DIRTT for Investors. Needham Growth Conference January 2019 TSX: DRT

Transcription

1 DIRTT for Investors Needham Growth Conference January 2019 TSX: DRT 1

2 Disclaimer 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 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 are not, and have not been, 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 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 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 EBITDA is earnings (loss) 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; write-off of property, plant and equipment and intangible assets; non-cash stock-based compensation expense; reorganization costs; and 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 non-cash depreciation and amortization of non-manufacturing related assets, stock-based compensation expenses and reorganization costs. Adjusted SG&A % is calculated as adjusted SG&A divided by revenue. 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 Company Snapshot DIRTT is a building process powered by technology. Manufacturer of custom, prefab interior environments Proprietary 3D design, configuration and manufacturing software (ICE) integrates and unifies every step of the construction process Provides certainty in function, aesthetics, price and schedule Founded in 2004 ICE Software rendering $332M TTM Revenue Q4/17-Q3/18 Key numbers ~20% Revenue CAGR since 2013* $37.6M TTM Adj EBITDA Q4/17-Q3/18 ~1,130 Employees 218 Patents granted 184 North American Partner locations Final project shot Note: all figures in CAD$, unless otherwise noted * Full Year

5 Large Underpenetrated Addressable Market - Up to US$150B addressable North American market - Shortage of skilled labor negatively impacting conventional construction - Customers faced with cost overruns, scheduling delays and unfulfilled expectations - Increasing demand for environmentally sensitive and adaptable spaces Inflection Point in DIRTT s History - New leadership building foundation to scale the business - Introducing a strategic approach to sales and marketing to drive superior growth - Financial discipline focused on unlocking income statement leverage to optimize EBITDA margin and growth - Publicly traded on TSX with Nasdaq listing anticipated in 2019 Why DIRTT? Superior Proven Process - Proprietary product and technology deliver certainty on function, aesthetics, price and schedule - Unique, fully customizable, flexible commercial solution agnostic to customer industry - Comprehensive North American market coverage via multiple manufacturing facilities and dealer/installer (Partner) network Financial Strength - Strong balance sheet: $54M cash; nominal debt - Demonstrated revenue growth in excess of market growth 5

6 Major US Construction Markets Geographically US$150B North American addressable market Estimated current penetration in major markets is less than 1% Corporate GLCs located in major North American markets: New York, Chicago, Phoenix, Salt Lake City, Seattle (under construction), Toronto, Calgary Market growth at approx. 7% p.a. Primary Metro Area Markets $9.1B $27.5B $45.9B $64.3B $82.6B $91.8B Secondary Metro Area Markets $2.2B $6.6B $11.0B $15.3B $19.7B $21.9B Sources: Statistics of U.S. Businesses (SUSB), and United States Census Bureau. MSA Annual Payroll data was used to further break down Metropolitan areas. Sources: FMI U.S. Construction Outlook, Second Quarter 2018 Report; DIRTT management estimate 6

7 DIRTT s Approach To Market DIRTT manufacturing facility DIRTT Partner - General contractor - Architect - Interior designer Intermediary Education Customer Financial services Healthcare Professional Services Technology Other 7

8 North American Reach v 3 6 Manufacturing Facilities Corporate GLCs Employees DIRTT Partners Partner Locations (With approx. 700 staff) Partner Network DIRTT solutions sold through distributed Partner network; supported by DIRTT sales representatives. Partners drives awareness of the DIRTT brand in the interior construction market. Allows DIRTT to work on multiple aspects of large-scale projects at once; ensures tight timelines are met and schedules reduced. Each Partner is required to invest in a DIRTT Champion DIRTT Project Manager DIRTT Designer Proprietary ICE Software Package Green Learning Center (GLC) 8

9 DIRTT Addresses Systemic Challenges in Construction Top three reasons driving change in today s offsite construction environment: Skilled labor shortage at job site DIRTT Flips the traditional budget equation to reduce need for onsite labor Pressure on project costs Up front, accurate price quoted prior to order, eliminating cost overruns Pressure on project schedules Speed and accuracy with offsite manufacturing Source: New Day, New Mindset, Rethinking Offsite Construction 2018 FMI/CURT/CII Owner Survey 9

10 Doing It Right This Time (DIRTT) PLAN DESIGN MANUFACTURE BUILD USE Integrated process: Design, specification, pricing, manufacturing, delivery and installation of a project all coordinated from one technology file. No technology gaps to manage between multiple applications. Schedule compression: Speed and accuracy with offsite manufacturing, fast and clean installation within three weeks of finalizing design. Design feeds directly to production facilities, mitigating risk of human error and eliminating timing delays. Visual certainty: What you see is what you get: interactive 3D and virtual reality provides full understanding of project during design phase Sustainability: custom, prefab manufacturing drastically reduces waste and eliminates deficiencies; modularity of space allows long-term adaptability Higher quality: With faster schedule and certainty in design, budget goes to higher-quality materials and finishes rather than labor, re-work and contingencies Cost certainty: Immediate, accurate pricing information available from the outset and throughout the design process PREDICTABLE PROCESS PREDICTABLE OUTCOMES 10

11 11 The DIRTT Process

12 Same Solution, Different Markets Commercial Largest market Seeking price and schedule certainty Design flexibility Government Bureaucratic budgeting Value of future flexibility Healthcare Risk averse Adaptability and technology integration Clean construction Education Budget constrained Schedule constrained Constant evolution of space DIRTT s dedicated industry specialists work with Partners to target specific business opportunities within their respective markets. Value proposition resonates across all markets: Aesthetic, design and functional certainty Price certainty Schedule compression and certainty Sustainability, ability to change 12

13 Case Study: Healthcare DIRTT has the broadest scope of custom prefab construction in healthcare Healthcare interiors must adapt to advancing technology, increasingly stringent code requirements and funding models based on patient satisfaction. DIRTT is demonstrating success addressing challenges in healthcare construction. Innovation: DIRTT flexible medical gas, introduced in 2017, is a proprietary, modular, fully approved gas distribution system that can be used in DIRTT s fully accessible walls. Offsite manufacturing means fast and clean on-site installation that minimizes disruptions, dust, noise and downtime within facilities Built-in infection prevention measures, reducing touch points, hospital grade finishes, wipeable surfaces Enables patient-centered design Distinctive layers allow for integrated technology, power, data and medical gases, leading to flexibility and adaptability Easily integrates new and advanced medical technologies and equipment, reconfigures without downtime, dust or disruption Millions $70.0 $60.0 $50.0 $40.0 $30.0 $20.0 $10.0 $- Revenue Growth in Healthcare CAGR 23% (2014 TTM) Q4/17- Q3/ TTM 13

14 Leadership Kevin O Meara Chief Executive Officer Joined DIRTT in September 2018 Extensive operating experience in building products industry including co-founding and scaling Builders FirstSource (NASDAQ: BLDR) 20 years experience in constructionrelated industries, including as president and CEO of Atrium Corporation Geoff Krause Chief Financial Officer Joined DIRTT in May years of financial management experience at public and private growth companies Joined from Pure Technologies after its successful sale to Xylem Inc. in January

15 Near-Term Priorities Implement new organizational structure and assemble management team Thorough operational analysis to identify opportunities for efficiency improvements and to determine required future capital investments Identify opportunities for income statement leverage Improve working capital efficiency and conversion speed Prepare for US listing, anticipated in 2019 Complete three- to fiveyear strategy and business plan including detailed execution milestones Continue to drive innovation 15

16 Revenue and Adjusted EBITDA Margin $350, % $300, % $250,000 $200,000 $150,000 $100, % 10.0% 8.0% 6.0% 4.0% Financial discipline in 2018 resulting in Adjusted EBITDA leverage $50, % $- Q1/15 Q2/15 Q3/15 Q4/15 Q1/16 Q2/16 Q3/16 Q4/16 Q1/17 Q2/17 Q3/17 Q4/17 Q1/18 Q2/18 Q3/18 0.0% TTM Revenue ('000) TTM Adj EBITDA% 16

17 Revenue and Adjusted Gross Profit % $120, % $100,000 $80,000 $60,000 $40,000 $20, % 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% Revenue growth continuing upward trajectory Revenue varies quarterly due to project nature of the business Adjusted Gross Profit % consistently above 42.0% $- Q1/15 Q2/15 Q3/15 Q4/15 Q1/16 Q2/16 Q3/16 Q4/16 Q1/17 Q2/17 Q3/17 Q4/17 Q1/18 Q2/18 Q3/18 Revenue ('000) Adj GP % Linear ( Revenue ('000) ) 0.0% 17

18 Adjusted SG&A and Adjusted SG&A % $35,000 50% $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 45% 40% 35% 30% 25% 20% 15% 10% 5% 2018 demonstrated stabilization of adjusted SG&A Current adjusted SG&A levels expected to support revenue growth through 2019 Adjusted SG&A as a percentage of revenue meaningfully lower in 2018 $- Q1/15 Q2/15 Q3/15 Q4/15 Q1/16 Q2/16 Q3/16 Q4/16 Q1/17 Q2/17 Q3/17 Q4/17 Q1/18 Q2/18 Q3/18 Adj SG&A ('000) Adj SG&A % 0% 18

19 Large Underpenetrated Addressable Market (up to US$150B in North America) Superior Proven Process Key Takeaways Inflection Point in DIRTT s History Financial Strength 19

20 20 Appendix

21 Additional Financial and Market 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 Ticker Shares outstanding (at September 30, 2018) Shares outstanding fully diluted (at September 30, 2018) TSX:DRT 84.7 million 92.4 million Trade accounts payable and other liabilities 36,897 34, week trading range $ $7.29 Current portion of long-term debt 4,935 5,715 Long-term debt 4,854 7,057 Market capitalization (at January 9, 2019) $501 million (in thousands) Q Q Cash flow provided by operating activities 230 6,091 Capital expenditures (3,971) (6,147) 21

22 Financial Summary Table ($ thousands, except per share amounts) Q3 Q3 For nine months Ended Sep 30, TTM Year-End Q Revenue 96,604 84, , , , ,424 Gross profit 41,976 35, ,143 92, , ,544 Gross profit % 43.5% 42.7% 42.7% 42.3% 42.1% 41.8% Adjusted gross profit (1) 43,960 37, ,909 96, , ,716 Adjusted gross profit % (1) 45.5% 44.8% 44.9% 43.9% 44.4% 43.5% Selling, general and administrative ("SG&A") 32,952 29,891 94,218 90, , ,352 Adjusted SG&A (1) 26,110 26,456 77,724 78, , ,921 Adjusted EBITDA (1) 17,788 10,765 38,659 16,905 37,634 15,880 Adjusted EBITDA % (1) 18.4% 12.8% 15.0% 7.7% 11.3% 5.4% Income tax (recovery) expense (865) 1,919 1,748 2,011 1,241 1,504 Net (loss) income (4,867) 4,179 (527) (93) (7,843) (7,409) Net (loss) income per share - basic and diluted (0.06) 0.05 (0.01) - (0.10) (0.09) Cash flows provided by operating activities 230 6,091 (8,765) 10,103 10,239 29,107 Cash flows provided by operating activities (1) before changes in non-cash working capital 11,596 9,306 28,298 13,675 25,811 11,188 As at September 30, 2018 December 31, 2017 Cash and cash equivalents 54,523 79,641 Working capital 87,234 79,487 Long-term debt 4,854 7,057 (1) See Non-IFRS Measures 22