CALGARY, Alberta, Oct. 08, 2019 (GLOBE NEWSWIRE) -- DIRTT Environmental Solutions Ltd., (TSX:DRT; Nasdaq: DRTT) (“DIRTT” or the “Company”) an interior construction company that uses technology for client-driven design and manufacturing, today announced the following information has been disclosed on SEDAR and posted DIRTT's website at: www.dirtt.com/investors/financial-reports/:

  • Unaudited financial statements for the second quarter of 2019 prepared in accordance with the accounting standards generally accepted in the United States (“U.S. GAAP”), which include the consolidated balance sheets as of June 30, 2019 and December 31, 2018, and the related statements of operations, comprehensive income (loss), shareholders’ equity and cash flows for the three- and six-month periods ended June 30, 2019 and June 30, 2018;
  • Unaudited financial statements for the first quarter of 2019 prepared in accordance with U.S. GAAP, which include the consolidated balance sheets as of March 31, 2019 and December 31, 2018, and the related statements of operations, comprehensive income (loss), shareholders’ equity and cash flows for the three-month periods ended March 31, 2019 and March 31, 2018; and
  • Annual U.S. GAAP financial statements, which include consolidated balance sheets as of December 31, 2018 and 2017 and the related statements of operations, comprehensive income (loss), shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2018, 2017 and 2016 (on SEDAR such statements are contained in the Form 10 which was filed as an "Other" document on October 8, 2019).

Upon the U.S. Securities and Exchange Commission’s (“SEC”) declaration of effectiveness of the Company’s Registration Statement on Form 10 on June 8, 2019, in connection with the listing of its common shares on The Nasdaq Global Select Market ("Nasdaq"), the Company completed a conversion of its financial statements from International Financial Reporting Standards (“IFRS”) to U.S. GAAP and adopted U.S. GAAP as its financial reporting framework. The Company’s Registration on Form 10 and other filings with the SEC are available to the public through SEC’s website at www.sec.gov.  The purpose of this press release is to help readers accustomed to the past preparation of DIRTT’s financial statements under IFRS understand the change in preparation to U.S. GAAP.

DIRTT changed its reporting currency to U.S. dollars (“US$”) upon adoption of U.S. GAAP. The change in reporting currencies has a material impact on the Company’s financial statements for all periods presented. DIRTT continues to consolidate the Company and its subsidiaries’ financial statements in Canadian dollars (“C$”), the Company’s functional currency, and translates the assets and liabilities at the period end rate which results in period-on-period translation adjustments recorded in comprehensive income from the impact of the change in exchange rate on net assets. 

The following discussion has been prepared using the Accounting Standards Codifications (“ASCs”), Accounting Standards Updates (“ASUs”) and interpretations currently issued and expected to be effective at the end of the Company’s first U.S. GAAP annual reporting period, December 31, 2019.  Management does not expect the adoption of U.S. GAAP to have a material impact on the Company’s business activities or cash flows; however, it will impact certain aspects of the reported financial results, the more significant of which are described as follows:

1.    Accounting for intangible assets and software development costs

Under U.S. GAAP, product development costs are not eligible for capitalization, and therefore the initial value of the Company’s intangible assets is lower as compared to IFRS.  This change also has the impact of reducing net income and Adjusted EBITDA (see Non-GAAP measures) as product development costs are expensed as incurred. This change has also resulted in a reduction in the impairment charges recognized in 2018 as development costs for the DIRTT for Life and DIRTT Timber lines of business would have been previously expensed as incurred under U.S. GAAP and therefore not subject to impairment. 

Under U.S. GAAP, software development costs are capitalized as internal use software in accordance with ASC 350 – Intangibles Goodwill and Other, with no material differences to the accounting treatment under IFRS. 

2.     Amounts included in cost of sales

Certain of the Company’s fixed costs were treated as overhead items under IFRS and accounted for as operating expenditures.  Under U.S. GAAP, these costs are presented within cost of sales as they relate to the production of DIRTT solutions.  The impact of this is a reclassification of US$8 to US$9 million (including US$4 million to US$5 million of depreciation and amortization) annually from operating costs to cost of sales with a corresponding 3% to 4% reduction in gross profit. This change is an adjustment within the statement of operations only; there is no impact to net income or Adjusted EBITDA (see Non-GAAP measures) as compared to amounts previously reported under IFRS.

3.    Adoption of ASC 842 Leases (“ASC 842”) and onerous lease accruals

On January 1, 2019, DIRTT adopted IFRS 16 – Leases (“IFRS 16”), which had a material impact on DIRTT’s balance sheet and cash flows, and Adjusted EBITDA (see Non-GAAP measures). The impact is described in DIRTT’s unaudited condensed consolidated interim financial statements and management’s discussion and analysis for the first and second quarters of 2019, previously filed on SEDAR.  Consistent with IFRS 16, the adoption of ASC 842 had a material impact on the Company’s balance sheet, resulting in the recognition of US$23 million of right-of-use (“ROU”) assets and associated US$24 million lease liabilities as at January 1, 2019.  Under U.S. GAAP, the charge on the statement of operations is accounted for as rent expense on a straight-line basis.  This treatment is different from that under IFRS, which classifies the expense as depreciation of the ROU asset and interest expense for the accretion of the lease liability. 

This difference results in changes to cash flows from operations and Adjusted EBITDA (see Non-GAAP measures) from January 1, 2019 forward with minimal change in net income.   In 2019, cash flows from operations are lower under U.S. GAAP as lease payments are classified as operating expenditures rather than as financing expenditures under IFRS.  Adjusted EBITDA (see Non-GAAP measures) is lower from January 1, 2019 forward as a result of the change in classification of the expense from depreciation and interest under IFRS to lease expense under US GAAP.  

Additionally, the Company recognized a provision of C$1.8 million for an onerous lease under IFRS in 2018.  Under US GAAP, this provision would not be recognized.

4.    Stock-based compensation

During 2018, the Company modified its employee stock option plan to provide a cash settlement alternative to its employees in connection with the exercise of stock options.  At period end under U.S. GAAP, the liability is adjusted to fair value and the excess of fair value over previously recognized stock-based compensation is expensed.  Increases or decreases in fair value subsequent to the modification date of the stock option plan will be recorded in earnings, except that the Company may not recognize a cumulative expense lower than the grant date fair value of the original equity awards. IFRS does not have the ‘previously recognized’ thresholds in modification accounting, which has resulted in a C$2.1 million increase in stock-based compensation charges in 2018.

Additionally, U.S. GAAP allows for a policy choice for graded or straight-line attribution of stock-based compensation expense, whereas IFRS requires stock options to be expensed using the graded vesting methodology only.  On adoption of US GAAP, the Company’s management has elected to use the straight-line methodology to be more comparable with U.S. peer companies. This change resulted in a C$0.9 million increase to stock-based compensation expense for the year-ended December 31, 2018.

5.    Other items, presentation and disclosures

The Company has disclosed other items in its reconciliation from IFRS to US GAAP, which include adjustments that are considered individually immaterial to the financial statements.

The Company has incorporated changes to the presentation and disclosure of certain items in the consolidated balance sheets, statements of operations, comprehensive loss and cash flows, and notes to the consolidated financial statements to conform to the requirements of the applicable ASCs, ASUs and, if applicable, U.S. securities laws and the rules of the United States Securities and Exchange Commission.

The following is an unaudited tabular reconciliation from IFRS to US GAAP:

Q2 2019: Statement of Operations for the three-month period ended June 30, 2019 (unaudited)

  IFRS
C$
Opening
Adjs
Intangible
Assets
Cost of
Sales
Leases
and
Onerous
Contracts
Stock
Based
Comp
OtherAdjusted
C$
US
GAAP
US$
Product revenue81,808-157----81,96561,273
Service revenue3,769------3,7692,818
Total revenue85,577-157----85,73464,091
Product cost of sales47,079--2,554---49,63337,102
Service cost of sales3,048--386---3,4342,568
Total cost of sales50,127--2,940---53,06739,670
Gross profit35,450-157(2,940)---32,66724,421
Operating expenses29,050-(135)(2,940)325--26,30019,660
Operating income6,400-292-(325)--6,3674,761
Foreign exchange loss591------591441
Interest income(51)------(51)(38)
Interest expense402---(368)--3425
Net income before tax5,458-292-43--5,7934,333
Current tax1,251------1,251936
Deferred tax1,223-79---(250)1,052786
Net income2,984-213-43-2503,4902,611
Exchange differences on foreign ops(1,712)------(1,712)1,276
Comprehensive income1,272-213-43-2501,7783,887
Net income per share0.03      0.040.03
          

Q2 2019: Adjusted EBITDA for the three-month period ended June 30, 2019 (unaudited, see Non-GAAP measures)

  IFRS
C$
Opening
Adjs
Intangible
Assets
Cost of
Sales
Leases
and
Onerous
Contracts
Stock
Based
Comp
OtherAdjusted
C$
US
GAAP
US$
Net income2,984-213-43-2503,4902,611
Interest expense402---(368)--3425
Interest income(51)------(51)(38)
Income tax expense2,474-79---(250)2,3031,722
Depreciation on ROU assets1,386---(1,386)----
Depreciation and amortization4,166-(233)----3,9332,940
EBITDA11,361-59-(1,711)--9,7097,260
Stock based compensation(2,212)------(2,212)(1,655)
Adjusted EBITDA9,149-59-(1,711)--7,4975,605
Adjusted EBITDA %10.7%      8.7%8.7%
          

Q2 2019: Statement of Operations for the six-month period ended June 30, 2019 (unaudited)

  IFRS
C$
Opening
Adjs
Intangible
Assets
Cost of
Sales
Leases
and
Onerous
Contracts
Stock
Based
Comp
OtherAdjusted
C$
US
GAAP
US$
Product revenue166,516-324----166,840125,113
Service revenue5,392------5,3924,039
Total revenue171,908-324----172,232129,152
Product cost of sales97,450--5,453---102,90377,170
Service cost of sales4,895--386---5,2813,957
Total cost of sales102,345--5,839---108,18481,127
Gross profit69,563-324(5,839)---64,04848,025
Operating expenses69,989-(170)(5,839)608(571)-64,01748,029
Operating income(426)-494-(608)571-31(4)
Foreign exchange loss1,280------1,280960
Interest income(123)------(123)(92)
Interest expense811---(712)--9974
Net income before tax(2,394)-494-104571-(1,225)(946)
Current tax1,454------1,4541,088
Deferred tax983-134--(36)(250)831620
Net income (loss)(4,831)-360-104607250(3,510)(2,654)
Exchange differences on foreign ops(2,399)------(2,399)3,372
Comprehensive income(7,230)-360-104607250(5,909)718
Net income per share(0.06)      (0.04)(0.03)
          

Q2 2019: Adjusted EBITDA for the six-month period ended June 30, 2019 (unaudited, see Non-GAAP measures)

  IFRS
C$
Opening
Adjs
Intangible
Assets
Cost of
Sales
Leases
and
Onerous
Contracts
Stock
Based
Comp
OtherAdjusted
C$
US
GAAP
US$
Net income (loss)(4,831)-360-104607250(3,510)(2,654)
Interest expense811---(712)--9974
Interest income(123)------(123)(92)
Income tax expense2,437-134--(36)(250)2,2851,708
Depreciation on ROU assets2,805---(2,805)----
Depreciation and amortization8,906-(459)----8,4476,335
EBITDA10,005-35-(3,413)571-7,1985,371
Stock based compensation6,930----(571)-6,3594,792
Foreign exchange on debt revaluation(280)------(280)(211)
Reorganization expense3,508------3,5082,639
Adjusted EBITDA20,163-35-(3,413)--16,78512,591
Adjusted EBITDA %11.7%      9.7%9.7%
          

Q2 2019: Balance Sheet as at June 30, 2019 (unaudited)

  IFRS
C$
Opening
Adjs
Intangible
Assets
Cost
of
Sales
Leases
and
Onerous
Contracts
Stock
Based
Comp
OtherAdjusted
C$
US
GAAP
US$
ASSETS         
Current Assets         
Cash and cash equivalents76,868------76,86858,736
Trade and other receivables37,280------37,28028,487
Inventory24,488------24,48818,712
Prepaids and other current assets2,927------2,9272,236
Total Current Assets141,563------141,563108,171
Property, plant and equipment, net47,207------47,20736,072
Intangible assets18,620(18,922)302------
Capitalized software, net-11,371(325)----11,0468,442
Right of use assets25,909---1,578--27,48721,004
Deferred tax assets, net6,278(321)(134)--352506,1084,665
Goodwill1,845------1,8451,410
Other assets2,3094,79054----7,1535,465
Total Assets243,731(3,082)(103)-1,57835250242,409185,229
LIABILITIES         
Current Liabilities         
Accounts payable and accrued liabilities30,413(1,974)-----28,43921,730
Other liabilities9,990------9,9907,615
Customer deposits9,785674(465)----9,9947,638
Current lease liabilities5,347---783--6,1304,685
Total Current Liabilities55,535(1,300)(465)-783--54,55341,668
Other liabilities1,523246--1,432--3,2012,465
Long-term lease liabilities23,352---(742)--22,61017,277
Total Liabilities80,410(1,054)(465)-1,473--80,36461,410
SHAREHOLDERS' EQUITY         
Common shares198,575295-----198,870180,579
Additional paid-in capital8,1611,174---(571)-8,7646,185
Accumulated other comprehensive income4,008(2,093)-----1,915(18,720)
Accumulated deficit(47,423)(1,404)362-105606250(47,504)(44,225)
Total Shareholders' Equity163,321(2,028)362-10535250162,045123,819
Total Liabilities and Shareholders' Equity243,731(3,082)(103)-1,57835250242,409185,229
          

Q1 2019: Statement of Operations for the three-month period ended March 31, 2019 (unaudited)

  IFRS
C$
Opening
Adjs
Intangible
Assets
Cost of
Sales
Leases
and
Onerous
Contracts
Stock
Based
Comp
OtherAdjusted
C$
US
GAAP
US$
Product revenue84,708-167----84,87563,840
Service revenue1,623------1,6231,221
Total revenue86,331-167----86,49865,061
Product cost of sales50,371--2,899---53,27040,068
Service cost of sales1,847------1,8471,389
Total cost of sales52,218--2,899---55,11741,457
Gross profit34,113-167(2,899)---31,38123,604
Operating expenses40,939-(35)(2,899)283(571)-37,71728,369
Operating income(6,826)-202-(283)571-(6,336)(4,765)
Foreign exchange loss689------689519
Interest income(72)------(72)(54)
Interest expense409---(344)--6549
Net income before tax(7,852)-202-61571-(7,018)(5,279)
Current tax203------203152
Deferred tax(240)-55--(36)-(221)(166)
Net income(7,815)-147-61607-(7,000)(5,265)
Exchange differences on foreign ops(687)------(687)2,096
Comprehensive income(8,502)-147-61607-(7,687)(3,169)
Net income per share(0.09)-0.00-0.000.01-(0.08)(0.06)
          

Q1 2019: Adjusted EBITDA for the three-month period ended March 31, 2019 (unaudited, see Non-GAAP measures)

  IFRS
C$
Opening
Adjs
Intangible
Assets
Cost
of
Sales
Leases
and
Onerous
Contracts
Stock
Based
Comp
OtherAdjusted
C$
US
GAAP
US$
Net income(7,815)-147-61607-(7,000)(5,265)
Interest expense409---(344)--6549
Interest income(72)------(72)(54)
Income tax expense(37)-55--(36)-(18)(14)
Depreciation on ROU assets1,419---(1,419)----
Depreciation and amortization4,740-(226)----4,5143,395
EBITDA(1,356)-(24)-(1,702)571-(2,511)(1,889)
Stock based compensation9,142----(571)-8,5716,447
Foreign exchange on debt revaluation(280)------(280)(211)
Reorganization costs3,508------3,5082,639
Adjusted EBITDA11,014-(24)-(1,702)--9,2886,986
Adjusted EBITDA %12.8%      10.7%10.7%
          

Q1 2019: Balance Sheet as at March 31, 2019 (unaudited)

  IFRS
C$
Opening
Adjs
Intangible
Assets
Cost
of
Sales
Leases
and
Onerous
Contracts
Stock
Based
Comp
OtherAdjusted
C$
US
GAAP
US$
ASSETS         
Current Assets         
Cash and cash equivalents72,239------72,23954,059
Trade and other receivables49,686------49,68637,182
Inventory24,650------24,65018,447
Prepaids and other current assets3,408------3,4082,550
Total Current Assets149,983------149,983112,238
Property, plant and equipment, net48,170------48,17036,048
Intangible assets18,270(18,922)652------
Capitalized software, net-11,371(575)----10,7968,079
Right of use assets27,590---1,549--29,13921,805
Deferred tax assets, net7,722(321)(55)--35-7,3815,522
Goodwill1,845------1,8451,381
Other assets2,2024,790(141)----6,8515,126
Total Assets255,782(3,082)(119)-1,54935-254,165190,199
LIABILITIES         
Current Liabilities         
Accounts payable and accrued liabilities37,093(1,974)-----35,11926,281
Other liabilities16,712------16,71213,771
Customer deposits7,829674(267)----8,2366,163
Current lease liabilities5,943---(49)--5,8944,410
Total Current Liabilities67,577(1,300)(267)-(49)--65,96150,625
Other liabilities1,424246--1,432--3,1021,056
Long-term lease liabilities24,749---105--24,85418,599
Total Liabilities93,750(1,054)(267)-1,488--93,91770,280
SHAREHOLDERS' EQUITY         
Common shares198,558295-----198,853180,566
Additional paid-in capital8,1611,174---(571)-8,7646,185
Accumulated other comprehensive income5,720(2,093)-----3,627(19,996)
Accumulated deficit(50,407)(1,404)148-61606-(50,996)(46,836)
Total Shareholders' Equity162,032(2,028)148-6135-160,248119,919
Total Liabilities and Shareholders' Equity255,782(3,082)(119)-1,54935-254,165190,199
          

Q4 2018: Statement of Operations for the year ended December 31, 2018 (unaudited):

  IFRS
C$
Opening
Adjs
Intangible
Assets
Cost of
Sales
Leases
and
Onerous
Contracts
Stock
Based
Comp
OtherAdjusted
C$
US
GAAP
US$
Product revenue346,028-(296)----345,732266,434
Service revenue10,651------10,6518,247
Total revenue356,679-(296)----356,383274,681
Product cost of sales199,329--10,738---210,067161,844
Service cost of sales7,527------7,5275,828
Total cost of sales206,856--10,738---217,594167,672
Gross profit149,823-(296)(10,738)---138,789107,009
Operating expenses148,483-(7,501)(10,738)(1,729)2,997-131,512101,315
Operating income1,340-7,205-1,729(2,997)-7,2775,694
Foreign exchange gain(3,280)-----(917)(4,197)(3,214)
Interest income(550)------(550)(425)
Interest expense655------655503
Net income before tax4,515-7,205-1,729(2,997)91711,3698,830
Current tax2,798------2,7982,178
Deferred tax(1,280)-1,941-467362471,4111,102
Net income (loss)2,997-5,264-1,262(3,033)6707,1605,550
Exchange differences on foreign ops434-----292726(9,980)
Comprehensive income3,431-5,264-1,262(3,033)9627,886(4,430)
Net income per share0.04      0.080.07
          

Q4 2018: Adjusted EBITDA for the year ended December 31, 2018 (unaudited, see Non-GAAP measures):

  IFRS
C$
Opening
Adjs
Intangible
Assets
Cost
of
Sales
Leases
and
Onerous
Contracts
Stock
Based
Comp
OtherAdjusted
C$
US
GAAP
US$
Net income2,997-5,264-1,262(3,033)6707,1605,550
Interest expense655------655503
Interest income(550)------(550)(425)
Income tax expense1,518-1,941-467362474,2093,280
Depreciation and amortization19,474-(1,717)----17,75713,699
EBITDA24,094-5,488-1,729(2,997)91729,23122,607
Stock based compensation1,761----2,997-4,7583,661
Foreign exchange on debt revaluation741------741546
Impairment expense19,975-(6,864)-(1,729)--11,3828,680
Reorganization costs9,600------9,6007,380
Adjusted EBITDA56,171-(1,376)---91755,71242,874
Adjusted EBITDA %15.7%      15.6%15.6%
          

Q4 2018: Balance Sheet as at December 31, 2018 (unaudited)

  IFRS
C$
Opening
Adjs
Intangible
Assets
Cost
of
Sales
Leases
and
Onerous
Contracts
Stock
Based
Comp
OtherAdjusted
C$
US
GAAP
US$
          
ASSETS         
Current Assets         
Cash and cash equivalents72,865------72,86553,412
Trade and other receivables59,852------59,85243,873
Inventory25,442------25,44218,650
Prepaids and other current assets3,025------3,0252,217
Total Current Assets161,184------161,184118,152
Property, plant and equipment, net50,104------50,10436,728
Intangible assets18,922(24,718)5,796------
Capitalized software, net-10,440931----11,3718,335
Deferred tax assets, net8,6181,162(1,941)-(467)(36)9628,2976,083
Goodwill1,845------1,8451,353
Other assets2,3854,313477----7,1755,260
Total Assets243,058(8,803)5,263-(467)(36)962239,977175,911
LIABILITIES         
Current Liabilities         
Trade accounts payable and other liabilities42,673------42,67331,283
Other liabilities9,262-(283)-327--9,3066,823
Customer deposits9,832674-----10,5067,701
Current portion of long-term debt3,411------3,4112,500
Total Current Liabilities65,178674(283)-327--65,89648,307
Deferred tax liabilities, net1,3142-----1,316965
Other liabilities1,773---(1,773)----
Long-term debt4,263------4,2633,125
Total Liabilities72,528676(283)-(1,446)--71,47552,397
SHAREHOLDERS' EQUITY         
Common shares198,552295-----198,847180,562
Additional paid-in capital8,163(1,824)1,167-(283)2,114-9,3376,615
Accumulated other comprehensive income6,407(2,385)----2924,314(22,092)
Accumulated deficit(42,592)(5,565)4,379-1,262(2,150)669(43,996)(41,571)
Total Shareholders' Equity170,530(9,479)5,546-979(36)962168,502123,514
Total Liabilities and Shareholders' Equity243,058(8,803)5,263-(467)(36)962239,977175,911
          

Q3 2018: Statement of Operations for the three-month period ended September 30, 2018 (unaudited)

  IFRS
C$
Opening
Adjs
Intangible
Assets
Cost
of
Sales
Leases
and
Onerous
Contracts
Stock
Based
Comp
OtherAdjusted
C$
US
GAAP
US$
Product revenue93,738------93,73871,720
Service revenue2,866------2,8662,193
Total revenue96,604------96,60473,913
Product cost of sales52,500--2,658---55,15842,202
Service cost of sales2,128------2,1281,628
Total cost of sales54,628--2,658---57,28643,830
Gross profit41,976--(2,658)---39,31830,083
Operating expenses47,786-(7,120)(2,658)-1,769-39,77730,435
Operating income(5,810)-7,120--(1,769)-(459)(352)
Foreign exchange (gain) loss(73)-----598525400
Interest income(132)------(132)(101)
Interest expense127------12797
Net income before tax(5,732)-7,120--(1,769)(598)(979)(748)
Current tax1,495------1,4951,144
Deferred tax(2,360)-1,919---(162)(603)(461)
Net income (loss)(4,867)-5,201--(1,769)(436)(1,871)(1,431)
Exchange differences on foreign ops(2,293)-----1,807(486)1,783
Comprehensive income(7,160)-5,201--(1,769)1,371(2,357)352
Net income per share(0.06)      (0.02)(0.02)
          

Q3 2018: Adjusted EBITDA for the three-month period ended September 30, 2018 (unaudited, see Non-GAAP measures)

  IFRS
C$
Opening
Adjs
Intangible
Assets
Cost
of
Sales
Leases
and
Onerous
Contracts
Stock
Based
Comp
OtherAdjusted
C$
US
GAAP
US$
Net income (loss)(4,867)-5,201--(1,769)(436)(1,871)(1,433)
Interest expense127----- 12797
Interest income(132)------(132)(101)
Income tax expense(865)-1,919---(162)892683
Depreciation and amortization5,010-(378)----4,6323,545
EBITDA(727)-6,742--(1,769)(598)3,6482,791
Stock based compensation893----1,769-2,6622,037
Foreign exchange on debt revaluation(134)------(134)(100)
Impairment expense14,834-(6,864)----7,9706,098
Reorganization costs2,923------2,9232,236
Other(1)-----1--
Adjusted EBITDA17,789-(122)---(597)17,07013,062
Adjusted EBITDA %18.4%      17.7%17.7%
          

Q3 2018: Statement of Operations for the nine-month period ended September 30, 2018 (unaudited):

  IFRS
C$
Opening
Adjs
Intangible
Assets
Cost
of
Sales
Leases
and
Onerous
Contracts
Stock
Based
Comp
OtherAdjusted
C$
US
GAAP
US$
Product revenue249,196------249,196193,378
Service revenue8,823------8,8236,863
Total revenue258,019------258,019200,241
Product cost of sales141,559--7,853---149,412115,941
Service cost of sales6,317------6,3174,912
Total cost of sales147,876--7,853---155,729120,853
Gross profit110,143--(7,853)---102,29079,388
Operating expenses109,052-(7,404)(7,853)-2,545-96,34074,698
Operating income1,091-7,404--(2,545)-5,9504,690
Foreign exchange (gain) loss(96)-----(917)(1,013)(805)
Interest income(421)------(421)(327)
Interest expense387------387300
Net income before tax1,221-7,404--(2,545)9176,9975,522
Current tax3,531------3,5312,732
Deferred tax(1,783)-1,995---247459381
Net income (loss)(527)-5,409--(2,545)6703,0072,409
Exchange differences on foreign ops(86)-----292206(3,801)
Comprehensive income(613)-5,409--(2,545)9623,213(1,392)
Net income per share(0.01)      0.040.03
          

Q3 2018: Adjusted EBITDA for the nine-month period ended June 30, 2019 (unaudited, see Non-GAAP measures)

  IFRS
C$
Opening
Adjs
Intangible
Assets
Cost
of
Sales
Leases
and
Onerous
Contracts
Stock
Based
Comp
OtherAdjusted
C$
US
GAAP
US$
Net income (loss)(527)-5,409--(2,545)6703,0072,407
Interest expense387------387300
Interest income(421)------(421)(327)
Income tax expense1,748-1,995---2473,9903,113
Depreciation and amortization14,706-(1,385)----13,32110,343
EBITDA15,893-6,019--(2,545)91720,28415,836
Stock based compensation1,567----2,545-4,1123,172
Foreign exchange on debt revaluation397------397313
Impairment expense14,834-(6,864)----7,9706,098
Reorganization costs5,987------5,9874,646
Other(1)-----1--
Adjusted EBITDA38,678-(845)---91838,75130,065
Adjusted EBITDA %15.0%      15.0%15.0%
          

Q2 2018: Statement of Operations for the three-month period ended June 30, 2018 (unaudited)

  IFRS
C$
Opening
Adjs
Intangible
Assets
Cost
of
Sales
Leases
and
Onerous
Contracts
Stock
Based
Comp
OtherAdjusted
C$
US
GAAP
US$
Product revenue78,177------78,17760,552
Service revenue2,489------2,4891,928
Total revenue80,666------80,66662,480
Product cost of sales46,185--2,630---48,81537,809
Service cost of sales1,730------1,7301,340
Total cost of sales47,915--2,630---50,54539,149
Gross profit32,751--(2,630)---30,12123,331
Operating expenses30,952-(149)(2,630)-423-28,59622,151
Operating income1,799-149--(423)-1,5251,180
Foreign exchange (gain) loss120-----(727)(607)(469)
Interest income(145)------(145)(112)
Interest expense129------12999
Net income before tax1,695-149--(423)7272,1481,662
Current tax1,312------1,3121,015
Deferred tax(395)-40---196(159)(123)
Net income (loss)778-109--(423)531995770
Exchange differences on foreign ops1,056-----(727)329(2,368)
Comprehensive income1,834-109--(423)(196)1,324(1,598)
Net income per share0.01      0.010.01
          

Q2 2018: Adjusted EBITDA for the three-month period ended June 30, 2018 (unaudited, see Non-GAAP measures)

  IFRS
C$
Opening
Adjs
Intangible
Assets
Cost
of
Sales
Leases
and
Onerous
Contracts
Stock
Based
Comp
OtherAdjusted
C$
US
GAAP
US$
Net income (loss)778-109--(423)531995770
Interest expense129------12999
Interest income(145)------(145)(112)
Income tax expense917-40---1961,153892
Depreciation and amortization4,997-(510)----4,4873,475
EBITDA6,676-(361)--(423)7276,6195,124
Stock based compensation305----423-728564
Foreign exchange on debt revaluation207------207160
Reorganization costs986------986764
Adjusted EBITDA8,174-(361)---7278,5406,612
Adjusted EBITDA %10.1%      10.6%10.6%
          

Q2 2018: Statement of Operations for the six-month period ended June 30, 2018 (unaudited)

  IFRS
C$
Opening
Adjs
Intangible
Assets
Cost of
Sales
Leases
and
Onerous
Contracts
Stock
Based
Comp
OtherAdjusted
C$
US
GAAP
US$
Product revenue155,458------155,458121,658
Service revenue5,957------5,9574,670
Total revenue161,415------161,415126,328
Product cost of sales89,059--5,195---94,25473,739
Service cost of sales4,189------4,1893,284
Total cost of sales93,248--5,195---98,44377,023
Gross profit68,167--(5,195)---62,97249,305
Operating expenses61,266-(284)(5,195)-776-56,56344,263
Operating income6,901-284--(776)-6,4095,042
Foreign exchange (gain) loss(23)-----(1,515)(1,538)(1,205)
Interest income(289)------(289)(226)
Interest expense260------260203
Net income before tax6,953-284--(776)1,5157,9766,270
Current tax2,036------2,0361,588
Deferred tax577-76---4091,062842
Net income (loss)4,340-208--(776)1,1064,8783,840
Exchange differences on foreign ops2,207-----(1,515)692(5,584)
Comprehensive income6,547-208--(776)(409)5,570(1,744)
Net income per share0.05      0.060.05
          

Q2 2018: Adjusted EBITDA for the six-month period ended June 30, 2018 (unaudited, see Non-GAAP measures)

  IFRS
C$
Opening
Adjs
Intangible
Assets
Cost of
Sales
Leases
and
Onerous
Contracts
Stock
Based
Comp
OtherAdjusted
C$
US
GAAP
US$
Net income (loss)4,340-208--(776)1,1064,8783,840
Interest expense260------260203
Interest income(289)------(289)(226)
Income tax expense2,613-76---4093,0982,430
Depreciation and amortization9,696-(1,007)----8,6896,798
EBITDA16,620-(723)--(776)1,51516,63613,045
Stock based compensation674----776-1,4501,135
Foreign exchange on debt revaluation531------531413
Reorganization costs3,064------3,0642,410
Adjusted EBITDA20,889-(723)---1,51521,68117,003
Adjusted EBITDA %12.9%      13.5%13.5%
          

Q1 2018: Statement of Operations for the three-month period ended March 31, 2018 (unaudited)

  IFRS
C$
Opening
Adjs
Intangible
Assets
Cost
of
Sales
Leases
and
Onerous
Contracts
Stock
Based
Comp
OtherAdjusted
C$
US
GAAP
US$
Product revenue77,281------77,28161,106
Service revenue3,468------3,4682,742
Total revenue80,749------80,74963,848
Product cost of sales42,874--2,565---45,43935,930
Service cost of sales2,459------2,4591,944
Total cost of sales45,333--2,565---47,89837,874
Gross profit35,416--(2,565)---32,85125,974
Operating expenses30,314-(135)(2,565)-353-27,96722,112
Operating income5,102-135--(353)-4,8843,862
Foreign exchange gain(143)-----(788)(931)(736)
Interest income(144)------(144)(114)
Interest expense131------131104
Net income before tax5,258-135--(353)7885,8284,608
Current tax724------724573
Deferred tax972-36---2131,221965
Net income (loss)3,562-99--(353)5753,8833,070
Exchange differences on foreign ops1,151-----(788)363(3,216)
Comprehensive income4,713-99--(353)(213)4,246(146)
Net income per share0.04      0.050.04
          

Q1 2018: Adjusted EBITDA for the three-month period ended March 31, 2018 (unaudited, see Non-GAAP measures)

  IFRS
C$
Opening
Adjs
Intangible
Assets
Cost
of
Sales
Leases
and
Onerous
Contracts
Stock
Based
Comp
OtherAdjusted
C$
US
GAAP
US$
Net income (loss)3,562-99--(353)5753,8833,070
Interest expense131------131104
Interest income(144)------(144)(114)
Income tax expense1,696-36---2131,9451,538
Depreciation and amortization4,699-(497)----4,2023,323
EBITDA9,944-(362)--(353)78810,0177,921
Stock based compensation369----353-722571
Foreign exchange on debt revaluation324------324253
Reorganization costs2,078------2,0781,646
Adjusted EBITDA12,715-(362)---78813,14110,391
Adjusted EBITDA %15.7%      16.3%16.3%
          

Q4 2017: Statement of Operations for the year ended December 31, 2017 (unaudited)

  IFRS
C$
Opening
Adjs
Intangible
Assets
Cost of
Sales
Leases
and
Onerous
Contracts
Stock
Based
Comp
OtherAdjusted
C$
US
GAAP
US$
Product revenue280,100-(258)----279,842216,216
Service revenue13,324------13,32410,323
Total revenue293,424-(258)----293,166226,539
Product cost of sales158,345--11,683---170,028131,326
Service cost of sales12,535------12,5359,724
Total cost of sales170,880--11,683---182,563141,050
Gross profit122,544-(258)(11,683)---110,60385,489
Operating expenses128,352-2,265(11,683)-337-119,27191,990
Operating income(5,808)-(2,523)--(337)-(8,668)(6,501)
Foreign exchange loss6-----864870665
Interest income(519)------(519)(399)
Interest expense610-----40650500
Net loss before tax(5,905)-(2,523)--(337)(904)(9,669)(7,267)
Current tax4,276------4,2763,277
Deferred tax(2,772)-(680)--(70)(233)(3,756)(2,819)
Net loss(7,409)-(1,843)--(267)(671)(10,189)(7,725)
Exchange differences on foreign ops(2,746)-----1,179(1,567)7,417
Comprehensive income(10,155)-(1,843)--(267)508(11,756)(308)
Net loss per share(0.09)      (0.12)(0.09)
          

Q4 2017: Adjusted EBITDA for the year ended December 31, 2017 (unaudited, see Non-GAAP measures)

  IFRS
C$
Opening
Adjs
Intangible
Assets
Cost
of
Sales
Leases
and
Onerous
Contracts
Stock
Based
Comp
OtherAdjusted
C$
US
GAAP
US$
Net loss(7,409)-(1,843)--(267)(671)(10,189)(7,725)
Interest expense610-----40650500
Interest income(519)------(519)(399)
Income tax expense1,504-(680)--(70)(233)521458
Depreciation and amortization17,916-(1,231)----16,68512,856
EBITDA12,103-(3,754)--(337)(864)7,1485,690
Stock based compensation3,233----337-3,5712,738
FX on debt revaluation(945)------(945)(731)
Reorganization costs1,453------1,4531,143
Adjusted EBITDA15,844-(3,754)---(864)11,2268,840
Adjusted EBITDA %5.4%      3.8%3.9%
          

Q4 2017: Balance Sheet as at December 31, 2017 (unaudited)

  IFRS
C$
Opening
Adjs
Intangible
Assets
Cost
of
Sales
Leases
and
Onerous
Contracts
Stock
Based
Comp
OtherAdjusted
C$
US
GAAP
US$
ASSETS         
Current Assets         
Cash and cash equivalents79,641------79,64163,484
Trade and other receivables24,133------24,13319,237
Inventory24,297------24,29719,368
Prepaids and other current assets2,549------2,5492,032
Total Current Assets130,620------130,620104,121
Property, plant and equipment, net60,860------60,86048,513
Intangible assets24,718(19,961)(4,757)------
Capitalized software, net-8,7281,712----10,4408,322
Deferred tax assets, net8,365(136)680--705489,5277,594
Goodwill1,845------1,8451,471
Other assets1,2283,791522----5,5414,417
Total Assets227,636(7,578)(1,843)--70548218,833174,438
LIABILITIES         
Current Liabilities         
Trade accounts payable and accrued liabilities34,599------34,59927,580
Other liabilities3,494------3,4942,785
Customer deposits7,325674-----7,9996,376
Current portion of long-term debt5,715------5,7154,556
Total Current Liabilities51,133674-----51,80741,297
Deferred tax liabilities, net1,2483-----1,251997
Long-term debt7,057------7,0575,625
Total Liabilities59,438677-----60,11447,919
SHAREHOLDERS' EQUITY         
Common shares195,65625441----195,951178,397
Additional paid-in capital12,158(2,161)337----10,3347,355
Accumulated other comprehensive income5,973(3,564)----1,1793,588(12,112)
Accumulated deficit(45,589)(2,784)(2,221)--70(631)(51,154)(47,121)
Total Shareholders' Equity168,198(8,255)(1,843)--70548158,718126,519
Total Liabilities and Shareholders' Equity227,636(7,578)(1,843)--70548218,833174,438
          

Q4 2016: Statement of Operations for the year ended December 31, 2016 (unaudited)

  IFRS
C$
Opening
Adjs
Intangible
Assets
Cost of
Sales
Leases
and
Onerous
Contracts
Stock
Based
Comp
OtherAdjusted
C$
US
GAAP
US$
Product revenue260,563-(263)----260,300196,482
Service revenue6,467------6,4674,882
Total revenue267,030-(263)----266,767201,364
Product cost of sales144,638--11,159---155,797117,600
Service cost of sales6,120------6,1204,620
Total cost of sales150,758--11,159---161,917122,220
Gross profit116,272-(263)(11,159)---104,85079,144
Operating expenses103,602-3,499(11,159)-(404)-95,53872,114
Operating income12,670-(3,762)--404-9,3127,030
Foreign exchange (gain) loss800-----(226)574433
Interest income(605)------(605)(457)
Interest expense339-----(57)282213
Net income (loss) before tax12,136-(3,762)--4042839,0616,841
Current tax4,102------4,1023,096
Deferred tax750-(1,016)---61(205)(154)
Net income (loss)7,284-(2,746)--4042215,1643,899
Exchange differences on foreign ops(558)-----(78)(636)2,997
Comprehensive income6,726-(2,746)--4041434,5286,896
Net income per share0.09      0.060.05
          

Q4 2016: Adjusted EBITDA for the year ended December 31, 2016 (unaudited, see Non-GAAP measures)

  IFRS
C$
Opening
Adjs
Intangible
Assets
Cost
of
Sales
Leases
and
Onerous
Contracts
Stock
Based
Comp
OtherAdjusted
C$
US
GAAP
US$
Net income (loss)7,284-(2,746)--4042215,1643,899
Interest expense339-----(57)282213
Interest income(605)------(605)(457)
Income tax expense4,852-(1,016)---613,8982,942
Depreciation and amortization15,485-(349)----15,13611,425
EBITDA27,355-(4,111)--40422623,87418,022
Stock based compensation3,817----(404)-3,4132,576
Foreign exchange on debt revaluation57------5743
Adjusted EBITDA31,230-(4,111)---22627,34520,641
Adjusted EBITDA %11.7%      10.3%10.3%
          

Non-GAAP Measures

Our consolidated financial statements are prepared in accordance with GAAP. These GAAP financial statements include noncash charges and other charges and benefits that we believe are unusual or infrequent in nature or that we believe may make comparisons to our prior or future performance difficult.

As a result, we also provide financial information, as shown in this release, that is not prepared in accordance with GAAP and should not be considered as an alternative to the information prepared in accordance with GAAP. Management uses these non-GAAP financial measures in its review and evaluation of the financial performance of the Company. We believe that these non-GAAP financial measures also provide additional insight to investors and securities analysts as supplemental information to our GAAP results and as a basis to compare our financial performance from period to period and to compare our financial performance with that of other companies. We believe that these non-GAAP financial measures facilitate comparisons of our core operating results from period to period and to other companies by removing the effects of our capital structure (net interest income on cash deposits, interest expense on outstanding debt, or foreign exchange movements on debt revaluation), asset base (depreciation and amortization), tax consequences and stock-based compensation. In addition, management bases certain forward-looking estimates and budgets on non-GAAP financial measures, primarily Adjusted EBITDA.

Reorganization expenses, impairment expenses, depreciation and amortization, and stock-based compensation are excluded from our non-GAAP financial measures because management considers them to be outside of the Company’s core operating results, even though some of those expenses may recur, and because management believes that each of these items can distort the trends associated with the Company’s ongoing performance. We believe that excluding these expenses provides investors and management with greater visibility to the underlying performance of the business operations, enhances consistency and comparativeness with results in prior periods that do not, or future periods that may not, include such items, and facilitates comparison with the results of other companies in our industry.

The following non-GAAP financial measures are presented in this release with a reconciliation to the GAAP financial measure, and a description of the calculation for each measure is included.

EBITDANet income before interest, taxes, depreciation and amortization
Adjusted EBITDAEBITDA adjusted for non-cash foreign exchange gains or losses on debt revaluation; impairment expenses; stock-based compensation expense; reorganization expenses; and any other non-core gains or losses
Adjusted EBITDA MarginAdjusted EBITDA divided by revenue

You should carefully evaluate these non-GAAP financial measures, the adjustments included in them, and the reasons we consider them appropriate for analysis supplemental to our GAAP information. Each of these non-GAAP financial measures has important limitations as an analytical tool due to exclusion of some but not all items that affect the most directly comparable GAAP financial measures. You should not consider any of these non-GAAP financial measures in isolation or as substitutes for an analysis of our results as reported under GAAP. You should also be aware that we may recognize income or incur expenses in the future that are the same as, or similar to, some of the adjustments in these non-GAAP financial measures. Because these non-GAAP financial measures may be defined differently by other companies in our industry, our definitions of these non-GAAP financial measures may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.

Special Note Regarding Forward-Looking Statements

Certain information and statements contained in this news release constitute “forward-looking information” and “forward-looking statements” (collectively, “Forward-Looking Information”) as defined under applicable Canadian and U.S. securities laws and the Company hereby cautions investors about important factors that could cause the Company’s actual results or outcomes to differ materially from those projected in any Forward-Looking Information contained in this news release. Any statements that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions or future events or performance (often, but not always, through the use of words or phrases such as “will likely result”, “are expected to”, “will continue”, “is anticipated”, “believes”, “estimated”, “intends”, “plans”, “projection” and “outlook”), are not historical facts and may be forward-looking and may involve estimates, assumptions and uncertainties which could cause actual results or outcomes to differ materially from those expressed in such Forward-Looking Information. In particular and without limitation, this release contains Forward-Looking Information pertaining to whether or not the adoption of US GAAP or change in financial statement presentation currency will have a material effect on the Company’s financial statements.

Since actual results or outcomes could differ materially from those expressed in the Forward-Looking Information provided by or on behalf of the Company, investors and others should not place undue reliance on any such Forward-Looking Information.

About DIRTT
DIRTT is a building process powered by technology. The Company uses its proprietary ICE® software to design, manufacture and install fully customized interior environments. The technology drives DIRTT’s advanced manufacturing and provides certainty on cost, schedule and the final result. Complete interior spaces are constructed faster, cleaner and more sustainably. DIRTT’s manufacturing facilities are located in Phoenix, Savannah and Calgary and the Company works with nearly 100 sales construction partners globally. DIRTT trades on the Nasdaq under the symbol “DRTT” and on the Toronto Stock Exchange under the symbol “DRT.” For more information, visit dirtt.com/investors.

For more information, please contact:
Kim MacEachern
Investor Relations, DIRTT 

403.618.4539