DRT.TO - Earnings call transcript Q3 2020 | Dirtt Environmental Solutions LTD

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Operator

Ladies and gentlemen, thank you for standing by. Welcome to DIRTT 2020 Third Quarter Financial Results Conference Call. [Operator Instructions] I would now like to hand the conference over to your host, Ms. MacEachern, Director of Investor Relations. Ma'am, the floor is yours.

Kim MacEachern

operator. you, Thank and Quarter everyone, today's to call Good Results. welcome Third XXXX discuss morning, to

Joining call prepared website. section the Today's release Canadian be not our intent, on press are the page law. guarantees they Financial earnings was companied found within based me of statements current the afternoon issued and The presentation are and the of slides, on Officer, Kevin securities applicable will also Executive can by call or of from the that Geoff DIRTT's O'Meara, yesterday please, Officer, this States These of see website. future Krause. forward-looking the To statements webcast Investors projections, Management's expectations company's slides. remarks them include on meaning United are performance. are today access DIRTT's web Chief to go

is and will recorded, I non-GAAP include reconciliations GAAP webcast this to I and and also like for to p.m. other would items, Form filings SEC reference information statements our now over call addition, excluding XXXX, remind with at reports all, this Kevin. regarding that a call results will replay approximately the In today to be you filed Time. available results. X:XX X, special will SEC, of to being the and please Commission, Eastern the November or with as turn references XX-Q and not forward-looking on Exchange Securities

Kevin P. O'Meara

and projects positive the around works decision continue this than our you, in to volatility ongoing the construction $XX.X X. is modest time It rightsize Thank and the year from year. our our adjust our first factory everyone commercial that adjusted both quarters COVID-XX of higher see timing quarter in us the Regardless, to slightly Slide labor. on earlier We of industry the a you, joining of third EBITDA, delivered pandemic, gross million impacts profit adjusted driven Kim, and in today. benefited we thank Starting the as challenging second pipeline. was by the revenue of to to

million of of Our higher of quarters this Healthcare was balance than represented the second both at delivered at product end projects. year. first quarter the end and transportation and X XX% $XX health the we total as large revenue care cash quarter

a reminder, million over a to is a one user. defined project end large $X As we any sales-generating

health of the recently the execute our and an the using care the One X of current was for from response rapid acute second for projects vaccinations. the in grow opportunity and rooms our care arising initiative spring. pandemic developed account hospital, projects, temporary COVID-XX innovate on prefabricated COVID-XX existing delivery for we testing with and kiosks demonstrating capabilities strategic freestanding Further was rapidly a to

available retailers, care during currently We're are organizations, facilitate with enclosures. marketing order, XX assembled on clinical care We standalone if constructive site. health large a and patients between and health educational They're developing partnership and days physical healthcare professionals and innovation in institutions employers. leading called separation contact examinations with direct treatments. company These these structures a of

with While contraction negative in The health more more on we're reconsidered. we remain impact in is construction seeing being having a cautious our projects short-term on commercial opportunities or delayed care, outlook. prolonged demand, and

be see to projects. to to yet of construction, but the by impacts long-term the believe prefabricated to the significant positive increase accelerating have business for continue shift our pandemic in We the a potential such we

year. with quarters meaningful modeling daily orders from see preparation of X the activity people reoccupy have our yet projects also to the in order for average their consistent spaces. to We October was first

Despite our these months our plan the to traction on move X into management and of lower early key remain anticipating volume of with on we the as we're short the in strategic challenges, our of XXXX. projects, elements goal focused forward final growth. However, absence drive we and share effectively significant XXXX financial lead-time moving and market

Turning for the quarter's we and our today and full and made it's necessary progress business undertaken, this profitable investors, growth realize to achieving client It accomplishments. reporting and addition believe since X to on to We we've model reflect presented Slide now resulting on year particularly value. initiatives in the think thereby sales I year been strategic X. to the appropriate we've marketing sustainable were unique has potential in stakeholder this a

the pandemic, discussed, hired uncertainty the benefits. we we've into execution. light the capturing by plan. cost with XX to implementation the previously Starting XX As contemplated new pre-pandemic of strategic compared the of adjusted reduce commercial we've organization last all intended commercial the COVID-XX In plan while over of in months, people our to strategic the our XX of the

areas, Space For allowing strategic to our audience targeted responses and sales Reviewing records through a marketing areas we segments Initial success partner with in President clear have sales, both we people successful a these to us X turn, a Dedicated Strategic expectations, made key track specific digitally specifically programs by value our critical immediate reengagement, team a team, customer launched function. and of consistent to in Vice can Make our proposition, We commercial July, experience, a return marketing the structured proven team. impaired to sales commercial with Possibility. professionals continue added to nurture individuals place it story was strategic awareness, exceeded Marketing, for called created lead X We our hired client who resources generation that in DIRTT lead supported campaign each attracted supporting refine and the to function. first-ever and organization. are in on marketing, and into We've deployed area. operations X first, increase impact brand

for businesses we've influences and their that The a influencers globally by by our phase decision-makers piece hearing marketing For who lead time decisions how marketing This will and us website forefront We partners. industry on influential impact construction and function, leadership a how our new followed will contractors, the team of estate people story through future the sales who explore make system our in DIRTT's leaders, history, regeneral and be thinking. the redevelopment thought we increase the that builds industry all the our tracked the had force first process are member, assembled at carriers. advocates from the proprietary. strategic Microsoft. Through its prefabricated strategies next strategic of include our CRM tools about and of puts campaign Board Ford, designers, featuring of generation in Michael our for believe and on network piece, brand being and a imminence that historically of and should campaign vented space directly has real important and including engaging security over construction have the to identified been communication We're developing consistently. in also architects distribution

Turning next to sales.

In accounts clients addition number to the to source clients potential we manage as an be as of with accounts existing strategic adding is conversations develop that well candidates say sales future strategic to regional to important ever. the and are core underway identify as growth. who as now of than directors served higher team, I'm pleased

over highly Director users, strategic added organization sales equipping list structurally to XX strides of We generated great and in have this They've they're actively made his also accounts X enterprise experience have of win to years with carving. Strategic. and the team. a business. competitive end hired We of qualified people Director and a

the client our restrictions, onboarding demonstrated to programs. while enhanced comprehensive to commitment tours also broadened effectiveness created I Turning are COVID-XX every and of of client of tour to across DIRTT. partner standard believe, experience to team our we of a There travel many pandemic. we offerings expect Slide hosted virtual these in-person X. virtual maintains our In aspect that, of the employee out adversity that approach Creating face innovation for become the business. include pre tools,

Our distribution invested engagement. improve heavily and is success, network we've support to critical to partner our and

partner our to now team. In we generation people have activities, addition dedicated X lead to our success

system launch phase partner portal second our CRM rollout. the will Our of following

to in a this territories for are growth of onboarding designing support X year. ensure partners all new we X are reward their in and new We've program held and our expanding We partners DIRTT business. continued partners existing

established program we have equip strengthened a clients execute. DIRTT and and with In American teams financing make partnership any without sales are our easier to operations, capabilities vendor effectively institution major to in developing distribution to and exposure. financial partners credit North we and Finally, partners a for our our more tools financing analytical incurring forecasting and distribution straightforward more internal commercial

phase of company-wide lead our sales system As integrate to we our fully implementation, CRM part maximize capabilities to tracking plan effectiveness. the second of

for day DIRTT. ownership and time to empowers construction of offering developed force addresses communicate basic sales set curated a is our and lastly, to XX sales organization, is total pieces of the in and from a it key a capability market segments. sales tools to the our process X process. to cost block migrating a challenge in sales And tool, support While of of this DIRTT new of compared we're the collateral our building which cost on conventional X,XXX our concisely types over of core We

to improve everyone priority XXXX. safety to operations a our to pressure who factories third The so worked Slide third immensely quarter quarter make culture negative incident-free quarter. operations work. X. first manufacturing safe I mitigate our margins proud gross quarter compared the to place on leverage cost recordable to to are this diligently work ongoing that and been represented our of DIRTT rigorous our fixed a of pleased to a Turning help top team very am of the on report Implementing despite has

establish made the aspects both and of and of implement our improvements lean past appointed leaders team, step-change an safety months, operations. manufacturing operational tools in have we quality, variety a across XX Over all

moving a which automation, process we balanced South in sustainable and safety, material have to from material forward addition made significant reductions in improvements enhanced capacity labor increase and driven We're deliver plant, should demand our New In and efficiency. Carolina cost a with even labor efficiencies. tile with improvements, greater

X. on Turning innovation Slide to

COVID-XX-related Our uncertainty product integral in developing tight the immense been of on time pandemic. solutions exceptionally enter development and into has frames the team

Our through tremendous inspire newly and enhanced to would introduction offerings software Windows offering that highlight process new market product reality introduced accomplishments release ice our of supporting I training October, to team the platforms. and and like a brought testability who sales, significant also virtual and to all formalized broader most our reflect Android in marketing materials. under date, include were

year over forward group of with quickly and been XX-plus this ever augment the I've and appreciate financial normal financials. with All reason a and attacking equally of aggressively accomplishment enormous with uncertainty century pandemic people. a much business had When with to our my environment, I'd people honor during the to down who global like The X the this group talented, articulated operational be business years unique over to amazing incredible look able the word, personal, comes changes Geofff just We've I less DIRTT people realized one to we've I to turn over do career. fabulous opportunities of would passionate in I call passion been able most in of a this people. worked the I just working ahead our review model ago, best, group and be saw a us entire to company. I challenges to major the to once broad. quickly joined now

Geoffrey D. Krause

Thank you, Kevin.

points to like from Before X. to I'd turning results, quickly a some liquidity Slide go standpoint quarterly over on the

in a As our fulsome we credit the we review facilities. in early X XXXX, discussed of quarters, previous have undertook

holiday During to draw allows undrawn on the credit our of the remained which approximately availability end million $XX.X RBC the third to facility subject fourth the quarter. us to facility covenant a with quarter, of

early the if $X.X quarter. emergency of We Of to in second completion applicable. term further fourth existing facility we received the government million third wage quarter. $X.X top In $X.X intentions an to been In from the the continue we in the the million the the purchases with receive and intend have this for documentation draws these of this facility an steps, signed upon applying million fourth no already flow of subsidies, expect In equipment loan subsidies expected speech, equipment, convert based definitive additional drew quarter, $X.X disclosed minority the announced of million quarter, in an asset-backed in September to indicative $X.X summer of of on date. pieces leasing our third find facility an equipment XXXX to such Canadian Carolina Canadian $X.X for receipt plant, Canadian additional to South extend quarter. sheet cash with program previously its U.S. have internal of recognized passed XXXX. major expected million to to for XXXX, the the we the qualified of remaining likely legislation We government but has million to

capital or and XX collections disruptions continued no Our in of delays under outstanding, management days to days. with focus the sales working continuing reportable also accounts quarter at with receivable third net run in deposits

As cash balances from quarter the third increase at the of with million, a finished $XX.X result, XX. we've million $XX.X June an

net million our very current working at compared capital at at ratio million September Our healthy was $XX.X $XX.X remains June and XX XX, X.Xx. to

both decline the XX% first XX. to of on from turn beginning third let's but marginally second million, quarter, from Now and a quarter Revenue for Slide quarters. XXXX the $XX.X quarter the results, the third was up

fixed our effectiveness profit the XX.X% the negative we has improve Slide and XXXX. spike XX, pandemic of decline force year quantify on of however, was progress users. offset of period an for comparable gross is the we all by infections, COVID-XX processes. that costs a the labor adjusted to been and This timing combined amongst in decrease had has impacts the made to size, efficiency primarily and This of effect the partially continued In in Project revenue, to behavior revenue. is it design earlier be increasingly on leverage, the said, activity on with Kevin from customer decision-making are On severe commercial impacted. ongoing reductions this manufacturing finding of are decision-making. the lower levels XX.X% difficult construction context As having impact

quarter, warranty we During the provision previously timber, also related reduced million. by as a to $X.X discussed

expenses operating I commission this Slide to and of lower breakdown drop continued And and QX. cost expense revenue discipline. specifically marketing to sales call decreased out last on quarter, Similar reflects the expense to in XX. decrease Turning attention on during the would

of meals see of an We as reasonable expense the entertainment levels. also from will the of and to and associated operating continue General result reduced well current ease, to from from building record status as when and that materially most expenses restrictions our home work benefited assume is travel as similarly head lower It expenses, a employees. and lower administrative travel, reflecting entertainment office pandemic we increase COVID-XX.

already the lower a the a for as per and per $X.X million EBITDA third quarter of the And subsidy or of XX, $X.X and XX%, share as $X.X $X.XX increased professional fees, million Looking Slide urgency in expense, million. by operating respectively, for quarter at was have partially Slide loss to wage compared million increase XX. offset Canadian profit $X.X XXXX. The discussed, $X.X $X.X result share loss million net changes the or by reversal. margin note the adjusted decreased a $X.X and reflects government reduced revenue. $X.XX million offset $X.X million gross I reduction Adjusted decrease compared negative provision was decreased commission EBITDA EBITDA subsidies. a I of exchange of million partially The income foreign the QX, to timber million and for expenses, period. quarter's increase in $X.X million a On profit adjusted excludes in X.X%, the net million that Like I to income includes in $X.X would and tax decrease for and adjusted $X.X in quarter XXXX adjusted respectively, on mentioned. this expenses, EBITDA gross of

$X.X assets, by pandemic. significant income the recorded Canadian decline tax profitability in our valuation During and reflecting sales our the we quarter, uncertainty allowance against the million third caused a entity and deferred

entry thus outlook on our with mentioned, what levels on Kevin October consistent daily for average for order been let's Finally, seen we've touch far. has XXXX Slide XX.As our

softness balance same actively have to X the as However, costs manage are past the said, in plan. yet capabilities. year, of in seeing we our the opportunities with core indications manner our strengthened COVID-XX and by our quarters, or the continue we to of strategic offset to continue will execute our business That newly impacts in we'll for commercial we be such

some the our our our and improvements hiring operations at can levels. current and manufacturing balance The already have As you of tools. sales we less progress support some sheet solid within substantial marketing our alternatives and selected know, within sales for organization, costly deprioritized operations commercial

remain monitor to We situation deteriorate. continue to conditions take and actively ready the should action, business

questions. We also strategic expect to like we our plan open would begin to realize call positive incomes for implementation. from the Operator now to

Operator

Merer the of Your National from first come Rupert Bank. Instructions] [Operator line question will from

Rupert M. Merer

So headwinds you're progress seeing CRM in COVID, staff some with investing of your give sales new us improved that seeing sales and force and your processes. some and can sales but your your examples wonder, you from I you been you're have processes?

Kevin P. O'Meara

of Make the bedded single campaign is distributed biggest easiest has that system, passed then before. because a Probably to what through our we to and done marketing, then probably leads. where to -- said leads it sure the indicator and That's it embodiment qualified been they make pursue. reps involves biggest the know able the to CRM we've translates that involves literally, number to that of generated were single and it exact were leads It Space single they campaign never appropriate the get our been into that leads sales the sales, reps they marketing accomplish

Rupert M. Merer

ways attribute to quantify the benefit, of maybe able business? doing Are to your much sort sales you how of new you of can

Kevin P. O'Meara

absolutely it and time. led quantify to given okay, be to able But this Space. time, through it's long the certain early we should Make sales lead under, this able in be too to a to able came to that given point Eventually, over say, We sale. cycle able rep to to should that. be at should be we that we -- operate was the unfortunately, It do

Rupert M. Merer

how got a with of you've new then new your are making they're much partners, to how are some they you And -- able contribution sense to give dealers, maybe progress us a similarly, Okay. making, of pipeline? sales much

Kevin P. O'Meara

early is days. It

doing for headwinds New shut We it into the a the great are to instance, a And largely the difficult market get also spring have it through the summer. down traction, been onboarding can them. of pandemic. job York, has commercial like also They be in and

Our least partners that not they if at sense quickly will historically, as acclimate is twice more. is, as

Rupert M. Merer

Okay. And plant South moving to in then the new Carolina.

remind bringing plant you up your that integrate us levels the unchanged, too progress for And talk that us to be So to to in driving costs activity other near the the there. maybe into are how term? you're without Can what's online? you'll the about schedule the And going in able making operations. are much that you operations event flex

Kevin P. O'Meara

So we're half come year. answer in the to to online it expecting your of question, first the first

point -- a about candid our of is will it which We also balance we're chromacoat plant, to volumes. tile out, is meaning tiles, XX%

mix going least product typical is at our of to address plant that initially. XX% that, be to a there's able So not

We operation. rationalize to will the a it extent are if flex anticipate our to would to freight direct Unclear our currently, offset compare. facility there. And no, accommodate they added existing from certain capacity. ramp look to will expectation geography activity how it up current costs is we first would our we and where or be But stay a one-to-one would levels reduce based if then on flexing

Operator

Palm Craig come from of the question line next Greg Capital. Your Hallen from will

Danny James Eggerichs

anything Is geographic out next thanks for there guess, of markets certain just Danny actually Any -- I pipeline to This color you particular Greg the end there? more any market the on the or get the quarters? color on over October want weakness Eggerichs on couple is for trends. today.

Kevin P. O'Meara

I don't necessarily. know

partners very one seeing when out that watching rolled happy business that activities come all that lot about downturns like I and consistently thinking basically juggle accordingly. seeing different settled. share year a we're will so and I'm our get how out. -- I thing when it's on. with that Obviously, things highlight election been that's a where to forget. -- companies hasn't to we're substance. construction their typically is our So in for would There's clients from coronavirus how XXXX U.S. and past going plays sectors. People obviously viruses The cycle what to And the and are I and what a that There's they're mean, in commercial everybody can treatments driven it pace trying any impacts is

seen, that wouldn't is in this bimodal. are As sectors to just take are you others on very actually better. economy the that doing of depression. are guys, obviously, there There and some have call the And time are

we'll within adversely to that and standpoint of is have part companies with them so the a spending sales causing time spend tactic obviously pandemic and marketing than hurt. what who's doing those financial where with to driving is wherewithal strategic a from time And sales be grow been the anybody really actually rather

like So intensive for and it's talent businesses that. companies

Danny James Eggerichs

moving can Yes. That you're these guys that? the how about color on COVID launched, guess that And I to say market? you you kiosks what to on maybe of makes bringing additional I these for kind sense. any solutions mean, opportunity market

Kevin P. O'Meara

level has and off. to what partner that We're days we've really quantify. quantify different into The We've got We're interest early been ways. sales in sales. translate marketing marketing our will working But core that campaign it's force. kicked network a our several through hard to significant. It's

I frankly that we with design undergoing am clients. larger mentioned And deploying these are they also them, group. account are effort. that sales our in to the sell helping the strategic involved partner help We then

all basically it's hands these deck working on So to solutions. sell

Danny James Eggerichs

guess, just I partner, know curious, then And this that I like that added I'm Great. more if for that, part guess, going me. noncore after summer, is last you're you past partners of right. strategy? drywall one curious the All I

Kevin P. O'Meara

We've Potentially. got contractors distribution plays use as a handful that We see want a partners. case. are that to general out of and it how test

upon made future. that in We we So of how rolls to the did that have see. just well, out, more depending you

Operator

from come question Raymond [Operator Josh line of Instructions]Your will Wilson next the James. from

Joshua Kenneth Wilson

those? the is in On left completely the large on or those still projects in quarter some delivered were there healthcare,

Kevin P. O'Meara

completed bit largely the think a were We in list were the but follow, largely I have completed -- punch may and got quarter. in of they little they think those I quarter.

Joshua Kenneth Wilson

for forward? And what projects does pipeline your look like going large

Kevin P. O'Meara

we gotten and into I seeking. don't have think question I to really know level really of that detail, that that is your --

approach I you reflective the unsettled lot enormous it What with color. with will it's gave of little There's is very economy I the the of I translate sales. sales with The of what and a organization of a going an and across kind into are leads. of a the force, we amount level that made bit our broader is quoting has And time. we're been is everything additional of has generated strategic those seeing that earlier, marketing, question fairly activity, account and think timing it's activity comments environment skip which political when guess, and of the substantial. reasonably doing whether our lot because on orders is, uncertain. in that's

Joshua Kenneth Wilson

the think Okay. we CapEx then quarter be what give makes you will you think And and us cash in That sense as in sense. a about needs forward, can of XXXX? your fourth going

Geoffrey D. Krause

Geofff it's here. Sure. Yes,

at QX, million million the next range. it's incur tend costs that which normal As that our of CapEx million as we off to as as the to -- payment be around Carolina $X.X on the we going software $X Carolina phase finish development look well a for we $X stream to basis, in be

that centers off development is and at we the probably software path as is continue facility it our do year, dirt next at experience enhancements our normal to look we have do. year we levels to this -- what out build we similar do our As

Operator

questions [Operator Instructions] I to Presenters, Kevin to All seeing call hand for the remarks. further right. would in the Mr. like back I'm O'Meara over queue. no closing

Kevin P. O'Meara

Thank you, operator.

face employees to innumerable resiliency our to to partners our continue tremendous extraordinary Thanks are like and commitment today. forward is year, demonstrate and Their they I'd indication circumstances. joining foundation propelled mission in this success. organization us and DIRTT our the future thank again for ways of the collective closing, who Before and of our in

Operator

you, Thank today's Thank much, concludes participating. so you, for thank conference. And presenters. again, everyone, sir. This you

lovely safe, Stay now disconnect. may a have day. You and

Dirtt Environmental Solutions (DRTTF) 5 Nov 202020 Q3 Earnings call transcript