DIRTT Environmental Solutions Ltd.

 

DIRTT is a strange name!  It means Doing It Right This Time.  The company employs their proprietary interior design software to manufacture building interiors, completely changing the usual approach (think framing, dry walling, mudding, painting, etc.. and the inefficiencies and waste as part of the process).  The manufactured interiors are shipped to the customer and then installed.  Their results have been inconsistent and in early 2018 they removed their CEO and CFO. Results have been disappointing however improved results and execution should solidify their value.  Notably, my assessment of EBITDA differs from that of the company as I exclude foreign exchange gains or losses.    As of 3Q19, Company reports in $U.S. The situation appears to have gotten more complicated as the former management appears to be suing the company and disrupting its business, long-term opportunity remains but near-term risks are elevated.

4Q24               1Q25               FY24                FY25

Revs                44.2                 42.8               169.7               199.6

EBITDA            3.4                   3.9                 13.3                 20.7

 

P=C$1.07, US$0.75, TTM EPS=.04, P/E=20X, 29.5m gross cash, 7.2m net cash, .04/sh, additional 14.0m in NWC, Market Cap US $145m

 

4Q24 .017 vs .015, FY24 EPS .04 vs (.05)

  • Feb 26, 2024, P=C$1.07, US$0.75, TTM EPS=.04, P/E=20X

  • Revs -4% to 48.9m (est 44.2m, close to top end of guide), GM 38.8% vs 39.5%, adj EBITDA 5.5m vs 4.3m (est 3.4m, above top end of guide), EBITDA margin 11.2% vs 8.5%, OM 7.1% vs 5.1%

  • OCF 6.2m vs 10.1m, FCF 5.5m vs 9.9m  (last year strong due to working capital)

  • Repurchased 3.9m shares at U.S.$ 0.80, priced Jan 27th, executed Feb 14th.

  • Extended revolver with RBC to Nov 30, 2025 and C$25m from 15m

  • FY25 Guidance reiterated: Revs 194-209m (+11-20%, est 199.6m), EBITDA 18-25m (vs 15.4m, est 20.7m)

  • Utah court dismissed case on grounds that Canada is an adequate alternative forum (Utah count found the trade secrets at the heart of the matter belong to DIRTT’s Canadian company)

3Q24 .01 vs .02 ex restructuring, and gain and non-cash interest due to convert repurchase

  • Nov 6, 2024, P= C$0.91, US$0.66, TTM EPS=.03, P/E=23X

  • Revs -12% to 43.4m (+5.3% q/q), GM 40.7% vs 36.9%, OM 6% vs 6.5%, adj EBITDA 4.1m vs 5.3,

  • OCF 1.5m vs 1.9m, FCF 803k vs 1.2m

  • 12m pipeline 10% lower than 2023 largely due to a 25m deal which started shipping in 2Q, longer pipeline “continues to grow and reach post-COVID highs”

  • Mgmt sounds more optimistic but maintaining FY24 and FY25 Outlook for now. FY24 Guidance implies 4Q Revs 39.5-49.5m vs 50.9m and EBITDA 2.1-5.1m vs 4.3m

  • Finally got a Canadian court hearing for late 2025 or early 2026 and US pretrial conference set for October 2025.

2Q24 .006 vs (.018)

  • Aug 7, 2024, P= C$0.64, US$0.49, TTM EPS=.03, P/E=17X

  • Revs -8% to 41.2m, GM 39.4% vs 36.2%, , adj EBITDA 3.2m vs 1.9m, OpInc 1.6m vs (670k), OM 4% vs (1.5%), OCF 1.6m vs 3.8m

  • Revs impacted by more delayed projects coupled with 3 large projects completed in 2Q23

  • 12m pipeline +20% y/y, (but -3% q/q) total pipeline even more.

  • Outlook 3Q Revs -19% to -11% to 40-44m, FY24 Revs 165-175m vs 181.9m FY24 EBITDA 12-15m  vs 8.1m, implies 4Q Revs 43-53m vs 50.9m, implies 2H EBITDA 2.8-5.8m vs 5.8m

  • FY25 Revs 194-209m, EBITDA 18-25m

  • Management seeing positive acceleration in Falkbuilt litigation

Mid-Quarter Update – Debenture repurchase

  • Repurchasing 18.915m FV from 22NW at 0.68458 and 13.638m FV at 0.66564 for total 22.1m

  • Assuming no other change in its cash position, it would put the company in a net cash position of 2.6m compared to net debt of 7.8m at the end of 1Q

1Q24.003 vs (.07) ex gain on debt repurchase.

  • May 8, 2024, P=C$0.80, US$0.59, TTM EPS=.01, P/E=59X but 20X run-rate of last 3Qtrs

  • Revs +11.3% to 40.8m, GM 37.9% vs 28.5%, adj EBITDA 2.7m vs (3.4m), OpInc 1.1m vs (6m), OM 2.8% vs (16.5%), OCF (2m) vs (1m) due to NWC

  • Canada -38% to 3m, US +18.8% to 37.8m, Commercial +23% to 30.2m, Healthcare -50% to 3m with choppier results

  • 12 Month Pipeline +7% to 270.4m, +1% q/q, # leads +22% to 1184, +38% q/q

  • Decent results, 4th consecutive Q of positive EBITDA (14m), Valued 8X TTM EBITDA

  • Conference call comments to follow

 

Mid-Quarter Update – March 25, 2024

  • Had a tender offer to purchase up to 15m FV of converts, repurchased 10.47m for 6.84m (35% discount). 

  • 22NW has acquired 32.5m in Debentures (60%). Fortress subsequently purchased another 185k shares.

4Q23 .01 vs (.04), FY23 EPS (.05) vs (.41)

  • Feb 21, 2024, P=C$0.62, US$0.46, TTM EPS=(.05)

  • Revs +20% to 50.9m, GM 39.5% vs 32%, adj EBITDA 4.3m vs 0.6m, OpInc 2.6m vs (2.3m), OM 5.1% vs (5.4%), adj EBT 1.5m vs (3.5m), OCF 10.1m vs 3.2m

  • 12m forward pipeline +9.5% y/y, -4.6% q/q

  • Undertaking a Substantial Issuer Bid to repurchase up to 15m of converts (6m of 6% at 72% of FV, 9m of 6.25% at 60% of FV) 

  • Outlook: Expect continued growth in pipeline and revenue, remain cautious due to macro uncertainty, 1Q typically seasonally slowest quarter

Preliminary Results – Feb 12, 2024

  • Revs +205 to 50.9m (est 45.8m), net income 1m vs (5,9m),

  • FY23 OCF 14.8m vs 44.3m, implies 4Q OCT 10.1m vs 3.2m

  • Reduced debt by 7.8m via early settlement of equipment lease liabs from closing Rock Hill

Mid Quarter Update – Rights Offering – Nov 21, 2023

  • Shareholders of record on Dec 12, 2023 will receive 1 right per share, entitling to purchase 0.81790023 shares at C$0.35. 1.22264301 rights to purchase 1 share. Expiry Jan 5, 2024

  • Only residents of Canada and certain US states are eligible to receive and EXERCISE.

  • 22NW and Fortress entered Standby agreements to purchase all common shares not subscribed up to C$15m each, setting maximum shares issued of C$30m

3Q23 .02 vs (.04) ex impairment

  • Nov 9, 2023, C$0.49, US$0.37, TTM EPS=(.10)

  • Revs +6% to 49.5m, GM 36.9% vs 21.7%, adj EBITDA 5.3m vs (5.4m), OpInc 3.2m vs (2.5m), OM 6.5% vs (5.3%)

  • Entering seasonally softer period with heightened economic uncertainty.

  • 22NW has acquired 32.5m in Debentures (60%). Fortress subsequently purchased another 185k shares.

  • No Q&A on call.

2Q23   (.02) vs (.16) ex 6.1m gain, est (.06)

  • Aug 2, 2023, P=$0.48, US$0.35, TTM EPS=(.16)

  • Revs +0.1% to 44.8m, GM 36.2% vs 18.9%

  • EBITDA 1.9m vs (9.4m) est (1.3), ex 6.1m gain from patent deal with AWI

  • 28.1m of liquidity vs 16.1m at Dec 31st.

  • OCF 3.8m vs (17.8m) does not include 9.9 proceeds from patent deal

  • New CFO starting August 28th, outgoing CFO leaving to be closer to his family, spoke on call.

  • Received 10.9m proceeds from AWI partnership announced last Q, 6.1m recognized in profit

  • Mgmt “encouraged by the increase in order pace which began in April and has continued into 3Q”, 12m forward pipeline 219.9m -14% y/y and -11% YTD, would be flat including expected orders beyond 12m

  • Expect 3Q Revs to increase q/q but not same extent as 2Q, continue to expect FY23 LSD increase in revs, a trend expected to continue into 2024 based on current pipeline.

  • Re Nasdaq listing requirements, mgmt. indicated NOT intending to do stock consolidation, would delist from Nasdaq and continue on TSX and OTC.

 1Q23 (.07) vs (.20), est (.07) up from (.10)

  • May 9, 2023, P=C$0.51, US$0.40, TTM EPS=(.28), P/E=n/a

  • Revs -4% to 36.7m, GM 28.5% vs 17.7%, adj EBITDA (3.5m) vs (11.95m) est (1.7)

  • 12m forward pipeline 252m, changed methodology , +2% YTD, pursuing 969 qualified leads vs 721 at Jan 1, 2023 and 395 at Jan 1, 2022, had some larger projects delayed or cancelled ($5m project from a tech customer expected in 1Q pushed to next year), taking addition $4m cost saving, seeing increased quoting in healthcare end education (longer sales cycle)

  • Announced agreement to sell to Armstrong World Industries certain IP rights in a portion of ICE software used by AWI for ~$11m

  • Seeing increased order intake, awarded “several” large projects with Bechtel, Apache, and Visa for ~15m. 28-day order intake improved to ~16m, not including the larger orders, highest level since mid-4Q, indicating improved 2Q and 3Q.

4Q22 (.04) vs (.16), est (.10)

  • Feb 22, 2023, P=C$0.90, US$0.72, TTM EPS (.41)

  • Revs -1% to 42.4m (est 45.9m), adj GM 32% vs 25%, adj EBITDA 0.6m vs (9.7m), est (2.8m)

  • OCF 3.2m vs (6.95m), FCF 2.7m vs (8.8m)

  • Govt +10% y/y, rest down y/y. q/q, Healthcare +11% and Govt +45%

  • 12m forward pipeline 391m (-1% q/q, +26% y/y), seen growth in later-dated projects, still seeing high pushout rates?

  • Further $3-5m cost reductions, expect growth in revs, margin, and EBITDA in FY23

  • Receivable payment incentive contributed 2m in 4Q

3Q22 (.12) vs (.18), ex .08 govt subsidy, (.04) reorg costs, est (.13)

  • Nov 14 ,2022, P=C$0.45, US$0.3173, TTM EPS=(.59), P/E=n/a,

  • Revs +37% to 46.7m, adj GM 21.7% vs 14%, Adj EBITDA (5.4m) vs (13.3m), est (5.3), ex 7.1m govt subsidy claim for FY21 for employee retention during pandemic.

  • GP includes 2m non-cash w/d of inventory and accelerated amort associated with discontinued product lines, unclear impact on EBITDA  

  • Pipeline +10% q/q to 395m, added new partners, “strong growth with multiple large deals”, “massive” healthcare projects over next 12-24 months..

  • Liquidity 15.8m incl 6.8m unrestricted cash, cash stable from end of Sept.

  • “to bridge any cash requirements”, 2 largest shareholders and directors and officers purchasing up to 8.87m shares, Price higher of Nov 14th Nasdaq closing price and volume-weight average for next 5 days.   

  • Pursuing “several non-dilutive strategic cash initiatives intended to deliver meaningful cash proceeds to the company” by mid 1Q23, including sale-leaseback opportunities

4Q looks flattish to 3Q from Rev perspective, “line of sight” to breakeven EBITDA and possible cash-flow in 4Q.

2Q22   (.16) vs (.09), est (.21)

  • Jul 27, 2022, P=C$1.30, US$1.02, TTM EPS=(.69), P/E=n/a

  • Revs +8.8% (+16.8% q/q) to 44.7m, GM 18.9% vs 27.4%, adj EBITDA (9.3m) vs (3.4m)

  • q/q Commercial +23% to 29.6m, Govt +54% to 5m, Healthcare -27% to 5.1m, Education +6% to 3.1m, Commercial at highest level since 4Q19

  • Seeing continued increased activity, mgmt. looking to “unlock manufacturing capacity” after experiencing capacity constraints in 2Q, increased manufacturing headcount by 9% in Calgary facility, will continue to add as necessary.  

  • Implemented 10% price increase in July after 5% increase in June, 12m pipeline 359m, +13% from 1Q22 (not reflecting price increases), flattening cost structure

  • Cash down to 23m, consumed ~19.1m cash, 13.7m ex reorg costs, expect “to approach monthly cashflow breakeven” in 4Q

  • Maintaining FY22 Guidance Revs 175-185m in light of potential economic softness, implies 97m in 2H vs 77m in 2H21 and 83m in 1H.

1Q22 (.20) vs (.09) ex items, es (.23)

  • May 4, 2022, P=1.03, TTM EPS (.62)

  • Revs +30% to 38.3m, GM 17.7% vs 18.3%, adj EBITDA (11.1m) vs (7.3m)

  • 1-time costs ~5m, expect another 4.4m in 2Q including a 3.1m insurance charge for change of control of the Board 

  • Saw “strong uptick in activity that began to translate into orders in March” with 46% of 1Q revs in March (highest monthly revenue since Oct 2020), Customer deposits 5.3m vs 1.96m at 4Q

  • Expect “approaching monthly cashflow breakeven in 3Q or 4Q

Mid Quarter Update – April 21, 2022

  • Raised FY Outlook by 5m

  • 1Q Preliminary revs ~38m , slightly below 1Q , at low end of guidance range, cash ~39m, down 22m q/q, previously stated “significant cash burn” in 1Q.

  • 2Q 43-47m

  • FY 175-185, raised range by 5m

4Q21 (.11) vs (.02), FY21 EPS (.39) vs (.05)

  • Feb 23, 2022, P= C$2.16, US$1.68, TTM EPS=(.39), P/E=n/a

  • Revs +1.7% to 42.9m, GM 25.3% vs 32%, adj EBITDA (8.7) vs 1.1m incl govt assistance 1m vs 3.9m, OCF (7m) v 5.1m

  • Commercial +56% q/q, Govt +41%, Healthcare -11%, Edu -4.2%

  • 1Q22 Outlook: Revs 38-42m vs 29.5m, est 42

  • FY22 Outlook: Revs 170-180m (vs 147.6m, est 193m), “significant” improved EBITDA loss from (41.3m) and positive in FY23.

  • Mgmt expects “significant” cash burn in 1Q with $5m restructuring in 1H, cut headcount ~18%, expect 13m annualized savings?

  • Results not great but trend looks improving, although they are now net debt, they have cash if they start to execute, pressure from activist hopefully will be positive. 

  • Project Pipeline 302m, have seen average conversion ~55%

Preliminary Results – Feb 2, 2022

  • Expect 4Q revs 42m, flat y/y and within prior guidance of 40-50m, est 40.9m

  • Cash 60.3m incl 25.6m from convert

Mid Quarter Update

  • $35m bought deal unsecured convertible financing at 6.25%, convertible at C$4.20, redeemable at par after Dec 31, 2024

3Q21   (.12) vs .02, est (.10) down from (.05)

  • Revs -26% to 34.1m (est 41.3), GM 14% vs 39%, adj EBITDA (10.4) vs 5.4 incl 3m govt assistance

    Revenues fell short of mgmt. expectations due to rising covid cases, delays of return-to-work, delays to projects affecting DRT’s ability to access job sites and some re-design delays, delays weeks more than months. 

    Biggest q/q and y/y downdraft in Healthcare but mgmt. says shortfall was across all segments.

    Expect 4Q to recover to 40-50m, October orders improved ~50% from September, Nov holding “strong”,if they reduced capacity, they would not have been able to process October’s orders. 

  • Disappointing but not entirely unsurprising results, encouraging commentary about the recovery in orders in October and November.

2Q21   (.06) vs .01 est (.07)

  • Aug 4, 2021, P=$5.54, US$4.42, TTM EPS=(.15)

  • Revs -2% y/y or +39% q/q to 41.1m (est 38.7m), GM 27.4% vs 38.2%, adj EBITDA (3.4m) vs 4.6m incl 3.4m govt assistance or (6.8m) vs 273k ex govt assistance

  • Canada +2.8%, US -3% to 89.2% of total revs, q/q Commercial +18% to 19m, Healthcare +119% to 14.2m, Govt +1.6% to 4.2m, Education+63% to  2.5m

  • Higher trucking and materials costs, opex costs of new facility, and stronger CAD on OpEx

  • CFO 86k vs (12m) in 1Q,

  • Expanded strategic account relationships to 44 from 40 in 1Q, seeing traction in large strategic account RFPs for 2022 delivery.  

  • Added 3 new partners, finalizing another 2.  

  • South Carolina facility opened in June, 1/6 the labour as Calgary facility for same prodn, improves shipping times for east coast customers. 

  • Customers experiencing schedule delays due to permit backlogs, challenges with materials and labour in conventional construction. 

  • Healthcare had highest quarter due to COVID mobile units mentioned last quarter plus larger-than-normal activity with a long-standing customer that is likely to moderate for the near-term. That said, Healthcare is very well positioned to be a much larger business

  • 3Q Expected to be similar to 2Q as above issues resulting in slower pace of recovery (est 42.8m)

1Q21   (09) vs (05), est (.04)

May 5, 2021, P=C$4.56, US$3.73, TTM EPS=(.07), P/E=n/a, 59m gross cash, 35m debt, net cash/share 0.28, Market Cap US $316m,

  • Revs-28% to 29.5m, GM 18% vs 33%, adj EBITDA (7.3m) vs (5.5m) incl 4.1m govt assistance or (11.4m) vs (5.5m) ex govt assistance

  • Canada -50%, US -24% to 90% of total revs.  Commercial -43% to 16m, Healthcare +28% to 6.5m, Govt +34% to 4.2m, Education -57% to 1.5m

  • Mgmt believes 1Q marks the low in the cycle and are “optimistic” that 2Q revs will approach or return to quarterly ranges in 1H20 which would still be well below 1H19

  • 2Q to include 2m for COVID-19 vaccination trailers delivered to 1 customer in April, same order mentioned in 4Q call.

  • Have been experiencing growing customer engagement, increased quoting activity, and >40 strategic account relationships (35 at 4Q20).  

  • Issued C $35m converts at C $4.65, mature Jan 31 ,2026

  • Customer deposits 2.975m vs 1.3m at 4Q and 3.6m at 1Q20, good signal of customer activity.

  • Some positive developments in the litigation

  • Price Inflation in materials could stimulate demand for DIRTT as a more competitive solution although if existing projects are delayed, that could delay some of DIRTT’s implementations as they are late in the process.  

4Q20 (02) vs (05) incl .03 govt assistance, FY20 EPS (.05) vs .05 vs .21

  • Feb 24, 2021, P= C$3.14, US$2.53, TTM EPS (.05) incl .11 govt assistance 

  • Revs -21% to 42.2m, adj GM 32% vs 29%, adj EBITDA 1.1m vs (3.4m) incl 3.9m govt assistance or -2.9m vs -3.4m ex govt assistance, 

  • Canada -55%, US -13%, US 90% of Revs vs 82.5%

  • Y/Y Revs Commercial -23%, Healthcare -40%, Govt +64%, Edu -17%

  • Q/Q Revs Commercial +16%, Healthcare -56%, Govt +55%, Edu -2%

  • CFO 5.1m vs (4.5m) and 5.8m in 3Q, Cash 45.8m, 0.54/sh as CapEx stepped up to 9.2m

  • COVID-19 causing customers to be reluctant to make firm commitments on new projects, impacting activity levels in 4Q and into 1Q

  • Convertible financing to help with “transformational investments” and ensure flexibility should recovery take longer than expected.  

  • Disappointing that healthcare stepped down q/q but not surprising the rest of the business is experiencing continued weakness, cash plus convertible gives plenty of cushion, cash burn is not substantial yet.  

  • Mgmt cautiously optimistic recovery to begin in 2H21 based on 3rd party industry indices and general sentiment of customers and partners and vaccine rollouts, 

  • When pandemic ends, management expects market to be “very active”, company could make hay with their short lead times

  • Received 1st order for 30 mobile vaccination units for $2m with a major US Healthcare provider 

  • Management feels gaining traction in Strategic Accounts group (who sourced the above order), could be a driver during recovery. 

  • Management thinks FY23 targets are still achievable (Revs 450-550m, EBITDA margins 18-22%)

January 7, 2020

  • Announced C $35m bought-deal 6% convertible (@ C $4.65) offering for capex, working capital, general corp purposes including continued investment in technology innovation and sales and marketing functions. Maturity January 31, 2026, interest payable semi-annually in arrears, last day of January and July.    

  • Redeemable between January 31, 2024 to January 31, 2025 as long as 20-day VWAP>125% of Conversion Price. After January 31, 2025, 30-60 days notice required, no price stipulation.  

 

Mid Quarter Update Dec 8, 2020

  • 2 People who appear at least affiliated with Fortress if not directly employed and obscure company filed 13G indicating >12% ownership stake in the company after buying a bunch in late November and early December. They had previously filed a 13G in August. 

  • Action has been interesting, I commented that it felt like accumulation in November and early December and then appeared to trigger a short squeeze after which shorts stepped back in to bang it back down.  It will be interesting to see what unfolds whether this is a move to acquire or be activist or  strictly passive investment in an undervalued company. 

3Q20   .02 vs .04 incl .04 govt assistance, est (.01)

  • Nov 4, 2020, P=C$2.02, US$1.56, TTM EPS=(.08), P/E=n/a

  • Revs -29% to 46.2m, adj GM 39.3% vs 41.8%, adj EBITDA 5.4m vs 7.9m Incl 4.5m govt assistance

  • CFO 5.8m vs 3m, Cash 50m +6m q/q

  • Commercial -47% to 22.6m, Healthcare +73% to 15.9m (more than doubled q/q), Govt -28% to 2.8m, Edu -55% to 3.1m

  • Had 3 larger healthcare projects (>2m each), 1 COVID-19 related (acute care rooms for field hospital in SE US), marketing COVID testing/vaccine kiosks developed with a healthcare co, interest level is “significant”, working with parent network, development partner is also marketing, “all hands on deck”

  • October Average daily order entry similar to first 3 quarters of 2020, seeing indications of softness in core (commercial) business for balance of the year (difficult to compare that softness to what they have already been experiencing)

  • “Despite our view that Q4 and the first half of 2021 could be challenging, our strong balance sheet and enhanced organization will enable us to continue executing on our strategic plan”

  • Moderately improved results q/q, encouraging healthcare trends and solid CFO 

  • Filed patent infringement against former CEO’s company who claimed the patent is invalid, DRT argues they cannot claim invalidity given they were behind it.

2Q20   .01 vs .03 incl .035 govt assistance, est (.06) 

  • Jul 29, 2020, P= C$1.39, US$1.04, TTM EPS (.06)

  • Revs -34% to 42.2m, adj GM 38.2% vs 42.1, adj EBITDA 4.6m vs 6m incl 4.3m govt assistance

  • CFO 2.38m vs 7.48m, Customer deposits and def revs 5.26m vs 4.6m in 1Q

  • Average daily order entry level similar to 1Q, has continued into 3Q 

  • Added 5 new distribution partners (total 80), some already delivering orders, more improvement in quality of partners (churn) rather than significant growth.

  • Added more execs and directors, est 3.7m projects expected in 2Q were deferred, other opportunities delayed or deferred, unable to be quantified, mgmt. still confident the pandemic will be positive for their business as customers reassess their spaces.

  • New mfng facility will operate when completed, cost is compelling and level of activity to make it a good investment is not high.  

  • Mgmt reported adjusted results excluding government assistance which no other companies have been doing especially considering they would have cut more costs without the assistance, results excluding govt assistance not as bad as expected, results/cash seem fairly stable, opportunity still seems compelling.

  • Trading activity was “huge”, stock more than doubled intra-day but then settled up “only” 50%, volume in the US was 12.85m shares and 2.5m in Canada (85m shares outstanding) compared to average volumes of ~380k and 150k

1Q20   (.07) vs .04, est (.04)

  • May 6, 2020, P=C$1.76, US$1.26, TTM EPS=(.05)

  • Revs 41m, adj GM 38% vs 39.6% ex 2m underutilization costs, adj EBITDA (5.5m) vs 7.7m

  • Have seen some project delays due to social distancing, seeing some delays I pipeline execution but no cancellations, curtailed discretionary spending, 25% reduction in production workforce by reducing factory shifts, planned factory shutdowns, 

  • Covenant relief on credit facility to Oct 2020 (currently unused)

  • Average daily order rate for April only slightly lower than prior to pandemic but difficult to say how this will play out given DRT tends to be near the completion stage of projects (difficult to determine if jobs a bit further in the pipeline will be delayed).

  • DIRTT’s implementation on job sites are compatible with reduced people on a job site, distancing.

  • 43.5m in cash, 0.51/sh

4Q19 (.05) vs .06, est .02, FY19 EPS .05 vs .21

  • Feb 25, 2020, P=C$3.76, US$2.83, TTM EPS=.05, P/E=57X

  • Revs -28.5% to 53.2m, adj GM 29.2% vs 40.2% incl 2.2m under-utilization costs, adj Opinc (6.4m) vs 6.8m, adj EBITDA (3.4m) vs 10.2m, GM impacted by 2.5m liability provision due to certain non-structural timber projects 2016-2019 that might not meet fire-retardant specs (normalized GM would have been 38%, impacted EPS by .04) 

  • Disruption primarily on large projects, still no new large projects in first 2 months of FY20, have some visibility into pipeline but timing and amounts are difficult to predict but expect revenues to materialize in 2H20 or in FY21. 

  • Working to lower underutilization costs until business improves (temporary shutdowns)

  • “Still experiencing disruption from management changes and long sales cycle and immature and transitional state of sales and marketing function”, 1Q20 so far experiencing similar q/q  decline as 4Q19 from 3Q (-19%), FY20 could  be down vs FY19

  • 7 existing Distribution Partners accounted for 14% of revs in FY19

  • National Accounts, working on 4 new agreements, expanding 2, allows them to deliver multiple projects over time for a single client, based on pipeline expect several small national accounts projects to start in late 2020.

  • Focused on exiting FY20 with organizational foundation to support their strategic plan and to hit their 2023 targets. 

  • Expect CapEx 12-15m plus new 7.5m costs for equipment, final $6.5m for commissioning can be delayed based on activity levels (~47m in cash, not burning cash at crazy rate).

  • Results unsurprisingly continue to be horrendous, hopefully they can improve execution in the near-term.   

Analyst Day Nov 12, 2019

  • Target 2023 Revs 450-550m, EBITDA margins 18-22%

3Q19   .04 vs .08, -50%

  • Nov 7, 2019, P=C$6.08, US$4.60, TTM EPS=.16, P/E=29X

    Revs -12% to 65.4m, GM 41.8% vs 44%,  OM 7.6% vs 13.6%

    Adj EBITDA margin 12.3% vs 17.7%, EBITDA -38% to 8.1m

    Healthcare -51% to 9.2m, Govt -17% to 3.9m, Canada -23% to 8.9m, US -9% to 56.4m

    YTD Nasdaq listing costs $2.5m, expect another 0.5m in 4Q19. Ongoing annual costs $1.5-2m

    Had a 1.3m benefit from a claims reversal offsetting $1.4m in Nasdaq listing costs.

    .5m consulting costs and warping issue

    Guidance: Now see FY19 -7-10%, puts 4Q at 52-60m (-30% to -19%)

    Mgmt seeing disruption in salesforce following mgmt. transition, historical lack of training, accountability and supporting processes and tools driving lower results and expect 4Q to be weaker.  Mgmt implementing a new sales and marketing strategy including new sales roles to support growth, adding a Regional Sales Management structure, will be discussing this at Analyst Day.

    In May DIRTT filed lawsuit against former management to force non-compete and non-solicitation agreements, in Nov former management filed lawsuit claiming damages of $30m.

    The story has gotten messier as it appears former management is attempting to disrupt the business, opportunity is still significant but current period is more challenging.

Prior results reported in $Canadian dollars.  Subsequent results reported in $US.

Oct 8, 2019 – Provides U.S. GAAP financials

  • Product development costs that were capitalized and amortized will be expensed, lowering adjusted net income and adj EBITDA.

  • Some costs previously in OpEx moving to COGS

  • IFRS 16 Lease accounting is not applicable, affects EBITDA and CFO but minimal change to net income.  

  • Puts TTM EPS at US $0.20 which is roughly an fx adjusted of $C EPS of 0.26 

Mid Quarter Update – Sept 3, 2019

  • DRT warns on FY19 outlook

  • Now expect FY19 revs flat to FY18 vs previous expectation at the lower end of 5-10% growth

  • Seeing some projects shift into 2020

  • Expects EBITDA down from FY18 from 1-time costs (not new, include consulting costs, costs associated with pursuing a US Nasdaq listing), fx losses, and lower GM (also not new, tile warping issue and hiring in 2H18).

  • Disappointing however their opportunity remains especially as the new management team is in the seat longer to improve execution and their go-to-market strategy.   

2Q19   .03 vs .03, est .04 down from .06

  • July 30, 2019, P=7.18, TTM EPS .26, ex cash P/E=24X, FY20 P/E=14X

  • EPS ex stock comp revaluation, fx loss

  • Revs +6% to 85.6m, adj GM 43.1% vs 43%, adj OM 4.9% vs 3.8%, OpInc +36% to 4.2m, ex 2.9m costs (consulting, US listing, tile warping), OpInc +129%, OM 8.3%, and EPS would have been +115% to .06

  • Commercial +2% to 52.5m, Healthcare -10% to 13.9m, Govt -2% to 5.8m, Education +83% to 9.2m

  • Planning on new manufacturing facility in southeastern US, expected operational in 1Q21, capex $US 18.5m, will almost double current capacity..  

  • Resolved warping issue by applying a primer coating, equipment cost $2.6m, commissioning in 1Q20, will reduce annual costs by $1.6m

  • Expect Nasdaq listing this fall.

  • Outlook: Still expect FY19 Revs +5-10% but expecting to be at lower end of the range as some projects moved into early 2020.

  • Sales and marketing consultation terminated at end of July (900K cost in 3Q?)

1Q19   .05 vs .06 incl (.01) from right of use leasing, est 0?

  • May 8, 2019, P=8.73, TTM EPS=.25, ex cash P/E=31X

  • EPS ex stock comp revaluation, restructuring, fx loss

  • Revs +6.9% to 86.3m, GM 41.6% vs 46.1%, adj OpEx 23.9m vs 23.3m, adj EBITDA -14% to 11.98m, margin 13.9% vs 17.3%, ex 3.3m costs, EBITDA 17.7% vs 17.3%, OM 6.7% vs 9.7%, OpInc -26%, I made adjustments to last year to equal right of use assets, ex 3m costs, OpInc would be +16% and EPS would have been +16% to .07

  • US Revs +13.8%, Canada -27% due to timing of projects, US 89% of revs. Healthcare 20% vs 16%

  • GM impacted by ~$2m tile production costs discussed in 4Q, incidents now significantly improved due to seasonality (lower humidity), working on permanent solution

  • FY19 Guidance: Reiterated revenue growth 5-10%, Net income and EBITDA will be impacted by strategic consulting costs of $2.6m and U.S. listing costs of 2m

  • Interestingly EPS estimates came down dramatically since last quarter likely from management urging analysts to lower their near-term targets

  • Results look worse than they really are given the tile, consulting, and listing costs, consulting and listing costs will be a drag for the year so FY19 EPS est of .35 could be high and could scrub off some of the optimism from the stock however the opportunity remains compelling and the management team appears to have the credibility to get there.

4Q18   .08 vs (.05), ex .04 fx gain, est .05, FY18 EPS .27 vs (.01)

  • Mar 20, 2019, P=7.05, TTM EPS=.27, P/E=26X, FY19 P/E=22X

  • Revs +32.7% to 98.7m (est 86.3m), GM 40.2% vs 40.1%, adj EBITDA 14m vs -1.1m, EBITDA margin 14.2% vs -1.4%, OpInc 9.2m vs -5.8m, OM 9.3% vs -7.8%

  • US +26.7% to 82.3m, Canada +88% to 15.6m, Commercial +34% to 57.6m, Healthcare +96% to 26.6m, Govt -27% to 5.4m, Education +14% to 6.4m

  • FY19 outlook: Mgmt anticipates revs +5-10% with “corresponding” growth in EBITDA and Net Income, (expecting operating leverage, visibility indicates similar level of larger projects to FY18 but encouraged by activity levels and project types pursued by sales team), anticipates US listing in 2H19, will convert to U.S. dollar reporting and U.S. GAAP, majority of shareholders based in U.S., 85% of revenue generated in U.S., 2 mfng facilities in U.S. (sounds like they are position to convert to or be sold to a U.S. company), expect 3-5 year strategic plan in 3Q19.

  • Experiencing some quality issues with some tiles warping, working on resolving the issue.  

  • Mgmt characterized approach to sales and marketing as “immature” and manufacturing approach was reactive resulting in inability to scale although they feel these issues are fixable.  

  • If growth continues at current pace, would need to expand capacity in 2-3 years.  

  • Another quarter of solid results, definitely seems like a more credible management team to take this company to the next level, could provide significant growth opportunity over time.

3Q18   .11 vs .06 ex reorg and impairment, +83%, est .08

  • August 30, 2018, P=5.91, TTM EPS=.15, P/E=40X, FY19 P/E=17X

  • Revs +15% to 96.6m (est 96m), GM 45.5% vs 44.8%, adj EBITDA 17.8m vs 10.8m, EBITDA margin 18.4% vs 12.8%

  • US +12.6% to 81.3m, Canada +31% to 15.2m, Healthcare 27% vs 21%

  • New CEO in place in early Sept, 

  • Exiting DIRTT for Life residential services as residential market requires different resources and they are better served to focus on core markets

  • FINALLY some discipline and execution!  Mgmt looking at a U.S. listing to enhance liquidity.

  • Conference call comments to follow.

2Q18   .03 vs (.02), est .02

  • August 8, 2018 P=6.72, TTM EPS=.10, P/E=67X, FY19 P/E=19X

  • Revs +15.2% to 80.7m (est 81.7m), GM 43% vs 43.9%, adj EBITDA 8.2m vs 2.1m

  • U.S. +23% to 69.5m, +29% ex fx

  • Healthcare 20% vs 18%

  • Appointed new CFO, mgmt. DIRTT Connext well received, shorter and more focused event, had significant cost savings, focused on cost control, expects busier 2H, mgmt. feels pipeline is stronger than last year

1Q18   .06 vs .00, est .02

  • Revs +24.1% to 80.7m, GM 43.9% vs 41.5%, adj EBITDA 12.2m vs 4.3m, 15.2%

  • Healthcare 13% vs 11%, Government 18% vs 16%, Financial 21% vs 25%

  • CFO before changes in NWC was 10.7m vs 4.2m but -8.3m vs 4.6m after NWC

  • Much better quarter but consistency and sustainability of these results is important.

  • GM benefited from operating leverage from previous investments, product mix, and steady throughput to optimize labour

  • Still looking for new CEO and CFO. Seeing more large deals, more repeat customers, and significantly more healthcare opportunities. Mgmt discussed good visibility into the funnel but they do not control timing or orders.

 

4Q17   (.05) vs .06      est .06 down from .09

  • Revs -5.1% to 74.3m, GM 40% vs 43%, adj EBITDA -1.1m vs 10.9m

  • SG&A increased significantly due to various unfortunate items

  • Brutal quarter, the only positive is CFO 19m vs 6.5m

  • In Jan 2018, various executives were dismissed/removed by the board, looking for permanent CEO and CFO. Looks like a proxy battle might be sparked by an activist shareholder.

  • During FY17 expanded manufacturing capacity ~450m

  • Guidance: 1Q Revs 78-80m (vs 65.1m, est 73), adj EBITDA 13-15% of revs vs 6% in FY17

3Q17   .06 vs .06, est .05

  • Revs +17.5% to 84m (+21% ex fx), Healthcare 21% vs 18%, Technology 14% vs 7%

  • GM 42.7% vs 43.3%, Adj EBITDA 11.2m vs 10.8m, Repurchased $5.2m in stock

  • Seeing strong growth in healthcare deals, also signed a project with a very large technology company. With scale see generating EBITDA >15% then towards 20% longer-term.

  • Sales pipeline at record level, backlog difficult to measure yet because they produce quickly.

2Q17   (.02) vs .01, est .01 down from .02

  • Revs +14.3% to 70m, GM 43.9% vs 46.1%

  • Large contract increased from 17 locations to 66, continued to add to SG&A for growth but resulting in continued inconsistent and disappointing levels of profitability.

  • Revenue and EBITDA fell short of their expectations due to some project delays and expected order push outs.

  • Commented on short tenure of CFO, “after a series of unfortunate incidents at company events” they initiated an investigation and concluded he did not meet the company’s high standards of their culture.

  • Close to finalizing agreements to be preapproved construction standard for multiple healthcare providers in US, seeing healthy momentum across all industry segments, record attendance at DIRTT Connext

1Q17   .00 vs .02 ex stock comp and fx loss, est .02

  • Revs +16% to 65.1m (+23% ex energy), GM 42.9% vs 44.4% (GP +12.4%)

  • GM down due unfavourable mix of product/service revenue, timing of prodn volumes, and higher installation revenue which has lower GMs, SG&A 36.3% vs 34.4% due to co. growth,

  • Won a large contract with a Fortune 100 company for multiple locations, domestic and int’l, largest client to date is Liberty Mutual

  • Sales pipeline strong, invested in capacity which should drive future leverage.

  • EPS below estimate and a deterioration over last year which was also a deterioration. That said, 1Q is usually the weakest quarter so q/q deleverage is skewed as the company grows through the year. Positives: lapped impact from lower energy business (Revs +30% ex energy) and solid CFO 4.6m vs 1.3m