Q3 2025 DIRTT Environmental Solutions Ltd Earnings Call

November 6, 2025

Speaker #2: Thank you for standing by . This is the conference operator . Welcome to the Dirt Environmental Solutions . Third quarter 2020 financial results conference call .

Operator: Thank you for standing by. This is the conference operator. Welcome to the DIRTT Environmental Solutions Q3 2025 Financial Results Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. Following the presentation, we will conduct a question-and-answer session for covering analysts only. Instructions will be provided on how to queue questions. I would now like to turn the conference over to Kristin Bradfield, Senior Vice President of Marketing and Communications. Please go ahead.

Speaker #2: As a reminder , all participants are in listen only mode . And the conference is being recorded . Following the presentation , we will conduct a question and answer session for covering analysts only .

Speaker #2: Instructions will be provided on how to queue questions . I would like to turn the conference over to Kristen Bradfield , Senior vice president of marketing and Communications .

Speaker #2: Please go ahead .

Speaker #3: Thank you . Operator , and good morning , everyone . Welcome to today's call to discuss third quarter 2020 results . Joining me on the call today will be Benjamin Urban , CEO and Farrakhan , CFO .

Kristin Bradfield: Thank you, operator, and good morning, everyone. Welcome to today's call to discuss DIRTT's Q3 2025 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 US securities laws. These statements are based on the company's current intent, expectations, and projections. They are not guarantees of future performance. In addition, this call will reference non-GAAP results excluding special items. Please reference our Form 10-Q as filed on 5 November 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-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.

Speaker #3: 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 .

Speaker #3: They are not guarantees of future performance . In addition , this call will reference non-GAAP results excluding special items . Please reference our form 10-q as filed on November 5th , 2025 with the Securities and Exchange Commission or SEC .

Speaker #3: 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 .

Speaker #3: I will now turn the call over to Benjamin .

Kristin Bradfield: I will now turn the call over to Benjamin.

Speaker #4: Thank you , Kristin , and good morning , everyone . As referenced in our outlook , Q3 marked a shift back to normal business with improving margins and a return to positive adjusted EBITDA .

Benjamin Urban: Thank you, Kristin. Good morning, everyone. As referenced in our outlook, Q3 marked a shift back to normal business with improving margins and a return to positive Adjusted EBITDA. Our growth strategy is showing strong results, which I will highlight later in the call. I will now turn it over to Faria to discuss the financials.

Speaker #4: Our growth strategy is showing strong results , which I will highlight later in the call . I will now turn it over to Faria to discuss the financials .

Speaker #5: Thank you , Benjamin , and good morning all . Please note that we have issued a press release discussing our third quarter 2020 results , and have also provided additional analysis in a supplemental presentation .

Fareeha Khan: Thank you, Benjamin, and good morning all. Please note that we have issued a press release discussing our Q3 2025 results and have also provided additional analysis in a supplemental presentation. Both documents are available on our website. Revenues for Q3 were $37.7 million, a decrease of 13% compared to the same period in 2024. We entered the Q3 2025 with 12-month forward pipeline 18% higher as compared to 1 July 2024, but experienced higher than normal order delays due to job sites not being ready. When such order delays or pushouts occur, order dates typically move out 1 to 12 months.

Speaker #5: Both documents are available on our website . Revenues for the third quarter were 37.7 million , a decrease of 13% compared to the same period in 2020 .

Speaker #5: Four . We entered the third quarter of 2025 with 12 month forward pipeline , 18% higher as compared to July 1st , 2024 .

Speaker #5: But experienced higher than normal order delays due to job sites not being ready when such order delays or push outs occur . Order dates typically move out 1 to 12 months .

Speaker #5: Gross profit margin decreased from 38.8% of revenue in the third quarter of 2024 , to 30.4% of revenue in the third quarter of 2025 , but sequentially , compared to Q2 2025 , grew from 27.8% to 30.4% .

Fareeha Khan: Gross profit margin decreased from 38.8% of revenue in Q3 2024 to 30.4% of revenue in Q3 2025. Sequentially, compared to Q2 2025, grew from 27.8% to 30.4% despite slightly lower revenue levels. This sequential growth is due to ongoing realization of the 5% price increase announced in March 2025 and the 3.5% surcharge announced in June 2025 to negate the impact of tariffs. Tariff costs this quarter were $1.9 million. There has been no change on tariff rates and materials impacted by tariffs this quarter. Operating expenses for Q3, excluding reorganization costs, stock-based compensation, and impairment charges, were $11.8 million, a 17% decrease from the same quarter last year of $14.2 million.

Speaker #5: Despite slightly lower revenue levels . This sequential growth is due to ongoing realization of the 5% price increase announced in March 2025 , and the 3.5% surcharge announced in June 2025 .

Speaker #5: To negate the impact of tariffs . Tariff costs this quarter were 1.9 million . There has been no change on tariff rates and materials impacted by tariffs this quarter .

Speaker #5: Operating expenses for the third quarter , excluding reorganization costs , stock based compensation and impairment charges , were 11.8 million , a 17% decrease from the same quarter last year of 14.2 million .

Speaker #5: The decrease , primarily relates to a 1.1 million decrease in professional services , and a 0.8 million decrease in compensation costs . I will now comment on our reorganization costs .

Fareeha Khan: The decrease primarily relates to a $1.1 million decrease in professional services and a $0.8 million decrease in compensation costs. I will now comment on our reorganization costs. Earlier this year, we set up a transformation office to accelerate DIRTT's strategic transformation by positioning construction services for new market access and continued share gains, streamlining operations, and implementing margin-oriented best practices. We hope to realize cost efficiencies and also introduce future operating leverage in the business as top line scales over time. The reorganization costs to date primarily comprise of termination costs and one-time consultancy costs. Net loss after tax for Q3 2025 was $3.5 million, compared to net income after tax of $7.1 million for the same period of 2024.

Speaker #5: Earlier this year , we set up a transformation office to accelerate dirt strategic transformation by positioning construction services for new market access and continued share gains , streamlining operations , and implementing margin oriented best practices .

Speaker #5: We hope to realize cost efficiencies and also introduce future operating leverage in the business as top line scales over time . The reorganization costs to date primarily comprised of termination costs and one time consultancy costs .

Speaker #5: Net loss after tax for the third quarter of 2025 was 3.5 million , compared to net income after tax of 7.1 million for the same period of 2020 .

Speaker #5: For net loss after tax was impacted by a 5.3 million decrease in gross profit , a 2 million increase in reorganization expenses , a 7.5 million decrease in gain on extinguishment of convertible debentures , offset by a 2.5 million decrease in other operating expenses .

Fareeha Khan: Net loss after tax was impacted by a $5.3 million decrease in gross profit, a $2 million increase in reorganization expenses, a $7.5 million decrease in gain on extinguishment of convertible debentures, offset by a $2.5 million decrease in other operating expenses, a $1.1 million decrease in interest expense, and a $1 million increase in foreign exchange gain. Adjusted EBITDA for Q3 2025 was $1.2 million, a decrease of $2.9 million from $4.1 million during Q3 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 $26.1 million in unrestricted cash, an increase of $3 million from 30 June 2025.

Speaker #5: A 1.1 million decrease in interest expense , and a 1 million increase in foreign exchange gain . Adjusted EBITDA for the third quarter of 2025 was 1.2 million , a decrease of 2.9 million from 4.1 million during the third quarter of 2020 .

Speaker #5: For . 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 26.1 million in unrestricted cash , an increase of 3 million from June 30th , 2025 .

Speaker #5: Cash provided by operations was 4.4 million , while cash used in investing activities , mainly capital expenditure , was 0.8 million . Cash used in financing activities was 0.4 million and primarily consisted of routine repayments of debt and repurchases of debentures and shares through the normal course .

Fareeha Khan: Cash provided by operations was $4.4 million, while cash used in investing activities, mainly capital expenditure, was $0.8 million. Cash used in financing activities was $0.4 million and primarily consisted of routine repayments of debt and repurchase of debentures and shares through the normal course issuer bids. Working capital decreased slightly from 30 June as a result of the previously mentioned results. Liquidity was $32.3 million as of 30 September 2025, including $6.2 million of availability under our ABL credit facility with RBC. We have not drawn on this facility to date. This quarter, we had minimal activity in our debentures NCIB and shares NCIB program. We renewed our original debenture NCIB program for an additional year.

Speaker #5: Issuer bids . Working capital decreased slightly from June 30th . As a result of the previously mentioned results . Liquidity was 32.3 million as of September 30th , 2025 , including 6.2 million of availability under our ABL credit facility .

Speaker #5: With RBC , we have not drawn on this facility to date . This quarter , we had minimal activity in our debentures , NCIB and shares , NCIB program .

Speaker #5: We renewed our original debenture NCIB program for an additional year . To date , we have repurchased 5.6 million common shares through the shares .

Fareeha Khan: To date, we have repurchased 5.6 million common shares through the shares NCIB and 0.8 million convertible debentures through the debentures NCIB and renewed NCIB program in aggregate. Looking forward to Q4 of the year, we are pleased to see our pipeline converting into revenue. Our 12-month forward sales pipeline, excluding leads at 1 October 2025, was $333 million, an increase of 20% compared to $278 million at 1 January 2025. For Q4 2025, we are expecting revenue between $48 and $52 million and Adjusted EBITDA between $5 to $7 million. We are also pleased to announce on 28 October 2025, we entered into a non-binding term sheet with the Business Development Bank of Canada, or BDC, for proposed financing of up to CAD 15 million.

Speaker #5: NCIB and 0.8 million convertible debentures through the debentures NCIB and renewed NCIB program . In aggregate . Looking forward to the final quarter of the year .

Speaker #5: We are pleased to see our pipeline converting into revenue . Our 12 month forward sales pipeline , excluding leads at October 1st , 2025 , was 333 million , an increase of 20% compared to 278 million at January 1st , 2025 .

Speaker #5: For the fourth quarter of 2025 , we are expecting revenue between 48 and 52 million and adjusted EBITDA between 5 to 7 million .

Speaker #5: We are also pleased to announce on October 28th , 2025 , we entered into a non-binding term sheet with the business Development Bank of Canada , or BDC , for proposed financing of up to Canadian dollars 15 million .

Speaker #5: We expect to use the proceeds to partially settle the January debentures . The remaining January debentures of Canadian dollars 1.6 million would be settled through our cash balance .

Fareeha Khan: We expect to use the proceeds to partially settle the January Debentures. The remaining January Debentures of CAD 1.6 million would be settled through our cash balance. Advancement of funds remains subject to, among other things, completion of due diligence by BDC. On 4 November 2025, we also extended our RBC ABL facility by an additional year. This concludes the earnings and financial position report. I will now turn it back to Benjamin to discuss DIRTT's business updates.

Speaker #5: Advancement of funds remains subject to , among other things , completion of due diligence by BDC . In addition , on November 4th , 2025 , we also extended our RBC ABL facility by an additional year .

Speaker #5: This concludes the earnings and financial Position report . I will now turn it back to Benjamin to discuss Dirt's business updates .

Speaker #4: Thank you . Freya . Well , 2025 has presented a number of macroeconomic challenges . We have faced these challenges head on and continued to advance our strategic growth plan .

Benjamin Urban: Thank you, Fareeha. While 2025 has presented a number of macroeconomic challenges, we have faced these challenges head-on and continued to advance our strategic growth plan. Recent contract wins and pipeline growth demonstrate the strategy is working. We recently shared news of a project with Google at the Caribbean campus in Sunnyvale, California. This marked more than 250 projects with Google during a 10-year relationship. Our repeat customer business is incredibly high. In our current 12-month pipeline, 49% are customers we have previously worked with, demonstrating confidence, satisfaction, and trust in what DIRTT delivers. We are also seeing success with new clients. During the past quarter, we secured over $3 million with Exxon for a project expected to begin installation next quarter, adding to our extensive list of Fortune 500 clients. DIRTT has also been evolving how we pursue and deliver projects.

Speaker #4: Recent contract wins and pipeline growth demonstrate the strategy is working . We recently shared news of a project with Google at the Caribbean campus in Sunnyvale , California .

Speaker #4: This marked more than 250 projects with Google during a ten year relationship . Our repeat customer business is incredibly high , and our current 12 month pipeline , 49% of our customers we have previously worked with demonstrating confidence , satisfaction and trust in what Dirt delivers .

Speaker #4: We are also seeing success with new clients during the past quarter , we secured over $3 million with Exxon for a project expected to begin installation next quarter .

Speaker #4: Adding to our extensive list of fortune 500 clients , dirt has also been evolving how we pursue and deliver projects . Last year , we established a team called Integrated Solutions to explore expanded revenue opportunities .

Benjamin Urban: Last year, we established a team called Integrated Solutions to explore expanded revenue opportunities. During Q3, we formalized this team as DIRTT Construction Services to better reflect their full scope and capabilities. They provide pre-construction, design build assistance, targeted estimating, self-perform installation, and more, elevating DIRTT from manufacturing to a multi-trade prefabricated interior construction company. By expanding our service offering, we are able to take a more proactive approach in how we pursue projects and maximize the scope we can capture per project. It also gives us a significant competitive advantage over other manufacturers who rely exclusively on third parties to execute their products. DIRTT Construction Services is designed to complement our existing partner distribution network. We can provide more technical capabilities to help select partners bid on and win larger projects or help fill gaps a partner may have in their team. We are already seeing success.

Speaker #4: During Q3 , we formalized this team as dirt Construction Services to better reflect their full scope and capabilities . They provide pre-construction design , build assistance , targeted estimating , self-performance dilation , and more .

Speaker #4: Elevating dirt from manufacturing to a multi trade prefabricated interior construction company . By expanding our service offering , we are able to take a more proactive approach in how we pursue projects and maximize the scope we can capture per project .

Speaker #4: It also gives us a significant competitive advantage over other manufacturers who rely exclusively on third parties to execute their products . Dirt construction Services is designed to complement our existing partner distribution network .

Speaker #4: We can provide more technical capabilities to help select partners bid on and win larger projects , or help fill gaps . A partner may have in their team , and we are already seeing success .

Speaker #4: Some of our largest recent projects were secured using this collaborative approach , including a $13 million project with a large semiconductor company , construction services also enables dirt to pursue projects in markets without partner coverage .

Benjamin Urban: Some of our largest recent projects were secured using this collaborative approach, including a $13 million project with a large semiconductor company. Construction Services also enables DIRTT to pursue projects in markets without partner coverage, in sectors that require specific expertise, or for our existing national account strategy. Large clients with a national footprint executing projects in multiple regions. This expanded commercial capability is a key driver of our growth strategy. After 3 challenging quarters, we are seeing positive momentum from Q4 onward, validating the strategy is working. We ended Q3 with a 12-month forward sales pipeline of $333 million, a 20% increase from the beginning of the year, continuing the strong, steady growth we've seen throughout 2025. This growth is fueled by our continued investment in innovation, marketing, and further developing the Construction Services capabilities to capture more of the total addressable market.

Speaker #4: In sectors that require specific expertise , or for our existing national account strategy . Large clients with a national footprint , executing projects in multiple regions .

Speaker #4: This expanded commercial capability is a key driver of our growth strategy . After three challenging quarters , we are seeing positive momentum from Q4 onward , validating the strategy is working .

Speaker #4: We ended Q3 with a 12 month forward pipeline of $333 million . A 20% increase from the beginning of the year . Continuing the strong , steady growth we've seen throughout 2025 .

Speaker #4: This growth is fueled by our continued investment in innovation , marketing and further developing the construction services capabilities to capture more of the total addressable market .

Speaker #4: Within that 12 month pipeline , $50 million is through the Construction services Division . To further this growth , we have invested in staffing to support execution as Faria discussed earlier and marketing for awareness and increased customer acquisition .

Benjamin Urban: Within that 12-month pipeline, $50 million is through the Construction Services division. To further this growth, we have invested in staffing to support execution, as Faria discussed earlier, and marketing for awareness and increased customer acquisition. Early success indicates the potential is incredibly strong. We continue to focus on growth in our partner network. We are in the process of our annual re-tiering to identify our most engaged partners and those most positioned for growth. This tiering delineates the level of investment, services, and business growth opportunities we provide to the network. Our highest tier, platinum, receives the most, including more collaboration on Construction Services projects and the potential for market expansion. For example, we recently expanded a partner into Kentucky based on outstanding performance and capabilities that directly met our need in the new market.

Speaker #4: Early success indicates the potential is incredibly strong . We continue to focus on growth in our partner network . We are in the process of our annual retiring to identify our most engaged partners and those most positioned for growth .

Speaker #4: This tearing delineates the level of investment services and business growth opportunities . We provide to the network . Our highest tier , platinum , receives the most , including more collaboration on construction services , projects and the potential for market expansion .

Speaker #4: For example, we recently expanded a partner into Kentucky based on outstanding performance and capabilities that directly met our needs in the new market in key markets.

Benjamin Urban: In key markets with existing strong distribution partners, we have invested in additional business development resources. In Q3, we added new sales representatives in New York, where there is significant growth across all verticals. Toronto, where commercial is strong, and government and national accounts opportunities are expanding. Vancouver to support growth in commercial, education, and multifamily. Denver to drive growth across all verticals. Each of these markets present opportunities such as significant presence of large self-performing general contractors and demand for key DIRTT value propositions like lower labor cost, compressed construction schedules, and sustainability. We also continue to bring new partners on board and diversify the types of partners we work with.

Speaker #4: With existing strong distribution partners , we have invested in additional business development resources in Q3 , we added new sales representatives in New York , where there is significant growth across all verticals .

Speaker #4: Toronto , where commercial is strong and government and national accounts opportunities are expanding . Vancouver to support growth in commercial education and multifamily , and Denver to drive growth across all verticals .

Speaker #4: Each of these markets present opportunities such as significant presence of large self-performing , general contractors and demand for key dirt value propositions like lower labor costs , compressed construction schedules , and sustainability .

Speaker #4: We also continue to bring new partners on board and diversify the types of partners we work with . During Q3 , two of our top five performing partners were new to dirt .

Benjamin Urban: During Q3, two of our top five performing partners were new to DIRTT in the past 24 months, and three of the top five are outside the traditional furniture, fixtures, and equipment profile that we have historically worked with. All of this contributes to the continued transformation of how we do business and capture expanded scope. Our business transformation goes beyond our commercial strategy. We have continued to advance this process through talent initiatives and operational efficiency. A key driver of our success has been the quality and reliability of the products we manufacture and deliver to the market, but we need to continually innovate and identify the pain points and unmet needs of our customers to deliver solutions that solve these challenges. In Q3, we brought a new Vice President of Product Development & Strategy on board to lead our product innovation strategy for growth.

Speaker #4: In the past 24 months , and three of the top five are outside the traditional furniture fixtures and equipment profile that we have historically worked with .

Speaker #4: All of this contributes to the continued transformation of how we do business and capture expanded scope . Our business transformation goes beyond our commercial strategy .

Speaker #4: We have continued to advance this process through talent initiatives and operational efficiency . A key driver of our success has been the quality and reliability of the products we manufacture and deliver to the market , but we need to continually innovate and identify the pain points and unmet needs of our customers to deliver solutions that solve these challenges .

Speaker #4: In Q3 , we brought a new Vice President of Product Development and Strategy on board to lead our product innovation strategy for growth .

Speaker #4: Michael Mullen brings more than 25 years of strategic product design and development experience with expertise in manufacturing and innovating to meet customer needs .

Benjamin Urban: Michael Mullen brings more than 25 years of strategic product design and development experience, with expertise in manufacturing and innovating to meet customer needs. We are excited to have Michael on the team and look forward to his contributions. As always, safety is a top priority for DIRTT. Our total recordable incident rate at the end of Q3 was 0.99, which is 75% below our industry standard. I'm also proud to share that DIRTT has been recognized as Canada's safest manufacturing employer in the industrial sector by Canadian Occupational Safety. This award reflects the strength of our safety culture and our commitment to operational excellence. Our safety team works diligently to make this possible, and our manufacturing team members embody DIRTT's dedication to safety every day. Lastly, an update on the Falkbuilt litigation.

Speaker #4: We are excited to have Michael on the team and look forward to his contributions . As always , safety is a top priority for dirt .

Speaker #4: Our total recordable incident rate at the end of Q3 was 0.99 , which is 75% below our industry standard . I'm also proud to share that dirt has been recognized as Canada's safest Manufacturing Employer in the industrial Sector by Canadian Occupational Safety .

Speaker #4: This award reflects the strength of our safety culture and our commitment to operational excellence . Our safety team works diligently to make this possible and our manufacturing team members embodied Dirt's dedication to safety .

Speaker #4: Every day . Lastly , an update on the fork built litigation . The eight week trial covering multiple allegations , is scheduled to begin on February 2nd , 2026 .

Benjamin Urban: The eight-week trial covering multiple allegations is scheduled to begin on 2 February 2026. DIRTT is pursuing damages in both the United States and Canada, which could exceed $50 million. This trial will be underway when we report year-end earnings, and we will provide another update at that time. In closing, I would like to thank our entire DIRTT team for their dedication to continuous improvement and transformation, which requires reimagining how we do business and innovating to be steps ahead of the market and competition. This takes a highly strategic collaborative process, and our team has risen to the challenge. Thank you for joining us today. I will now open the call to questions.

Speaker #4: Dirt is pursuing damages in both the United States and Canada , which could exceed $50 million . This trial will be underway when we report year end earnings , and we will provide another update at that time .

Speaker #4: In closing, I would like to thank our entire DIRTT team for their dedication to continuous improvement and transformation, which requires reimagining how we do business and innovating to be steps ahead of the market and competition.

Speaker #4: This takes a highly strategic , collaborative process , and our team has risen to the challenge . Thank you for joining us today .

Speaker #4: I will now open the call to questions .

Speaker #2: Thank you . Our first question comes from Julio Romero with Sidoti and Company . Your line is open .

Operator: Thank you. Our first question comes from Julio Romero with Sidoti & Company. Your line is open.

Speaker #6: Thanks . Hey good morning Benjamin . Faria . Thanks for taking questions and excited to be joining the call .

Julio Romero: Thanks. Hey, good morning, Benjamin and Faria. Thanks for taking questions. Excited to be joining the call.

Speaker #4: Good morning Julio .

Benjamin Urban: Good morning, Julio.

Speaker #6: Hey , to start , can you maybe walk us through how customer behavior has trended over the course of July , August and September in terms of , you know , decision making and delays and then also , could you share any initial read through with respect to customer behavior in the month of October ?

Julio Romero: Hey, to start, can you maybe walk us through how customer behavior has trended over the course of July, August, and September in terms of, you know, decision-making and delays? Also, could you share any initial read-throughs with respect to customer behavior in the month of October?

Speaker #5: Yeah . So I'll take that question . So in Q2 , we had seen a pause in decision making , but that customer behavior change in Q3 and we felt everyone was getting back to business .

Fareeha Khan: Yeah. Julio, I'll take that question. In Q2, we had seen a pause in decision-making. Well, that customer behavior changed in Q3, and we felt everyone was getting back to business. The push-outs we had in Q3 relate to sites not being ready, the job site not being ready, which in a way is a good sign, right? If everyone was getting back to work. Going into Q4, we see everyone getting back to normal. We see that as a positive development.

Speaker #5: The push outs we had in Q3 related to site sites not being ready , the jobsite not being ready , which in a way is a good sign , right ?

Speaker #5: It's as if everyone was getting back to work. So, going into Q4, we see everyone getting back to normal. We see that as a positive development.

Speaker #6: Got it . Yeah , that makes sense . You know , very exciting to hear the continued momentum within the construction services initiative with 50 million of the pipeline relating to to that initiative .

Julio Romero: Got it. Yeah, that makes sense. You know, very exciting to hear the continued momentum within the DIRTT Construction Services initiative, you know, with $50 million of the pipeline relating to that initiative. You know, can you help us unpack some of the drivers of the momentum you've seen there? Secondly, how big of a role has new product offerings such as the One-Hour fire-rated walls played in that momentum?

Speaker #6: Can you help us unpack some of the drivers of the momentum you've seen there ? And then secondly , how big of a role has new product offerings such as the one hour fire rated walls played in that momentum ?

Speaker #4: Yeah , no , that's a great question , Julio . We are seeing continued expansion in that construction services division . We've also been balancing it as we've scaled right , such that we were able to service that work that's been growing in it currently .

Benjamin Urban: Yeah. No, that's a great question, Julio. We are seeing continued expansion in that DIRTT Construction Services division. We've also been balancing it as we've scaled, right? Such that we were able to service that work that's been growing in it. Currently, of that $50 million that we're showing in pipeline for 2026, there's actually not that much in it that is fire-rated partitions. There's a bit, but we see that as a larger opportunity as we get into the end of 2026 and into 2027.

Speaker #4: Of that 50 million that we're showing in pipeline for 2026 , there's actually not that much in it that is fire rated partitions .

Speaker #4: There's a bit , but we see that as a larger opportunity as we get into the end of 26 and into 27 .

Speaker #6: Got it . Very helpful there . And then . Last one , if I may , is to the extent that you can , how would you have us think about , you know , how 2026 could look like , you know , even at a high level and , and also with the potential contribution could be from construction services for 26 .

Julio Romero: Got it. Very helpful there. Last one, if I may. You know, to the extent that you can, you know, how would you have us think about, you know, how 2026 could look like, you know, even at a high level and also what the potential contribution could be from construction services for 2026?

Speaker #5: So who do the way we would look at it , I think the pipeline is a good indicator of what's happening . So if you look at the year on year pipeline increase , it's 18 million .

Fareeha Khan: Julio, the way we would look at it, I think the pipeline is a good indicator of what's happening. If you look at the year-on-year pipeline increase, it's $80 million. It's quite a significant increase. I think that'll be a good indication of what's to come. I think the collaboration between construction services and our construction partners is gonna open more opportunities for us, and we hope to see that converted to pipeline and to revenue going forward.

Speaker #5: It's quite a significant increase . I think that would be a good indication of what's to come . I think the collaboration between construction services and our construction partners is going to open more opportunities for us .

Speaker #5: And and we hope to see that convert into pipeline and into revenue going forward .

Speaker #6: Excellent . Well , I'll pass it on and best of luck in the fourth quarter .

Julio Romero: Excellent. Well, I'll pass it on and best of luck in the Q4.

Speaker #5: Thanks .

Fareeha Khan: Thanks, Julio.

Speaker #7: Thanks , Julia .

Benjamin Urban: Thanks, Julio.

Speaker #2: Thank you . Our next question comes from Nicholas Boychuk with Cormark Securities . Your line is open .

Operator: Thank you. Our next question comes from Nicholas Boychuk with Cormark Securities. Your line is open.

Speaker #8: Thanks . Good morning guys . I'm going to break my questions up here into two different time frames . I just want to make sure I understood your comments here in the first part related to Q4 25 , the adjusted EBITDA outlook , is there anything unique that's occurring within that quarter that would say point to that pent up demand , like how much ?

Nicholas Boychuk: Thanks. Good morning, guys. I'm gonna break my questions up here into two different time frames. I just wanna make sure I understood, Fre, your comments here in the first part. Related to Q4 2025, the Adjusted EBITDA outlook. Is there anything unique that's occurring within that quarter that would, say, point to that pent-up demand? Like how much, I guess, of that $5 to 7 million EBITDA boost is related to the pent-up demand, large projects that are recognized in the quarter that maybe won't repeat? The real question I'm asking is, based on the operating environment that you see right now, is that $5 to 7 million kind of what you should expect going forward, or are there one-off items within that quarter?

Speaker #8: I guess , of that 5 to $7 million EBITDA boost is related to pent up demand , large projects that are recognized in the quarter that maybe won't repeat the real question I'm asking is based on the operating environment that you see right now , is that 5 to 7 million kind of what you should expect going forward , or are there one off items within that quarter ?

Speaker #5: So , Nick , the way I look at it is so yes , we had higher push rates in Q2 and Q3 , but if you look at Q3 , the year on year revenue decrease was 5 million .

Fareeha Khan: Nick, the way I look at it is. Yes, we had higher push rates in Q2 and Q3, but if you look at Q3, the year-on-year revenue decrease was $5 million. Whereas if you look at our annual pipeline movement, the increase is $80 million, right? There will always be some push outs that go into the next quarter, but the bulk of the Q4 number is from growth. Q4 is historically always our highest quarter. I hope that explains the revenue part of it. From an Adjusted EBITDA perspective, there's a fixed cost leverage as well. You know, whenever we have higher revenue, you'll see our AGP goes up. It's definitely a benefit there because of the efficiencies of the factory.

Speaker #5: Whereas if you look at our annual pipeline movement , the increase is 80 million , right ? So there will always be some push ups that go into the next quarter .

Speaker #5: But the bulk of the Q4 number is from growth . Q4 is historically always our highest quarter . So so I hope that explains the revenue part of it from an adjusted EBITDA perspective .

Speaker #5: There's a fixed cost leverage as well . You know , whenever we have higher revenue , you'll see our AGP goes up . So it's definitely a benefit there because of the efficiencies of the factory through the transformation office , we are really focusing on the Senate side as well to find back office efficiencies and the key focuses there are , you know , how do we do how how can we be more efficient , faster , better and and be ready for any scale up of revenue growth .

Fareeha Khan: Through the Transformation Office, we are really focusing on the SG&A side as well to find back office efficiencies. The key focuses there are, you know, how can we be more efficient, faster, better, and be ready for any scale-up of revenue growth. The Adjusted EBITDA, I would not say is a surprising figure based on that revenue level. At that revenue level, we should be able to sustain that Adjusted EBITDA level.

Speaker #5: So the adjusted EBITDA , I would not say is a surprising figure based on that revenue level . And that revenue level , we should be able to sustain that adjusted EBITDA level .

Nicholas Boychuk: Understood. You brought up two themes in my next follow-up questions. On the operating leverage specifically, you mentioned again in the press release in the MD&A that the capacity of both your facilities is about $400 million and that you will get that operating leverage. Once you start to scale revenue, how much of that leverage can you extract? Where do you ultimately hope gross margins land in 2026 and 2027?

Speaker #5: .

Speaker #8: And you brought up two themes in my next follow up questions on the operating leverage , specifically , you mentioned again in the press release and the MDA that the capacity of both your facilities is about $400 million and that you will get that operating leverage once you start to scale revenue .

Speaker #8: How much of that leverage can you extract ? Where do you ultimately hope gross margins land in 26 and 27 ?

Speaker #5: So there are a couple of things there . And , you know , there's so many variables in in gross profit . But I'll try to answer that the best I can .

Fareeha Khan: There are a couple of things there, you know, there's so many variables in gross profit. I'll try to answer that the best I can. We have $400 million of manufacturing capacity. Of that, probably about 15% is of our COGS is straight up fixed costs. When you have higher revenue, there are more opportunities for us to do things more efficiently, run the plants at an efficient level. We benefit from that. Our ideal gross profit, I mean, we can always have ideals. If you go back to last year, you know, our AGP was 38%, we know we can do it. Things that will affect AGP would be, you know, what's happening with the price of your raw materials.

Speaker #5: So we have 400 million of manufacturing capacity of that probably about 15% is of our Cogs . Is straight up fixed costs . So when you have higher revenue , they are more opportunities for us to do things more efficiently , run the plants at an efficient level .

Speaker #5: So so we benefit from that . Our ideal gross profit , I mean , we can always have ideals , but if you go back to last year , you know , our AGP was 38% .

Speaker #5: So we know we can do it now . Things that will affect AGP would be , you know , what's happening with the price of raw materials .

Speaker #5: But again, even for that, we're fairly proactive. We watch the market; our supply chain team is actively looking at prices, looking for ways to be more efficient so that we can always mitigate the impact of rising raw material prices this year.

Fareeha Khan: Again, even for that, we're pretty proactive. We watch the market. Our supply chain team is actively looking at prices, looking for ways to be more efficient so we can always mitigate the impact of rising raw material prices. This year, you know, the tariffs did impact our Adjusted Gross Profit. Again, going into Q4 and next year, based on the prevailing tariffs, we feel we have put in place enough actions to mitigate that effect. I would use last year's AGP as a reference point of, you know, what we can be. Of course, we're gonna continue to look for ways to improve that Adjusted Gross Profit.

Speaker #5: You know , the tariffs did impact our adjusted gross profit . But again , going into Q4 and next year , based on the prevailing tariffs , we feel we we have put in place enough actions to mitigate that effect .

Speaker #5: So I would use last year's AGP as a reference point of , you know what we can be . And of course we're going to continue to look for ways to improve that adjusted gross profit .

Speaker #8: Sure . Thanks . And then you mentioned as well the $50 million contribution into the pipeline from the customer services team , how should we be thinking about that from a quality standpoint ?

Nicholas Boychuk: Sure, thanks. Then you mentioned as well the $50 million contribution into the pipeline from the customer services team. How should we be thinking about that from a quality standpoint? Like if that's more internally funded or found opportunities, is there a change in quality or likelihood of conversion? I guess of the $333 million total pipe, is it likely that the next 12 months might see a little bit higher historical conversion than the typical 45% to 50%?

Speaker #8: Like if that if that's more internally funded or found opportunities , is there a change in quality or likelihood of conversion ? So I guess of the 333 million total pipe , is it likely that the next 12 months might see a little bit higher historical conversion than the typical 45 to 50% ?

Speaker #7: Yeah , I'll take that . It's a it's an astute observation . There .

Benjamin Urban: Yeah. I'll take that. It's an astute observation there. Typically, when we are in control of that pipeline and the construction services projects, we do see a greater conversion rate on those opportunities because we are closer to that. Of that $50 million and what that represents in the pipeline moving forward, and just a reminder, right? That's only our 12-month pipeline. We aren't disclosing the full pipeline. Many of the projects that we're pursuing now could also be into 2027. The full pipeline is larger than that altogether. Even within that construction services, at a point in time next year, construction services will represent more than 10% of our overall revenue. We will disclose that independently.

Speaker #4: Typically when we .

Speaker #7: Are in .

Speaker #4: Control of that pipeline and the construction services projects , we do see a greater conversion rate on those opportunities because we are closer to to that of that 50 million .

Speaker #4: And what that represents in the pipeline moving forward . And just a reminder , right . That's only our 12 month pipeline . We aren't disclosing the full pipeline .

Speaker #4: And many of the projects that we're pursuing now could also be into 2027 . So the full pipeline is larger than that altogether .

Speaker #4: But even within that , construction services , at a point in time next year , construction services will represent more than 10% of our overall revenue .

Speaker #4: So we will disclose that independently . And then you will also be able to see the conversion rates associated with construction services against the pipeline .

Benjamin Urban: You will also be able to see the conversion rates associated with construction services against the pipeline to give you a better gauge on forward-looking revenue.

Speaker #4: To give you a better gauge on forward looking revenue .

Speaker #8: Jeff . Thanks , Benjamin . And then the last one for me on the transformation office and the termination benefits this quarter , that was obviously a little bit of an uptick in in expense .

Nicholas Boychuk: Sure. Thanks, Benjamin. The last one for me on the transformation office and the termination benefits this quarter, there was obviously a little bit of an uptick in an expense. Can you maybe walk through a little bit what it was exactly, you guys have done and what you're hoping that this transformation office and strategy does moving forward?

Speaker #8: Can you maybe walk through a little bit what it was exactly ? You guys have done and what you're hoping that this transformation office and strategy does moving forward ?

Speaker #4: Yeah , for sure . There has been a bit of an uptick in expense associated with the transformation office , as we've brought in additional resources to accelerate that process .

Benjamin Urban: Yeah, for sure. There has been a bit of an uptick in expense associated with the transformation office as we've brought in additional resources to accelerate that process. Really at its core, that transformation partnered with our corporate strategy, is really coming at it at two ends, right? One is how do we take down the additional capacity that we have through growth on the top line on the commercial side, all the while driving efficiency throughout the business such that we can get that expansion in AGP and EBITDA, right? I think you'll start to see some returns. We are already seeing it internally, efficiencies that are driving out of that transformation. We have been pursuing this for coming up on a year now.

Speaker #4: And really , at its core , that transformation partnered with our corporate strategy is really coming at it at two ends . One is how do we take down the additional capacity that we have through growth on the top line , on the commercial side , all the while driving efficiency throughout the business such that we can get that expansion in AGP and EBITDA .

Speaker #4: Right . So the I think you'll start to see some returns . We are already seeing it internally . Efficiencies that are driving out of that transformation , and we have been pursuing this for coming up on a year now .

Speaker #4: So a lot of the hard work that our team has done to identify where the opportunities reside has now transitioned into full execution of that transformation , to drive that expansion .

Benjamin Urban: A lot of the hard work that our team has done to identify where the opportunities reside has now transitioned into full execution of that transformation to drive that expansion.

Speaker #8: Okay . Understood . Thanks so much for the color , guys .

Nicholas Boychuk: Okay. Understood. Thanks much for the color, guys.

Speaker #4: Thank you .

Benjamin Urban: Thank you.

Speaker #2: Thank you . This concludes our question and answer session . Thank you for your participation . You may now disconnect . Everyone . Have a great day .

Operator: Thank you. This concludes our question and answer session. Thank you for your participation. You may now disconnect. Everyone, have a great day.

Q3 2025 DIRTT Environmental Solutions Ltd Earnings Call

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