DIRTT Releases Q1 2022 Financial Results
DIRTT Environmental Solutions Ltd. (“DIRTT” or the “Company”) (Nasdaq: DRTT, TSX: DRT), a global leader in industrialized construction that empowers organizations, together with construction and design leaders, to build high-performing, adaptable, interior environments, today announced its financial results for the three months ended March 31, 2022. All financial information in this news release is presented in U.S. dollars, unless otherwise stated.
First Quarter 2022
- Revenue of $38.3 million
- Gross profit margin of 8.6%
- Adjusted Gross Profit Margin1 of 17.7%
- Net loss of $23.0 million
- Net loss margin of (60.2%)
- Adjusted EBITDA1 of ($12.0) million
- Adjusted EBITDA Margin1 of (31.2%)
- Unrestricted cash balance of $38.9 million
Note: (1) See “Non-GAAP Financial Measures”
“First quarter revenue was at the low end of our estimates but was an increase of 30% over the same period in 2021 and we believe mark a shift in activity levels as the pandemic moves to endemic with the easing of health restrictions across North America,” said Geoff Krause, CFO and co-interim CEO. “While the beginning of the year temporarily sent many employees back to their home offices and delayed return dates, we experienced a strong uptick in activity that began to translate into orders in March. Approximately 46% of our first quarter revenues were generated in March and we have seen improved sales activity continue into the second quarter. March marked the highest revenue month since October of 2020 and the second highest revenue month since the beginning of the pandemic. Our twelve-month forward pipeline, including leads, increased by 5% to $318 million from $302 million at January 1, 2022.”
“In early April, we completed our final shift at the Phoenix Facility and commenced decommissioning activities,” said Jeffrey Calkins, COO and co-interim CEO. “While this closure temporarily impacted labor capacity in April as a result of hiring challenges in Savannah, we are actively focused on increasing staff levels at Savannah and Calgary required to expand aluminum manufacturing at those facilities to support the activity levels that we are seeing build and to meet our delivery timeline commitments.”
“We expected high cash usage in the first quarter,” added Mr. Krause, “driven by the slow start to the quarter which resulted in working capital build combined with one-time restructuring costs and professional fees associated with the contested director elections. Full year revenue guidance is consistent with improvements in cash usage as 2022 progresses as a result of sequential improvements in revenues and a lower fixed cost base, approaching monthly cashflow breakeven in the third or fourth quarter of 2022.”
Mr. Krause concluded, “As an organization, we are relieved to have the proxy fight behind us and enthusiastically welcome our new board of directors. It is with the unwavering belief in the opportunity for DIRTT, in our employees who have repeatedly demonstrated extraordinary resilience and loyalty for our company and in our partners with whom we are grateful to work with every day, that Jeff Calkins and I assumed the role of co-CEO during this interim period. We are also pleased to announce the appointment of Jeffrey Metcalf to interim CFO, effective May 9th, 2022, to enable me to better focus on my new responsibilities working alongside Jeff Calkins.”
Ken Sanders commented, “We have been humbled by the support from the employees and partners during the early stages of the transition to the new board of directors. The board of directors is grateful for the commitment and leadership of Geoff Krause and Jeff Calkins who stepped up to the role of co-interim CEO and, along with the rest of our very talented leadership team are providing strategic insight and strong guidance for developing the path forward for the organization. The CEO search process has been immediately prioritized and we have picked up and accelerated the Company’s search process already underway. We anticipate being able to welcome a new CEO by mid-year.”
“In our early observations, we strongly believe that together with our leadership, our re-energized employees and our partners, we can unlock meaningful value for shareholders, customers and other stakeholders under the stewardship of the new board. We have confidence in the financial guidance provided previously by the organization and believe the second quarter revenue range between $43M – $47M and full year revenue range between $175M – $185M are achievable” Mr. Sanders continued. “On behalf of the board of directors, we are enthusiastically looking forward to leveraging our industry experience to be of service to DIRTT in promoting its growth and financial performance as a public company.”
First Quarter Financial Review
Revenues for the quarter ended March 31, 2022 were $38.3 million, an increase of $8.8 million or 30% from $29.5 million for the period ended March 31, 2021. While the resurgence of COVID-19 infections due to the Omicron variant at the beginning of the year temporarily sent many employees back to their home offices and delayed return dates, DIRTT and its partners experienced an uptick in planning activity and opportunities growth which began to translate into orders in March 2022.
Gross profit for the quarter ended March 31, 2022 was $3.3 million or 8.6% of revenue, a decrease of $0.1 million or 2% from $3.4 million or 11.4% of revenue for the quarter ended March 31, 2021. The decrease in gross profit margin largely reflects significant inflationary increases in the realized cost of materials, transportation and packaging partially offset by improved labor utilization and fixed cost leverage on higher revenues. Gross profit for the quarter ended March 31, 2022 also included $1.1 million of accelerated depreciation and amortization arising from a change in useful life of assets.
Adjusted Gross Profit and Adjusted Gross Profit Margin (see “Non-GAAP Financial Measures”) for the quarter ended March 31, 2022 was $6.8 million or 17.7%, respectively, a decrease from $7.2 million or 24.3%, respectively, for the quarter ended March 31, 2021, due to the reasons described above.
Sales and marketing expenses increased by $0.6 million to $7.2 million for the three months ended March 31, 2022 from $6.7 million for the three months ended March 31, 2021. The increases were largely related to an increase of $0.4 million in travel, meals and entertainment expenses as business activity has increased and restrictions on travel have eased, a $0.3 million increase in commissions due to higher sales volumes and increased facilities costs related to the Dallas DXC which opened in the third quarter of 2021, offset by a decrease in salaries and benefits costs.
General and administrative expenses increased $0.8 million to $8.0 million for the three months ended March 31, 2022 from $7.2 million for the three months ended March 31, 2021. The increase reflects $1.5 million of incremental professional fees associated with the contested director elections offset by a $0.7 million decrease in salaries and benefits costs.
Operations support expenses increased by $0.2 million from $2.3 million for the three months ended March 31, 2021 to $2.5 million for the three months ended March 31, 2022. The increase was due to lower costs capitalized to internal projects with the completion of the Rock Hill manufacturing facility and Dallas DXC.
Technology and development expenses increased by $0.2 million to $2.1 million for the three months ended March 31, 2022, compared to $1.9 million for the three months ended March 31, 2021, primarily related to a decrease in capitalized software development costs.
During the quarter we incurred $3.7 million in reorganization costs associated with salaried workforce reductions and initial costs associated with the closure of the Phoenix Facility. Overall one-time costs were initially estimated to be $5 million, we now anticipate a further $4.4 million of reorganization costs in the second quarter, as the Company incurred a $3.1 million charge for incremental insurance on change of control of the board on April 26, 2022.
Net loss for the three months ended March 31, 2022 was $23.0 million compared to $12.5 million for the three months ended March 31, 2021. The higher net loss is primarily the result of a $0.1 million decrease in gross profit, a $5.6 million increase in operating expenses including $3.7 million of reorganization expenses and $1.5 million of incremental professional fees as described previously, a $0.8 million increase in interest expense, a $0.6 million increase in foreign exchange loss and a $3.5 million decrease in government subsidies.
Adjusted EBITDA (see “Non-GAAP Financial Measures”) for the quarter ended March 31, 2022 was a $12.0 million loss or (31.2)%, a decline of $0.6 million from a $11.4 million loss or (38.6)% for the quarter ended March 31, 2021 for the above noted reasons.
The full text of DIRTT’s 1Q22 earnings release, including all tables, and a replay of the company’s May 5 conference call webcast are available through the company website at dirtt.com/investors.
About DIRTT Environmental Solutions
DIRTT is a global leader in industrialized construction. Its system of physical products and digital tools empowers organizations, together with construction and design leaders, to build high-performing, adaptable, interior environments. Operating in the commercial, healthcare, education, and public sector markets, DIRTT’s system provides total design freedom, and greater certainty in cost, schedule and outcomes.
Headquartered in the US and Canada, DIRTT trades on Nasdaq under the symbol “DRTT” and on the Toronto Stock Exchange under the symbol “DRT”.