Investor Presentation
May 2020
TSX: DRT | NASDAQ: DRTT |
Advisory
Special Note Regarding Forward-Looking Statements
Certain information and statements contained in this presentation constitute "forward-looking information" and "forward-looking statements" (collectively, "Forward-Looking Information") as defined under applicable provisions of the United States Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934 and within the meaning of applicable Canadian securities laws. 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 presentation. When used in this presentation, the words "anticipate," "believe," "expect," "estimate," "intend," "target," "plan," "project," "outlook," "may," "will," "should," "would," "could," "can," the negatives thereof, variations thereon and other similar expressions are intended to identify Forward-Looking Information, although not all Forward-Looking Information contains such identifying words. In particular, this presentation contains Forward-Looking Information with respect to, among other things, the impact of COVID-19 on our business; our beliefs about our innovation, manufacturing and commercial execution capabilities, and our ability to leverage those capabilities into advantages in commercial construction; our ability to enhance our sales performance for a nominal cost; our intention to commission our new South Carolina production facility in the first half of 2021; the expected cost of commissioning our new South Carolina production facility, and the expected sources of funding; the expected impacts of commissioning our new South Carolina production facility, including reducing single plant risk and creating significant cost savings and logistical improvements; and our expectations regarding the impact COVID-19 may have on new opportunities. Forward-Looking Information is based on certain estimates, beliefs, expectations and assumptions made in light of management's experience and perception of historical trends, current conditions and expected future developments, as well as other factors that may be appropriate. Forward-Looking Information necessarily involves unknown risks and uncertainties, which could cause actual results or outcomes to differ materially from those expressed or implied in such statements. Factors that could have a material effect on our business, financial condition, results of operations and growth prospects include, but are not limited to: competition in the interior construction industry; global economic, political and social conditions and financial markets; our reliance on our network of distribution partners for sales, marketing and installation of our solutions; our ability to implement our strategic plans and to maintain and manage growth effectively; our ability to introduce new designs, solutions and technology and gain client and market acceptance; labor shortages and disruptions in our manufacturing facilities; product liability, product defects and warranty claims brought against us; defects in our designing and manufacturing software; infringement on our patents and other intellectual property; cyber-attacks and other security breaches of our information and technology systems; material fluctuations of commodity prices, including raw materials; shortages of supplies of certain key components and materials; our exposure to currency exchange rate, tax rate and other fluctuations that result from general economic conditions and changes in laws; legal and regulatory proceedings brought against us; the availability of capital or financing on acceptable terms, which may impair our ability to make investments in the business; and other factors and risks described under the heading "Risk Factors" included in our Form 10-Q filed with the Securities and Exchange Commission on May 6, 2020.
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.
Currency and Presentation of Financial Information
Unless otherwise indicated, all financial information relating to the Company in this Presentation has been prepared in U.S. dollars using accounting principles generally accepted in the United States ("GAAP") and the rules and regulations of the SEC.
2
Non-GAAP Financial Measures
Our consolidated financial statements are prepared in accordance with GAAP. These GAAP financial statements include non-cash charges and other charges and benefits that we believe are unusual or infrequent in nature or that we believe may make comparisons to our prior or future performance difficult.
As a result, we also provide financial information in this presentation that is not prepared in accordance with GAAP and should not be considered as an alternative to the information prepared in accordance with GAAP. Management uses these non-GAAP financial measures in its review and evaluation of the financial performance of the Company. We believe that these non-GAAP financial measures also provide additional insight to investors and securities analysts as supplemental information to our GAAP results and as a basis to compare our financial performance from period to period and to compare our financial performance with that of other companies. We believe that these non-GAAP financial measures facilitate comparisons of our core operating results from period to period and to other companies by removing the effects of our capital structure (net interest income on cash deposits, interest expense on outstanding debt, or foreign exchange movements on debt revaluation), asset base (depreciation and amortization), tax consequences and stock-based compensation. In addition, management bases certain forward-looking estimates and budgets on non-GAAP financial measures, primarily Adjusted EBITDA.
Reorganization expenses, impairment expenses, depreciation and amortization, and stock-based compensation are excluded from our non-GAAP financial measures because management considers them to be outside of the Company's core operating results, even though some of those expenses may recur, and because management believes that each of these items can distort the trends associated with the Company's ongoing performance. We believe that excluding these expenses provides investors and management with greater visibility to the underlying performance of the business operations, enhances consistency and comparativeness with results in prior periods that do not, or future periods that may not, include such items, and facilitates comparison with the results of other companies in our industry.
The following non-GAAP financial measures are presented in this press release, and a description of the calculation for each measure is included.
Adjusted Gross ProfitGross profit before deductions for costs of under-utilized capacity, depreciation and amortization
Adjusted Gross Profit MarginAdjusted Gross Profit divided by revenue
EBITDANet income before interest, taxes, depreciation and amortization
Adjusted EBITDAEBITDA adjusted for foreign exchange gains or losses; impairment expenses; stock-based compensation expense; reorganization expenses; and any other non-core gains or losses Adjusted EBITDA MarginAdjusted EBITDA divided by revenue
COGS excl. Depreciation & AmortizationCost of goods sold less depreciation and amortization included in cost of goods sold.
COGS excl. Depreciation & Amortization as a % of Revenue COGS excl. Depreciation & Amortization divided by revenue
Net Operating CostsThe sum of sales & marketing, general & administrative, operations support and technology & development expenses less depreciation included therein
Net Operating Costs as a % of Revenue Net Operating Costs divided by revenue
You should carefully evaluate these non-GAAP financial measures, the adjustments included in them, and the reasons we consider them appropriate for analysis supplemental to our GAAP information. Each of these non-GAAP financial measures has important limitations as an analytical tool due to exclusion of some but not all items that affect the most directly comparable GAAP financial measures. You should not consider any of these non-GAAP financial measures in isolation or as substitutes for an analysis of our results as reported under GAAP. You should also be aware that we may recognize income or incur expenses in the future that are the same as, or similar to, some of the adjustments in these non-GAAP financial measures. Because these non-GAAP financial measures may be defined differently by other companies in our industry, our definitions of these non-GAAP financial measures may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.
3
Investment Thesis - Why DIRTT
Compelling
Customer Value
Proposition
Large
Underpenetrated
Market
Financial
Strength
DIRTT 2.0
2019 - Current
- Higher quality, faster execution, better value
- Protected by 271 patents
- Proprietary product design and software
- Displacing $150B conventional construction market
- Shortage of jobsite labor driving shift to prefabricated construction
- Less than 1% penetrated currently
- $43.5M cash (a/o March 31, 2020), no debt
- Financial flexibility to weather macro economic uncertainty
- Executing strategic plan to capitalize on value proposition and realize full market potential
4
Nasdaq: DRTT
TSX:DRT
3 Manufacturing Plants
(4thfacility under construction opening 2021)
~75 North American
Partners
271 Patents Granted
What is DIRTT?
A superior, sustainable approach to interior construction driving cost and schedule certainty, faster move-in and ultimately increased customer satisfaction.
Proprietary prefabricated interior wall and millwork system, 100% customizable and easily modified post installation
Enabled by proprietary software platform that integrates the design, sale, pricing and manufacturing process
Sold through an extensive North American dealer network that provides pre- construction, design, installation and post-installation maintenance and reconfiguration services
Reduced construction waste through off-site manufacturing and lifetime sustainability driven by flexibility of installed solution
1,000+ Employees
The DIRTT Scope
WALLS | DOORS | TIMBER | ACCESS FLOORS | MILLWORK |
- Frames, insulation, finishes, glass
- Writable surfaces
- Integrated technology
- Leaf™ folding walls
- Breathe® living walls
- Inspire™ modular,low-profile wall
- Reflect™low-profile glass wall
MODULAR POWER & | BESPOKE CEILINGS | FLEXIBLE |
NETWORKS | MEDICAL GAS |
6
Customer Value Proposition
Certainty derived from our proprietary software (ICE)
Better Value
- DIRTT's software calculates the DIRTT scope down to the penny
- Higher quality materials
- Day 1 construction costs often less than conventional construction
- Less expensive than conventional over the life of the project
Faster Execution
- DIRTT components are manufactured and shipped in 21 days or less - 14 days for tiles
- Prefabricated solutions greatly minimize risk of schedule delays
- Reduces time to occupancy
- Less reliance onon-site labor
Higher Quality
- DIRTT's software provides superior customer satisfaction with avirtual-realitydesign-review experience and 3D/VR experiences
- Eliminates change orders
- Maximizes client satisfaction atmove-in
- Modularity allows flexibility to change as needs evolve, maintaining customer satisfaction over time
7
North American Footprint
$150B* Market Opportunity
Taking less than 1% market share from conventional construction is $1.5B
$150B*
DIRTT <1% penetration
Partner Location
DIRTT DXC
Manufacturing
Manufacturing(under construction)
8 | Source: National Labor Database, Commercial Construction Index, Modular Building Institute, FMI, Pitchbook |
*company estimate |
Industry Focus
OFFICE SPACE | HEALTHCARE | EDUCATION | GOVERNMENT | HOSPITALITY |
- Over 15 years of experience building interiors
- More than 7,800 clients worldwide
- Worked with over 30% of the Fortune 500
9
Transforming DIRTT
DIRTT 1.0 | The Right | The Right | The Right |
(2005-2018) | People | Plan | Execution |
DIRTT
2.0
We are transforming DIRTT from a small company with a brilliant idea to a company that we believe is capable of sustaining aggressive and profitable growth that will drive real and ongoing shareholder value.
10
Strategic Plan
Ongoing | 2019 - 2020 | 2019 - 2021 |
Innovation | Manufacturing excellence | Commercial execution | |
• Build on a 15-year track record of | • | Embed a culture of safety | • Build a world class sales and marketing |
creativity | • | organization | |
• Give clients both what they want and | Facilitate innovation | • Deploy people, processes and systems to | |
• | Utilize Lean Manufacturing to ensure | ||
what they need | drive market penetration and sales | ||
• Continue industry leadership | outstanding quality, customer service and | • Drive go-to-market strategies for key | |
efficiency | |||
products and segments |
Recent Progress
- Exceeded Bureau of Labor Statistics safety standards in manufacturing plants
- On schedule to enter continuous improvement phase in manufacturing plants by year end
- Highly automated South Carolina plant proceeding with commercial operations expected 1H2021
- Successful, comprehensive andcompany-wide product launch of InspireTM
- Direct reports to the CCO in place, 3 of 4 regional sales directors in place, proceeding with selective hiring within sales and marketing while deferringnon-critical hires to remain financially flexible
- Total cost of ownership tool on schedule for full launch in Q4 2020
- Anticipate end to end lead tracking to be in effect bymid-year
12
DIRTT 2.0 Commercial Strategy Example
Developed comprehensive new product go-to-market framework
Leveraged for the first time with InspireTMcommercial launch
- Complete set of sales and marketing tools at launch including:
- Sales presentation
- Social media package
- DIRTT.com blog post
- Brochure/leave behind
- Product tech sheets and installation guide
- Paid social media promotion by DIRTT
- InspireTMin ICE prior to launch resulting in digital integration from design to production
- Training and briefing of DIRTT sales reps in advance of the launch
- Training and briefing of partners in advance of the launch
- Regularcross-functionalgo-to-market meetings
- Strategic Marketing and Product Development collaboration on product positioning and development of key assets (renderings and animations)
13
InspireTMCommercial Launch
PowerPoint presentation | Social media assets | DIRTT.com blog post | Brochure/leave behind | ||||||||
14
Post-COVID Opportunities
Less Dense Offices | Challenged Healthcare Infrastructure | Fewer People on Job Sites |
DIRTT | DIRTT | DIRTT |
Modular Solutions | Shorter Construction Schedule | Less Jobsite Labor |
15
Challenges of an Uncertain Future
COVID-19 has had a material impact on the global economy and the enduring effect remains uncertain
Economic Recession | Record Unemployment | Commercial Construction |
Contraction |
16
Moving Forward - Balanced Execution
Innovation | Manufacturing Excellence | Commercial Execution |
Prudently continue solution | Move forward with South | Match pace of hiring with |
and technology innovation | Carolina plant; continue Lean | business conditions; reduce |
implementation in existing plants | cost of commercial systems |
17
Enhanced DIRTT Liquidity
- $43.5M of cash on the balance sheet
- CAD$5M equipment leasing facility (7 years @ 4.25%)
- US$16M equipment leasing facility (5 years at 3.5%)
- Covenant holiday until October 2020 with revisit at that point
DIRTT is well positioned to weather current macro-economic uncertainties
18
Financial Performance
Revenue (Millions)
$274.6
$247.7$245.2
$226.5
2017 | 2018 | 2019 | TTM |
Revenue
- Implementation of sales and marketing strategy expected to drive future growth
Adjusted EBITDA* | ||||||||
$50.0 | 16.0% | |||||||
$40.0 | 14.0% | |||||||
12.0% | ||||||||
$30.0 | 10.0% | |||||||
8.0% | ||||||||
$20.0 | ||||||||
6.0% | ||||||||
$10.0 | 4.0% | |||||||
2.0% | ||||||||
$- | 0.0% | |||||||
2017 | 2018 | 2019 | TTM | |||||
Adj EBITDA (US$ Millions) | Adj EBITDA % | |||||||
Adjusted EBITDA*
- One-timecosts affected 2019
- Negative fixed cost leverage on lower revenue affected 2019 and Q1 2020
- Overhead reductions in 2020
19*See "Non-GAAP Financial Measures"
Strategic Plan Financial Targets1
Revenue | Adjusted EBITDA |
US$ Million
$600
$500
$400
$300
$200
$100 $0
25%
20%
15%
10%
5%
0% | ||||
TTM Q4/18 - Q3/19 | FY 2023 | |||
TTM Q4/18 - Q3/19 | FY 2023 | |||
2023 Revenue | 2023 Adjusted EBITDA* Margin 18% - 22% |
$450M - $550M |
*See "Non-GAAP Financial Measures" | |
20 | 1Reflects management targets and not forecasts of future performance |
The Path to 2023 Target
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
8%
Marginexpansion | 18%-22% | |
31% | Elimination of $5.7M of one-time costs in 2019 | |
combined with leverage from G&A and T&D. |
Curtailment of discretionary spending during | 28%-26% |
COVID | |
Reduction of one time costs incurred in 2019, | ||
61% | reduction in work force by 25% in 1H20, | |
increased efficiencies from lean manufacturing | 54%-52% | |
initiatives, leverage from automation of new | ||
South Carolina plant anticipated to begin | ||
commercial operations 1H21 | ||
2019 | 2023 Target | |||||
COGS (excl Depn) | Adj Op Costs | Adj EBITDA | ||||
Capital Investments
Ongoing
Capital Expenditures $6M - $8M
35% | 35% |
Software | |
Plant Equipment | |
Development |
12% 18%
Corporate DXC
Refresh
Estimated major capital initiatives 2019-2021 over and above ongoing capital expenditures:
Initiative | 2019 | 2020 | 2021 |
Primer line | 2.0 | ||
South Carolina plant* | 4.5 | 10.5 | 3.5 |
DXC buildout | 2.0 | 1.0 | |
* capital lease financing in place
- Software development will vary year over year depending upon mix of maintenance and development activities
- New primer line for permanent solution to tile warping
- South Carolina plant commercial operation anticipated 1H2021
- DXC refresh
- No major projects currently planned for 2022 & 2023
- Ongoing capital expenditures for 2020 reduced to $6M - $8M
22
Key Takeaways
- 2019 was a pivotal year for DIRTT
- Transformational leadership team hired
- Developed and commenced implementation of strategic plan
- 2020 balances strategic plan execution with conservative financial management
- Build on product and technology innovation
- Achieve continuous improvement stage in manufacturing operations
- Purposeful investment to position the commercial organization for success
- Maintain flexible financial position to weather economic uncertainty
DIRTT is well
positioned to meet the opportunities and challenges of the future
- COVID-19and its aftermath present DIRTT with unique opportunities amid macro-economic challenges
Appendix
Summary of Consolidated Financial Results
For the period-ended March 31 | Three months | ||
($ thousands, except per share amounts) | 2020 | 2019 | % Change |
Revenue | 40,981 | 65,061 | (37) |
Gross profit | 11,315 | 23,604 | (52) |
Gross profit margin | 27.6% | 36.3% | (24) |
Adjusted Gross Profit, as previously presented1,2 | 13,576 | 25,784 | (47) |
Adjusted Gross Profit1,2 | 15,586 | 25,784 | (40) |
Adjusted Gross Profit Margin1,2 | 38.0% | 39.6% | (4) |
Operating expenses3 | 20,391 | 28,369 | (28) |
Operating expenses %3 | 49.8% | 43.6% | 14 |
Operating loss3 | (9,076) | (4,765) | 90 |
Adjusted EBITDA, as previously presented1 | (3,164) | 6,986 | NA |
Adjusted EBITDA1,4 | (5,483) | 7,716 | NA |
Adjusted EBITDA Margin%1,4 | (13.4%) | 11.9% | NA |
Income tax recovery | (1,326) | (14) | 100 |
Net loss3 | (5,328) | (5,265) | 1 |
Net loss per share - basic and diluted3 | (0.06) | (0.06) | - |
- See"Non-GAAP Financial Measures"
- Q1 2020 presentation excludes $2.0 million of costs attributable tounder-utilized capacity in cost of sales
- Q1 2019 included $6.5 million instock-based compensation expenses (2020 - $0.5 million) and $2.6 million in reorganization expenses (2020 - nil).
- Presented both periods to exclude the impact of foreign currency gains and losses, previously only foreign currency impacts on debt revaluation were included in the calculation of Adjusted EBITDA.
25
Additional Financial Highlights
($ thousands) | Mar 31, 2020 | Dec 31, 2019 |
Cash and cash equivalents | 43,460 | 47,174 |
Trade and other receivables, net | 23,165 | 24,941 |
Inventory | 16,526 | 17,566 |
Property, plant and equipment, net | 38,772 | 41,365 |
Capitalized software, net | 7,801 | 8,213 |
Operating lease right-of-use assets, net | 18,802 | 20,661 |
Accounts payable and other liabilities | 21,744 | 20,384 |
Other current liabilities | 4,850 | 5,187 |
Lease liabilities, current and long term portions | 19,494 | 21,403 |
For the period-ended | Mar 31, 2020 | Mar 31, 2019 |
($ thousands) | ||
Cash flows provided by (used in) operating activities | (760) | 7,400 |
Cash flows used in investing activities | (2,455) | (2,104) |
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Non-GAAP Financial Measures
The following tables present a reconciliation for the three months ended March 31, 2020 and 2019 of our non-GAAP measures to the most directly comparable GAAP measures, being Adjusted EBITDA to net income, and Adjusted Gross Profit to gross profit.
For the period-ended March 31 | Three months | |
($ thousands) | 2020 | 2019 |
Net income (loss) for the period | (5,328) | (5,265) |
Add back (deduct): |
For the period-ended March 31 | Three months | |
($ thousands) | 2020 | 2019 |
Gross profit | 11,315 | 23,604 |
Gross profit margin | 27.6% | 36.3% |
Interest expense | 35 | 49 |
Interest income | (138) | (54) |
Income tax recovery | (1,326) | (14) |
Depreciation and amortization | 3,132 | 3,395 |
EBITDA | (3,625) | (1,889) |
Stock-based compensation expense | 461 | 6,447 |
Add: Depreciation and amortization expense
Adjusted Gross Profit, as previously presented
Add: Costs of under-utilized capacity
Adjusted Gross Profit
Adjusted Gross Profit Margin, as previously presented
2,261 2,180
13,576 25,784
2,010 -
15,586 25,784
33.1% 39.6%
Non-cash foreign exchange gain on debt revaluation | - | (211) |
Reorganization expenses | - | 2,639 |
Adjusted EBITDA, as previously presented | (3,164) | 6,986 |
Other foreign exchange (gains) losses | (2,319) | 730 |
Adjusted EBITDA | (5,483) | 7,716 |
Net Loss Margin | (13.0%) | (8.1%) |
Adjusted EBITDA Margin, as previously presented | (7.7%) | 10.7% |
Adjusted EBITDA Margin | (13.4%) | 11.9% |
Adjusted Gross Profit Margin | 38.0% | 39.6% |
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Disclaimer
DIRTT Environmental Solutions Ltd. published this content on 25 May 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 25 May 2020 20:07:07 UTC