DIRTT Environmental Solutions Ltd.

Ladies and gentlemen, thank you for standing by, and welcome to the DART's 2020 Q4 year-end financial results conference call. At this time, all participant lines are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star followed by the number one on your telephone keypad. If you require further assistance, please press star zero. I would now like to hand the conference over to your speaker, Ms. Kim McEachern, please go ahead.

Thank you, Operator, and good morning, everyone. Welcome to today's call to discuss DIRT's fourth quarter 2020 results. Joining me on the call are DIRT's Chief Executive Officer, Kevin O'Meara, and Chief Financial Officer, Jeff Krause. Management's prepared remarks today are accompanied by presentation slides. To access the slides, please view them from the webpage of this webcast. Today's call will include forward-looking statements within the meaning of applicable Canadian and United States securities laws, These statements are based on the company's current intent, expectations, and projections. They are not guarantees of future performance. In addition, this call will reference non-GAAP results, excluding special items. Please reference our Form 10-K, as filed on February 24, 2021, with the Securities and Exchange Commission, or SEC, and other reports and filings with the SEC for information regarding forward-looking statements and reconciliations of non-GAAP results to GAAP results. I will also remind you that this webcast is being recorded and a replay will be available today at approximately 1 p.m. Eastern time. I would now like to turn the call over to Kevin.

Thank you, Kim, and thank you to everyone joining the call today. Beginning on slide four, the construction industry continues to grapple with the consequences of the ongoing COVID-19 pandemic with pronounced weaknesses in the non-residential sector. This reality negatively impacted our revenue in 2020, Whereas early in the year, we benefited from the projects that were underway at the beginning of the pandemic generally being seen through the completion. What became evident as the pandemic continued was the customers became increasingly reluctant to commit capital to new construction projects due to economic uncertainty for all sectors of society and a lack of clarity for healthcare clients with respect to how their patient delivery models might change post-COVID. all in an environment of ever-changing restrictions due to COVID-19 and the varying surges in infection rates across North America. This dynamic has continued into 2021, and we expect it to negatively impact our revenue during the first half of the year relative to the second and third quarters of 2020. As organizations finalize their real estate needs, and we collectively wait for clarity on, amongst other things, vaccine rollouts and an eventual return of employees to the built environment. Despite these challenges, we remain cautiously optimistic a recovery will begin in the second half of 2021. Statistical analysis from sources like Dodge Data and Analytics predict commercial construction starts will recover slightly this year, increasing by 5%. Further, we are in constant contact with our distribution partners, monitoring activity levels within their respective regions. While the majority of these partners have confirmed our view of solo first half activity levels compared to the third and fourth quarters of 2020, those same partners have recently confirmed their expectations of higher activity levels for the back half of 2021. We find this encouraging, but we'll remain cautious until their expectations turn into orders. We know the expectations of workplaces, healthcare and education spaces will continue to change dramatically over the coming months and years. Similarly, decision makers will now need to worry about building the right environment for their needs. In addition to the historical concerns about meeting budgets and construction schedules, this change will demand spaces that are flexible, adaptable, and supported by technology, all key components of DIRT's value proposition. This past year, we've seen the extraordinary importance of better connectivity and bandwidth in virtually every space. With skilled labor shortages and tighter construction timelines, our capabilities in modular power and data infrastructure, alongside our ability to integrate technology, position us as a full solution interior construction provider. Our ability to deliver these adaptable, connected spaces with faster execution than conventional construction at a competitive cost differentiates us in the world of interior construction. While some organizations may expect to shrink their real estate footprint, our infinitesimal share of what will remain a multi-billion dollar market combined with our enhanced marketing capability, should allow us to identify and address potential clients for whom our value proposition resonates. We believe this will support attractive long-term growth rates for DIRT. So despite a difficult short-term demand outlook, the long-term market opportunity remains very compelling for DIRT, and we remain highly committed to the execution of our strategic plan in order to properly take advantage of that opportunity. While we did not envision a pandemic who renounced our plan in late 2019, the tenants of the plan were to leverage a brilliant, innovative approach to interior construction and build the commercial and manufacturing capabilities necessary for this brilliant idea to scale and achieve its full marketplace potential. The pandemic has not changed the importance of executing this strategy to position the company for future growth. With the successful completion of our $40 million Canadian convertible to venture financing last month, We secured ample financial liquidity for us to continue executing our plan while the recovery takes hold. Additional funds will enable us to avoid costly retrenchments of the transformational investments we've made and increase our flexibility should the recovery take longer than expected. The pandemic has allowed us to flex our innovation muscle and demonstrate our capabilities to North American healthcare customers in ways that we haven't before and would likely not have had the opportunity to do absent COVID. From the delivery of acute care interiors and modular hospitals to the development of freestanding vaccination and testing units as part of our cross-functional rapid response healthcare initiative, we have demonstrated our ability to quickly adapt our DIRT DNA to meet our clients' ever-changing needs and to do it in ways they never would have expected. I'm pleased to say that last week, we received our first order for 30 mobile trailer-based vaccination units for a major U.S. healthcare provider, totaling approximately $2 million. While in itself not sufficient to offset the first half slowdown in non-residential activity, it raises our profile within the healthcare community and with a new breed of customers. Looking at our accomplishments in 2020, I'm happy to confirm that we reached the continuous improvement stage in our manufacturing operations. Since Jeff Calkins, our Chief Operating Officer, joined us in early 2019, he and his team have devoted themselves to establishing infrastructure, processes, and management systems based on lean manufacturing principles. They've also worked to get all our employees up and running and trained with these systems, including lean manufacturing training certification that will lead all the way to lean black belt certification for some. We expect the financial benefits from our improvements in efficiency and material yield to become readily apparent with an increase in sales and positive operating leverage. As we reported throughout the year, we continue to achieve safety performance far better than industry standards, which is one of the highest priority commitments we make on an ongoing basis. Earlier this year, the team introduced one-piece flow to our aluminum manufacturing facilities. In the simplest terms, this means parts are fabricated sequentially with no in-process inventory and a dramatic reduction in unproductive employee movement throughout the plant. The result is increased efficiency with less time and labor required for a wall frame. Our focus for the balance of the year will be to continue to refine the improvements we have made to the operations since Jeff's arrival and leverage them to enhance our quality management systems, sales and operations planning, and sustainability initiatives. I'm also pleased to confirm that our new South Carolina facility is now in the commissioning stage and on schedule to be fully operational during the second quarter. Turning to slide five, within our sales and marketing organization, we will complete filling territory sales representatives roles we identified as priority one hires at the onset of the pandemic and shift our focus to leveraging the commercial organization we built over the last 18 months to drive sales and sales pipeline growth. This will include a continuation of marketing campaigns focused on the new paradigm in interior construction, return of the office initiatives, and refining and promoting the dirt brand. In addition, we will be increasing our focus on the architect and designer community and general contractors, both key participants in the interior construction decision-making process. Finally, we'll be building on segment marketing by targeting key customer segments within our previously defined industry verticals, as well as solutions that are complimentary to our core wall offering, including casework, embedded power, and data networks and timber. The ultimate objective of our marketing organization is to provide qualified lead and sales tools to our sales force. We are supplementing these with continued enhancements to our CRM system to increase the effectiveness of our sales representatives. We've created three focus areas within our sales force. First are the traditional territory sales reps focused on their local markets. Next are segment sales specialists, the most notable of which is our healthcare-focused sales effort, and the last is our strategic accounts team. We're beginning to gain real traction with strategic accounts, even in a business with a long sales cycle with over 35 target strategic accounts in various stages of engagement. As an example, the $2 million sale I mentioned earlier emanated from our strategic accounts group. Finally, we recently signed an agreement to become part of the CBRE Fusion Program. CBRE Group is one of the world's largest commercial real estate services and investment firms. Their project management group facilitated over $25 billion of total construction spending in 2019, and we think inclusion in their fusion program will be a strong source of high quality sales leads. Before concluding, I'd like to comment on some of the core tenants underlying everything we do at DIRT. This year has brought environmental, social, and governance concerns to the forefront like never before. Sustainability is one of the founding pillars of DIRT. The fundamental design advantage of our solutions prolongs the useful life of a built space, allowing reconfiguration and ongoing adaptability, rather than creating landfill waste by demolishing and replacing conventional built spaces. We operate with sustainability in mind in our factories, where precision manufacturing improves material efficiency and limits waste. On the job site, we eliminate drywall, which is one of the largest contributors to landfills from the construction industry. People have always been at the core of Dirt's success because our company is built on intellectual property that is enhanced every day by our highly talented team. Shortly after my arrival, we made employee safety the number one focus of our culture, and we achieved the dramatic results we shared throughout last year. We have internal programs in place to ensure not only that we recruit and retain a diverse group of people, but that these people are also able to comfortably bring their true selves to work and fully participate in the activities of our company. We recognize the increasing importance of making these aspects of our business more transparent to all our stakeholders. I am pleased to say that we are currently developing the analysis, measurement, and metrics required for more formalized reporting, and we look forward to sharing more on these efforts later this year. Finally, in conjunction with announcing our strategic plan in November 2019, We articulated ambitious targets for revenue between $450 million to $550 million and adjusted EBITDA margins between 18% and 22% by the end of 2023. Clearly, the non-residential construction market is much less favorable than in late 2019, and our 2020 revenues declined 31% compared to 2019's. We are starting from a lower base than we anticipated when we originally discussed our plan, and the outlook for at least the first half of 2021 is challenging. However, given our confidence in our business model, our people, our strategic plan, and our progress on its execution, we believe the operating environment and transformation of our company are sufficiently dynamic that these targets are still achievable. With that, I will turn the call over to Jeff for review of the financials.