DIRTT Environmental Solutions Ltd. (“DIRTT” or the “Company”) (DRT.TO), an interior construction company using technology for client-driven design and manufacturing, today announced its financial results for the three months ended March 31, 2018.

First Quarter 2018 Highlights

Revenue increased by $15.7 million, or 24.1% from Q1 2017, to $80.7 million;
Gross profit increased by $8.4 million, or 31.2% from Q1 2017, to $35.4 million;
Gross profit % increased from 41.5% in Q1 2017 to 43.9% this quarter;
Adjusted gross profit was $37.2 million and adjusted gross profit % was 46.1%;
Adjusted EBITDA was $12.7 million and adjusted EBITDA % was 15.7%; and
Net income was $3.6 million and net income per share was $0.04.

“The combination of our powerful business model and our fiscal disciplines resulted in a strong quarter, demonstrating DIRTT’s ability to deliver profitability alongside revenue growth,” says interim DIRTT CEO Michael Goldstein.

Goldstein adds that the operating leverage in the Company is highlighted by the strong adjusted gross profit margin and adjusted EBITDA margin for the quarter. “This quarter demonstrates the importance of DIRTT’s investments over the past few years and the perseverance, vision, and passion of our employees and partners to get us to this point. The strength of our digital construction solution is driving increased adoption.”

Summary Financial Results

Revenue

Revenue for Q1 2018 increased by $15.7 million, or 24.1%, over Q1 2017. The increase is attributable to a general increase across a range of industry segments, with healthcare increasing from 11% of total revenue in Q1 2017 to 13% in Q1 2018. The US dollar (average rate) decreased from 1.3238 in Q1 2017 to 1.2647 in Q1 2018, resulting in a negative impact on overall revenue in the period as compared to the same quarter in Q1 2017.

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

Gross profit increased to $35.4 million in Q1 2018 from $27.0 million in Q1 2017, an increase of 31.2%. Gross profit % increased to 43.9% from 41.5%.

Adjusted gross profit increased to $37.2 million in Q1 2018 from $27.9 million in Q1 2017, an increase of 33.6%. Adjusted gross profit % improved to 46.1% from 42.9%.

The Company benefited from a number of factors this quarter, including the operational leverage derived from investments made over the past few years, product mix and having a steady manufacturing flow throughout the quarter, which optimizes the allocation of DIRTT’s resources (specifically labor).

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

Selling, general and administrative (“SG&A”) % as a percentage of revenue decreased from 43.0% to 37.5% in Q1 2018 compared with Q1 2017. SG&A expenses increased by $2.3 million, or 8.3% in Q1 2018 compared with Q1 2017. The increase in SG&A expenses in Q1 2018 was due to increases in salaries and benefits of $1.3 million, reorganization costs of $2.1 million due to the recent management changes, professional service fees of $0.6 million related to proxy defense costs and rent expenses of $0.5 million. These increases were partially offset by decreases in stock-based compensation expense of $0.6 million, depreciation and amortization expense of non-manufacturing-related assets of $0.5 million, travel and marketing expense of $0.1 million and other operating expenses of $1.0 million.

Adjusted SG&A % decreased from 36.3% to 31.0% in Q1 2018 compared with Q1 2017. Adjusted SG&A expenses increased by $1.4 million, or 6.0%, in Q1 2018 compared with Q1 2017. The reason for the increase is the same as discussed above with respect to SG&A, excluding the impact from decreased depreciation and amortization of non-manufacturing-related assets, decreased stock-based compensation expense incurred in the period and reorganization costs.

The impact of the weakening US dollar to Canadian dollar average exchange rates during Q1 2018 partially reduced the overall increase in SG&A and Adjusted SG&A expenses across the organization, as certain of these SG&A expenditures are denominated in US dollars.

Adjusted EBITDA / Adjusted EBITDA %

Adjusted EBITDA increased by $8.7 million, or 217.1%, in Q1 2018 compared with Q1 2017. Adjusted EBITDA % in Q1 2018 increased significantly from 6.2% in Q1 2017 to 15.7%. The dollar increase was primarily due to higher adjusted gross profit of $9.4 million and increase in foreign exchange gain of $0.7 million, offset by higher adjusted SG&A expenses of $1.4 million.

Liquidity and Capital Resources

At March 31, 2018, we had $65.9 million in cash and cash equivalents compared with $79.6 million at December 31, 2017.