DIRTT Releases Q2 2022 Financial Results
DIRTT Environmental Solutions reported second quarter 2022 revenue of $44.7 million, marking a 16.8% increase sequentially and 8.8% year-over-year. The gross profit margin was 14.0%, down from 22.4% a year ago, reflecting inflationary pressures on materials and labor. The net loss stood at $19.3 million, a significant rise from $9.7 million in Q2 2021. Adjusted EBITDA loss was $9.4 million. Despite challenges, the 12-month pipeline increased 13% to $359 million. The company aims to improve margins through price increases and operational enhancements.
- Second quarter revenue increased by 16.8% sequentially and 8.8% year-over-year.
- 12-month forward pipeline rose by 13% to $359 million.
- Company plans additional price increases to counteract inflationary pressures.
- Net loss increased to $19.3 million, up from $9.7 million in Q2 2021.
- Gross profit margin decreased to 14.0%, down from 22.4% year-over-year.
- High cash usage due to reorganization costs and inflation affecting margins.
CALGARY, Alberta, July 27, 2022 (GLOBE NEWSWIRE) -- DIRTT Environmental Solutions Ltd. (“DIRTT” or the “Company”) (Nasdaq: DRTT, TSX: DRT), a global leader in industrialized construction, today announced its financial results for the three months ended June 30, 2022. All financial information in this news release is presented in U.S. dollars, unless otherwise stated.
Second Quarter 2022
- Revenue of
$44.7 million - Gross profit margin of
14.0% - Adjusted Gross Profit Margin1 of
18.9% - Net loss of
$19.3 million - Net loss margin of (
43.1% ) - Adjusted EBITDA1 of (
$9.4) million - Adjusted EBITDA Margin1 of (
21.1% ) - Total available liquidity of
$31.0 million , including$19.7 million of unrestricted cash
Note: (1) See “Non-GAAP Financial Measures”
Management Commentary
“The increased activity levels and growth, particularly in the commercial sector, that began late in the first quarter of 2022 are continuing,” stated Benjamin Urban, CEO. “As a result, second quarter revenues of
“With demand continuing to increase, our immediate focus is to unlock manufacturing capacity, continue to improve revenues and profitability while accelerating our near-term progress towards breakeven and ultimately long-term profitability. Having experienced manufacturing capacity constraints during the second quarter, we increased our overall manufacturing headcount by
“We have taken further steps to flatten our organizational structure to increase overall effectiveness and optimize our fixed salaried cost base. This resulted in the elimination of 36 salaried positions and additional annual cost reductions of approximately
Geoffrey Krause, CFO, added “While revenues were in line with expectations and grew sequentially, cash usage remained high in the quarter primarily due to one-time reorganization costs and costs associated with the change of the Board of Directors, working capital build and ongoing inflationary pressures on raw materials and labor costs which weighed on gross margin. As a result, we are actively taking steps to recover DIRTT’s historic gross margin levels, and announced a further
“Our 12-month forward pipeline, including leads, increased by
Mr. Urban concluded, “Today we also announced certain leadership changes as we continue to refocus our organization, including the departure of Charles Kraus, Senior Vice President and General Counsel and Colin Blehm, Vice President Product Development, and the promotion of Nandini Somayaji to Senior Vice President Talent, General Counsel and Corporate Secretary, and Trevor Didluck to Vice President Product Development. Geoffrey Krause, DIRTT’s current Chief Financial Officer, announced his intention to retire from the Company, effective September 30, 2022. A search for a successor is underway. I would like to thank them all for their service and dedication to the Company.”
Second Quarter Financial Review
Revenues for the quarter ended June 30, 2022 were
Gross profit and gross profit margin for the quarter ended June 30, 2022 was
Adjusted Gross Profit and Adjusted Gross Profit Margin (see “– Non-GAAP Financial Measures”) for the quarter ended June 30, 2022 was
Sales and marketing expenses increased by
General and administrative expenses decreased
Operations support expenses increased by
Technology and development expenses for the three month period ended June 30, 2022 were consistent with prior period costs as
For the three months ended June 30, 2022, we incurred
Net loss for the three months ended June 30, 2022 was
Adjusted EBITDA (see “Non-GAAP Financial Measures”) for the quarter ended June 30, 2022 was a
Conference Call and Webcast Details
A conference call and webcast for the investment community is scheduled for Thursday, July 28th, 2022 at 8:00 a.m. MDT (10:00 a.m. EDT). The call and webcast will be hosted by Benjamin Urban, chief executive officer, Geoff Krause, chief financial officer and Kim MacEachern, director of investor relations.
The call is being webcast live on the Company’s website at dirtt.com. Alternatively, click here to listen to the live webcast. The webcast is listen-only. Those interested in participating in the question-and-answer session should follow the conference call dial-in instructions below.
Participants may register for the call here to receive the dial-in numbers and unique PIN to access the call seamlessly. It is recommended that you join 10 minutes prior to the event start, although you may register and dial in at any time during 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 prior to the call start.
A webcast replay of the call will be available 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, | ||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||
Product revenue | 43,091 | 40,087 | 80,542 | 68,629 | |||||||||||
Service revenue | 1,610 | 1,015 | 2,445 | 1,938 | |||||||||||
Total revenue | 44,701 | 41,102 | 82,987 | 70,567 | |||||||||||
Product cost of sales | 37,185 | 31,091 | 71,792 | 54,642 | |||||||||||
Costs of under-utilized capacity | - | - | - | 1,756 | |||||||||||
Service cost of sales | 1,240 | 787 | 1,632 | 1,575 | |||||||||||
Total cost of sales | 38,425 | 31,878 | 73,424 | 57,973 | |||||||||||
Gross profit | 6,276 | 9,224 | 9,563 | 12,594 | |||||||||||
Expenses | |||||||||||||||
Sales and marketing | 7,777 | 7,564 | 15,005 | 14,234 | |||||||||||
General and administrative | 6,877 | 7,780 | 14,870 | 15,021 | |||||||||||
Operations support | 2,528 | 2,213 | 5,026 | 4,510 | |||||||||||
Technology and development | 1,879 | 1,924 | 4,019 | 3,859 | |||||||||||
Stock-based compensation | 1,326 | 1,861 | 2,628 | 2,955 | |||||||||||
Reorganization | 5,163 | - | 8,855 | - | |||||||||||
Total operating expenses | 25,550 | 21,342 | 50,403 | 40,579 | |||||||||||
Operating loss | (19,274 | ) | (12,118 | ) | (40,840 | ) | (27,985 | ) | |||||||
Government subsidies | 49 | 3,431 | 624 | 7,499 | |||||||||||
Foreign exchange gain (loss) | 1,246 | (60 | ) | 514 | (240 | ) | |||||||||
Interest income | 20 | 23 | 31 | 42 | |||||||||||
Interest expense | (1,329 | ) | (794 | ) | (2,659 | ) | (1,294 | ) | |||||||
(14 | ) | 2,600 | (1,490 | ) | 6,007 | ||||||||||
Loss before tax | (19,288 | ) | (9,518 | ) | (42,330 | ) | (21,978 | ) | |||||||
Income taxes | |||||||||||||||
Current tax expense | - | 210 | - | 210 | |||||||||||
Deferred tax expense | - | 10 | - | 49 | |||||||||||
- | 220 | - | 259 | ||||||||||||
Net loss | (19,288 | ) | (9,738 | ) | (42,330 | ) | (22,237 | ) | |||||||
Loss per share | |||||||||||||||
Basic and diluted loss per share | (0.22 | ) | (0.11 | ) | (0.49 | ) | (0.26 | ) | |||||||
Weighted average number of shares outstanding (in thousands) | |||||||||||||||
Basic and Diluted | 86,023 | 84,752 | 85,739 | 84,717 |
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 and six months ended June 30, 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 June 30, | For the Six Months Ended June 30, | ||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||
($ in thousands) | ($ in thousands) | ||||||||||||||
Net loss for the period | (19,288 | ) | (9,738 | ) | (42,330 | ) | (22,237 | ) | |||||||
Add back (deduct): | |||||||||||||||
Interest Expense | 1,329 | 794 | 2,659 | 1,294 | |||||||||||
Interest Income | (20 | ) | (23 | ) | (31 | ) | (42 | ) | |||||||
Income Tax Expense | - | 220 | - | 259 | |||||||||||
Depreciation and Amortization | 3,344 | 3,421 | 7,966 | 6,823 | |||||||||||
EBITDA | (14,635 | ) | (5,326 | ) | (31,736 | ) | (13,903 | ) | |||||||
Foreign Exchange (Gains) Losses | (1,246 | ) | 60 | (514 | ) | 240 | |||||||||
Stock-based Compensation | 1,326 | 1,861 | 2,628 | 2,955 | |||||||||||
Government Subsidies | (49 | ) | (3,431 | ) | (624 | ) | (7,499 | ) | |||||||
Reorganization Expense | 5,163 | - | 8,855 | - | |||||||||||
Adjusted EBITDA | (9,441 | ) | (6,836 | ) | (21,391 | ) | (18,207 | ) | |||||||
Net Loss Margin(1) | (43.1 | )% | (23.7 | )% | (51.0 | )% | (31.5 | )% | |||||||
Adjusted EBITDA Margin | (21.1 | )% | (16.6 | )% | (25.8 | )% | (25.8 | )% |
(1) Net loss divided by revenue.
The following table presents a reconciliation for the three and six months ended June 30, 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 June 30, | For the Six Months Ended June 30, | ||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||
($ in thousands) | ($ in thousands) | ||||||||||||||
Gross profit | 6,276 | 9,224 | 9,563 | 12,594 | |||||||||||
Gross profit margin | 14.0 | % | 22.4 | % | 11.5 | % | 17.8 | % | |||||||
Add: Depreciation and amortization expense | 2,188 | 2,033 | 5,660 | 4,062 | |||||||||||
Add: Costs of under-utilized capacity | - | - | - | 1,756 | |||||||||||
Adjusted Gross Profit | 8,464 | 11,257 | 15,223 | 18,412 | |||||||||||
Adjusted Gross Profit Margin | 18.9 | % | 27.4 | % | 18.3 | % | 26.1 | % |
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 our expectations regarding third 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.
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 June 30, 2022 filed with the SEC and applicable securities commissions or similar regulatory authorities in Canada on July 27, 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. DIRTT’s 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 workplace, healthcare, education, and public sector markets, DIRTT’s system provides total design freedom, and greater certainty in cost, schedule and outcomes.
Headquartered in Calgary, AB Canada, DIRTT trades on Nasdaq under the symbol “DRTT” and on the Toronto Stock Exchange under the symbol “DRT”.
FAQ
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