Shimmick Q2 FY26 earnings call SHIM

Shimmick continued to execute its strategy by making further progress winding down noncore projects while driving operational improvements across the business. These efforts enhanced efficiency, improved execution, and supported consistent margins. The company's focus on safety is tracking ahead of 2025 levels, and enhanced project controls and cost management initiatives are contributing to margin consistency despite a dynamic operating environment.

The company's total backlog reached $991 million at the end of Q2 FY26, its highest level in 2 years. This was further bolstered by $221 million in additional new awards subsequent to quarter end, bringing the combined total to over $1.2 billion. This growth reflects improved win rates and a disciplined approach to pursuing higher-quality, lower-risk projects in key growth markets like water, transportation, power, and electrification.

Shimmick established a dedicated Mission Critical business unit to capitalize on strong demand in data centers, advanced manufacturing, defense, renewables, and critical minerals. The data center market is a significant focus, with a large project in West Virginia transitioning to preconstruction and construction anticipated to start within 60 days. Management expects this segment to become a sizable portion of the business within 12 months, with target gross margins of 15-20%.

While some projects experienced longer-than-expected ramp-up times (6-7 months compared to the typical 3-4 months), management noted that these projects are now beginning to move forward into execution. Less than 10% of the backlog booked over the past 12 months has converted into revenue to date, providing meaningful visibility and supporting expectations for continued revenue growth in upcoming quarters as these projects ramp up.

The company anticipates further margin expansion as more recently awarded, higher-margin projects move from backlog into active construction. The reduction of noncore backlog to less than 3% of the total backlog is expected to have a favorable mix impact on total gross margins moving forward on a year-over-year basis, contributing to improved absorption of overhead.

Shimmick remains focused on core markets in California, Texas, and Washington, with Texas offering significant opportunities in water and data centers. The company is also following key customers to adjacent regions through its new mission-critical business unit. Management is committed to optimizing SG&A costs, aiming to keep them at current levels while investing in the business, leveraging existing overhead structure to support higher revenue volumes.