Investor Presentation - TSX:DRT August 2019 "Doing It Right This Time" - DIRTT ...
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“Doing It Right This Time”
Investor Presentation
August 2019
TSX:DRT
Advisories
General
This presentation is not, and does not constitute, an offer to sell or the solicitation, invitation or recommendation to purchase any securities in any jurisdiction, and neither this presentation nor anything contained herein shall form the basis of any contract or
commitment.
Forward-Looking Information
This presentation contains certain forward-looking statements and forward-looking information (collectively, "forward-looking information") within the meaning of applicable securities laws. Forward-looking information is not historical fact and is generally, but not
always, identified by words such as "expects", "expected", "proposes", "anticipates", "believes", "estimates", "intends", "plans", "project", "continues", "outlook", "potential" or similar words and expressions, or that events or conditions "will", "would", "may", "could"
or "should" occur including, without limitation, statements regarding the Company’s business plans and objectives; estimates of domestic and international economics; and growth strategy and opportunities.
Forward-looking information contained in this presentation is based on management’s expectations and assumptions regarding, among other things: the Company’s ability to manage its growth; competition in the Company’s industry; the Company’s ability to
enhance current products and develop and introduce new products; the Company’s ability to obtain components and products from suppliers on a timely basis and on favorable terms; the Company’s ability to obtain qualified staff and equipment in a timely and
cost-efficient manner; the regulatory framework governing taxes in Canada and the United States of America and any other jurisdictions where the Company currently or may conduct its business in the future; future development plans for the Company’s assets
unfolding as currently envisioned; future capital expenditures to be made by the Company; future sources of funding for the Company’s capital program; the Company’s ability to list on an accredited exchange in the United States of America; the impact of
increasing competition on the Company; the Company’s ability to remediate product deficiencies and the Company’s success in identifying other risks to its business and managing the risks mentioned below. Many of the foregoing assumptions are subject to
change and are beyond our control.
By its nature, such forward-looking information involves significant known and unknown risks and uncertainties, which could cause results or outcomes to differ materially from those anticipated. These risks and uncertainties include, but are not limited to:
maintaining and managing growth; history of financial losses; risks related to new technology; competition risk; operating results and financial condition fluctuations; risks related to intellectual property; risks related to additional capital requirements; customer base
and market acceptance; software and product defects and design risks; availability of key supplies; dependence on key personnel; changes in management; availability of manufacturing labour; capacity of manufacturing facilities; commodity price risk; credit risk;
the effect of government regulation; risks related to international expansion; risks related to physical facilities; legal risks; foreign currency and fiscal matters; risks related to future acquisitions; risks related to forward-looking information; reliance on third parties;
and conflicts of interest. The foregoing list of risks and uncertainties is not exhaustive. The effect of any one risk or uncertainty on particular forward-looking information is uncertain because these factors are independent, and management's future course of
action would depend on an assessment of all available information at that time. Further information regarding the assumptions and risks inherent in the making of forward-looking information can be found in the Company’s Annual Information Form and other
continuous disclosure documents. Copies of the Annual Information Form and the Company’s other continuous disclosure documents are available on the Company's website at www.dirtt.net and on SEDAR at www.sedar.com and prospective investors and
others should refer to such materials before making any investment decision.
Although the Company believes the assumptions and expectations used in the forward-looking information contained in this presentation are reasonable, due to the risks, uncertainties and assumptions inherent in forward-looking information, there can be no
assurance that these assumptions and expectations will be correct and prospective investors in our securities should not place undue reliance on such forward-looking information contained in this presentation. In addition, this presentation may contain forward-
looking information attributed to third party industry sources. Accordingly, readers are cautioned that if one or more of these risks or uncertainties materialize, or should assumptions and expectations underlying forward-looking information prove incorrect, actual
results or outcomes could differ materially from those described in this presentation.
The forward-looking information contained in this presentation is expressly qualified by the foregoing cautionary statements. Unless otherwise stated, forward-looking information included in this presentation is made as of the date of this presentation and the
Company undertakes no obligation to update or revise any forward-looking information to reflect new events or circumstances or otherwise, except as required by applicable law.
Notice to Residents of the United States of America
The securities of DIRTT have not been registered under the United States Securities Act of 1933, as amended (the "U.S. Securities Act") or securities laws of any state of the United States of America, its territories or possessions or areas subject to its jurisdiction
("U.S.") and may not be offered or sold in the U.S. except in certain transactions exempt from the registration requirements of the U.S. Securities Act and in compliance with any applicable securities laws of the jurisdictions where the offering or sale is being
made.
Currency and Presentation of Financial Information
Unless otherwise indicated, references to "CDN$" or "$" are to Canadian dollars and references to "US$" are to U.S. dollars. Unless otherwise indicated, all financial information relating to the Company in this presentation
has been prepared in Canadian dollars using International Financial Reporting Standards ("IFRS").
2
Non-IFRS Measures
The term "Adjusted Gross Profit", “Adjusted Gross Profit %”, "Adjusted EBITDA", "Adjusted EBITDA %", "Adjusted Operating Expenses", “Adjusted Net Income” and “Net cash flows provided by operating
activities before changes in non-cash working capital” are financial measures used by DIRTT that are not standard measures under International Financial Reporting Standards ("IFRS") as adopted by the
Canadian Institute of Chartered Accountants. DIRTT’s method of calculating Adjusted Gross Profit, Adjusted Gross Profit %, Adjusted EBITDA, Adjusted EBITDA %, Adjusted Operating Expenses,
Adjusted Net Income and Net cash flows provided by operating activities before changes in non-cash working capital may differ from the methods used by other issuers. Therefore, these non-IFRS
measures may not be comparable to the same measures presented by other issuers.
Adjusted Gross Profit is gross profit before deductions for depreciation and amortization of equipment, tooling and intangible assets for manufacturing-related assets. Adjusted Gross Profit % is Adjusted
Gross Profit divided by revenue. We use these measures to assess our manufacturing and operating performance. As manufacturing volumes and revenue rise, production synergies tend to permit
improvements in gross profit, subject to variability in monthly manufacturing volumes and product/service revenue mix.
Adjusted EBITDA is net income before interest, taxes, depreciation and amortization, plus: non-cash foreign exchange gains or losses on debt revaluation; stock based compensation expenses;
reorganization costs; and any other non-recurring gains or losses. Adjusted EBITDA % is calculated as Adjusted EBITDA divided by revenue. We use these measures as a performance measure as they
are widely used by securities analysts and investors to evaluate financial performance, as well we use these measures to assess our ability to generate cash flows, service debt, pay current taxes and fund
capital expenditures.
Adjusted Operating Expenses is Operating Expenses before deductions for depreciation and amortization of non-manufacturing related assets, stock-based compensation expenses and reorganization
costs. We use this as a measure of the efficiency and effectiveness of our sales and marketing efforts and overall administrative support efforts by comparing them to prior period results.
“Adjusted Net Income” is net income (loss) excluding the tax effected impact of reorganization costs and stock-based compensation fair value adjustment.
"Net cash flows provided by operating activities before changes in non-cash working capital" are net cash flows provided by operating activities and adding back the change in non-cash working capital.
For a reconciliation of these non-IFRS measures see DIRTT’s annual and interim Management Discussion and Analysis, complete copies of which are available on the Company’s website at www.dirtt.net
and on SEDAR at www.sedar.com.
3
What is DIRTT?
TSX:DRT A different approach to commercial interior construction
driving cost and schedule certainty, faster move-in and
Preparing to List on Nasdaq Fall ultimately increased customer satisfaction.
2019
$367M Revenue Proprietary prefabricated interior wall and millwork system, 100%
TTM Q3/18-Q2/19 customizable and easily modified post installation
>14% Revenue CAGR
2015-2018 Enabled by proprietary software platform that integrates the design,
sale, pricing and manufacturing process
$55M Adj EBITDA
15% Adj EBITDA Margin Sold through an extensive North American dealer network that
TTM Q3/18-Q2/19
provides pre-construction, design, installation and post-installation
reconfiguration services
218 Patents Granted
Note: all figures in CAD$, unless otherwise noted
4
Investment Thesis – Why DIRTT
• Patented, proprietary product design and software
Proven • Project base includes >170 Fortune 500 clients
Large
• Displacing US$150B conventional construction market
Underpenetrated • Less than 1% penetrated currently
Market
• New, proven executive team driving improvements across the
New organization
Management • Setting the stage now for scalable growth, with an enhanced
sales and marketing organization and recently announced
capacity expansion
Financial • $77M cash, no debt
Strength • Cash flow positive business
5
Value Proposition
Higher Quality Faster Execution Better Value
• Superior customer satisfaction with • 2 week manufacturing lead time • Day 1 construction costs often less
3D/VR experience prior to than conventional construction
construction • Speed and cleanliness of
✓Eliminates change orders installation • Less expensive than conventional
✓Maximizes client satisfaction at over the life of the project
move-in • Shorter construction cycle time
✓Less reliance on on-site labor
• Modularity allows flexibility to ✓Typical DIRTT budget is 30%
change as needs evolve, labor vs. 70% in conventional
maintaining client satisfaction with
their space over time
• Reduces time to occupancy
• Higher quality materials
6
Proprietary Design
Unique modular design allows for infinite flexibility to create custom interiors in Commercial, Healthcare, Education and Government
Custom
Flexible Medical Millwork,
Aluminum Gas for Willowglass MDF tiles
Modular
Frames Healthcare surfaces with finished in MDF tiles in
Electrical &
HD printed veneer and Healthcare
(recycled denim Data (Proprietary, modular, fully
insulation) approved in DIRTT’s image, chromacoat
accessible walls) integrated
technology
Same Solution, Different Markets
7
Doing It Right This Time (DIRTT)
PLAN DESIGN MANUFACTURE BUILD USE
Integrated process: Design, specification, pricing, Schedule compression: Speed and accuracy with offsite
manufacturing, delivery and installation of a project all manufacturing, fast and clean installation within three weeks
coordinated from one technology file. No technology gaps of finalizing design. Design feeds directly to production facilities,
to manage between multiple applications. mitigating risk of human error and eliminating timing delays.
Visual certainty: What you see is what you get: Sustainability: Custom, prefab manufacturing drastically
interactive 3D and virtual reality provides full reduces waste and eliminates deficiencies; modularity of
understanding of project during design phase space allows long-term adaptability
Higher quality: With faster schedule and certainty in Cost certainty: Immediate, accurate pricing information
design, budget goes to higher-quality materials and finishes available from the outset and throughout the design process
rather than labor, re-work and contingencies
PREDICTABLE PROCESS PREDICTABLE OUTCOMES
8
The DIRTT Process 9
NON-RESIDENTIAL
NORTH AMERICA
MARKET
Market Opportunity
US$150 Billion*
DIRTT is displacing conventional construction
Conventional Construction DIRTT
uncertainty certainty
Flips the traditional budget
Skilled labor shortage on site equation to reduce labor cost
Price quoted prior to order,
DIRTT
Pressure on project costs eliminating cost overrunsDIRTT Partner Locations DIRTT’s Approach to Market
DIRTT
DIRTT Partners
with ICE Software
Design | Manage | Install | Execute On-site
Each Partner is required to invest in:
▪ DIRTT Champion DIRTT Sales GCs, Architects,
▪ DIRTT Project Manager
DIRTT Partners
Reps Designers
▪ DIRTT Designer
▪ Proprietary ICE® Software Package
▪ Green Learning Center (GLC)
11Near-Term
Opportunity
Priorities 2019 a Transitional Year
Establishing the corporate infrastructure to seize the market opportunity
Manufacturing Sales & Marketing
Cost Discipline
Excellence Transformation
Complete Nasdaq listing in Fall 2019 2018-2019
2019-2020 2019-2021
• Eliminating non-value • Improving productivity • Aggressive sales growth
add expenditures and and financial return through:
creating long term through: ✓Strategic customer
efficiency through: ✓Formal tracking of segmentation
✓ROI discipline safety, quality, delivery, ✓Targeted lead
✓Improved accountability inventory and generation
Complete 3-5 year strategic plan and and authority framework productivity ✓National Accounts
communicate to investors in Fall 2019 ✓Scalable corporate ✓Eliminating bottlenecks Strategy
function and operational ✓Stronger and scalable
inefficiencies sales organization
✓Introduction of strategic • CCO joining Fall 2019 to
sourcing and logistics lead the transformation
planning
• 4 plant location in
th
process –in service early
2021
Execute on operational improvements
12Financial Performance
Adjusted EBITDA
Revenue (CDN Millions) $60.0 18.0%
$400 $356 $367 16.0%
$50.0
$350 14.0%
$293
$300 $267 $40.0 12.0%
$250 $236 10.0%
$30.0
$200 $187 8.0%
$20.0 6.0%
$150
4.0%
$100 $10.0
2.0%
$50
$- 0.0%
$- 2014 2015 2016 2017 2018 TTM
2014 2015 2016 2017 2018 TTM
Adj EBITDA (CDN Millions) Adj EBITDA %
3 Year CAGR >14% (2015-2018) Adjusted EBITDA
• 2019 guidance 5%-10% revenue growth, expectation to • Operating expense discipline yielded inflection in
be at the lower end of the range profitability
• Implementation of sales and marketing strategy • Manufacturing optimization starting to deliver
expected to drive future growth benefits
13Key Takeaways
• Patented, proprietary product design and software
• Fully customizable, flexible commercial solution suitable across market segments
Proven • Proven business model; 2015 – 2018 revenue CAGR >14%
• Project base includes >170 Fortune 500 clients
Large • Displacing $150B Conventional Construction market
Underpenetrated • Less than 1% penetrated currently
Market
• New proven executive team driving improvements across the organization
New • Setting the stage now for scalable growth, with an enhanced sales and marketing
Management organization and recently announced capacity expansion
• $77M cash, no debt
Financial
• Cash flow positive business
Strength • Low capex requirement
14Appendix 15
Leadership
Kevin O’Meara Geoff Krause
Chief Executive Officer Chief Financial Officer
• Joined DIRTT in September 2018 • Joined DIRTT in May 2018
• Extensive operating experience in • 25 years of financial management
building products industry including experience at public and private
co-founding and scaling Builders growth companies
FirstSource (NASDAQ: BLDR) • Joined from Pure Technologies after
• 20 years’ experience in construction- its successful sale to Xylem Inc. in
related industries, including as January 2018
president and CEO of Atrium
Corporation
16Summary of Consolidated Financial Results
For the period-ended June 30 Three months Six months
($ thousands, except per share amounts) 2019 2018 % Change 2019 2018 % Change
Revenue 85,577 80,666 6 171,908 161,415 7
Gross profit 35,450 32,751 8 69,563 68,167 2
Gross profit % 41.4% 40.6% 2 40.5% 42.2% (4)
Adjusted Gross Profit1 36,842 34,703 6 72,747 71,949 1
Adjusted Gross Profit %1 43.1% 43.0% - 42.3% 44.6% (5)
Operating expenses3 29,050 30,952 (6) 69,989 61,266 14
Operating expenses %3 33.9% 38.4% (12) 40.7% 38.0% 7
Adjusted Operating Expenses1 27,102 26,616 2 51,024 51,614 (1)
Adjusted Operating Expenses %1 31.7% 33.0% (4) 29.7% 32.0% (7)
Operating income3 6,400 1,799 256 (426) 6,901 NA
Adjusted EBITDA1, 2 9,149 8,174 12 20,163 20,889 (2)
Adjusted EBITDA %1, 2 10.7% 10.1% 6 11.7% 12.9% (8)
Income tax expense 2,474 917 170 2,437 2,613 (7)
Net income (loss)3 2,984 778 284 (4,831) 4,340 NA
Net income (loss) per share - basic and diluted3 0.03 0.01 200 (0.06) 0.05 NA
1. See “Non-IFRS Measures”
2. In 2019, Adjusted EBITDA and Adjusted Operating Expenses were impacted by the prospective adoption of a new accounting standard for operating leases, which increased 2019 three
and six month depreciation expense by $1.4 million and $2.8 million and finance costs by $0.3 million and $0.7 million, respectively, with a corresponding reduction in rent expense. This
resulted in an increase of 2019 three and six month Adjusted EBITDA by $1.7 million and $3.5 million, or 2%, over the respective periods in 2018
3. Includes $2.2 million recovery and $6.9 million expense of stock-based compensation for the three and six month periods ended June 30, 2019
17Additional Financial Highlights
($ thousands) Jun 30, 2019 Dec 31, 2018
Cash and cash equivalents 76,868 72,865
Trade and other receivables 37,280 59,852
Inventory 24,488 25,442
Property, plant and equipment 47,207 50,104
Intangible assets 18,620 18,992
Right-of-use assets1 25,909 -
Trade accounts payable and other liabilities 30,413 42,673
Other current liabilities2 9,990 9,262
Long-term debt3,4 - 7,674
Lease liabilities1,3 28,699 -
1) Right-of-use asset and lease liability resulted from
prospective adoption of a new accounting standard for
For the three month period-ended operating leases effective January 1, 2019
Jun 30, 2019 Jun 30, 2018 2) The liability for cash-settleable stock options was $3.7
($ thousands) million for Q2 2019
Net cash flows provided by operating activities before 3) Current and long-term portions
8,316 6,083 4) Repaid on January 31, 2019
changes in non-cash working capital5 5) See “Non-IFRS Measures”
Net cash flows provided by operating activities 10,564 (709)
Capital expenditures (3,909) (6,640)
18Thank you DIRTT Environmental Solutions 7303 30th Street SE Calgary, Alberta T2C 1N6 ir@dirtt.net
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