DIRTT Environmental Solutions Ltd.

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.

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.

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.