DIRTT Announces Record Results for Q4 and 2014

CALGARY, ALBERTA–(Marketwired – March 4, 2015) – DIRTT Environmental Solutions Ltd. (“DIRTT” or the “Company”) (TSX:DRT), a leading technology-enabled designer, manufacturer and installer of fully customized, prefabricated interiors, today announced its financial results for the three and 12 months ended December 31, 2014. This news release contains references to Canadian dollars and United States dollars. Canadian dollars are referred to as “$” and United States dollars are referred to as “US$”.Selected Highlights For the quarter and year ended December 31, 2014 the Company reported:/T/– Revenue increased by $23.7 million or 69.4% over Q4 2013 to $57.9 million and by $47.5 million or 34.0% over fiscal 2013 to $187.3 million; — Adjusted gross profit percentage (see “Non-IFRS Measures”) improved by 6.0% to 44.4% in Q4 2014 from 38.4% in Q4 2013 and by 3.4% to 42.9% in fiscal 2014 vs. 2013; — Adjusted EBITDA (see “Non-IFRS Measures”) increased by $9.7 million over Q4 2013 to $9.8 million and by $14.4 million over 2013 to $19.9 million; and — Net cash flows provided by operating activities before changes in non- cash working capital (see “Non-IFRS Measures”) increased by $14.5 million over Q4 2013 to $9.9 million and by $19.0 million over 2013 to $20.0 million. /T/”2014 saw DIRTT launch new products, win major contracts, and drive strong organic growth from our core business focused on small and medium enterprises, all of which contributed to record financial performance in the fourth quarter and for the year,” said Scott Jenkins, President and Interim CFO of DIRTT. “Over the last few quarters we successfully simplified our capital structure, strengthened our balance sheet and invested in people and equipment, leaving us well-positioned to take advantage of growth opportunities in new industry verticals as well as regions outside of North America.””DIRTT is at the forefront of an evolving shift away from traditional interior construction and in our first full year as a publicly traded company our customized, prefabricated solutions continued to gain traction with customers both small and large,” said Mogens Smed, CEO of DIRTT. “A growing number of clients across the healthcare, education, corporate and government sectors are embracing both the power of our technology and the elegance, flexibility and value of our solutions. A key contributor to our success in 2014 was the drive and entrepreneurial spirit of our dedicated employees who helped grow sales and awareness, launched innovative new products and prepared us for our next phase of growth. We could not have ended the year on such a strong note without them. Together we are focused on building upon many of the key achievements of 2014, which highlighted both the strength and growing potential of our business model, in the quarters and years ahead.” /T/Summary Financial Results —————————————————————————- Three months ended Year ended December December 31, 31, 2014 2013 2014 2013 —————————————————————————- ($ thousands, except per share amounts) Revenue 57,945 34,202 187,329 139,795 Gross profit 25,050 12,603 78,043 53,296 Gross profit % 43.2% 36.8% 41.7% 38.1%Adjusted gross profit % (1) 44.4% 38.4% 42.9% 39.5%Selling, general and administrative (“SG&A”) 18,470 14,724 70,235 56,727 Adjusted SG&A (1) 16,495 12,962 61,187 50,010 Adjusted SG&A as a % of revenue (1) 28.5% 37.9% 32.7% 35.8%Operating income (loss) 6,580 (2,957) 7,300 (4,267)Finance costs 77 1,140 1,359 5,234 Adjusted EBITDA (1) 9,793 82 19,916 5,525 Income tax expense 504 963 637 1,296 Net income (loss) 6,553 (10,151) 5,954 (16,495)Net income (loss) per basic share 0.09 (0.25) 0.08 (0.42)Net income (loss) per diluted share 0.09 (0.25) 0.08 (0.42)Cash flows provided by operating activities before changes in non- cash working capital (1) 9,858 (4,657) 20,037 1,042 —————————————————————————-As at December 31, 2014 2013 —————————————————————————- ($ thousands, except per share amounts) Cash and cash equivalents 39,836 34,373 Working capital 50,434 39,851 Long-term debt 9,852 8,092 —————————————————————————-(1) See “Non-IFRS Measures”. /T/RevenueRevenue increased by $23.7 million or 69.4% in the three months ended December 31, 2014 compared with the same period in 2013. Revenue increased by $47.5 million or 34.0% in the year ended December 31, 2014 compared with 2013. The increase in revenue was mainly due to a general improvement in business levels during 2014 compared with 2013. Included in the total revenue reported for the year ended December 31, 2014, was $12.0 million of significant projects announced in January 2014. These projects, for leading players in the energy, insurance and healthcare sectors, were completed as of the third quarter of 2014. Also included in the total revenue reported for the three months and year ended December 31, 2014 was $5.0 million and $5.4 million, respectively, from the previously announced US$30.0 million contract awarded to DIRTT and its Distribution Partner Agile OFIS of Houston, Texas. As a significant amount of DIRTT’s revenue is generated by the US market, the Company also benefitted from a stronger US dollar during the three months and year ended December 31, 2014.Adjusted Gross Profit Adjusted gross profit as a percentage of revenue increased by 6.0% from 38.4% to 44.4% in the three months ended December 31, 2014 compared with the same period in 2013. Adjusted gross profit as a percentage of revenue increased by 3.4% from 39.5% to 42.9% in the year ended December 31, 2014 compared with the same period in 2013. The increases were due primarily to significantly stronger revenue in 2014 compared with the same period in 2013, leading to greater efficiencies driven by higher overall volumes in the Company’s production facilities. Higher production volumes enable better absorption of fixed costs included in cost of goods sold, such as facilities costs and indirect labor costs, particularly as the sales and production volumes (with the exception of April) were generally consistent throughout 2014. The stronger US dollar also contributed to higher adjusted gross profit in the three months and year ended December 31, 2014 as the positive impact on US dollar revenue exceeded the negative impact on US dollar-based production costs.Adjusted SG&A ExpensesAdjusted SG&A expenses increased by $3.5 million or 27.3% in the three months ended December 31, 2014 compared with the same period in 2013. Adjusted SG&A as a percentage of revenue decreased by 9.4% from 37.9% to 28.5% in the three months ended December 31, 2014 compared with the same period in 2013. The most significant change can be attributed directly to sales-related efforts as salaries and benefits increased by $0.9 million and commission expense for our internal sales representatives and industry specific experts increased by $1.2 million. These costs reflect personnel additions focused on generating and supporting higher business volumes. Included in the $0.9 million increase in salaries and benefits is $0.5 million of accrued bonuses for senior management in accordance with the Board-approved 2014 bonus pool. Higher commission costs are in line with the higher revenue volumes in the current quarter. The stronger US dollar contributed to the overall increase in adjusted SG&A across the organization in the current quarter.Adjusted SG&A expenses increased by $11.2 million or 22.3% in the year ended December 31, 2014 compared with the same period in 2013. Adjusted SG&A as a percentage of revenue decreased by 3.1% from 35.8% to 32.7% in the year ended December 31, 2014 compared with the same period in 2013. The increase on a dollar basis was predominately due to increases in salaries and benefits of $4.8 million, commission expense of $2.7 million and travel and marketing costs of $2.5 million. Included in the $4.8 million increase in salaries and benefits is $1.0 million in accrued bonuses for senior management in accordance with the Board-approved 2014 bonus pool. The increase in salaries and benefits and commission expense are due to the same reasons discussed above.Adjusted EBITDA Adjusted EBITDA increased by $9.7 million in the three months ended December 31, 2014 compared with the same period in 2013 and by $14.4 million in the year ended December 31, 2014 compared with the same period in 2013. The increases were mainly due to higher revenue, and the resulting improved adjusted gross profit percentage. These amounts were partially offset by increased adjusted SG&A for the reasons discussed above.Finance Costs Finance costs decreased by $1.0 million to $77,000 for the three months ended December 31, 2014 compared with the same period in 2013 and by $3.9 million to $1.3 million in the year ended December 31, 2014 compared with the same period in 2013. For year ended December 31, 2014 finances costs were comprised of $0.6 million non-cash and $0.7 million cash costs compared with $3.5 million and $1.7 million, respectively, for the same period in 2013.Following the completion of the IPO in November 2013, DIRTT was able to eliminate all convertible debt. Only traditional debt remains and the Company expects the benefits of reduced finance costs to continue into the future.Outlook The Company’s growth strategy consists of four key initiatives: (1) increasing penetration of existing markets by providing continued support and increased investment to DIRTT’s existing DPs throughout North America; (2) expanding into new geographies by capitalizing on recent and continued investment alongside new international DPs such as the Middle East and Singapore; (3) penetrating new industries such as the hospitality and residential sectors; and (4) continuing to invest in ICE and new innovative interior construction solutions such as the Enzo Approach.The American Institute of Architects’ (AIA) Architecture Billings Index (ABI) can be a useful leading economic indicator of how non-residential billing activity could trend over the next nine to 12 months. The most recent January billing numbers showed a modest decrease to just below 50, reversing an extended growth trend following poor weather in the first quarter of 2014. Billing activity was especially strong in the South, essentially flat in the Midwest and West and down in the Northeast, likely on the back of severe weather conditions seen early in the new year. Both DIRTT and the AIA believe these numbers point to some moderation of activity based on poor weather but that the general positive trend over the last few quarters is likely to return on the back of continued solid industry fundamentals. This could result in a more modest first quarter on a sequential basis over what was a very strong fourth quarter for DIRTT. DIRTT anticipates seeing a relatively regular contribution through the majority of 2015 from the gross US$30.0 million contract announced in mid-2014 that began delivery late last year.Liquidity and Capital Resources At December 31, 2014, DIRTT had $39.8 million in cash and cash equivalents compared with $34.4 million at December 31, 2013. At December 31, 2014, the Company had an undrawn US$18.0 million revolving operating facility. In October 2014, an additional $3.8 million was advanced to DIRTT under a US$5.0 million capital financing facility, with a remaining balance of US$1.6 million as at December 31, 2014.Non-IFRS MeasuresAdjusted gross profit, adjusted gross profit %, adjusted SG&A, adjusted SG&A as a percentage of revenue, EBITDA, adjusted EBITDA, and cash provided by operating activities before changes in non-cash working capital are non-IFRS measures used by management to assess the Company’s performance and financial condition. Consequently, they do not have a standard meaning as prescribed by IFRS, and are therefore unlikely to be comparable to similar measures presented and calculated by other companies. DIRTT believes that the non-IFRS measures are useful supplemental measures that may assist investors in assessing the financial performance and the cash anticipated to be generated by DIRTT’s business. The non-IFRS measures should not be considered as the sole measure of the Company’s performance and should not be considered in isolation from, or as a substitute for, analysis of its financial statements. Conference Call DetailsDIRTT will host a conference call and webcast on Thursday, March 5, 2015 at 9 a.m. ET, 7 a.m. MT to discuss its fourth quarter results in greater detail. President and Interim CFO Scott Jenkins will host the call. To access the conference call by telephone dial +1 647.427.7450 (Toronto and international callers) or 1.888.231.8191 (toll-free in North America). Please call 10 minutes prior to the start of the call. In addition, a live webcast (listen only mode) of the conference call will be available at: http://www.newswire.ca/en/webcast/detail/1484623/1652865 Investors are invited to submit questions by email before and during the conference call. Please send them to ir@dirtt.net. A replay of the conference call will be available at +1 416.849.0833 or 1.855.859.2056 by entering the passcode 85541667, from noon (ET) Thursday, March 5, 2015 to midnight (ET) Thursday, March 12, 2015 or through the webcast archives at http://www.newswire.ca or on DIRTT’s website at ir.dirtt.net/.About DIRTT DIRTT Environmental Solutions (dirtt.net) uses its proprietary 3D software to design, manufacture and install fully customized prefabricated interiors. The company’s customers in the corporate, government, education and healthcare sectors benefit from DIRTT’s precise design and costing; rapid lead times with the highest levels of customization and flexibility; and faster, cleaner construction.DIRTT has offices, manufacturing facilities and Green Learning Centers across North America, the Middle East, Europe and Asia, in addition to a network of 99 sales distribution partners globally. DIRTT trades on the Toronto Stock Exchange under the symbol “DRT.” Forward-Looking StatementsCertain information and statements contained in this news release constitute “forward-looking information” and “forward-looking statements” (collectively, “Forward-Looking Information”) as defined under applicable Canadian securities laws and the Company hereby cautions investors about important factors that could cause the Company’s actual results or outcomes to differ materially from those projected in any Forward-Looking Information contained in this news release. Any statements that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions or future events or performance (often, but not always, through the use of words or phrases such as “will likely result”, “are expected to”, “will continue”, “is anticipated”, “believes”, “estimated”, “intends”, “plans”, “projection” and “outlook”), are not historical facts and may be forward-looking and may involve estimates, assumptions and uncertainties which could cause actual results or outcomes to differ materially from those expressed in such Forward-Looking Information. In particular and without limitation, this news release contains Forward-Looking Information pertaining to the following: comments with respect to the Company’s revenue, objectives and priorities for 2015 and beyond; project timetables; and its outlook for its operations and the Canadian, US and international economies, and in particular, the US construction industry. With respect to Forward-Looking Information contained in this news release, assumptions have been made regarding the Company, among other things: /T/– its ability to manage its growth; — competition in its industry; — its ability to enhance current products and develop and introduce new products; — its ability to obtain components and products from suppliers on a timely basis and on favorable terms; — its ability to obtain qualified staff and equipment in a timely and cost-efficient manner; — the regulatory framework governing taxes in Canada and the US and any other jurisdictions in which the Company may conduct its business in the future; — future development plans for its assets unfolding as currently envisioned; — future capital expenditures to be made by the Company; — future sources of funding for its capital program; — the impact of increasing competition on the Company; and — its success in identifying risks to its business and managing the risks mentioned below. /T/The Company’s actual results or outcomes could differ materially from those expressed in the Forward-Looking Information as a result of the risks normally encountered in its industry such as: /T/– maintaining and managing growth; — history of losses; — risks related to global financial crises; — risks related to new technology; — competition risks; — operating results and financial condition fluctuations on a quarterly and annual basis; — risks related to intellectual property; — risks related to additional capital requirements; — customer base and market acceptance; — software and product defects and design risks; — availability of key supplies; — dependence on key personnel; — commodity price risk; — risks related to restricted covenants; — credit risk; — the effect of government regulation; — risks related to international expansion; — risks related to physical facilities; — legal risks; — foreign currency and fiscal matters; — risks related to future acquisitions; — risks related to Forward-Looking Information; — reliance on third parties; and — conflicts of interest. /T/Since actual results or outcomes could differ materially from those expressed in the Forward-Looking Information provided by or on behalf of the Company, investors and others should not place undue reliance on any such Forward- Looking Information. DIRTT cautions that the foregoing lists of factors are not exhaustive. Further, Forward-Looking Information is made as of the date hereof, and the Company undertakes no obligation to update Forward-Looking Information to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events, except as required by applicable Canadian securities laws. New factors emerge from time to time, and it is not possible for DIRTT’s management to predict all of these factors and to assess in advance the impact of each such factor on the Company’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in Forward-Looking Information. No assurance can be given that these expectations will prove to be correct and such Forward-Looking Information contained in this news release should not be unduly relied upon. In addition, this news release may contain Forward-Looking Information attributed to third party industry sources. For a detailed description of the risks and uncertainties facing the Company and its business and affairs, readers should refer to the Company’s annual financial statements, management’s discussion and analysis and annual information form for the year ended December 31, 2014, all of which are available at http://www.sedar.com. Market and Industry DataCertain market and industry data contained in this press release is based upon information from government or other third party publications, reports and websites or based on estimates derived from such publications, reports and websites. Government and other third party publications and reports do not guarantee the accuracy or completeness of their information. While the Company believes this data to be reliable, market and industry data is subject to variations and cannot be verified with complete certainty due to limits on the availability and reliability of raw data, the voluntary nature of the data gathering process and other limitations and uncertainties inherent in any statistical survey. Accordingly, the accuracy, currency and completeness of this information cannot be guaranteed. DIRTT has not independently verified any of the data from government or other third party sources referred to in this press release or ascertained the underlying assumptions relied upon by such sources. Contact Information: DIRTT Environmental Solutions Ltd.Scott JenkinsPresidentsjenkins@dirtt.net403.723.5009