Q2 2026 DIRTT Environmental Solutions Ltd Earnings Call
Operator: Good day everyone, and thank you for standing by. Welcome to DIRTT Q2 2026 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the presentation, there will be a question and answer session. To ask a question, you will need to press star one one on your telephone. You will then hear a message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. Now it's my pleasure to hand the conference to the Chief Transformation Officer, Adrian Zarate. Please proceed.
Speaker #1: After the presentation, there will be a question-and-answer session. To ask a question, you will need to press star 11 on your telephone. You will then hear a message advising your hand is raised.
Speaker #1: To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. Now it's my pleasure to hand the conference to the Chief Transformation Officer Adrian Serrate.
Speaker #1: Please proceed.
Speaker #2: Thank you, Operator, and good morning, everyone. Welcome to today's call to discuss DIRTT's second quarter 2026 financial results. Joining me on the call today are Benjamin Urban, our Chief Executive Officer, and Freeha Khan, our Chief Financial Officer.
Adrian Zarate: Thank you operator, and good morning everyone. Welcome to today's call to discuss DIRTT's Q2 2026 financial results. Joining me on the call today are Benjamin Urban, our Chief Executive Officer, and Fareeha Khan, our Chief Financial Officer. Today's call will include forward-looking statements within the meaning of applicable Canadian and United States securities laws. These statements are based on our current expectations and are not guarantees of future performance. Actual results may differ materially from those expressed or implied by these statements. We will also reference non-GAAP measures during this call, including adjusted EBITDA and adjusted gross profit. Reconciliations of these measures to the most directly comparable GAAP measures can be found in our quarterly filing and supplemental materials. With that, I'll turn the call over to Fareeha to review our financial results.
Speaker #2: Today's call will include forward-looking statements within the meeting of applicable Canadian and United States securities laws. These statements are based on our current expectations and are not guarantees of future performance.
Speaker #2: Actual results may differ materially from those expressed or implied by these statements. We will also reference non-GAAP measures during this call, including adjusted EBITDA and adjusted gross profit, reconciliations of these measures to the most directly comparable GAAP measures can be found in our quarterly filing and supplemental materials.
Speaker #2: With that, I'll turn the call over to Freeha to review our financial results.
Speaker #3: Thank you, Adrian, and good morning, everyone. Revenue for the second quarter of 2026 was $40.3 million, compared to $38.9 million in the prior year period, representing growth of approximately 4% year over year.
Fareeha Khan: Thank you, Adrian, and good morning everyone. Revenue for Q2 2026 was CAD 40.3 million, compared to CAD 38.9 million in the prior year period, representing growth of approximately 4% year-over-year. Product revenue totaled CAD 38.9 million, while service revenue was CAD 1.4 million. Commercial activity remained a significant contributor to product revenue during the quarter, reflecting continued strength in our largest end market. Gross profit for the quarter was CAD 14 million, compared to CAD 10.8 million in Q2 2025. Gross margin expanded to 34.7% compared to 27.8% in the prior year period, reflecting moderated tariff and other input costs, ongoing transformation execution, and improvements in operating efficiency. Adjusted gross profit was CAD 14.9 million compared to CAD 11.8 million in the prior year period, while adjusted gross profit margin improved to 37% compared to 30.4% in Q2 2025.
Speaker #3: Product revenue totaled $38.9 million, while service revenue was $1.4 million. Commercial activity remained a significant contributor to product revenue during the quarter, reflecting continued strength in our largest end market.
Speaker #3: Gross profit for the quarter was $14 million, compared to $10.8 million in the second quarter of 2025. Gross margin expanded to $34.7%, compared to $27.8% in the prior year period, reflecting moderated tariff and other input costs ongoing transformation execution and improvements in operating efficiency.
Speaker #3: Adjusted gross profit was $14.9 million, compared to $11.8 million in the prior year period, while adjusted gross profit margin improved to $37%, compared to $30.4% in the second quarter of 2025.
Speaker #3: Total operating expenses were $12.7 million, down from $15.2 million in the prior year period. The decrease reflects lower spending across sales and marketing, general and administrative, operation support, and technology and development functions, partially offset by increased stock-based compensation and reorganization expenses.
Fareeha Khan: Total operating expenses were CAD 12.7 million, down from CAD 15.2 million in the prior year period. The decrease reflects lower spending across sales and marketing, General and Administrative, operation support, and technology and development functions, partially offset by increased stock-based compensation and reorganization expenses. Excluding stock-based compensation, depreciation, amortization, and reorganization expenses, operating expenses also declined year over year, reflecting actions taken to simplify the organization, improve operating efficiency, and better align our cost structure with the needs of the business. Reorganization expense was approximately CAD 1.1 million during the quarter and reflects continued actions associated with the company's transformation initiatives. Operating income for the quarter was CAD 1.3 million, compared to an operating loss of CAD 4.3 million in Q2 2025. Net income after tax was CAD 1.1 million, compared to a net loss after tax of CAD 6.6 million in the prior year period.
Speaker #3: Excluding stock-based compensation, depreciation amortization, and reorganization expenses, operating expenses also declined year over year, reflecting actions taken to simplify the organization improve operating efficiency, and better align our cost structure, with the needs of the business.
Speaker #3: Reorganization expense was approximately $1.1 million during the quarter, and reflects continued actions associated with the company's transformation initiatives. Operating income for the quarter was $1.3 million, compared to an operating loss of $4.3 million in the second quarter of 2025.
Speaker #3: Net income after tax was $1.1 million, compared to a net loss after tax of $6.6 million in the prior year period. The improvement was driven primarily by higher gross profits, lower operating expenses, reduced foreign exchange headwinds, and continued execution of our operating strategy.
Fareeha Khan: The improvement was driven primarily by higher gross profits, lower operating expenses, reduced foreign exchange headwinds, and continued execution of our operating strategy. Adjusted EBITDA was CAD 4.7 million, or 11.8% of revenue, compared to an adjusted EBITDA loss of CAD 2 million, or -5.2% of revenue in the prior period. Turning to liquidity, net cash provided by operating activities was CAD 0.9 million during the quarter, compared to net cash used in operating activities of CAD 3.9 million in Q2 2025. We ended the quarter with approximately CAD 14.8 million of cash and cash equivalents. For H1 2026, revenue was CAD 82.7 million, compared to CAD 80.2 million in the prior year period. Gross profit was CAD 27 million, or 32.6% of revenue, compared to CAD 25.4 million, or 31.6% of revenue for the prior year period.
Speaker #3: Adjusted EBITDA was $4.7 million, or $11.8% of revenue, compared to an adjusted EBITDA loss of $2 million, or -5.2% of revenue in the prior year period.
Speaker #3: Turning to liquidity, net cash provided by operating activities was $0.9 million during the quarter, compared to net cash used in operating activities of $3.9 million in the second quarter of 2025.
Speaker #3: We ended the quarter with approximately $14.8 million of cash and cash equivalents. For the first six months of 2026, revenue was $82.7 million, compared to $80.2 million in the prior year period.
Speaker #3: Gross profit was $27 million, or $32.6% of revenue, compared to $25.4 million, or $31.6% of revenue, for the prior year period. Adjusted gross profit was $28.9 million, or $34.9% of revenue, compared to $27.3 million, or $34.1% of revenue, in the prior year period.
Fareeha Khan: Adjusted gross profit was CAD 28.9 million, or 34.9% of revenue, compared to CAD 27.3 million, or 34.1% of revenue in the prior year period. Adjusted EBITDA was CAD 6.1 million, or 7.4% of revenue, compared to approximately breakeven adjusted EBITDA in the prior year period. Based on our performance to date and current expectations regarding project timing and revenue conversion, we are updating our 2026 outlook to revenue of CAD 175 million to 185 million and adjusted EBITDA of between CAD 21 million and 25 million. Despite the revised revenue outlook, we remain confident in the underlying health of the business, our ability to continue expanding profitability, and our capacity to create meaningful long-term value for shareholders. With that, I'll turn the call over to Benjamin.
Speaker #3: Adjusted EBITDA was $6.1 million, or $7.4% of revenue, compared to approximately break-even adjusted EBITDA in the prior year period. Based on our performance to date and current expectations regarding project timing and revenue conversion, we are updating our 2026 outlook to revenue of $175 million, $285 million, and adjusted EBITDA of between $21 million and $25 million.
Speaker #3: Despite the revised revenue outlook, we remain confident in the underlying health of the business, our ability to continue expanding profitability, and our capacity to create meaningful long-term value for shareholders.
Speaker #3: With that, I'll turn the call over to Benjamin.
Speaker #2: Thank you, Freeha. During the second quarter, DIRTT continued to execute against its operating strategy and make meaningful progress across the business. Our focus remains on strengthening commercial execution, improving forecasting discipline, enhancing operational efficiency, and positioning the business for sustainable, profitable growth over time.
Benjamin Urban: Thank you, Fareeha. During Q2, DIRTT continued to execute against its operating strategy and make meaningful progress across the business. Our focus remains on strengthening commercial execution, improving forecasting discipline, enhancing operational efficiency, and positioning the business for sustainable, profitable growth over time. The second quarter reflects meaningful progress across several key areas of the business. Revenue increased modestly year over year, while gross profit and gross margin improved significantly. At the same time, operating expenses declined meaningfully compared to the prior year period, despite continued investments in transformation initiatives. Commercial activity remained encouraging during the quarter. Commercial revenue increased significantly year over year and represented approximately 70% of product revenue, compared to approximately 56% in the prior year period. We also saw modest growth in government-related activity, while healthcare remained relatively stable on a year-to-date basis, despite quarterly variability.
Speaker #2: The second quarter reflects meaningful progress across several key areas of the business. Revenue increased modestly year over year, while gross profit and gross margin improved significantly.
Speaker #2: At the same time, operating expenses declined meaningfully compared to the prior year period, despite continued investments in transformation initiatives. Commercial activity remained encouraging during the quarter.
Speaker #2: Commercial revenue increased significantly year over year, and represented approximately 70% of product revenue, compared to approximately 56% in the prior year period. We also saw modest growth in government-related activity, while healthcare remained relatively stable on a year-to-date basis, despite quarterly variability.
Speaker #2: We continue to strengthen our commercial organization through targeted investments in leadership, organizational capability, and go-to-market effectiveness. As part of these efforts, we recently added a new vice president of commercial to help accelerate commercial execution and enhance partner engagement and improve go-to-market effectiveness across the organization.
Benjamin Urban: We continue to strengthen our commercial organization through targeted investments in leadership, organizational capability, and go-to-market effectiveness. As part of these efforts, we recently added a new vice president of commercial to help accelerate commercial execution, enhance partner engagement, and improve go-to-market effectiveness across the organization. These initiatives are intended to improve conversion and support more consistent execution across the business. We also remain focused on improving pipeline quality and forecasting reliability through enhanced qualification standards and a continued emphasis on opportunities that align with our strategic priorities. We believe these initiatives provide greater visibility into future demand and support more effective operational planning. The financial performance achieved this quarter reflects more than simply favorable year-over-year comparisons. It reflects deliberate actions taken over the past several quarters to simplify the business, improve operating efficiency, and enhance profitability.
Speaker #2: These initiatives are intended to improve conversion and support more consistent execution across the business. We also remain focused on improving pipeline quality and forecasting reliability through enhanced qualification standards and a continued emphasis on opportunities that align with our strategic priorities.
Speaker #2: We believe these initiatives provide greater visibility into future demand and support more effective operational planning. The financial performance achieved this quarter reflects more than simply favorable year-over-year comparisons.
Speaker #2: It reflects deliberate actions taken over the past several quarters to simplify the business, improve operating efficiency, and enhance profitability. These efforts are not only intended to reduce structural costs but also to make it easier for customers, partners, and employees to do business with DIRTT.
Benjamin Urban: These efforts are not only intended to reduce structural costs, but also to make it easier for customers, partners, and employees to do business with DIRTT. These actions are contributing to a simpler, more efficient operating model and are already reflected in the year-over-year improvement in adjusted gross profit and adjusted EBITDA. However, given the timing of implementation, we do not believe our reported results yet fully reflect the run rate benefit of the actions taken. We also continue to make targeted investments in leadership, commercial capabilities, technology, and other initiatives intended to support sustainable growth. With respect to tariffs, we are continuing to evaluate the potential impact of recent changes in the US trade policy on our business. While uncertainty remains, we are assessing potential implications for our supply chain, cost structure, pricing, and customer activity.
Speaker #2: These actions are contributing to a simpler, more efficient operating model and are already reflected in the year-over-year improvement in adjusted gross profit and adjusted EBITDA.
Speaker #2: However, given the timing of implementation, we do not believe our reported results yet fully reflect the run-rate benefit of the actions taken. We also continue to make targeted investments in leadership, commercial capabilities, technology, and other initiatives intended to support sustainable growth.
Speaker #2: With respect to tariffs, we're continuing to evaluate the potential impact of recent changes in U.S. trade policy on our business. While uncertainty remains, we are assessing potential implications for our supply chain, cost structure, pricing, and customer activity.
Speaker #2: Given the evolving policy environment, we are not yet in a position to quantify any potential financial impact. While our transformation initiatives cannot completely eliminate the impact of any material tariffs that may ultimately be imposed, the operational improvements implemented over the past several quarters have increased our flexibility and improved our ability to respond as conditions evolve.
Benjamin Urban: Given the evolving policy environment, we are not yet in a position to quantify any potential financial impact. While our transformation initiatives cannot completely eliminate the impact of any material tariffs that may ultimately be imposed, the operational improvements implemented over the past several quarters have increased our flexibility and improved our ability to respond as conditions evolve. Regarding the Falkbuilt litigation, proceedings remain ongoing. As previously disclosed, DIRTT is pursuing claims related to damages suffered in Canada, the United States, and internationally. Given the nature of the process, we are not in a position to comment further at this time. Looking ahead, we remain focused on disciplined execution. While market conditions continue to evolve, we believe the actions taken to strengthen our commercial organization, improving operating discipline, and enhance profitability position DIRTT to create long-term value for shareholders.
Speaker #2: Regarding the bulk bill litigation, proceedings remain ongoing. As previously disclosed, DIRTT is pursuing claims related to damages suffered in Canada the United States in internationally.
Speaker #2: Given the nature of the process, we are not in a position to comment further at this time. Looking ahead, we remain focused on disciplined execution.
Speaker #2: While market conditions continue to evolve, we believe the actions taken to strengthen our commercial organization, improving operating discipline, and enhanced profitability position DIRTT to create long-term value for shareholders.
Speaker #2: I would like to thank our employees, partners, customers, and shareholders for their continued support. With that, operator, please open the call for questions.
Benjamin Urban: I would like to thank our employees, partners, customers, and shareholders for their continued support. With that, operator, please open the call for questions.
Speaker #1: Thank you, but before we open the lines, I will turn it back to Benjamin for additional comments.
Operator: Thank you. Before we open the lines, I will turn it back to Benjamin for additional comments.
Speaker #4: Yes. Thank you, operator. I'd like to also add that while we are disappointed to have reduced our outlook, we do remain confident in our ability to drive profitable growth through both of our sales channels.
Benjamin Urban: Yes. Thank you, operator. I'd like to also add that while we are disappointed to have reduced our outlook, we do remain confident in our ability to drive profitable growth through both of our sales channels as a result of the transformation work undertaken. Having optimized the cost structure of the business, our attention has turned fully toward optimizing our top-line performance. Go ahead and open up for questions, operator.
Speaker #4: As a result of the transformation work undertaken, having optimized the cost structure of the business, our attention has turned fully toward optimizing our top-line performance.
Speaker #4: Go ahead and open up for questions, operator.
Speaker #1: Thank you. And as a reminder, if you do have a question, simply press star 11 to get in the queue and wait for your name to be announced.
Operator: Thank you. As a reminder, if you do have a question, simply press star one one to get in the queue and wait for your name to be announced. To remove yourself, press star one one again. Our first question is from Kaelen Purdy with ATB Cormark Capital Markets. Please proceed.
Speaker #1: To remove yourself, press star 11 again. Our first question is from Kellan Purdy with ATB Cormac Capital Markets. Please proceed.
Speaker #4: Thanks, Ben and Freeha. This is Kellan Purdy from ATB Cormac filling in for Nick Boycheck. Can you guys hear me okay?
Kaelen Purdy: Thanks, Ben and Fareeha. This is Kaelen Purdy from ATB Cormark filling in for Nick Boicek. Can you guys hear me okay?
Speaker #5: Yeah, I can hear you great. Good morning, Kellan.
Benjamin Urban: I can hear you great. Good morning, Kaelen.
Speaker #4: Perfect morning. Really appreciate the update on the progress with pipeline visibility and quality here. To help us unpack that decision, are you seeing stronger conversion velocity in these institutional verticals like healthcare and education?
Kaelen Purdy: Perfect. Morning. Really appreciate the update on the progress with pipeline visibility and quality here. To help us unpack that decision, are you seeing stronger conversion velocity in these institutional verticals like healthcare and education? Are there other areas like commercial or government that remain a bit more measured? Can you just break down by segment what it looks like in terms of visibility?
Speaker #4: Are there other areas that, like commercial or government, that remain a bit more measured? Can you just break down kind of by segment what it looks like in terms of visibility?
Speaker #5: Yeah, for sure. From a vertical segment, I would say that we have greater visibility further out, particularly within the healthcare vertical. Part of that is due to our efforts through the construction services channel, and some of that work is further out in duration.
Benjamin Urban: For sure. From a vertical segment, I would say that we have greater visibility further out, particularly within the healthcare vertical. Part of that is due to our efforts through the Construction Services channel, and some of that work is further out in duration. That being said, we do have some visibility as well, similarly through the Construction Services channel with regards to the commercial office interior vertical, and we're starting to see some traction there as well in conversion.
Speaker #5: That being said, we do have some visibility as well similarly through the construction services channel with regards to the commercial office interior vertical, and we're starting to see some traction there as well in conversion.
Benjamin Urban: Overall, with regards to the overall kind of full pipeline that we've discussed for the 12 months forward, while we're limited in the level of project-specific or customer-specific pipeline level detail we can provide publicly, we do believe that we've identified principal factors behind both the Q2 results and the revised outlook, namely customer decision-making timelines, and this is with regards to your question around conversion rates and the timing of project awards or revenue conversion of when that hits.
Speaker #5: Overall, with regards to the overall kind of full pipeline that we've discussed for the 12-month forward, while we're limited in the level of project-specific or customer-specific pipeline-level detail we can provide publicly, we do believe that we've identified principal factors behind both the second quarter results and the revised outlook namely customer decision-making timelines and this is with regards to your question around conversion rates.
Speaker #5: And the timing of project awards or revenue conversion—when that hits.
Speaker #4: Great. Okay. That's great color. I really appreciate that. Next question for me. I think that the recent OPEX reductions reflect that the strategic transformation framework really is working.
Kaelen Purdy: Great. Okay. That's great color. I really appreciate that.
Benjamin Urban: Yeah.
Kaelen Purdy: Next question from me. I think that the recent OpEx reductions reflect that the strategic transformation framework really is working. That's great. We saw that flow through to the financials with G&A down CAD 1.2 million on the year and sales-
Speaker #4: So that's great. And we saw that flow through the financials, with G&A down $1.2 million year-over-year, and sales and marketing down $1.1 million from last year.
Benjamin Urban: Yeah
Kaelen Purdy: Marketing down CAD 1.1 million from last year. As you scale this revenue into the H2 of the year towards your full-year guidance, should we treat this lower OpEx run rate as your new baseline, or will some of the spend kind of naturally scale up back to supporting higher volumes?
Speaker #4: As you scale this revenue into the second half of the year towards your full-year guidance, should we treat this lower OPEX run rate as your new baseline, or will some of the spend kind of naturally scale up back to supporting higher volumes?
Speaker #5: Yeah, I think that's a great question. I think it's early innings with regards to the performance on profitability. From the transformation efforts that have been underway, I think that there's some noise right just because it's happening real-time that we should see an incremental tailwinds as we move in through the second half of the year.
Benjamin Urban: Yeah, I think that's a great question. I think it's early innings with regards to the performance on profitability from the transformation efforts that have been underway. I think that there's some noise, right? Just because it's happening real time, that we should see incremental tailwinds as we move in through the H2 of the year. As well as to your question around how we scale, right? Yes, we're confident in the CAD 175 to 185 million, but as we've been focused on delivering profitable growth, recent investments in our commercial organization, including that appointment of a new vice president of sales, reflect not just that commitment to grow top line. In addition to the Construction Services momentum, we are also layering in and investing in additional sales representatives across the US, as well as exploring partner expansion.
Speaker #5: As well as to your question around how we scale, right, yes, we're confident in the 175 to 185, but as we've been focused on delivering profitable growth, recent investments in our commercial organization, including that appointment of a new vice president of sales, reflect not just that commitment to grow top line, but in addition to the construction services momentum, we are also layering in and investing in additional sales representatives across the U.S.
Speaker #5: as well as exploring partner expansion.
Speaker #3: And Kellan, just to add to that, so we do believe those operating expense reductions are going to be sustained. But we will, of course, invest where appropriate.
Fareeha Khan: Kaelen, just to add to that, we do believe those operating expense reductions are going to be sustained. We will, of course, invest where appropriate. For example, commercial is definitely an area of focus, and we may do some investments in that line.
Speaker #3: So for example, commercial is definitely an area of focus, and we may do some investments in that line.
Speaker #4: Okay. Great. That's great color. I really appreciate that, guys. Thanks so much. Let's talk about tariffs just quickly, everyone's favorite. The new 50% tariff on the CUSMA-compliant goods set to go into effect on August 19th.
Kaelen Purdy: Okay, great. That's great color. I really appreciate that, guys. Thanks so much. Let's talk about tariffs just quickly. Everyone's favorite.
Benjamin Urban: Yeah.
Kaelen Purdy: The new 50% tariff on the CUSMA-compliant goods set to go into effect on 19 August. Are there any products in that list that are especially prevalent or hurtful to DIRTT, if any at all? Understand that this is changing every day, you may not have much color on it.
Speaker #4: Are there any products in that list that are especially prevalent or hurtful to DIRTT, if any at all? Understand that this is changing every day, so you may not have much color on it.
Speaker #3: So, Kellan, what we do when it comes to tariffs is we have internal counsel and we have specialized customs counsel who we discuss these matters with.
Fareeha Khan: Kaelen, what we do when it comes to tariffs, we have internal counsel, and we have specialized customs counsel who we discuss these matters with. At this stage, we do not believe those Section 232 tariffs would materially affect DIRTT. Of course, the devil's in the details, you have to look at the HTS codes. At this present point, we don't believe it will materially affect us.
Speaker #3: At this stage, we do not believe those section 338 tariffs would materially affect DIRTT. Of course, the devil's in the details, so you have to look at the HTS codes, but at this present point, we don't believe it will materially affect us.
Speaker #4: Okay. Okay. That's great color, and that's all from me, guys. Really appreciate it.
Kaelen Purdy: Okay. That's great color. That's all from me, guys. Really appreciate it.
Speaker #5: Thanks, Kellan. Appreciate it.
Benjamin Urban: Thanks, Kaelen. Appreciate it.
Speaker #1: Thank you. And as a reminder, if you do have a question, simply press star 11 to get in the queue. One moment for our next question.
Operator: Thank you. As a reminder, if you do have a question, simply press star one one to get in the queue. One moment for our next question. It comes from Matthew Smith with Smith Capital. Please proceed.
Speaker #1: It comes from Matthew Smith with Smith Capital. Please proceed.
Speaker #2: Thanks for taking the question. First, you guys have had this transformation committee for over a year. It seems like you guys consistently miss projections. I’d love to better understand why the consulting contracts keep getting extended, and how should we think about this as smaller investors with some real money in this company?
Matthew Smith: Thanks for taking the question. First, you guys have had this transformation committee for over a year, it seems like you guys consistently miss projections. Love to better understand why the consulting contracts keep getting extended, how should we think about this for smaller investors with some real money in this company?
Speaker #5: Yeah. So as I had mentioned, Matt, thank you for the question this morning. While I'm limited in the level of project-specific information, I can share, but namely to your question around the revision and guidance and it being based primarily on customer decision-making timelines, timelines of project awards, as you mentioned, and revenue conversion, what we have been doing through this transformation, right, is further improving the quality of how we're tracking what's coming through in our forecast and our pipeline not just in the 12-year, but within the full year.
Benjamin Urban: Yeah. As I mentioned, Matt, and thank you for the question this morning. While I'm limited in the level of project-specific information I can share, namely to your question around the revision and guidance and it being based primarily on customer decision-making timelines of project awards, as you mentioned, and revenue conversion. What we have been doing through this transformation is further improving the quality of how we're tracking what's coming through in our forecast and our pipeline. Not just in the 12-month, but within the full year. Higher quality and transformation work has yet to be fully reflected in year, similar to what we were talking about with Kalen with regards to increases in profitability.
Speaker #5: And higher quality and transform higher quality and transformation work has yet to be fully reflected in year. Similarly to what we were talking about with Kellan with regards to increases in profitability, but similarly, a lot of the work that we've done in the commercial org to improve our forecasting capability we likely won't see some of that performant show up within year.
Benjamin Urban: Similarly, a lot of the work that we've done in the commercial org to improve our forecasting capability, we likely won't see some of that performance show up within year. We'll see more of that in 2027 as we've improved that.
Speaker #5: We'll see more of that in 2027 as we've improved that.
Speaker #2: Do you have a timeline for when you think transformation will be completed?
Matthew Smith: Do you have a timeline for when you think transformation will be completed?
Speaker #5: That's a great question. I would say that we've been we've transitioned into more of a sustaining mode now from execution. In large part with a lot of the processes in back of house as well as how we're manufacturing, the commercial organization is in the early innings of that transformation.
Benjamin Urban: That's a great question. I would say that we've transitioned into more of a sustaining mode now from execution, in large part with a lot of the processes in back of house, as well as how we're manufacturing. The commercial organization is in the early innings of that transformation. As I mentioned, we've made some changes within leadership. We've also begun upgrading some of our sales representatives across the United States, in addition to layering in additional ones. I'd say that one's got a little bit longer tail on it. We would see that materialize more so in 2027. Continuing to focus on 2026 to not only hit the guidance that we put out there, but push it.
Speaker #5: As I mentioned, we've made some changes within leadership. We've also begun upgrading some of our sales representatives across the United States, in addition to layering in additional ones.
Speaker #5: So I'd say that one's got a little bit longer tail on it, but we would see that a materialize more so in '27, but continuing to focus on '26 to not only hit the guidance that we put out there, but push it.
Matthew Smith: Great. As you think about the longer-term vision for the company, given the structure, ownership, financial profile, how are you thinking that?
Speaker #2: Great. And then as you think about the longer-term vision for the company given the structure ownership financial profile, how are you thinking that?
Speaker #5: Could you clarify a bit?
Benjamin Urban: Could you clarify a bit?
Speaker #2: Yeah. I mean, assuming like you said, some of the transformation is essentially done and you're effectively transitioning some of the things how are you thinking about sort of next steps for potential ownership structure that kind of thing around the company?
Matthew Smith: Yeah. Assuming, like you said, some of the transformation is essentially done and you're effectively transitioning some of the things, how are you thinking about next steps for potential ownership structure, that kind of thing around the company?
Speaker #5: Yeah. Unfortunately, Matt, I can't comment on that. But thank you for the question.
Benjamin Urban: Yeah. Unfortunately, Matt, I can't comment on that. Thank you for the question.
Speaker #2: Okay. Last question from me. How's the tech team thinking about the opportunity potentially with AI to use DIRTT's technology position? Inside the industry.
Matthew Smith: Okay. Last question from me. How's the tech team thinking about the opportunity potentially with AI to use DIRTT's technology position inside the enterprise?
Benjamin Urban: Yeah. We've been adopting AI internally, across the enterprise, as one would expect, even more so pointedly within the technology team. We're seeing expansion improvements in our efficiency in the programming and coding side, particularly for the Design Editor software. That's not just for us, Matt. That's across the rest of our customer base that also is utilizing that software platform for their own uses. We're seeing good adoption there, then as we layer that in across the rest of the enterprise, we're seeing efficiency gains in how quickly we can turn.
Speaker #5: Yeah, we've been adopting AI internally across the enterprise, but as one would expect, even more so—pointedly—within the technology team. And we're seeing expanded improvements in our efficiency on the programming and coding side, particularly for the design editor software.
Speaker #5: And that's not just for us, Matt, right? That's across the rest of our customer base that also is utilizing that software platform for their own uses.
Speaker #5: And so we're seeing good adoption there. And then as we're seeing efficiency gains. And how quickly we can turn.
Speaker #2: Do you have an idea for a number, maybe on a margin, how AI might improve that or?
Matthew Smith: Do you have an idea for a number, maybe on a margin, how AI might improve that or?
Speaker #5: Yeah, no, Matt. Unfortunately, I can't share that on the call, but I appreciate the question.
Benjamin Urban: Yeah. No, Matt, unfortunately, I can't share that on the call, appreciate the question.
Speaker #2: Okay. Thank you.
Matthew Smith: Okay. Thank you.
Speaker #5: Thank you, Matt.
Benjamin Urban: Thank you, Matt.
Speaker #1: Thank you so much. And we have a question from the line of David Nierenberg with D3. Please proceed.
Operator: Thank you so much. We have a question from the line of David Nierenberg with D3. Please proceed.
Speaker #6: Thank you. Good morning, everyone. And.
David Nierenberg: Thank you. Good morning, everyone.
Benjamin Urban: Good morning, David.
Speaker #5: Good morning, David.
David Nierenberg: Benjamin, congratulations for the continuing excellent work that you're doing to reduce the cost of the company and to reposition your channel strategy. That said, I'd still like to better understand what caused the CAD 10 million miss relative to revenue hopes for Q2 and the second CAD 10 million reduction for H2 of the year. I'd like you to connect those answers to a longer-term question for your longer-term shareholders like us. What is the reason to believe that after years of struggle, for various reasons, whether it's with Falkbuilt internal board divisions, too much cost structure added by prior management, what is the reason, the fundamental reason, why you all seem to continue to believe that there is a genuine prospect for future double-digit revenue growth, since cost reduction alone is not going to bring us to Nirvana?
Speaker #6: Congratulations on the continuing excellent work you're doing to reduce the cost of the company and to reposition your channel strategy. That said, I'd still like to better understand what caused the $10 million miss relative to revenue hopes for Q2 and the additional $10 million reduction for the second half of the year.
Speaker #6: And then I'd like you to connect those answers to a longer-term question for your longer-term shareholders like us. What is the reason to believe that after years of struggle for various reasons, whether it's with flock built internal board divisions, too much cost structure added by prior management, what is the reason the fundamental reason why you all seem to continue to believe that there is a genuine prospect for future double-digit revenue growth since cost reduction alone is not going to bring us to Nirvana?
Speaker #5: Yeah, David, thank you for that. That's a great question. So I'm going to unpack that into two pieces, David. One, on why we believe we have confidence in our ability to scale on the operations side.
Benjamin Urban: Yeah, David, thank you for that. That's a great question. I'm going to unpack that into two pieces, David. One, on why we believe we have confidence in our ability to scale on the operations side. You're right, there's no cost-cutting way out of this, is that the improvements that we've made in the transformation and through many of the supplemental earnings decks that we've included, that operating platform isn't just a thing on paper. Part of our challenge in the past and our ability to scale was because we were working off an operating platform that was antiquated, it was difficult for us to actually grow, not just on the revenue side, but on the manufacturing and operations side.
Speaker #5: And you're right. There's no cost-cutting way out of this, right? Is that the improvements that we've made in the transformation and through many of the supplemental earnings decks that we've included, that operating platform isn't just a thing on paper, right?
Speaker #5: Part of our challenge in the past and our ability to scale was because we were working off an operating platform that was antiquated. And so it was difficult for us to actually grow not just on the revenue side, but on the manufacturing and operations side.
Speaker #5: And so that transformation work that's been in earnest over the last year to solve that allowed us, obviously, through the increased improved profitability results, our ability to not just get the business to function accordingly with where we're at, but where we're going.
Benjamin Urban: That transformation work that's been in earnest over the last year to solve that allowed us, obviously through the increased improved profitability results, our ability to not just get the business to function accordingly with where we're at, but where we're going. That piece aside, more importantly, at this point in our time, to your question around confidence and ability to grow double digits in the future. As we expanded the Construction Services channel, this is interconnected, David, to the transformation, in that when we began that over a year ago and began executing projects last year and H1 of this year, frankly, we had additional work to do in that team from a transformation perspective to be able to execute. We had a bit of a slowdown there, which now we're having a ramp-up. That team is operating at full capacity.
Speaker #5: So that piece aside, more importantly, at this point in our time, to your question around confidence and ability to grow double digits, right, in the future.
Speaker #5: The as expanded the construction services channel, and this is interconnected, David, to the transformation in that when we began that over a year ago and began executing projects last year and the first half of this year, frankly, we had additional work to do in that team from a transformation perspective to be able to execute.
Speaker #5: So we had a bit of a slowdown there, which now we're having a ramp up. And that team is operating at full capacity. That construction services channel, we still remain confident will become a double-digit growth driver for DIRTT.
Benjamin Urban: That Construction Services channel, we still remain confident will become a double-digit growth driver for DIRTT. The rationale behind that, and I believe I might have commented in one of the previous questions, even as in the vertical segments of healthcare and commercial office interiors, we have two recent awards with strategic accounts in the last quarter that are now moving forward. The reason those are so important is they're not singular projects like a normal order would be per se, that comes in through DIRTT. These are multi-year, sticky revenue recreations, such that it's not just one project, it's dozens of projects, and it allows us to scale faster. That's part of the rationale for why we remain confident. The other piece through our other sales channel, David, of our traditional partners, that is going to grow.
Speaker #5: And the rationale behind that, and I believe I might have commented in one of the previous questions, even in the vertical segments of healthcare and commercial office interiors, we have two recent awards with strategic accounts in the last quarter that are now moving forward.
Speaker #5: The reason those are so important is they're not singular projects like a normal order would be per se that comes in through DIRTT. These are multi-year sticky revenue creation such that it's not just one project.
Speaker #5: It's dozens of projects. And it allows us to scale faster and so that's part of the rationale for why we remain confident. The other piece through our other sales channel, David, of our traditional partners that is going to grow, part of the rationale with the VP of sales that we hired additionally comes from that channel.
Benjamin Urban: Part of the rationale with the VP of sales that we hired additionally comes from that channel and knows it better than anybody. Also comes from a competitor previous to that. We have high confidence and hopes with his ability to grow our traditional partner model alongside us continuing to invest in Construction Services and grow that channel. Those are the two pillars, and for those of you that are on the call, there's also a good slide in the supplemental earnings deck demonstrating where those two channels fall within our operating model.
Speaker #5: And those that are better than anybody also come from a competitor previous to that. So we have high confidence and hopes with his ability to grow our traditional partner model alongside us continuing to invest in construction services and grow that channel.
Speaker #5: So those are the two kind of pillars and for those of you that are on the call, there's also a good slide in the supplemental earnings deck demonstrating where those two channels fall within our operating model.
Speaker #6: Can you tell us a bit more, please, about your new sales executive and why you're confident in him or her?
David Nierenberg: Can you tell us a bit more, please, about your new sales executive and why you're confident in him or her?
Speaker #5: Yeah. So the new VP of commercial that we've hired has spent time within not just our partner community, but roughly 15 years prior to that with one of our leading competitors particularly in the commercial office interior vertical.
Benjamin Urban: Yeah. The new VP of commercial that we've hired has spent time within not just our partner community, but roughly 15 years prior to that with one of our leading competitors, particularly in the commercial office interior vertical. Bringing some of that capability and market intelligence to help us compete and help grow that side of our business, is equally important, and we see equal opportunity there in not just the adding additional partners, but also in, as I mentioned, layering in additional sales representatives to expand top line.
Speaker #5: And so bringing some of that capability and market intelligence to help us compete and help grow that side of our business is equally important.
Speaker #5: And we see equal opportunity there in not just the adding additional partners, but also in, as I mentioned, layering an additional sales representatives to expand top line.
Speaker #6: Well, thank you. I hope that in addition to his experience, this person also brings what John Maynard Keynes called animal spirits.
David Nierenberg: Well, thank you. I hope that in addition to his experience, this person also brings what John Maynard Keynes called animal spirits.
Benjamin Urban: That is a great comment, and I would say that you hit the nail on the head with that one, David.
Speaker #5: That is a great comment, and I would say that you hit the nail on the head with that one, David.
Speaker #6: Okay. Good luck. Thank you.
David Nierenberg: Okay. Good luck. Thank you.
Speaker #2: Thank you so much.
Operator: Thank you so much.
Benjamin Urban: Thank you.
Speaker #5: Thank you.
Speaker #2: And this will conclude our Q&A session. I will turn it back to Benjamin for final comments.
Operator: This will conclude our Q&A session. I will turn it back to Benjamin for final comments.
Benjamin Urban: I have no final comments, operator. Thank you, everyone.
Speaker #5: I have no final comments, operator. Thank you, everyone.
Operator: Thank you so much. This will conclude our conference for today. Thank you for participating, and you may now disconnect.
