Q2 2024 DIRTT Environmental Solutions Ltd Earnings Call

August 8, 2024

Shawna Mason: These statements are based on the company's current intent, expectations, and projections, and they are not guarantees of future performance. In addition, this call will reference non-GAP results, excluding special items. Please refer to our Form 10-Q, as filed on August 7, 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-GAP results to GAP 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.

Unknown Executive: These statements are based on the company's current intent, expectations and projections.

These statements are based on the company's current intent, expectations, and projections. They are not guarantees of future performance.

Unknown Executive: They are not guarantees of future performance.

Shawna Mason: In addition, this call will reference non-GAP results, excluding special items. Please refer to our Form 10-Q, as filed on August 7, 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-GAP results to GAP results.

Unknown Executive: In addition, this call will reference non-gap results, excluding special items. Please reference our form 10Q as filed on August 7th, 2024, with the Securities and Exchange Commission or SEC and other reports and filings with the SEC for information regarding forward-looking statements and reconciliation of non-gap results to gap results.

Shawna Mason: Please reference our Form 10-Q as filed on August 7, 2024.

Shawna Mason: 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.

Unknown Executive: I will also remind you that this webcast is being recorded and a replay will be available early next week.

Shawna Mason: 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.

Benjamin Urban: I now turn the call over to Benjamin. Thank you, Shawna, and good morning, everyone. This quarter marks DIRTT's fifth consecutive positive adjusted EBITDA quarters since the leadership change in 2022. Our 12-month pipeline has grown 20% year on year, and our full pipeline has grown even more. I'm confident our strategic direction and continued progress and support of our growths. We have a strong team in place and are focused on leveraging our customer standard offering on a two-week standard lead time with price certainty.

Benjamin Urban: Thank you, Shawna, and good morning, everyone. This quarter marks DIRTT's fifth consecutive positive adjusted EBITDA quarter since the leadership change in 2022. Our 12-month pipeline has grown 20% year-on-year, and our full pipeline has grown even more. I am confident in our strategic direction and continued progress in support of our growth. We have a strong team in place and are focused on leveraging our custom standard offering on a two-week standard lead time with price certainty.

Unknown Executive: Thank you, Shawna, and good morning, everyone. This quarter marks DIRTT's fifth consecutive positive adjusted EBITDA quarter since the leadership change in 2022. Our 12-month pipeline has grown 20% year-on-year, and our full pipeline has grown even more. We have a strong team in place and are focused on leveraging our customer standard offering on a two-week standard lead time with price certainty.

Unknown Executive: I am confident in our strategic direction and continued progress in support of our growths. We have a strong team in place and are focused on leveraging our custom standard offering on a two-week standard lead time with price certainty.

Benjamin Urban: On today's call, we'll take you through our financial results for Q2, some key positive developments that occurred last week, and then I will highlight some key business and operational updates. I'll now hand it over to Fareeha to discuss the financials. Thank you, Ben.

Unknown Executive: On today's call, we'll take you through our financial results for Q2, some key positive developments that occurred last week, and then I will highlight some key business and operational updates. I'll now hand it over to Fareeha to discuss the financials. Thank you, Benjamin, and good morning all.

Fareeha Khan: I'll now hand it over to Fareeha to discuss the financials.

Fareeha Khan: Thank you, Benjamin, and good morning all. Please note that we have issued a press release discussing our second quarter results, which is available on our website. We have also provided additional analysis in a supplemental presentation, which is now posted on our website. Revenues for the second quarter were $41.2 million, down 8% compared to the same period in 2023. The decrease in revenue was largely due to two healthcare projects and one key education project that occurred in 2023 and did not repeat in 2024, as well as certain typical construction schedule-related project start delays, or pushouts, that are still anticipated to order within the year. Healthcare sales tend to be larger individual projects and are subject to timing due to a typically longer sales cycle, resulting in variability in sales levels.

Fareeha Khan: Thank you, Benjamin, and good morning, all. Please note that we have issued a press release discussing our second quarter results, which is available on our website. We have also provided additional analysis in a supplemental presentation, which is not posted on our website. Healthier sales tend to be larger individual projects and are subject to timing due to a typically longer sales cycle resulting in a variability in sales levels. On growth profits, we continue to maintain strong margins.

Unknown Executive: Please note that we have issued a press release discussing our second quarter results, which is available on our website. We have also provided additional analysis in a supplemental presentation, which is now posted on our website. Revenues in the second quarter were $41.2 million, down 8% compared to the same period in 2023. The decrease in revenue was largely due to two healthcare projects and one key education project that occurred in 2023 and did not repeat in 2024, as well as certain typical construction schedule-related project start delays or pushouts that are still anticipated within the year. Healthcare sales tend to be larger individual projects and are subject to timing due to a typically longer sales cycle, resulting in variability in sales levels.

Unknown Executive: revenues the second quarter were forty one point two million down eight percent compared to the same period in two thousandandtwenty three the decrease in revenue was largely due to two health care projects and one key education project that occurred in two thousand andtwentythree added not repeated in two thousand andtwentyfour

Unknown Executive: as well as certain typical construction schedule-related project start-to-days or push-outs that are still anticipated to order within the year.

Unknown Executive: Healthcare sales tend to be larger individual projects and are subject to timing due to a typically longer sales cycle, resulting in a variability in sales levels. On gross profit, we continue to maintain strong margins.

Benjamin Urban: On gross profit, we continue to maintain strong margins. Consistent with what we have shared before, the improved margin is primarily due to improved material optimization and cost reduction in the strips. As Benjamin noted, our 12-month forward sales pipeline, excluding leads, at July 1, 2024, was $263 million, growing 20% compared to $220 million at July 1, 2023. We regularly scrutinize our pipeline and are pleased to see our increased pipeline converting into revenue growth.

Fareeha Khan: On gross profit, we continue to maintain strong margins. Compared to the second quarter of 2023, our gross profit margin increased from 32.5% to 37.3% in the second quarter of 2024. Adjusted gross profit margin, which excludes the impact of depreciation, increased from 36.2% in the second quarter of 2023 to 39.4% in the second quarter of 2024. Consistent with what we have shared before, the improved margin is primarily due to improved material optimization and cost reduction in the strips.

Fareeha Khan: Compared to the second quarter of 2023, growth profit margin increased from 32.5% to 37.3% in the second quarter of 2024. Addusted growth profit margin, which excludes the impact of depreciation increased from 36.2% in the second quarter of 2023 to 39.4% in the second quarter of 2024. Consistently what we have shared before, the improved margin is primarily due to improved material optimization and cost reduction industries. As Benjamin noted, our 12 month forward sales pipeline, excluding leads at July 1, 2024, was 263 million, growing 20% compared to 220 million at July 1, 2023.

Benjamin Urban: Compared to the second quarter of 2023, gross profit margin increased from 32.5% to 37.3% in the second quarter of 2024.

Speaker Change: Adjusted gross profit margin, which excludes the impact of depreciation, increased from 36.2% in the second quarter of 2023 to 39.4% in the second quarter of 2024.

Benjamin Urban: Consistent with what we have shared before, the improved margin is primarily due to improved material optimization and cost reduction initiatives.

Fareeha Khan: As Benjamin noted, our 12-month forward sales pipeline, excluding leads, at July 1, 2024, was $263 million, growing 20% compared to $220 million at July 1, 2023. We regularly scrutinize our pipeline and are pleased to see our increased pipeline converting into revenue growth.

Benjamin Urban: As Benjamin noted, our 12-month forward sales pipeline, excluding leads at July 1, 2024, was $263 million, growing 20% compared to $220 million at July 1, 2023.

Fareeha Khan: We regularly scrutinize our pipeline and are pleased to see our increased pipeline converting into revenue growth. Operating expenses for the second quarter were 14.4 million, a 2.5 million or 15% decrease from the same quarter last year. This is in line with our initiative to reduce costs in the business. I just said EBITDA for the second quarter was 3.2 million and improvement of 1.3 million from my 1.9 million adjusted EBITDA during the second quarter of 2023.

Benjamin Urban: We regularly scrutinize our pipeline and are pleased to see our increased pipeline converging into revenue growth.

Fareeha Khan: Operating expenses for the second quarter were $14.4 million, a $2.5 million or 15% decrease from the same quarter last year. This is in line with our initiative to reduce costs in the business. Adjusted EBITDA for the second quarter was $3.2 million, an improvement of $1.3 million from my $1.9 million adjusted EBITDA during the second quarter of 2023. This improvement is driven by the reduced operating expenses just described.

Speaker Change: operating expenses for the second quarter were fourteen point four million a two point five million or fifteen percent decrease from the same quarter last year this is in line with ourinitiatives to reduce costs in the business

Kenneth Sanders: This is in line with our initiative to reduce costs in the business. Adjusted EBITDA for the second quarter was $3.2 million, an improvement of $1.3 million from my $1.9 million adjusted EBITDA during the second quarter of 2023. Our net income after tax for the second quarter of 2024 was $0.6 million, compared to a $2.2 million profit for the same period of 2023. Apart from the digested EBITDA gains discussed above, we benefited from a $0.8 million increase in gross profit, $2.5 million decrease in operating expenses, $0.4 million higher interest income, $0.3 million decreased interest expense, and a $1 million increase in foreign exchange gain due to the devaluing Canadian Liquidity, which includes $10.6 million availability under our ABL credit facility, was $50.1 million as of June 30, 2024. However, we have not drawn on the ABL Facility State.

Kenneth Sanders: Adjusted EBITDA for the second quarter was $3.2 million, an improvement of $1.3 million from a $1.9 million adjusted EBITDA during the second quarter of 2023. This improvement is driven by the reduced operating expenses just described.

Fareeha Khan: This improvement is driven by the reduced operating expenses just described. As Benjamin mentioned, this is now their fifth consecutive quarter of positive adjusted EBITDA and we are pleased with the success of operational efficiencies implemented over the past two years. Our net income, object tax, the second quarter of 2024 was 0.6 million compared to a 2.2 million profit for the same period of 2023. Apart from the adjusted EBITDA gains discussed above, we benefited from a 0.8 million increase in gross profit, 2.5 million decrease in operating expenses, 0.4 million higher interest income, 0.3 million decreased interest expense and a 1 million increase in foreign exchange gain due to the devaluing Canadian dollar.

Fareeha Khan: As Benjamin mentioned, this is now DIRTT's fifth consecutive quarter of positive Adjusted EBITDA, and we are pleased with the success of operational efficiencies implemented over the past two years. Our net income after tax for the second quarter of 2024 was $0.6 million, compared to a $2.2 million profit for the same period of 2023. Apart from the digested EBITDA gains discussed above, we benefited from a $0.8 million increase in gross profit, $2.5 million decrease in operating expenses, $0.4 million higher interest income, $0.3 million decreased interest expense, and a $1 million increase in foreign exchange gain due to the devaluing Canadian dollar.

Kenneth Sanders: As Benjamin mentioned, this is now DIRTT's fifth consecutive quarter of positive adjusted EBITDA, and we are pleased with the success of operational efficiencies implemented over the past two years.

Kenneth Sanders: our net income aftertas the second quarter of two thousand andtwenty four was zsix million compared to a two point two million profit for the same period of two thousand and twenty-three

Kenneth Sanders: Apart from the digested EBITDA gains discussed above, we benefited from a $0.8 million increase in gross profit.

Kenneth Sanders: $2.5 million decrease in operating expenses, $0.4 million higher interest income, $0.3 million decreased interest expense, and a $1 million increase in foreign exchange gain due to the devaluing Canadian dollar.

Fareeha Khan: I will now turn to our balance sheet and discuss some Q2 events and last week's press release. The quarter finished with 39.5 million in unrestricted cash, up 14.8 million from 24.8 million at December 31, 2023, and up 0.5 million from March 31, 2024. Cash provided by operations was 1.6 million while cash used in investing activities mainly capital expenditures was 0.9 million for the quarter. Our working capital continues to improve. Networking capital of the end of the quarter was 47.6 million, up 17.8 million from December 2023, primarily due to net proceeds of 21.3 million from the rights offering and improved operational results, offset by the 5.2 million repayment on debt a principle under the issuer bid. Liquidity, which includes 10.6 million availability under our ABL credit facility, was 50.1 million as of June 30, 2024. We have not drawn on the ABL facility state.

Fareeha Khan: I will now turn to our balance sheet and discuss some Q2 events and last week's press release. The quarter finished with $39.5 million in unrestricted cash, up $14.8 million from $24.8 million at December 31, 2023 and up $0.5 million from March 31, 2024. Cash provided by operations was $1.6 million, while cash used in investing activities, mainly capital expenditures, was $0.9 million for the quarter.

Speaker Change: i will now turn to our balance sheet and discuss some q two events and last week's press release

Kenneth Sanders: The quarter finished with $39.5 million in unrestricted cash, up $14.8 million from $24.8 million at December 31, 2023, and up $0.5 million from March 31, 2024.

Kenneth Sanders: Cash provided by operations was $1.6 million, while cash used in investing activities, mainly capital expenditures, was $0.9 million for the quarter.

Fareeha Khan: Our working capital continues to improve. Net working capital at the end of the quarter was $47.6 million, up $17.8 million from December 2023, primarily due to net proceeds of $21.3 million from the rights offering and improved operational results, offset by the $5.2 million repayment on debt in principle under the issuer bid. Liquidity, which includes $10.6 million availability under our ABL credit facility, was $50.1 million as of June 30, 2024. However, we have not drawn on the ABL Facility State.

Kenneth Sanders: our working capital continues to improve

Kenneth Sanders: Networking capital at the end of the quarter was $47.6 million, up $17.8 million from December 2023, primarily due to net proceeds of $21.3 million from the rights offering and improved operational results, offset by the $5.2 million repayment on debt in principle under the issuer bid.

Kenneth Sanders: Liquidity, which includes $10.6 million availability under our ABL credit facility, was $50.1 million as of June 30, 2024. We have not drawn on the ABL facility to date.

Fareeha Khan: This concludes our section on the Q2 results. I would like to update our listeners on a press release we issued last week. On August 2, 2024, we announced three agreements. First, we entered into an agreement with 22NW Fund LP, or 22NW, DIRTT's largest shareholder, to purchase, for cancellation, approximately CAD$32.6 million of DIRTT debentures, which are due in January and December 2026, for an aggregate purchase price of approximately CAD$22 million, inclusive of a cash payment for accrued and unpaid interest up to the date of August 2.

Unknown Executive: This concludes our section on the future results.

Fareeha Khan: I would like to update our listeners on a press release we issued last week. On August 2, 2024, we announced three agreements. First, we entered into an agreement with 22NW Fund LP, or 22NW, DIRTT's largest shareholder, to purchase, for cancellation, approximately CAD$32.6 million of DIRTT debentures, which are due in January and December 2026, for an aggregate purchase price of approximately CAD$22 million, inclusive of a cash payment for accrued and unpaid interest up to the date of August 2.

Fareeha Khan: This concludes our section on the Q2 results. I would like to update our listeners on a press release we issued last week. On August 2nd, 2024, we announced three agreements.

Fareeha Khan: I would like to update our listeners on a press release we issued last week. On August 2, 2024, we announced three agreements. First, we entered into an agreement with 22 NW fund LP or 22 NW. There is larger shareholder to purchase for cancellation approximately Canadian 32.6 million of dirt debentures which are due in January and December 20, 20.6. For an aggregate purchase price of approximately 22 million Canadian dollars, inclusive of a cash payment for a crude and unpaid interest up to the date of August 2.

Fareeha Khan: Through this repurchase, DIRTT will record a gain on the extinguishment of debt of approximately CAD$10.5 million in the third quarter. Subsequent to this transaction, DIRTT's long-term debt will be reduced from CAD$56.1 million at December 31, 2023, to CAD$24 million, and our annual interest expense will halve to about CAD$1.5 million. We believe this transaction puts DIRTT in a position to achieve a debt-to-adjusted EBITDA ratio of 1X or lower in 2025, signaling DIRTT's financial strength.

Fareeha Khan: Through this repurchase, DIRTT will record a gain on the extinguishment of debt of approximately CAD$10.5 million in the third quarter. Subsequent to this transaction, DIRTT's long-term debt will be reduced from $56.1 million at December 31, 2023, to $24 million, and our annual interest expense will halve to about $1.5 million. We believe this transaction puts DIRTT in a position to achieve a debt-to-adjusted EBITDA ratio of 1X or lower in 2025, signaling DIRTT's financial strength.

Fareeha Khan: First, we entered into an agreement with 22NW Fund LP, or 22NW, DIRTT's largest shareholder, to purchase, for cancellation, approximately CAD$32.6 million of DIRTT debentures which are due in January and December 2026.

Fareeha Khan: for an aggregate purchase price of approximately $22 million Canadian dollars, inclusive of a cash payment for accrued and unpaid interest up to the date of August 2.

Fareeha Khan: Through this repurchase, dirt will record a gain on extinguishment of debt of approximately Canadian 10.5 million in the third quarter. Subsequent to this transaction, dirt's long-term debt has reduced from 56.1 million at December 31, 2023 to 24 million and our annual interest expense will have to about 1.5 million. We believe this transaction puts dirt in the position to achieve a debt-to-desset EBITDA ratio of 1X or lower in 2025, signaling dirt's financial strength. Dirt will continue further future options on either paying off or refinancing its remaining January 20, 20.6 and December 20, 20.6 debentures when they come due.

Fareeha Khan: Through this repurchase, DIRTT will record a gain on extinguishment of debt of approximately Canadian $10.5 million in the third quarter.

Fareeha Khan: Subsequent to this transaction, DIRTT's long-term debt

Fareeha Khan: has reduced from $56.1 million at December 31, 2023 to $24 million and our annual interest expense will halve to about $1.5 million.

Fareeha Khan: We believe this transaction puts DIRTT in a position to achieve a debt-to-adjusted EBITDA ratio of 1x or lower in 2025, signaling DIRTT's financial strength.

Fareeha Khan: DIRTT will continue further future options on either paying off or refinancing its remaining January 2026 and December 2026 debentures when they come due. On August 2nd, 2024, the Board of Directors also adopted an amended and restated shareholder rights plan, which supersedes the plan adopted on March 22nd, 2024. The company also entered into a support and stancil agreement with 22&W, DIRTT's largest shareholder, and WWT Opportunity No. 1 LLC, DIRTT's second largest shareholder.

Fareeha Khan: DIRTT will continue further future options on either paying off or refinancing its remaining January 2026 and December 2026 debentures when they come due. On August 2, 2024, the Board of Directors also adopted an amended and restated Shareholder Rights Plan, which supersedes the plan adopted on March 22, 2024. The company also entered into a support and stancil agreement with 22&W, DIRTT's largest shareholder, and WWT Opportunity No. 1 LLC, DIRTT's second largest shareholder. The support agreement replaces the previously announced support and stancil agreement entered into with 22&W on March 22, 2024.

Fareeha Khan: DIRT will continue further future options on either paying off or refinancing its remaining January 2026 and December 2026 debentures when they come due.

Fareeha Khan: On August 2, 2024, the Board of Directors also adopted an amended and restated shareholder rights plan which supersedes the plan adopted on March 22, 2024. The company also entered into a support and stencil agreement with 22NW, DIRT's largest shareholder, and WWT Opportunity No. 1 LLC, DIRT's second largest shareholder. The support agreement replaces the previously announced support and stencil agreement entered into with 22NW on March 22nd, 2024. For more details on these agreements, please refer to our Pressure Listated August 2nd, 2024.

Fareeha Khan: On August 2, 2024, the Board of Directors also adopted an amended and restated Shareholder Rights Plan, which supersedes the plan adopted on March 22, 2024.

Fareeha Khan: The company also entered into a support and stancil agreement with 22&W, DIRTT's largest shareholder, and WWT Opportunity No. 1 LLC, DIRTT's second largest shareholder. The support agreement replaces the previously announced support and stancil agreement entered into with 22&W.

Fareeha Khan: The support agreement replaces the previously announced support and stancil agreement entered into with 22&W on March 22, 2024. For more details on these agreements, please refer to our press release dated August 2, 2024. Looking forward, we have provided forecasted revenue and adjusted EBITDA figures for the remainder of 2024 and 2025 in our output. Details, as well as our cautionary advisory on forward-looking statements, can be found in the Outlook section of our press release and the Ten-Q. I will now turn it back to Benjamin to discuss DIRTT's business updates.

Fareeha Khan: on march twenty second two thousand and twenty four for more details on these agreements please refer to our press release stated august second two thousand and twenty-four looking forward we have provided forecasted revenue and adjusted ebitda figures for the remainder of two thousand andtwentyfour and two thousand and twenty five in our outlook

Fareeha Khan: Looking forward, we have provided four cost of revenue and adjusted EBITDA figures for the remainder of 2024 and 2025 in our outlook. Details, as well as our course of advisory on four looking statements, can be found in the author's section of our Pressure List and the 10Q.

Fareeha Khan: Details, as well as our cautionary advisory on forward-looking statements, can be found in the Outlook section of our press release and the Ten-Q. I will now turn it back to Benjamin to discuss DIRTT's business updates.

Benjamin Urban: I will now turn it back to Benjamin to discuss DIRT's business updates. Thank you, Fareeha. As a result of our continued focus on revenue growth, we are pleased to highlight several new clients, including TIA, Floor, and Chevron Phillips.

Benjamin Urban: As a result of our continued focus on revenue growth, we are pleased to highlight several new clients, including TIAA, Fluor, and Chevron Phillips. Additionally, clients are also taking occupancy and celebrating their new spaces with two marquee DIRTT projects last quarter in the United States. Google's New York headquarters and Visa's Mission Rock office, which both pushed innovation and construction using nearly all of the solutions in our product offerings. In the supplemental presentation, which is now posted on our website, we have provided a link to videos, including Google's headquarters.

Speaker Change: Thank you, Fareeha. As a result of our continued focus on revenue growth, we are pleased to highlight several new clients, including TIAA, Fluor, and Chevron Phillips.

Benjamin Urban: Clients are also taking occupancy in celebrating their new spaces with two marquee DIRT projects last quarter in the United States. Google's New York Headquarters and Visa's Mission Rock Office, which both pushed innovation and construction, realizing nearly all of the solutions in our product offerings. In the supplemental presentation, which is now posted on our website, we have provided a link to videos, including the Google Headquarters. We also have a strong pipeline of new projects with clients, including Brown Foreman, Samsung, Siphair, Independent School District, Bank of America, and Fisher Phillips to name a few.

Fareeha Khan: Clients are also taking occupancy and celebrating their new spaces with two marquee DIRTT projects last quarter in the United States, Google's New York headquarters and Visa's Mission Rock office, which both pushed innovation and construction utilizing nearly all of the solutions in our product offerings.

Unknown Executive: Google's New York headquarters and Visa's Mission Rock office, which both pushed innovation and construction using nearly all of the solutions in our product offerings. Our construction partner base is healthy and continues to grow. We added two new large partners last quarter in the Midwest with Interium and Interior Investments, both now part of a larger conglomerate.

Unknown Executive: In the supplemental presentation, which is now posted on our website, we have provided a link to videos, including the Google headquarters. We also have a strong pipeline of new projects with clients, including Brown-Forman, Samsung, CyFair Independent School District, Bank of America, and Fisher Phillips, to name a few.

Benjamin Urban: We also have a strong pipeline of new projects with clients, including Brown Foreman, Samsung, CyFair Independent School District, Bank of America, and Fisher Phillips, to name a few. Our construction partner base is healthy and continues to grow. We added two new large partners last quarter in the Midwest, Interium and Interior Investments, both now part of a larger conglomerate.

Benjamin Urban: Our construction partner base is healthy and continues to grow. We added two new large partners last quarter in the Midwest, with interior and interior investments, both now part of a larger conglomerate. We are projecting further expansion into other under penetrated markets throughout 2024 with new partners. Our commercial diversification strategy has also already begun showing returns, with immediate pipeline growth in 2024 and 2025. One example of success through this diversification has allowed us to secure a three-year MOU with one of the largest private non-profit healthcare organizations in the United States.

Unknown Executive: our construction partner base is healthy and continues to grow

Unknown Executive: We added two new large partners last quarter in the Midwest with Interior and Interior Investments, both now part of a larger conglomerate.

Benjamin Urban: We are projecting further expansion into other underpenetrated markets throughout 2024 with new partners. Our commercial diversification strategy has also already begun showing returns with immediate pipeline growth in 2024 and 2025. One example of success through this diversification allowed us to secure a three-year MOU with one of the largest private nonprofit health care organizations in the United States.

Unknown Executive: We are projecting further expansion into other underpenetrated markets throughout 2024 with new partners. Our commercial diversification strategy has also already begun showing returns, with immediate pipeline growth in 2024 and 2025. One example of success through this diversification has allowed us to secure a three-year MOU with one of the largest private nonprofit health care organizations in the United States. Our strategy also includes expansion into new markets for DIRTT through other prefabrication and modular contractors. An example is Integrity Built, an Oklahoma specialty contractor who provides innovative commercial prefabricated bathroom pods, structural panels, and now DIRTT as part of their solutions.

Unknown Executive: one example of success through this diversification has allowed us to secure a three -year mmou with one of the largest private nonprofit health care organizations in the united states

Benjamin Urban: Our strategy also includes expansion into new markets for DIRTT through other prefabrication and modular contractors. An example is Integrity Built, an Oklahoma specialty contractor who provides innovative commercial prefabricated bathroom pods, structural panels, and now DIRTT as part of their solutions. These prefabricators are also able to augment resources and add expertise to our national partner network to pursue unique and challenging projects together. DIRTT is operating in a multi-billion dollar interior construction industry with end customers looking for ways to save money, save time, and meet their sustainability goals.

Benjamin Urban: Our strategy also includes expansion into new markets for dirt through other prefabrication and modular contractors. An example is with Integrity Built, an Oklahoma specialty contractor, who provides innovative commercial prefabricated bathroom pods, structural panels, and now dirt as part of their solutions. These prefabricators are also able to augment resources and add expertise to our national partner network to pursue unique and challenging projects together. Dirt is operating in a multi-billion dollar interior construction industry, with end customers looking for ways to save money, save time, and meet their sustainability goals.

Unknown Executive: Our strategy also includes expansion into new markets for DIRTT through other prefabrication and modular contractors.

Unknown Executive: An example is with Integrity Built, an Oklahoma specialty contractor who provides innovative commercial prefabricated bathroom pods, structural panels, and now DIRTT is part of their solutions.

Unknown Executive: These prefabricators are also able to augment resources and add expertise to our national partner network to pursue unique and challenging projects together. This need for sustainable construction was ever present during the Canadian Climate Investor Conference that DIRTT presented at in Toronto last quarter. Over time, our goal is for DIRTT to gain market share and outpace the growth of the construction industry. We continue to innovate by identifying the needs of the market and our customers by collaborating with world-class firms to solve industry problems. This was clear and present in Q2. At Conext, our flagship event in June, we transformed our DIRTT Experience Center in Chicago with new and improved products throughout the space. None more anticipated than the Cove.

Unknown Executive: These prefabricators are also able to augment resources and add expertise to our national partner network to pursue unique and challenging projects together.

Unknown Executive: DIRT is operating in a multi-billion dollar interior construction industry, with end customers looking for ways to save money, save time, and meet their sustainability goals.

Benjamin Urban: We believe our business proposition of a better, more sustainable way to build is becoming even more relevant as prioritizing economic, social, and governance issues becomes a focus for companies across North America. This need for sustainable construction was ever present during the Canadian Climate Investor Conference that DIRTT presented at in Toronto last quarter.

Benjamin Urban: We believe our business proposition of a better, more sustainable way to build is becoming even more relevant, as prioritizing economic, social, and governance issues becomes a focus for companies across North America. This need for sustainable construction was ever present during the Canadian Climate Investor Conference that did present to that in Toronto last quarter. Over time, our goal is for dirt to gain market share and outpace the growth of the construction industry.

Unknown Executive: we believe our business proposition of a better more sustainable way to build is becoming even more relevant as prioritizing economic social and governance issues becomes a focus for companies across north america

Unknown Executive: This need for sustainable construction was ever-present during the Canadian Climate Investor Conference that DIRTT presented at in Toronto last quarter. Over time, our goal is for DIRTT to gain market share and outpace the growth of the construction industry.

Benjamin Urban: Over time, our goal is for DIRTT to gain market share and outpace the growth of the construction industry. We continue to innovate by identifying the needs of the market and our customers by collaborating with world-class firms to solve industry problems. This was clear and present in Q2. At Conext, our flagship event in June, we transformed our DIRTT Experience Center in Chicago with new and improved products throughout the space. None more anticipated than the Cove.

Benjamin Urban: We continue to innovate by identifying the needs of the market and our customers through collaborating with world-class firms to solve industry problems. This was clear in present in Q2, and connects our flagship event in June, we transformed our dirt experience center in Chicago with new and improved products throughout the space, none more anticipated than the COV. The COV is dirt's solution to the problems faced in emergency departments across the U.S. At just one-third the size of a typical treatment room, the COV increases capacity and efficiency without compromising the patient experience.

Unknown Executive: We continue to innovate by identifying the needs of the market and our customers through collaborating with world-class firms to solve industry problems.

Unknown Executive: This was clear and present in Q2. At Connext, our flagship event in June , we transformed our DIRTT Experience Center in Chicago with new and improved products throughout the space. None more anticipated than The Cove.

Benjamin Urban: The C.O.B.E. is DIRTT's solution to the problems faced in emergency departments across the U.S. At just one-third the size of a typical treatment room, the C.O.B.E. increases capacity and efficiency without compromising the patient experience. This groundbreaking innovation is just one example of how DIRTT continually evolves with the market by listening to needs and developing best-in-class solutions. Other product highlights recently introduced include the double pane version of our sleek spectra door, curved glass corners as a standard, a telescoping wall for optimal space division and event flexibility, and a Class A timber solution that reduces restrictions across building types. Technology remains a key component of both our innovation and growth strategy.

Unknown Executive: The C.O.B.E. is DIRTT's solution to the problems faced in emergency departments across the U.S. At just one-third the size of a typical treatment room, the C.O.B.E. increases capacity and efficiency without compromising the patient experience. Technology remains a key component of both our innovation and growth strategy. We are continually looking to diversify our sales channels, and in Q2, we achieved this for our casework offering through our iSoftware platform. Additionally, with efficient supply chain management, we have reduced DIRTT inventory significantly by 23.2% from Q2 2023, and current inventory valuations are the lowest in the past five years.

Unknown Executive: The COBE is DIRTT's solution to the problems faced in emergency departments across the U.S. At just one-third the size of a typical treatment room, the COBE increases capacity and efficiency without compromising the patient experience.

Benjamin Urban: This groundbreaking innovation is just one example of how dirt continually evolves with the market by listening to needs and developing best-in-class solutions. Other product highlights recently introduced include the double-pane version of our sleek spectrador, curved glass corners as a standard, a telescoping wall for optimal space division and event flexibility, and a class A timber solution that reduces restrictions across building types. Technology remains a key component of both our innovation and growth strategy.

Speaker Change: This groundbreaking innovation is just one example of how DIRT continually evolves with the market by listening to needs and developing best-in-class solutions.

Unknown Executive: other product highlights recently introduced include the double paining version of our sleep spectror curved glass corners as a standard a telescoping wall for optimal space division and event flexibility and a class a timber solution that reduces restrictions across building types

Unknown Executive: Technology remains a key component of both our innovation and growth strategy. We are continually looking to diversify our sales channels and in Q2 we achieved this for our casework offering through our ICE software platform.

Benjamin Urban: We are continually looking to diversify our sales channels, and in Q2, we achieved this for our casework offering through our iSoftware platform. This offering is highly complementary when sold with other DIRTT products in a full solution or as a standalone short cycle sale. Therefore, our team focused on building out the casework catalog and better automating the process for both our distribution partners and operations team. More than 120 of the most frequently ordered casework configurations were added in Q2, which will support increased sales.

Benjamin Urban: We are continually looking to diversify our sales channels, and in Q2 we achieved this for our case work offering through our ICE software platform. This offering is highly complimentary when sold with other dirt products in a full solution, or as a standalone short cycle sale. So our team focused on building out the case work catalog and better automating the process for both our distribution partners and operations team. More than 120 of the most frequently ordered case work configurations were added in Q2, which will support increased sales.

Speaker Change: this offering is highly complementary when sold with other d products in a full solution or as a standalone short cycle sale so our team focused on building out the case where catalogue and butbetter autommatating the process for both our distribution partners and operations team

Unknown Executive: More than 120 of the most frequently ordered casework configurations were added in Q2, which will support increased sales.

Benjamin Urban: We have also leveraged our software to drive accuracy and efficiency in procurement, planning, and reporting. Our software team has been hard at work on modernizing the ICE platform. The new ICE Manager and Purpose-Built Design Editor application were released earlier this week. The modernization project will streamline the ICE user experience, eliminating the need to download and install ICE and product catalogs separately after every new release.

Benjamin Urban: We have also leveraged our software to drive accuracy and efficiency in procurement, planning and reporting. Our software team has been hard at work on modernizing the ICE platform. The new ICE manager and purpose-built design editor application was released earlier this week. The modernization project will streamline the ICE user experience, eliminating the need to download and install ICE and product catalog separately after every new release. Starting in August, the new ICE manager will handle this in the background, eliminating disruption to workflows and enabling better project management.

Unknown Executive: We have also leveraged our software to drive accuracy and efficiency in procurement, planning, and reporting. Our software team has been hard at work on modernizing the ICE platform.

Speaker Change: The new ICE Manager and Purpose-Built Design Editor application was released earlier this week. The modernization project will streamline the ICE user experience, eliminating the need to download and install ICE and product catalogs separately after every new release.

Benjamin Urban: Starting in August, the new ICE manager will handle this in the background, eliminating disruption to workflows and enabling better project management. From an operational standpoint, we continue on our journey to zero defects, zero misdeliveries, and zero recordable incidents. For Q2 2024, we reduced our external defects per million dollars of revenue to 10.5, a 7% improvement from Q2 2023 and an 11% improvement from last quarter. Additionally, our on-time performance for Q2 2024 was 99.7%, which is the highest in DIRTT's history. Our total recordable incident frequency at the end of Q2 2024 was.99, which is 78% below the industry average.

Unknown Executive: Starting in August , the new ICE Manager will handle this in the background, eliminating disruption to workflows and enabling better project management. From an operational standpoint, we continue on our journey to zero defects, zero misdeliveries, and zero recordable incidents.

Benjamin Urban: From an operational standpoint, we continue on our journey to zero defects, zero misdeliveries and zero recordable incidents. For Q2, 2024, we reduced our external defects per million dollars of revenue to 10.5, a 7% improvement from Q2, 2023, and then the 11% improvement from last quarter. Our on-time performance for Q2, 2024 was 99.7%, which is the highest in dirt's history. Our total recordable incident frequency at the end of Q2, 2024 was 0.99, which is 78% below the industry average.

Unknown Executive: For Q2 2024, we reduced our external defects per million dollars of revenue to 10.5.

Unknown Executive: a 7% improvement from Q2 2023, and an 11% improvement from last quarter.

Speaker Change: our ontime performance for q two two thousand and twenty four was ninety nine point seven percent

Unknown Executive: which is the highest indirt history

Unknown Executive: Our total recordable incident frequency at the end of Q2 2024 was .99.

Benjamin Urban: Safety excellence is a core value, and we take pride in maintaining our position as a world-class leader in safety performance. Additionally, with efficient supply chain management, we have reduced DIRTT inventory significantly by 23.2% from Q2 2023, and current inventory valuations are the lowest in the past five years. DIRTT has significant untapped manufacturing capacity that can serve a multiple of our current revenue base without major capital investment, and we have successfully finished documenting our playbook to operate at higher revenue levels.

Benjamin Urban: Safety excellence is a core value and we take pride in maintaining our position as a world class leader in safety performance. Additionally, with efficient supply chain management, we have reduced dirt inventory significantly by 23.2% from Q2, 2023, and current inventory valuations are the lowest in the past 5 years. Dirt has significant untapped manufacturing capacity that can serve a multiple of our current revenue base without major capital investment, and we have successfully finished documenting our playbook to operate in higher revenue levels. With our costs streamlined and a fixed cost leverage, DIRTT's margins will benefit exponentially as we grow revenue.

Unknown Executive: 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.

Unknown Executive: Additionally, with efficient supply chain management, we have reduced DIRTT inventory significantly by 23.2% from Q2 2023, and current inventory valuations are the lowest in the past five years.

Speaker Change: dirt has significant unttaoughped manufacturing capacity that can serve a multiple of our current revenue base without major capital investmentand we have successfully finished documenting our claybook to operate in higher revenue levels

Benjamin Urban: With our costs streamlined and fixed cost leverage, DIRTT's margins will benefit exponentially as we grow revenue. And finally, we continue to invest in our incredibly talented employees, as they are a key pillar of our success. DIRTT is proud to have a long average employee tenure, so we want to nurture and develop our talent into leaders. In June, we initiated a series of comprehensive leadership workshops to equip our team with the skills and insights necessary to drive our strategic initiatives forward.

Unknown Executive: with our cost streamlined in a fixed cost leverage d margins will benefit exponentially as we grow revenue

Unknown Executive: And finally, we continue to invest in our incredibly talented employees, as they are a key part of our success. DIRTT is proud to have a long average employee tenure, so we want to nurture and develop our talent into leaders. In June, we initiated a series of comprehensive leadership workshops to equip our team with the skills and insights necessary to drive our strategic initiatives forward. Our next session is scheduled for November, ensuring continuous growth and development across our leadership ranks.

Benjamin Urban: And finally, we continue to invest in our incredibly talented employees as they are a key pillar of our success. DIRTT is proud to have a long average employee tenure, so we want to nurture and develop our talents into leaders. In June, we initiated a series of comprehensive leadership workshops to equip our team with the skills and insights necessary to drive our strategic initiatives forward. Our next session is scheduled for November, ensuring continuous growth and development across our leadership ranks.

Unknown Executive: And finally, we continue to invest in our incredibly talented employees as they are a key pillow of our success.

Unknown Executive: DIRTT is proud to have a long average employee tenure, so we want to nurture and develop our talent into leaders. In June , we initiated a series of comprehensive leadership workshops to equip our team with the skills and insights necessary to drive our strategic initiatives forward.

Benjamin Urban: Our next session is scheduled for November, ensuring continuous growth and development across our leadership ranks. We continue to champion diversity and inclusiveness across our staff. A standout DE&I initiative is our longstanding partnership with Chrysalis from the Alberta Society for Citizens with Disabilities. Crystalis is dedicated to providing personalized services tailored to the needs of individuals with disabilities, promoting their growth, and fostering community inclusion.

Unknown Executive: Our next session is scheduled for November , ensuring continuous growth and development across our leadership ranks.

Benjamin Urban: We continue to champion diversity and inclusiveness across our staff, a standout DE and I initiative as our longstanding partnership with Chris Ellis from the Alberta Society for Citizens with Disabilities. Chris Ellis is dedicated to providing personalized services tailored to the needs of individuals with disabilities, promoting their growth and fostering community inclusion. Recently, we had the privilege of attending the Dream Big Gala hosted by Chris Ellis, a heartwarming event celebrating their impactful work. We are proud to have employed and supported a group of employees from Chris Ellis at our timber and metal factory, some since 2010, and to sponsor organizations that champion diversity and empower individuals.

Unknown Executive: We continue to champion diversity and inclusiveness across our staff. A standout DE&I initiative is our longstanding partnership with Chrysalis from the Alberta Society for Citizens with Disabilities. Crystalis is dedicated to providing personalized services tailored to the needs of individuals with disabilities, promoting their growth, and fostering community inclusion. Recently, we had the privilege of attending the Dream Big Gala hosted by Chrysalis, a heartwarming event celebrating their impactful work. We are proud to have employed and supported a group of employees from Chrysalis at our timber and metal factory, some since 2010, and to sponsor organizations that champion diversity and empower individuals. By fostering volunteerism, we aim to make a meaningful impact on our community and demonstrate our commitment to corporate social responsibility.

Unknown Executive: We continue to champion diversity and inclusiveness across our staff. A standout DE&I initiative is our long-standing partnership with Chrysalis from the Alberta Society for Citizens with Disabilities.

Unknown Executive: Crystalis is dedicated to providing personalized services tailored to the needs of individuals with disabilities, promoting their growth and fostering community inclusion.

Benjamin Urban: Recently, we had the privilege of attending the Dream Big Gala hosted by Chrysalis, a heartwarming event celebrating their impactful work. We are proud to have employed and supported a group of employees from Chrysalis at our timber and metal factory, some since 2010, and to sponsor organizations that champion diversity and empower individuals. We are also proud to announce the launch of a new volunteer initiative for our Calgary employees. In July, the team embarked on their first volunteer project, assisting less fortunate community members.

Unknown Executive: Recently, we had the privilege of attending the Dream Big Gala hosted by Chrysalis.

Unknown Executive: a heartwarming event celebrating their impactful work. We are proud to have employed and supported a group of employees from Chrysalis at our timber and metal factory, some since 2010, and to sponsor organizations that champion diversity and empower individuals.

Benjamin Urban: We are also proud to announce the launch of a new volunteer initiative for our Calgary employees. In July, the team embarked on our first volunteer project, assisting less fortunate community members, this program fosters community engagement and allows the team to offer their time and skills to support various charitable activities. By fostering volunteerism, we aim to make a meaningful impact on our community and demonstrate our commitment to corporate social responsibility. With respect to the Falkbill litigation, we continue to see positive acceleration in both the United States and Canada lawsuits, as we have strong confidence in the outcome of our cases.

Unknown Executive: We are also proud to announce the launch of a new volunteer initiative for our Calgary employees.

Speaker Change: in july at the team embarked on our first volunteer project assisting less fortunate community members this program fosterers community engagement and allows the team to offer their time and skills to support various charitable activities

Benjamin Urban: This program fosters community engagement and allows the team to offer their time and skills to support various charitable activities. By fostering volunteerism, we aim to make a meaningful impact in our community and demonstrate our commitment to corporate social responsibility.

Unknown Executive: By fostering volunteerism, we aim to make a meaningful impact on our community and demonstrate our commitment to corporate social responsibility.

Benjamin Urban: With respect to the Faulkville litigation, we continue to see positive acceleration in both the United States and Canada lawsuits, as we have strong confidence in the outcome of our cases. In the United States, following motion practice, and over defendants' initial objection, the court entered a scheduling order providing for discovery to end in 2025, and a pretrial in the fall of 2025; discovery is proceeding consistent with the order. In Canada, as a potential alternative to the summary judgment application on liability, DIRTT recently took advantage of a new pilot project introduced by the Alberta Court of King's Bench to seek a full trial on both liability and damages in an effort to expedite the matter to conclusion. That trial is scheduled for August 30, 2024.

Speaker Change: With respect to the Faulkville litigation, we continue to see positive acceleration in both the United States and Canada lawsuits, as we have strong confidence in the outcome of our cases.

Benjamin Urban: In the US following motion practice and over defendants initial objection, the court entered a scheduling order providing for discovery to end in 2025 and a pretrial in the fall of 2025. Discovery is proceeding consistent with your in Canada as a potential alternative to the summary judgment application on liability. Third recently took advantage of a new pilot project introduced by the Alberta Court of Kings bench to seek a full trial on both liability and damages in an effort to expedite the matter to conclusion. That application is scheduled for August 30, 2024.

Speaker Change: In the U.S., following motion practice and over defendant's initial objection, the court entered a scheduling order providing for discovery to end in 2025 and a pretrial in the fall of 2025.

Speaker Change: Discovery is proceeding consistent with the order.

Speaker Change: In Canada, as a potential alternative to the summary judgment application on liability, DIRTT recently took advantage of a new pilot project introduced by the Alberta Court of King's Bench to seek a full trial on both liability and damages in an effort to expedite the matter to conclusion.

Speaker Change: that application is scheduled for august thirtieth two thousand and twenty-four

Benjamin Urban: These are just some of the highlights that are fueling our continued momentum. We are excited about our trajectory and the impact we are making on the construction industry. Thank you all for joining us today.

Unknown Executive: These are just some of the highlights that are fueling our continued momentum. We are excited about our trajectory and the impact we are making on the construction industry. Thank you all for joining us today.

Unknown Executive: This does conclude the program. You may now disconnect.

Speaker Change: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Q2 2024 DIRTT Environmental Solutions Ltd Earnings Call

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