SHMIC (SHIM) Q3 2025: Backlog Climbs 15% on Water and Electrical Award Surge
SHMIC’s Q3 marked a decisive inflection as core project mix and backlog growth outpaced legacy drag, signaling structural improvement in execution and margin quality. With water and electrical sectors driving a 15% sequential backlog increase and SHMIC projects now 86% of backlog, the business is pivoting toward higher-margin, risk-balanced work. Management’s focus on negotiated contracts and disciplined bidding is setting up a multi-year margin uplift as non-core exposure winds down into 2026.
Summary
- Backlog Expansion Accelerates: Core water and electrical wins drove a $100M+ sequential backlog increase.
- Margin Quality Improvement: Higher-margin SHMIC projects now dominate mix as legacy drag recedes.
- Strategic Shift to Negotiated Work: Management targets 50% negotiated contracts by 2027 for risk balance.
Performance Analysis
SHMIC’s third quarter results underscore a business in transition, with legacy non-core projects winding down and the core portfolio of SHMIC-branded work accelerating. While total revenue declined year-over-year due to a one-time claim settlement in 2024, underlying like-for-like growth was positive, and SHMIC project revenue rose 5% from the prior year. Gross margin quality improved sharply, up 61% on SHMIC projects, as operational improvements and disciplined project selection began to flow through the P&L.
Adjusted EBITDA turned positive for the first time this year, reflecting the mix shift toward higher-quality backlog. Non-core project revenue fell 46% year-over-year, consistent with the company’s plan to exit these lower-margin, higher-risk contracts. Backlog growth was the standout metric, with a 15% sequential increase to $754 million, fueled by large awards in water infrastructure and electrical segments. SHMIC projects now account for 86% of total backlog, up from prior quarters, indicating a structural shift in business mix.
- Book-to-Burn Ratio Rises: 1.7x in Q3, first time above 1.0 in two years, signaling robust award activity.
- Liquidity Remains Solid: $48 million in liquidity supports ongoing project execution and bid capacity.
- Non-Core Drag Diminishing: Non-core revenue now just 25% of Q3 total, with negative margin impact gradually tapering.
The financials reflect a business pivoting away from legacy headwinds, with operational discipline and market tailwinds in water and electrical construction positioning SHMIC for a more predictable growth and margin profile into 2026.
Executive Commentary
"We are starting to see the new SHMIC come to fruition. We achieved a book-to-burn ratio of 1.7 in the third quarter, a significant improvement from last quarter, and for the first time, we exceeded 1.0 in two years."
Jerold Yal, Chief Executive Officer
"Our backlog mix continues to improve, with SHMIC projects now representing 86% of our total backlog to end the quarter. We are fully committed to winning the right way, one of the three pillars that define our growth strategy of building sustainable risk-balanced backlog."
Todd Yoder, Chief Financial Officer
Strategic Positioning
1. Core Project Focus and Mix Shift
SHMIC has executed a deliberate pivot to core projects, with over 75% of Q3 revenue and 86% of backlog now from SHMIC-branded work. This transition is fundamental to margin expansion, as these projects are selected for alignment with company strengths and risk appetite. Management’s ongoing completion of non-core projects is reducing negative margin impact and freeing capacity for higher-quality work.
2. Water and Electrical Segment Tailwinds
The strategic emphasis on water infrastructure and electrical projects is paying off, with both segments driving outsized backlog growth and pipeline activity. Water projects, especially in Texas and on the West Coast, benefit from public funding, population growth, and regulatory drivers. Electrical, including data centers and port electrification, is seeing robust opportunity flow, with management highlighting mission-critical and industrial verticals as key growth levers.
3. Negotiated Contract Strategy
Management is actively pursuing a shift to more negotiated work, aiming for a 50-50 mix by 2027. Negotiated contracts, defined as projects where pricing and scope are collaboratively set rather than competitively bid, typically carry lower risk and more stable margins. This strategic move is expected to further derisk the backlog and support margin predictability, especially as electrical work, which trends more negotiated, expands in the mix.
4. Operational Discipline and Execution
Operational improvements are evident in reduced G&A expense and improved project ramp-up, as seen in the $8 million gross margin contribution from new projects. The company’s focus on disciplined bidding, risk screening, and execution efficiency is translating into more consistent results and stronger client relationships, setting the stage for sustained margin gains.
5. Backlog Visibility and Pipeline Strength
With a 12-month bidding outlook exceeding $9 billion, SHMIC’s addressable market remains robust. The company’s ability to win large-scale, high-profile projects (such as the $116 million Modesto and $51 million Belota Weir awards) provides multi-quarter revenue visibility and positions the business to capitalize on secular infrastructure trends.
Key Considerations
SHMIC’s Q3 underscores the importance of disciplined execution and strategic market positioning as the company moves past legacy drag and toward a higher-margin, risk-balanced model. The following factors are critical for investors tracking the transformation:
- Mix Improvement Drives Margin: Continued shift toward SHMIC projects and away from non-core work is structurally improving profitability.
- Backlog Quality and Visibility: Large, multi-year water and electrical awards provide durable revenue base and pipeline strength.
- Negotiated Work Transition: Management’s 50% negotiated contract target by 2027 will lower risk and stabilize earnings.
- Legacy Project Wind-Down: Remaining non-core drag expected to diminish through 2026, reducing volatility and freeing up resources.
- Liquidity Supports Growth: Ample cash and credit capacity enable continued bidding and project ramp-up without near-term capital constraints.
Risks
Execution risk remains as SHMIC completes legacy non-core projects, which still carry negative margins and could introduce cost surprises through 2026. The transition to negotiated work is a multi-year process, and any delay could slow margin improvement. Sector concentration in water and electrical, while a current tailwind, exposes the business to changes in public funding cycles and infrastructure demand. Cash flow remains lumpy, with legacy project settlements and working capital swings requiring ongoing vigilance.
Forward Outlook
For Q4 2025, SHMIC guided to:
- SHMIC project revenue at the upper end of the $405M–$415M range for the year
- Adjusted EBITDA toward the lower end of the $5M–$15M range, reflecting remaining non-core drag
For full-year 2025, management reaffirmed guidance:
- Overall gross margin between 9% and 12%
- Non-core project revenue of $80M–$90M, with gross margin between negative 15% and negative 5%
Management cited backlog quality, higher-margin new project ramp, and continued operational discipline as key drivers for hitting the lower end of EBITDA guidance, despite seasonality and legacy headwinds. They expect margin mix to improve further as new awards convert to revenue and non-core work winds down.
- Strong pipeline in water and electrical supports confidence into 2026
- Negotiated contract share expected to rise, further derisking backlog
Takeaways
SHMIC’s Q3 signals a business at a strategic turning point, with backlog and margin quality improving as legacy work subsides.
- Backlog Growth Is Durable: Recent awards in water and electrical infrastructure provide multi-year revenue visibility and support higher-margin execution.
- Margin Expansion Is Structural: Mix shift to SHMIC projects and negotiated work is steadily reducing risk and improving profitability, with a clear glidepath through 2026.
- Monitor Legacy Wind-Down: Investors should track the pace of non-core completion and conversion of high-quality backlog to revenue as leading indicators of sustained performance improvement.
Conclusion
SHMIC’s third quarter confirms the company’s strategic transformation is gaining traction, with backlog composition, operational discipline, and market positioning all pointing to a more predictable, higher-margin business model. Execution on negotiated contract growth and legacy project wind-down will be critical to sustaining this momentum into 2026.
Industry Read-Through
SHMIC’s results highlight intensifying demand for water infrastructure and electrical contracting, especially in regions experiencing population growth and regulatory-driven investment. The pivot to negotiated contracts reflects a broader industry trend toward risk mitigation and margin stability, especially as public and industrial clients prioritize reliability and partnership over lowest-cost bids. Backlog strength and project mix improvement are key signals for peers in the infrastructure and specialty contracting sectors, suggesting that disciplined bidding and operational focus will be rewarded as legacy exposures are addressed. Investors in the sector should watch for similar mix shifts and backlog quality upgrades as harbingers of sustainable margin expansion and lower earnings volatility.