Q3 2023 DIRTT Environmental Solutions Ltd Earnings Call
Thank you for standing by this is the conference operator.
Welcome to the dirt environmental solutions third quarter 2023 financial results Conference call.
A reminder, all participants are in listen only mode and the conference is being recorded.
I would now like to turn the conference over to Shauna Mason Director of Corporate Affairs. Please go ahead.
Thank you operator, and good morning, everyone. Welcome to today's call to discuss third quarter 2023 results. Joining me on the call today will be Benjamin urban CEO and Perea Khan CFO today's call will include forward looking statements within.
The meaning of the applicable Canadian and United States Security 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 as filed on November nine 2023, with the Securities and Exchange Commission or SEC and other report filings with the SEC for information.
Forward looking statements and reconciliations of non-GAAP results to GAAP results I will also remind you that this webcast is being recorded and a replay will be available early next week I now turn the call over to Benjamin.
Thank you Shannon and good morning, everyone.
A sincere thank you to all of our team members at <unk> as well as our valued construction partners and clients for all their hard work during our seasonally strongest quarter.
I would like to share a few highlights from our team for the quarter.
Our technology business continues to expand our partnership with Armstrong World Industries as well as further our internal ice software development progress I'm proud to share that through partner consultation and independent market research Dirty product management product development and software development teams aligned for the first time on a coordinated go to market strategy.
That resulted in the release of three new products to market in the third quarter.
And our relentless pursuit of safety excellence, we continue on our journey to zero recordable incidents and maintaining our position as a world class leader in safety performance.
As mentioned in our last call that was one of 12 companies nominated by Canadian Occupational safety as a 2023 excellence a worthy we're excited to share that our director of health safety and environment.
<unk> was selected as candidates safety leader of the year.
We continue to relentlessly focus on quality during the third quarter, we saw a 36% improvement from prior year and our external defects per million dollars of revenue.
Also our on time performance during the third quarter was 98% a major improvement from the 88% on time performance during the third quarter of last year, we are grateful for our clients partners and hard working employees for their dedication and hard work with that I'll hand, it over to for Ria to share some more about our financial results.
Thank you Benjamin and good morning, all please note that we have issued a press release discussing our third quarter results, which is now posted on our website.
My comments this morning add more color to our financial results and liquidity for the quarter.
Revenues for the third quarter were $49 5 million up 6% compared to the same period in 2022 and up 11% from the second quarter of 2023 on gross profit consistent with the first half of 2023, we again achieved significant year over year margin expansion compared to the third quarter of 2022 gross profit.
<unk> increased 1950 basis points from 15% to 34, 4% in the third quarter of 2023, adjusted gross profit margin, which excludes the impact of depreciation increased 1520 basis points from 21, 7% in the third quarter trying to me two to 36 nine.
Sent in the third quarter of 2023 operating expenses for the third quarter, excluding impairment charges and reorganization costs were $14 9, million% to 15% decrease over the same period in 2022 and also sequentially down by $1 million from Q2 2023, the reduction in costs.
Mary from the cost reduction initiatives implemented over the past 24 months as well as more disciplined discretionary spending adjusted EBITDA for the third quarter was $5 3 million an improvement of $10 7 million from a loss of $5 4 million during the third quarter of 2022. This improvement is driven by the reduction in <unk>.
Operating expenses and increase in gross profit margin just described with respect to liquidity and working capital the quarter finished with $19 5 million in unrestricted cash up $8 6 million from $10 8 million at December 31, 2022, and up <unk> 6 million from June 30 cash provided by operations for the third quarter was.
$1 9 million compared to cash consumed by operations of $10 7 million during the third quarter of 2022 capital expenditures in the quarter was <unk> 7 million for free cash flow in the third quarter of $1 3 million for the nine months ended September 32023, we generated cash flow from operations of $4.
$7 million compared to cash consumed of $47 5 million to the nine months ended September 2022 liquidity, which includes $10 8 million of availability under our asset backed lending credit facility was $30 3 million as of September 2023, we have not had to draw on this facility to date, we also.
Continue to focus on managing our working capital net working capital ended the quarter was $25 7 million down <unk> 8 billion from June 32023. This decrease is primarily due to the reclassification of $6 million of equipment leases related to the Rockville facility from long term to short term, which I'll discuss later on in this call.
Excluding this reclassification of working capital improved by $5 2 million from June 32023.
Days sales outstanding has improved from 2007 days at December 2022 to 24 days at September 2023.
In addition, we continue to work on reducing our inventory levels through improved sales inventory and operational planning processes.
We have decreased inventory by 2 million or 10, 5% from $19 4 million at June 32023, turning to our outlook through the first six months of 2023, we experienced continued volatility in economic conditions, especially in regions with concentrated sales with technology and banking sectors. This trend has continued into the.
Third quarter of 2023, the return to work transition continues with some companies mandating a hybrid policy.
Note that we are exiting our seasonally strongest quarter and are now entering are typically weaker winter period, our view and wider macroeconomic conditions indicate that we are in an uncertain late cycle environment with the near term potential for deteriorating macroeconomic conditions, regardless, we continue to focus on what is within our control.
Supporting our current construction partners, increasing penetration in targeted geographies onboarding, new concerns partners and engaging in new strategic partnerships I would also like to comment on two decisions taken during the quarter.
Effective October 12, 2023, we are no longer listed on the NASDAQ capital markets. Our shares continue to trade on the Toronto stock exchange in Canada and over the counter in the U S. A.
As explained in our September 6th press release, we did not believe it was beneficial to shareholders to continue to incur the cost of maintaining the NASDAQ listing. The second decision was around a rockwell facility in South Carolina.
In August 2022, we announced the temporary suspension of operations of this time manufacturing facility. After a detailed analysis of current and anticipated manufacturing capacity over the next several years, we determined that the Rocco facility will not be reopened.
With annual production capacity at our Savannah, and cargo facilities of approximately 400 million revenue the closure as part of our ongoing focus on realigning the organization, increasing efficiency and improving profitability, we expect to sell or transfer the assets at rock Hill to other <unk> facilities. This process is expected to take.
Months, we will continue to maintain the building this and we are pursuing sublease arrangements.
Noncash impairment charges related to the Rockwood facility equipment of $8 million has been recorded in the Q3 financial statements.
As part of this process. We also plan to settle associated rockhill equipment leases amounting to $8 2 million in the next 12 months. This wraps up our financial review I will turn it back to Benjamin to conclude.
Thank you for Ria.
We feel good about our work on improving our cost structure product mix and pricing. We also continue to closely monitor the markets to ensure we are well positioned to deliver value to our clients and manage our business through a variety of macroeconomic scenarios and.
In closing I wanted to say, thank you again to all of our amazing clients, who understand the differentiated value of <unk> as well as our construction partners and team members for their ongoing hard work and commitment on behalf of the company. Thank you all for joining us today.
Thank you for joining today's conference. This does conclude the program you may now disconnect.
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Thank you for standing by this is the conference operator, welcome to the dirt Environmental solutions third quarter 2023 financial results Conference call.
As a reminder, all participants are in listen only mode and the conference is being recorded.
I would now like to turn the conference over to Shannon Mason Director of Corporate Affairs. Please go ahead.
Thank you operator, and good morning, everyone.
Welcome to today's call to discuss <unk> third quarter 2023 results joining me on the call today will be Benjamin Urban CEO and Korea Khan CFO. 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 as filed on November nine 2023, with the Securities and Exchange Commission or SEC and other report filings with the SEC for information regarding forward looking statements and reconciliations of non-GAAP results to GAAP results.
<unk>.
I will also remind you that this webcast is being recorded and a replay will be available early next week I would now turn the call over to Benjamin.
Thank you Shannon and good morning, everyone.
A sincere thank you to all of our team members at <unk> as well as our valued construction partners and clients for all their hard work during our seasonally strongest quarter.
I would like to share a few highlights from our team for the quarter.
Our technology business continues to expand our partnership with Armstrong World Industries as well as further our internal ice software development progress I'm proud to share that through partner consultation and independent market research Dirty product management product development and software development teams aligned for the first time on a coordinated go to market strategy.
<unk> that resulted in the release of three new products to market in the third quarter.
And our relentless pursuit of safety excellence, we continue on our journey to zero recordable incidents and maintaining our position as a world class leader in safety performance.
As mentioned in our last call. There was one of 12 companies nominated by Canadian Occupational safety as a 2023 excellence a worthy we're excited to share that our director of health safety and environment <unk> was selected as candidates safety leader of the year.
We continue to relentlessly focus on quality during the third quarter, we saw a 36% improvement from prior year and our external defects per million dollars of revenue.
Also our on time performance during the third quarter was 98% a major improvement from the 88% on time performance during the third quarter of last year, we are grateful for our clients partners and hard working employees for their dedication and hard work with that I'll hand, it over to Korea to share some more about our financial results.
Thank you Benjamin and good morning, all please note that we have issued a press release discussing our third quarter results, which is now posted on our website.
My comments this morning add more color to our financial results and liquidity for the quarter.
Revenues for the third quarter were $49 5 million up 6% compared to the same period in 2022 and up 11% from the second quarter of 2023 on gross profit consistent with the first half of 2023, we again achieved significant year over year margin expansion compared to the third quarter of 2022 gross profit.
<unk> increased 1950 basis points from 15% to 34, 4% in the third quarter of 2023, adjusted gross profit margin, which excludes the impact of depreciation increased 1520 basis points from 21, 7% in the third quarter 2022 to 36 nine.
<unk> in the third quarter of 2023 operating expenses for the third quarter, excluding impairment charges and reorganization costs were $14 9, million% to 15% decrease over the same period in 2022 and also sequentially down by $1 million from Q2 2023, the reduction in costs are.
Similarly from the cost reduction initiatives implemented over the past 24 months as well as more disciplined discretionary spending adjusted EBITDA for the third quarter was $5 3 million an improvement of $10 7 million from a loss of $5 4 million during the third quarter of 2022. This improvement is driven by the reduction in <unk>.
Operating expenses and increase in gross profit margin just described with respect to liquidity and working capital the quarter finished with $19 5 million in unrestricted cash up $8 6 million from $10 8 million at December 31, 2022, and up <unk> 6 million from June 30 cash provided by operations for the third quarter was.
$1 9 million compared to cash consumed by operations of $10 7 million during the third quarter of 2022 capital expenditures in the quarter was <unk> 7 million for free cash flow in the third quarter of $1 3 million for the nine months ended September 32023, we generated cash flow from operations of $4.
<unk> 7 million compared to cash consumed of $47 $5 million through the nine months ended September 2022 liquidity, which includes $10 8 million of availability under our asset backed lending credit facility was $30 3 million as of September 2023, we have not had to draw on this facility to date, we also.
We continue to focus on managing our working capital net working capital ended the quarter was $25 7 billion down <unk> 8 billion from June 32023. This decrease is primarily due to the reclassification of $6 million of equipment leases related to the Rockville facility from long term to short term, which I'll discuss later on in this call.
Excluding this reclassification working capital improved by $5 2 million from June 32023.
Days sales outstanding has improved from 2007 days at December 2022 to 24 days at September 2023.
In addition, we continue to work on reducing our inventory levels through improved sales inventory and operational planning processes.
We have decreased inventory by $2 million or 10, 5% from $19 4 million at June 32023, turning to our outlook through the first six months of 2023, we experienced continued volatility in economic conditions, especially in regions with concentrated sales with technology and banking sectors. This trend has continued into the.
Third quarter of 2023, the return to work transition continues with some companies mandating a hybrid policy.
We note that we are exiting our seasonally strongest quarter and are now entering are typically weaker winter period, our view and wider macroeconomic conditions indicate that we are in an uncertain late cycle environment with a near term potential for deteriorating macroeconomic conditions, regardless, we continue to focus on what is within our control.
Supporting our current construction partners, increasing penetration in targeted geographies onboarding, new consumers partners and engaging a new strategic partnerships I would also like to comment on two decisions taken during the quarter.
Effective October 12, 2023, we are no longer listed on the NASDAQ capital markets. Our shares continue to trade on the charter stock exchange in Canada and over the counter in the U S.
As explained in our September six press release, we did not believe it was beneficial to shareholders to continue to incur the cost of maintaining the NASDAQ listing. The second decision was around our Rockwell facility in South Carolina in August 22, we announced the temporary suspension of operations of this time manufacturing facility. After a detailed analysis of current.
Anticipated manufacturing capacity over the next several years, we determined that the Rocco facility will not be reopened.
With annual production capacity at our Savannah in Calgary facilities of approximately $400 million revenue the closure as part of our ongoing focus on realigning the organization, increasing efficiency and improving profitability, we expect to sell or transfer the assets at rock Hill to other <unk> facilities. This process is expected to take several months.
We will continue to maintain the building this and we are pursuing sublease arrangements noncash impairment charges related to the Rockwood facility equipment of $8 million has been recorded in the Q3 financial statements.
As part of this process. We also plan to shuttle associated Rockville equipment leases amounting to $8 2 million in the next 12 months. This narrow wraps up our financial review.
I will turn it back to Benjamin to conclude.
Thank you for Ria.
We feel good about our work on improving our cost structure product mix and pricing. We also continue to closely monitor the markets to ensure we are well positioned to deliver value to our clients and manage our business through a variety of macroeconomic scenarios.
Closing I wanted to say, thank you again to all of our amazing clients, who understand the differentiated value of <unk> as well as our construction partners and team members for their ongoing hard work and commitment on behalf of the company. Thank you all for joining us today.
Thank you for joining today's conference. This does conclude the program you may now disconnect.