The Future of DIRTT

DIRTT Environmental Solutions recently made two public announcements that caught our attention. The first, back in May, was its 1Q 2015 business results. The second, in June, was the completion of a $43 million “bought deal” stock offering led by Raymond James and joined by six other securities companies.

The routine quarterly report was anything but routine in its magnitude. Quarterly sales were up 40% and trailing 12 month sales were up 36% to $203.5 million (DIRTT reports in Canadian dollars, so the $203 translated at the time to ~$150 million US).

For our readers who are not in the securities business, a “bought deal” is a stock offering at a specified price – in this case $8.35 per share – wherein all the shares offered are bought, up front, by the securities companies. Even though the securities companies buy the shares at a discounted price below the offered price, the significance of a bought deal is that the securities companies must believe they will be able to sell the stock at a profit. And that is a pretty big ask for a company whose stock is trading at roughly 40 times earnings, vs. for example, Steelcase at roughly 19 times earnings and Herman Miller at roughly 16 times. The investors must see a bright future ahead for DIRTT.

So we had to ask ourselves, “What’s going on up there in Calgary?” To learn the answer, I traveled to Calgary to pay a visit – plus I wanted to see the Peace Bridge, a controversial Calatrava designed pedestrian and bicycle bridge over the Bow River!

Calatrava’s Peace Bridge and the Bow River
Calatrava’s Peace Bridge and the Bow River

The first thing I found is that the DIRTTbags (that’s literally what DIRTT employees good-naturedly call themselves) are extremely convivial. I was met at the airport and delivered to my hotel and the various DIRTT facilities by DIRTTbags who bent over backward to make sure I had everything I needed or wanted. Later, when I boarded the plane for home, I reflected on the fact that everyone I’d had contact with had been engaged, knowledgeable and seemingly dedicated to the company. There is definitely something impressive going on at DIRTT Environmental Solutions, and some of it was quite surprising.

I was surprised to learn that the leaders of the company do not consider it to be part of the office furniture industry. They actually consider it to be part of the building trades. Thus its slogan, “Build Better,” reflects the attitude that modular walls represent a better, as in more sustainable and economical (in the long run), way to design and build-out interiors. This belief is based on the observable fact that conventional drywall construction ultimately puts a lot of waste into landfills. It is slow, dirty and given to labor shortages. Whereas, interior construction with DIRTT walls greatly reduces waste since all the parts are manufactured exactly to specification, minimizing waste from the start; when it’s time to reconfigure, the great majority of parts can be reused. Installation is also relatively quick and very clean.

Corporate lounge and small group conference rooms
Corporate lounge and small group conference rooms

In order to make re-usability a reality, there’s a big problem that must be overcome: as the solution evolves over time, all the new parts must interface seamlessly with all the old parts. I asked Geoff Gosling, a co-founder and designer in chief, how that significant hurdle could be overcome. Here is my take on the explanation:

  • We can learn from nature that extraordinarily varied and complex systems can arise from a set of quite simple rules. The key in the case of designing a truly flexible, modular wall solution is to get the rules right from the start. Before building its first prototype, the DIRTT design team spent months (if not years) thinking about how to set up the rules so that flexibility, modularity and reusability were designed in from the get go.
  • The key to the interchangeability of the parts is that each fundamental (structural) part has a role to play. It “knows” its role and how to perform its task, but it doesn’t know and doesn’t need to know anything about the role or responsibility of the parts that are attached to it.
  • By and large, all the structural parts in the DIRTT solution are “smart” extrusions. These extrusions connect to one another and to the skins that we experience as walls via a set of connectors that are enabled by the inherent shape of the smart extrusions. The latest major advance in this arena is the development of the “Enzo Approach,” a set of connectors which, among other things, reduces the reveal between skins from 9mm to 4mm while completely maintaining the compatibility of the new and old structural parts. Since the rules have not been violated, the width of the reveal has become an aesthetic choice rather than a functional choice. Specifiers can choose a reveal of either 9mm or 4mm as they wish. In fact, one could spec a 4mm reveal on one side of a wall and a 9mm reveal on the other side.

The fact that the solution is rules based and the parts can function independently allows DIRTT to deliver on its claim that “custom is standard.” And it allows designers a much greater degree of freedom than conventional modular walls.

There is a drawback to all this flexibility – complexity in specifying and manufacturing. Which brings us to the discussion of ICE 3D software. I asked Mogens Smed, a co-founder and CEO, if it was just dumb luck or true brilliance that brought him together with Mr. Gosling and the third co-founder, technology wizard and the creator of ICE® 3D software, Barrie Loberg. With his typical twinkling of the eye he said, “a lot of both!”

Hospital in Tulsa, Oklahoma
Hospital in Tulsa, Oklahoma
Nurses station in Aurora, Colorado
Nurses station in Aurora, Colorado

Just as Mr. Gosling understood that truly flexible modularity depended on getting the foundational rules right, Mr. Loberg knew that developing a software system to support specification, manufacturing and installation wasn’t going to be enough. They would also need software that would help potential customers envision the results before placing an order, whether they were designers or end users. As a result, rather than building the ICE 3D software on a platform similar to typical manufacturing and specifying systems, he set out to build it on a platform from the “gaming” industry, which is miles ahead of other platforms in terms of graphic performance.

The knowledge built into the ICE 3D software helps designers assure that their designs are “in code.”

I’ve heard about ICE for years, but it is truly awesome to follow along as it seamlessly translates floor plans into elevations into line items of myriad parts into shop floor orders into packing, shipping and installation documents! But the real mind-blower is walking through a space in Virtual Reality as I did in a demonstration of the latest new development, the ICE VR Experience! Experiencing your future space in the way VR makes possible is much more powerful than just looking at a fly-through.

Patient room Mecca, Saudi Arabia
Patient room Mecca, Saudi Arabia

The development of virtual reality is being driven by the gaming industry, but once again DIRTT is fortuitously positioned because it is built on a similar foundation, making VR a natural progression for ICE software. Leveraging the power of technology is also a game changer for the hidebound construction industry. For one thing, software can easily handle the massive amounts of data required to comply with the complexity of the modular solutions system, to say nothing of the myriad building codes across North America and the world. The knowledge built into the ICE 3D software helps designers assure that their designs are “in code.”

So Mr. Gosling has designed a rules-based prefab wall construction solution that delivers on the slogan “custom is standard.” Mr. Loberg has developed an incredible design, specify, envision, manufacture, ship and install software system. What’s missing?

The third co-founder, Mogens Smed, is a visionary with experience in the office furniture industry and the sales and marketing savvy to lead the charge into the marketplace. And DIRTT, as the name (Doing It Right This Time) implies, is not his first foray into building a company from zero to over $100 million in sales. Haworth bought his last successful venture, the eponymous SMED International in 2000, leaving him to either retire with a nice nest egg or start over and perhaps get it right. He has clearly chosen the latter.

Highschool in Flower Mound, Texas
Highschool in Flower Mound, Texas

Being on the ground at the company’s facilities, one sees a company full of spirit and good humor. While still smiling over the DIRTTbag witticism, we pulled into a parking spot reserved for company vans. The sign elicited another big smile (see photo).

sign
sign

Over the course of my stay, I noticed all the hallmarks of a workplace and workplace design that are intended to build morale and employee engagement – great and healthy food supported by a kitchen most restaurants would envy, and a variety of space types to both encourage collaboration and interaction and allow for heads-down privacy. I saw delegation with ownership and appropriate follow-up. The spirit of being on a mission is palpable.

University library
University library

I was also struck by the “product strategy.” The company’s approach to vertical markets is unique. Over the last few years, it has moved from its start in commercial/office construction into education and healthcare. Not to let any grass grow under its feet, in June DIRTT announced it is entering the residential interior construction space.

Multi-person sink in restaurant restroom
Multi-person sink in restaurant restroom

When I asked Mr. Gosling about “trying to be all things to all people” he said, “with our solutions, it isn’t at all about designing a bunch of new products for new verticals. The rules governing our products are the same, so a good analogy is that the language is the same, we just have to teach the system the vocabulary of the new vertical.

“What that means in practice is that we develop design details that are consistent with the aesthetic and functional expectations of the vertical. The way doors work is the same whether it’s an office or a bedroom or a medical examination room, but the doors in each of those may be quite different. They are different sizes, different materials, different door trim, and so on. So the product development for a new vertical is simply an exercise in getting the additional vocabulary right.”

Residential Vocabulary
Residential Vocabulary
DIRTT solutions speaking residential fluently
DIRTT solutions speaking residential fluently

If Mr. Gosling and his team can get the vocabulary right, there are market realities that make DIRTT solutions highly appealing. In education (both K-12 and higher ed), facility planners are constantly challenged with tight time frames, tight budgets and the need for adaptable environments to new developments, such as use of technology in the classroom.

Door trim spoken in “residential“
Door trim spoken in “residential“

2015/2015.0713.DIRTT14.ResidentialVocabulary6.jpgResidential Vocabulary

Healthcare is also changing profoundly – increased attention to infection prevention, pressure to improve the patient experience, the ability to embed components into the wall – all make DIRTT very compelling. Add the need for speed and cleanliness during construction, and it’s easy to see why healthcare is one of the company’s fastest growing vertical markets.

In the commercial office vertical, the case for flexibility in interior construction has been made. DIRTT walls have several other inherent qualities that make them attractive in the office contract space:
>The walls are robust enough to handle hanging components, which can save space
>They can be skinned with micro-perforated tiles and insulated to deliver excellent acoustic performance
>They are excellent at accepting embedded technology
>They offer plug and play power distribution
>Skins can be glass as easily as any other material, so any wall can be a dry erase marker board.

This last feature has just been made all the better with the announcement that DIRTT will have exclusive access to Corning’s new Willow™ Glass, a paper-thin glass that is applied to DIRTT skins from a giant roll. Designers can design “art walls” of spectacular beauty where the art is back-painted onto and protected by the glass.

And now residential. The plan is not to design some soft seating or homey fabrics, but rather to partner with residential architects and builders to truly replace drywall construction with pre-fabricated wall and ceiling systems for homes, including built-in millwork, counters and the like. Imagine: a house that can evolve as its occupants age in place. In a way it is a natural evolution for DIRTT. It is not about the vertical market per se, but rather about how the spaces are built.

What I found in Calgary (besides the bridge) is a people-oriented company that is global in its vision of the many possible applications of prefab modular interior solutions. If the vision is found to be correct, the analysts who invested in the bought deal will be shown to be excellent judges of potential, and the 40% growth will be only the beginning.