Q2 2025 DIRTT Environmental Solutions Ltd Earnings Call
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Thank you for standing by this is the conference operator welcome.
Welcome to the dirt environmental solutions second quarter 2025 financial results Conference call.
As a reminder, all participants are in listen only mode and the conference is being recorded.
I'd now like to turn the conference over to Christian Bradfield Senior Vice President of marketing and Communications. Please go ahead.
Thank you operator, and good morning, everyone. Welcome to today's call to discuss <unk> second quarter 2025 results. Joining me on the call today will be Benjamin urban CEO and Korea Khan CFO today.
As 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 and.
In addition, this call will reference non-GAAP results, excluding special items. Please reference our Form 10-Q as filed on July 30th 2025, 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.
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 will now turn the call over to Benjamin.
Thank you Christian and good morning, everyone.
As referenced in our outlook macroeconomic pressures continued throughout Q2, we have been impacted by tariff driven costs and industry reactions, such as delayed contracts and slower construction schedules. This situation is industry wide and not unique to <unk>.
While our financial results for Q2 are below expectations, we have a strong strategy in place to address the ongoing challenges, which I will discuss later in the call.
I'll now turn it over to <unk> to discuss the financials.
Thank you Benjamin and good morning, all please note that we have issued a press release discussing our second quarter 2025 years old and have also provided additional analysis in the <unk>.
Supplemental presentation.
Both documents are available on our website.
Revenues for the second quarter with $38 9 million, a decrease of 6% compared to the same period of 2024.
The decline in revenue is due to an unusual delay in placing of orders by customers push out related to construction schedules.
This change in behavior was not surprising considering the prevailing macroeconomic climate and uncertainties customers may be facing due to tariffs.
Gross profit margin decreased from 37, 3% of revenue in the second quarter of 2024 to 27, 8% in the second quarter of 2025 gross profit margin was impacted by 512 basis points or $2 million of tariff duties and costs related.
Tariff mitigation activities.
Tariffs were levied on products exported from Canada to the United States. The remaining decline in gross profit margin is as a result of lower revenue volume.
Implemented several price actions in the first six months of 2025 in response to rising call market feedback and tariff pressures in March 2025, we communicated a 5% increase on our products, while decreasing the prices of certain products.
We expect minimal realization of this price increase in the third quarter of 2025 with a gradual increase in the fourth quarter of 2025, we expect to start realizing the benefits of a three 5% surcharge passed onto customers effective June 20th in the third quarter of 2002.
25.
With respect to tariffs the main impact on dirt is the 25% tariff on aluminum and steel that came into effect in early March 2025, which was then increased to 50% in June 2025 aluminum costs represent approximately 10% of our total product revenue we been.
From geography, or Savannah plant is also an aluminum plant. So we have been implementing strategies to increase loads in the survey and aluminum facility to mitigate tariffs.
We are also impacted by tariffs, but to a lesser extent on Chinese imports as approximately 6% of our total raw material spend comes from China.
We have discussed these tariffs and our mitigation strategies further in our 10-Q.
Operating expenses for the second quarter were $15 2, million% to 6% increase from the same quarter last year, excluding the impact of stock based compensation depreciation and amortization and other infrequent costs.
There was an increase in operating expenses quarter on quarter of $1 7 million, which primarily relates to $1 9 million increase in litigation cost as we prepare for the <unk> trial of <unk> 3 million increase in compensation costs, offset by lower commissions and lower travel and entertainment costs.
Net loss after tax for the second quarter of 2025 was $6 6 million compared to net income after tax of <unk> 6 million for the same period of 2024.
Net loss after tax was impacted by a $4 $6 million decrease in gross profit of $2 3 million decrease in foreign exchange gain of <unk> 8 million increase in operating expenses and a <unk> 3 million decrease in interest income. These were partially offset by a decrease of <unk> 5 million and interest expense due to <unk>.
Our outstanding debt and as the <unk> 2 million decrease in income tax expense.
Adjusted EBITDA for the second quarter of 2025 was a $2 million loss.
A decrease of $5 2 million from a $3 2 million adjusted EBITDA during the second quarter of 2024.
The decrease is as a result of the gross margin and operating expense variance explained earlier in the call.
With respect to our balance sheet the quarter finished with $23 1 million in unrestricted cash down from $29 3 million at December 31, 2020 for cash used in operations was $3 9 million, while cash used in investing activities, mainly for capital expenditures was $1 billion.
Cash used in financing activities was <unk> 6 million and primarily consisted of routine repayments of debt and repurchase of debentures and shares through the normal course issuer bid.
Working capital decreased slightly from March 31, as a result of the previously mentioned results liquidity was $31 1 million as of June 32025, including $8 million of availability under our ABL credit facility, we have not drawn on this facility to date.
We have executed various debt and share buyback programs this culture, including a debenture in CIB and to share and CIP to date, we have purchased five 4 million common shares through the shares and CIP and <unk> $7 million convertible debentures through the debentures in CIB the shares.
It expires December 2025, and the debenture and CIP expires August 2025 as.
As explained in our outlook, our third quarter financial results are expected to reflect similar tariff pressures with respect to cost and customer behavior to our second quarter. We expect to have tariff costs generally mitigated by Q4 and hope consumer behaviors will normalize as organizations.
Duct to the tariff environment.
Therefore expect to return to positive adjusted EBITDA in Q4 this year.
Looking forward, our 12 month forward sales pipeline. Excluding leads at July one 2025 was $311 million, an increase of 12% compared to $278 million at January one 2025, and our leads for the same period increased 35%.
As we invest in drilling revenue.
This is the first time in over two years that our 12 month forward sales pipeline has crossed $300 million and we are pleased that our revenue growth strategies are working.
Our focus remains on seen through the short term headwinds related to the macroeconomic environment and to continue to work on growing <unk> revenue and transforming our business.
We believe <unk> financially well positioned to weather this period of uncertainty.
This concludes the earnings and financial position report I will now turn it back to Benjamin to discuss business update.
Thank you for your dirt has worked within our proven partner based model since the company's inception, and this continues to be highly productive and expansive into other verticals, we have long standing trusted and valued relationships with multiple partners and look forward to continuing to provide <unk> solutions together, but we are also not achieved organic.
Growth in our current model for quite some time the industry has been evolving and dirt needs to evolve with it to compete with traditional construction and capture a greater share of the market until recently this wasn't possible as part of our ongoing business transformation, we have taken extensive steps to build the necessary structure, including the continued development.
Of our integrated solutions team.
This go to market approach benefits, our entire ecosystem. It makes it easier to do business with dirt through multiple avenues, including assisting with partner capacity pursuing new and less familiar market segments or addressing opportunities in geographic areas, where we lack adequate coverage.
Our approach with integrated solutions is simple when more jobs and provide strategic support for every opportunity whether it's a traditional bid or a project with new or unique challenges. Our goal is to make <unk> system. The clear choice every time.
This team has scaled up its design estimating and installation capabilities to advance our goal of winning more projects and capturing more opportunities.
Through this collaboration we are already seeing strong results. For example, we recently supported a partner on a significant project, where they lacked the team resources to scale and execute for a fortune 200 clients in the semiconductor space on their own.
<unk> restructured the deal and brought in our integrated solutions team to support the partner, resulting in a successful first install a follow up $11 million award and another $4 million opportunity upcoming.
This is a great example of an opportunity that our partner and by extension dirt would not have pursued without the support of this team and.
An example of a win in geographic areas, where we lack adequate coverages with swinnerton, a large national construction company with more than 20 offices across the United States Swinnerton selected for a confidential office project out of there Northern California Self performed case work division after visiting <unk> Calgary experienced.
To assess our modular case, where capabilities we were ultimately chosen for delivering a solution and has the lead time of competitors all within budget and without the need for expedited fees or overtime and.
And our partner network, our largest partner in Canada, COI expanded into Ontario, increasing regional opportunities to further support our business in Canada. We also added two business development reps in Toronto and Vancouver innovating.
Our products and how we offer them is also key to meeting industry demands and fueling growth in June we hosted our annual connects showcase at the dirt experience center in Chicago, where we highlight our latest innovations. This year, we unveiled our new one hour fire rated walls, which will allow us to capture comprehensive scope in health care.
In life Sciences, and expanded previously unavailable market sectors, such as hospitality and multifamily housing.
We are also expanding our offering of pod based solutions in the office market demand for flexible collaboration spaces continues to rise with the changing dynamics of workplace designs. We are preparing to introduce freestanding office pods with louvered ceilings to meet the need for more breakout spaces, we will offer three standard sizes.
As a small phone booth, a two person office and a four person office and while the full dirt system remains our primary focus and the solution. We feel adds the most value to our customers. We have made it easier to order specific products, including doors in case work does not only provides another channel for growth, but allows clients to experience dirt.
And consider expanding scope to include a more full solution.
<unk> technology is not only our key differentiator, but also another avenue for diversified revenue and a driver of increased efficiency. While we have selectively license. The software we have not made a full commercial push until recently over the past several months, we have established a commercial strategy around ice, including our ideal customer profile.
Detailed customer journey and repeatable sales process.
Through early discussions we are seeing strong interest across multiple verticals validating market demand. We have built an initial pipeline and anticipate contracts as early as Q3 with further traction in Q4.
We're seeing positive indicators that our focus on transformation and growth is working for the first time in two years. Our 12 month pipeline has exceeded $300 million are integrated solutions pipeline has increased by 20% from January one 2025 to the end of the second quarter we.
We continue to focus on efficiency and operations and safety is a top priority. We achieved an on time and full delivery performance of 99% in Q2 across the business from our factory floors to our front end operations, we're becoming more efficient and effective that means implementing leaner processes, reducing manual touch.
<unk> and freeing up our teams to focus where it matters most innovation execution and growth are.
Dedicated team members are embracing transformation living our mission vision and values and helping to drive our business forward.
Our safety record remains strong with an average total recordable incident rate in Q2 of $1 five eight which is 62% lower than the industry average.
<unk> was recently selected as an excellence award for the Canada's safest employers awards. We are one of only 11 companies across the country in the running for this prestigious recognition, which is a reflection of the dedication leadership and care shown by every member of our team on a daily basis.
In closing we are navigating a challenging time with full confidence in the strategic roadmap to a positive future. We have the right team the right partners and the right solutions to achieve our goals. Thank you 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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