Dirtt Environmental Solutions Ltd 10-Q for FY2025 Q1
Dirtt Environmental Solutions Ltd (DRTTF)
About this 10-Q
Dirtt Environmental Solutions Ltd filed this 10-Q on May 7, 2025, covering the quarter ended March 31, 2025 (FY2025 Q1).
Headline figures
Quarter ended March 31, 2025, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $41.3M
- up 1.1% from $40.85M a year earlier
- Net loss
- $661K
- compared with net income of $3.05M a year earlier
- Diluted EPS
- $0.00
- compared with $0.01 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number
(Exact name of registrant as specified in its charter)
Alberta, (State or other jurisdiction of incorporation or organization) |
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(Registrant’s telephone number, including area code): (
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes
The registrant had
DIRTT ENVIRONMENTAL SOLUTIONS LTD.
FORM 10-Q
FOR THE QUARTER ENDED March 31, 2025
TABLE OF CONTENTS
i
Cautionary Statement Regarding Forward-Looking Statements
Certain statements contained in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2025 (this “Quarterly Report”) are “forward-looking statements” within the meaning of “safe harbor” provisions of the United States Private Securities Litigation Reform Act of 1995, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and “forward-looking information” within the meaning of applicable Canadian securities laws. All statements, other than statements of historical fact included in this Quarterly Report, regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this Quarterly Report, the words “anticipate,” “believe,” “expect,” “estimate,” “intend,” “plan,” “project,” “outlook,” “may,” “will,” “should,” “would,” “could,” “can,” “continue,” the negatives thereof, variations thereon and other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. Forward-looking statements are based on certain estimates, beliefs, expectations and assumptions made in light of management’s experience and perception of historical trends, current conditions and expected future developments, as well as other factors that may be appropriate.
Forward-looking statements necessarily involve unknown risks and uncertainties, which could cause actual results or outcomes to differ materially from those contained in, or expressed or implied by such statements. Due to the risks, uncertainties and assumptions inherent in forward-looking information, you should not place undue reliance on forward-looking statements. Factors that could have a material adverse effect on our business, financial condition, results of operations and growth prospects can be found in the section titled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the U.S. Securities and Exchange Commission (the “SEC”) and applicable securities commissions or similar regulatory authorities in Canada on February 26, 2025 (the “Annual Report on Form 10-K”), and in this Quarterly Report under “Part II, Item 1A. Risk Factors.” These factors include, but are not limited to, the following:
ii
These risks are not exhaustive. Because of these risks and other uncertainties, our actual results, performance or achievement, or industry results, may be materially different from the anticipated or estimated results discussed in the forward-looking statements in this Quarterly Report. New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors nor can we assess the effects of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in, or expressed or implied by, any forward-looking statements. Our past results of operations are not necessarily indicative of our future results. You should not place undue reliance on any forward-looking statements, which represent our beliefs, assumptions and estimates only as of the dates on which they were made, as predictions of future events. We undertake no obligation to update these forward-looking statements, even though circumstances may change in the future, except as required under applicable securities laws. We qualify all of our forward-looking statements by these cautionary statements.
iii
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
DIRTT Environmental Solutions Ltd.
Interim Condensed Consolidated Balance Sheet
(Unaudited – Stated in thousands of U.S. dollars)
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As at March 31, |
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As at December 31, |
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2025 |
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2024 |
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ASSETS |
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Current Assets |
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Cash and cash equivalents |
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Restricted cash |
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Trade and accrued receivables, net of expected credit losses of |
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Other receivables |
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Inventory |
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Prepaids and other current assets |
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Total Current Assets |
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Property, plant and equipment, net |
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Capitalized software, net |
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Operating lease right-of-use assets, net |
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Other assets |
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Total Assets |
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LIABILITIES |
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Current Liabilities |
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Accounts payable and accrued liabilities |
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Other liabilities |
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Customer deposits and deferred revenue |
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Current portion of long-term debt and accrued interest |
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Current portion of lease liabilities |
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Total Current Liabilities |
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Long-term debt |
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Long-term lease liabilities |
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Total Liabilities |
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SHAREHOLDERS’ EQUITY |
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Common shares, authorized par value, |
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Additional paid-in capital |
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Accumulated other comprehensive loss |
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Accumulated deficit |
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Total Shareholders’ Equity |
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Total Liabilities and Shareholders’ Equity |
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The accompanying notes are an integral part of these interim condensed consolidated financial statements.
4
DIRTT Environmental Solutions Ltd.
Interim Condensed Consolidated Statement of Operations
(Unaudited - Stated in thousands of U.S. dollars)
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For the Three Months Ended March 31, |
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2025 |
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2024 |
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Product revenue |
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Service revenue |
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Total revenue |
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Product cost of sales |
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Service cost of sales |
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Total cost of sales |
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Gross profit |
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Expenses |
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Sales and marketing |
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General and administrative |
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Operations support |
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Technology and development |
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Stock-based compensation |
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Reorganization |
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Impairment charge on Rock Hill Facility |
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Total operating expenses |
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Operating loss |
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Gain on extinguishment of convertible debt |
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Foreign exchange (loss) gain |
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Interest income |
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Interest expense |
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Net (loss) income before tax |
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Income taxes |
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Current and deferred income tax expense |
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Net (loss) income after tax |
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Net (loss) income per share |
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Net (loss) income per share − basic |
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Net (loss) income per share − diluted |
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Weighted average number of shares outstanding (in thousands) |
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Basic |
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Diluted |
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Interim Condensed Consolidated Statement of Comprehensive (Loss) Income
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For the Three Months Ended March 31, |
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2025 |
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2024 |
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Net (loss) income after tax for the period |
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Exchange differences on translation of foreign operations |
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Comprehensive (loss) income for the period |
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Interest expense for the three months ended March 31, 2025 includes $
5
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
6
DIRTT Environmental Solutions Ltd.
Interim Condensed Consolidated Statement of Changes in Shareholders’ Equity
(Unaudited – Stated in thousands of U.S. dollars, except for share data)
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Accumulated |
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Number of |
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Additional |
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other |
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Total |
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Common |
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Common |
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paid-in |
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comprehensive |
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Accumulated |
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shareholders’ |
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shares |
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shares |
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capital |
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loss |
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deficit |
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equity |
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As at December 31, 2023 |
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Stock-based compensation |
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Issued on vesting of RSUs |
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Issued on Rights Offering (as defined in Note 14) |
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Issued for employee share purchase plan |
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RSUs withheld to settle employee tax obligations |
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Foreign currency translation adjustment |
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Net income for the period |
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As at March 31, 2024 |
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As at December 31, 2024 |
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Stock-based compensation |
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Issued on vesting of RSUs |
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RSUs withheld to settle employee tax obligations |
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Issued for employee share purchase plan |
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Cancelled from Shares NCIB and Share Repurchase (each as defined in Note 9) |
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Foreign currency translation adjustment |
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Net loss for the period |
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As at March 31, 2025 |
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The accompanying notes are an integral part of these interim condensed consolidated financial statements.
7
DIRTT Environmental Solutions Ltd.
Interim Condensed Consolidated Statement of Cash Flows
(Unaudited – Stated in thousands of U.S. dollars)
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For the Three Months Ended March 31, |
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2025 |
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2024 |
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Cash flows from operating activities: |
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Net (loss) income for the period |
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Adjustments: |
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Depreciation and amortization |
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Impairment charge on Rock Hill Facility |
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Stock-based compensation |
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Foreign exchange loss (gain) |
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Gain on extinguishment of convertible debt |
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Accretion of convertible debentures |
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Loss on disposal |
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Changes in operating assets and liabilities: |
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Trade and accrued receivables |
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Other receivables |
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Inventory |
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Prepaid and other assets, current and long term |
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Accounts payable and accrued liabilities |
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( |
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Customer deposits and deferred revenue |
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Current portion of long-term debt and accrued interest |
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Lease liabilities |
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Net cash flows provided by (used in) operating activities |
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Cash flows from investing activities: |
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Purchase of property, plant and equipment, net of accounts |
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Capitalized software development expenditures |
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Other asset expenditures |
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Recovery of software development expenditures |
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Proceeds on sale of assets held for sale |
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Net cash flows (used in) provided by investing activities |
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Cash flows from financing activities: |
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Common share repurchases |
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Repayment of long-term debt |
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Net proceeds received from Rights Offering |
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Employee tax payments on vesting of RSUs |
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Net cash flows (used in) provided by financing activities |
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Effect of foreign exchange on cash, cash equivalents and |
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Net (decrease) increase in cash, cash equivalents and |
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Cash, cash equivalents and restricted cash, beginning of period |
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Cash, cash equivalents and restricted cash, end of period |
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Supplemental disclosure of cash flow information: |
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Interest paid |
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Income taxes paid |
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The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within |
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the consolidated balance sheet. |
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As at March 31, |
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2025 |
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2024 |
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Cash and cash equivalents |
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Restricted cash |
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Total cash, cash equivalents and restricted cash |
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The accompanying notes are an integral part of these interim condensed consolidated financial statements.
8
DIRTT Environmental Solutions Ltd.
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
(Amounts in thousands of U.S. dollars unless otherwise stated)
1. GENERAL INFORMATION
DIRTT Environmental Solutions Ltd. and its subsidiary (“DIRTT”, the “Company”, “we” or “our”) is a leader in industrialized construction. DIRTT’s system of physical products and digital tools empowers organizations, together with construction and design leaders, to build high-performing, adaptable, interior environments. Operating in the workplace, healthcare, education, and public sector markets, DIRTT’s system provides total design freedom, and greater certainty in cost, schedule, and outcomes.
DIRTT’s proprietary design integration software, ICE® (“ICE” or “ICE software”), translates the vision of architects and designers into a 3D model that also acts as manufacturing information. ICE is also licensed to unrelated companies and construction partners of the Company (“Construction Partners”), including Armstrong World Industries, Inc. (“AWI”), which owns a
DIRTT is incorporated under the laws of the province of Alberta, Canada. Its headquarters is located at 7303 – 30th Street S.E., Calgary, AB, Canada T2C 1N6 and its registered office is located at 4500, 855 – 2nd Street S.W., Calgary, AB, Canada T2P 4K7. DIRTT’s common shares trade on the Toronto Stock Exchange under the symbol “DRT” and are quoted on the OTC Markets on the “OTC Pink Tier” under the symbol “DRTTF.”
2. BASIS OF PRESENTATION
The accompanying unaudited interim condensed consolidated financial statements (the “Financial Statements”) have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X and, accordingly, the Financial Statements do not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of the Company, the Financial Statements contain all adjustments necessary, consisting of only normal recurring adjustments, for a fair statement of its financial position as of March 31, 2025, and its results of operations and cash flows for the three months ended March 31, 2025 and 2024. The condensed balance sheet at December 31, 2024, was derived from audited annual financial statements but does not contain all of the footnote disclosures from the annual financial statements. These Financial Statements should be read in conjunction with the audited consolidated financial statements as of December 31, 2024 and 2023 and for each of the three years in the period ended December 31, 2024 included in the Annual Report on Form 10-K of the Company as filed with the SEC and applicable securities commission or similar regulatory authorities in Canada.
In these Financial Statements, unless otherwise indicated, all dollar amounts are expressed in United States (“U.S.”) dollars. DIRTT’s financial results are consolidated in Canadian dollars, the Company’s functional currency, and the Company has adopted the U.S. dollar as its reporting currency. All references to US$ or $ are to U.S. dollars and references to C$ are to Canadian dollars.
Principles of consolidation
The Financial Statements include the accounts of DIRTT Environmental Solutions Ltd. and its subsidiary. All intercompany balances, income and expenses, unrealized gains and losses and dividends resulting from intercompany transactions have been eliminated on consolidation.
Basis of measurement
These Financial Statements have been prepared on the historical cost convention except for certain financial instruments, assets held for sale and certain components of stock-based compensation that are measured at fair value. Historical cost is generally based on the fair value of the consideration given in exchange for assets. The Company’s quarterly tax provision is based upon an estimated annual effective tax rate.
9
Seasonality
Sales of the Company’s products are driven by consumer and industrial demand for interior construction solutions. The timing of customers’ construction projects can be influenced by a number of factors including the prevailing economic climate and weather.
3. ADOPTION OF NEW AND REVISED ACCOUNTING STANDARDS
On December 14, 2023, the FASB issued Accounting Standards Update No. 2023-09, “Improvements to Income Tax Disclosures” (“ASU-2023-09”) further disaggregated information on an entity’s tax rate reconciliation and income taxes paid. The amendments in ASU-2023-09 are effective for fiscal years beginning after December 15, 2024, on a prospective basis with an option of retrospective application. The Company is evaluating the impact of the adoption of this standard and expects the impact to be limited to disclosures.
On November 5, 2024, the FASB issued Accounting Standards Update No. 2024-03, “Disaggregation of Income Statement Expenses” (“ASU-2024-03”) which requires further disaggregated information on an entity’s types of expenses presented to better understand the components of an entity’s expense captions. The amendments within ASU-2024-03 are effective for annual reporting periods starting December 15, 2026, and interim periods beginning after December 15, 2027, on a prospective basis with an option of retrospective application. The Company is evaluating the impact of the adoption of this standard and expects the impact to be limited to disclosures.
On November 27, 2024, the FASB issued Accounting Standards Update No. 2024-04, “Induced Conversions of Convertible Debt Instruments” (“ASU-2024-04”) which requires discussing an entity’s assessment of induced conversion and debt extinguishment of convertible debt instruments. The amendments in ASU-2024-04 are effective for fiscal years beginning after December 15, 2025, on a prospective basis with an option of retrospective application. The Company is evaluating the impact of the adoption of this standard.
Although there are several other new accounting standards issued or proposed by the FASB, which the Company has adopted or will adopt, as applicable, the Company does not believe any of these accounting pronouncements has had or will have a material impact on its Financial Statements.
4. GAIN ON EXTINGUISHMENT OF CONVERTIBLE DEBENTURES
On February 15, 2024, the Company commenced a substantial issuer bid and tender offer (the “Issuer Bid”) pursuant to which the Company offered to repurchase for cancellation: (i) up to C$
C$
On August 28, 2024, the Company commenced a normal course issuer bid (the “Debentures NCIB”) for the Debentures which will terminate no later than
In accordance with GAAP, it was determined that the C$
10
repayment of convertible debt through the Issuer Bid in the three months ended March 31, 2024, triggered an extinguishment of C$
5. TRADE AND ACCRUED RECEIVABLES
Accounts receivable are recorded at the invoiced amount, do not require collateral and typically do not bear interest. The Company estimates an allowance for credit losses using the lifetime expected credit loss at each measurement date, taking into account historical credit loss experience as well as forward-looking information, in order to establish rates for each class of financial receivable with similar risk characteristics. Adjustments to this estimate are recognized in the consolidated statement of operations.
In order to manage and assess our risk, management maintains credit policies that include regular review of credit limits of individual receivables and systematic monitoring of aging of trade receivables and the financial well-being of our customers. In addition, we acquired trade credit insurance effective April 1, 2020. At March 31, 2025, approximately
Our trade balances are spread over a broad Construction Partner base, which is geographically dispersed. For the three months ended March 31, 2025, one Construction Partner accounted for
The Company’s aged receivables were as follows:
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As at |
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March 31, 2025 |
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December 31, 2024 |
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Current |
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Overdue |
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Less: expected credit losses |
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( |
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( |
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Trade and accrued receivables, net of expected credit losses |
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No adjustment to our expected credit losses of $
6. OTHER LIABILITIES
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As at |
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March 31, 2025 |
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December 31, 2024 |
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Warranty provisions (1) |
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DSU liability |
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Income taxes payable |
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Sublease deposits |
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Other provisions and other liabilities |
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Other liabilities |
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11
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As at |
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March 31, 2025 |
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December 31, 2024 |
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As at January 1, |
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Additions to warranty provision |
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Payments related to warranties |
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( |
) |
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( |
) |
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7. LONG-TERM DEBT
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Revolving |
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Leasing |
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Convertible |
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Total Debt |
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Balance at January 1, 2024 |
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- |
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Accretion of issue costs |
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- |
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Accrued interest |
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- |
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Interest payments |
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- |
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( |
) |
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( |
) |
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( |
) |
Principal repayments |
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- |
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( |
) |
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( |
) |
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( |
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Gain on extinguishment |
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- |
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( |
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( |
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Exchange differences |
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( |
) |
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( |
) |
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( |
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Balance at December 31, 2024 |
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- |
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Current portion of long-term debt and accrued interest |
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- |
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Long-term debt |
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- |
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Balance at January 1, 2025 |
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- |
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Accretion of issue costs |
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- |
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Accrued interest |
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- |
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Interest payments |
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- |
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( |
) |
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( |
) |
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( |
) |
Principal repayments |
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- |
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( |
) |
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( |
) |
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( |
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Gain on extinguishment |
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- |
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( |
) |
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( |
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Exchange differences |
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- |
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Balance at March 31, 2025 |
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- |
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Current portion of long-term debt and accrued interest |
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- |
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Long-term debt |
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- |
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Revolving Credit Facility
On February 12, 2021, the Company entered into a loan agreement governing a C$
On February 9, 2023, the Company extended the RBC Facility (the “Extended RBC Facility”). The Extended RBC Facility had a borrowing base of C$
12
Rate (“Term SOFR”) plus 200 basis points plus the Term SOFR Adjustment (as defined in the amended loan agreement governing the Extended RBC Facility). Under the Extended RBC Facility, if the trailing twelve-month FCCR was not above 1.25 for
On February 9, 2024, the Company extended the Extended RBC Facility (the “Second Extended RBC Facility”). The Second Extended RBC Facility is subject to the borrowing base calculation to a maximum of C$
On February 20, 2025, the Company extended the Third Extended RBC Facility (the “Fourth Extended RBC Facility”). The Fourth Extended RBC Facility is subject to the borrowing base calculation based on accounts receivable balances to a maximum of C$
Leasing Facilities
The Company has a C$
The Company did not make any draws on the Canada Leasing Facility during the three months ended March 31, 2025 (2024 – $nil). The associated financial liabilities are shown on the consolidated balance sheet in the current portion of long-term debt and accrued interest and long-term debt.
Convertible Debentures
On January 25, 2021, the Company completed a C$
13
such January Debentures (refer to Note 4). On August 2, 2024, the Company purchased C$
On December 1, 2021, the Company completed a C$
8. STOCK-BASED COMPENSATION
In May 2020, shareholders approved the DIRTT Environmental Solutions Long Term Incentive Plan (the “2020 LTIP”). The 2020 LTIP replaced the predecessor incentive plans, being the Performance Share Unit Plan (“PSU Plan”) and the Amended and Restated Stock Option Plan (“Stock Option Plan”). Following the approval of the 2020 LTIP, no further awards will be made under either the Stock Option Plan or the PSU Plan, but both remain in place to govern the terms of any awards that were granted pursuant to such plans and remain outstanding.
In May 2023, shareholders approved the DIRTT Environmental Solutions Ltd. Amended and Restated Long-Term Incentive Plan (the “2023 LTIP”) at the annual and special meeting of shareholders. The 2023 LTIP gives the Company the ability to award options, share appreciation rights, restricted share units, deferred share units, restricted shares, dividend equivalent rights, and other share-based awards and cash awards to eligible employees, officers, consultants and directors of the Company and its affiliates. In accordance with the 2023 LTIP, the sum of (i)
In May 2024, shareholders approved the DIRTT Environmental Solutions Ltd. Second Amended and Restated Long-Term Incentive Plan (the “2024 LTIP”) at the annual and special meeting of shareholders. The effective date of the 2024 LTIP is May 9, 2024. The 2024 LTIP gives the Company the ability to award options, share appreciation rights, restricted share units, deferred share units, restricted shares, dividend equivalent rights, and other share-based awards and cash awards to eligible employees, officers, consultants and directors of the Company and its affiliates. In accordance with the 2024 LTIP, the sum of (i)
14
Upon vesting of certain LTIP awards, the Company may withhold and sell shares as a means of meeting DIRTT’s tax withholding requirements in respect of the withholding tax remittances required in respect of award holders. To the extent the fair value of the withheld shares upon vesting exceeds the grant date fair value of the instrument, the excess amount is credited to retained earnings or deficit.
Deferred share units (“DSUs”) have historically been granted to non-employee directors under the Deferred Share Unit Plan for Non-Employee Directors (as amended and restated, the “DSU Plan”) and settleable only in cash. The 2024 LTIP gives the Company the ability to settle DSUs in either cash or common shares, while consolidating future share-based awards under a single plan. The terms of the DSU Plan are otherwise materially unchanged as incorporated into the 2024 LTIP. Effective May 30, 2023, no new awards will be made under the DSU Plan, but awards previously granted under the DSU Plan will continue to be governed by the DSU Plan. DSUs are settled following cessation of services with the Company.
Stock-based compensation expense
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For the Three Months Ended March 31, |
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2025 |
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2024 |
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Equity-settled awards |
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Cash-settled awards |
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The following summarizes RSUs, PRSUs, PSUs (each as defined herein) and DSUs activity during the periods:
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RSU Time- |
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RSU Performance- |
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Based |
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Based |
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PSU |
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DSU |
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Number of |
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Number of |
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Number of |
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Number of |
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||||
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units |
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units |
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units |
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units |
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||||
Outstanding at December 31, 2023 |
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Granted |
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- |
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- |
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Vested or settled |
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( |
) |
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( |
) |
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- |
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- |
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Withheld to settle employee tax obligations |
|
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( |
) |
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- |
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- |
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- |
|
Forfeited or expired |
|
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( |
) |
|
|
( |
) |
|
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- |
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- |
|
Outstanding at March 31, 2024 |
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||||
Outstanding at December 31, 2024 |
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Granted |
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- |
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- |
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- |
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Vested or settled |
|
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( |
) |
|
|
- |
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|
- |
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- |
|
Withheld to settle employee tax obligations |
|
|
( |
) |
|
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- |
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|
- |
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- |
|
Forfeited or expired |
|
|
( |
) |
|
|
( |
) |
|
|
- |
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- |
|
Outstanding at March 31, 2025 |
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Restricted share units (time-based vesting)
Except as noted below, outstanding restricted share units (“RSUs”) that vest based on time have an aggregate time-based vesting period of
During the third quarter of 2024, certain of the Company’s executives were issued (i)
15
Restricted share units (performance-based vesting)
During 2022 and 2021, restricted share units were granted to executives with service and performance-based conditions for vesting based on the Company’s share price performance (the “PRSUs”). Based on share price performance since the date of grant,
Performance share units
During the second quarter of 2023, certain executives were issued a strategic equity grant through performance share units (“PSUs”). The performance period of the PSUs is from
Deferred share units
Granted under the DSU Plan
The fair value of the DSU liability and the corresponding expense is charged to profit or loss at the grant date. Subsequently, at each reporting date between the grant date and settlement date, the fair value of the liability is remeasured with any changes in fair value recognized in profit or loss for the period. DSUs outstanding at March 31, 2025 had a fair value of $
Granted under the 2023 and 2024 LTIP
DSUs granted after May 30, 2023 (the “New DSUs”) will be settled by way of the provision of cash or shares (or a combination thereof) to the Directors, at the discretion of the Company. The Company intends to settle these DSUs through issuances of common shares. The weighted average fair value of the DSUs granted in the first quarter of 2024 and 2025 was C$
Options
As at March 31, 2024, the Company had
Dilutive Instruments
For the three months ended March 31, 2025,
9. SHARE REPURCHASES
On December 18, 2024, the Company announced a normal course issuer bid for common shares (the “Shares NCIB”), which commenced on
16
to acquire up to
On February 13, 2025, the Company entered into a share repurchase agreement (the “Repurchase Agreement”) with NGEN III, LP (“NGEN”), pursuant to which the Company purchased for cancellation
In addition to the Share Repurchase, DIRTT acquired and cancelled
The following table summarizes the common shares repurchased and cancelled during the period:
Period |
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Total number of shares purchased |
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Average price paid per share |
|
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Total number of shares purchased as part of publicly announced programs |
|
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Maximum number of shares that may yet be purchased under the program |
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January 1, 2025 - January 31, 2025 |
|
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$ |
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February 1, 2025 - February 28, 2025 |
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$ |
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March 1, 2025 - March 31, 2025 |
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$ |
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Total |
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10. EARNINGS (LOSS) PER SHARE
|
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For the Three Months Ended March 31, |
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2025 |
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2024 |
|
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Net (loss) income per share – basic |
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Net (loss) income (thousands of U.S. dollars) |
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$ |
( |
) |
|
$ |
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|
Weighted average number of shares outstanding (thousands of shares) |
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Net (loss) income per share (U.S. dollars) − basic |
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$ |
( |
) |
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$ |
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Net (loss) income per share − diluted |
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Net (loss) income (thousands of U.S. dollars) |
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$ |
( |
) |
|
$ |
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Interest on convertible debentures |
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NA |
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$ |
( |
) |
|
$ |
|
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Weighted average number of shares outstanding (thousands of shares) |
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Dilutive debentures on convertible debt (thousands of shares) (1) |
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Dilutive RSUs and PRSUs (thousands of shares) (2) |
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Dilutive New DSUs (thousands of shares) (2) |
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Dilutive PSUs (thousands of shares) (2) |
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Dilutive options (thousands of shares) (2) |
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Weighted average number of shares outstanding (thousands of shares) |
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|
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Net (loss) income per share (U.S .dollars) − diluted |
|
$ |
( |
) |
|
$ |
|
|
(1)
17
basic income per share. For the three months ended March 31, 2025, the Net loss per share − diluted excludes the effect of
(2)
11. REVENUE
In the following table, revenue is disaggregated by performance obligation and timing of revenue recognition. All revenue comes from contracts with customers. See Note 12 for the disaggregation of revenue by geographic region.
|
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For the Three Months Ended March 31, |
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2025 |
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2024 |
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Product |
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Transportation |
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License fees from Construction Partners |
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Total product revenue |
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Installation and other services |
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DIRTT sells its products and services pursuant to fixed-price contracts which generally have a term of one year or less. The transaction price used in determining the amount of revenue to recognize from fixed-price contracts is based upon agreed contractual terms with each customer and is not subject to variability.
|
|
For the Three Months Ended March 31, |
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|||||
|
|
2025 |
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2024 |
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|
||
At a point in time |
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Over time |
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Revenue recognized at a point in time represents the majority of the Company’s sales. Revenue is recognized when a customer obtains legal title to the product, which is when ownership of the product is transferred to, or services are delivered to, the customer. Revenue recognized over time is limited to installation and ongoing maintenance contracts with customers and is recorded as performance obligations which are satisfied over the term of the contract.
Contract Liabilities
|
|
As at |
|
|||||||||
|
|
March 31, 2025 |
|
|
December 31, 2024 |
|
|
December 31, 2023 |
|
|||
Customer deposits |
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|
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Deferred revenue |
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|
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Contract liabilities |
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|
|||
Contract liabilities primarily relate to deposits received from customers and maintenance revenue from license subscriptions. The balance of contract liabilities was lower as at March 31, 2025 compared to December 31, 2024 mainly due to the timing of orders and payments. Contract liabilities as at December 31, 2024 and 2023 totaling $
18
Sales by Industry
The Company periodically reviews the growth of product and transportation revenue by vertical market to evaluate the success of industry-specific sales initiatives. The nature of products sold to the various industries is consistent and therefore review is focused on sales performance.
|
|
For the Three Months Ended March 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
Commercial |
|
|
|
|
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|
||
Healthcare |
|
|
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|
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Government |
|
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|
||
Education |
|
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|
||
License fees from Construction Partners |
|
|
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|
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|
||
Total product and transportation revenue |
|
|
|
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|
||
Installation and other services |
|
|
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|
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|
||
|
|
|
|
|
|
|
||
12. SEGMENT REPORTING
The Company has
Revenue from external customers
|
|
For the Three Months Ended March 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
Canada |
|
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|
||
U.S. |
|
|
|
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||
|
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|
|
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||
Non-current assets
|
|
As at March 31, |
|
|
As at December 31, |
|
||
|
|
2025 |
|
|
2024 |
|
||
Canada |
|
|
|
|
|
|
||
U.S. |
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||
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||
DIRTT has one reportable segment: solutions. The DIRTT solutions segment derives revenues from customers by providing physical products and digital tools through our ICE software to create interior spaces for our customers across the commercial, healthcare, education and government industries. The solutions segment provides digital tools (access to ICE software) and physical products to create modular interior construction spaces for our customers.
DIRTT’s chief operating decision maker is the executive leadership team that includes the president and chief operating officer, chief financial officer, and the chief executive officer. The chief operating decision maker assesses performance for the solutions segment and decides how to allocate resources based on gross profit and net income (loss) that also is reported on the Consolidated Statement of Operations and Comprehensive (Loss) Income as consolidated gross profit and net income (loss). The measure of segment assets is reported on the balance sheet as total consolidated assets. The chief operating decision maker uses net income to evaluate income generated from segment assets (return on assets) in deciding whether to reinvest profits into the solutions segment or into other parts of the entity, such as to repay long-term debt.
Net income (loss) are used to monitor budget versus actual results. The chief operating decision maker also uses net income (loss) in competitive analysis by benchmarking to DIRTT’s competitors. The competitive analysis along
19
with the monitoring of budgeted versus actual results are used in assessing performance of the segment and in establishing management’s compensation.
DIRTT derives revenue primarily in North America and manages the business activities on a consolidated basis. The technology used in the customer arrangements is based on a single software platform that is deployed to, and implemented by, customers in a similar manner.
Segment profit and loss reconciliation to Net (loss) income after tax
|
|
For the Three Months Ended March 31, |
|
|
|||||
|
|
2025 |
|
|
2024 |
|
|
||
|
|
($ in thousands) |
|||||||
Revenue |
|
|
|
|
|
|
|
||
Operating expenses (1) |
|
|
|
|
|
|
|
||
Operating loss |
|
|
( |
) |
|
|
( |
) |
|
Other income/(expenses) and gains/(losses) (2) |
|
|
( |
) |
|
|
|
|
|
Net (loss) income after tax |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Reconciliation of profit or loss |
|
|
|
|
|
|
|
||
Adjustments and reconciling items |
|
|
|
|
|
|
|
||
Net (loss) income after tax |
|
|
( |
) |
|
|
|
|
|
(1)
(2)
13. INCOME TAXES
As at March 31, 2025, the Company had a valuation allowance of $
20
14. RIGHTS OFFERING
On November 21, 2023, the Company announced that the Board of Directors had approved a rights offering (the “Rights Offering”) to its common shareholders for aggregate gross proceeds of C$
In connection with the Rights Offering, the Company entered into a standby purchase agreement, dated November 20, 2023 (the “Standby Purchase Agreement”) with 22NW and 726 BC LLC and 726 BF LLC (together, “726”), or their permitted assigns (collectively and including WWT Opportunity #1 LLC, to which 726 transferred all of their common shares to on December 1, 2023, the “Standby Purchasers”). Subject to the terms and conditions of the Standby Purchase Agreement, each Standby Purchaser agreed to exercise its Basic Subscription Privilege (as defined below) in full and to collectively purchase from the Company, at the subscription price, all common shares not subscribed for by holders of Rights (as defined below) under the Basic Subscription Privilege or Additional Subscription Privilege (as defined below), up to a maximum of C$
On January 9, 2024, the Company announced the completion of the Rights Offering to its common shareholders and the issuance of
DIRTT issued an aggregate of
15. COMMITMENTS
As at March 31, 2025, the Company had outstanding purchase obligations of approximately $
16. RELATED PARTY TRANSACTIONS
As at March 31, 2025, there were no Debentures held by a related party (March 31, 2024 - C$
21
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited interim condensed consolidated financial statements and related notes and other financial information appearing in this Quarterly Report. This discussion contains forward-looking statements reflecting our current expectations and estimates and assumptions concerning events and financial trends that may affect our future operating results or financial position. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors, including those described under the headings “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements” appearing elsewhere in this Quarterly Report.
Summary of Financial Results
DIRTT Environmental Solutions Ltd. and its subsidiary (“DIRTT”, the “Company”, “we” or “our”) is a leader in industrialized construction for interior spaces. DIRTT’s system of physical products and digital tools empowers organizations, together with construction and design leaders, to build high-performing, adaptable, interior environments. Operating in the workplace, healthcare, education, and public sector markets, DIRTT’s system provides total design freedom, and greater certainty in cost, schedule, and outcomes.
DIRTT’s proprietary design integration software, ICE® (“ICE” or “ICE software”), translates the vision of architects and designers into a 3D model that also acts as manufacturing information. ICE is also licensed to our Construction Partners and certain third parties, including Armstrong World Industries, Inc. (“AWI”) which owns a 50% interest in the rights, title and interests in certain intellectual property rights in a portion of the ICE software that is used by AWI.
Key First Quarter Highlights and Other Recent Developments
22
Pipeline
The table below presents our qualified leads and twelve-month forward pipeline as at April 1, 2025, January 1, 2025 and April 1, 2024. We define qualified leads as the quantity of projects being pursued as of the date presented, and define our pipeline as the estimated potential revenue from qualified leads where a client has engaged DIRTT and is assessing DIRTT as a potential provider of prefabricated interior solutions. We believe these metrics are helpful to estimate near-term performance, particularly given the macroeconomic factors that affect our operating environment, including labor availability, interest rate changes, and potential recessionary impacts on construction projects.
As of April 1, 2025, our twelve-month forward pipeline increased by 8% year-over-year and by 5% from January 1, 2025, illustrated in the table below.
|
|
As at |
|
|||||||||||||||||
|
|
April 1, 2025 |
|
|
January 1, 2025 |
|
|
% Change |
|
|
April 1, 2024 |
|
|
% Change |
|
|||||
Twelve-Month Forward Pipeline ($ 000s) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Commercial |
|
|
163,579 |
|
|
|
147,609 |
|
|
|
11 |
|
|
|
175,203 |
|
|
|
(7 |
) |
Healthcare |
|
|
61,171 |
|
|
|
51,214 |
|
|
|
19 |
|
|
|
45,658 |
|
|
|
34 |
|
Government |
|
|
44,861 |
|
|
|
55,203 |
|
|
|
(19 |
) |
|
|
33,017 |
|
|
|
36 |
|
Education |
|
|
21,947 |
|
|
|
24,292 |
|
|
|
(10 |
) |
|
|
16,505 |
|
|
|
33 |
|
|
|
|
291,558 |
|
|
|
278,318 |
|
|
|
5 |
|
|
|
270,383 |
|
|
|
8 |
|
Leads (#) |
|
|
1,490 |
|
|
|
1,012 |
|
|
|
47 |
|
|
|
1,184 |
|
|
|
26 |
|
23
Outlook
During the first quarter of 2025 we saw increasing levels of business uncertainty stemming from deteriorating macroeconomic conditions. The ongoing risk around the timing and size of tariffs in North America has forced many businesses, including DIRTT, to evaluate their capital planning, operating expenses and supply chains. In response, DIRTT has been preparing for tariffs and has started implementing mitigation strategies, such as leveraging our Savannah manufacturing facility and increasing our sourcing of materials within the U.S.
In the first quarter of 2025, we observed a softening in leading indicators relating to our revenue pipeline, specifically above-trend scheduling delays and below-trend signed awards driven by macroeconomic conditions that we believe are unrelated to DIRTT. The nature of the uncertainty is currently most pronounced in near-term decision making, and we have not yet seen a meaningful increase in project cancellations or losses. Due to the wide-ranging delays, we believe it is prudent to withdraw our full-year revenue and Adjusted EBITDA guidance. Despite this near-term softening, our twelve-month forward-looking pipeline is up 8% year-over-year. We remain confident in DIRTT’s strategic priorities, and expect to generate positive Adjusted EBITDA in 2025 due to DIRTT’s cost controls, business process improvements and manufacturing efficiencies.
We will continue to work to support our partners, grow our business, and transform how the world builds. DIRTT’s balance sheet is strong, including $36.0 million of liquidity (comprising of unrestricted cash and available borrowings). We will continue making key investments with DIRTT’s long-term growth in mind.
24
Non-GAAP Financial Measures
Note Regarding Use of Non-GAAP Financial Measures
Our interim condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). These GAAP financial statements include non-cash charges and other charges and benefits that we believe are unusual or infrequent in nature or that we believe may make comparisons to our prior or future performance difficult.
As a result, we also provide financial information in this Quarterly Report that is not prepared in accordance with GAAP and should not be considered as an alternative to the information prepared in accordance with GAAP. Management uses these non-GAAP financial measures in its review and evaluation of the financial performance of the Company. We believe that these non-GAAP financial measures also provide additional insight to investors and securities analysts as supplemental information to our GAAP results and as a basis to compare our financial performance period-over-period and to compare our financial performance with that of other companies. We believe that these non-GAAP financial measures facilitate comparisons of our core operating results from period to period and to other companies by removing the effects of our capital structure (net interest income on cash deposits, interest expense on outstanding debt and debt facilities, or foreign exchange movements), asset base (depreciation and amortization), tax consequences, reorganization expense, unusual or infrequent charges or gains (such as gain on extinguishment of debt, and impairment charges), stock-based compensation, related party expense, and government subsidies. We remove the impact of foreign exchange gain (loss) from Adjusted EBITDA. Foreign exchange gains and losses can vary significantly period-to-period due to the impact of changes in the U.S. and Canadian dollar exchange rates on foreign currency denominated monetary items on the balance sheet and are not reflective of the underlying operations of the Company. In periods where production levels are abnormally low, unallocated overheads are recognized as an expense in the period in which they are incurred. In addition, management bases certain forward-looking estimates and budgets on non-GAAP financial measures, primarily Adjusted EBITDA. We have not reconciled forward-looking non-GAAP measures, including Adjusted EBITDA guidance, to its corresponding GAAP measures due to the high variability and difficulty in making accurate forecasts and projections, particularly with respect to non-operating income and expenditures, which are difficult to predict and subject to change.
Government subsidies, depreciation and amortization, stock-based compensation expense, reorganization expense, foreign exchange gains and losses, gain on extinguishment of debt, impairment charges, net interest income on cash deposits, interest expense on outstanding debt and debt facilities, tax expense, and related party expense are excluded from our non-GAAP financial measures because management considers them to be outside of the Company’s core operating results, even though some of those receipts and expenses may recur, and because management believes that each of these items can distort the trends associated with the Company’s ongoing performance. We believe that excluding these receipts and expenses provides investors and management with greater visibility to the underlying performance of the business operations, enhances consistency and comparativeness with results in prior periods that do not, or future periods that may not, include such items, and facilitates comparison with the results of other companies in our industry.
The following non-GAAP financial measures are presented in this Quarterly Report, and a description of the calculation for each measure is included.
Adjusted Gross Profit |
Gross profit before deductions for depreciation and amortization |
|
|
Adjusted Gross Profit Margin |
Adjusted Gross Profit divided by revenue |
|
|
EBITDA |
Net income before interest, taxes, depreciation and amortization |
|
|
Adjusted EBITDA |
EBITDA adjusted to remove foreign exchange gains or losses; impairment charges; reorganization expenses; stock-based compensation expense; unusual or infrequent charges (such as gain on extinguishment of debt); and any other non-core gains or losses |
|
|
Adjusted EBITDA Margin |
Adjusted EBITDA divided by revenue |
25
You should carefully evaluate these non-GAAP financial measures, the adjustments included in them, and the reasons we consider them appropriate for analysis supplemental to our GAAP information. Each of these non-GAAP financial measures has important limitations as an analytical tool due to exclusion of some but not all items that affect the most directly comparable GAAP financial measures. You should not consider any of these non-GAAP financial measures in isolation or as substitutes for an analysis of our results as reported under GAAP. You should also be aware that we may recognize income or incur expenses in the future that are the same as, or similar to, some of the adjustments in these non-GAAP financial measures. Because these non-GAAP financial measures may be defined differently by other companies in our industry, our definitions of these non-GAAP financial measures may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.
Results of Operations
Three Months Ended March 31, 2025, Compared to the Three Months Ended March 31, 2024
|
|
For the Three Months Ended March 31, |
|
|
|||||||||
|
|
2025 |
|
|
2024 |
|
|
% Change |
|
|
|||
|
|
($ in thousands) |
|
|
|
||||||||
Revenue |
|
|
41,295 |
|
|
|
40,847 |
|
|
|
1 |
|
|
Gross Profit |
|
|
14,542 |
|
|
|
14,648 |
|
|
|
(1 |
) |
|
Gross Profit Margin |
|
|
35.2 |
% |
|
|
35.9 |
% |
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|||
Sales and marketing |
|
|
5,177 |
|
|
|
5,920 |
|
|
|
(13 |
) |
|
General and administrative |
|
|
5,480 |
|
|
|
4,566 |
|
|
|
20 |
|
|
Operations support |
|
|
2,030 |
|
|
|
1,775 |
|
|
|
14 |
|
|
Technology and development |
|
|
1,228 |
|
|
|
1,251 |
|
|
|
(2 |
) |
|
Stock-based compensation |
|
|
739 |
|
|
|
675 |
|
|
|
9 |
|
|
Reorganization |
|
|
210 |
|
|
|
138 |
|
|
|
52 |
|
|
Impairment charge on Rock Hill Facility |
|
|
- |
|
|
|
530 |
|
|
|
(100 |
) |
|
Total operating expenses |
|
|
14,864 |
|
|
|
14,855 |
|
|
|
0 |
|
|
Operating loss |
|
|
(322 |
) |
|
|
(207 |
) |
|
|
(56 |
) |
|
Operating margin |
|
|
(0.8 |
)% |
|
|
(0.5 |
)% |
|
|
|
|
|
Gain on extinguishment of convertible debt |
|
|
7 |
|
|
|
2,931 |
|
|
|
(100 |
) |
|
Foreign exchange (loss) gain |
|
|
(112 |
) |
|
|
919 |
|
|
|
(112 |
) |
|
Interest income |
|
|
262 |
|
|
|
489 |
|
|
|
(46 |
) |
|
Interest expense |
|
|
(451 |
) |
|
|
(1,054 |
) |
|
|
(57 |
) |
|
|
|
|
(294 |
) |
|
|
3,285 |
|
|
|
(109 |
) |
|
Net (loss) income before tax |
|
|
(616 |
) |
|
|
3,078 |
|
|
|
(120 |
) |
|
Current and deferred income tax expense |
|
|
45 |
|
|
|
33 |
|
|
|
36 |
|
|
Net (loss) income after tax |
|
|
(661 |
) |
|
|
3,045 |
|
|
|
(122 |
) |
|
Revenue
Revenue mainly reflects sales to our construction partners (“Construction Partners”) for resale to their clients and, in limited circumstances, our direct sales to clients. Our revenue is generally affected by the timing of when orders are executed, particularly large orders, which can add variability to our financial results and shift revenue between quarters.
The following table sets forth the contribution to revenue of our DIRTT product and service offerings:
|
|
For the Three Months Ended March 31, |
|
|
|||||||||
|
|
2025 |
|
|
2024 |
|
|
% Change |
|
|
|||
|
|
($ in thousands) |
|
|
|
||||||||
Product |
|
|
36,224 |
|
|
|
34,876 |
|
|
|
4 |
|
|
Transportation |
|
|
3,938 |
|
|
|
3,955 |
|
|
|
(0 |
) |
|
License fees from Construction Partners |
|
|
184 |
|
|
|
208 |
|
|
|
(12 |
) |
|
Total product revenue |
|
|
40,346 |
|
|
|
39,039 |
|
|
|
3 |
|
|
Installation and other services |
|
|
949 |
|
|
|
1,808 |
|
|
|
(48 |
) |
|
|
|
|
41,295 |
|
|
|
40,847 |
|
|
|
1 |
|
|
26
Revenue for the three months ended March 31, 2025 was $41.3 million, an increase of $0.4 million compared to $40.8 million in the comparative period of 2024, primarily due to a higher volume of large education and healthcare projects, offset by lower value commercial and government projects in the first quarter of 2025.
Installation and other services revenue was $0.9 million for the quarter ended March 31, 2025 compared to $1.8 million in the quarter ended March 31, 2024. This revenue primarily reflects services performed by our ICE design teams for third parties. Except in limited circumstances, our Construction Partners, rather than the Company, perform installation services.
Our success is partly dependent on our ability to profitably develop our Construction Partner network to expand our market penetration and ensure best practices are shared across local markets. At March 31, 2025, we had 69 Construction Partners (March 31, 2024: 74; December 31, 2024: 71) servicing multiple locations.
The following tables present our product and transportation revenue by vertical market:
|
|
For the Three Months Ended March 31, |
|
|
|||||||||
|
|
2025 |
|
|
2024 |
|
|
% Change |
|
|
|||
|
|
($ in thousands) |
|
|
|
||||||||
Commercial |
|
|
28,098 |
|
|
|
30,179 |
|
|
|
(7 |
) |
|
Healthcare |
|
|
7,204 |
|
|
|
3,049 |
|
|
|
136 |
|
|
Government |
|
|
2,649 |
|
|
|
3,475 |
|
|
|
(24 |
) |
|
Education |
|
|
2,211 |
|
|
|
2,128 |
|
|
|
4 |
|
|
License fees from Construction Partners |
|
|
184 |
|
|
|
208 |
|
|
|
(12 |
) |
|
Total product revenue |
|
|
40,346 |
|
|
|
39,039 |
|
|
|
3 |
|
|
Service revenue |
|
|
949 |
|
|
|
1,808 |
|
|
|
(48 |
) |
|
|
|
|
41,295 |
|
|
|
40,847 |
|
|
|
1 |
|
|
|
|
For the Three Months Ended March 31, |
|
|
|||||
|
|
2025 |
|
|
2024 |
|
|
||
|
|
(in %) |
|
|
|||||
Commercial |
|
|
70 |
|
|
|
78 |
|
|
Healthcare |
|
|
18 |
|
|
|
8 |
|
|
Government |
|
|
7 |
|
|
|
9 |
|
|
Education |
|
|
5 |
|
|
|
5 |
|
|
Total Product Revenue(1) |
|
|
100 |
|
|
|
100 |
|
|
(1) Excludes license fees from Construction Partners.
Commercial sales decreased by 7% for the first quarter of 2025 from the first quarter of 2024. The quarter ended March 31, 2025 included fewer large commercial projects compared to the quarter ended March 31, 2024. Healthcare revenues increased by 136% in the first quarter of 2025 from the same period of 2024, primarily due to four key projects shipping in the first quarter of 2025 and a higher volume of larger projects. Sales in the healthcare sector tend to be larger individual projects and are subject to timing due to a typically longer sales cycle, resulting in variability in sales levels. We have made several investments in new product solutions (such as COVE™ and Applied Headwalls) and additions to the business development team to increase product placement in future construction projects. This had led to multiple project commitments set to commence in 2025. Those investments continue in 2025 and are expected to expand into life sciences. Government sales in the first quarter of 2025 decreased by 24% from the first quarter of 2024 due to lower volume and lower value projects. Education sales in the first quarter of 2025 increased by 4% from the same period of 2024.
Revenue continues to be derived almost exclusively from projects in North America and predominantly from the United States. The following table presents our revenue dispersion by geography:
27
|
|
For the Three Months Ended March 31, |
|
|
|||||||||
|
|
2025 |
|
|
2024 |
|
|
% Change |
|
|
|||
|
|
($ in thousands) |
|
|
|
||||||||
Canada |
|
|
6,878 |
|
|
|
3,069 |
|
|
|
124 |
|
|
U.S. |
|
|
34,417 |
|
|
|
37,778 |
|
|
|
(9 |
) |
|
|
|
|
41,295 |
|
|
|
40,847 |
|
|
|
1 |
|
|
For the three months ended March 31, 2025, 17% of revenue was from Canada, as compared to 8% for the three months ended March 31, 2024. Historically, approximately 11-15% and 85-89% of revenues are derived from sales to Canada and the United States, respectively. The first quarter of 2025 had a large Canadian project which is expected to be ongoing throughout 2025; apart from that, we expect the historical split to continue.
Sales and marketing expenses
Sales and marketing expenses decreased by $0.7 million to $5.2 million for the three months ended March 31, 2025 from $5.9 million for the three months ended March 31, 2024. The decrease was driven by a $0.3 million decrease in termination benefits, a $0.2 million decrease in salaries and benefits costs, a $0.2 million decrease in commissions and pass through charges, a $0.1 million decrease in professional services costs, a $0.1 million decrease in depreciation expense and a $0.1 million decrease in building and communications costs. The decrease was offset by a $0.1 million increase in travel, meals and entertainment costs, and a $0.1 million increase in marketing and tradeshow expenses.
General and administrative expenses
General and administrative expenses increased by $0.9 million to $5.5 million for the three months ended March 31, 2025, from $4.6 million for the three months ended March 31, 2024. The increase was primarily related to a $0.9 million increase in professional services costs as a result of costs associated with the Share Repurchase from NGEN and an increase in litigation costs as we prepare for the Falkbuilt trial, a $0.2 million increase in salaries and benefits costs, a $0.1 million increase in termination benefits, a $0.1 million loss on disposal of equipment and a $0.1 million increase in board fees, offset by a $0.3 million decrease in building and infrastructure costs, a $0.1 million decrease in depreciation expense and a $0.1 million decrease in office and communication costs.
Operations support expenses
Operations support expenses increased by $0.3 million for the three months ended March 31, 2025 to $2.0 million, from $1.8 million for the comparative period of 2024. The increase was primarily related to a $0.1 million increase in termination benefits, a $0.1 million increase in tradeshow expenses, and a $0.1 million increase in other discretionary expenses.
Technology and development expenses
Technology and development expenses relate to non-capitalizable costs associated with our product and software development teams, and are primarily comprised of salaries and benefits of technical staff.
Technology and development expenses decreased slightly to $1.2 million for the three months ended March 31, 2025 from $1.3 million for the three months ended March 31, 2024. This decrease was related to a $0.1 million decrease in salaries and benefits costs, offset by a $0.1 million increase in professional services costs.
Stock-based compensation
Stock-based compensation expense for the three months ended March 31, 2025 was $0.7 million, consistent with $0.7 million for the three months ended March 31, 2024. Stock-based compensation expense is dependent on share price in a period for fair value adjustments made on cash-settled DSU awards and grants, exercises, expirations or forfeitures made on other awards.
28
Impairment charge on Rock Hill Facility
On September 27, 2023, the Company decided to permanently close the Rock Hill Facility in South Carolina. Certain assets, including manufacturing equipment, which met held-for-sale criteria at that time were reclassified from property, plant and equipment. At March 31, 2024, we determined that the assets held for sale balance of $0.5 million was to be reduced to $nil resulting in a $0.5 million impairment charge for such quarter.
The Company had $nil impairment charges in the first quarter of 2025.
Gain on extinguishment of debt
The gain on extinguishment of debt of $0.01 million for the three months ended March 31, 2025, relates to the Debentures NCIB and was calculated as the difference between the repayment and the net carrying value of the extinguished principal less unamortized issuance costs of C$0.1 million ($0.1 million) (refer to Note 4 of our Interim Condensed Consolidated Financial Statements for additional information). During the first three months of 2024, an aggregate of C$10.5 million ($7.8 million) in principal amount of Debentures was repurchased for cancellation through the Issuer Bid, which triggered an extinguishment of debt of C$3.9 million ($2.9 million).
Foreign exchange gain (loss)
Foreign exchange gain or loss decreased $1.0 million from a gain of $0.9 million for the three months ended March 31, 2024 to a loss of $0.1 million for the same period in 2025. The decrease is primarily related to the strengthening of the Canadian dollar relative to the U.S. dollar over the three months ended March 31, 2025.
Interest income
Interest income for the three months ended March 31, 2025 was $0.3 million compared to $0.5 million for the comparative period of 2024. The decreased interest income is due to lower interest earned on the Company’s lower cash equivalents during the three months ended March 31, 2025 compared to the same period of 2024.
Interest expense
Interest expense decreased by $0.6 million from $1.1 million in the quarter ended March 31, 2024, to $0.5 million in the quarter ended March 31, 2025. This decrease is largely due to repayment of debt throughout the year ended December 31, 2024 and during the first quarter of 2025, reducing the interest payable on current and long-term debt.
Income tax
Income tax expense for the three months ended March 31, 2025 increased to $0.04 million, from $0.03 million in the same period of 2024. The current tax expense represents the income tax provision after the utilization of non-capital loss carry forwards against current period taxable income. The provision for income taxes comprises U.S. and Canadian federal, state and provincial taxes based on pre-tax income. Despite positive indications of future profitability, including the current period profit and strength of our pipeline, the Company has determined that it is unlikely that a deferred tax asset will be recognized. Given the recent history of losses, the Company plans to maintain a valuation allowance against the deferred tax asset. As at March 31, 2025, the Company had a valuation allowance of $29.4 million (December 31, 2024: $30.0 million) against deferred tax assets. The Company plans to continue to evaluate indicators on whether a valuation allowance continues to be needed. For the quarter ended March 31, 2025, the Company utilized a balance of its non-capital loss carry-forwards in Canada and the United States. As at March 31, 2025, we had C$86.1 million of non-capital loss carry-forwards in Canada and $51.3 million of non-capital loss carry-forwards in the United States. These loss carry-forwards will begin to expire in 2037.
29
Net (loss) income after tax
Net loss after tax was $0.7 million or $0.00 basic and diluted net loss per share in the three months ended March 31, 2025, a decrease of $3.7 million from net income after tax of $3.0 million or $0.02 and $0.01 net income per share, basic and diluted, respectively, for the three months ended March 31, 2024. The decrease in net income is primarily the result of a $2.9 million decrease in gain on extinguishment of debt (relating to the Issuer Bid that was completed in February 2024 and not repeated in 2025), a $1.0 million decrease in foreign exchange gain, a $0.2 million decrease in interest income and a $0.1 million decrease in gross profit, offset by a decrease of $0.6 million in interest expense.
Adjusted Gross Profit and Adjusted Gross Profit Margin for the three months ended March 31, 2025 and 2024
The following table presents a reconciliation for the three months ended March 31, 2025 and 2024 of Adjusted Gross Profit to our gross profit and Adjusted Gross Profit Margin to gross profit margin, which are the most directly comparable GAAP measures for the periods presented:
|
|
For the Three Months Ended March 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
|
|
($ in thousands) |
|
|||||
Gross profit |
|
|
14,542 |
|
|
|
14,648 |
|
Gross profit margin |
|
|
35.2 |
% |
|
|
35.9 |
% |
Add: Depreciation and amortization expense |
|
|
957 |
|
|
|
844 |
|
Adjusted Gross Profit |
|
|
15,499 |
|
|
|
15,492 |
|
Adjusted Gross Profit Margin |
|
|
37.5 |
% |
|
|
37.9 |
% |
For the quarter ended March 31, 2025, gross profit margin decreased to 35.2%, from 35.9% for the same period of 2024. Adjusted Gross Profit Margin was 37.5% for the first quarter of 2025, a decrease from 37.9% in the comparative period of 2024. Adjusted Gross Profit for the quarter ended March 31, 2025 was negatively impacted by the tariffs implemented in 2025.
Adjusted Gross Profit Margin in the first quarter of 2025 was consistent with the first quarter of 2024 as a result of an increase in revenue of $0.4 million and a decrease in indirect technical support costs resulting from operational efficiencies offset by $0.6 million of costs (1.4% of revenue) in tariffs and costs related to tariff mitigation actions.
30
EBITDA and Adjusted EBITDA for the three months ended March 31, 2025 and 2024
The following table presents a reconciliation for the results of the three months ended March 31, 2025 and 2024 of EBITDA and Adjusted EBITDA to our net (loss) income after tax, and of Adjusted EBITDA Margin to net (loss) income margin, which are the most directly comparable GAAP measures for the periods presented:
|
|
For the Three Months Ended March 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
|
|
($ in thousands) |
|
|||||
Net (loss) income after tax for the period |
|
|
(661 |
) |
|
|
3,045 |
|
Add back (deduct): |
|
|
|
|
|
|
||
Interest expense |
|
|
451 |
|
|
|
1,054 |
|
Interest income |
|
|
(262 |
) |
|
|
(489 |
) |
Income tax expense |
|
|
45 |
|
|
|
33 |
|
Depreciation and amortization |
|
|
1,480 |
|
|
|
1,534 |
|
EBITDA |
|
|
1,053 |
|
|
|
5,177 |
|
Foreign exchange loss (gain) |
|
|
112 |
|
|
|
(919 |
) |
Stock-based compensation |
|
|
739 |
|
|
|
675 |
|
Reorganization expense(2) |
|
|
210 |
|
|
|
138 |
|
Gain on extinguishment of convertible debt(2) |
|
|
(7 |
) |
|
|
(2,931 |
) |
Impairment charge on Rock Hill Facility (2) |
|
|
- |
|
|
|
530 |
|
Adjusted EBITDA |
|
|
2,107 |
|
|
|
2,670 |
|
Net (Loss) Income Margin(1) |
|
|
(1.6 |
)% |
|
|
7.5 |
% |
Adjusted EBITDA Margin |
|
|
5.1 |
% |
|
|
6.5 |
% |
(1) Net (loss) income after tax divided by revenue.
(2) Reorganization expenses, the gain on extinguishment of convertible debt (refer to Note 4 of the interim condensed consolidated financial statements) and the impairment charge on the Rock Hill Facility are not core to our business and are therefore excluded from the Adjusted EBITDA calculation.
For the three months ended March 31, 2025, Adjusted EBITDA and Adjusted EBITDA Margin decreased by $0.6 million to $2.1 million and 5.1%, respectively, from $2.7 million and 6.5% for the same period of 2024. This reflects a $0.9 million increase in professional services costs as a result of costs associated with higher litigation costs related to the Falkbuilt Litigation and the Share Repurchase from NGEN, a $0.2 million increase in marketing and tradeshow costs, a $0.2 million increase in costs for travel, meals and entertainment, offset by a $0.4 million decrease in salaries and benefits costs, a $0.2 million decrease in commissions and pass through charges and a $0.3 million decrease in building and infrastructure costs.
31
Liquidity and Capital Resources
As at March 31, 2025, the Company had $28.4 million of cash on hand and C$10.9 million ($7.6 million) of available borrowings, compared to $29.3 million of cash on hand and C$14.4 million ($10.0 million) of available borrowings as at December 31, 2024. Through the first three months of 2025, the Company used $0.8 million of cash. The Company generated $3.7 million of cash flows from operations during the first three months of 2025. During the same period, the Company paid $3.5 million to repurchase common shares under the Shares NCIB and Share Repurchase and used $0.8 million for capital expenditures. The Company incurred $0.2 million in foreign exchange loss resulting in a net decrease of $0.8 million of cash for the quarter.
We have assessed the Company’s liquidity as at March 31, 2025, taking into account our sales outlook for the next twelve months, our budget and expected cash outflows and our existing cash balances and available credit facilities. Based upon this analysis, we believe the Company has sufficient liquidity to remain a going concern for at least the next twelve months. We note that the January Debentures amounting to C$16.6 million ($11.5 million) as of March 31, 2025 are due on January 25, 2026 and have therefore been classified as current on our balance sheet. We are evaluating whether we will settle or refinance this debt.
To the extent that existing cash and cash equivalents and available facilities are not sufficient to fund future activities, we may seek to raise additional funds through equity or debt financings. If additional funds are raised through the incurrence of indebtedness, such indebtedness may have rights that are senior to holders of our Debentures and our equity securities or contain instruments that may be dilutive to our existing shareholders. Any additional equity or debt financing may be dilutive to our existing shareholders. While we believe we can access capital markets when needed or under acceptable terms, there can be no assurance that we will be able to do so, particularly in light of recent market conditions.
We note that as of the date of this report, the imposition of trade barriers, including tariffs, quotas, embargoes, safeguards, and customs restrictions between Canada and the U.S., may increase the cost or reduce the supply of materials and products available to us, increase shipping times, affect our customers’ construction needs or budgets, affect the demand for our products or our product mix or require us to modify our supply chain organization, manufacturing facilities, or other current business practices, any of which could harm our business, financial condition, and results of operations.
Price Increases and Impact of Tariffs
On February 11, 2025, we announced a price increase of 5% on all orders placed after March 18, 2025, and price adjustments on certain products in response to market feedback and to mitigate the impact of rising raw material costs.
Commencing in February 2025, the U.S. Government proposed and enacted various tariffs. Refer to “Outlook” and “Risk Factors” for further discussion on these tariffs. As of the date of this report, the following tariffs are currently in effect that materially affect DIRTT:
32
Equity and Debt Issuances and Buyback Programs
During the past two years, we have executed various debt and share buyback programs. The Issuer Bid, Debenture Repurchase, Debentures NCIB, Shares NCIB and the Share Repurchase (each as defined herein) were initiated after careful consideration of cash flow, and the Company continues to evaluate uses of cash on hand. As discussed in the “Part II, Item 1A. Risk Factors” section and elsewhere of this Quarterly Report, proposed and implemented tariffs on Canadian exports into the United States, and vice versa, may have a material impact on future cash flows and liquidity, which the Company will continue to monitor.
On November 21, 2023, the Company announced a rights offering, which closed on January 9, 2024, for aggregate gross proceeds of C$30.0 million (net proceeds of $21.3 million)(the “Rights Offering”).
In January 2021, we issued C$40.3 million of convertible unsecured subordinated debentures (the “January Debentures”) for net proceeds after costs of C$37.6 million ($29.5 million). The January Debentures accrue interest at a rate of 6.00% per annum and are convertible into common shares of DIRTT at an exercise price of C$4.65 per common share, or if not converted will mature and be repayable on January 31, 2026. As a result of the Rights Offering, the conversion price was adjusted to C$4.03 per common share. Interest and principal are payable in cash or shares at the option of the Company.
On December 1, 2021, we issued C$35.0 million of convertible unsecured subordinated debentures (the “December Debentures”, and collectively with the January Debentures, the “Debentures”) for net proceeds after costs of C$32.7 million ($25.6 million). The December Debentures accrue interest at a rate of 6.25% per annum and are convertible into common shares of DIRTT at an exercise price of C$4.20 per common share, or if not converted, will mature and be repayable on December 31, 2026. As a result of the Rights Offering, the conversion price was adjusted to C$3.64 per common share. Interest and principal are payable in cash or shares at the option of the Company.
On February 15, 2024, the Company announced a substantial issuer bid and tender offer (the “Issuer Bid”), under which the Company offered to repurchase for cancellation: (i) up to C$6,000,000 principal amount of the January Debentures at a purchase price of C$720 per C$1,000 principal amount of January Debentures; and (ii) up to C$9,000,000 principal amount of the December Debentures at a purchase price of C$600 per C$1,000 principal amount of December Debentures. Holders of Debentures who validly tendered and did not withdraw their Debentures received the applicable purchase price, plus a cash payment for all accrued and unpaid interest up to, but excluding, the date on which such Debentures were taken up by the Company. The applicable purchase price was denominated in Canadian dollars and payments of amounts owed to holders of deposited Debentures, including for interest, were made in Canadian dollars. The Issuer Bid expired on March 22, 2024 and DIRTT purchased C$4.7 million ($3.5 million) aggregate principal amount of the January Debentures and C$5.8 million ($4.3 million) aggregate principal amount of the December Debentures, representing approximately 11.66% of the January Debentures and 16.50% of the December Debentures issued and outstanding at that time. The Company took up all the Debentures tendered pursuant to the Issuer Bid for aggregate consideration of C$7.0 million ($5.2 million) (comprised of C$6.9 million ($5.1 million) repayment on principal and interest of C$0.1 million ($0.1 million)).
33
On August 2, 2024, the Company entered into an agreement with 22NW Fund LP (“22NW”), to purchase for cancellation an aggregate of C$18,915,000 principal amount of the January Debentures at a purchase price of C$684.58 per C$1,000 principal amount of January Debentures and C$13,638,000 principal amount of the December Debentures at a purchase price of C$665.64 per C$1,000 principal amount of December Debentures, for an aggregate purchase price of C$22,104,591.45, inclusive of a cash payment for all accrued and unpaid interest up to, but excluding, the date on which such Debentures were purchased by the Company the Debenture Repurchase. The purchase price of each series of Debentures (excluding the cash payment for accrued and unpaid interest) represented a discount of approximately 4% to the average trading price of the applicable series of Debentures on the TSX for the 20 trading days preceding August 2, 2024. Following the Debenture Repurchase, 22NW no longer holds any Debentures.
On August 28, 2024, the Company commenced the Debentures normal course issuer bid (the “Debentures NCIB”) which will terminate no later than August 27, 2025. Under the Debentures NCIB, DIRTT is permitted to acquire up to C$1,664,200 principal amount of the January Debentures and C$1,558,700 principal amount of the December Debentures. As at March 31, 2025, C$0.4 million ($0.3 million) and C$0.05 million ($0.03 million) principal amounts of the December Debentures and January Debentures had been acquired through the Debentures NCIB, respectively. As at March 31, 2025, C$16.6 million ($11.5 million) principal amount of the January Debentures and C$15.2 million ($10.5 million) principal amount of the December Debentures were outstanding.
On December 20, 2024, the Company commenced a normal course issuer bid for common shares (the “Shares NCIB”) which will terminate no later than December 19, 2025. Under the Shares NCIB, DIRTT is permitted to acquire up to 7,515,233 common shares. All purchases will be made on the open market at the market price of common shares at the time of acquisition. Any common shares acquired through the Shares NCIB will be immediately cancelled.
On February 13, 2025, the Company entered into the Share Repurchase with NGEN to purchase for cancellation 3,920,844 common shares held by NGEN (the “NGEN Shares”) at a purchase price of $0.80 per NGEN Share. Following the Share Repurchase, there were 189,643,903 common shares outstanding. The NGEN Shares repurchased under the Share Repurchase were counted against the maximum number of shares that may be repurchased pursuant to the Shares NCIB being 7,515,233 shares. As at March 31, 2025, 4,439,107 common shares had been repurchased and cancelled for proceeds of C$5.0 million ($3.5 million) through the Shares NCIB and the Share Repurchase.
As explained above, initiating the debt and share buybacks was done after careful consideration of cash flow and with consideration to the risk of proposed and implemented tariffs.
Facilities
On February 12, 2021, the Company entered into a loan agreement governing a C$25.0 million senior secured revolving credit facility with the Royal Bank of Canada (“RBC”), as lender (the “RBC Facility”). Under the RBC Facility, the Borrowing Base is up to a maximum of 90% of investment grade or insured accounts receivable plus 85% of eligible accounts receivable plus the lesser of 75% of the book value of eligible inventory and 85% of the net orderly liquidation value of eligible inventory less any reserves for potential prior ranking claims. Interest is calculated at the Canadian or U.S. prime rate plus 30 basis points or at the Canadian Dollar Offered Rate or LIBOR plus 155 basis points. Under the RBC Facility, if the “Aggregate Excess Availability”, defined as the Borrowing Base less any loan advances or letters of credit or guarantee and if undrawn including unrestricted cash is less than C$5.0 million, the Company is subject to a fixed charge coverage ratio (“FCCR”) covenant of 1.10:1 on a trailing twelve-month basis. Additionally, if the FCCR has been below 1.10:1 for the three immediately preceding months, the Company is required to maintain a reserve account equal to the aggregate of one year of payments on outstanding loans on the Canada Leasing Facility and a leasing facility in the United States that is no longer available (together, the “Leasing Facilities”). Should an event of default occur or the Aggregate Excess Availability be less than C$6.25 million for five consecutive business days, the Company would enter a cash dominion period whereby the Company’s bank accounts would be blocked by RBC and daily balances will set-off any borrowings and any remaining amounts made available to the Company.
34
On February 9, 2023, the Company extended the RBC Facility (the “Extended RBC Facility”). The Extended RBC Facility has a maximum borrowing base of C$15.0 million and a one-year term. Interest is calculated as at the Canadian or U.S. prime rate plus 75 basis points or at the Canadian Dollar Offered Rate or LIBOR plus 200 basis points. Under the Extended RBC Facility, until such time that the trailing twelve-month FCCR is above 1.25 for three consecutive months, a cash balance equivalent to one-year’s worth of Leasing Facilities payments must be maintained.
On February 9, 2024, the Company extended the Extended RBC Facility (the “Second Extended RBC Facility”). The maximum availability under the Second Extended RBC Facility is subject to the borrowing base calculation to a maximum of C$15.0 million and a one-year term. Interest is calculated as at the Canadian or U.S. prime rate plus 75 basis points or at the Canadian Dollar Offered Rate or Adjusted Term CORRA or Term SOFR plus the Term SOFR Adjustment, in each case, plus 200 basis points. The Second Extended RBC Facility removed the three-month FCCR covenant, which resulted in the release of $0.1 million of restricted cash during the first quarter of 2024 (the Company had $0.4 million restricted cash as at December 31, 2023). On February 11, 2025, the Company extended the Second Extended RBC Facility (the “Third Extended RBC Facility”) for a period of two weeks up to February 25, 2025 whilst the Company and RBC completed negotiations.
On February 20, 2025, the Company extended the Third Extended RBC Facility (the “Fourth Extended RBC Facility”). The Fourth Extended RBC Facility is subject to the borrowing base calculation based on accounts receivable balances to a maximum of C$25.0 million and matures on November 30, 2025. Interest is calculated as the Canadian or U.S. prime rate plus 50 basis points or at the Term CORRA Rate as adjusted by the Term CORRA Adjustment or Term SOFR plus the Term SOFR Adjustment, in each case plus 175 basis points. At March 31, 2025, available borrowings were C$10.9 million ($7.6 million) (December 31, 2024 – C$14.4 million ($10.0 million) of available borrowings), calculated in the same manner as the RBC Facility described above, of which no amounts have been drawn. The Fourth Extended RBC Facility also includes a new letter of credit facility guaranteed by the Export Development of Canada of C$5 million. The Company has also entered into a bonding facility with Great Midwest Insurance Company, and any other company that is part of or added to Skyward Specialty Insurance Group, Inc. (“Skyward”), which allows access to a $15.0 million bonding facility subject to an individual maximum of $5 million. Under the terms of the facility with Skyward, any bonds issued will be secured through Letters of Credit issued pursuant to the Fourth Extended RBC Facility.
The Company has a C$5.0 million equipment leasing facility in Canada (the “Canada Leasing Facility”) of which, as of March 31, 2025, C$4.4 million ($3.1 million) has been drawn and C$3.9 million ($2.9 million) has been repaid. The Canada Leasing Facility has a seven-year term and bears interest at 4.25%. The Company did not make any draws on the Canada Leasing Facility during the years ended March 31, 2025 and 2024.
We are restricted from paying dividends unless Payment Conditions (as defined in the Fourth Extended RBC Facility) are met, including having a net borrowing availability of at least C$5.0 million over the proceeding 30-day period, and having a trailing twelve-month fixed charge coverage ratio above 1.10:1 and certain other conditions. The Fourth Extended RBC Facility is currently secured by substantially all of our real and personal property located in Canada and the United States.
35
Analysis of Cash Flow Changes Between the Three Months Ended March 31, 2025 and 2024
The following table summarizes our consolidated cash flows for the periods indicated:
|
|
|
|
For the Three Months Ended March 31, |
|
|
|||||
|
|
|
|
2025 |
|
|
2024 |
|
|
||
|
|
|
|
($ in thousands) |
|
|
|||||
Net cash flows provided by (used in) operating activities |
|
|
|
|
3,684 |
|
|
|
(2,043 |
) |
|
Net cash flows (used in) provided by investing activities |
|
|
|
|
(729 |
) |
|
|
281 |
|
|
Net cash flows (used in) provided by financing activities |
|
|
|
|
(3,609 |
) |
|
|
16,123 |
|
|
Effect of foreign exchange on cash, cash equivalents and restricted cash |
|
|
|
|
(191 |
) |
|
|
(230 |
) |
|
Net (decrease) increase in cash, cash equivalents and restricted cash |
|
|
|
|
(845 |
) |
|
|
14,131 |
|
|
Cash, cash equivalents and restricted cash, beginning of period |
|
|
|
|
29,531 |
|
|
|
25,099 |
|
|
Cash, cash equivalents and restricted cash, end of period |
|
|
|
|
28,686 |
|
|
|
39,230 |
|
|
Operating Activities
For the three months ended March 31, 2025, net cash flows provided by operating activities were $3.7 million compared to $2.0 million used in the same period of 2024. The increase in cash flows provided by operations in the first quarter of 2025 is due to better working capital management against the first quarter of 2024 (positive $1.7 million in working capital changes for the three months ended March 31, 2025 compared to negative $(4.1) million for the three months ended March 31, 2024).
Investing Activities
We invested $0.8 million in capital expenditures during the three months ended March 31, 2025, compared to $0.9 million in the three months ended March 31, 2024. The capital expenditures in the first quarter of 2025 consisted of $0.5 million on software development, $0.1 million on manufacturing upgrades, $0.1 million on tradeshow booths and $0.1 million on other facility and leasehold improvements.
Financing Activities
We used $3.6 million of cash in financing activities for the three months ended March 31, 2025, compared to $16.1 million provided by financing activities for the same period of 2024. Cash used in the three months ended March 31, 2025 was mainly driven by the $3.5 million spent in common share repurchases through the Shares NCIB and the Share Repurchase. The three months ended March 31, 2024 included $21.3 million of net proceeds received from the Rights Offering offset by a $5.1 million repayment of Debentures as a result of the Issuer Bid.
Contractual Obligations
There have been no material changes in our contractual obligations during the three months ended March 31, 2025, as compared to those disclosed in the “Management’s Discussion and Analysis of Financial Condition and results of Operations - Contractual Obligations” in our Annual Report on Form 10-K.
See Note 15, “Commitments” to our interim condensed consolidated financial statements in this Quarterly Report for additional information.
Significant Accounting Policies and Estimates
There have been no material changes in our significant accounting policies during the three months ended March 31, 2025, as compared to those disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Significant Accounting Policies and Estimates” in our Annual Report on Form 10-K. For information regarding significant accounting policies and estimates, please refer to Item 7 and Item 8 in our Annual Report on Form 10-K. As disclosed in Note 3, “Adoption of New and Revised Accounting Standards” to our interim condensed consolidated financial statements appearing in this Quarterly Report, we adopted Accounting Standards Update No. 2023-09, “Improvements to Income Tax Disclosures” (“ASU-2023-09”) which further disaggregated information on an entity’s tax rate reconciliation and income taxes paid. The amendments in ASU-2023-09 are
36
effective for fiscal years beginning after December 15, 2024, on a prospective basis with an option of retrospective application. The Company is evaluating the impact of the adoption of this standard and expects the impact to be limited to disclosures.
Recent Accounting Pronouncements
For information regarding recent accounting pronouncements, please refer to Note 3, “Adoption of New and Revised Accounting Standards,” to our condensed consolidated interim financial statements and “–Significant Accounting Policies and Estimates” appearing in this Quarterly Report.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes to our market risk exposures since our disclosures in our Annual Report on Form 10-K. For information regarding our exposure to certain market risks, please refer to Item 7A. “Quantitative and Qualitative Disclosures about Market Risk” in our Annual Report on Form 10-K. The Company’s cash and cash equivalents are predominantly all with one AA rated financial institution.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the Company’s reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our principal executive officers and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
As required by Rule 13a-15 under the Exchange Act, our principal executive officers and principal financial officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2025. Based upon their evaluation, our principal executive officers and principal financial officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the quarter ended March 31, 2025, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
37
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
There have been no material developments in the legal proceedings previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2024 except as described below regarding DIRTT’s litigation against Falkbuilt, Messrs. Smed and Loberg, and their associates.
With respect to the DIRTT’s lawsuit against Falkbuilt in Utah, on February 5, 2025, the U.S. District Court for the Northern District of Utah (the “Utah Court”) granted Falkbuilt’s motion to dismiss the case, on the basis of forum non conveniens. In simple terms, the Utah Court decided that it would not hear DIRTT’s claim in Utah because Canada was more appropriate, and Canadian law applies to most of DIRTT’s claims. Further the Utah Court found that DIRTT’s Canadian company, DIRTT Environmental Solutions Ltd., owns the trade secrets that were the subject matter of the Utah claim, so whether the theft of those trade secrets occurred in Canada or abroad, they would result in injury to DIRTT Environmental Solutions Ltd. and should be pursued in Canada. The Utah Court, in essence, redirected the determination of those damages from Utah to Canada, being the appropriate forum for the legal dispute. On March 4, 2025, DIRTT filed a motion for reconsideration pursuant to Federal Rules of Civil Procedure, Rule 60(b). The reconsideration requests relief from the Utah Court’s February 5, 2025, Memorandum Decision and Order granting the Defendant’s motion to dismiss for forum non conveniens. The briefing is complete as of April 15, 2025, and the parties are awaiting a decision.
In November 2024, the Alberta Court of King’s Bench scheduled an 8-week trial commencing February 2, 2026, and running until March 27, 2026 for DIRTT’s action against Falkbuilt, Messrs. Smed and Loberg and several other former DIRTT employees alleging breaches of restrictive covenants, fiduciary duties, employment duties and confidentiality. DIRTT is pursuing damages and losses it suffered in Canada, the United States, and abroad in the Court of King’s Bench of Alberta. The Court of King’s Bench will determine whether Falkbuilt, Messrs. Smed and Loberg and others wrongfully caused DIRTT to suffer damages, which could exceed $50,000,000.
Item 1A. Risk Factors
In addition to the risk factors set forth below and other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors and other cautionary statements described under the heading “Risk Factors” included in our Annual Report on Form 10-K, which could materially affect our businesses, financial condition, or results of operations. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and results of operations.
Risks Relating to Market Conditions
New and existing trade policies, tariffs or import or export regulations imposed by the U.S., Canada or other foreign governments may adversely affect demand for our products and our ability to source and sell our products profitably, or at all.
The U.S. has instituted certain changes, and has proposed additional changes, in trade policies that include the negotiation or termination of trade agreements, the imposition of higher tariffs on imports into the U.S., and other government regulations affecting trade between the U.S. and other countries (such as Canada, Mexico, China, and the European Union) where we conduct our business. For example, in February 2025, the U.S. government announced a 25% tariff on product imports from certain countries, including Mexico and Canada, and 10% tariffs on product imports from certain other countries, including China, as well as further tariffs on steel and aluminum. The new tariffs and other changes in U.S. trade policy have triggered retaliatory actions by affected countries, and foreign governments have instituted, or are considering, imposing tariffs or other trade sanctions on U.S. goods. Specifically, the Canadian federal government imposed similar tariffs on U.S. goods imported into Canada in response to the U.S.’s imposition of tariffs. While a certain number of these tariffs have been suspended or temporarily paused, there remains great uncertainty regarding the imposition of tariffs, global trade disruption, significant introductions of trade barriers and bilateral trade frictions, and resulting effects on the general economy.
DIRTT imports raw materials from, and has manufacturing facilities in, both Canada and the U.S. We also import raw materials from other countries including China. Accordingly, while the extent and duration of any tariffs imposed by the U.S. or Canada, and the resulting impact on our business, are difficult to predict at this time, such tariffs may affect our ability to import raw materials and sell our products profitably. The imposition of trade barriers, including tariffs, quotas, embargoes, safeguards, and customs restrictions between Canada and the U.S., may increase the cost or reduce the supply of materials and products available to us, increase shipping times, affect our customers’ construction needs, timing, or budgets, affect the demand for our products or our product mix or require us to modify our supply chain organization, manufacturing facilities, or other current business practices, any of which could harm our business, financial condition and results of operations.
38
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table summarizes the common shares repurchased and cancelled during the period:
Period |
|
Total number of shares purchased |
|
|
Average price paid per share |
|
|
Total number of shares purchased as part of publicly announced programs(1)(2)(3) |
|
|
Maximum number of shares that may yet be purchased under the program(1)(2)(3) |
|
||||
January 1, 2025 - January 31, 2025 |
|
|
109,556 |
|
|
$ |
0.77 |
|
|
|
109,556 |
|
|
|
7,347,199 |
|
February 1, 2025 - February 28, 2025 |
|
4,074,200(4) |
|
|
$ |
0.80 |
|
|
|
153,356 |
|
|
|
3,272,999 |
|
|
March 1, 2025 - March 31, 2025 |
|
|
255,351 |
|
|
$ |
0.69 |
|
|
|
255,351 |
|
|
|
3,017,648 |
|
Total |
|
|
4,439,107 |
|
|
|
|
|
|
518,263 |
|
|
|
3,017,648 |
|
|
(1) The normal course issuer bid for common shares was announced on December 18, 2024 and commenced on December 20, 2024;
(2) The maximum number of common shares approved to be purchased under the Shares NCIB is 7,515,233 common shares;
(3) The expiration date of the Shares NCIB is December 19, 2025. As of April 1, 2025, the number of shares available to be purchased under the Shares NCIB is 3,017,648; and
(4) Includes 3,920,844 common shares that were repurchased from NGEN under the Share Repurchase at a purchase price of $0.80 per share. The Share Repurchase was completed on February 14, 2025. The Share Repurchase was a privately negotiated transaction and was not made pursuant to the Shares NCIB or any other publicly announced share repurchase programs, although it was counted against the NCIB limit.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
39
Item 6. Exhibits
EXHIBIT INDEX
Exhibit No. |
|
Description |
|
|
|
3.1 |
|
|
3.2 |
|
|
4.1 |
|
|
4.2 |
|
|
4.3 |
|
|
10.1 |
|
|
10.2 |
|
|
10.3 |
|
|
10.4 |
|
|
10.5 |
|
|
10.6 |
|
|
10.7 |
|
|
31.1* |
|
|
31.2* |
|
|
32.1** |
|
|
32.2** |
|
|
101.INS* |
|
Inline XBRL Instance Document |
101.SCH* |
|
Inline XBRL Taxonomy Extension Schema Document |
101.CAL* |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF* |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB* |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
40
101.PRE* |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 |
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* |
|
Filed herewith |
** |
|
Furnished herewith |
|
|
|
41
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
DIRTT ENVIRONMENTAL SOLUTIONS LTD. |
||
|
|
|
|
|
By: |
|
/s/ Fareeha Khan |
|
|
|
Fareeha Khan |
|
|
|
Chief Financial Officer (Duly Authorized Officer, Principal Financial Officer and Principal Accounting Officer) |
|
|
|
|
Date: May 7, 2025 |
|
|
|
42
Exhibit 31.1
CERTIFICATION
PURSUANT TO EXCHANGE ACT RULE 13A-14(a) OR RULE 15D-14(a)
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Benjamin Urban, certify that:
Dated: May 7, 2025 |
By: |
|
/s/ Benjamin Urban |
|
|
|
Benjamin Urban |
|
|
|
Chief Executive Officer |
|
|
|
(Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION
PURSUANT TO EXCHANGE ACT RULE 13A-14(a) OR RULE 15D-14(a)
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Fareeha Khan, certify that:
Dated: May 7, 2025 |
By: |
|
/s/ Fareeha Khan |
|
|
|
Fareeha Khan |
|
|
|
Chief Financial Officer |
|
|
|
(Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. § 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of DIRTT Environmental Solutions Ltd. (the “Company”) for the quarter ended March 31, 2025, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Benjamin Urban, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
Dated: May 7, 2025 |
By: |
|
/s/ Benjamin Urban |
|
|
|
Benjamin Urban |
|
|
|
Chief Executive Officer |
|
|
|
(Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. § 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of DIRTT Environmental Solutions Ltd. (the “Company”) for the quarter ended March 31, 2025, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Fareeha Khan, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
Dated: May 7, 2025 |
By: |
|
/s/ Fareeha Khan |
|
|
|
Fareeha Khan |
|
|
|
Chief Financial Officer |
|
|
|
(Principal Financial Officer) |