DIRTT Environmental Solutions Ltd. (“DIRTT”, the “Company”, “we” or
“us”) (Nasdaq: DRTT, TSX: DRT), an interior construction company
that uses proprietary software to design, manufacture and install
fully customizable environments, today announced its financial
results for the three months ended June 30, 2021. All financial
information in this news release is presented in U.S. dollars,
unless otherwise stated.
Second Quarter 2021
- Revenue of $41.1 million
- Gross profit margin of 22.4%
- Adjusted Gross Profit Margin1 of 27.4%
- Net loss of $9.7 million
- Net loss margin of (23.7%)
- Adjusted EBITDA1 of ($6.8) million
- Adjusted EBITDA Margin1 of (16.6%)
- Cash balance of $58.3 million
Note: (1) See “Non-GAAP Financial Measures”
Management Commentary
“Second quarter revenue was nearly forty percent higher than
first quarter revenue, strengthening our conviction that the first
quarter of 2021 represented the trough of our pandemic-impacted
revenue,” stated Kevin O’Meara, chief executive officer. “We are
pleased with the progress we have been making in implementing our
strategic plan, but the environment in which we are working
continues to be uncertain. We are closely monitoring potential
surges in COVID infection rates and the resulting impact on demand,
labor availability, supply chains and our own operations.
“While there has been a broad resumption in non-residential
construction activity, many of our clients are experiencing long
schedule delays due to a combination of permitting backlogs and
material and labor challenges in conventional construction. Our
ability to deliver on short lead times is a distinct advantage,
helping our clients offset some of these delays, but as DIRTT is
installed in the final stages of a project, the delays are
negatively impacting the timing of our project delivery, shifting
some of them from the second half of 2021 into 2022. As a result,
we are now expecting a slower pace of revenue growth recovery in
the second half of 2021, with third quarter revenue anticipated to
be similar to the second quarter.
“Despite the slower-than-anticipated return to year-over-year
revenue growth, we remain encouraged by sales activity levels
within the business. We are capitalizing on the increasing interest
in flexible, adaptable spaces and prefabricated offsite
construction as companies emerge from the pandemic, reoccupy their
space and explore new ways of working together. We have
strengthened our network of distribution partners, adding 3 new
partners during the quarter and are finalizing the onboarding of
two general contractors that we expect will join our distribution
partner network in the third quarter. Client tours, both virtual
and in-person, at our DIRTT Experience Centers (DXCs) hit a
30-month high in June and we continue to expand our strategic
account relationships in various stages of development. We have
been successful on a number of large strategic account requests for
proposal, which we define as being projects exceeding $2 million,
with delivery dates beginning in 2022.”
Mr. O’Meara concluded, “We believe our success in prudently
executing our strategic plan has positioned us to capitalize on
growing sales opportunities as non-residential construction
recovers from the COVID-19 pandemic. Our enhanced commercial and
manufacturing capabilities are building the foundation for what we
believe will be long term, profitable and sustainable revenue
growth. We look forward to continuing to leverage the increased
brand strength from our strategic marketing initiatives by resuming
our annual sales event, Connext, in Chicago in October and by
showcasing an inspiring experience of the full scope of the DIRTT
solution at the grand opening of our new Dallas DXC late in the
third quarter.”
Second Quarter Financial Review
Revenue for the second quarter of 2021 was $41.1 million, a
decline of $1.1 million or 2% from the same period of 2020. For the
three months ended June 30, 2021 revenues returned to quarterly
ranges experienced in the first half of 2020 and have increased by
$11.6 million from the first quarter of 2021.
Gross profit for the three months ended June 30, 2021 was $9.2
million or 22.4% of revenue, a decline of $5.0 million or 35% from
$14.2 million or 33.7% of revenue for the three months ended June
30, 2020. The reduction was attributable to $1.3 million of higher
transportation costs due to third party trucking cost increases,
$1.3 million of higher direct material costs due to the combined
impact of a 5% increase in the cost of materials and a specialized
project that required additional third party manufactured inputs,
$0.5 million of incremental costs related to our new Rock Hill
plant as well as an estimated $1.1 million impact of a stronger
Canadian dollar on Canadian based manufacturing costs. In addition,
the three months ended June 30, 2020 included a $1.2 million
reversal of a timber provision that did not reoccur in 2021.
Adjusted Gross Profit (see “Non-GAAP Financial Measures”) for
the three months ended June 30, 2021 was $11.3 million or 27.4% of
revenue, a $4.9 million or 30% decline from $16.1 million or 38.2%
of revenue for the three months ended June 30, 2020 for the reasons
described above.
Sales and marketing expenses increased by $1.4 million to $7.6
million for the three months ended June 30, 2021, from $6.2 million
for the three months ended June 30, 2020. The increases during the
quarter were largely related to increased salary and wage expenses
as we continue to build our sales organization and $0.3 million of
staff transferred from Technology and Development to Sales and
Marketing, higher depreciation expense as we completed our Chicago
DXC in 2020, offset by lower commission expense. Travel and meals
and entertainment expenses increased as restrictions on travel have
eased. As economies re-open, we anticipate travel, meals and
entertainment expenses will increase over current levels, the
timing and amount of such expenses, however, are indeterminate at
this time.
General and administrative expenses (“G&A”) increased by
$1.6 million to $7.8 million for the three months ended June 30,
2021, from $6.2 million for the three months ended June 30, 2020.
The increase was the result of the impact of the stronger Canadian
dollar on our cost structure, higher salaries and benefits
expenses, inclusive of a one-time severance cost, and professional
fees, partially offset by decreased variable compensation
costs.
Operations support expenses decreased by $0.1 million to $2.2
million for the three months ended June 30, 2021, from $2.3 million
for the three months ended June 30, 2020, due to higher capitalized
labor associated with internal capital projects.
Technology and development expenses decreased by $0.2 million to
$1.9 million for the three months ended June 30, 2021, compared to
$2.1 million for the three months ended June 30, 2020, primarily
related to staff transferred to Sales and Marketing.
Net loss for the three months ended June 30, 2021 was $9.7
million compared to net income of $0.3 million for the three months
ended June 30, 2020. The higher net loss is primarily the result of
the above noted reduction in gross profit, a $4.2 million increase
in operating expenses, which was largely due to increased stock
based compensation, one-time severance costs and salary and wage
expenses as we continue to build our sales organization and execute
on our strategic plan and increased activity due to the easing of
COVID-19 restrictions, a $0.9 million reduction of government
subsidies and a $0.7 increase in interest expense as well as the
estimated $1.3 million impact of a stronger Canadian dollar on
Canadian based operating expenses. These amounts were partially
offset by a $0.9 million reduction in foreign exchange losses.
Adjusted EBITDA (see “Non-GAAP Financial Measures”) for the
quarter ended June 30, 2021 was an $6.8 million loss or (16.6%) of
revenue, a decline of $7.1 million from $0.3 million, or 0.6% of
revenue, for the quarter ended June 30, 2020 for the above noted
reasons.
Conference Call and Webcast Details
A conference call and webcast for the investment community is
scheduled for Thursday, August 5, 2021 at 8:00 a.m. MDT (10:00 a.m.
EDT). The call and webcast will be hosted by Kevin O’Meara, chief
executive officer, Geoff Krause, chief financial 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 +1-877-479-7708 (toll-free in North
America) or +1-647-427-2478 (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
and during 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 June 30, |
|
|
For the Six Months Ended June 30, |
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
Product revenue |
|
|
40,087 |
|
|
|
40,765 |
|
|
|
68,629 |
|
|
|
81,064 |
|
Service revenue |
|
|
1,015 |
|
|
|
1,390 |
|
|
|
1,938 |
|
|
|
2,072 |
|
Total
revenue |
|
|
41,102 |
|
|
|
42,155 |
|
|
|
70,567 |
|
|
|
83,136 |
|
Product cost of sales |
|
|
31,091 |
|
|
|
26,751 |
|
|
|
54,642 |
|
|
|
54,041 |
|
Costs of under-utilized
capacity |
|
|
- |
|
|
|
- |
|
|
|
1,756 |
|
|
|
2,010 |
|
Service cost of sales |
|
|
787 |
|
|
|
1,188 |
|
|
|
1,575 |
|
|
|
1,554 |
|
Total cost of
sales |
|
|
31,878 |
|
|
|
27,939 |
|
|
|
57,973 |
|
|
|
57,605 |
|
Gross
profit |
|
|
9,224 |
|
|
|
14,216 |
|
|
|
12,594 |
|
|
|
25,531 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing |
|
|
7,564 |
|
|
|
6,177 |
|
|
|
14,234 |
|
|
|
13,585 |
|
General and
administrative |
|
|
7,780 |
|
|
|
6,194 |
|
|
|
15,021 |
|
|
|
14,019 |
|
Operations support |
|
|
2,213 |
|
|
|
2,251 |
|
|
|
4,510 |
|
|
|
4,783 |
|
Technology and
development |
|
|
1,924 |
|
|
|
2,082 |
|
|
|
3,859 |
|
|
|
4,247 |
|
Stock-based compensation |
|
|
1,861 |
|
|
|
425 |
|
|
|
2,955 |
|
|
|
886 |
|
Total operating
expenses |
|
|
21,342 |
|
|
|
17,129 |
|
|
|
40,579 |
|
|
|
37,520 |
|
Operating
loss |
|
|
(12,118 |
) |
|
|
(2,913 |
) |
|
|
(27,985 |
) |
|
|
(11,989 |
) |
Government subsidies |
|
|
3,431 |
|
|
|
4,284 |
|
|
|
7,499 |
|
|
|
4,284 |
|
Foreign exchange gain
(loss) |
|
|
(60 |
) |
|
|
(960 |
) |
|
|
(240 |
) |
|
|
1,359 |
|
Interest income |
|
|
23 |
|
|
|
57 |
|
|
|
42 |
|
|
|
195 |
|
Interest expense |
|
|
(794 |
) |
|
|
(61 |
) |
|
|
(1,294 |
) |
|
|
(96 |
) |
|
|
|
2,600 |
|
|
|
3,320 |
|
|
|
6,007 |
|
|
|
5,742 |
|
Income (loss) before
tax |
|
|
(9,518 |
) |
|
|
407 |
|
|
|
(21,978 |
) |
|
|
(6,247 |
) |
Income
taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current tax expense
(recovery) |
|
|
210 |
|
|
|
366 |
|
|
|
210 |
|
|
|
(215 |
) |
Deferred tax expense
(recovery) |
|
|
10 |
|
|
|
(242 |
) |
|
|
49 |
|
|
|
(987 |
) |
|
|
|
220 |
|
|
|
124 |
|
|
|
259 |
|
|
|
(1,202 |
) |
Net income
(loss) |
|
|
(9,738 |
) |
|
|
283 |
|
|
|
(22,237 |
) |
|
|
(5,045 |
) |
Income (loss) per
share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per
share |
|
|
(0.11 |
) |
|
0.00 |
|
|
|
(0.26 |
) |
|
|
(0.06 |
) |
Weighted average
number of shares outstanding (in
thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted |
|
|
84,752 |
|
|
|
84,681 |
|
|
|
84,717 |
|
|
|
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 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, and foreign exchange gains and losses 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 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 for foreign
exchange gains or losses; 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 and
six months ended June 30, 2021 and 2020 of EBITDA and Adjusted
EBITDA to our net income (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 June 30, |
|
|
For the Six Months Ended June 30, |
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
|
|
($ in thousands) |
|
|
($ in thousands) |
|
Net Income (loss) for the period |
|
|
(9,738 |
) |
|
|
283 |
|
|
|
(22,237 |
) |
|
|
(5,045 |
) |
Add back (deduct): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
|
794 |
|
|
|
61 |
|
|
|
1,294 |
|
|
|
96 |
|
Interest Income |
|
|
(23 |
) |
|
|
(57 |
) |
|
|
(42 |
) |
|
|
(195 |
) |
Income Tax Expense
(Recovery) |
|
|
220 |
|
|
|
124 |
|
|
|
259 |
|
|
|
(1,202 |
) |
Depreciation and
Amortization |
|
|
3,421 |
|
|
|
2,761 |
|
|
|
6,823 |
|
|
|
5,893 |
|
EBITDA |
|
|
(5,326 |
) |
|
|
3,172 |
|
|
|
(13,903 |
) |
|
|
(453 |
) |
Foreign Exchange (Gains)
Losses |
|
|
60 |
|
|
|
960 |
|
|
|
240 |
|
|
|
(1,359 |
) |
Stock-based Compensation |
|
|
1,861 |
|
|
|
425 |
|
|
|
2,955 |
|
|
|
886 |
|
Government Subsidies |
|
|
(3,431 |
) |
|
|
(4,284 |
) |
|
|
(7,499 |
) |
|
|
(4,284 |
) |
Adjusted
EBITDA |
|
|
(6,836 |
) |
|
|
273 |
|
|
|
(18,207 |
) |
|
|
(5,210 |
) |
Net Income (Loss)
Margin(1) |
|
|
(23.7 |
)% |
|
|
0.7 |
% |
|
|
(31.5 |
)% |
|
|
(6.1 |
)% |
Adjusted EBITDA
Margin |
|
|
(16.6 |
)% |
|
|
0.6 |
% |
|
|
(25.8 |
)% |
|
|
(6.3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Net income (loss) divided by revenue.
The following table presents a reconciliation for the three and
six months ended June 30, 2021 and 2020 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 June 30, |
|
|
For the Six Months Ended June 30, |
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
|
|
($ in thousands) |
|
|
($ in thousands) |
|
Gross profit |
|
|
9,224 |
|
|
|
14,216 |
|
|
|
12,594 |
|
|
|
25,531 |
|
Gross profit
margin |
|
|
22.4 |
% |
|
|
33.7 |
% |
|
|
17.8 |
% |
|
|
30.7 |
% |
Add: Depreciation and
amortization expense |
|
|
2,033 |
|
|
|
1,908 |
|
|
|
4,062 |
|
|
|
4,169 |
|
Add: Costs of under-utilized
capacity |
|
|
- |
|
|
|
- |
|
|
|
1,756 |
|
|
|
2,010 |
|
Adjusted Gross
Profit |
|
|
11,257 |
|
|
|
16,124 |
|
|
|
18,412 |
|
|
|
31,710 |
|
Adjusted Gross Profit
Margin |
|
|
27.4 |
% |
|
|
38.2 |
% |
|
|
26.1 |
% |
|
|
38.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 the expected pace of
recovery of revenue growth in the second half of 2021 and our
anticipated third quarter 2021 revenues; expectations regarding
additions to our distribution partner network; our ability to
capitalize on growing sales opportunities and to deliver long-term,
profitable and sustainable revenue growth; and expectations
regarding the timing of the grand opening of our new Dallas DXC.
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, 2020, filed with the U.S. Securities
and Exchange Commission (the “SEC”) and applicable securities
commissions or similar regulatory authorities in Canada on February
24, 2021, as supplemented by our Quarterly Report on Form 10-Q for
the quarter ended March 31, 2021, filed with the SEC and applicable
securities commissions or similar regulatory authorities in Canada
on May 5, 2021, and in the Quarterly Report on Form 10-Q for the
quarter ended June 30, 2021 filed with the SEC and applicable
securities commissions or similar regulatory authorities in Canada
on August 4, 2021.
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
DIRTT is a building process powered by technology. The Company
uses its proprietary ICE® software to design, manufacture and
install fully customized interior environments. The technology
drives DIRTT’s advanced manufacturing and provides certainty on
cost, schedule, and the final result. Complete interior spaces are
constructed faster, cleaner, and more sustainably. DIRTT has
manufacturing facilities in Phoenix, AZ, Savannah, GA, Rock Hill,
SC, and Calgary, AB. The Company works with distribution partners
throughout North America. 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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