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spk02: Good morning. My name is Thea, and I will be the conference operator today. At this time, I would like to welcome everyone to the DIRTS 2021 Q2 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star and the number one on your telephone keypad. To withdraw the question, press the pound key. Thank you. At this time, I would like to turn the conference over to Kim McEachran. Please go ahead.
spk01: Thank you, Operator, and good morning, everyone. Welcome to today's call to discuss DIRT's second quarter 2021 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 or on our website. 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, and they are not guarantees of future performance. In addition, this call will reference non-GAAP results, excluding special items. Please reference our Form 10-Q as filed on August 4, 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.
spk04: Thank you, Kim, and thank you to everyone joining us today. Starting on slide four is expected revenue for the second quarter of $41.1 million, was nearly 40% higher than our first quarter revenue, strengthening our conviction that the first quarter of 2021 represented the trough of our pandemic-impacted revenue, even though the overall environment remains challenging. We're closely monitoring potential surges in COVID infection rates driven by the Delta variant and the resulting impact on demand, labor availability, supply chains, and our own operations. Healthcare represented 34% of revenue this quarter, higher than our typical healthcare mix of approximately 20 to 25%, driven by two larger projects. The first was approximately $2 million from the delivery of the COVID vaccination trailers we discussed on our last quarterly call. And the second was over $6 million in revenue from projects for a longstanding strategic account. While the revenue from this climb will be less over the balance of the year, we are pleased with both the confidence in the prospects for their business they showed, and their longstanding confidence in dirt solutions. Looking at a broader market perspective, I'd like to reiterate some comments I made during our last quarterly call. Conventional construction is continuing to experience input price pressures, a lack of skilled on-site labor, and material shortages from supply chain constraints, in addition to other delays in project schedules. These realities make our long-term customer value proposition more attractive, but unfortunately also delay our ability to realize uptakes in commercial activity. From a cost perspective, we have strategically elected not to pass along raw material price increases in order to enhance our relative price competitiveness versus conventional construction. While this decision will weigh on our gross profit margins in the short term, it is our expectation that the increased price competitiveness of our solutions will ultimately drive higher demand, allowing us to improve profitability through the absorption of unused labor capacity and fixed cost leverage within our plants. From the perspective of project schedules, The challenges in conventional construction combined with permitting backlogs are resulting in unanticipated and abnormally long schedule delays, both in the number of projects experiencing delays and the longer duration of the delays. These delays will continue for a period of time as permitting delays will translate into delays for municipal building code inspectors during the project's execution. On the one hand, DIRT is uniquely positioned to recapture a portion of the time lost to schedule delays, making us a more attractive option compared to conventional construction. However, as dirt is installed in the final stages of a project, these delays are going to be impacting the timing of our project delivery. We have maintained sufficient raw material inventory and labor capacity in our plants to sustain our three-week lead times and 99% on-time and complete job-side delivery performance. Regardless of our own capabilities, many of our end clients are experiencing delays, which has resulted in a corresponding shift of our projects from the second half of 2021 into 2022. We now expect a slower pace of recovery with third quarter revenue anticipated to be similar to the second quarter. At the same time, we continue to be encouraged by the level of customer engagement we are seeing. Currently, nearly every conversation we have with a current prospective client starts with their expressing a need for flexible, adaptable spaces. The dialogue often expands into skilled labor shortages and schedule delays, all of which are central to DIRT's customer value propositions. Our increased customer engagement is evidenced by the growth in the number of strategic account relationships in development, which increased to 44 versus 40 at the end of last quarter, and by the increased demand for tours, both virtually and more frequently now in person. In June, we had a 30-month high for the number of tours we hosted. We expect demand for customer tours to continue to increase as we open our Dallas Dirt Experience Center late in the fourth quarter. Even more exciting, we've been successful in a number of large strategic account RFPs, which we define as projects in excess of $2 million with delivery dates beginning in 2022. This is an important accomplishment because we know that having a sustainable pipeline of large projects is necessary to achieve our growth targets. This was a goal we articulated in the strategic plan we presented in November 2019, and this goal was met despite the many unforeseen challenges we have since experienced. To be clear, We are still in the early stages of establishing the pipeline we believe is necessary to drive our long-term revenue growth targets. However, we're encouraged by the gradual rebuilding of the number of large projects in our pipeline. We continue to leverage our total cost of ownership, or TCO, tool to illustrate the advantages DIRT brings versus conventional construction, and our strategic marketing team continues to work closely with our sales team to strengthen how we convey our customer value proposition to end clients as well as to the architect, design, and general contractor community. We've made considerable progress in strengthening our distribution partner network and sales force since the beginning of 2020. Over that time, we've had 11 new distribution partners and 28 new sales reps. Some of the partner additions supplemented an existing market, others replaced incumbent partners. Without exception, the replacement partners are larger and better capitalized than the partners they replaced. Nevertheless, they began as direct partners during a pandemic, generally with smaller teams, a minimal interior construction pipeline, and an onboarding process that was conducted virtually. As such, they've had a limited impact on our revenue to date. As we emerge from the pandemic and these new partners are able to supplement their teams and build their sales pipelines, their potential impact is significant. Our new sales reps have had limited personal client interaction and their training has been virtual. versus in-person in Calgary as was the practice pre-pandemic. Similar to our new distribution partners, our new sales reps have made a limited contribution to our revenue to date, but represent significant future sales potential. During the second quarter, we're able to have in-person client distribution partner and sales meetings, and the dramatic difference between personal interaction versus meeting virtually on a computer monitor cannot be overstated. In conclusion, We encourage that the sales activity we see within the organization is a result of the investments and progress we've made within our commercial organization over the last 18 months. While many challenges remain, we are delivering on our strategic plan in a market that has shown some signs of recovery from pandemic lows and where the cost and schedule dynamics of our largest competitor, conventional construction, should be favorable to DIRT. We see a market that is demanding flexibility and adaptability in their physical spaces. This is not a discussion limit to return to work initiatives, but rather is a more widely being considered in all projects. Our ability to empower people to build sustainably for the future with cost certainty in our accelerated schedule is unique in the industry, and we are better positioned than ever before to execute on that opportunity. With that, I will turn the call over to Jeff for a review of the financials. Thank you, Kevin.
spk06: I'm going to start with a quick review of our liquidity on slide five. We finished the second quarter of 2021 with $58.3 million in cash compared to $58.7 million at March 31st of this year. In the second quarter of 2021, cash provided by operations was $0.1 million. Capital expenditures of $6.4 million in the second quarter were funded by equipment leasing facility draws of $8.4 million. In addition, and in accordance with the terms of the leasing facility, We restricted a further $1.7 million of cash and made $0.6 million of scheduled repayments. We expect to draw an additional $2 to $3 million on our equipment leasing facilities in the third quarter of 2021. Our working capital management focus continued in the second quarter with no reportable disruptions or delays in accounts receivable collections. Days sales outstanding, net of deposits, income taxes, and government subsidies receivable continued to run at under 30 days. Net working capital at June 30th was 67.2 million, and our current ratio was 2.8 times, down from 3.4 times at March 31st, 2021, but up from 2.7 times at December 31st, 2020, and still very healthy. Updating on government subsidies, in the second quarter, we qualified for $3.4 million through two Canadian government programs, the Canadian Emergency Wage Subsidy and the Canadian Emergency Rent Subsidy. From a cash perspective, $2.5 million was receivable at June 30th, 2021, with most of that received in July. Both programs were just recently extended to October 23rd, 2021. They were set to expire September 25th, 2021 in the last federal budget, and we will continue to evaluate our eligibility for each qualifying period. Turning to the financial results on slide six, As expected, revenue for the second quarter returned to quarterly revenue ranges we experienced in the first half of 2020 and showed a substantial sequential increase from Q1 of this year. Revenue of $41.1 million was weighted 34% to the healthcare vertical for the reasons Kevin outlined earlier. Due to the lumpiness of project revenue, we would anticipate a revenue mix by vertical will revert to historical weightings over the short to mid-term. As Kevin also mentioned, many of our customers are experiencing scheduled delays in their projects. While we have seen little disruption to our manufacturing or installation times, these broader project delays have resulted in greater forecasting uncertainty and a number of our projects being pushed from the second half of 2021 into 2022. Consequently, we are now expecting a slower pace of recovery in the second half of 2021. with third quarter revenue anticipated to be similar to the second quarter. I would like to emphasize, however, that we remain encouraged by the increase in sales activity, success in large project RFPs, and growth in opportunities, but recognize that the conversion to revenue will likely take longer than we previously anticipated due to all the upstream factors we have discussed today. On slide 7, adjusted gross profit was $11.3 million, or 27.4% of revenue. A decline of $4.9 million from the quarter ended June 30, 2020. The reduction was attributable to $1.3 million of higher transportation costs due to third-party trucking cost increases, $1.3 million of higher direct material costs due to the combined impact of a 5% increase in the cost of materials, and a specialized project that required additional third-party manufacturing inputs. $0.5 million of incremental costs related to our new Rock Hill plant as well as an estimated $1.1 million impact of a stronger Canadian dollar on Canadian-based manufacturing costs. I will also point out that in Q2 of last year, we had a $1.2 million reversal of timber provision, which did not reoccur this year. I would like to remind everyone of two strategic decisions we made as it pertains to pressures we are experiencing in adjusted gross profit. First, we are currently running with excess manufacturing capacity and have done so deliberately to be prepared for increasing demand. The speed and magnitude of the recovery and how quickly it turns into orders for us remains highly uncertain as we come out of the pandemic. Our variable factory labour is sticky to the downside and there is a minimum amount of staffing we need at our facilities to keep them responsive to activity levels. We believe there would be risk associated with reducing these costs should we see an accelerated return to revenue growth. That said, we are working to further optimize our costs in light of the commissioning of our new Rock Hill facility and the capacity it provides. The strength of our balance sheet and the steps we have taken to increase liquidity enable us to undertake this strategy. Second, as Kevin noted earlier, we have made the deliberate decision not to pass along higher direct material costs to the customer in the face of the modest inflationary pressures we are experiencing. It is our view that the increase in our relative price competitiveness versus conventional construction will drive higher demand, allowing us to improve profitability through absorption of unused labour capacity and fixed cost leverage within our plants. As activity improves, we expect gross margins to improve accordingly. That said, we are actively monitoring inflationary pressures and their impacts on our cost structure. Turning to the breakdown of operating expenses on slide 8, sales and marketing expenses increased by $1.4 million over the comparable quarter last year, as travel restrictions eased and travel, meals, and entertainment expenses increased. The increase was also attributable to salary and wage expense as we continue to build our sales organizations. General and administrative expenses increased by $1.6 million due to the impact of a stronger Canadian dollar, higher salaries and benefits expense, and professional fees. Operations support expenses and technology and development expenses both decreased nominally. While we called out the negative effects of the stronger Canadian dollar on gross profit already, we saw a similar effect on SG&A spread across the four categories of sales and marketing, G&A, operations support, and technology and development. In total, the impact of the stronger Canadian dollar on Canadian-based SG&A was about $1.3 million in the quarter and $1.9 million year-to-date. Excluding depreciation and stock-based compensation from this, So as to determine the impacts on adjusted EBITDA, the estimated impact was $1.2 million and $1.7 million for the three and six months of 2021, respectively. In the second quarter of 2021, the Canadian dollar vis-a-vis the U.S. dollar was 1.23 versus 1.39 last year. On a year-to-date basis in 2021, it was 1.25 versus 1.37 last year. On slide nine, adjusted EBITDA and adjusted EBITDA margin for the quarter decreased to $6.8 million loss or negative 16.6% from 0.3 million or 0.6% in the same period of 2020. This reflects a $4.9 million decrease in adjusted gross profit and increased expenses as I've already discussed. As a reminder, we exclude government subsidies from our adjusted EBITDA. I would point out that the combined impacts of the stronger Canadian dollar on Canadian dollar expenses in the quarter on both gross profit and SG&A was about $2.4 million. Turning to slide 10, net loss increased to $9.7 million or 11 cents net loss per share in the second quarter from net income of 0.3 million or zero cents per share in the second quarter of 2020. The increased loss is primarily the result of a $5 million decrease in gross profit a $4.2 million increase in operating expenses, a $0.9 million reduction in government subsidies, and a $0.7 million increase in interest expense. These decreases were partially offset by a $0.9 million reduction in foreign exchange losses. In conclusion, on slide 11, we were encouraged by the sequential increase in quarterly revenue and the return to 2020 levels. We remain cautious, however, on the timing of our recovery through the second half of the year. The steps we've taken to bolster our liquidity, including lease financing to cover the majority of the cost of our New South Carolina facility and the convertible to venture financing in January 2021, give us the confidence to stay the course as we see encouraging early indications of the commercial success of our strategic plan and improvements in economic conditions. While we remain ready to take action should business conditions deteriorate, we plan to maintain our current cost and manufacturing capacity structures. subject to optimization to ensure that we are well poised from both the sales and production standpoint to take full advantage of what we believe will eventually be a very robust market. We believe that if we are able to drive higher revenues, there's ample leverage in our business model to achieve significant profitability. Operator, we would like to now open the call for questions.
spk02: Thank you, sir. At this time, I would like to remind everyone that if you would like to ask a question, you may press star followed by the number one on your telephone keypad. Again, that's star and the number one on your telephone keypad now. We'll pause for just a moment to compile the Q&A roster. And your first question will come from Greg Palm with Craig Hallam Capital. Please go ahead.
spk03: Yeah, this is Danny Egerich on for Greg today. Thanks for taking the questions. Good morning, Danny. Um, I guess as we're looking at second half revenue, you kind of said slower pace of revenue growth in the second half. Um, I think for Q3 that those comments are pretty clear, but looking out to Q4, um, is there any expectation for Q4 growth still, or has the entirety of that kind of second half activity shifted into, uh, 2022?
spk06: Yeah, Denny, we haven't given, we haven't given guidance on Q4 as you probably, as you probably noticed. I think, uh, The key thing there is it's still very opaque. We are seeing delays push out. We are doing what we can to mitigate that and pull projects into the quarter, but it's pretty opaque for us. We are expecting that the recovery itself is slower than what we'd originally anticipated, but also, as you would have heard from our comments, we are quite encouraged about 22%.
spk03: Got it. And then maybe just touching on the decision not to pass material inflation on to the customer, maybe a little bit behind the scenes color on puts and takes, I guess attacking that increased demand with competitive pricing versus maybe constraints to margins for the near term, I guess. How should we look at that?
spk06: I think that's the way to look at it. As we look at what the price increases were relative to our historical norms, there's a couple of things in play. First of all, we had the impact of the higher cost trailers roll through the quarter, which impacted our prices. I think the other thing that we're seeing is is the impact in our overall material pricing is perhaps less than we would expect. And that's a result of a lot of the work that we've done in the plant. In fact, the pricing, when we look at our materials, it's actually at similar levels as a percentage of our revenue relative to 2018, 2017. So we've been able to absorb a lot of that through efficiencies. When you look at the overall fixed cost structure of our plants that we have and the unused excess labour capacity, we get a lot more impact from profitability and impact by using up that excess capacity and that fixed cost leverage by driving increased demand through the competitiveness that we believe will come out of not raising our prices. And so that's the plan. Obviously, we're going to continue to monitor it. And if they keep driving up, we'll take a look at it. But we think we get better bang for a buck out of increased competitiveness.
spk03: Great. That's helpful. And then maybe one more on the large strategic accounts and maybe the increased activity you've seen in the pipeline and maybe on the RFPs you've been seeing. Are those coming from existing clients or are those new customers? What can you say on that?
spk06: Sure. I'll give you a little bit of color on that. They're from both existing and new clients. We are quite pleased with the activity that's going on in our strategic account group, and you would have seen that we had another 10% increase in the amount of accounts that we're engaged with. On the RFPs themselves, we define large as greater than $2 million. They are across multiple industries. Those include healthcare, financials, energy, professional services, and tech. So it's a broad range. They were also competitive, and so we were against other organizations there and came out ahead. So we're quite encouraged by that. We're now into the scope and scheduling discussions with them and delivery expected on those in 2022 and 2023.
spk03: Yeah, and are those more for activity and remodel or new construction?
spk06: I think they are primarily in the new construction range, but I suspect it's a combination of the two.
spk03: Got it. I'll leave it there. Thanks.
spk02: The next question will come from Rupert Mirror with National Bank. Please go ahead.
spk05: Good morning, everyone. Good morning, Rupert. With the larger project awards that you've discussed and a push of the revenue to next year, it seems like you have more visibility on future revenue than what we might have had last quarter. I'm just wondering if you can talk to us in terms of sort of the scale of the backlog and the visibility that you now have into sales and how that's trending.
spk04: Hey, Rupert. It's Kevin. What I would tell you is, and you've been following this for a while, so compare and contrasting to several years ago, the tools that we have in place, CRM systems and Power BI and so forth, the people that are doing the analysis and the quality of the sales reps and how we train them to do the forecasting are all significantly better than what it would have been a couple years ago. The issue, and just giving your direct answer to your question, is the operating environment. And now there's two dynamics going on. One we've talked about, which was the supply chain issues, and that is continuing. Unfortunately, the world has not been set up to do a hard reset after a pandemic. And then the other, which we're probably feeling a little bit more south of the border than north, is the Delta variant. And so trying to figure out the exact timing of these is very, very difficult. So I do feel like we have a better job of kind of overall having our arms around this, where the opportunities, general magnitude and so forth. But in terms of exact timing, it's more difficult than ever given the operating environment.
spk05: Okay, great. Do you have a sense of the scale of the backlog, though, timing aside, just the dollar number of jobs for which you've been awarded contracts or have good visibility on contracts?
spk04: We have a decent sense of that. One of the things we've experienced over the course of a project getting designed and so forth is the scope and scale can move around fairly substantially. And so at any given time, we've got a decent sense as to where things stand. And sometimes it's good news. I'm going to give an example. I think we mentioned this in the last quarter where early days with our TCO tool, we had a relatively modest glass front only project they were able to morph into an entire full solution that was order of magnitude larger. So you have those things happen from time to time, which are good things. And so it's more dynamic than you would think it would be otherwise.
spk05: Okay, thanks. If we look at the strategic relationships, Can you give us more color on what's contemplated in the strategic relationships, maybe how the structure of those relationships can help you with RFPs, even if it's just getting an opportunity to bid on some of these RFPs? I mean, you mentioned that the processes have been competitive. What competitive advantages do you get out of these relationships?
spk04: Well, I think, first of all, you need to recognize that not every one of these strategic accounts is It goes straight to RFP. A fair number of them are just either we've done business with them in the past or it's relationships where people know that they want to work with us and they're not formally bidding out any of their work. And so that's important to note. But when things do go to RFP, it's the full array of our customer value proposition that The customization of what we do, the scope of what we do, nobody else can do. The adaptability is better than anybody else's. The iSoftware that we deploy is head and shoulders above anybody else. And so all of those come into play. It depends on the customer and what they're really looking for. Where we really shine is when somebody is doing a full solution with solid walls, glass walls, technology, power, et cetera, et cetera. Where you get into more cost competitive situations and where there's more competitors is where people are just looking at simple glass front conference rooms. And that's where it might get to be a little bit more competitive. And even in those situations, we're looking to expand those into being a broader scope.
spk05: So you're finding there are any cases here where some of DIRT's capabilities are being scoped into the RFPs and maybe that gives you a competitive advantage? Sure. Or pricing a competitive advantage? Any other elements, the relationships that will help you in the future?
spk04: It's all of the above. I mean, you're building... I mean, make no mistake about it. We would prefer not to be an R&C process. We would prefer to leverage a relationship where we just start working on projects. I, not surprisingly, tend to take a fairly active role in leading some of these strategic accounts and starting new relationships. What I like to encourage clients to do is say, let's pick a project that you're in the design phase and let's show you what we can do. Let's just do one and then see how it plays out and kind of go from there and show our capabilities. That's the ideal way to do it, building on our relationship and using the various tools that we have at hand. We recently came out with a very effective DIRT overview sales presentation that I've used with a couple of potential strategic accounts. The DIRT Experience Centers play in. They're strategically located. We've got New York and Chicago that are very active. Dallas has been very active, even though it's under construction. so people can touch and feel what we do, and then you leverage it into an ongoing relationship and show them how you can make their business better because they're doing business with us, be it common design standards, reduced cycle time, better quality, and so forth.
spk05: Okay. Thanks for the call.
spk02: And once again, ladies and gentlemen, if you would like to ask a question, please press star 1. Again, that's star 1 for any questions. Your next question will come from Josh Wilson with Raymond James. Please go ahead.
spk07: Good morning, Kevin. Jeff, thanks for taking my questions. Morning. I wanted to get into the delays a little more. I think last quarter you talked about orders improving month over month in each of February through April. Can you give us a sense of how order entry trended through the quarter and into July?
spk06: Um, it's, uh, it's been, um, as you would expect, uh, through the pandemic and actually consistent with, with other, other companies calls that we've been listening to, it's more choppy. Um, we've had good days, we've had a slower days, um, um, uh, but it all, uh, it, it all kinds of trends to, uh, where we are, uh, looking at, um, where we're looking at. So Q3 to be, uh, consistent with Q2. That's pretty much all I can say on that.
spk07: And what's your sense of how much, I don't know what to call it, backlog is probably not quite the right word, but how much of your current activity is still jobs that were in process prior to pandemic versus brand new jobs?
spk06: I think most of the pre-pandemic stuff has played out. I think we are into um stuff that we've hunted in the in the last while if you remember our lead time is is six to 24 months in general depending on the size of the project so um i think most of that is is uh uh is stuff that we've hunted uh i can't say defendant but i think that that would be 90 percent the case and as we think about opex sequentially so given that sales are flat should we assume
spk07: Those are also fairly flat, or were some of your new hires towards the end of the quarter and we don't quite have the full run rate on those?
spk06: You'll see a bit of – we've got a few hires to build on the sales and marketing side. I wouldn't say anything really material there, I think. We are planning for our Connects trade show in October, so that would come in Q4. So that's going to kick up a bit of cost. I think the other thing to think about is as things open up a little bit, travel and entertainment expenses can increase. And that's a good thing. That means that our salespeople are getting in front of the clients and selling more. So if I compare If I compare where we were in Q2 of this year versus Q2 when the pandemic hit, we're up about four times in our travel. Now, if I compare it to where we were in 2019, we're down about 45% of where we were in 2019. So I expect that that cost is going to continue to grow a little bit, probably not to the same level as we were in 2019 because people have realized they can do stuff virtually, but we will see that increasing. And as I said, that's a good thing. That means our salespeople are getting up and talking to people and looking to close sales. Got it. I'll turn it over to Alex.
spk02: The next question will come from Neil Linzel with IA Capital Markets. Please go ahead.
spk08: Good morning, guys. Just sticking on the short term, if I'm trying to model out the gross margin and the EBITDA margin in Q3 and Q4, now that Rockhill is fully functional, is there anything we should think about other than what you've already said with the pressure, the transportation costs and anything that would really change the gross margin from the level that we saw in Q2 as we look through the end of the year?
spk06: It's really top line, really top line focused. We had the fixed costs of Rock Hill Roll in the second quarter, which we called out. We will do some optimization between plants. However, the real key movers for us will be as revenue increases. And as I said in the remarks, we deliberately – chose to keep that capacity in place. It's really easy to knock down your capacity. It's a lot harder to bring it back up.
spk08: So deliberately keeping that in place. Right. Understood. So it's really all scaling on the revenue side. And if we look at the pickup in 2022, you previously had some pretty lofty targets for like 2023. Is those kind of off the table now within this macro environment?
spk06: We haven't pulled it off the table because, quite frankly, we're not sure how fast 22 is going to recover. We'll see. I think it's just too soon to say.
spk08: Okay. But you've now built up the capacity to be able to support those targets, but it's all a macro environment. And then if we look at maybe north and south of the border... But even within the U.S., are you seeing certain areas that you're getting more traction as far as people or companies trying to reconfigure their office space? Or specifically, I'm thinking in healthcare, are you getting healthcare facilities now that are willing to look at those major revamps to try and fix how we're going to work with our space post-pandemic?
spk04: All right. You know, I would say that the vast majority of what we're looking at is not so much adapting existing spaces as it is new projects, be it a new project in an existing building or a brand new building. And it's across the board. Geographically, it would be just the large commercial construction markets, as well as Typically, we talked about in terms of the talent intensive businesses, which could be some of the higher tech businesses and things like that. We'll skew a little bit higher to that as well. The larger ticket items are going to be the new projects as opposed to somebody tweaking their space. That may come about over the next 18 months as those people get back in the space and looking for things that they need to work a little bit differently. But at the moment, that has not been a huge part of it. But I will tell you, you mentioned healthcare in particular. There is, I think we will find over the next few years, the adoption rate of what we do in healthcare will be significantly faster than what it's been historically. Just from the conversations I'm having, it's almost like they're doing our sales presentation for us in terms of talking about the importance of adaptability and not knowing as an examiner, I'm going to need to become a telehealth room and those kinds of things.
spk08: Okay. Yeah, healthcare has always been one of my favorite aspects. Just finally, can you just kind of recap on the CapEx spending, where you stand now? I guess Rock Hill is finished. Dallas is getting finished. You talked about, I think, $2 million to $3 million in Q3 still being spent on this build-out. After that, are we looking at going down to a more normalized CapEx of, I don't know, $8 million or $10 million a year? Or what should we look at from that perspective?
spk06: Yeah, so to clarify, the $2 to $3 million is the draw on our leasing facility. So we can only draw on our leasing facility once all the payments have been done and the title is passed to us. So that's more on the financing side as opposed to the capital expenditure side of the equation. As we said in Q1, you know, we're thinking, we're currently seeing expenses around $14 million this year from the cash basis. As we look to next year with Rock Hill done, yeah, you're probably right. We're probably in that 8 to 10 range. Depending on what the map looks like, we still at some point want to put casework into Rock Hill. We still will want to do expanding out some of our DXCs into some underserved markets, but those will be more game-time type decisions. There's still investment to be made on that side, but some of that does depend upon activity levels and where we're going.
spk08: Okay. All right. That's it for me. Thanks a lot. Thank you.
spk02: And at this time, if there are no further questions, I'd like to turn the conference over to Kevin O'Meara for any closing comments.
spk04: Thank you. As always, I'd like to thank the extraordinary commitment and efforts of our employees and distribution partners. I continue strongly to believe that the path we're on, guided by our strategic plan and executed by the incredibly talented team we have at DIRT, will prepare our organization forward as we strengthen our brand and market presence and begin to deliver tangible results in the market. Thank you for joining us today.
spk02: Ladies and gentlemen, thank you for participating in today's conference. You may now disconnect.
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