DIRTT Environmental Solutions Ltd. (“DIRTT” or the “Company”)
(Nasdaq: DRTT, TSX: DRT), a global leader in industrialized
construction that empowers organizations, together with
construction and design leaders, to build high-performing,
adaptable, interior environments, today announced its financial
results for the three months ended March 31, 2022. All financial
information in this news release is presented in U.S. dollars,
unless otherwise stated.
First Quarter 2022
- Revenue of $38.3 million
- Gross profit margin of 8.6%
- Adjusted Gross Profit Margin1 of 17.7%
- Net loss of $23.0 million
- Net loss margin of (60.2%)
- Adjusted EBITDA1 of ($12.0) million
- Adjusted EBITDA Margin1 of (31.2%)
- Unrestricted cash balance of $38.9 million
Note: (1) See “Non-GAAP Financial Measures”
Management Commentary
“First quarter revenue was at the low end of our estimates but
was an increase of 30% over the same period in 2021 and we believe
mark a shift in activity levels as the pandemic moves to endemic
with the easing of health restrictions across North America,” said
Geoff Krause, CFO and co-interim CEO. “While the beginning of the
year temporarily sent many employees back to their home offices and
delayed return dates, we experienced a strong uptick in activity
that began to translate into orders in March. Approximately 46% of
our first quarter revenues were generated in March and we have seen
improved sales activity continue into the second quarter. March
marked the highest revenue month since October of 2020 and the
second highest revenue month since the beginning of the pandemic.
Our twelve-month forward pipeline, including leads, increased by 5%
to $318 million from $302 million at January 1, 2022.”
“In early April, we completed our final shift at the Phoenix
Facility and commenced decommissioning activities,” said Jeffrey
Calkins, COO and co-interim CEO. “While this closure temporarily
impacted labor capacity in April as a result of hiring challenges
in Savannah, we are actively focused on increasing staff levels at
Savannah and Calgary required to expand aluminum manufacturing at
those facilities to support the activity levels that we are seeing
build and to meet our delivery timeline commitments.”
“We expected high cash usage in the first quarter,” added Mr.
Krause, “driven by the slow start to the quarter which resulted in
working capital build combined with one-time restructuring costs
and professional fees associated with the contested director
elections. Full year revenue guidance is consistent with
improvements in cash usage as 2022 progresses as a result of
sequential improvements in revenues and a lower fixed cost base,
approaching monthly cashflow breakeven in the third or fourth
quarter of 2022.”
Mr. Krause concluded, “As an organization, we are relieved to
have the proxy fight behind us and enthusiastically welcome our new
board of directors. It is with the unwavering belief in the
opportunity for DIRTT, in our employees who have repeatedly
demonstrated extraordinary resilience and loyalty for our company
and in our partners with whom we are grateful to work with every
day, that Jeff Calkins and I assumed the role of co-CEO during this
interim period. We are also pleased to announce the appointment of
Jeffrey Metcalf to interim CFO, effective May 9th, 2022, to enable
me to better focus on my new responsibilities working alongside
Jeff Calkins.”
Ken Sanders commented, “We have been humbled by the support from
the employees and partners during the early stages of the
transition to the new board of directors. The board of directors is
grateful for the commitment and leadership of Geoff Krause and Jeff
Calkins who stepped up to the role of co-interim CEO and, along
with the rest of our very talented leadership team are providing
strategic insight and strong guidance for developing the path
forward for the organization. The CEO search process has been
immediately prioritized and we have picked up and accelerated the
Company’s search process already underway. We anticipate being able
to welcome a new CEO by mid-year.”
“In our early observations, we strongly believe that together
with our leadership, our re-energized employees and our partners,
we can unlock meaningful value for shareholders, customers and
other stakeholders under the stewardship of the new board. We have
confidence in the financial guidance provided previously by the
organization and believe the second quarter revenue range between
$43M - $47M and full year revenue range between $175M - $185M are
achievable” Mr. Sanders continued. “On behalf of the board of
directors, we are enthusiastically looking forward to leveraging
our industry experience to be of service to DIRTT in promoting its
growth and financial performance as a public company.”
First Quarter Financial Review
Revenues for the quarter ended March 31, 2022 were $38.3
million, an increase of $8.8 million or 30% from $29.5 million for
the period ended March 31, 2021. While the resurgence of COVID-19
infections due to the Omicron variant at the beginning of the year
temporarily sent many employees back to their home offices and
delayed return dates, DIRTT and its partners experienced an uptick
in planning activity and opportunities growth which began to
translate into orders in March 2022.
Gross profit for the quarter ended March 31, 2022 was $3.3
million or 8.6% of revenue, a decrease of $0.1 million or 2% from
$3.4 million or 11.4% of revenue for the quarter ended March 31,
2021. The decrease in gross profit margin largely reflects
significant inflationary increases in the realized cost of
materials, transportation and packaging partially offset by
improved labor utilization and fixed cost leverage on higher
revenues. Gross profit for the quarter ended March 31, 2022 also
included $1.1 million of accelerated depreciation and amortization
arising from a change in useful life of assets.
Adjusted Gross Profit and Adjusted Gross Profit Margin (see
“Non-GAAP Financial Measures”) for the quarter ended March 31, 2022
was $6.8 million or 17.7%, respectively, a decrease from $7.2
million or 24.3%, respectively, for the quarter ended March 31,
2021, due to the reasons described above.
Sales and marketing expenses increased by $0.6 million to $7.2
million for the three months ended March 31, 2022 from $6.7 million
for the three months ended March 31, 2021. The increases were
largely related to an increase of $0.4 million in travel, meals and
entertainment expenses as business activity has increased and
restrictions on travel have eased, a $0.3 million increase in
commissions due to higher sales volumes and increased facilities
costs related to the Dallas DXC which opened in the third quarter
of 2021, offset by a decrease in salaries and benefits costs.
General and administrative expenses increased $0.8 million to
$8.0 million for the three months ended March 31, 2022 from $7.2
million for the three months ended March 31, 2021. The increase
reflects $1.5 million of incremental professional fees associated
with the contested director elections offset by a $0.7 million
decrease in salaries and benefits costs.
Operations support expenses increased by $0.2 million from $2.3
million for the three months ended March 31, 2021 to $2.5 million
for the three months ended March 31, 2022. The increase was due to
lower costs capitalized to internal projects with the completion of
the Rock Hill manufacturing facility and Dallas DXC.
Technology and development expenses increased by $0.2 million to
$2.1 million for the three months ended March 31, 2022, compared to
$1.9 million for the three months ended March 31, 2021, primarily
related to a decrease in capitalized software development
costs.
During the quarter we incurred $3.7 million in reorganization
costs associated with salaried workforce reductions and initial
costs associated with the closure of the Phoenix Facility. Overall
one-time costs were initially estimated to be $5 million, we now
anticipate a further $4.4 million of reorganization costs in the
second quarter, as the Company incurred a $3.1 million charge for
incremental insurance on change of control of the board on April
26, 2022.
Net loss for the three months ended March 31, 2022 was $23.0
million compared to $12.5 million for the three months ended March
31, 2021. The higher net loss is primarily the result of a $0.1
million decrease in gross profit, a $5.6 million increase in
operating expenses including $3.7 million of reorganization
expenses and $1.5 million of incremental professional fees as
described previously, a $0.8 million increase in interest expense,
a $0.6 million increase in foreign exchange loss and a $3.5 million
decrease in government subsidies.
Adjusted EBITDA (see “Non-GAAP Financial Measures”) for the
quarter ended March 31, 2022 was a $12.0 million loss or (31.2)%, a
decline of $0.6 million from a $11.4 million loss or (38.6)% for
the quarter ended March 31, 2021 for the above noted reasons.
Conference Call and Webcast Details
A conference call and webcast for the investment community is
scheduled for Thursday, May 5th, 2022 at 8:00 a.m. MDT (10:00 a.m.
EDT). The call and webcast will be hosted by Ken Sanders, board
chair, Geoff Krause, chief financial officer and interim co-chief
executive officer, Jeff Calkins, chief operating officer and
interim co-chief executive officer, and Kim MacEachern, director of
investor relations.
The conference call will be broadcast live in listen-only mode
available through the company website at dirtt.com/investors.
Alternatively, click here to listen to the live webcast.
To join by telephone, dial +1-800-319-4610 (toll-free in North
America) or +1-604-638-5340 (international). Please dial in a
minimum of 15 minutes prior to the start time to ensure a timely
connection to the call.
Investors are invited to submit questions to ir@dirtt.com before
the call. Supplemental information slides will be available within
the webcast and at dirtt.com/investors prior to the call start.
A replay of the webcast will be available online and on DIRTT’s
website.
Statement of Operations
(Unaudited – Stated in thousands of U.S. dollars)
|
For the Three Months Ended March 31, |
|
|
2022 |
|
|
2021 |
|
Product revenue |
37,451 |
|
|
28,542 |
|
Service revenue |
835 |
|
|
923 |
|
Total
revenue |
38,286 |
|
|
29,465 |
|
Product cost of sales |
34,607 |
|
|
23,551 |
|
Costs of under-utilized
capacity |
- |
|
|
1,756 |
|
Service cost of sales |
392 |
|
|
788 |
|
Total cost of
sales |
34,999 |
|
|
26,095 |
|
Gross
profit |
3,287 |
|
|
3,370 |
|
Expenses |
|
|
|
|
|
Sales and marketing |
7,228 |
|
|
6,670 |
|
General and
administrative |
7,993 |
|
|
7,241 |
|
Operations support |
2,498 |
|
|
2,297 |
|
Technology and
development |
2,140 |
|
|
1,935 |
|
Stock-based compensation |
1,302 |
|
|
1,094 |
|
Reorganization |
3,692 |
|
|
- |
|
Total operating
expenses |
24,853 |
|
|
19,237 |
|
Operating
loss |
(21,566 |
) |
|
(15,867 |
) |
Government subsidies |
575 |
|
|
4,068 |
|
Foreign exchange loss |
(732 |
) |
|
(180 |
) |
Interest income |
11 |
|
|
19 |
|
Interest expense |
(1,330 |
) |
|
(500 |
) |
|
(1,476 |
) |
|
3,407 |
|
Loss before
tax |
(23,042 |
) |
|
(12,460 |
) |
Income
taxes |
|
|
|
|
|
Deferred tax expense |
- |
|
|
39 |
|
|
- |
|
|
39 |
|
Net loss |
(23,042 |
) |
|
(12,499 |
) |
Loss per
share |
|
|
|
|
|
Basic and diluted loss per
share |
(0.27 |
) |
|
(0.15 |
) |
Weighted average
number of shares outstanding (in thousands) |
|
|
|
|
|
Basic and Diluted |
85,451 |
|
|
84,681 |
|
Non-GAAP Financial Measures
Our condensed consolidated interim financial statements are
prepared in accordance with GAAP. These GAAP financial statements
include non-cash charges and other charges and benefits that we
believe are unusual or infrequent in nature or that we believe may
make comparisons to our prior or future performance difficult.
As a result, we also provide financial information in this news
release that is not prepared in accordance with GAAP and should not
be considered as an alternative to the information prepared in
accordance with GAAP. Management uses these non-GAAP financial
measures in its review and evaluation of the financial performance
of the Company. We believe that these non-GAAP financial measures
also provide additional insight to investors and securities
analysts as supplemental information to our GAAP results and as a
basis to compare our financial performance period over period and
to compare our financial performance with that of other companies.
We believe that these non-GAAP financial measures facilitate
comparisons of our core operating results from period to period and
to other companies by removing the effects of our capital structure
(net interest income on cash deposits, interest expense on
outstanding debt and debt facilities, or foreign exchange
movements), asset base (depreciation and amortization), the impact
of under-utilized capacity on gross profit, tax consequences,
reorganization expense and stock-based compensation. We remove the
impact of all foreign exchange from Adjusted EBITDA. Foreign
exchange gains and losses can vary significantly period-to-period
due to the impact of changes in the U.S. and Canadian dollar
exchange rates on foreign currency denominated monetary items on
the balance sheet and are not reflective of the underlying
operations of the Company. We remove the impact of under-utilized
capacity from gross profit, and fixed production overheads are
allocated to inventory on the basis of normal capacity of the
production facilities. In periods where production levels are
abnormally low, unallocated overheads are recognized as an expense
in the period in which they are incurred. In addition, management
bases certain forward-looking estimates and budgets on non-GAAP
financial measures, primarily Adjusted EBITDA.
Government subsidies, depreciation and amortization, stock-based
compensation expense, reorganization expenses and foreign exchange
gains and losses and impairment expenses are excluded from our
non-GAAP financial measures because management considers them to be
outside of the Company’s core operating results, even though some
of those receipts and expenses may recur, and because management
believes that each of these items can distort the trends associated
with the Company’s ongoing performance. We believe that excluding
these receipts and expenses provides investors and management with
greater visibility to the underlying performance of the business
operations, enhances consistency and comparativeness with results
in prior periods that do not, or future periods that may not,
include such items, and facilitates comparison with the results of
other companies in our industry.
The following non-GAAP financial measures are presented in this
news release, and a description of the calculation for each measure
is included.
Adjusted Gross Profit |
Gross profit before deductions for costs of under-utilized
capacity, depreciation, and amortization |
|
|
Adjusted Gross Profit
Margin |
Adjusted Gross Profit divided by
revenue |
|
|
EBITDA |
Net income before interest,
taxes, depreciation, and amortization |
|
|
Adjusted
EBITDA |
EBITDA adjusted to remove foreign
exchange gains or losses; impairment expenses; reorganization
expenses; stock-based compensation expense; government subsidies;
and any other non-core gains or losses |
|
|
Adjusted EBITDA
Margin |
Adjusted EBITDA divided by
revenue |
You should carefully evaluate these non-GAAP financial measures,
the adjustments included in them, and the reasons we consider them
appropriate for analysis supplemental to our GAAP information. Each
of these non-GAAP financial measures has important limitations as
an analytical tool due to exclusion of some but not all items that
affect the most directly comparable GAAP financial measures. You
should not consider any of these non-GAAP financial measures in
isolation or as substitutes for an analysis of our results as
reported under GAAP. You should also be aware that we may recognize
income or incur expenses in the future that are the same as, or
similar to some of the adjustments in these non-GAAP financial
measures. Because these non-GAAP financial measures may be defined
differently by other companies in our industry, our definitions of
these non-GAAP financial measures may not be comparable to
similarly titled measures of other companies, thereby diminishing
their utility.
The following table presents a reconciliation for the three
months ended March 31, 2022, and 2021 of EBITDA and Adjusted EBITDA
to our net loss, which is the most directly comparable GAAP measure
for the periods presented:
(Unaudited Stated in thousands of U.S. dollars)
|
For the Three Months Ended March 31, |
|
|
2022 |
|
|
2021 |
|
|
($ in thousands) |
|
Net loss for the
period |
(23,042 |
) |
|
(12,499 |
) |
Add back (deduct): |
|
|
|
|
|
Interest Expense |
1,330 |
|
|
500 |
|
Interest Income |
(11 |
) |
|
(19 |
) |
Income Tax Expense |
- |
|
|
39 |
|
Depreciation and
Amortization |
4,622 |
|
|
3,402 |
|
EBITDA |
(17,101 |
) |
|
(8,577 |
) |
Foreign Exchange Losses |
732 |
|
|
180 |
|
Stock-Based Compensation |
1,302 |
|
|
1,094 |
|
Government Subsidies |
(575 |
) |
|
(4,068 |
) |
Reorganization Expense |
3,692 |
|
|
- |
|
Adjusted
EBITDA |
(11,950 |
) |
|
(11,371 |
) |
Net Loss
Margin(1) |
(60.2 |
)% |
|
(42.4 |
)% |
Adjusted EBITDA
Margin |
(31.2 |
)% |
|
(38.6 |
)% |
(1) Net loss divided by revenue.
The following table presents a reconciliation for the three
months ended March 31, 2022, and 2021 of Adjusted Gross Profit to
our gross profit, which is the most directly comparable GAAP
measure for the periods presented:
(Unaudited Stated in thousands of U.S. dollars)
|
For the Three Months Ended March 31, |
|
|
2022 |
|
|
2021 |
|
|
($ in thousands) |
|
Gross
profit |
3,287 |
|
|
3,370 |
|
Gross profit
margin |
8.6 |
% |
|
11.4 |
% |
Add: Depreciation and
amortization expense |
3,472 |
|
|
2,029 |
|
Add: Costs of under-utilized
capacity |
- |
|
|
1,756 |
|
Adjusted Gross
Profit |
6,759 |
|
|
7,155 |
|
Adjusted Gross Profit
Margin |
17.7 |
% |
|
24.3 |
% |
Special Note Regarding Forward-Looking
Statements
Certain statements contained in this news release are
“forward-looking statements” within the meaning of “safe harbor”
provisions of the United States Private Securities Litigation
Reform Act of 1995 and Section 21E of the Securities Exchange Act
of 1934 and “forward-looking information” within the meaning of
applicable Canadian securities laws. All statements, other than
statements of historical fact included in this news release,
regarding our strategy, future operations, financial position,
estimated revenues and losses, projected costs, prospects, plans
and objectives of management are forward-looking statements. When
used in this news release, the words “anticipate,” “believe,”
“expect,” “estimate,” “intend,” “plan,” “project,” “outlook,”
“may,” “will,” “should,” “would,” “could,” “can,” the negatives
thereof, variations thereon and other similar expressions are
intended to identify forward-looking statements, although not all
forward-looking statements contain such identifying words. In
particular and without limitation, this news release contains
forward-looking information pertaining to our expectations
regarding second quarter 2022 and full year 2022 revenues; our
beliefs about our twelve-month forward sales pipeline; our belief
that the COVID pandemic is entering an endemic stage; our beliefs
about future activity levels; our beliefs about the impact of
future revenue on cash flow, and the timing thereof; and our
beliefs about the timing of being able to hire a permanent CEO.
Forward-looking statements are based on certain estimates,
beliefs, expectations, and assumptions made in light of
management’s experience and perception of historical trends,
current conditions and expected future developments, as well as
other factors that may be appropriate.
Forward-looking statements necessarily involve unknown risks and
uncertainties, which could cause actual results or outcomes to
differ materially from those expressed or implied in such
statements. Due to the risks, uncertainties, and assumptions
inherent in forward-looking information, you should not place undue
reliance on forward-looking statements. Factors that could have a
material adverse effect on our business, financial condition,
results of operations and growth prospects include, but are not
limited to, the severity and duration of the COVID-19 pandemic and
related economic repercussions and other risks described under the
section titled “Risk Factors” in our Annual Report on Form 10-K for
the year ended December 31, 2021, filed with the U.S. Securities
and Exchange Commission (the “SEC”) and applicable securities
commissions or similar regulatory authorities in Canada on February
23, 2022, and as supplemented by our Quarterly Report on Form 10-Q
for the quarter ended March 31, 2022 filed with the SEC and
applicable securities commissions or similar regulatory authorities
in Canada on May 4, 2022.
Our past results of operations are not necessarily indicative of
our future results. You should not rely on any forward-looking
statements, which represent our beliefs, assumptions and estimates
only as of the dates on which they were made, as predictions of
future events. We undertake no obligation to update these
forward-looking statements, even though circumstances may change in
the future, except as required under applicable securities laws. We
qualify all of our forward-looking statements by these cautionary
statements.
About DIRTT Environmental Solutions
DIRTT is a global leader in industrialized construction. Its
system of physical products and digital tools empowers
organizations, together with construction and design leaders, to
build high-performing, adaptable, interior environments. Operating
in the commercial, healthcare, education, and public sector
markets, DIRTT’s system provides total design freedom, and greater
certainty in cost, schedule and outcomes.
Headquartered in the US and Canada, DIRTT trades on Nasdaq under
the symbol “DRTT” and on the Toronto Stock Exchange under the
symbol “DRT”.
FOR FURTHER INFORMATION PLEASE CONTACT
Kim MacEachern
Investor Relations, DIRTT
403-618-4539
kmaceachern@dirtt.com
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