Dirtt Environmental Solutions Ltd (DRT) Q1 2026 Earnings Call Transcript

Good day and thank you for standing by. Welcome to the DIRT 2026 First Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Chief Transformation Officer Adrian Zarati. Please go ahead.

Thank you, Operator, and good morning, everyone. Welcome to today's call to discuss DIRT's first quarter 2026 results. Joining me on the call today are Benjamin Urban, our Chief Executive Officer, and Faria Khan, our Chief Financial Officer. Today's call will include forward-looking statements within the meaning of applicable Canadian and United States security laws. These statements are based on our current expectations and are not guarantees of future performance. Actual results may differ materially. We will also reference non-GAAP measures during this call. Reconciliations of those measures to GAAP can be found in our Form 10-Q for the quarter ended March 31st, 2026, which was filed with the Securities and Exchange Commission, or SEC, on May 6th, as well as in our supplemental materials. With that, I'll turn the call over to Freya to walk through our first quarter financial results.

Thank you, Adrian, and good morning everyone. Revenue for the first quarter of 2026 was $42.4 million, an increase of 3% year-over-year, reflecting continued demand stability despite seasonality and ongoing macroeconomic uncertainty. Gross profit for the quarter was $13 million, representing a gross margin of 30.6% compared to 35.2% in the prior period. Margin performance reflects higher aluminum prices, tariff-related headwinds, and lower margins within installation-related work. During the quarter, we incurred approximately $2 million in tariff-related costs, compared to $0.6 million of tariff mitigation costs in the prior year period. Tariffs represented approximately 4.7% of total revenue in the quarter. Total operating expenses were $16.3 million, Compared to $14.9 million in the first quarter of 2025, this increase was largely attributable to $2.4 million of reorganization expenses related to the continued deployment of our transformation initiatives, primarily workforce and organizational actions to optimize the cost structure. Excluding stock-based compensation and reorganization expenses, our core operating expenses reduced from $13.9 million in Q1 2025 to $13 million in Q1 2026. Net loss after tax for the quarter was $3.3 million, compared to a net loss of $0.7 million in the prior year. The increase in net loss was primarily driven by lower gross profit and higher reorganization expenses, partially offset by lower core operating costs and favourable foreign exchange movements. Adjusted EBITDA for the first quarter was 1.4 million, or 3.3% of revenue, compared to 2.1 million, or 5.1% of revenue, in the prior year period. From a liquidity perspective, we ended the quarter with approximately 15 million of cash on hand, reflecting repayment of the January convertible debentures, capital expenditures of approximately 0.7 million, and employee-related tax payments, partially offset by $6.9 million of net proceeds from the BDC financing and positive operating cash flow of $1.2 million during the quarter. Total liquidity at quarter end was $25.1 million, inclusive of $10 million availability under our RBC revolving credit facility, and we remain in compliance with all financial covenants. With that, I'll turn the call over to Benjamin for additional commentary on the business.

Thank you, Faria. While macroeconomic uncertainty and trade policy volatility persist, DIRT continues to make meaningful progress executing its transformation strategy. The tariff response we initiated in early 2025 is now fully implemented and embedded into our operating model. What began as a defensive response has evolved into a structural advantage, providing manufacturing and sourcing flexibility on both sides of the border. From a commercial perspective, we continue to see improving coordination between partners and clients as project schedules become clearer. Importantly, cancellations and losses remain de minimis, reinforcing our view that demand has largely been deferred rather than lost. These outcomes are increasingly repeatable across regions and verticals, reflecting execution discipline rather than isolated project timing. During the quarter, and particularly in March, we saw this dynamic reflected in a number of project awards across government, healthcare, technology, and professional services. The quarter included a major Canadian government project valued at over $8 million, alongside additional enterprise and institutional wins in the United States, including projects for Google in New York, Ohio State University Wexner Medical Center, Lucid Motors, and MNP. While varying in size and scope, these projects share common decision drivers, customers prioritizing speed of execution, cost certainty, and minimizing disruption within occupied spaces. Our 12-month forward pipeline stands at approximately $338 million, representing 16% growth year over year, with particular strength in healthcare, government, and education. Construction services accounts for approximately $55 million of the pipeline and continues to convert at attractive rates. This performance continues to validate construction services as a complementary capability within our broader channel model, enhancing conversion without altering our partner-led strategy. These trends are supported by improvements in operational discipline, partner enablement, and bid selectivity, all of which are key pillars of the new operating model we are implementing. As discussed in prior quarters, this model is designed to reduce complexity, unlock capacity across the enterprise, and support structurally improved revenue growth and earnings quality over time. With respect to tariffs, we are actively evaluating the impact of recent developments, including the April 2026 U.S. tariff announcements and the recent Supreme Court ruling related to IEPA. At this stage, the financial impact and recoverability of any tariff refunds remain uncertain, and no recoveries have been recorded. With respect to the Falkbilt litigation, proceedings remain ongoing. As previously disclosed, DIRT is pursuing claims related to damages suffered in Canada, the United States, and internationally. Given the nature of the process, we are not in a position to comment further at this time, and no amounts have been recorded in our financial statements. Looking ahead, we remain focused on disciplined execution. With a growing pipeline, improving conversion dynamics, and a streamlined operating model, we believe DIRT is better positioned to translate demand into sustainable revenue growth and improving earnings quality over time. I'd like to thank the DIRT team for their continued commitment to transformation and operational excellence. With that, Operator, please open the call for questions.

Thank you. At this time, we will conduct the question and answer session with CFO Fariha Khan. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. The next question comes from the line of Jeff Kowal. Your line is now open.

Thanks for taking my call. Benjamin, I guess this is geared towards you. Um, construction services, you mentioned that about 16% of your 12 month pipeline now, uh, are, uh, in the construction services bucket. Um, could you give us a little bit more idea of when you expect, uh, that to become a line reporting item, which I believe is 10% in the, in the States, um, and maybe just a little bit more color around, um, sort of the successes you're seeing, uh, or in early days and some of the challenges you've, uh, you've noticed. Thank you.

Yeah, Jeff, thank you for that question. Just one clarification. The total pipeline of construction services at the moment is roughly 55 million. The total for 12-month pipeline has increased by 16 percent, just for clarity. Yeah, so as mentioned, we are seeing continued expansion there with construction services, really an outcome of our ability to continue to be efficient in executing is a critical component of the new operating model and transformation that we're in the middle of. However, we do tend to have significantly more control over those projects, which helps to my comments about attractive conversion rates. That specific channel, because of that ability to have greater clarity into it, allows us that. As far as how we record, I think we, at this point, haven't reached a point in which the total dollar amount of recognized revenue would allow us to actually account for it separately. So we're still seeing it be attractive growth model and channel for us, but at the moment, we haven't broken it out separately with regards to total revenue that's been brought through that channel.

Okay, great. Uh, one more question for me, um, you maintained your guidance for the year, uh, and you did, uh, mention that the first quarter is typically seasonally the weakest, uh, of the four for you. If you could maybe give us a little bit of a historical perspective and how much weaker, uh, Q1 tends to be, uh, or, or sorry, the, the, um, yeah, Q1 tends to be for you. And then And maybe we can extrapolate to see if you're still on track. I mean, obviously, you're indicating you are. So maybe if you could just tell us a little bit more about that. I'd appreciate it.

Yeah, sure, Jeff. Yeah, you're accurate. Q1 tends to be our lightest quarter. Historically, trending our second half of the year tends to be heavier. Hence the reason we have maintained guidance with regards to top line. and then through the transformation we're in the middle of in the new operating model, we continue to see efficiency gains in EBITDA. Thank you. That's it for me. Great. Thank you, Jeff.

Thank you. As a reminder to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. I am showing no further questions this time. I would now like to turn it over to the CEO, Benjamin Urban, for closing remarks.

Thank you, everyone, for joining today. Thank you for the questions, Jeff, and we look forward to our next quarterly earnings release.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.