DIRTT Environmental Solutions Ltd.

Thank you for standing by. This is the conference operator. Welcome to the DIRT Environmental Solutions Fourth Quarter 2024 Financial Results Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. I would now like to turn the conference over to Kristen Bradfield, Senior Vice President of Marketing and Communications. Please go ahead.

Thank you, operator, and good morning, everyone. Welcome to today's call to discuss DIRT's fourth quarter 2024 results. Joining me on the call today will be Benjamin Urban, CEO, and Faria Khan, CFO. 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 26, 2025 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 early next week. I will now turn the call over to Benjamin.

Thank you, Kristen. Good morning, everyone. We ended 2024 with annual revenue and adjusted EBITDA on the higher end of guidance provided in the second quarter of 2024. We finalized our 2025 corporate strategy and are already seeing positive reception to new approaches. As we look ahead to 2025, we are investing in key areas of our organization to fuel growth. And while the ongoing risk of tariffs and related regulatory uncertainty are increasing pressure on construction in North America, the challenges further solidify our value propositions and the reasons to build with dirt. On today's call, we'll take you through our year-end financial results in addition to key business and operational highlights. I'll now hand it over to Faria to discuss the financials.

Thank you Benjamin and good morning all. Please note that we have issued a press release discussing our fourth quarter results and have also provided additional analysis in a supplemental presentation. Both documents are available on our website. Revenues for the fourth quarter were $48.9 million, down 4% compared to the same period in 2023. The decrease in revenue was largely due to a higher volume of large projects that were completed in the fourth quarter of 2023. We continue to maintain strong margins on gross profit. Gross profit margin decreased from 37.8% of revenue in the fourth quarter of 2023 versus 35.9% in the fourth quarter of 2024. These decreases are a result of lower revenue volumes and an inventory provision of 0.7 million. Looking forward, on February 11 this year, we announced a price increase of 5% due to rising raw material costs impacting the construction industry. We also decreased pricing on certain products based on customer feedback to mitigate the impact of these rising costs. our last price increase was in 2022. Our 12-month forward sales pipeline excluding leads at January 1, 2025 was $278 million, an increase compared to $270 million at January 1, 2024. Our January 1, 2024 pipeline included a large commercial project awarded to us in the first quarter of 2024, which was phased over a period of three years. As a result of the phasing, the 12-month pipeline at January 1, 2024 subsequently decreased by $22.9 million, while the project value remained in the full pipeline. After accounting for this phasing, the 12-month pipeline from January 1, 2024 to January 1, 2025 has increased by $31.3 million. Operating expenses for the fourth quarter were lower by $2 million at $15.3 million compared to $17.3 million for the same quarter last year. excluding the impact of stock-based compensation, depreciation and amortization, and other infrequent costs. The decrease, quarter and quarter, primarily related to a $2 million decrease in salaries and benefit costs and commissions, a $0.7 million decrease in building and infrastructure costs, a $0.5 million decrease in office costs, offset by an increase of $0.5 million resulting from professional fees, related to the normal course issuer bid for shares that commenced in December 2024, and a $0.3 million increase in costs related to the partner camp event we hosted for our construction partners. Our net income after tax for the fourth quarter of 2024 was $4 million, compared to $1 million for the same period of 2023. Net income after tax was impacted by the gross profit decrease offset by operating expense decreases explained earlier, and a $1 million gain on software and patents that resulted from the knowledge transfer to AWI in the fourth quarter of 2023 that was not repeated in 2024. Additionally, in the fourth quarter of 2024, we benefited from a $2.6 million increase in foreign exchange gains and a $0.8 million decrease in interest expense due to lower outstanding debt. Adjusted EBITDA for the fourth quarter was $5.5 million, an increase of $1.2 million from a $4.3 million adjusted EBITDA during the fourth quarter of 2023. The increase is as a result of the variance explained earlier in this call. With respect to our balance sheet, the quarter finished with $29.3 million in unrestricted cash, up from $24.7 million at December 31, 2023, and $23.6 million at September 30, 2024. Cash provided by operations was $6.2 million, while cash used in investing activities, mainly capital expenditure, was $0.7 million. Cash used in financing activities was 0.1 million and mainly comprised of routine repayments of debt and leases as well as the repurchase of debentures and shares through the normal course issuer bid. Our working capital continues to improve. Our inventory at December 31, 2024 is 15.1 million, down compared to 16.6 million at December 31, 2023, mainly due to improved sales and operational forecasting. Our day sales outstanding is 31 days, and days payable outstanding is 34 days. Liquidity was $39.3 million as of December 31, 2024, which includes $10 million of availability under our ABL credit facility. We have not drawn on this facility to date. Subsequent to year end, we extended our ABL facility with the Royal Bank of Canada, which now also includes access to a bonding facility, as explained in our 10-K. Further, as explained in our 10-K, during the year we did enter into various transactions to reduce DIRT's long-term debt. We have reduced our long-term debt from $56.1 million at December 31, 2023 to $22.4 million at December 31, 2024. The debt was paid down at a discount and we recognize a gain on extinguishment of debt of $10.4 million. $16.6 million Canadian dollars of debt is due in January 2026. and Canadian dollars $15.3 million is due in December 2026. Using our actual 2024 adjusted EBITDA, our debt leverage ratio at December 31, 2024 was approximately 1.5x. On our capital structure, we announced a normal course issuer bid of our common shares in December 2024, which will expire in a year's time in December 2025. Two weeks ago, we completed a private repurchase of approximately 3.9 million shares which are counted against the NCIB share limit. We can acquire a further 3.4 million common shares under the NCIB through December 2025. This concludes the earnings and financial position report. While we have maintained our 2025 revenue and adjusted EBITDA guidance, the tariff risk detailed in our 10-K, and which Benjamin will talk about, creates significant uncertainty in our business. We are closely monitoring developments, and based on how the matter progresses, we may need to re-evaluate our guidance. Details as well as our cautionary advisory on our forward-looking statements can be found in our press release and 10-K. I will now turn it back to Benjamin to discuss DIRT's business updates.

Thank you, Faria. DIRT operates in a segment of the construction industry with an approximately $40 billion addressable market. Our opportunity continues to expand as we see more adoption of off-site construction methods. DIRT has steadily captured more market share by directly solving known pain points in traditional construction through innovative product development, technology-driven efficiency, and a simpler construction process. As climate change, sustainability requirements, labor shortages, and costs continue to escalate, we're seeing increased demand for off-site prefabricated construction. DIRT pioneered its unique construction method over 20 years ago and remains the only company that can deliver schedule acceleration, cost certainty, unlimited aesthetic customization, and an end product that never needs to enter a landfill. Everything we manufacture is designed for disassembly and infinitely reconfigurable to adapt to the ever-changing needs of our customers. The ongoing threat of a 25% tariff on all Canadian imports into the United States has created uncertainty across multiple sectors. While Canada successfully secured a 30-day pause on the tariffs in early February, the outcome remains unknown. Subsequently, the White House issued an executive order on February 11th mandating 25% tariffs on all steel and aluminum entering the United States effective March 12th. Dirt sources 92% of our raw materials from North America, and both our US factories and Canadian factories import some material across both countries. We have been proactively preparing for the possibility of tariffs to ensure our continued success. While tariffs would have a cost impact on our business, our dual presence in both Canada and the United States provides us with strategic flexibility. We have multiple paths to mitigate the impact of tariffs, including material sourcing and manufacturing locations. Additionally, we feel strongly that continued rising costs in North American construction, including tariffs, further reinforces DIRT's value propositions. Our speed of manufacturing, reduction of labor on-site, and the ability to reconfigure interior spaces will be even more important to organizations working to manage their real estate footprint and drive efficiency. The very nature of our business is to be adaptable and flexible, and that is exactly how we are navigating this developing situation for the benefit of our employees, customers, and shareholders. Our primary source of revenue remains our extensive network of valued construction partners. We continue to develop and expand this network, including advancing 15 partners to a higher status tier in 2025, while we also formalize additional paths to unlock greater pipeline potential. For example, we have large geographic areas in North America that lack sufficient coverage by our existing network, and we are also expanding our offering to include more estimating, pre-construction, and installation services, both through partners and directly, with a focus on capturing a greater share of the addressable market. To address this, we diversified our market approach in 2024 through a new team called Integrated Solutions. This team provides sales, design, estimating, and project delivery services with both dirt partners and dirt sales representatives. Integrated Solutions increases our sales network's capacity as well as targets revenues and channels without existing coverage. They focus on three key opportunity areas, diversify our customer profile, increase volume in smaller markets, and expand into new sectors. Through these efforts, Integrated Solutions aims to simplify our go-to-market strategy and increase access to DIRT's portfolio of products. We continue to advance our ICE offering, including the addition of several new features that streamline processes and reduce customer inquiries. In response to user feedback, we optimized the ICE Manager application to improve the interface and added an early access feature to allow beta testers and developers to access applications for further testing and improvement. ICE is also a key driver of our operational efficiency. A Q4 update introduced itemized part pricing and automated casework plan details, saving Dirk 50 to 75 hours per week in designer time and improving efficiency for our customers. We also continue to experiment with AI for software development, including catalog creation, with a goal of having 25% of all code written by AI for efficiency. In Q4, we also evaluated a code-generative AI resource to develop a web-based freight quoting tool, saving approximately 200 hours of development time and removing a manual touchpoint for our customers. DIRT has made significant strides with product innovation and partnerships. The COVE, our low-acuity solution for emergency departments, officially launched in November 2024 and is already earning significant industry recognition. In addition to previously announced product awards from the 2024 Healthcare Facilities Symposium and Expo, we were recently awarded the Gold Touchstone Award from the Center for Health Design and will be recognized in March at the 2025 PDC Summit, a premier gathering of leaders in healthcare planning, design, and construction. In Q4, we also released curved corners for our solid wall solution, which is already seeing strong demand with active project quotes in the market. We are also innovating our market approach through strategic partnerships. In December, DIRT joined the Siemens Accelerator Program to further drive our digital transformation in the construction sector by leveraging automation, IoT, and digital twin technology to seamlessly connect our physical assets with their digital counterparts. This will enable continuous monitoring, predictive maintenance, optimized space utilization, and enhanced process efficiency. We have a bold operations goal of zero defects, missed deliveries, and workplace injuries. DIRT ended 2024 with an on-time and full delivery performance of 99.1%, the highest in our history. We achieved a total recordable incident rate of 0.82 at the end of 2024, which is 80% below the industry average. Safety is fundamental to everything we do at DIRT. In December, our Savannah, Georgia factory was recognized by OSHA as a Safety and Health Achievement Recognition Program recipient. This recognition highlights our unwavering commitment to creating a safe and healthy workplace for everyone and reflects years of dedication to maintaining the highest safety standards through operational best practices, ongoing training, and exceeding compliance requirements. We are especially honored to be one of just seven organizations in the state of Georgia to receive this distinction, setting a benchmark for safety excellence in our industry. We continue to invest in our talent and culture as key drivers of our future success. We are pleased to share that DIRT has a new SVP of Marketing and Communications, Kristen Bradfield, who joined the organization in October. She brings more than 25 years of experience to DIRT, where she is supporting our commercial strategy, leading stakeholder engagement, developing the DIRT brand, and collaborating across functions to drive culture. We also added a new Regional Director of Sales for Canada and the U.S. Western Region, Curtis Friesen, who joined us in January. Curtis has over 13 years of experience in sales and sales leadership in the commercial real estate and construction industry. The addition of Curtis rounds out our exceptional team of sales leaders spanning all regions in North America. While community support is an ongoing part of our DNA, Q4 brings even more activities and opportunities to give back. We hosted our annual Dirt Gives program, a series of local and virtual events for Dirt employees to raise money for a worthy cause. This year, we raised approximately $15,000 to be donated to food banks across North America. We also continued our Hearts and Hands volunteer program, which included packaging food at the Calgary Food Bank, a Plant It Forward initiative to propagate plant cuttings for sale for a local charity, supporting dinner shifts at the Calgary Drop-In Center, and supporting the Women in Need Society through holiday gift donations and helping to sort and distribute needed items. The enthusiasm that our team brings to these activities year-round is inspiring and embodies the spirit of the DIRT team. As we look at our accomplishments in 2024, we are grateful to our dedicated team, trusted partners, and valued clients. Together, we are transforming how the world builds and look forward to continued momentum ahead. lastly an update on the falkville litigation on february fifth twenty twenty five the u s district court for the northern district of utah dismissed the case dirt brought against falkville in utah on the basis of forum nonconvenience In simple terms, the Utah court decided that Canada would be the preferred forum to hear all of Dirt's claims. The ruling did not involve any opinion on liability or damages. As we previously shared, the Court of King's Bench of Alberta, Canada scheduled the Canadian lawsuit for an eight-week trial commencing February 2, 2026 and running consecutively until March 27, 2026. With this trial less than one year away, dirt is pursuing damages and losses it suffered in Canada, the United States, and abroad in the Court of King's Bench of Alberta. The Canadian court will determine whether Falkbilt, Mogan Smed, Barry Loberg, and others wrongfully caused dirt to suffer damages which could exceed $50 million. We are very confident in the strength of our case. Thank you all for joining us today.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone have a wonderful day.