DRTT - Earnings call transcript Q2 2022 | Dirtt Environmental Solutions LTD

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Operator

Good day. And thank you for standing by. Welcome to DIRTT's Second Quarter 2022 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. advised conference be being Please Instructions] that is today's recorded. [Operator the now Director to like would conference of to Relations. MacEachern, I Kim hand over today, your Investor speaker ahead. go Please

Kim MacEachern

today's XXXX results. and everyone. good Thank discuss you, quarter Welcome Operator, to second DIRTT's call morning, to

Geoff the by and webcast presentation use access slides, CFO. me slides. appointed on Urban, them newly remarks please web this today To or call Joining Today's page from Benjamin prepared are DIRTT's CEO; Krause, our applicable States include based meaning accompanied These on of the guarantees intent, Today's are statements forward-looking not future will are are current of Web call Canadian site. performance. expectations within the They and on statements securities of the company's United projections. the and laws.

reconciliations call and excluding Securities In filings reports our XX, will Please reference on results, SEC, XX-Q the with XXXX, statements will over like this also I be p.m. now GAAP Time. SEC today with information and reference the or items. other recorded, turn non-GAAP at Form remind results. Commission, replay available regarding special a filed forward-looking July Eastern I of is being that approximately for and webcast would and the Exchange you to X:XX to Benjamin. addition, to and this call non-GAAP results will

Benjamin Urban

as first short-term few with ground today execute management the plan. slide develop of is first my it expected, short I've hit on as actions time four, CEO. worked period our we to pleasure an and the on be joining long-term Thank Beginning a and In while I Kim, to be for some everyone. and you, crucial the running. morning, Board good time, It's weeks to exhilarating DIRTT's been

a we of approach that no and continues proponent also -- me than and also into in for one deliver I'm for is pandemic-induced is as partner a opportunity is getting encouraging. powerful a the do. resources. I as As up years. from increase largest products a deal solution. pain are and resolving for evolving you uses to DIRTT manner knowledge is are opportunity more this points in starting tool, the specifically for and the of see be several -- strongly is over our market having DIRTT was can for picture that our sales now as ever market is ICE valuable I've as big for DIRTT's more of come in orders strong The There believe unique conventional many uncertainty over to time demand great for first-hand years what DIRTT we of that we worked unmatched, Notably, it know position some by with growth XX This can revenue, I manufacturing -- impressed holistic their industry the and to still most the do know, past construction. displayed I which believe and in emerge years. in the to how the which due clients seen our distribution partner is completed projects this significant. we growth

cleaning excluding pipeline forward XX-month needs up from to increases. the million, in XXXX XXXX April is Our impacts XX% $XXX price the of

Connext in our was was it are XX% higher June held that they to Our about partners quite trade in and we show, report XXXX, which busy continue attendance XXXX. at than

impacting our our escalating are to to these me, direction. are It's are while future, however, our especially scale demand. what forming ability grow with we that manufacturing costs that now, and impeding up are to constraints, could increased the in we important All where profitability facing of are in recognize the currently we we also which that ensure consider right into indicators we

We expect I quarter steps will and are positively impact specific beyond. these have third which results to address issues, tactical and immediate taking

on efforts and XXXX, increase recently increase XX% inflationary materials effective a July combat further and to X% XX, our June labor, price raw First, effective we X, increases, implemented a XXXX. X

a and price terminated reduction pilot program also provided. around our Inspire. We governance increased we Furthermore, Reflect for discounts have

increasing a pandemic, needed cost drive the a low used that means we we But During we increased in with rising to of this discounts demand. activity. a market, as volume to recognize period in demand curtail and

begin of be both mid-third impacts realized expect the We these will quarter. to positive profitability items

physical capacity actions. through multiple we Second, our are unlocking manufacturing

mainly continuing quarter. a As Geoff new which X%, our begin see challenging. will during work fully manufacturing proved XX employee are in so has about this hiring talk in headcount and about for in increased Savannah, become more on will to effects It to we a the to the productive, the by days third we Calgary, takes quarter, bit, in of

these time, anticipated our Inspire growth. to we lead end, hire of communication is have part are our and improving seeing be breaking only down though have like moved manufacturing Inspire for time new through hiring internal also also completed in We're reduce manufacturing Increasing process, pace processes improvement. Reflect of and will place equipment QX. mid engineering advance already in of key. for by a which is which the this a the and headcount that Given products changes silos cross-functional processes manufacturing Adding first Reflect implementing of the have will working proactive X going To our portion remainder stance issues of that to and by group established begun solution. bottlenecks, immediate order address to we projects, to and is a and and optimizing

retire search Product our effective Krause, drive for I'd has strategic our and has manufacturing intention and the suitable been and Trevor dedication as Operation approximately Chuck, approach partners September changes. of involves focused these the across we take It management, our culture This presence. that search In A of organization, Nandini market to look Vice five, interacts accountability. XX, grow the simply to agile including $X making are General be with important on bringing together establish Somayaji President, to and Vice to announced of and some reductions, Chief requirement, has company. President, Counsel; X of cost and DIRTT's includes thank while Senior to Corporate includes Vice million. streamlining our improving at Charles also and sales current President, President commenced, and slide General replacement in well our redefining Development facilities. enabled promotion company announced Colin people latter opportunity Development; has overall not and taking XXXX. how Officer. like this role. by to all, Geoff for we Chief departures to onboarding, market from and responsive segment the overall the Blehm, of the we our good organization, also Didluck We means and can to our savings his organization our XX the function to Vice good evaluating management approach Geoff the fixed Financial Kraus, Officer, accounts Colin a we a our back including progress components it results. reigniting to productivity a also Counsel It Senior above component, are that positions a This salary commercial their leadership and partner the implement company. includes total on service distribution Secretary share our annual promoted Turning further us our and for as market Talent Product for such

successful. it initiatives, anticipate at Today, through aforementioned the efforts we look have As of And prosperity a individuals we I and made our this forward different realignment the all ahead altogether passionate complete and for renewed, DIRTT. opportunity that Board and and near-term distribution our the stronger partners here DIRTT, have is company. this

by will and we continue affect that rapid culture to can DIRTT. that uniquely and believe affect We and that the there with company change another deliver. is change that can so way that and I that we people great technology isn't the solutions firmly dedication rekindling

construction us. that of provide now it to quarter on and Our the color over discussed. it, only further DIRTT, some to those continue Geoff? Geoff to but the also I with change and I'll items the construction growth financial partners turn of with journey method will industry, not that

Geoff Krause

Benjamin, Thanks, and good morning, everyone.

million, quarter Turning $XX.X to six, were of consistent expectations slide second respectively. our and XXXX XXXX, of of XX.X% the first an increase with the the quarter quarter for revenues X.X% over and and

are Calgary demand, hiring about quarter. declining which from experienced December competitiveness, some hourly mode Savannah. delayed manufacturing reduced facilities of December increase attracting some As revenue the resulting delayed short at by constrained constraints in staff we XX, overall being need the demand tight by the -- notice increasing, headcount and now and capacity employees response and and market both and is in increased XX, revenue With that into important To on in manufacturing a and Savannah levels. our is a being to for XXXX, raised It our the increased capacity, note unlock a volumes. physical we Calgary to in to labor labor The additional our hourly resulted activity, into training wages third to challenge handle have result between XXXX we XX%. of our also we

staff which up in X%, Calgary, overall than Savannah. our increased by we to which quarter, has the During easier of manufacturing proven headcount all

also a night will for certain as in as continue commenced Calgary. we focus add provide continuing We sales see us, be resources shifts operations Manufacturing productivity headcount to we for to and to and improve. continue necessary

the gross gross same XXXX. XX.X% for in for XX.X% seven, slide margin quarter the from to declined XXXX. to from profit Turning same adjusted Similarly, decreased XX% in for period margin period the to profit XX.X%

As realized raw we've cost in of increases the transportation prior we've quarters, packaging. in and experienced materials, discussed significant

an XXXX. X.X% inputs response second This material a second effort costs the compared includes XXXX. of a percentage X% the as effective price to to X, drive historical packaging During that to announced and ourselves these date. of inflationary approximately levels, to and on margin quarter of in pressures have instituted a February June by quarter, was to we In increased increases in increase revenue number back transportation

to June quarter. result of benefit full honoring lag a we the the projects increase, expect increase the As degree certain we and benefits is the of for of the some in before recognize process, third of in price price see quotes there

We also July additional XX. on we increase price that on increases, determined XX% was current warranted, price implemented which based an input

discussed. Inspire We of also for reduction has program and been we've pilot price the amount as Benjamin an have curtailed doing, a that Reflect terminated discounting

We in the third quarter benefits of the the see XXXX. expect of items of middle to these beginning

in upward in our said, volumes. increases second of should a Phoenix prices revenue Canadian come it are same of Calgary on trends like and some dollar-denominated actions further associated incurred quarter to by increase manufacturing anticipation incremental year. input of recently cost benefit pressure. to a continued continue costs prices their commodity period last see These XXXX, That and in in of of have $X.X monitor We Canadian Aluminum other Hill, we and closure plant, appear our highs this higher to the by warrant. The and are looks take offset to compared relief quarter with costs weakening to additional by input and ready and the costs the marginal training we and it account facility beginning to manufacturing also employees quarter labor adding manufacturing compared in dollar Carolina. the impacted leveled. off with were fixed inefficiency were of million current following leverage of slightly the Savannah Further, the Rock margins South fixed X% costs have

travel in the would Connext basis of increased in The and $X.X show to support savings months restrictions million million both of and our XXXX. compared largely more approximately of of benefits costs ended $X.X slide by for we operating months in salaries was note the decreased million $X.X capitalized headcount Rock XX, trade costs expenses on that activity marketing fourth benefits this Hill projects offset XX, as increased to by an and a by administrative sales development with entertainment and last Operations in a were was travel, salaries internal million lower did $X.X expenses due to and I lower costs expenses reductions costs. quarter and business easing the cost the DXC as and the increase salaries offset in at of to to year ended well Looking ended and projects prior million. X June and when X $X.X offset fees period version completion as for with with of and capitalized June initiatives Dallas travel XXXX, of professional XXXX, due on expense. as the and due June breakdown quarter. related Technology which $X.X million announced in the than due consistent increase $X.X internal contested lower million last higher event to benefits associated $X.X Directors meals expenses, to months expenses fewer X June increased XX, of the year by eight, cost to to election by decrease salaries increase was were in an of for million reductions by the million General $X.X a much February. of million benefits was flat part $X.X scaled-down

$X.X of Board incurred XX.X% quarter Phoenix slide insurance million in of previously. million of renewal in Actual the control XX.X% facility, nine, to part of June due the gross closure of $X.X executives of costs and of government X $X.XX $X.XX ended anticipated months share profit million reduction $X.X costs On $X.X arising foreign profit following announced reorganization EBITDA the X million by ended change gains. attributed the million originally per costs loss loss driven 'XX, June change discussed. per departure as a $X.X we $X.X months negative subsidies the I've a the million quarter for in lower was we of totaling million the workforce adjusted June For $X.X a than X higher primarily margin, reduction the -- from or and June costs, control slide Board. of in increase million XXXX. net share a additional or a same loss net officer XXXX, million in increase expenses exchange and loss additional operating in result to severance Directors. onetime $X.X director XX, period the adjusted $XX.X the runoff XXXX, million to and in costs XXXX, the or are XX, by offset $X.X the margin in million and a increase for already or with reduction That decreased higher to by EBITDA driven increased the $X.X of loss The margin reorganization quarter for the XX, gross of -- gross of loss and loss from XX, net profit the of million of interest is expense, $X.X On margin net of ended in net a

in quarter capital unrestricted second related included slide the $X and million of XX, the was contest $XX.X to cash XX, million cash used $XX.X the approximately of Turning and Net proxy restructuring, million which of $XX.X payments. with costs to finished of compared quarter million, at we other $XX.X March million onetime working the XXXX. we end at quarter,

at we have cash has issue. been and usage steps taken unsustainable numerous to address Our levels, the

February lowered fixed and in have cost 'XX headcount a in initiatives number the ways, second in reductions savings in our quarter closing base headcount of announced today, of in facility salary overall including We XXXX. hourly other of the XXXX, the XXXX, in July manufacturing our fixed reductions cost and

debottlenecking increase of additions, both be this facilities experienced efforts of March at net our immediate training increase third manufacturing to the mitigate order in to and middle through and headcount balance begin a will continuing revenue future since We the quarter support through increase. the cash I Calgary entered verticals. commercial demand, particularly and As response, within anticipate Savannah have we will profit, including in gross higher XXXX, anticipated This realized leverage in said meet and believe usage of significant demand In the accounts year. education levels manufacturing the of effects. and before, year, our we to

price given. curtail spoke significantly impact and which also implemented two mitigate also on profit. transportation gross to packaging discounts earlier, have costs drive pricing to material, raw expected and I We the higher our is This to inflationary increases,

our increases, multiple and actions assessed Taking the balances and I've asset-backed -- undrawn using a company's cost buildup the months into have improving credit we XX facilities, in liquidity the and credit available capacity the for of aluminum discounts, with and described downside the reduced have of account RBC by and facility and for million borrowing We experience price revenues, effects a cash to first inventory, liquidity the sales $XX.X scenarios. reflecting XX upside relative to of our next we believe stands we existing outlook months costs. XXXX, in we and just throughout perspective, increasing usage due to second lower end combination sufficient and primarily the expect the at price sequentially fixed cash work next Available expectations. From improve year in under and a the curtailed to million increased base extrusions, a onetime difficulty in in quarter. respectively. continue Inventory productive with quarter million at $X.X $X.X including capital

was and to steps of our taken expect deposits our Days to fourth XX net to income quarters. begin reduce and inventory in have sales the supply, line outstanding, We with and third moderate levels days, targets. taxes we in receivable,

ratio March to at XX June at XX. current compared was X.Xx X.Xx Our

approximate XXXX midpoint between which For the $XXX the XXXX, of represents revenue our and unchanged full-year million XX% over an revenue. $XXX guidance million, at remains increase

the open call loss see the and of cash can Operator, approaching in breakeven monthly EBITDA net questions. up adjusted improved flow expect balance now We XXXX, to we through QX. for

Operator

Our And your is line from Merer from open. Bank. Instructions] Rupert question you. come will now National Thank [Operator first

Rupert Merer

Hi. Good morning, everyone.

Benjamin Urban

Rupert. Good morning,

Geoff Krause

are you How morning, Good doing? Rupert.

Rupert Merer

well. Doing

and you've and And the pricing have we to talk your year-end? that that about headcount what actions where to other quarterly talked all on actions walk the push by increasing breakeven. reductions the So, Can EBITDA you what like you are today towards looks of you've from should taken impacts you've year-end? taken about Geoff,

Geoff Krause

Rupert. Absolutely. reference back as that current Thanks baseline. I'll And a question, for to the of quarter kind

quarter was of -- million our cash $XX million million sorry. of or on So, revenue, $XX $XX based current million revenue burn $XX of revenue

we revenue Sorry, increase price with June July impact of and increase did. just $XX from impact no that of XX X million the the price nominal

$XX in of million So, runoff, million that DSU D&O million of about $X Directors. included to usage million $X.X including election of the insurance reorg, $X.X costs, the million $X.X about onetime cash cash was payments contested former in and

So response, that by for makes on prices the the July and of year million $XX about next first, million X, $XX.X increase, about quarter since we've June XX%. Accounting revenue. raised a including XX

expect to mid-third see that impact the We quarter. of

significantly activities and we X% discount benefit us tune should curtailed the of increase. to Second, have that revenue our X% to

is anywhere that So between the XX% XX%. and combination of

We impacts expect of to see those quarter. the mid-third

per quarter. the base of about our Third, we've reduced $X.XX that's cost about by million end July at annum, per $X million

effect quarter which some of up closure, have our some Phoenix about we labor since the million staffed previously offsetting of is variable $X.XX the announced savings. We per of the

in there. million savings quarterly So there's $X.X about -- of total, there's

those I've about you it and of the directly line gets All to talked go bottom things that close.

the revenue I think our that and overall to the which that the think increases has we've plants costs our down, seen, debottlenecking that account. increases. Does way. part is thing we With new important and the hires that setting which price although I will the the of that you? we've input we've that other margin benefit, increased labor rest We're getting come gets that impacts those us also help large efficiency that the with and and I haven't taken into productive, trained demand the And gross compression is in inflationary seen, done is discussed, a and Benjamin of why back our come

Rupert Merer

Yes. Geoff. That's great, Thank you.

Operator

will Thank Linsdell you. from next iA come Capital [Operator question Neil Our Instructions] Markets. from

now is line Your open.

Neil Linsdell

morning, good hi, Yes, guys.

Benjamin Urban

Neil. morning, Good

Geoff Krause

Neil. morning, Good

Neil Linsdell

morning. Good

-- and DIRTT. being a being decision-making really you seen recently how curious processes have I'm before processes last addressed these -- last macro From Benjamin, as the as you specifically in with that of far couple or how now not how respond requirements, to they with trying to working your about help to put few dealing are years, curious Because in environment? I'm changed some -- at moving perspective up distribution of like and For having to place client clients, partner the really as that changes. some look DIRTT

Benjamin Urban

say decision-making Neil. Yes, and the their by is well few And great partner that both as that years significantly economy. the last in Thanks, as in pandemic having from the come distribution with have uncertainty a can question. changed certainty processes I the directly, requirements

times improved our our further as sales But changes in perfect come to as say, product previously. well through that, that with the construction to really opportunity customers improve respond cost is more I response our on that difficult them force. from Neil. change labor, the And future. with think the can this of have line think also I'd where that that to DIRTT, to for that, to better of for as now products respond and our innovation the from for that the previously. raw rapid even our to materials are looking proven construction seen we than The additional I immediate more pandemic can as types decreasing that construction say also -- to including so needs from is in question would these to distribution clients' needs team has is And for your We're sweet effect some resources, that as more I for in all as we conventional communication perfectly with what way spot be so to with through we closing, out. do time beyond what shown, well the we've is DIRTT, have our development than our where continue deliver them is about lead is obtain our sustainability partners well to or seeing honest. requests and ability direct limitation even our certainty to more probably needs in change

Neil Linsdell

Okay, fair enough. Thanks.

Benjamin Urban

You are welcome.

Operator

Thank session I'd like to conference. does the our you. closing And Urban any now that call remarks. for Benjamin back Q&A for over turn today's conclude to

Benjamin Urban

Thank with much. prosperity forward to my reiterate I you the and and look speaking to for what the that in CEO. like comments, I'd me thank earlier opportunity all joining coming anticipate and ahead to role for To take I us this inspired you so you today, more months. company of is

We have is our we stronger decisively that will the immediate result made inflationary The to different and a DIRTT. changes altogether and renewed and in challenges. addressing organization environment big picture improving, manufacturing demand are

as We their of passionate growth for the see guidance all continue tremendous I efforts Thank million. DIRTT, distribution to XXXX and million of XXXX over between to Board year set a up. at of you. and individuals thank want revenue partners to with our our us our here $XXX $XXX

Operator

Thank call. you concludes for conference you. Thank This today's your participation.

now You Everyone, may great disconnect. have day. a

Dirtt Environmental Solutions (DRTTF) 29 Jul 222022 Q2 Earnings call transcript