Q1 2024 DIRTT Environmental Solutions Ltd Earnings Call
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Operator: Thank you for standing by. This is the conference operator. Welcome to the DIRTT Environmental Solutions First Quarter 2024 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 Shawna Mason, Director of Corporate Affairs. Please go ahead.
Thank you for standing by this is the conference operator, welcome to the dirt Environmental solutions first quarter 2024 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 Shauna Mason director of corporate Affairs. Please.
Shawna Mason: Go ahead.
Shawna Mason: Thank you, Operator, and good morning, everyone. Welcome to today's call to discuss DIRTT's first quarter 2024 results. Joining me on the call today will be Benjamin Urban, CEO, and Fareeha Khan, CFO. Today's call will include forward-looking statements within the meaning of applicable Canadian and United States securities laws. These statements are based on the company's current intent, expectations, and projections, and they are not guarantees of future performance.
Shawna Mason: Thank you operator, and good morning, everyone. Welcome to today's call to discuss Dirt's first quarter 'twenty 'twenty four results joining me on the call today will be Benjamin urban CEO and Freia Khan CFO today's call will.
Shawna Mason: Include forward looking statements within the meaning of the applicable Canadian and United States Security laws.
Shawna Mason: These statements are based on the company's current intent expectations and projections. They are not guarantees of future performance. In addition, this call we will reference non-GAAP results, including special items. Please reference our Form 10-Q as filed on May eight 2024.
Shawna Mason: In addition, this call will reference non-GAAP results, including special items. Please refer to our Form 10-Q, as filed on May 8, 2024, 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 will also remind you that this webcast is being recorded, and a replay will be available early next week. I'll now turn the call over to Benjamin.
Benjamin: 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 will also remind you that this webcast is being recorded and a replay.
Shawna Mason: Will it be available early next week I'll now turn the call over to Benjamin Thank you Shannon and good morning, everyone.
Benjamin Urban: Thank you, Shauna, and good morning, everyone. We are pleased that our first quarter results reflect the significant progress our team has made since our Q1 results last year. We achieved double-digit revenue growth year over year and a 1,610 basis point expansion in our adjusted EBITDA margin, making this the first time DIRTT was profitable in the seasonally slower first quarter since COVID, which is an accomplishment we are proud of. I would like to thank our incredible team at DIRTT for helping us achieve these results. Every layer of our organization, from our factory teams and technicians in the field to our commercial organization and corporate staff, each of them directly contributed to this year-over-year improvement.
Benjamin Urban: We are pleased that our first quarter results reflect the significant progress our team has made since our Q1 results last year.
Benjamin Urban: We achieved double digit revenue growth year over year, and a 1610 basis point expansion in our adjusted EBITDA margin, making this the first time <unk> was profitable in the seasonally slower first quarter since Covid, which is an accomplishment we are proud of.
Benjamin Urban: I would like to thank our incredible team of dirt for helping US achieve these results every layer of our organization from our factory teams and technicians in the field to a commercial organization and corporate staff each of them directly contributed to this year over year improvement.
Benjamin Urban: I'm also proud to share this is our fourth consecutive quarter of year-over-year revenue growth. First quarter orders continue to represent a broad and diverse balance of recognized brand name companies across our market segments. These include corporate clients such as Keywood Corporation, Visa, First National Bank, Helmrich & Payne, MNP Corporation, CBRE, and Cadence Bank; healthcare providers, the likes of Nebraska Medicine, Ohio Health Doctors, NYU, Langone Health, and Cambridge Memorial Hospital. Government organizations such as the U.S. Federal Government, the Veterans Administration, the City of Pittsburgh, and the City of San Diego. And lastly, prestigious educational institutions such as Kansas City University, the University of Buffalo, the University of Texas, and Purdue University.
Benjamin Urban: Im also proud to share this is our fourth consecutive quarter of year over year revenue growth.
Benjamin Urban: First quarter orders continue to represent a broad and diverse balance a recognized brand name companies across our market segments.
Benjamin Urban: These include corporate clients, such as Kiewit Corporation Visa first National Bank Helmerich, <unk> Payne and then P Corporation, CBRE and cadence bank.
Benjamin Urban: Health care providers, the likes of Nebraska Medicine, Ohio Health Doctors, NYU, Langone Health and Cambridge Memorial Hospital.
Benjamin Urban: Government organizations, such as the U S. Federal government, the Veteran's administration, the city of Pittsburgh, and the city of San Diego and lastly, prestigious educational institutions, such as Kansas City University University of Buffalo, The University of Texas, and Purdue University.
Benjamin Urban: Looking forward, our team is focused on driving sustainable revenue growth by leaning into our inherent advantages as a superior provider in a large addressable market. Our technology, speed, quality, and ability to customize are how we win. We remain underpenetrated and will continue to aggressively pursue greater market share in the commercial construction market. DIRTT and its valued construction partner network continue to grow stronger and scale up for enhanced distribution and implementation of our interior construction solutions.
Benjamin Urban: Looking forward our team is focused on driving sustainable revenue growth by leaning into our inherent advantages.
Benjamin Urban: The superior provider in a large addressable market, our technology speed quality and ability to customize is how we win.
Benjamin Urban: We remain Underpenetrated and we will continue to aggressively pursue greater market share in the commercial construction market.
Benjamin Urban: Dirt and it's valued construction partner network continues to grow stronger and scale up for enhanced distribution and implementation of our interior construction solutions.
Benjamin Urban: In Q1 2024, we added new partners and expanded existing partners, bolstering DIRTT's geographic coverage in multiple growing markets with a focus on the western United States region. We thank all of our partners for demonstrating their commitment to scaling their DIRTT business and delivering quality to our shared clients. We have also seen high engagement, attendance, and investment in staffing and training across our partners, indicating that the future is bright. Our investment in innovation is reflected in Q1 through the continued theme of aligning software development efforts to DIRTT's commercial and product strategy. There was a new ICE software release in Q1, which included the creation of a new casework catalog, new thin-profile doors for all lines, new hardware options, as well as a new back-painted glass finish.
Benjamin Urban: In Q1, 2024, we added new partners and expanded existing partners bolstering <unk> geographic coverage in multiple growing markets with a focus on the western United States region. We.
Benjamin Urban: We thank all of our partners for demonstrating their commitment to scaling their business and delivering quality to our shared clients.
Benjamin Urban: We have also seen high engagement attendance and investment in staffing and training across our partners, indicating that the future is bright.
Benjamin Urban: Our investment in innovation is reflected in Q1 through the continued seam of aligning software development efforts to <unk> commercial and product strategy.
Benjamin Urban: There was a new ice software release in Q1, which included the creation of a new case work catalog, new thin profile doors for all lines, new hardware options as well as the new back pending glass finish. We are excited to debut of many of these innovations along with additional ones introduced over the last year at our largest annual.
Benjamin Urban: We are excited to debut many of these innovations, along with additional ones, introduced over the last year at our largest annual sales conference at Conext next month. In addition to the enhancements to our existing offerings, we are also excited to announce that we will also be releasing new, innovative products in Q2 designed for the healthcare sector in collaboration with HKS, a leading global architecture and design firm that focuses on innovative healthcare design operating from 29 offices worldwide.
Benjamin Urban: Sales conference next next month.
Benjamin Urban: In addition to the enhancements to our existing offerings. We are also excited to announce that we will also be releasing new innovative products in Q2 designed for the health care sector in collaboration with HK Us a leading global architecture and design firm that focuses on innovative health care design operating from <unk>.
Benjamin Urban: <unk> thousand nine offices worldwide.
Benjamin Urban: We continue on our journey to zero defects, zero missed deliveries, and zero recordable incidents. For Q1 2024, we reduced our external defects per million dollars of revenue to 14.3, a 38% improvement from Q1 2023, and a 6% improvement from last quarter. Our on-time performance for Q1 2024 was 99.2%, which is the highest in DIRTT's history. Our total recordable incident frequency at the end of Q1 2024 was 0.93, which is 78% below the industry average.
Benjamin Urban: We continue on our journey to zero defects zero, Miss deliveries and zero recordable incidents for Q1 2024, we reduced our external defects per million dollars of revenue to $14, three or 38% improvement from Q1, 2023, and a 6% improvement from last quarter.
Benjamin Urban: Our on time performance for Q1, 2024 was 99, 2%, which is the highest in <unk> history.
Benjamin Urban: Our total recordable incident frequency at the end of Q1 2024 was <unk> 93, which is 78% below the industry average safety excellence is a core value and we take pride in maintaining our position as a world class leader in safety performance.
Benjamin Urban: Safety excellence is a core value, and we take pride in maintaining our position as a world-class leader in safety performance. ESG and sustainability commitments remain a key business priority. We strive to make the world better, both through our own design and responsible manufacturing practices and by helping our customers achieve their sustainability commitments through the implementation of our solutions. We know that our proactive and transparent approach to establishing, measuring, and reporting on ESG factors impacts our bottom line.
Benjamin Urban: ESG and sustainability commitments remain a key business priority, we strive to make the world better both through our own design and responsible manufacturing practices and by helping our customers achieve their sustainability commitments through the implementation of our solutions, we know that our proactive and transparent approach to.
Benjamin Urban: Establishing measuring and reporting on ESG factors impacts our bottom line.
Benjamin Urban: This quarter, we established DIRTT's Sustainability Council, which comprises a cross-functional team of DIRTT employees from our commercial, manufacturing, technology, and project management teams to take DIRTT's ESG initiatives to the next level and stay two steps ahead of the industry and regulations. And finally, we continue to make progress in the ongoing litigation between DIRTT and Falkveld, as explained in the legal proceedings section of our 10-Q. In summary, in addition to the $4 million of outside investment secured in Q1 to fund the litigation and the summary judgment, dates are being secured in September of next year, both in Canada and the United States. Additionally, DIRTT is seeking $100 million in damages, as noted in the second amended complaint.
Benjamin Urban: This quarter, we established or sustainability Council, which comprises a cross functional team of dirt employees from our commercial manufacturing technology and project management teams to take Dirt's ESG initiatives to the next level and state two steps ahead of the industry and regulations.
Benjamin Urban: And finally, we continue to make progress in the ongoing litigation between <unk> and <unk> as explained in the legal proceeding section of our 10-Q.
Benjamin Urban: In summary in addition to the $4 million of outside investment secured in Q1 to fund the litigation and the summary judgment.
Benjamin Urban: <unk> are being secured in September of next year, both in Canada, and the United States. Additionally.
Benjamin Urban: Additionally, dirt is seeking $100 million in damages as noted in the second amended complaint.
Benjamin Urban: During this transformational time at DIRTT, we are proud of our performance this quarter. We are grateful for our team, partners, and clients who helped make this happen. With that, I'll hand it over to Fareeha to share some more about our financial results.
Benjamin Urban: During this transformational time at <unk>, we are proud of our performance. This quarter, we are grateful for our team partners and clients who helped make this happen.
Fareeha: With that I'll hand, it over to for you to share some more about our financial results. Thank you Benjamin and good morning all.
Fareeha Khan: Thank you, Benjamin, and good morning all. Please note that we have issued a press release discussing our first quarter results, which is available on our website. Revenues for the first quarter were $40.8 million, up 11% compared to the same period in 2023. Q1 is our seasonally slowest quarter, and we are pleased with the year-on-year increase in revenues.
Fareeha Khan: Please note that we have issued a press release discussing our first quarter results, which is available on our website.
Fareeha Khan: Revenues for the first quarter were $40 8 million up 11% compared to the same period in 2023.
Fareeha Khan: Q1 is our seasonally slowest quarter and we are pleased with the year on year increase in revenues.
Fareeha Khan: On gross profits, we continue to maintain strong margins. Compared to the first quarter of 2023, our gross profit margin increased from 23.7% to 35.9% in the first quarter of 2024. Adjusted gross profit margin, which excludes the impact of depreciation and amortization, increased from 28.5% in the first quarter of 2023 to 37.9% in the first quarter of 2024. Consistent with what we have shared before, the improved margin is primarily due to revenue growth, operating efficiencies, cost reduction initiatives, and improved product metrics.
Fareeha Khan: On gross profits, we continue to maintain strong margins.
Fareeha Khan: Compared to the first quarter of 2023 gross profit margin increased from 23, 7% to 35, 9% in the first quarter of 2024, adjusted gross profit margin, which excludes the impact of depreciation and amortization increased from 28, 5% in the first quarter of 2023 to 37 nine.
Fareeha Khan: <unk> in the first quarter of 2024.
Fareeha Khan: And because of what we had shared before the improved margin is primarily due to revenue growth operating efficiencies cost reduction initiatives and improved product mix.
Fareeha Khan: Operating expenses for the first quarter, excluding impairment charges and one-time related party reimbursements, as well as reorganization costs, were $14.2 million, a $1.5 million, or 9.5%, decrease from the same quarter last year. This is in line with our initiatives to reduce costs in the business.
Fareeha Khan: Operating expenses for the first quarter, excluding impairment charges and one time related party investments as well as reorganization costs.
Fareeha Khan: $14 2 million or $1 5 million or nine 5% decrease from the same quarter last year.
Fareeha Khan: This is in line with our initiatives to reduce costs in the business.
Fareeha Khan: Adjusted EBITDA for the first quarter was $2.7 million, an improvement of $6.2 million from a $3.5 million loss during the first quarter of 2023. This improvement is driven by the increase in adjusted gross profit margin and reduced operating expenses just described. We note that this is now DIRTT's fourth consecutive quarter of positive adjusted EBITDA.
Fareeha Khan: EBITDA for the first quarter was $2 7 million an improvement of $6 2 million from a $3 5 million loss during the first quarter of 2023.
Fareeha Khan: This improvement is driven by the increase in Jessica its profit margin and reduced operating expenses just described.
Fareeha Khan: Note that this is <unk> fourth consecutive quarter of positive adjusted EBITDA.
Fareeha Khan: Our net income after tax for the first quarter of 2024 was $3 million, compared to an $11.4 million net loss after tax for the same period of 2023. Apart from the adjusted EBITDA gains discussed above, we benefited from a gain on the substantial issuer bid, which I will discuss later on this call, of $2.9 million.
Fareeha Khan: Our net income after tax for the first quarter of 'twenty 'twenty, four with $3 million compared to an 11 4 million net loss after tax for the same period of 2023 apart from the adjusted EBITDA gains discussed above we benefited from a gain on the substantial issuer bid, which I will discuss later on this call of $2 9 million.
Fareeha Khan: Higher interest income and a 1.2 million increase in foreign exchange gain due to the devaluing Canadian dollar. I will now turn to our balance sheet and discuss some Q1 events. In November 2023, we announced a Canadian dollar $30 million rights offering. The rights offering successfully closed on January 9, 2024.
Fareeha Khan: Higher interest income and a $1 2 million increase in foreign exchange gain due to the devalued Canadian dollar.
Fareeha Khan: I will now turn to our balance sheet and discuss some Q1 events in November two and train three we announced the Canadian dollars $13 million rights offering.
Fareeha Khan: The rights offering successfully closed on January nine 2024.
Fareeha Khan: As explained in the related documents, the purpose of the funds raised from the rights offering was to invest in the business and to reduce debt. On February 15, 2024, we announced a substantial issuer bid of CAD $15 million to buy back some of our outstanding debentures. Through this bid, our intention was to reduce DIRTT's debt and strengthen our balance sheet. The bid closed on March 22, 2024, and we received offers for CAD $10.5 million of our debentures. We accepted all the offers and tendered Canadian dollars $6.9 million, resulting in a gain of $2.9 million on extinguishment of the debt.
Fareeha Khan: As explained in the related documents the purpose of the funds raised from the rights offering was to invest in the business and to reduce debt.
Fareeha Khan: On February 15, 2024, we announced a substantial issuer bid of Canadian dollars $15 million to buy back some of our outstanding debentures to the spit our intention was to reduce debt and strengthen our balance sheet.
Fareeha Khan: <unk> closed on March 22, 2024, and we received offers for Canadian dollars $10 5 million of our debentures.
Fareeha Khan: We accepted all the offers and tendered Canadian dollars $6 9 million, resulting in a gain of $2 9 million an extinguishment of the deck.
Fareeha Khan: We are pleased with this result as we continue to strengthen our balance sheet. The quarter finished with $39 million in unrestricted cash, up $14.2 million from $24.8 million at December 31, 2023. Cash used in operations was $2 million, and you may need to timing differences related to vendor payments of $4 million at your end. Liquidity, which includes $8.5 million of availability under our ABL Credit Facility, was $47.5 million as of March 31, 2024. We have not drawn on this facility yet.
Fareeha Khan: We are pleased with this result, as we continue to strengthen our balance sheet.
Fareeha Khan: The quarter finished with $39 million in unrestricted cash up $14 2 million from $24 8 million at December 31, 2023.
Fareeha Khan: Cash used in operations was 2 million, mainly due to timing differences related to vendor payments of 4 million at year end.
Fareeha Khan: Liquidity, which includes $8 5 million of availability under our ABL credit facility was $47 5 million as of March 31 2024.
Fareeha Khan: We have not drawn on the specifics to date.
Fareeha Khan: On February 9, 2024, we successfully renewed our ABL with the Royal Bank of Canada for an additional year. Our working capital continues to improve. Net working capital at the end of the quarter was $46.1 million, up $16.3 million from December 2023, primarily due to net proceeds of $21.3 million from the rights offering and improved operational results, offset by a decrease in working capital of $4.1 million, mainly due to the $5.1 million repayment of debt principal under the issuer bid.
Fareeha Khan: On February nine 2024, we successfully renewed our ABL with Royal Bank of Canada for an additional year.
Fareeha Khan: Our working capital continues to improve.
Fareeha Khan: Net working capital at the end of the quarter was $46 1 million up $16 3 million from December 2023.
Fareeha Khan: Due to net proceeds of $21 3 million from the rights offering and improved operational results offset by a decrease in working capital of $4 1 million, mainly due to the fact by women and repayments on debt principle under the issuer bid.
Fareeha Khan: Our 12-month sales pipeline, excluding leaves, at 1 April 2024 was $270 million, growing over 7% compared to $252 million at April 1, 2023. We regularly scrutinize our pipeline and are pleased to see our increased pipeline converting into revenue growth. A key driver of our gross profit margin is our pipeline and forecasting management. I am particularly proud of our commercial organization's success in this matter, with our third consecutive quarter of more than 95% accuracy in our revenue forecasting. Looking forward, we will be entering our seasonally stronger quarters. Macroeconomic risks still exist, and recent increases in aluminum costs may cause pressure on our margins.
Fareeha Khan: Our 12 month sales pipeline, excluding lease I'd want April 'twenty, 'twenty, four with $270 million drilling over 7% compared to $52 million at April one 2023.
Fareeha Khan: Irregularly scrutinize our pipeline and are pleased to see our increased pipeline converting into revenue growth.
Fareeha Khan: A key driver of our gross profit margin is our pipeline and forecasting management I'm, particularly proud of our commercial organization success and this matter without third consecutive quarter of more than 95% accuracy and our revenue forecasting.
Fareeha Khan: Looking forward, we will be entering our seasonally stronger quarters macroeconomic risks still exist and recent increases in aluminum costs may cause pressure on our margins, having said that we remain focused on maintaining our adjusted gross margins and delivering on time and full of to our valued clients. This concludes his section on the financial results.
Fareeha Khan: Having said that, we remain focused on maintaining our adjusted gross margins and delivering on time and in full to our valued clients. This concludes our section on the financial results. I would like to draw our listeners' attention to an investigative disc we published on April 22, 2024, on our website, showing DIRTT's journey to excellence over the past few years. We are proud of what we have achieved and our focus on continuing to grow revenue and improve the business. I will now turn it back to Benjamin to conclude.
Benjamin Urban: I would like to draw attention to an investor deck. We published on April 22, 2024 on our web site, showing <unk> journey to excellence over the past few years.
Benjamin Urban: We are proud of what we have achieved and our focus on continuing to grow revenue and improve the business.
Fareeha Khan: I will now turn it back to Benjamin to conclude.
Benjamin Urban: Thank you, Fareeha. We are on a journey to excellence. We are excited about DIRTT's future and are focused on revenue growth. We recognize ongoing market uncertainty.
Benjamin Urban: Thank you for you we are on a journey to excellence. We are excited for <unk> future and are focused on revenue growth, we recognize ongoing market uncertainty however, with our strengthened balance sheet financial discipline and investment and innovation. We believe we are well prepared to take care of our clients and partners through over.
Benjamin Urban: However, with our strength in the balance sheet, financial discipline, and investment in innovation, we believe we are well prepared to take care of our clients and partners through a variety of economic conditions. We not only believe this but have also witnessed the incredible achievements driven by our hardworking, talented team. From the factory floor to the office, their dedication, passion, and unwavering commitment fuels our success.
Benjamin Urban: Alrighty of economic conditions.
Benjamin Urban: It is often said that employees are the number one asset of any business. We not only believe this but I've also witnessed the incredible achievements driven by our hardworking talented team from the factory floor to the office their dedication passion and unwavering commitment fuels our success there.
Benjamin Urban: They have demonstrated resilience in the face of obstacles and difficult decisions and embody the spirit, teamwork, and excellence every day. To our outstanding DIRTT team, thank you. And thank you again to all of our amazing clients who understand the differentiated value of DIRTT, as well as our construction partners for their ongoing hard work and commitment on behalf of the company. Together, we are continuing to change the world of interior construction. I'd like to thank you all for joining us today. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
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Benjamin Urban: Have demonstrated resilience in the face of obstacles and difficult decisions and embody the spirit of teamwork and excellence everyday to our outstanding <unk> team. Thank you.
unknown: And thank you again to all of our amazing clients, who understand the differentiated value of dirt as well as our construction partners for their ongoing hard work and commitment on behalf of the company.
unknown: Together, we are continuing to change the world of interior construction I'd like to thank you all for joining us today.
unknown: Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
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