.

Was the positive gross margin in non-core work due to seasonal factors, and can those margins remain near flat to slightly positive moving forward? - Gerard Sweeney(ROTH)

20251114-2025 Q3: Positive gross margins are largely due to closing out projects and negotiating additional revenue for scope growth with clients. - Ural Yal(CEO)

Were the positive gross margins in noncore activities due to quarter timing? Do you have more visibility into these activities? Can these margins remain near flat or slightly positive moving forward? - Gerard Sweeney(ROTH Capital Partners, LLC, Research Division)

2025Q3: Yes. I mean yes, so it's a couple of things where we're obviously getting through them. And as you get to the end of those projects, there's always some scope growth that plays into that. - Ural Yal(CEO)

Contradiction Point 4

Non-Core Project Completion Timeline

It involves differing timelines for the completion of non-core projects, which impact the company's financial and operational forecasting.

Can you discuss the cash flow dynamics this quarter and how they will trend over the next few quarters and long term as legacy projects are resolved? - Aaron Spychalla(Craig-Hallum Capital Group)

20251114-2025 Q3: We have a negative impact from non-core legacy projects, but as we get through them, the cash flow will improve. We expect to be done by the end of 2026. - Ural Yal(CEO)

How much legacy activity remains for 2026, and how confident are you in completing it within budget without volatility? - Aaron Spychalla(Craig-Hallum)

2025Q2: Most noncore work is expected to be completed by mid-2026, with the remaining project having some risk but a lower profile than initially anticipated. - Ural Yal(CEO)

Contradiction Point 5

Electrical Work and Market Focus

It highlights differing perspectives on the focus and growth potential of electrical work, which is a strategic area for the company's expansion and revenue generation.

Can you provide the current size of Axia's pipeline or backlog and the expected growth in the coming quarters? - Aaron Spychalla(Craig-Hallum Capital Group)

20251114-2025 Q3: We're seeing a lot of electrification-related work, especially industrial electrical work, both on water treatment plants and manufacturing facilities. - Ural Yal(CEO)

How does the $4.5 billion pipeline over the next 12 months compare to recent quarters, and what are the historical or targeted win rates? - Aaron Spychalla(Craig-Hallum)

2025Q2: Axia is taking its time, as we talked about earlier, to win work that is consistent with its backlog and margin requirements. Overall, our H1 bid volume and win rate is virtually unchanged from prior year levels and has improved sequentially from Q1. - Ural Yal(CEO)