October 31, Q Results Call. Supplemental Slides. Kevin O Meara, Chief Executive Officer Geoff Krause, Chief Financial Officer

Transcription

1 October 31, 2018 Q Results Call Supplemental Slides Kevin O Meara, Chief Executive Officer Geoff Krause, Chief Financial Officer

2 Forward-Looking Statements In this presentation, all amounts are in Canadian dollars, unless otherwise indicated. Certain information and statements contained in this presentation constitute forward-looking information and forward-looking statements (collectively, Forward-Looking Information ) as defined under applicable Canadian securities laws and DIRTT Environmental Solutions Ltd. ( DIRTT or 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 presentation. 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 presentation contains Forward-Looking Information pertaining to the following: the business plans and objectives of DIRTT; estimates of domestic and international economics; and growth strategy and opportunities. With respect to Forward-Looking Information contained in this presentation, assumptions have been made regarding, among other things: the Company s ability to manage its growth; competition in the Company s industry; the Company s ability to enhance current products and develop and introduce new products; the Company s ability to obtain components and products from suppliers on a timely basis and on favorable terms; the Company s ability to obtain qualified staff and equipment in a timely and cost efficient manner; the regulatory framework governing taxes in Canada and the United States and any other jurisdictions in which the Company may conduct its business in the future; future development plans for the Company s assets unfolding as currently envisioned; future capital expenditures to be made by the Company; future sources of funding for the Company s capital program; the Company s ability to list on an accredited US exchange; the impact of increasing competition on the Company; and the Company s success in identifying other risks to its business and managing the risks mentioned below. 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: maintaining and managing growth; history of losses; risks related to new technology; competition risk; 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; 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. 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 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 presentation should not be unduly relied upon. In addition, this presentation may contain Forward-Looking Information attributed to third party industry sources. The Forward-Looking Information contained in this presentation is expressly qualified by the foregoing cautionary statements. This presentation shall not constitute an offer to sell or the solicitation of any offer to buy any of DIRTT s securities in any jurisdiction. The securities of DIRTT have not been and will not be registered under the United States Securities Act of 1933, as amended (the U.S. Securities Act ) or any state securities laws and may not be offered or sold in the United States except in certain transactions exempt from the registration requirements of the U.S. Securities Act and applicable state securities laws. 2

3 Non-IFRS measures The term Adjusted Gross Profit %, Adjusted SG&A, Adjusted EBITDA and Adjusted EBITDA % are financial measures used by DIRTT that are not standard measures under International Financial Reporting Standards ( IFRS ) as adopted by the Canadian Institute of Chartered Accountants. DIRTT s method of calculating Adjusted Gross Profit %, Adjusted SG&A, Adjusted EBITDA and Adjusted EBITDA % may differ from the methods used by other issuers. Therefore, these non-ifrs measures may not be comparable to the same measures presented by other issuers. Adjusted Gross Profit is gross profit before deductions for depreciation and amortization of equipment, tooling and intangible assets for manufacturing-related assets. Adjusted Gross Profit % is Adjusted Gross Profit divided by revenue. We use these measures to assess our manufacturing and operating performance. As manufacturing volumes and revenue rise, production synergies tend to permit improvements in gross profit, subject to variability in monthly manufacturing volumes and product/service revenue mix. Adjusted EBITDA is net income before interest, taxes, depreciation and amortization, plus: non-cash foreign exchange gains or losses on debt revaluation; gains or losses on disposal of property, plant and equipment and intangible assets; impairment expense; stock-based compensation expense; reorganization costs; and any other non-recurring gains or losses. Adjusted EBITDA % is calculated as Adjusted EBITDA divided by revenue. We use these measures to assess our ability to generate cash flows, service debt, pay current taxes, and fund capital expenditures. Adjusted selling, general and administrative expenses ( Adjusted SG&A ) is SG&A before deductions for depreciation and amortization of non-manufacturing related assets, stock-based compensation expenses and reorganization costs. We use this as a measure of the efficiency and effectiveness of our sales and marketing efforts and overall administrative support efforts by comparing them to prior period results. For a reconciliation of these non-ifrs measure see DIRTT s annual audited financial statements and interim financial statements, complete copies of which are available on the Company s website and SEDAR. 3

4 Kevin O Meara, Chief Executive Officer 20 years experience in the construction industry Built and operated public and private industrial businesses with revenues ranging from $500 million to $2.4 billion Co-founder, president & chief operating officer of Builders FirstSource (BFS), CEO of Atrium Corporation, Private equity advisor and board member, During my 10 years at BFS, a leading manufacturer and distributor of structural building products, we bought 23 different businesses. Many had been started by founders or were operated by family members. At each and every one of those, I learned the value of entrepreneurship and a strong culture values that are especially relevant to DIRTT. - Kevin O Meara 4

5 Operational and Strategic Review Comprehensive review initiated in September 2018 Includes DIRTT s solution lines, operations, key markets and investment targets Three- to five-year strategy and business plan to be unveiled in 2019 Three significant early conclusions: Partners are integral to DIRTT s go-to-market strategy Exiting DIRTT for Life residential services to focus on our core competencies Right-sizing DIRTT Timber s capacity to reflect a more opportunistic approach to a promising but early-stage market 5

6 Revenue (in millions) Revenue up 15% and 17.8% for Q3 and YTD periods vs periods Growth in both US and Canadian markets Healthcare rose to 27% of Q revenue Q Q Q3 YTD 2017 Q3 YTD 2018 PRODUCT TRANSPORTATION INSTALLATION LICENSES & SERVICES 6

7 Adjusted Gross Profit % 46.0% 45.5% 45.0% 44.5% 44.0% 44.8% 45.5% 43.9% 44.9% Improved Adjusted Gross Profit % reflects leverage off of fixed manufacturing costs, partially offset by higher direct material and direct labor costs primarily due to product mix Fixed manufacturing costs includes salaried indirect labor and overheads, providing leverage opportunity as revenue increases 43.5% 43.0% Q Q Q3 YTD 2017 Q3 YTD

8 Adjusted SG&A (in millions) Quarterly adjusted SG&A lower by $0.4 million vs $26.5 Q Q YTD 2017 YTD 2018 $84.0 $ $ ( 2.7 ) ( 1.5 ) 0.9 ( 3.2 ) ( 0.2 ) $78.0 $76.0 $26.1 $74.0 $78.3 $72.0 ( 0.6 ) $77.7 Reflects successful cost control initiatives while continuing to drive the business On a year-to-date basis, reflects one-time costs associated with special committee work and activist defense, as well as higher salaries and commissions absorbed by cost reductions 23.0 Q SG&A SALARIES, BENEFITS AND COMMISSIONS TRAVEL, ENTERTAINMENT & MARKETING OTHER Q SG&A $70.0 YTD 2017 SG&A SALARIES, BENEFITS AND COMMISSIONS CONNEXT SAVINGS SPECIAL COMMITTEE WORK ACTIVIST DEFENSE TRAVEL, ENTERTAINMENT & MARKETING OTHER YTD 2018 SG&A 8

9 $20.0 $18.0 $16.0 $14.0 $12.0 $10.0 $8.0 $6.0 $4.0 $2.0 Adjusted EBITDA (in millions) Q Q YTD 2017 YTD 2018 $ $ $30.0 $ $17.8 $20.0 $15.0 $10.8 $10.0 $16.9 $5.0 $45.0 $38.7 Quarterly adjusted EBITDA higher by $7.0 million vs Reflects increased sales activity without a corresponding increase in Adjusted SG&A On track to achieve Adjusted EBITDA margin target of between 13% - 15% in 2018 $0.0 Q EBITDA INCREASED ACTIVITY INCREASE IN GROSS PROFIT % SG&A OTHER Q EBITDA $0.0 YTD 2017 EBITDA INCREASED ACTIVITY INCREASE IN GROSS PROFIT % SG&A OTHER YTD 2018 EBITDA 9

10 Additional Financial Highlights (in thousands) 9/30/ /31/2017 Cash and cash equivalents 54,523 79,641 Trade and other receivables 55,332 24,133 Inventory 26,251 24,297 Property, plant and equipment 52,956 60,860 Intangible assets 18,901 24,718 Trade accounts payable and other liabilities 36,897 34,054 Current portion of long-term debt 4,935 5,715 Long-term debt 4,854 7,057 (in thousands) Q Q Cash flow used in operating activities 230 6,091 Capital expenditures (3,971) (6,147) 10

11 Planned Listing on US Exchange Intend to pursue a listing on an accredited US exchange, with benefits to include: Eliminate barriers to raising equity capital Facilitate exercising of options by employees Increase liquidity for US shareholders Facilitate access to US-based investors Increase DIRTT s corporate visibility to all stakeholders in North America Intend to report in both US GAAP and US dollars 11

12 th Street SE Calgary, AB, T2C 1N6