DIRTT Environmental Solutions Ltd. today announced its financial results for the three and twelve months ended December 31, 2018. All financial information in this news release is in Canadian dollars, unless otherwise stated.
2018 highlights:
Revenue increased by 22% from $293.4 million in 2017 to $356.7 million in 2018 as a result of increased sales activity in Canada and the US, including increased penetration into the healthcare market, as well as the benefits of project delays from the fourth quarter of 2017 into the first half of 2018 due to the effects of hurricanes in the US. Fourth quarter revenue increased 33% from $74.3 million in 2017 to $98.7 million in 2018 for the same reasons as the year;
Adjusted EBITDA1 increased from $15.8 million (5.4% of revenue) in 2017 to $56.2 million (15.7% of revenue) in 2018 due to increased sales activity and the associated gross profit in both periods with reductions in Adjusted Operating Expenses1. Fourth quarter Adjusted EBITDA1 increased from a $1.0 million loss (-1.4% of revenue) in 2017 to $17.5 million (17.7% of revenue) in 2018 for the same reasons as the year;
Net income increased from a $7.4 million loss ($0.09 loss per share) in 2017 to $3.0 million income ($0.04 per share) in 2018 with the current year including the impact of $20.0 million in impairment charges and $9.6 million of reorganization expenses (2017 - $1.5 million). Fourth quarter net income increased from a $7.3 million loss ($0.09 loss per share) in 2017 to $3.5 million income ($0.04 per share) in 2018 with the current year including the impact of $5.1 million of impairment charges and $3.6 million of reorganization expenses (2017 - $1.5 million);
Following the appointments of a new chief executive officer (“CEO”) and chief financial officer (“CFO”) in 2018, the Company strengthened its management team in the first quarter of 2019, adding a chief operating officer (“COO”), a senior vice president and general counsel and a senior vice president of talent, and internally promoting a director of innovation, a senior vice president of software development and a vice president of sales. Also, during the third quarter of 2018 and the first quarter of 2019, the executive chair, former interim CEO, COO, and vice president of software development departed the Company.fi
“Our success to date is a testament to the talent, efforts, vision and dedication of DIRTT’s team of people and our distribution partners,” said Kevin O’Meara, chief executive officer. “We’ve built a track record serving a range of clients, from small start-ups to blue chips. Combined with a continuing shortage of jobsite labor and increasing interest in prefabricated construction, we’re now at an inflection point in terms of growth potential.
“2019 is the transformational year when we set the foundation to scale the Company,” continued O’Meara “It began with making sure we have the right leadership team in place and we are close to successfully completing this phase of the transition. The next steps are to enhance our approach to sales and marketing and improve our operations, which are the key focus areas for the balance of 2019. We expect that as we make progress on these fronts, we’ll be even better positioned to capture the incredible growth opportunity in front of us."
Outlook
Beginning in 2018 and continuing into the first quarter of 2019, DIRTT commenced a comprehensive review of all aspects of the business, including: DIRTT’s executive leadership requirements, addressable markets, commercial effectiveness, go-to-market strategy, manufacturing efficiency and effectiveness, safety, software development, talent acquisition and development and related corporate infrastructure requirements, processes and internal controls. As a result of this review, management decided to exit its DIRTT for Life residential service line, to reduce the capacity of its DIRTT Timber line to match the needs of the business, and to cease certain other activities. This resulted in impairment charges totaling $20.0 million and reorganization charges totaling $9.6 million during 2018. Management anticipates approximately $3 million of additional reorganization charges in the first quarter of 2019 relating to this review.
On January 15, 2019, DIRTT announced enhancements to the senior leadership team to allow the Company to scale for sustained, profitable growth. This included the appointment of Jeffrey Calkins as acting COO, Krista Pell as senior vice president of talent, Joseph Zirkman as senior vice president and general counsel, and the creation of a chief commercial officer role (“CCO”), a position which is currently unfilled. In the COO role, Jeffrey Calkins moved from acting to permanent on February 21, 2019. As part of DIRTT’s commitment to continued innovation, Geoffrey Gosling was named director of innovation and Mark Greffen was promoted to senior vice president of software development.
These new roles and promotions, in combination with the CEO and CFO named in 2018, are critical to developing and executing strategies, disciplines and processes necessary for DIRTT to meet near- and long-term objectives. The incremental cost of these management changes and promotions is expected to be absorbed by cost savings initiatives undertaken and executed in the fourth quarter of 2018. While the search for a CCO continues, management continues to refine DIRTT’s marketing and sales management, with the benefits expected in late 2019 and beyond.
Management believes the leadership of the new COO will continue to improve the Company’s manufacturing effectiveness and cost position. DIRTT currently operates five manufacturing facilities, comprised of an aluminum frame facility in each of Calgary, Savannah and Phoenix, along with a tile production facility and a millwork facility in Calgary. Management believes it has adequate capacity to meet demand in the near- and mid-term through anticipated efficiency gains as well as the introduction of a second production shift, if necessary.