DIRTT Environmental Solutions Ltd. ("DIRTT" or the "Company") (DRT.TO), a leading technology-enabled designer, manufacturer and installer of fully customized, prefabricated interiors, today announced its financial results for the three and nine-month periods ended September 30, 2016. This news release contains references to Canadian dollars and United States dollars. Canadian dollars are referred to as "$" and United States dollars are referred to as "US$".

For the three months ended September 30, 2016 the Company reported:

Revenue of $71.5 million in Q3, representing a 15.2% increase over what was previously a record quarter (Q3 2015);
Adjusted EBITDA of $11.1 million and Adjusted EBITDA % of 15.5%;
Gross profit % of 43.3% and adjusted gross profit % of 44.3% for the quarter;
Opening of DIRTT Green Learning Center in London, England to market to U.K., European and Middle East markets;
Announcement of a 33% reduction in manufacturing lead times from three weeks to two weeks; and
Subsequent to quarter end, appointment of Mr. Richard J. Haray to the Board of Directors of DIRTT.

For the nine months ended September 30, 2016 the Company reported:

Revenue of $188.7 million for the nine months year-to-date ("YTD") representing an increase of $17.1 million, or 9.9% over YTD 2015;
Trailing 12-month revenue of $253.7 million versus $229.6 million in the prior 12-month period, an increase of 10.5%;
Adjusted EBITDA of $20.0 million and Adjusted EBITDA % of 10.6%;
Gross profit % of 43.6% and adjusted gross profit % of 44.9%;
Sales and marketing headcount increase of 20.4% year-over-year; and
Increased Distribution Partner investment in Green Learning Centers of 44.8% versus YTD 2015.

"The third quarter represents the first time we have exceeded $70 million in revenue and highlights the growing momentum we are seeing in almost all of our industry segments," said Mogens Smed, DIRTT CEO. "Perhaps more notable is that the energy sector, which significantly reduced our growth in 2015 and 2016 was only 1% of our business in Q3. Our long-term strategies of diversifying into complementary industries such as healthcare and education and accelerating investment in new solutions and leading edge technology such as ICEreality™ are paying strong dividends."

Scott Jenkins, President of DIRTT added, "While the energy sector has been a drag on our growth in the prior year and in 2016, we are encouraged that our other industry segments have generated growth in excess of 20% year-to-date and over the last 12 months on a consolidated basis. At the beginning of 2015, the energy sector represented approximately 28% of revenue; now that the challenges of the energy sector are largely behind us, we are confident that our overall growth will improve in 2017."

Mogens Smed added, "As discussed previously we have increased our investment in our distribution partners along with adding strategic sales, marketing and business development resources during the year. These team members and our strategic programs focused on our partners are starting to support our growth prospects throughout North America and abroad. Conventional construction is faced with ever growing skilled labor shortages, continual quality issues, time delays and cost overruns. DIRTT on the other hand continues to set new standards for our customized, high quality solutions as the announcement of our reduction in manufacturing lead times demonstrates. Our growing list of clients understand that with DIRTT there truly is a better way to build."

Appointment of Mr. Richard J. Haray to the Board of Directors

DIRTT would like to welcome Mr. Richard J. Haray to the Board of Directors effective November 8, 2016. Mr. Haray brings a wealth of commercial real estate, procurement, marketing and legal expertise to DIRTT's Board and is currently Senior Vice President, Corporate Services of the Interpublic Group, one of the world's leading organizations of advertising agencies and marketing services companies with over 50,000 employees and 450 offices in 120 countries worldwide.

Commenting on the addition of Mr. Haray to the Board of Directors, DIRTT Board Chair Steve Parry said, "Richard's vast real estate network and experience, as well as his role as a member of one of the world's pre-eminent marketing and advertising companies, will be tremendous assets to DIRTT. His interest in DIRTT speaks volumes as to his belief in our prospects and his ability to contribute to our goals as we move forward."

Mr. Haray began his tenure at IPG in 1996 overseeing real estate and insurance. He played a key role in centralizing this function and getting IPG on a path to better service and significant cost savings. In October 2005, Mr. Haray took on the additional responsibility of corporate-wide global sourcing and procurement efforts. Prior to his tenure at IPG, Mr. Haray was Vice President and Lease Counsel of Rockefeller Center Management Corporation. Prior to Rockefeller Group, he held positions at both Shearman and Sterling and Willkie Farr & Gallagher as a Real Estate Associate.

He is a life-long resident of New York City and currently sits on the Board of the Bryant Park Management Corporation, Regional Plan Association and Fordham University President's Council. Mr. Haray is a member of CoreNet, a corporate real estate professional organization and CRELC, a corporate leadership group focusing on current real estate issues and trends. Mr. Haray is also a board member of the James Lenox Association for the elderly and actively works on behalf of several New York-based charities, including the St. Francis Food Pantries, Muscular Dystrophy Association, and scholarship foundations benefiting Fordham and St. John's Universities.

Mr. Haray received his BA from St. John's University and his JD Degree from St. John's University School of Law, where he served as Editor-in-Chief of the Law Review.

Revenue

Revenue increased by $9.5 million, or 15.2%, for Q3 2016 compared with Q3 2015. The increase was the result of a general increase in activity from small and medium-sized projects in Q3 2016, from a diverse range of industry segments. In addition, installations revenue in Q3 2016 increased by $1.8 million to $2.1 million, compared with $0.3 million in Q3 2015. During Q3 2016, revenue from energy represented 1% of total revenue as compared to 6% in Q3 2015. The impact to the Canadian dollar value of US revenue was negligible as the average US dollar decreased from 1.3087 from Q3 2015 to 1.3046 in Q3 2016. These decreases in revenue were more than offset by increases in other segments. Below is a breakdown of percentage revenue by sector for Q3 2016 versus Q3 2015:

http://media3.marketwire.com/docs/revenue-by-sector-for-Q3-2016-versus-Q3-2015.pdf

Revenue increased by $17.1 million, or 9.9%, for YTD 2016 compared with the same period in 2015. The 2015 period included revenue of $8.4 million from the previously announced US$30.0 million US energy sector contract, compared to nil during the 2016 period. This business was partially offset by the $4.3 million contribution (2% of total revenue) from the residential market during the 2016 period. The remainder of the increase in the 2016 period was the result of a general increase in activity from small and medium-sized projects, from a diverse range of industry segments. During YTD 2016 the energy industry represented only 4% of revenue whereas in 2015 it represented 12%. This decrease in revenue has been more than offset by increases in other industry segments. The stronger average US dollar versus the comparable period in 2015 (YTD 2016 - 1.3213; YTD 2015 - 1.2598) also increased the Canadian dollar value of US revenue which contributed to the higher revenue in the 2016 period.

Below is a breakdown of percentage revenue by sector for YTD 2016 versus YTD 2015:

http://media3.marketwire.com/docs/revenue-by-sector-for-YTD-2016-versus-YTD-2015.pdf

Gross Profit / Adjusted Gross Profit / Gross Profit % / Adjusted Gross Profit %

Gross profit for Q3 2016 improved to $31.0 million from $27.8 million in Q3 2015, an increase of 11.4%. However, gross profit % slightly declined by 150 basis points to 43.3% from 44.8%. The decrease in gross profit % was due primarily to changes in product/service revenue mix, greater volatility in the timing of monthly production volumes, and a higher level of installations revenue.

Adjusted gross profit for Q3 2016 improved to $31.7 million from $28.4 million for Q3 2015, an increase of 11.3%. However, adjusted gross profit % declined by 150 basis points to 44.3% from 45.8% for the same reasons discussed above with respect to gross profit.

Gross profit for YTD 2016 improved to $82.3 million from $73.0 million for the same period in 2015, with gross profit % widening 110 basis points to 43.6% from 42.5%. Relatively steady timing of manufacturing volumes for most of the 2016 period, combined with a diverse project mix, contributed to the increase in gross profit % in 2016.

Adjusted gross profit for YTD 2016 improved to $84.7 million from $75.2 million for the same period in 2015, with adjusted gross profit % widening 110 basis points to 44.9% from 43.8% for the same reasons discussed above with respect to gross profit.

The higher US dollar to Canadian dollar average exchange rate (YTD 2016 - 1.3213; YTD 2015 - 1.2598) also contributed to increased gross profit and adjusted gross profit in YTD 2016, as the positive impact on US dollar revenue exceeded the negative impact on US dollar-based production costs. US dollar-based production costs include those costs incurred at our manufacturing facilities in Savannah, Georgia and Phoenix, Arizona. Additionally, some of our largest raw material costs incurred at all of our manufacturing facilities are also denominated in US dollars.

SG&A Expenses / Adjusted SG&A Expenses / SG&A % / Adjusted SG&A %

Selling, general and administrative ("SG&A") % increased slightly by 30 basis points from 34.7% to 35.0% in Q3 2016 compared with Q3 2015. SG&A expenses increased by $3.5 million, or 16.2%, for Q3 2016 compared with Q3 2015. The increase reflects DIRTT's ongoing investment in long-term growth initiatives. The most significant change can be attributed directly to sales-related efforts as salaries and commissions increased by $1.2 million. These costs reflect the addition of personnel focused on generating and supporting higher business volumes. Other increases in SG&A in Q3 2016 included depreciation and amortization expense of non-manufacturing-related assets of $0.7 million, travel and marketing costs of $0.6 million, professional fees of $0.2 million, rent expense of $0.2 million, stock-based compensation expense of $0.1 million, and $0.5 million in other operating expense items. The increase in depreciation and amortization expense of non-manufacturing-related assets correlates with the increase in our investment in leasehold improvements and software and product development.

Adjusted SG&A % decreased slightly by 20 basis points from 29.3% to 29.1% in Q3 2016 compared with Q3 2015. Adjusted SG&A expenses increased by $2.7 million, or 14.7%, for Q3 2016 compared with Q3 2015. The reason for the increase is the same as discussed above with respect to SG&A, excluding the impact from increased non-cash depreciation and amortization of non-manufacturing-related assets and stock-based compensation expense incurred in the period.

SG&A % increased by 270 basis points from 37.4% to 40.1% in YTD 2016 compared with the same period in 2015. SG&A expenses increased by $11.6 million, or 18.0%, for YTD 2016 compared with the same period in 2015. The increase reflects DIRTT's ongoing investment in long-term growth. The most significant changes can be attributed directly to marketing-related efforts as travel, marketing and trade show costs increased by $3.4 million, of which $1.2 million was related to DIRTT Connext™, DIRTT's largest and most important sales, marketing and training initiative which occurs every June in Chicago. The other significant change can be attributed directly to sales-related efforts as salaries and commissions increased by $1.6 million. These costs reflect adding personnel focused on generating and supporting higher business volumes. We expect the additional sales and marketing resources to support growth in 2017 and beyond. Other increases in SG&A in YTD 2016 included depreciation and amortization expense of non-manufacturing-related assets of $2.1 million, stock-based compensation expense of $1.2 million, software licenses and computer supplies of $0.8 million, rent expense of $0.7 million, professional service fees of $0.5 million, and $1.3 million in other operating expense items.

Adjusted SG&A % increased by 140 basis points from 32.3% to 33.7% in YTD 2016 compared with the same period in 2015. Adjusted SG&A expenses increased by $8.3 million, or 14.9%, for YTD 2016 compared with the same period in 2015. The reason for the increase is the same as discussed above with respect to SG&A, excluding the impact from increased non-cash depreciation and amortization of non-manufacturing-related assets and stock-based compensation expense in the year.

The higher US dollar to Canadian dollar average exchange rate (YTD 2016 - 1.3213; YTD 2015 - 1.2598) also contributed to the overall increase in SG&A and adjusted SG&A expenses across the organization for YTD 2016, as certain of these expenditures are denominated in US dollars.

Adjusted EBITDA / Adjusted EBITDA %

Adjusted EBITDA decreased slightly by $0.1 million for Q3 2016 compared with Q3 2015. Adjusted EBITDA % for Q3 2016 declined by 250 basis points from 18.0% in Q3 2015 to 15.5%.

Adjusted EBITDA decreased by $2.2 million, or 9.8%, for YTD 2016 compared with the same period in 2015. Adjusted EBITDA % for YTD 2016 weakened by 230 basis points from 12.9% in YTD 2015 to 10.6%. The decrease in YTD 2016 was mainly due to the increase in foreign exchange loss of $3.5 million and higher adjusted SG&A expenses of $8.3 million, partially offset by higher adjusted gross profit of $9.5 million.

Gains or losses in foreign exchange ("FX") are primarily the result of the period end revaluation of monetary assets and liabilities held within our Canadian companies. The largest component of these assets and liabilities is our holdings of US dollar cash and cash equivalents. The increase in foreign exchange loss of $3.5 million is the result of significant fluctuations in the CAD-US exchange rate in the year-over-year periods. During YTD 2015, the US dollar increased by $0.17 compared to year-end 2014, resulting in a $2.5 million gain on the revaluation of these monetary assets and liabilities. Conversely, during YTD 2016, the US dollar depreciated by $0.07 compared to year-end 2015, resulting in a $1.0 million loss being recognized.

Outlook

Our growth strategy consists of five key initiatives: (1) increasing penetration of existing markets by providing continued support and increased investment to our existing DPs throughout North America; (2) expanding into new geographies, such as the Middle East and United Kingdom, by capitalizing on recent and continued investment alongside new international DPs; (3) penetrating new vertical markets such as the healthcare, education and residential sectors; (4) continuing to invest in ICE® and new innovative interior construction solutions such as the Enzo Approach, residential interiors and timber frame construction; and (5) partnering with industry leaders to monetize innovative solutions.

Our previously announced programs to support our top-tier and next tier Distribution Partners, such as the DIRTT Movers Program, DIRTT Green Learning Center loan program, increasing investment in product development and ICE development are contributing to the momentum we are seeing as we start the fourth quarter of the year. Our unveiling of ICEreality™, bringing augmented reality to the construction industry, will change, we believe, the way people design, create, collaborate and build interiors. We believe the increasing investment our Distribution Partners are making in our business, with the addition of staff, increased investment in Green Learning Centers and their increased investment in DIRTT Connext, where their attendance was up 55%, is a strong indication of the long-term prospects for our business.

We believe DIRTT Solutions and the resulting more efficient and cost-effective construction experience are a superior alternative to conventional construction across all sectors of the construction industry, and that a continued increase in global construction activity can be expected to result in an ongoing improvement to our revenue. We plan to invest additional resources, including continuing to develop and expand ICE and new DIRTT Solutions and test projects, to pursue further opportunities in the healthcare, education, government, corporate and residential sectors of the construction industry.