DIRTT Reports Fourth Quarter 2022 Financial Results
DIRTT Environmental Solutions Ltd. (“DIRTT” or the “Company”) (Nasdaq: DRTT, TSX: DRT), a leader in industrialized construction, today announced its financial results for the three months ended December 31, 2022. All financial information in this news release is presented in U.S. dollars, unless otherwise stated.
Fourth Quarter 2022 Highlights
- Achieved positive Adjusted EBITDA(1) for the first time since the third quarter of 2020.
- Unrestricted cash increased to $10.8 million, up $4.0 million compared to September 30, 2022.
- Liquidity increased to $16.1 million, an increase of $0.3 million or 2% from September 30, 2022.
- Revenue decreased 1% to $42.4 million for the quarter, compared to the prior year’s fourth quarter, and decreased 9% compared to the third quarter of 2022.
- Gross profit margin improved by 1,232 bps from the third quarter of 2022 as virtually all of the previously implemented price increases are reflected in the fourth quarter of 2022 revenues.
- Net loss improved to $(5.9) million by $10.1 million, or 63%, from the prior year’s fourth quarter and by $0.8 million, or 12%, from the third quarter of 2022.
- Twelve-month forward sales pipeline of $391 million as of January 1, 2023, an increase of 26% from January 1, 2022.
Note: (1) See “Non-GAAP Financial Measures”
Management Commentary
“Our fourth quarter performance reflects all of the hard work our teams are doing to improve the business, not just from a financial standpoint, but in continuing to rebuild trust and credibility with our construction partners, our customers and our people. This renewed stability provides us with a solid operating platform to drive both organic growth and implement our planned strategic initiatives”, said Benjamin Urban, chief executive officer. “We are gaining competitive advantages through our collaboration with our partners in both innovation and efficiency, resulting in a healthier project pipeline as we look forward into 2023”.
Bradley Little, chief financial officer, added “The pricing, cost reduction and working capital initiatives implemented during mid-2022 are materializing in our financial results in a meaningful way. Our improved cash position and expanding margins are a direct result of these actions. As we continue to stabilize our balance sheet and cash usage, we are also making good progress on our non-dilutive strategic cash initiatives, expected to deliver meaningful cash proceeds to the Company in 2023”.
DIRTT also announces today that Cory Mitchell has declared his decision not to stand for re-election at this year’s annual meeting of shareholders. On behalf of DIRTT’s Board of Directors, Board Chair Ken Sanders commented, “Cory has been an invaluable member of the Board over the past year and has played a key role in developing our organizational and product strategies. I would like to sincerely thank Cory for his leadership and friendship. We are grateful for his contributions, and we wish him all the best in his future endeavors.”
Fourth Quarter 2022 Results
Fourth quarter 2022 revenues decreased to $42.4 million by 9% and 1% over the third quarter of 2022 and the fourth quarter of 2021, respectively. The decreases were driven by a reduction in volume, offset by the favorable impact from pricing. The volume decrease is primarily the result of a normal seasonal pattern with shipments and order pace slowing around the major holidays in the US and Canada and the last two weeks of the fiscal year. This impact was muted during 2021 due to price increases announced in early fourth quarter 2021, which motivated our customers to accelerate delivery of materials to avoid the increases.
Fourth quarter 2022 gross profit and gross profit margin was $11.6 million, or 27.3% of revenue, an increase of $3.2 million, or 38%, from $8.4 million, or 19.6% of revenue, for fourth quarter 2021. Sequentially, this is an improvement of $4.6 million or 65% from the third quarter of 2022. The increase in gross profit margin was a result of realization of our price increases and improved labor efficiency. Materials, transportation, and other variable costs, as a percentage of revenue, improved from prior quarter and prior year as the price increases announced earlier in the year contemplated the rising material and other input costs. Gross profit for the fourth quarter also benefited from the impact of the weakening Canadian dollar on U.S. dollar reported results, which is included in the above variances.
Fourth quarter 2022 Adjusted Gross Profit and Adjusted Gross Profit Margin (see “Non-GAAP Financial Measures”) were $13.6 million and 32.0%, respectively, or an increase of $2.7 million and 25% compared to the prior year’s fourth quarter. Adjusted Gross Profit excludes depreciation and amortization costs of $2.0 million, or 4.7% as a percent of revenue in the quarter ended December 31, 2022 and $2.4 million, or 5.6% as a percent of revenue for the fourth quarter 2021.
Sales and marketing expenses for the quarter were $5.9 million, a $3.4 million decrease from $9.3 million in the prior year’s fourth quarter. The decrease was largely related to lower salary and benefit expenses due to planned headcount reductions as part of our cost reduction initiatives, and lower travel meals and entertainment due to timing of certain tradeshows in 2021.
General and administrative expenses for the quarter were $4.1 million, a decrease of $4.0 million from $8.0 million in the prior year’s fourth quarter. The change is due to reductions in salaries and benefits from planned headcount reductions as part of cost reduction initiatives as well as reduced professional fees, and a recovery of certain professional fees on a legal settlement, during the quarter.
Operations support expenses for the quarter were $2.2 million, a decrease of $0.3 million from $2.5 million in the prior year’s fourth quarter. The decrease was due to reduced travel costs in the quarter.
Technology and development expenses for the quarter were $1.8 million, a decrease of $0.4 million from $2.2 million in the prior year’s fourth quarter due to reductions in salaries and benefits expenses. We note we are currently active in hiring ICE engineers and plan to invest in ICE development in coming years as we remain excited about the opportunity within ICE for DIRTT directly. ICE is DIRTT’s proprietary design integration software.
During the quarter, the Company incurred $1.2 million in reorganization costs, which includes termination benefits incurred on headcount reductions and executive changes, and costs to reimburse a shareholder for expenses incurred related to the 2021 contested director election. We expect reorganization costs to subside following the first quarter of 2023.
Net loss for the quarter was $(5.9) million compared to $(16.0) million for prior year’s fourth quarter. The lower net loss is primarily the result of the higher gross profit margin and reduced operating expenses explained above.
Adjusted EBITDA (see “Non-GAAP Financial Measures”) for the quarter was a $0.6 million or 1.4%, an improvement of $10.3 million from a $9.7 million loss or (22.7)% for the prior year’s fourth quarter. Improvements in Adjusted EBITDA for the quarter were due to the above noted reasons.
Conference Call and Webcast Details
A conference call and webcast for the investment community is scheduled for February 23rd, 2023 at 08:00 a.m. MDT (10:00 a.m. EDT). The call and webcast will be hosted by Benjamin Urban, chief executive officer, and Bradley Little, chief financial officer.
The call is being webcast live on the Company’s website at dirtt.com. Alternatively, click here to listen to the live webcast. The webcast is listen-only. Those interested in participating in the question-and-answer session should follow the conference call dial-in instructions below.
Participants may register for the call here to receive the dial-in numbers and unique PIN to access the call seamlessly. It is recommended that you join 10 minutes prior to the event start, although you may register and dial in at any time during the call.
Investors are invited to submit questions to ir@dirtt.com before the call. Supplemental information slides will be available within the webcast and at dirtt.com prior to the call start.
A webcast replay of the call will be available on DIRTT’s website.
For the full text of DIRTT’s 4Q23 earnings release, including all tables, please visit https://www.dirtt.com/investors/.
About DIRTT Environmental Solutions
DIRTT is a leader in industrialized construction. DIRTT’s 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 workplace, healthcare, education, and public sector markets, DIRTT’s system provides total design freedom, and greater certainty in cost, schedule and outcomes.
Headquartered in Calgary, AB Canada, DIRTT trades on Nasdaq under the symbol “DRTT” and on the Toronto Stock Exchange under the symbol “DRT”.
