Q1 2022 DIRTT Environmental Solutions Ltd Earnings Call
Thank you for standing by this is the conference operator, welcome to the dirt environmental solutions 'twenty 'twenty to Q1 financial results Conference call.
As a reminder, all participants are in listen only mode and the conference is being recorded.
After the presentation, there will be an opportunity to ask questions.
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I would now like to turn the conference over to Kim Cocklin Director of Investor Relations. Please go ahead.
Thank you operator, and good morning, everyone. Welcome to today's call to discuss Stuart's first quarter 2022 results. Joining me on the call today are Ken Sanders dirt newly appointed Board Chair.
Co interim Ceos, Joe gross and Jeff Calkins.
Today's prepared remarks are accompanied by presentation slides to access the slides. Please view them from the web page of this webcast are on our website.
Today's call will include forward looking statements within the meaning of the applicable Canadian and United States Securities Laws. These statements are based on the company's current intent expectations and projections. They are not guarantees of future performance.
In addition, this call will reference non-GAAP results, excluding special items. Please reference our Form 10-Q was filed on May 4th 2022, with the Securities and Exchange Commission or SEC and other reports and filings with the SEC for information regarding forward looking statements and reconciliations of non-GAAP results to GAAP results.
I'll also remind you that this webcast is being recorded and a replay will be available today at approximately one P M eastern time.
Now I'd like to turn the call over to John Kraus.
Thank you operator, and Kim and good morning, everyone. Today, we are holding our first conference call with the newly appointed Board of Directors. Joining me today is our board chair, Ken Sanders, who will start off the call with his remarks.
Also joining me today is Jeff Calkins, our Chief operating officer, and interim co CEO . It is my pleasure to now turn the call over to Ken Sanders.
Hey, Thank you Joe and welcome everyone. It is a pleasure to join you today as chair Gary newly elected Board is a former managing principal and board member at Kemper had been a follower and advocate of dirt since the company launched its first products in 2005.
I don't think I need to tell you that technology enabled pre fabrication industrialized construction mass customization are being embraced by more and more real estate developers owners tenants.
Owners and builders than ever before.
Reducing embodied carbon and the built environment is also an increasingly urgent global imperative I think dirty well positioned for both and when I had the opportunity to become involved I didn't hesitate.
My first and most important message today is to say thank you to the amazing people at dirt most of our board spent time last week in Calgary meeting with our executive team our partners as well as participating in a town hall with our people. There. We also toured our impressive factor in Calgary.
And I got to tell you the talent loyalty and passion of the people we met were truly inspiring.
They have been through so much over the past several years, you know not only COVID-19 and the recent proxy contest, but also multiple Ceos and our board of directors, whom I believe did not serve them very well through all of that <unk> people have persevered and state hard at work on behalf of our partners and our clients.
So I'd like to repeat on this call what I wrote in a letter last week to everyone that dirt that our new board has extraordinarily grateful for their continued commitment to the company.
Also wanted to say thank you to our partners. They too have been patiently waiting for the outcome of this proxy contest along with everyone else are partners are more important to dirt than ever and we call them partners for a reason I've met many of them over the past week I loved your learning about their businesses as well as the relay.
<unk> chips that we share across the industry.
I look forward to meeting many more of them in the weeks and months to come.
The three individuals on the call with me today also deserve special acknowledgement of thanks.
First to our job crowds and Jeff Hawken, our interim co Ceos, while neither is a candidate for the permanent CEO position. We are fortunate to have at the table the commitment leadership and detailed knowledge of our business.
All of which are providing an important continuity for the company at this time.
I also want to thank and acknowledge Kim my background I met all three of my new colleagues for the first time at the shareholders' meeting last Tuesday, and I cannot thank them enough for their professionalism.
Personal integrity and their ongoing commitment to dirt.
Right now our board is 100% focused on governing this company.
And as I mentioned in the company's press release on April 26, our intention is simple to unlock the potential that we believe already exists that dirt and promote its growth and financial performance as a public company.
So 90 days, then I'd like to outline the priorities we're focused on.
And if you want to turn to slide four.
Our highest priority is our search for a permanent CEO .
We have picked up the search process already underway and have accelerated it including additional insight from our new board.
We are also collaborating closely with the company's leadership team to ensure the processes, both inclusive and successful for the long term.
From the Board's perspective, we are seeking a market facing sales oriented leader with deep industry knowledge, who can harness and amplify the incredible talent energy and passion of the employees and the partners of dirt.
Our secondary focus is manufacturing.
We're now facing a supply constrained environment, rather than the demand constrained one we've seen over the past several years, Jeff Hawkins will speak about that later in the call and third we're focused on improving improving the financial health of the business, Jeff crowds, who will talk about that in more detail coming out.
But before I hand, it back to Jeff I'd also like to briefly comment on the ongoing litigation between dirt and fault built mogens smid very low Berg and others.
Ill refer to you to our press release of March 4th which May have been lost in the noise of the proxy contest.
Submitted app with David to the Queen's bench of Alberta is now part of the public record, including sworn testimony from Mogens.
And to be clear many of us, including myself have enormous respect from Bogan is a visionary founder of three companies, including dirt.
And in General I believe litigation should be a last resort and resolving disputes, but we also believe both business and in life.
But you have to keep your promises, especially when those promises are memorialized and signed legal agreements.
And based on the evidence the company has already shared publicly.
And everyone is welcome to Reed R submitted after David as I have we believe we have a strong case, we believe <unk> has been damaged by the actions and conduct of <unk> and others that were contrary to their signed agreements.
So that litigation will continue our board has a fiduciary responsibility to protect the interest of our shareholders as well as our partners and employees and we will do so vigorously.
So in conclusion speaking on behalf of <unk>, New Board, we are grateful for the opportunity to serve this innovative company and all of its stakeholders and with that I would now like to turn the call back over to Jeff Crouse.
Thanks, Ken.
First first I'd like to start by saying that Mr. Calkins Tonight are humbled by the vote of confidence of our New board, our leadership team and our employees as we take our new positions we.
We are both highly committed to and believe in the success of jerks through not only this in term period, but as we onboard our new CEO and hopefully short order.
I'm also pleased to announce the appointment of Jeff Metcalf as interim Chief Financial Officer effective Monday May nine. So it's allowed to allow me to better focus on my new responsibilities. So congratulations Jeff.
Turning to slide five now, let's shift our attention to the business at hand, I am going to start by providing a little color on the overall sales environment and activity levels, including outlook for the year after which Jeff Calkins will discuss our current operations and related impacts I'll close out the commentary with a review of our financial results for the quarter.
Broadly speaking our first quarter revenue reflected what was happening with the pandemic in North America as it transitions to endemic with abroad easing of health restrictions, including work from home mandates in Canada, and the U S. While the resurgence of COVID-19 infections due to the omicron variance at the beginning of the year temporarily.
Many employees back to their home offices and delayed return dates Derek and its partners experienced an uptick in planning activity and opportunities growth, which began to translate into orders in March 'twenty two.
Almost half of our Q1 revenue was generated in March 46% to be exact this marked the highest revenue months for the company since October of 2020, and the second highest since the beginning of the pandemic driven largely from our commercial vertical.
We are seeing these activity levels continue into the second quarter and our partners are telling us that they are busier than effort at the same time tours within our Dx sees both physical and virtual in Q1 exceeded those in Q3 and Q4 last year.
Our 12 month forward pipeline, including leads also increased by 5% to $318 million from $302 million at January one 2022. This has led us to our Q2 guidance of between 43% and $47 million representing sequential growth of between 13% to 24% we are.
Also increased our full year targets to be between $175 million and $185 million and now expect improvements in cash usage is 'twenty two progresses as a result of sequential improvements in revenue and a lower fixed cost base approaching monthly cash flow breakeven in the third or fourth quarter of 2020.
<unk>.
As Ken noted, we remain highly committed to our partner network and have been taking steps to improve our relationships broadened our effectiveness and enhance our communication.
The first step with the establishment of a partner Advisory Council to elevate partner feedback within our organization and to provide further insight to support our commercial and operational decision, making this council comprised of 17 of our partners, providing geographic and vertical representation across North America met for the first time on March 28.
<unk> thousand 22 worried establish the overall objectives and cadence as well as provided initial feedback that we have been extensively evaluating.
We along with our chairman and certain of our other directors will be meeting with the Council again next week as we continue to advance this critically important initiatives.
From a strategic account perspective in the first quarter, we refined our target is $2 48 from <unk> 55, as a result of head count reductions in February and to increase our overall focus during the quarter sales to strategic accounts totaled $6 million or 16% of revenue with product delivered to $2 22.
Of the 48 accounts.
For the remainder of 2022, we've identified and continue to develop opportunities with 32 of the 48 accounts.
I'll now turn it over to Jeff Calkins to provide comments on our operations and related activities.
Okay.
Thank you very much Jeff and good morning.
Moving to slide six I'd like to pick up on Canada, Jeff's comments and provide some additional comments on the operational side.
In April we completed our final shifts at the Phoenix aluminum manufacturing facility and commenced decommissioning activities.
This included the redeployment of certain pieces of manufacturing equipment to Calgary and Rock Hill.
Shifting and rationalization of aluminum inventory to other aluminum frame plants and subletting of the space.
Decommissioning is expected to be complete by the end of the second quarter of 2022, and we anticipate the sublease to be completed shortly thereafter.
When we decided to move ahead with the closure of the Phoenix plant, we accounted for having to expand our aluminum production in Calgary and Savannah.
We have successfully increased our staffing in Calgary for the face more challenges in Savannah.
In order to accommodate the sales pipeline increased activity, we are accelerating the hiring timeline in Savannah.
This is to both accommodate sales volume and also to be able to handle order timing fluctuations.
As we discussed at our recent filing during the first quarter, we saw 46% of our revenue hit in March.
Completing the expansion of the workforce in Savannah will allow us to flex up our manufacturing volume and it's this is where revenue is not evenly distributed throughout the quarter and to meet our delivery commitments.
As part of our manufacturing plan, we are enhancing our capabilities in rock Hill to include back painted glass and thermal foil panels. We anticipate first production out of that facility by the end of the second quarter.
As a result, we will be able to ship Chromebooks route back painted glass and thermal foil panels from Rockville as well as Calgary greatly reducing the shipping distance cost and time to our customers in the east and Midwest.
In increasing our utilization of that facility by the end of the second quarter.
I'd like to address supply chain from two perspectives physical supply and inflationary pressures.
We are considering continuing to experience supply constraints and rising costs for both aluminum extrusion and medium density fiberboard.
We are working with existing and new suppliers of both commodities to ensure adequate supply and inventory to meet rising demand.
I do note that we proactively increased our overall inventory inventory excuse me aluminum inventory on hand in the first quarter, when we identified that aluminum supply could be constrained.
And we are currently in good position with adequate quantities on hand.
While hardware is a small part of our overall input costs.
In response to sharp increases in open Ocean shipping costs and lead times, we are pursuing north American sourcing for hardware items currently sourced in China.
We continued to experience upward price pressure on all of our raw material costs.
In the mirrors in the near to mid term, we expect inflationary pressures to continue driven by both increased energy prices and the impact of global tensions on supply as well as trucking labor shortages.
We will continue to assess and implement mitigation strategies where appropriate.
I'd now like to turn the call back over to Jeff Crouse go through the financials.
Thanks, Jeff.
Turning to slide seven revenue for the first quarter was $38 3 million consistent with our expectations and an increase of $8 8 million or 30% from the first quarter of 2021.
Revenue throughout the quarter was unevenly distributed as I had mentioned previously as we saw a slow start to the year and a marked increase in activity in March relative to January and February .
Turning to slide eight gross profit margin for the quarter decreased to eight 6% from 11, 4% for the same period in 2021 and similarly, adjusted gross profit margin declined to 17, 7% from 24, 3% for the same period in 2021.
As we've discussed in prior quarters, we have experienced a significant increase in the realized cost raw materials transportation and packaging largely driven by the effects of the pandemic with much of the increases experienced in the second half of 2021.
During the first quarter gross profit was negatively impacted as materials transportation and packaging costs.
<unk> increased as a percentage of revenue by approximately 9%.
In response to this dynamic effective November 16, 2021, we increased prices on new orders by approximately six 5% as a result of honoring price quotes for projects in process. However, only 75% of first quarter revenue reflected that price increase.
We expect that the November price increase should be reflected in the higher percentage of orders in Q2, and the second price increase which was an additional 5% effective June 1st should begin to impact revenue recognized in Q3.
Further impacting gross profit margin worthy incremental fixed cost of our South Carolina facility that was opened last year and increased depreciation and amortization due to a revision to the useful lives of assets, including the Phoenix facility, partially offset by improved fixed cost leverage as compared to the prior period and as a result of higher active.
<unk>.
Looking at a breakdown of operating expenses on slide nine sales and marketing expenses increased by 6 million to $7 2 million for the three months ended March 31, 2022, which was largely related to an increase of $4 million in travel meals and entertainment expenses as business activity has increased and.
Fiction on travels have eased $8 3 million increase in commissions due to higher sales volumes and increased facility costs related to the Dallas <unk>, which opened in the third quarter of 2021.
Were offset by a decrease in salaries and benefits costs, primarily related to the head count reductions announced in February .
General and administrative expenses increased <unk> 8 million to $8 million for the $3 million for the three months ended March 31, 22, which reflects $1 5 million of incremental professional fees related to the contested election of directors offset by $1 7 million $2 $7 million decrease.
In salaries and benefit costs also due to decreased head count as announced in February .
Operations support expenses increased by $1 2 million to $2 5 million for the three months ended March 31 22.
The increase was due to lower cost capitalized internal projects with the completion of the rock Hill manufacturing facility and Dallas DXP last year.
Technology and development expenses.
<unk> increased by <unk> 2 million to $2 1 million for the three months ended March 31, 22, primarily related to a decrease in capitalized software development costs.
For clarity and transparency I'd like to call up both the nonrecurring costs related to the contested director election, which are included in operational expenses and separately categorized reorganization expenses.
The total cost of the contested director election incurred to date is expected to be about $2 9 million.
Of which <unk> 9 million was incurred in 2020 115 million incurred in the first quarter of 2022 and $5 million incurred to date in the second quarter of 'twenty two.
Note that these costs exclude approximately <unk> 6 million of cash payments for deferred share units to our former directors and are before any reimbursements of cost to our shareholders.
Yes.
As expected, we incurred reorganization costs from the various initiatives, we announced in February including closure of the Phoenix facility in.
In the first quarter, we recognized $3 7 million in the second quarter, we anticipate an additional $1 3 million.
In addition in April we incurred an additional $3 $1 million charge for incremental insurance on change of control of the board on April 26, 2022, which we will categorize as reorganization costs.
On slide 10, adjusted EBITDA and adjusted EBITDA margin for the quarter decreased to $12 million loss or negative 31, 2% from $11 $4 million loss or negative 38, 6% in the same period of 2021.
Which primarily were primarily reflects $8 $4 million decrease in adjusted gross profit of $1 5 million of incremental professional fees related to the contested election of directors.
$4 million reduction in capitalized costs due to fewer internal projects for.
$4 million increase in sales travel and entertainment costs.
$3 million of higher commission expense due to increased activity offset by $1 8 million of costs of underused capacity in the first quarter of 2021, which did not reoccur and lower salaries and benefit costs due to head count reductions.
As a reminder, we've excluded the $3 7 million in reorganization costs from the calculation of adjusted EBITDA.
On slide 11, net loss for the quarter increased to $23 million or 2007 net loss per share in the three months ended March 31, 2022 from a net loss of $12 5 million or <unk> <unk> net loss per share for the three months ended March 31 2021.
The increased loss is primarily the result of $1 $1 million decrease in gross profit of $5 $6 million increase in operating expense, including $3 $7 million of reorganization costs at $1 5 million of incremental professional fees. As described previously $8 8 million increase in interest expense $8 6 million increase in foreign <unk>.
Change loss and a $3 $5 million decrease in government subsidies.
Turning to slide 12, we finished the quarter with $38 9 million of unrestricted cash compared to $60 3 million at December 31, 2021, net working capital at the end of the quarter was $49 3 million cash used in operation was $19 million I note that this included noncash working capital usage of $2 7 million drill.
And by the increased activity levels at the end of the quarter combined with about $5 2 million of onetime contested director election costs and restructuring costs.
We expect cash usage to improve throughout the year due to sequentially, improving revenues and lower fixed cost base and reduced one time costs.
Days sales outstanding net of deposits and income taxes receivable was 32 days higher than normal due to the disproportionately higher March sales net working capital at March 31, 2022 was $49 3 million and includes $38 9 million and restricted cash balance and $3 2 million of restricted cash as per the term.
<unk> of our Undrawn credit facility.
Current ratio at March 31 was two two times compared to two eight times at December 31.
To reiterate my previous comments as we look forward to the second quarter, we have confirmed and expected revenue range of $43 million to $47 million for the full year 2022, we are anticipating revenue to be between 175 and $185 million as.
As we conclude the closer of our Phoenix facility and account for the final reorganization cost of the reduction in workforce and other initiatives, we announced in February we expect to see improving adjusted EBITDA loss net loss and cash usage through the balance of 2022 approaching monthly cash flow breakeven in Q3 or Q4.
In conclusion, we faced a challenging quarter with a lot of distraction that we are very happy to have behind us. We believe the second quarter guidance at the beginning of what we hope to be a recovery in our revenues with a corresponding improvement in cash usage and adjusted EBITDA loss.
Behalf of myself and Jeff Calkins were thrilled to be working with the new board of directors. During their short tenure there has been a resurgence of energy within the company and a fresh perspective on moving forward to capitalize on the tremendous opportunity in front of us.
Operator, we can now open the call for questions.
Thank you we will now begin the question and answer session.
So Julian the question queue, you May Press Star then one on your telephone keypad.
You will hear a tone acknowledging your request.
You are using a speakerphone please pick up your handset before pressing any keys.
To withdraw your question. Please press Star then two we will pause for a moment as callers join the queue.
Our first question comes from Greg Palm with Craig Hallum Capital Group.
Please go ahead.
Hey, guys. This is Danny <unk> on for Greg today, Thanks for taking the questions.
Morning, Danny how are you.
Good I guess to start off.
I appreciate the color on kind of the March and in April demand trends I guess, a quick math kind of implies about 17 and a half million in March.
And then with April remaining at very similar levels. So I guess, if my math is right based on the Q2 guide that kind of implies a step down in May and June is that how we should be thinking about that or maybe just some color there.
Sure absolutely.
Your number for March was Bang on.
What it does it's actually exactly the opposite we came out of March.
We came out of March pre.
Pre closure of our Phoenix facility.
Moving into April .
We found ourselves.
Slightly labor constrained in April .
And were forced to shift some of that production into into May and June we are seeing increases in the revenues in may and June which results in a lower revenue number than three times, what you would've seen in March.
As Jeff noted we are actively addressing the <unk>.
The labor.
Ian in Savannah, and accelerating that as well as accelerating in Calgary. So that we have the capacity for what is and.
We are seeing is an uptick in activity moving forward. So.
A little bit of a little bit of a bump between.
The closure of Phoenix, and the uptake of activity, but we're all over it and we're seeing good things moving forward.
Got it so that commentary on similar April activity to March isn't necessarily apples to apples on a revenue basis.
That's correct, it's on the sales side and order side of the equation.
And.
And which is giving us which gave us the confidence to continue to drive the increased labor levels within our within our facilities.
Okay that makes sense maybe.
Maybe if I could just hit on the strategic accounts real quick.
I think it looked like 6 million of revenue in the quarter from strategic turnarounds are these new orders from strategic or are these repeat.
What can you tell us about those.
It's a common it's a combination of both.
We had.
Very large order, which is currently going through our facility in large being greater than $2 million.
Which we are servicing.
In first quarter and second quarter.
It is also.
Part of the ongoing.
Service to to those strategic accounts. So we're we've served in the past smaller orders that are going through as we continue to serve those clients.
So it's a combination of the two.
In general as we're looking at our strategic accounts, they provide an excellent foundation for our business because they're much larger footprint.
They do provide an ongoing an ongoing stream as we continue to service them.
Yeah, and then just remind us what exactly define a strategic account is it is it number of locations is it is it potential revenue that it drives and maybe a little bit of rationale on on the.
The reduction from from $55 to 48.
Sure sure. So so our strategic account is.
Is really an entity that that is very large in nature has a footprint, which cut across multiple jurisdictions in North America.
Typically within the within the.
Fortune 500 that type of range. Although there are some that are smaller than that.
But it really relates to the size and breadth of their footprint.
The size of their.
Ah.
The organization from from kind of a financial perspective.
And their ability or their.
General management of their real estate across a large a large footprint.
Call them strategic accounts, so that we can we can drive our projects to partners within various regions.
The reduction $2 48 from 52.
As part of the head count.
Reductions that we did we did reduce some smaller head counts we did reduce some head count within that area I think a more important part of this is is making sure that we are focused within that group to be truly effective within that group and and.
The highly engaged with the strategic accounts that we have so so sometimes.
Sometimes more if not better this is a case, where we're focusing ourselves a little bit more.
Okay, and then maybe one last one from me I guess at a high level I don't know maybe this is more of a question for Ken here.
I guess, what the what the full new board and all the proxy stuff behind us.
And what we're a couple of the main focus areas are pain points, where.
There was there was you saw a need for the change or improvement.
Yeah sure that's a great question.
And I think I sort of outlined our top three priorities, including the.
Urgency of getting a permanent CEO onboard.
Could add a little bit more color to that.
Three characteristics are really important.
I mentioned deep industry knowledge is at the top of the list.
The building design and construction business is a complicated business and we need a leader who understands its nature.
And again, the importance of partnerships and collaborations.
Delivering innovation and value.
And I think again someone who has market facing sales oriented who can build strong relationships with our sales team our partners and our clients and also I think someone who can be a cultural cheerleader for our people for all the amazing employees at the company. So those are sort of three characteristics that are important.
Weighted to the CEO search.
And as the board I think to put it simply we want to be more client friendly more partner friendly and more shareholder friendly and we want to continue to innovate in ways that create differentiated value for our clients. We do believe we have a great foundation in place and dirt and Thats something we want to continue to nourish and.
Strength in going forward.
Alright, thanks for taking the questions.
Thanks, Danny sure. Thank you.
The next question comes from Rupert <unk> with National Bank financial.
Please go ahead.
Hey, good morning, everyone.
Morning, Robert.
So Jeff.
Talked about the impact of inflation on the business and you do have a few price increases you put through have you put through enough on the price increase side or should you be.
Expecting more of those as the year progresses, and let's see the net impact to margins that we should expect.
Over the next couple of quarters.
So we're we're continuing to monitor the situation.
Clearly like everyone else.
Prices.
Our raw material commodities are moving upward.
We are if they continue to move upward I think it would be fair to expect that.
That we will we will.
We'll look to capture that.
With with price increases as we move along.
This is certainly an ongoing and fluid situation.
The price increases as we have moving forward, we'll pull back.
Cost of our raw materials as a percentage of as a percentage of revenue.
Historically that number has been about 32%.
I expect it will run higher slightly higher than that as we move forward.
And then and then to a better a better equilibrium as inflation settles out and as our pricing as our pricing.
<unk> is up to it.
So I think that's where we sit on it.
You know I think a key part for US is we have put we put price price increases forward.
Our partners have expected price increases coming forward and keep our for US is as we do this providing enough notice to our partners and working with our partners in a collaborative.
Basis.
What's that.
We can do this in a manner, that's not disruptive to their business and not disruptive to ours.
Great. Thank you and then related to that with the price increases you've put through in width.
Some of the supply chain challenges you have how do you feel your.
<unk> proposition is evolving relative to.
The competition or the incumbents and construction do you think your.
Inflation.
Youre inflation compare to the industry of your supply chain issues compared to the industry as it so making the situation better or worse for dirt.
I think I think there is actually.
There is there's actually three things that are making it better for dirt and.
It's not just the inflationary pressure as I said, everyone is experiencing inflationary pressure.
It ourselves.
Be it other competitors in the modular space.
B a conventional construction, which is remains the primary competitor.
Uh huh.
We.
We need to be competitive in that front, but I don't think I don't think right now.
<unk> is the only factor in the equation, which is is.
Having our customers buy in fact, I think it's one of the lower factors that our customers are looking for and customers are looking for.
The other two key parts here is <unk>.
Construction schedules are getting squeezed as a result of onsite construction delays.
Commercial construction and other places are seeing supply constraints hit them, which is pushing out.
There.
Occupancy dates and the construction times, which caused which are costly to the end customer.
And and you are seeing.
You are seeing.
The movement back into.
Back into office space is backing to health care spaces in an uncertain time.
It means that customers are looking for flexibility and whats coming at them.
As I take that into into.
The world of dirt.
From a cost perspective.
The key parts, where we can we can provide cost certainty on on order given what we do and given how ice interacts with the plants in the bonds and all of those things that we've talked about previously.
It creates a.
Dynamic, which is very different than conventional where you see change orders delays all of those sorts of things coming at you.
Second piece is our lead times are incredibly important.
Our customers have told them. They are important to our partners have told us they are important.
So.
For us we can we can deliver product far faster than anyone else and because our product is an integrated product. It can stand up and you can be in your space far faster than anyone else because you aren't relying on subs that's holding true.
I think I think the third the third part of our value prop is that.
Our space is a very flexible.
And the flexibility of our space means you don't have to design for what you think tomorrow is going to be you can design for today and you can change it for later I think thats, becoming much more important.
As as we enter the new normal of what Covid looks like what hybrid workspace has looked like all of those sorts of things.
And then as people go back to work and the Occupancies and rates are going up which we're seeing in overall indexes I think that that definitely is a tailwind in our favor.
We're seeing that translating to the uptick in activity that we're seeing in our in our.
And our sales side.
Great. Thank you I'll leave it there thanks for the color.
Thank you.
The next question comes from Neil <unk> with <unk> capital markets.
Please go ahead.
Yeah. Thanks, good morning, guys.
Good morning, just wondering if you can provide a little bit more insight or color into the sales mix of.
I'm thinking about.
Existing customers versus new customers that you're serving.
And really any kind of.
Industry or geographic location of the customers, which youre seeing in especially if anything is different than what we've seen in previous years.
Okay.
Yeah. Thanks, Neil So so we are seeing.
Even over the last week, we are seeing a bunch of new customers come into come.
Coming to our business both in the health care side as well as the.
The tech and manufacturing the manufacturing side.
We are we are getting.
We are getting more traction.
With new customers and I think I think the theres a lot of customers out there that have been watching and waiting to invest and we are seeing them invest part of that is also a result of some of the new partners that we have brought into our ecosystem.
Who have access to a different customer base, who have been very proactive and.
Who are helping to drive some of that activity as it relates to where we're seeing it right now the biggest uptick in the near term has been on the commercial side of the equation.
That is with people going back to work.
Year over year, our commercial revenues were up 49% rare.
Relative to prior year comp was pretty easy, but we're up.
Of that amount and we are seeing that.
We are seeing that continue that is consistent with our return to work and those sorts of things. My understanding is most of the fortune five hundreds have there are people coming back now. So I think you are seeing the impacts of that and those sorts of investments moving on.
In terms of Geographics.
I think the key indicator here from a geographic perspective is.
Where the restrictions have started to ease and have eased.
We hit a low point, Canada U S type of revenue.
Where we were as low as just above 10% in Canada, and 89 point whatever the percentage was in the U S that shifted now to 15 85.
<unk> I think.
Uh huh.
The jurisdictions are going to open up.
Differently, but I know in Canada, the Canadian the Canadian jurisdiction is starting to open up a lot more.
And I think the pockets of the U S. A.
Depending on the areas are.
Our improving.
Southern U S really didn't fully closed down northeast is starting to come back those sorts of things I think the last thing I would talk to as it relates to.
Two two health care health care. He is a long lead time type.
Type play.
And we're seeing things in more so in 'twenty three versus 22 apart from the <unk>.
The.
The strategic account pieces that we have we have a normal play.
So I would expect the mix to in the near term.
Two to revert back to our historical mix, but then start driving too.
More more into some of the verticals that we are focusing on such as health care and stuff like that.
Okay fair enough.
And I was just wondering is is the new board you've done your meetings. This week, we're getting to know you've taken a look at what the company has been doing is there anything specifically on that go to market around that strategy that the board is looking at maybe revising or enhancing swimwear.
I'm going to throw that to happen.
Yeah. Thanks, Jim This is Ken I think something we are focused on and I'm personally focused on given my background again is engaging our partners in a much stronger and more collaborative way.
I think creating the partner Advisory Council was a great first step.
But we want to double down on that we have a.
The meeting coming up next week in Dallas.
Reaching out to many of them.
And again.
I mentioned this before we call them partners for a reason.
And it's not directing them it does collaborating with them learning from them cooperating with them and together servicing the clients and creating value. So I think that's a big change I think frankly, that's an area that the company underinvested over the past couple of years didn't really engage the partners.
The way that we should and so that's one of the things that as a board.
We are focused on and something that I'm personally very focused on right now.
Okay.
Maybe just one kind of question to wrap it up.
I'm looking at different companies different people industries that we deal with and I am trying to figure out as you do see this migration back to the workforce or back to the office and as you see the offices kind of change.
The hybrid models and everything like that.
Are you seeing a lot of urgency and again is it kind of different in the different geographies that you've mentioned before as far as revamping the workspace, where it is now or did people have more space than they currently need and theres not a lot of urgency to actually get any kind of bottleneck that I'm trying to get.
A feeling on what you guys are seeing.
Yes. This is Ken again, let me take a shot at that I think Jeff spoke to this earlier, but as people return to work and companies in North America around the world.
There is still some uncertainty what's the right balance.
It can work to accomplish best in the office versus at home versus remote and all these companies are going to continue to be figuring that out theyre not coming back to the office with.
<unk> exact understanding and in that regard I think this whole idea of flexibility and adaptability.
In the workplace that they deploy is really really important and Jeff touched on that I also briefly mentioned in my earlier comments this whole issue of <unk>.
Body carbon.
And I think.
<unk> is very well positioned for that if you look at that.
The major real estate owners and investors the largest architecture design firms in North America.
All of them are on top of this and they understand as buildings have become much more energy efficient.
And are approaching net zero.
The biggest impact what's leftover and the built environment is really embodied carbon all the energy that the.
Invested in manufacturing assembling transporting putting something in place and so forth.
A ton of attention I think their business model is really set up well in that regard in terms of eliminating waste in terms of the efficiencies of factory.
And on her arm demand and so and I think we're going to continue to.
Make sure that our partners and our clients understand that commitment and that we're really delivering value in that regard.
I think part of your question dealt with the fact that look.
As people return to work in a variety of hybrid arrangements.
From a macro level, what's going on with commercial real estate.
That's a fair question and we will have to watch and listen to them and see how that develops but but again in terms of the real estate that people are returning to or I'd say also in the health care markets, where you're servicing patients.
And doctors and so forth again this notion of flexibility is really essential so theres still regardless of what happens in the macro environment with real estate, that's a huge pie and we want to grow our market share in and participate in so we're still very bullish about our position long term and how we can participate.
And that market is.
Is that helpful.
No that's great I appreciate the color.
Good.
This concludes our question answer session.
I would like to turn the conference back over to Jeff Kraus for any closing remarks.
Thanks very much.
Behalf of Ken and Jeff and the board.
We want to extend our gratitude and thanks to our employees our partners and our shareholders as we turn the page to start a new chapter.
The buzz in the office last week, which was a long time coming it was truly infectious and I believe a harbinger of the great things that lie ahead of us and we look forward to updating all of you as we progress. Thank you very much and have a great day.
This concludes today's conference call you.
You may disconnect your lines.
Thank you for participating and have a pleasant day.
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