DIRTT Reports First Quarter 2014 Results
CALGARY, ALBERTA--(Marketwired - May 12, 2014) - DIRTT
Environmental Solutions Ltd. ("DIRTT" or the "Company") (TSX:DRT),
a leading technology-enabled designer, manufacturer and installer
of fully customized, prefabricated interiors, today announced its
financial results for the three months ended March 31, 2014.
The following financial information should be read in
conjunction with the Company's condensed consolidated financial
statements and management's discussion and analysis for the three
months ended March 31, 2014, which will be available at
www.sedar.com and http://ir.dirtt.net/financial-reports/.
This news release contains references to Canadian dollars and
United States ("US") dollars. Canadian dollars are referred to as
"$" and US dollars are referred to as "US$".
Selected Highlights
Highlights for the first quarter of 2014 include:
- Revenue increasing by $10.1 million to $40.5 million or 33.3%
over Q1 2013;
- Improvement in adjusted gross profit percentage (see "Non-IFRS
Measures") by 9.8% from 33.7% to 43.5% over Q1 2013;
- The signing of five significant projects totalling more than
$12.0 million, which are expected to be substantially completed in
2014;
- Introduction of several new innovative solutions, including the
Enzo™ Approach that enables increased flexibility, enhances
aesthetic appeal, and is fully compatible with DIRTT's existing
solutions. The Enzo Approach and other innovations provide the
opportunity to increase market penetration in all verticals, and
are particularly compelling in healthcare and residential; and
- Adoption of an Employee Share Purchase Plan ("ESPP") to be
launched in the second quarter of 2014.
"Our first quarter results show both improvement over a weaker
quarter a year ago and the leverage in our business as growing
revenue translates into even greater improvements in margins," said
Scott Jenkins, President of DIRTT. "We generated these excellent
results, in part, by delivering strong sales performance through
the historically slower holiday season, further penetrating markets
outside of North America, and by recognizing approximately
one-third of the revenue from the $12 million in contracts we
announced at the beginning of the quarter."
Summary Financial Results
|
Three months ended |
|
|
March 31, 2014 |
|
March 31, 2013 |
|
($ thousands, except per share amounts) |
$ |
|
$ |
|
Revenue |
40,515 |
|
30,391 |
|
Gross profit |
17,090 |
|
9,641 |
|
Gross profit % |
42.2 |
% |
31.7 |
% |
Adjusted gross profit % (1) |
43.5 |
% |
33.7 |
% |
Selling, general and administrative |
16,092 |
|
12,566 |
|
Operating income (loss) |
998 |
|
(2,925 |
) |
Finance costs |
616 |
|
1,316 |
|
Adjusted EBITDA (1) |
3,715 |
|
(404 |
) |
Income tax expense |
294 |
|
- |
|
Net loss |
(70 |
) |
(4,579 |
) |
Net loss per basic and diluted share: |
(0.00 |
) |
(0.13 |
) |
Note: |
(1) See "Non-IFRS Measures". |
Revenue
Revenue increased by $10.1 million or 33.3% in the three months
ended March 31, 2014 compared with the same period in 2013. The
increase was mainly due to a general improvement in business levels
in the period, resulting from a higher than normal number of
project orders received late in the fourth quarter of 2013, during
the traditionally slower holiday season, which drove strong revenue
early in the first quarter of 2014.
The Company experienced strong momentum in many markets,
including a growing presence in the Middle East. One of DIRTT's US
Distribution Partners ("DP"), whose primary market is Saudi Arabia,
brought in $4.3 million (March 31, 2013 - $0.5 million) of revenue
for DIRTT for healthcare-related projects.
As a significant amount of DIRTT's revenue is generated by the
US market, the Company also benefitted from the strengthening of
the US dollar during the current quarter.
Included in the total revenue reported for the three months
ended March 31, 2014, was approximately one-third of the previously
announced $12.0 million of significant projects for leading players
in the energy, insurance and healthcare sectors that are scheduled
to deliver through 2014 and into 2015.
Adjusted Gross Profit
Adjusted gross profit as a percentage of revenue increased by
9.8% from 33.7% to 43.5% in the three months ended March 31, 2014
compared with the same period in 2013. The increase was due to
greater efficiencies driven by higher overall volumes in the
Company's production facilities, as well as by the fact that
monthly revenue levels were relatively steady during the quarter.
Higher production volumes enable better absorption of fixed costs
included in cost of goods sold, including facilities costs and
indirect labour costs. Consistent manufacturing throughput
throughout the quarter also contributes to stronger gross profit,
as this allows for more efficient operations over the period versus
significant fluctuations in monthly manufacturing volumes. The
strengthening of the US dollar also contributed to stronger
adjusted gross profit in the quarter as the positive impact on US
dollar revenue exceeded the negative impact on US dollar-based
production costs.
Selling, General and Administrative ("SG&A")
Expenses
SG&A expenses increased by $3.5 million or 28.1% in the
three months ended March 31, 2014 compared with the same period in
2013. The most significant change can be attributed directly to
sales-related efforts as salaries and benefits and commission
expense for internal sales representatives and industry specific
experts increased by $1.3 million and $0.7 million, respectively.
These costs reflect personnel additions focused on generating and
supporting higher business volumes, and are consistent with the use
of proceeds as outlined in DIRTT's prospectus filed in respect of
its initial public offering (the "IPO"). Included in the $1.3
million increase in salaries and benefits is $0.3 million in
accrued bonuses for senior management in accordance with the
Board-approved 2014 bonus pool. Higher commission costs are in line
with the higher revenue volumes in the current quarter. Other
increases in SG&A in the current quarter included travel and
marketing expenses of $0.5 million, depreciation expense of $0.4
million, professional services fees of $0.2 million, public company
reporting fees of $0.1 million, insurance expense of $0.1 million
and $0.2 million in other miscellaneous items. The increase in
professional service fees and insurance expense relates to DIRTT
being a public company. The strengthening of the US dollar
contributed to the overall increase in SG&A across the
organization in the current quarter.
Adjusted EBITDA
Adjusted EBITDA increased by $4.1 million in the three months
ended March 31, 2014 compared with the same period in 2013. The
increase was mainly due to the $10.1 million improvement in
revenue, and the resulting improved adjusted gross profit
percentage which grew from 33.7% to 43.5%. These amounts were
partially offset by increased SG&A of $3.5 million for the
reasons discussed above.
Finance Costs
Finance costs decreased by $0.7 million in the three months
ended March 31, 2014 compared with the same period in 2013. Finance
costs for the three months ended March 31, 2014 were comprised of
$0.3 million non-cash and $0.3 million cash compared to $0.9
million and $0.4 million, respectively, for the same period in
2013. In November 2013, upon completion of the IPO, the Class A
preferred shares of DIRTT and the convertible notes of DIRTT issued
in June 2012 were converted into common shares of DIRTT and as a
result there were no accretion or accrued interest amounts reported
during the first quarter of 2014 related to those items. Upon
completion of the IPO, the Company also repaid US$10.0 million of
the original principal US$20.0 million of convertible notes of
DIRTT issued in December 2012 ("December 2012 Notes"). Under the
terms of the note purchase agreement on the remaining US$10.0
million principal portion of the December 2012 Notes, the interest
rate increased from 8% to 14% (12% cash and 2% non-cash) effective
March 7, 2014.
Outlook
Construction is a major global industry and consists of building
new structures, making additions and modifications to existing
structures, as well as conducting maintenance, repair and leasehold
improvements on existing structures. The total US construction
market was US$900 billion in 2013, of which US$562 billion was
attributable to non-residential building [Source: US Census
Bureau]. This includes both new building and renovation
projects. Total US non-residential construction spending is
forecasted to grow to US$714 billion in 2017 [Source: FMI US
Markets Construction Overview 2014]. DIRTT believes
conventional construction activities are fraught with challenges
including cost overruns, quality issues and time delays and
increasingly organizations are looking for a better way to build
out their interior spaces, whether for new buildings or
renovations. DIRTT's increasing roster of repeat clients is a
strong testament to the benefits of technology-enabled
prefabricated solutions.
The Company's growth strategy consists of five key areas: (1)
increase penetration of existing markets by providing continued
support and increased investment to existing DPs throughout North
America; (2) continue to invest in its proprietary ICE® 3D design,
configuration and manufacturing software ("ICE" or "ICE
Software")and new innovative interior construction solutions; (3)
capitalize on recent and continued investment in new industry
verticals such as healthcare; (4) capitalize on recent and
continued investment alongside new international DPs such as the
Middle East; and (5) penetrate new industries such as the
hospitality and residential sectors.
DIRTT believes its solutions are a superior alternative to
conventional construction in all sectors of the construction
industry, and that a continued increase in construction activity
can be expected to result in an ongoing improvement in revenue.
DIRTT plans to invest additional resources, including the further
development of ICE and the development of new DIRTT solutions and
test projects, in order to pursue further opportunities in
healthcare, education and government, and new opportunities in the
hospitality and residential sectors of the construction industry.
The Company's product development team has been, and will continue
to be, expanded to address industry specific challenges and
opportunities.
In the first quarter of 2014, adverse weather conditions
affected businesses across much of North America. On a
month-by-month basis, revenue was stronger earlier in the quarter,
tailing off toward quarter end. The Company expects there could be
significant variability in monthly revenue in the second quarter of
2014 as the impact of the adverse weather conditions experienced in
the first quarter fully play out. The Company believes regular
business activities on the part of clients, including placing
orders, were impacted or delayed, potentially significantly.
Prospects for growth in Canada and the US remain positive and
management believes each country has the potential to recover
fairly promptly.
Liquidity and Capital Resources
At March 31, 2014, the Company had $30.3 million in cash and
cash equivalents compared with $34.4 million at December 31,
2013.
Management believes current cash on hand, available credit
facilities, and cash flow from operations will be sufficient to
meet working capital requirements as well as financial obligations.
In addition, DIRTT generally requires a 50% deposit on all orders
which also provides additional up-front working capital. Exceptions
are US government orders or special contractual situations.
As at March 31, 2014, DIRTT has a US$18.0 million revolving
operating facility. DIRTT currently has sufficient productive
capacity to satisfy near-term growth.
Looking forward through 2014, management expects to make
continued investments in product and software development to
further expand the Company's solutions, such as the Enzo Approach,
as well as in certain manufacturing equipment to support this
development. Management also expects to further invest in its
existing display areas, called Green Learning Centers ("GLCs"), to
ensure that each location is showcasing the latest DIRTT solutions.
DIRTT is investing in a new GLC in Toronto, Ontario, to better
serve and support the significant market in Central Canada. The
Company is also completing the first phase of leasehold
improvements to its manufacturing facility in Savannah, Georgia to
improve its functionality in the sales and marketing process.
Non-IFRS Measures
Adjusted gross profit, adjusted gross profit %, EBITDA, and
Adjusted EBITDA are non-IFRS measures used by management to assess
performance and financial condition. Consequently, they do not have
a standard meaning as prescribed by IFRS, and are therefore
unlikely to be comparable to similar measures presented and
calculated by other companies. DIRTT believes that the non-IFRS
measures are useful supplemental measures that may assist investors
in assessing the financial performance and the cash anticipated to
be generated by DIRTT's business. The non-IFRS measures should not
be considered as the sole measure of DIRTT's performance and should
not be considered in isolation from, or as a substitute for,
analysis of the financial statements. Please refer to the Company's
management's discussion and analysis for three months ended March
31, 2014 for a definition and reconciliation of the non-IFRS
measures used herein.
Conference Call Details
DIRTT will host a conference call and webcast on Monday, May 12,
2014 at 7 a.m. MT (9 a.m. ET) to discuss its first quarter results
in greater detail. President Scott Jenkins and CFO Derek Payne will
participate.
To access the conference call by telephone dial 647.427.7450
(Toronto and international callers) or 1.888.231.8191 (toll-free in
North America). Please call 10 minutes prior to the start of the
call. In addition, a live webcast (listen only mode) of the
conference call will be available at:
http://www.newswire.ca/en/webcast/detail/1341257/1482767
Investors are invited to submit questions by email before and
during the conference call. Please send them to ir@dirtt.net.
A replay of the conference call will be available at
416.849.0833 or 1.855.859.2056, passcode 32955252, from noon (ET)
Monday, May 12, 2104 to midnight (ET) Monday, May 19, 2014 or
through the webcast archives at http://www.newswire.ca or on
DIRTT's website at http://ir.dirtt.net/.
Financial Statements
DIRTT Environmental Solutions Ltd. |
Consolidated Statements of Loss and
Comprehensive Income (Loss) |
(Stated in thousands of Canadian dollars,
except per share amounts) |
|
For the three months ended |
|
|
March 31, 2014 |
|
March 31, 2013 |
|
|
$ |
|
$ |
|
|
|
|
|
|
Revenue |
40,515 |
|
30,391 |
|
Cost of goods sold |
23,425 |
|
20,750 |
|
Gross profit |
17,090 |
|
9,641 |
|
|
|
|
|
|
Selling, general and administrative |
16,092 |
|
12,566 |
|
Operating income (loss) |
998 |
|
(2,925 |
) |
|
|
|
|
|
Foreign exchange loss |
228 |
|
342 |
|
Interest income |
(70 |
) |
(4 |
) |
Finance costs |
616 |
|
1,316 |
|
Income (loss) before tax |
224 |
|
(4,579 |
) |
|
|
|
|
|
Current tax expense |
312 |
|
- |
|
Deferred tax recovery |
(18 |
) |
- |
|
|
294 |
|
- |
|
Net loss for the period |
(70 |
) |
(4,579 |
) |
|
|
|
|
|
Other comprehensive income (loss) |
|
|
|
|
Items that will not be reclassified to profit or loss: |
|
|
|
|
Exchange differences on translation of foreign operations, net of
tax of $nil (2013 - $nil) |
1,030 |
|
497 |
|
Total comprehensive income (loss) for the period |
960 |
|
(4,082 |
) |
|
|
|
|
|
Loss per share |
|
|
|
|
Basic and diluted |
$ (0.00 |
) |
$ (0.13 |
) |
|
DIRTT Environmental Solutions Ltd. |
Consolidated Statements of Financial Position |
(Stated in thousands of Canadian dollars) |
As at |
March 31, 2014 |
|
December 31, 2013 |
|
|
$ |
|
$ |
|
ASSETS |
|
|
|
|
Current Assets |
|
|
|
|
Cash and cash equivalents |
30,322 |
|
34,373 |
|
Trade and other receivables |
17,789 |
|
17,166 |
|
Inventory |
9,373 |
|
11,376 |
|
Prepaids and other current assets |
1,986 |
|
1,058 |
|
|
59,470 |
|
63,973 |
|
Non-current Assets |
|
|
|
|
Long-term deposits |
570 |
|
522 |
|
Property, plant and equipment |
29,966 |
|
29,986 |
|
Intangible assets |
10,691 |
|
10,112 |
|
Notes receivable |
481 |
|
486 |
|
Deferred tax assets |
2,106 |
|
1,967 |
|
Goodwill |
1,845 |
|
1,845 |
|
|
45,659 |
|
44,918 |
|
Total Assets |
105,129 |
|
108,891 |
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
Current Liabilities |
|
|
|
|
Trade accounts payable and accrued liabilities |
11,593 |
|
12,550 |
|
Customer deposits |
3,978 |
|
8,370 |
|
Current portion of long-term debt |
2,449 |
|
2,419 |
|
Provisions |
531 |
|
469 |
|
Current tax liabilities |
475 |
|
314 |
|
|
19,026 |
|
24,122 |
|
Non-current Liabilities |
|
|
|
|
Deferred tax liabilities |
651 |
|
592 |
|
Long-term debt |
5,183 |
|
5,673 |
|
Convertible notes |
10,565 |
|
9,904 |
|
|
16,399 |
|
16,169 |
|
Shareholders' Equity |
|
|
|
|
Common share capital |
123,292 |
|
123,127 |
|
Warrants |
1,101 |
|
1,101 |
|
Equity component of convertible notes |
57 |
|
57 |
|
Contributed surplus |
6,171 |
|
6,192 |
|
Accumulated other comprehensive income |
2,323 |
|
1,293 |
|
Accumulated deficit |
(63,240 |
) |
(63,170 |
) |
|
69,704 |
|
68,600 |
|
Total Liabilities and Shareholders' Equity |
105,129 |
|
108,891 |
|
|
DIRTT Environmental Solutions Ltd. |
Consolidated Statements of Cash Flows |
(Stated in thousands of Canadian dollars) |
|
For the three months ended |
|
|
March 31, 2014 |
|
March 31, 2013 |
|
|
$ |
|
$ |
|
Cash flows from operating activities: |
|
|
|
|
Net loss for the period |
(70 |
) |
(4,579 |
) |
Items not affecting cash: |
|
|
|
|
Depreciation included in cost of goods sold |
533 |
|
599 |
|
Depreciation and amortization included in selling, general and
administrative |
1,952 |
|
1,578 |
|
Stock-based compensation |
47 |
|
142 |
|
Income tax provision |
294 |
|
- |
|
Finance cost |
616 |
|
1,316 |
|
Non-cash foreign exchange loss on debt revaluation |
413 |
|
544 |
|
Non-cash foreign exchange loss |
433 |
|
158 |
|
Net change in non-cash working capital relating to operating
activities |
(4,892 |
) |
(715 |
) |
Cash taxes paid |
(157 |
) |
- |
|
Net cash flows used in operating activities |
(831 |
) |
(957 |
) |
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
Purchase of property, plant and equipment |
(1,047 |
) |
(714 |
) |
Capital expenditures on internally generated intangible assets |
(1,335 |
) |
(1,140 |
) |
Receipt of proceeds from notes receivable |
5 |
|
- |
|
Net cash flows used in investing activities |
(2,377 |
) |
(1,854 |
) |
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
Issuance of share capital on exercise of stock options |
97 |
|
- |
|
Interest paid on convertible notes |
(252 |
) |
(408 |
) |
Repayment of long-term debt |
(611 |
) |
(582 |
) |
Interest paid on long-term debt |
(77 |
) |
(31 |
) |
Net cash flows used in financing activities |
(843 |
) |
(1,021 |
) |
|
|
|
|
|
Net decrease in cash and cash equivalents |
(4,051 |
) |
(3,832 |
) |
Cash and cash equivalents and restricted cash, beginning of
period |
34,373 |
|
8,826 |
|
Cash and cash equivalents, end of period |
30,322 |
|
4,994 |
|
|
|
|
|
|
Cash and cash equivalents consists of: |
|
|
|
|
Cash |
2,319 |
|
4,994 |
|
Temporary investments |
28,003 |
|
- |
|
|
30,322 |
|
4,994 |
|
About DIRTT
DIRTT Environmental Solutions (Doing It Right This Time) uses
its proprietary 3D software to design, manufacture and install
fully customized prefab interiors. DIRTT's customers in the
corporate, government, education and healthcare sectors benefit
from the Company's precise design and costing; rapid lead times
with the highest levels of customization and flexibility; and
faster, cleaner construction.
To find out more about DIRTT (TSX: DRT) please visit our website
www.dirtt.net or contact us at ir@dirtt.net.
Forward-Looking Information
Certain information and statements contained in this news
release constitute "forward-looking information" and
"forward-looking statements" (collectively, "Forward-Looking
Information") as defined under applicable Canadian securities laws
and the Company hereby cautions investors about important factors
that could cause the Company's actual results or outcomes to differ
materially from those projected in any Forward-Looking Information
contained in this news release. Any statements that express, or
involve discussions as to, expectations, beliefs, plans,
objectives, assumptions or future events or performance (often, but
not always, through the use of words or phrases such as "will
likely result", "are expected to", "will continue", "is
anticipated", "believes", "estimated", "intends", "plans",
"projection" and "outlook"), are not historical facts and may be
forward-looking and may involve estimates, assumptions and
uncertainties which could cause actual results or outcomes to
differ materially from those expressed in such Forward-Looking
Information.
In particular and without limitation, this news release contains
Forward-Looking Information pertaining to the following: comments
with respect to the Company's revenue, objectives and priorities
for 2014 and beyond; project timetables; its growth strategies and
opportunities; its ability to meet working capital requirements and
financial obligations; the launch of the ESPP; use of proceeds from
the IPO; and its outlook for its operations and the Canadian, US
and international economies, and in particular, the US construction
industry.
With respect to Forward-Looking Information contained in this
news release, assumptions have been made regarding the Company,
among other things:
- its ability to manage our growth;
- competition in our industry;
- its ability to enhance current products and develop and
introduce new products;
- its ability to obtain components and products from suppliers on
a timely basis and on favourable terms;
- its ability to obtain qualified staff and equipment in a timely
and cost-efficient manner;
- the regulatory framework governing taxes in Canada and the US
and any other jurisdictions in which the Company may conduct its
business in the future;
- future development plans for its assets unfolding as currently
envisioned;
- future capital expenditures to be made by the Company;
- future sources of funding for its capital program;
- the impact of increasing competition on the Company; and
- its success in identifying risks to its business and managing
the risks mentioned below.
The Company's actual results or outcomes could differ materially
from those expressed in the Forward-Looking Information as a result
of the risks normally encountered in its industry such as:
- maintaining and managing growth;
- history of losses;
- risks related to global financial crisis;
- risks related to new technology;
- competition risks;
- operating results and financial condition fluctuations on a
quarterly and annual basis;
- risks related to intellectual property;
- risks related to additional capital requirements;
- customer base and market acceptance;
- software and product defects and design risks;
- availability of key supplies;
- dependence on key personnel and consultants;
- commodity price risk;
- risks related to restricted covenants;
- credit risk;
- the effect of government regulation;
- risks related to international expansion;
- risks related to physical facilities;
- legal risks;
- foreign currency and fiscal matters;
- risks related to future acquisitions;
- risks related to Forward-Looking Information;
- reliance on third parties; and
- conflicts of interest.
Since actual results or outcomes could differ materially from
those expressed in the Forward-Looking Information provided by or
on behalf of the Company, investors and others should not place
undue reliance on any such Forward- Looking Information.
DIRTT cautions that the foregoing lists of factors are not
exhaustive. Further, Forward-Looking Information is made as of the
date hereof, and the Company undertakes no obligation to update
Forward-Looking Information to reflect events or circumstances
after the date on which such statement is made or to reflect the
occurrence of unanticipated events, except as required by
applicable Canadian securities laws. New factors emerge from time
to time, and it is not possible for DIRTT's management to predict
all of these factors and to assess in advance the impact of each
such factor on the Company's business or the extent to which any
factor, or combination of factors, may cause actual results to
differ materially from those contained in Forward-Looking
Information. No assurance can be given that these expectations will
prove to be correct and such Forward-Looking Information contained
in this news release should not be unduly relied upon. In addition,
this news release may contain Forward-Looking Information
attributed to third party industry sources.
For a detailed description of the risks and uncertainties facing
the Company and its business and affairs, readers should refer to
the Company's annual financial statements, management's discussion
and analysis and annual information form for the 12 months ended
December 31, 2013, all of which are available at www.sedar.com.
Scott JenkinsPresidentsjenkins@dirtt.net403.723.5009Derek
PayneCFOdpayne@dirtt.net403.313.9879
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