DIRTT Environmental Solutions Ltd.

Thank you for standing by. This is RG, the conference operator. Welcome to the DIRT Environmental Solutions First Quarter 2025 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 Christine 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 first quarter 2025 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-Q as filed on May 7, 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, and good morning, everyone. While Q1 2025 included challenges related to global tariffs, DIRC continues to execute against our strategic priorities to realize our vision of transforming how the world builds. We ended Q1 with revenue within expectations and our adjusted EBITDA exceeded expectations. We will share more on tariff response later on the call, along with some key business highlights from the quarter. I will now turn 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 first quarter 2025 results and have also provided additional analysis in a supplemental presentation. Both documents are available on our website. Revenues for the first quarter were $41.3 million, an increase of 1% compared to the same period of 2024. The increase in revenue was primarily the result of higher volume of large projects that were shipped in the first quarter of 2025. Gross profit margin decreased from 35.9% of revenue in the first quarter of 2024 versus 35.2% in the first quarter of 2025. We implemented several price actions on February 11th in response to rising costs and market feedback, but are not expecting to realize any benefits until the second half of 2025. Our 12-month forward sales pipeline excluding leads at April 1, 2025 was $292 million, an increase of 5% compared to $278 million at January 1, 2025. And our leads for the same period increased 47% as we invest in growing revenue. Operating expenses for the first quarter were $14.9 million, which is consistent with the same quarter last year. Excluding the impact of stock-based compensation, depreciation and amortization, and other infrequent costs, there was an increase in operating expenses quarter-on-quarter of $0.6 million, which primarily relates to a $0.9 million increase in professional fees associated with the share repurchase from NGEN as well as litigation costs as we prepare for the Falkville trial, offset by a 0.5 million decrease in compensation costs. Net loss after tax for the first quarter of 2025 was 0.7 million, compared to net income after tax of 3 million for the same period of 2024. Net loss after tax was impacted by a 2.9 million decrease in gain on extinguishment of debt, which related to the issuer bid that was completed in February 2024. a $1 million decrease in foreign exchange gain, a $0.2 million decrease in interest income, and a $0.1 million decrease in gross profit, offset by a decrease of $0.6 million in interest expense due to lower outstanding debt. Adjusted EBITDA for the quarter was $2.1 million, a decrease of $0.6 million from a $2.7 million adjusted EBITDA during the first quarter of 2024. The decrease is as a result of the operating expense variance explained earlier in the call. With respect to our balance sheet, the quarter finished with $28.4 million in unrestricted cash, down from $29.3 million at December 31, 2024. Cash provided by operations was $3.7 million, while cash used in investing activities, mainly CapEx, was $0.7 million. Cash used in financing activities was $3.6 million and primarily consisted of routine repayments of debt and leases. as well as the repurchase of debentures and shares through the normal course issuer bid and the private share repurchase from NGEN. Working capital continues to improve. Inventory at March 31, 2025 is $14.5 million, down compared to $15.1 million at December 31, 2024. Our average three-month DSO is 26 days and DPO, days payable outstanding, are 27 days. Liquidity was 36 million as of March 31, 2025, including 7.6 million of availability under our ABL facility. We have not drawn on this facility to date. We have executed various debt and share buyback programs this quarter, including a debentures NCIB, a shares NCIB, and a share purchase with NGEN. To date, we have repurchased 4.6 million common shares through the private repurchase as well as the shares NCIB. and we have purchased 0.5 million convertible debentures through the debentures NCIB. The shares NCIB expires December 2025, and the debenture NCIB expires August 2025. I would now like to share the impact on tariffs impacting our supply chain. For brevity, I will focus on the tariffs that have a material impact on the company. The 25% tariff on aluminum came into effect in early March 2025, as disclosed in our 10Q. 10% of our raw material consumption is aluminum. We benefit from geography. Our Savannah plant is also an aluminum plant, so we are looking at how to balance loads between Calgary and Savannah aluminum facilities. In April 2025, the U.S. government also levied a 145% tariff on Chinese imports. 6% of our hardware comes from China, and thus this tariff also impacts dirt. We have discussed these tariffs and our mitigation strategies further in our 10Q. our first quarter gross profit numbers include 0.6 million, or 1.4% of our revenue, of costs related to enacted tariffs and tariff mitigation actions. As explained in our outlook, we feel it is prudent to withdraw our annual 2025 revenue and earnings guidance. We are confident that we will generate positive adjusted EBITDA this year, regardless of revenue headwinds, and continue to work on growing gross revenue and transforming our business. We believe DIRT is financially well positioned to weather this period of uncertainty. This concludes the earnings and financial position report. I will now turn it back to Benjamin to discuss DIRT's business updates.

Thank you, Faria. Despite market headwinds, we continue to focus on growth and had several new clients and notable projects in the first quarter of 2025 in the healthcare, life sciences, and commercial office sectors. We also completed Phase 2 of the South Bay Family Justice Center for the County of San Diego. This facility was the first of its kind in the United States, housing the entire domestic violence units of the San Diego Police Department and the San Diego City Attorney's Office. Over 200 professionals provide comprehensive services at the Justice Center, including medical examinations, restraining orders, or temporary shelter to more than 1,000 clients per month, helping victims break the cycle of domestic violence. Our long-term relationship with this client and the opportunity to create a flexible, supportive, and welcoming space for victims and their families is something that DIRT is very proud of. As Freya mentioned, our pipeline and leads are growing. In Q1, we observed a softening in leading indicators relating to our revenue pipeline, specifically above-trend scheduling delays and below-trend signed awards driven by macroeconomic conditions that are unrelated to dirt specifically. The uncertainty is most pronounced in the near-term decision-making and not an increase in project cancellations or losses. Regardless of the economic environment, DIRT is committed to scaling our business, and in order to accomplish that, we need to simplify our processes. In Q4 2024, we established a transformation office to apply successful earnings from lean manufacturing principles to our back office operations. The priorities of the transformation team are rooted in Dirt's vision of transforming how the world builds. We have had several successful initiatives this quarter and are excited to see our team lean in and challenge the way we do things. We are reducing manual touchpoints and deploying new tools like AI and automation. The goal is to fortify the strength of our business for continued performance in uncertain conditions. Revenue diversification is a continued focus with our integrated solutions team as a key driver. This past quarter, we were involved in a multi-phase renovation at one of the largest airports in the United States, a market where we've had minimal penetration historically. We also had our largest win to date in this group, a $5.2 million project. Without this highly specialized team, these opportunities would not have been available to DIRT. We are pleased with the progress to date and continue to invest to expand this team and its capabilities. Last week, we hired a national installation manager to support delivering our products to market. In our construction partner network, we onboarded one new partner as of March 2025, Gov Solutions, covering all of Virginia, Maryland, and West Virginia. Additionally, we expanded partner coverage into Seattle, Washington with HB Build and into Palm Beach, Florida with Workscapes. Innovation continues to fuel everything we do at DIRT and drives our key competitive advantages. In March 2025, DIRT was named number one in manufacturing on Fast Company's prestigious list of the world's most innovative companies of 2025. The list highlights companies that are shaping industry and culture through their innovations to set new standards and achieve remarkable milestones. At a time when traditional construction struggles to keep pace with the demands of modern spaces, this recognition validates that dirt is transforming how the world builds through smarter, more efficient, less wasteful, and more flexible construction. Our innovation is enabled through our proprietary ICE software. This remains an ongoing area of investment for the business to further advance our capabilities, efficiency, and revenue potential. Our continued pursuit of ICE commercialization has opened new avenues and complementary sectors to DIRT. We showcased ICE at the Advancing Pre-Fabrication 2025 Conference and at Data Center World in April. In product development, we rounded off a Spectra door family with the launch of our double pane barn door, bringing a refined and versatile solution to market. We also introduced the invisible Opti-Filler, elevating both the aesthetic and functional aspects of our installations through a seamless finish that effectively closes small gaps for a cleaner, more polished look. Our innovation emergency department solution, COVE, continues to capture market recognition, receiving the prestigious 2025 Touchstone Gold Award at the ASHE PDC Summit in March. Behind the innovations we bring to market is our lean manufacturing approach, with a key focus on safety and efficiency. At the end of the first quarter of 2025, our total recordable incident rate was 0.5, which is 87% lower than the industry average. Our on-time and in full delivery was 98.8%, despite the market fluctuations and tariff challenges faced in the quarter. Our operations are not only efficient, but better for the environment. Due to our commitment to sustainability, adaptable design, and fostering an environmentally responsible workplace culture, DIRT was awarded the Top Employer Eco-Impact Award. This award recognizes leaders in Canadian environmental sustainability and innovation and celebrates organizations and professionals driving meaningful change in sustainability practices. Our DIRT team continues to give back to our community. A highlight of Q1 is the distribution of the proceeds raised during our annual DIRT Gives program conducted in December. Thanks to the contributions of the entire team, we presented the Calgary Food Bank with more than $33,000 last quarter. Our talent is not just the heart of our organization, they are an inspiration in our community. Lastly, we continue to prepare for the Folkville litigation trial, which is scheduled to start in less than nine months. To close, we are in a challenging market. However, we continue to focus on our priorities of revenue growth through innovation and transformation. Thank you all for joining us today.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.