DIRTT Releases Q1 2021 Financial Results
DIRTT Environmental Solutions Ltd. (“DIRTT”, the “Company”, “we” or “us”) (Nasdaq: DRTT, TSX: DRT), an interior construction company that uses proprietary software to design, manufacture and install fully customizable environments, today announced its financial results for the three months ended March 31, 2021. All financial information in this news release is presented in U.S. dollars, unless otherwise stated.
First Quarter 2021
- Revenue of $29.5 million
- Gross profit margin of 11.4%
- Adjusted Gross Profit Margin1 of 24.3%
- Net loss of $12.5 million
- Net loss margin of (42.4%)
- Adjusted EBITDA1 of ($11.4) million
- Adjusted EBITDA Margin1 of (38.6%)
“Throughout 2020, we were able to mitigate some of the COVID-19 induced slowdown in overall construction activity through the completion of projects that were in progress when the pandemic started,” stated Kevin O’Meara, chief executive officer. “With most of these projects delivered by the end of the fourth quarter, we believe the first quarter of 2021 reflected the full impact of the slowdown in non-residential construction activity in North America on DIRTT’s business.”
“At the same time, however, we have been experiencing growing customer engagement through increased demand for both virtual and in-person tours at our DIRTT Experience Centers (“DXCs”), increased project quoting activity, and continued advancement of our strategic accounts strategy. We now have over 40 strategic account relationships in various stages of development compared to 35 at year-end. As a result, we believe the first quarter will be the low point in the pandemic construction cycle and are optimistic that revenues in the second quarter will approach or return to the quarterly ranges experienced in the first half of 2020.”
“Having remained committed throughout 2020 to the prudent execution of our strategic plan, resulting in major enhancements of our commercial and manufacturing capabilities, we believe we will be able to emerge from the pandemic in a position of strength to drive sustained growth. We recently secured our first project directly attributable to our Total Cost of Ownership tool, our qualified sales leads are growing, and our sales and marketing material is more comprehensive and targeted than ever before. We intend to leverage increased brand strength from our strategic marketing initiatives to drive sales growth, supported by our enhanced strategic accounts and industry vertical sales teams. We are looking forward to deploying the new competitive assets we have invested in over the last 12 months, including our newly renovated Chicago DXC, our Dallas DXC (expected to open in Q3 2021) and our state-of-the-art tile plant in Rock Hill, SC (scheduled for full commissioning in June 2021).”
Mr. O’Meara concluded, “While the ultimate timing of a broad recovery in non-residential construction activity levels remains uncertain and COVID-19 continues to present challenges, we are seeing anecdotal evidence through our sales channels that business confidence, particularly in the United States, is improving. Through continued emphasis on our core value proposition of flexible and adaptable spaces, built with cost precision and on an accelerated schedule, we are confident that we can drive significant sales growth through our approach to interior construction.”
First Quarter Financial Review
Revenue for the first quarter of 2021 was $29.5 million, a decline of $11.5 million or 28% from $41.0 million for the quarter ended March 31, 2020. We believe this decrease principally reflects the severe economic and social impact of the COVID-19 pandemic, including a major contraction in construction activity levels in North America due to non-essential business closures, work-from-home requirements, lock-down measures and other regulatory responses implemented by governments and public health officials.
Correspondingly, gross profit for the quarter ended March 31, 2021 was $3.4 million or 11.4% of revenue, a decline of $7.9 million or 70% from $11.3 million or 27.6% of revenue for the quarter ended March 31, 2020. This reduction was attributable to our decline in revenues and, the impact of fixed costs and excess labor capacity on lower revenues. In anticipation of a recovery in demand for our products and services in the second half of 2021 and to preserve our skilled workforce, we deliberately maintained manufacturing headcount, while implementing selective furlough days, in the first quarter of 2021 despite the shortfall in revenues relative to capacity.
Adjusted Gross Profit (see “Non-GAAP Financial Measures”) for the quarter ended March 31, 2021 was $7.2 million or 24.3% of revenue, an $8.4 million or 54% decline from $15.6 million or 38.0% of revenue for the quarter ended March 31, 2020. Excluded from Adjusted Gross Profit in 2021 and 2020 are $1.8 million and $2.0 million, respectively, of overhead costs associated with operating at lower than normal capacity levels, which were charged directly and separately to cost of sales rather than as a cost attributable to production. Between January and April 2020, we reduced our manufacturing workforce by 25% to bring labor capacity in line with expected ongoing requirements, but did not make further adjustments to our manufacturing workforce in the first quarter of 2021 in anticipation of a recovery of demand in the second half of 2021 as vaccination distribution efforts continue.
Sales and marketing expenses decreased $0.7 million to $6.7 million for the three months ended March 31, 2021, from $7.4 million for the three months ended March 31, 2020. The decrease was largely related to a reduction in commission expense on lower revenues as well as lower travel, meals and entertainment expenses due to restrictions on travel as a result of the COVID-19 pandemic. As economies re-open, we anticipate travel, meals and entertainment expenses will increase over current levels, the timing and amount of which are, however, indeterminate at this time. These reductions were partially offset by $0.2 million of increased salary and wage expenses as we continue to build our sales organization, and $0.3 million of staff dedicated to partner support activities that were transferred from Technology and Development to Sales and Marketing.
General and administrative expenses decreased $0.6 million to $7.2 million for the three months ended March 31, 2021 from $7.8 million for the three months ended March 31, 2020. The decrease was the result of lower professional fees and a $0.6 million credit loss recorded in the first quarter of 2020 that was not repeated in 2021, partially offset by increased severance costs.
Operations support expenses decreased $0.2 million to $2.3 million for the three months ended March 31, 2021, from $2.5 million for the three months ended March 31, 2020, due to reduced activity.
Technology and development expenses decreased by $0.3 million to $1.9 million for the three months ended March 31, 2021, compared to $2.2 million for the three months ended March 31, 2020, primarily related to staff transferred to Sales and Marketing.
Net loss for the quarters ended March 31, 2021 and March 31, 2020 was $12.5 million and $5.3 million, respectively. The higher net loss was primarily the result of the above noted reduction in gross profit, a $2.5 million reduction in foreign exchange gains, a $1.4 million reduction of income tax recoveries and a $0.6 million increase in net interest expense. These decreases were partially offset by $4.1 million of government subsidies and a $1.2 million reduction in operating expenses, which was largely due to lower commissions on reduced sales activities, reduced professional fees, and lower activity as a result of COVID-19.
Adjusted EBITDA for the quarter ended March 31, 2021 was an $11.4 million loss or (38.6%) of revenue, a decline of $5.9 million from a loss of $5.5 million, or (13.4%) of revenue, for the quarter ended March 31, 2020 for the above noted reasons.
Conference Call and Webcast Details
A conference call and webcast for the investment community is scheduled for Thursday, May 6, 2021 at 8:00 a.m. MDT (10:00 a.m. EDT). The call and webcast will be hosted by Kevin O’Meara, chief executive officer, Geoff Krause, chief financial officer, and Kim MacEachern, director of investor relations.
To join by telephone, dial +1-877-479-7708 (toll-free in North America) or +1-647-427-2478 (international). Please dial in a minimum of 15 minutes prior to the start time to ensure a timely connection to the call.
Investors are invited to submit questions to email@example.com before and during the call. Supplemental information slides will be available within the webcast and at dirtt.com/investors prior to the start of the call.
A replay of the webcast will be available online and on DIRTT’s website.
DIRTT is a building process powered by technology. The Company uses its proprietary ICE® software to design, manufacture and install fully customized interior environments. The technology drives DIRTT’s advanced manufacturing and provides certainty on cost, schedule, and the final result. Complete interior spaces are constructed faster, cleaner, and more sustainably. DIRTT has manufacturing facilities in Phoenix, Savannah, Rock Hill and Calgary. The Company works with distribution partners throughout North America. DIRTT trades on Nasdaq under the symbol “DRTT” and on the Toronto Stock Exchange under the symbol “DRT”.