DIRTT Announces Multiple Initiatives as it Regains Momentum

Rhea-AI Summary

DIRTT Environmental Solutions has announced several strategic initiatives aimed at enhancing its performance and reducing annualized fixed operating expenses by approximately 14%. Key highlights include focusing on core customized products, reconfiguring manufacturing operations, and a commitment to partner relationships. DIRTT's interim CEO, Todd Lillibridge, expressed confidence in improving business operations and achieving positive adjusted EBITDA within 18 months. The company also plans to rebrand and introduce price increases in response to inflation while anticipating an annual sales capacity of approximately $500 million.

Positive

• Reduction of fixed operating expenses by approximately 14%.
• Expected annual sales capacity of approximately $500 million.
• Introduction of new pricing strategies and product focus to enhance margins.

Negative

• None.

Changes enable the company to better adapt to rapidly evolving market conditions, reduce annualized fixed operating expenses by approximately 14%, and strengthen capacity to capture significant sales upside

Highlights include:

• Focusing sales effort on core suite of customized products
• Reconfiguring and rationalizing manufacturing footprint
• Enhancing partner relationships
• Streamlining the Company’s go-to-market strategy
• Rebranding and repositioning DIRTT

CALGARY, Alberta, Feb. 22, 2022 (GLOBE NEWSWIRE) -- DIRTT Environmental Solutions Ltd. (“DIRTT” or the “Company”) (Nasdaq: DRTT, TSX: DRT), an interior construction company that uses proprietary software to design, manufacture and install fully customizable environments, today announced multiple initiatives to enhance its performance as a preeminent industrialized construction company and reduce its fixed annualized operating expenses by approximately 14%.

“At a time of pronounced change in how and where people gather, DIRTT can play an integral role as organizations respond to a growing need for flexibility in workplace, education or healthcare settings,” said Todd Lillibridge, Interim CEO. “Over the last several months, the board has challenged management to adapt our strategic plan so that we could be a critical partner, knowing that it meant we needed to become more focused, more strategic, and more flexible. These initiatives are aimed at improving every area of our business – from the products we sell, to where we manufacture them, to how we go to market. They are taking place at a time when we are seeing the return of previously postponed construction projects, giving us confidence that with a stronger pipeline and a meaningful improvement in our operations, we can achieve positive adjusted EBITDA, with corresponding improvements in net loss, within the next 18 months.”

Mr. Lillibridge’s confidence is supported by discussions he has had with partners and clients. “There are considerable opportunities for us from those planning their post-pandemic spaces. There is widespread recognition of the need to accommodate hybrid work through seamlessly integrating in-person and virtual collaboration, while also creating diverse work settings and applications to support individual and team activities. At the same time, financial services and healthcare clients are reengaging with us as they continue to stake a local community presence through design standardization. Our solutions are ideal for settings that require greater flexibility or innovative customization.”

The Company is taking the following actions organized under its three strategic pillars:

Innovation
DIRTT is introducing a Product Development filter designed to enable it to better focus on its suite of custom construction solutions, which provide clients greater certainty in cost, schedule, and outcomes, while delivering higher margin sales to the Company.

The Company’s proprietary ICE^® software plays a critical role for its partners and clients to envision and design their spaces. DIRTT will make new investments in ICE^® to include more core products and improve its ease of use.

Manufacturing Excellence
The Company has adopted a new Master Facility Plan which is designed to deliver robust North American manufacturing capabilities in the East and West, with the goal of reducing shipping time and costs.

As a first step, DIRTT will expand aluminum manufacturing at its facilities in Calgary, Alberta and Savannah, Georgia while closing its aluminum facility in Phoenix, Arizona. The move is expected to result in annualized cost savings of approximately $2.4 million.

The Company is also expanding the capabilities of its Rock Hill, South Carolina panel plant to add Thermofoil panel and back-painted glass production, in addition to the plant’s existing production of Chromacoat panels. DIRTT expects this will reduce shipping time and cost for Thermofoil panels to customers located in the East and Midwestern regions of North America, while leveraging the fixed cost base of the Rock Hill plant. The expansion is being achieved through the transfer of existing equipment from its facilities in Calgary and Phoenix and is not expected to incur any material capital costs. This is the first of several capability enhancements that were envisioned when the Rock Hill plant was launched last year.

Following these changes, and assuming fully staffed manufacturing sites operating 24/7, the Company will have capacity to support annual sales of approximately $500 million at currently planned pricing and product mixes.

Commercial Execution
Key drivers of the Company’s ‘go-to-market’ strategy are being enhanced.

The Company’s Strategic Accounts group was established over two years ago and its work generates large commercial opportunities with leading organizations across North America. While this work can have a long lead time given its size and scope, once a client has committed to the DIRTT solution, it can result in repeat sales as the client replicates the same design standard across its network, often at an enormous cost saving. Recognizing the considerable value DIRTT adds during the pre-construction stage, particularly within the strategic accounts group, certain of those services will now be provided for a fee.

DIRTT’s commitment to its partner network is being reinforced through several initiatives. The Company is establishing a Partner Advisory Council to provide a greater link to its clients and partners. The Council will offer its advice on sales and marketing effectiveness, product issues and new market needs, market conditions, competitive landscape, marketing support and other related areas of mutual interest.

The Company is altering its order entry process, which it anticipates will facilitate a reduction in standby production capacity. Effective May 1, 2022, DIRTT is changing its standard payment terms to 50% due on shipment, instead of on order. By separating its deposit requirement from the order entry process, management believes the Company can encourage earlier order entry and thereby reduce standby production labor capacity by up to 20%, while continuing to provide certainty in scheduling.

The Company is announcing several initiatives regarding pricing. Effective June 1, 2022, it will introduce a 5% price increase in response to continued inflationary impacts to its material costs. DIRTT is also launching new aggressive pricing strategies on its Reflect^® and Inspire^® lines of glass wall products, with a view to capturing greater market share in this category, while offering an important entry point to explore the Company’s broader construction solutions. Similarly, in looking to capitalize on the growing healthcare sector, DIRTT will also be launching an aggressive pricing program for applied headwalls as a compelling standalone product that works in harmony with the base building.

As DIRTT identifies new market drivers, evolving customer needs and an opportunity to be a stronger partner to the design and build ecosystem, the Company is rebranding and repositioning DIRTT for future growth. The evolution of the Company and its value will be reflected in a shift from being a market disruptor to an enabler, with an emphasis on elevating clients and the outcomes they are able to achieve with DIRTT’s construction system. With changes already underway, the formal rebrand will be launched in late Q2, supported by a new go-to-market strategy, new sales tools, a comprehensive digital experience, and national and regional campaign efforts.

Interest in sustainability and smart building has seen a marked increase in all of DIRTT’s vertical markets. In 2021, 43% of projects sought sustainability data, up from 30% in 2020 and 13% in 2019. The Company has been engaged in a series of events for its internal teams, clients, and partners to create greater awareness of DIRTT’s sustainable building products and processes and will continue to invest in this work. The Company anticipates delivering its 2021 ESG Report in the second quarter of this year.

In addition to the changes aligned with the Company’s strategy, DIRTT also announced the following developments:

• DIRTT is finalizing details of an organization-wide restructuring of positions that will contribute to the reduction of fixed expenses. These will take effect this quarter.
• The entire senior executive team have elected to receive 100% of their 2021 variable compensation in shares rather than cash. The Company’s directors have each elected to receive 100% of their compensation under the Company’s Deferred Share Unit Plan, rather than cash.
• DIRTT looks forward to welcoming its Calgary team back to the office and is launching a longer-term plan to create a new DIRTT Experience Center (DXC) there, similar to what it opened in Dallas, Texas last year. The Dallas DXC is home to a versatile space that serves the diverse needs of the local team while also hosting a growing number of visitors looking to learn more about the Company’s construction system. The Company also operates DXCs in Chicago, Illinois and New York, New York.
  

Taken together, these changes are expected to reduce the Company’s annualized fixed costs by approximately 14% as well as increase the efficiency of its variable costs. The Company continues to look for further ways to enhance its performance and benefit from the significant changes taking place in the market.

Todd Lillibridge added: “This has been a complex but necessary process to make a step change in our performance. We believe these actions will have a meaningful, and immediate, impact and coupled with the uptick we are seeing in the market, will create real momentum for DIRTT. And we’re not finished. We are continuing to adapt our strategic plan and will make additional changes to our business so that we remain integral to our clients’ and partners’ success.”

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 the Company’s strategy, future operations, financial position, estimated revenues and losses, prospects, plans and objectives of management are forward-looking statements. When used in this news release, the words “believe,” “anticipate,” “expect,” “will,” “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.

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 the Company’s 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 the Company’s 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 the Company’s Quarterly Reports on Form 10-Q, filed with the SEC and applicable securities commissions or similar regulatory authorities in Canada from time to time, and the Company’s Current Report on Form 8-K, filed with the SEC and applicable securities commissions or similar regulatory authorities in Canada on or about December 1, 2021.

Past results of operations are not necessarily indicative of future results. You should not rely on any forward-looking statements, which represent the Company’s beliefs, assumptions and estimates only as of the dates on which they were made, as predictions of future events. The Company undertakes no obligation to update these forward-looking statements, even though circumstances may change in the future, except as required under applicable securities laws. The Company qualifies all 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”.

FAQ

What cost savings does DIRTT expect from its recent initiatives?

DIRTT aims to reduce its annualized fixed operating expenses by approximately 14%.

What is DIRTT's projected annual sales capacity following the restructuring?

DIRTT's projected annual sales capacity is approximately $500 million.

What are DIRTT's plans to adapt its product offerings?

DIRTT is focusing on its core suite of customized products to meet client needs.

When does DIRTT anticipate achieving positive adjusted EBITDA?

DIRTT anticipates achieving positive adjusted EBITDA within the next 18 months.

What strategic changes is DIRTT implementing in its market approach?

DIRTT is reconfiguring its manufacturing footprint and streamlining its go-to-market strategy.