DIRTT Releases Q3 2020 Financial Results
DIRTT Environmental Solutions reported third quarter 2020 revenue of $46.2 million, down from $65.4 million in Q3 2019, affected by COVID-19-related project delays. The company recorded a net loss of $2.1 million, contrasting with a net income of $5.8 million in the previous year, and had an adjusted EBITDA of $0.9 million. Gross profit margin decreased to 35.1% from 38.1%, while adjusted gross profit margin fell to 39.3%. Despite challenges, DIRTT holds a strong cash balance of $50.7 million.
- Increased revenue of $46.2 million in Q3 2020, exceeded Q1 and Q2 revenues.
- Positive adjusted EBITDA of $0.9 million in Q3.
- Strong cash position of $50.7 million.
- Net loss of $2.1 million compared to a net income of $5.8 million in Q3 2019.
- Revenue decreased by $19.2 million compared to Q3 2019.
- Gross profit margin declined to 35.1% from 38.1% year-over-year.
CALGARY, Alberta, Nov. 04, 2020 (GLOBE NEWSWIRE) -- DIRTT Environmental Solutions Ltd. (“DIRTT”, the “Company”, “we” or “us”) (NASDAQ: DRTT, TSX: DRT), an interior construction company that uses technology for client-driven design and manufacturing, today announced its financial results for the three and nine months ended September 30, 2020. All financial information in this news release is presented in U.S. dollars, unless otherwise stated.
Third Quarter 2020
- Revenue of
$46.2 million - Gross profit margin of
35.1% - Adjusted Gross Profit Margin1
39.3% - Net loss of
$2.1 million - Net loss margin of (
4.5% ) - Adjusted EBITDA1 of
$0.9 million - Adjusted EBITDA Margin1 of
1.8% $50.7 million cash balance
Note: (1) See “Non-GAAP Financial Measures”. We have revised our calculations of Adjusted Gross Profit Margin and Adjusted EBITDA for the periods presented.
Management Commentary
“We continued to make substantial progress in implementing key elements of our strategic plan during the third quarter,” stated CEO Kevin O’Meara. “Preparation is underway for the launch of the next phase of our Make Space for PossibilitiesTM strategic marketing campaign, which is driving brand awareness and engagement. We continued to onboard our new partners, reinstituted in-person tours at our New York City and Calgary DIRTT Experience Centers (DXC), introduced a highly effective virtual tour, and will soon reopen our newly renovated Chicago DXC.
“In addition to delivering modestly positive adjusted EBITDA and increases to our cash balances during the quarter, our third quarter revenue of
Mr. O’Meara concluded, “While we have made great strides in implementing the many commercial execution, manufacturing excellence and innovation initiatives we detailed in DIRTT’s strategic plan a year ago, the COVID-19 pandemic has significantly reduced commercial construction activity in North America. Consequently, we are seeing indications of softness in our core business for the balance of the year, with such impacts yet to be offset by COVID-19 opportunities or our newly strengthened commercial capabilities. 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 and positioning DIRTT for growth over the long term.”
Third Quarter Financial Review
Revenue for the third quarter of 2020 was
Correspondingly, gross profit for the third quarter of 2020 declined to
Gross profit for the third quarter was impacted by the decline in revenues and the impact of fixed costs on lower revenues offset by a
Adjusted Gross Profit Margin in the third quarter decreased to
Sales and marketing expenses decreased to
General and administrative expenses decreased to
Operations support expenses decreased to
Technology and development expenses of
Net loss for the third quarter was
Adjusted EBITDA and Adjusted EBITDA Margin for the three months ended September 30, 2020 decreased to
Conference Call and Webcast Details
A conference call and webcast for the investment community is scheduled for Thursday, November 5, 2020 at 8:00 a.m. MST (10:00 a.m. EST). 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 | For the nine months | |||||||||||
| ended September 30, | ended September 30, | |||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||
| Product revenue | 44,721 | 63,324 | 125,785 | 188,437 | ||||||||
| Service revenue | 1,458 | 2,061 | 3,530 | 6,100 | ||||||||
| Total revenue | 46,179 | 65,385 | 129,315 | 194,537 | ||||||||
| Product cost of sales | 29,361 | 38,947 | 83,402 | 116,117 | ||||||||
| Costs of under-utilized capacity | - | - | 2,010 | - | ||||||||
| Service cost of sales | 606 | 1,504 | 2,160 | 5,461 | ||||||||
| Total cost of sales | 29,967 | 40,451 | 87,572 | 121,578 | ||||||||
| Gross profit | 16,212 | 24,934 | 41,743 | 72,959 | ||||||||
| Expenses | ||||||||||||
| Sales and marketing | 6,933 | 8,568 | 20,518 | 25,898 | ||||||||
| General and administrative | 6,903 | 7,280 | 20,922 | 21,033 | ||||||||
| Operations support | 2,347 | 2,419 | 7,130 | 7,771 | ||||||||
| Technology and development | 1,959 | 1,718 | 6,206 | 5,881 | ||||||||
| Stock-based compensation | 714 | (2,389 | ) | 1,600 | 2,403 | |||||||
| Reorganization | - | - | - | 2,639 | ||||||||
| Total operating expenses | 18,856 | 17,596 | 56,376 | 65,625 | ||||||||
| Operating income (loss) | (2,644 | ) | 7,338 | (14,633 | ) | 7,334 | ||||||
| Government subsidies | (4,519 | ) | - | (8,803 | ) | - | ||||||
| Foreign exchange (gain) loss | 485 | (198 | ) | (874 | ) | 762 | ||||||
| Interest income | (27 | ) | (228 | ) | (222 | ) | (320 | ) | ||||
| Interest expense | 100 | 3 | 196 | 77 | ||||||||
| (3,961 | ) | (423 | ) | (9,703 | ) | 519 | ||||||
| Income (loss) before tax | 1,317 | 7,761 | (4,930 | ) | 6,815 | |||||||
| Income taxes | ||||||||||||
| Current tax expense (recovery) | (953 | ) | 818 | (1,168 | ) | 1,906 | ||||||
| Deferred tax expense | 4,345 | 1,141 | 3,358 | 1,761 | ||||||||
| 3,392 | 1,959 | 2,190 | 3,667 | |||||||||
| Net income (loss) | (2,075 | ) | 5,802 | (7,120 | ) | 3,148 | ||||||
| Income (loss) per share | ||||||||||||
| Basic and diluted income (loss) per share | (0.02 | ) | 0.07 | (0.08 | ) | 0.04 | ||||||
Non-GAAP Financial Measures
Our condensed consolidated 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 from 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. In addition, management bases certain forward-looking estimates and budgets on non-GAAP financial measures, primarily Adjusted EBITDA.
For the current period, we removed the impact of all foreign exchange from Adjusted EBITDA. Foreign exchange gains and losses can vary significantly period-on-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 have presented a reconciliation to our prior calculation of Adjusted EBITDA for all the quarters presented. Additionally, in the current period, we have excluded from Adjusted Gross Profit costs associated with under-utilized capacity. 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 the second quarter of 2020, we also removed the impact of government subsidies from Adjusted EBITDA.
Reorganization expenses, 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 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 into 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, as previously presented | Gross profit before deductions for depreciation and amortization | |
| 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, as previously presented | EBITDA adjusted for non-cash foreign exchange gains or losses on debt revaluation; impairment expenses; stock-based compensation expense; government subsidies; reorganization expenses; and any other non-core gains or losses | |
| Adjusted EBITDA | EBITDA adjusted for foreign exchange gains or losses; impairment expenses; stock- based compensation expense; government subsidies; reorganization expenses; 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 third quarter and year-to-date results of 2020 and 2019 of EBITDA and Adjusted EBITDA to our net income (loss), which is the most directly comparable GAAP measure for the periods presented:
| Three months ended September 30, | Nine months ended September 30, | |||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||
| ($ in thousands) | ($ in thousands) | |||||||||||
| Net income (loss) for the period | (2,075 | ) | 5,802 | (7,120 | ) | 3,148 | ||||||
| Add back (deduct): | ||||||||||||
| Interest Expense | 100 | 3 | 196 | 77 | ||||||||
| Interest Income | (27 | ) | (228 | ) | (222 | ) | (320 | ) | ||||
| Income Tax Expense | 3,392 | 1,959 | 2,190 | 3,667 | ||||||||
| Depreciation and Amortization | 2,780 | 2,925 | 8,673 | 9,260 | ||||||||
| EBITDA | 4,170 | 10,461 | 3,717 | 15,832 | ||||||||
| Stock-based Compensation | 714 | (2,389 | ) | 1,600 | 2,403 | |||||||
| Non-cash Foreign Exchange Gain on Debt Revaluation | - | - | - | (211 | ) | |||||||
| Government Subsidies | (4,519 | ) | - | (8,803 | ) | - | ||||||
| Reorganization Expense | - | - | - | 2,639 | ||||||||
| Adjusted EBITDA, as previously presented(1) | 365 | 8,072 | (3,486 | ) | 20,663 | |||||||
| Other Foreign Exchange (Gains) Losses | 485 | (198 | ) | (874 | ) | 973 | ||||||
| Adjusted EBITDA | 850 | 7,874 | (4,360 | ) | 21,636 | |||||||
| Net Income (Loss) Margin(2) | (4.5 | )% | 8.9 | % | (5.5 | )% | 1.6 | % | ||||
| Adjusted EBITDA Margin, as previously presented(1) | 0.8 | % | 12.3 | % | (2.7 | )% | 10.6 | % | ||||
| Adjusted EBITDA Margin | 1.8 | % | 12.0 | % | (3.4 | )% | 11.1 | % | ||||
(1) As discussed previously, in prior filings, only foreign exchange movements on debt revaluation was included in Adjusted EBITDA.
(2) Net income (loss) divided by revenue.
The following table presents a reconciliation for the three and nine months ended September 30, 2020 and 2019 of Adjusted Gross Profit to our gross profit, which is the most directly comparable GAAP measure for the periods presented:
| Three months ended September 30, | Nine months ended September 30, | |||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||
| ($ in thousands) | ($ in thousands) | |||||||||||
| Gross profit | 16,212 | 24,934 | 41,743 | 72,959 | ||||||||
| Gross profit margin | 35.1 | % | 38.1 | % | 32.3 | % | 37.5 | % | ||||
| Add: Depreciation and amortization expense | 1,959 | 2,375 | 6,128 | 7,114 | ||||||||
| Adjusted Gross Profit, as previously presented | 18,171 | 27,309 | 47,871 | 80,073 | ||||||||
| Add: Costs of under-utilized capacity | - | - | 2,010 | - | ||||||||
| Adjusted Gross Profit | 18,171 | 27,309 | 49,881 | 80,073 | ||||||||
| Adjusted Gross Profit Margin, as previously presented | 39.3 | % | 41.8 | % | 37.0 | % | 41.2 | % | ||||
| Adjusted Gross Profit Margin | 39.3 | % | 41.8 | % | 38.6 | % | 41.2 | % | ||||
Special Note Regarding Forward-Looking Statements
Certain information and statements contained in this news release constitute “forward-looking information” and “forward-looking statements” (collectively, “Forward-Looking Information”) as defined under applicable provisions of the United States Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934 and within the meaning of applicable Canadian securities laws. The Company hereby cautions investors about important factors that could cause the Company’s actual results or outcomes to differ materially from those projected in any Forward-Looking Information contained in this news release. When used in this news release, the words “anticipate,” “believe,” “expect,” “estimate,” “intend,” “target,” “plan,” “project,” “outlook,” “may,” “will,” “should,” “would,” “could,” “can,” the negatives thereof, variations thereon and other similar expressions are intended to identify Forward-Looking Information, although not all Forward-Looking Information contains such identifying words. In particular, this news release contains Forward-Looking Information with respect to, among other things, the impact of COVID-19 on our business, expected changes to the Company’s board of directors and Audit Committee, and the timing thereof, the expected timing of re-opening our DIRTT Experience Centers to client tours, our expectations regarding the impacts of implementing our CRM system, our expected focus on leveraging opportunities to accelerate the shift from conventional to modular construction and our ability to position DIRTT to achieve sustained, long-term market share growth, and our expectations regarding future travel and entertainment expenses. Forward-Looking Information necessarily involves unknown risks and uncertainties, which could cause actual results or outcomes to differ materially from those expressed or implied in such statements. Factors that could have a material effect on our business, financial condition, results of operations and growth prospects include, but are not limited to: competition in the interior construction industry; global economic, political, health and social conditions and financial markets, including those related to pandemics; our reliance on our network of distribution partners for sales, marketing and installation of our solutions; our ability to implement our strategic plans and to maintain and manage growth effectively; our ability to introduce new designs, solutions and technology and gain client and market acceptance; labor overcapacity or shortages and disruptions in our manufacturing facilities; product liability, product defects and warranty claims brought against us; defects in our designing and manufacturing software; infringement on our patents and other intellectual property; cyber-attacks and other security breaches of our information and technology systems; material fluctuations of commodity prices, including raw materials; shortages of supplies or disruption in the supply chain of certain key components and materials; our ability to balance capacity within our existing manufacturing facilities; our exposure to currency exchange rate, tax rate and other fluctuations that result from general economic conditions and changes in laws; legal and regulatory proceedings brought against us; the availability of capital or financing on acceptable terms, which may impair our ability to make investments in the business; and other factors and risks described under the heading “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2019 and our Quarterly Report on Form 10-Q for the quarter ended September 30, 2020 filed with the Securities and Exchange Commission.
Since actual results or outcomes could differ materially from those expressed in the Forward-Looking Information provided by or on behalf of the Company, investors and others should not place undue reliance on any such Forward-Looking Information.
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 final result. Complete interior spaces are constructed faster, cleaner and more sustainably. DIRTT’s manufacturing facilities are located in Phoenix, Savannah and Calgary. The Company works with over 75 partners throughout North America. DIRTT trades on Nasdaq under the symbol “DRTT” and on the Toronto Stock Exchange under the symbol “DRT”.
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