DIRTT Environmental Solutions Ltd. (DRT) Earnings Call Transcript & Summary

Good morning, everyone. My name is Steve Parry, and I'm the Chair of the Board of Directors of DIRTT Environmental Solutions, and it is my pleasure to welcome you to the DIRTT 2021 Annual General Meeting. Due to the ongoing public health impact of the COVID-19 outbreak and to be consistent with our values of prioritized safety, we made the decision to, once again, make this year's Annual General Meeting virtual-only. The health and well-being of our employees, our shareholders and partners are all of utmost importance to us. This does not represent a change to our shareholder engagement philosophy, and we remain committed to return to an in-person meeting next year. While this meeting is virtual-only, we do still welcome questions from our shareholders. Now let me take the opportunity to introduce you to all the members of the current DIRTT Board of Directors. In addition to myself, members of our Board are: Wayne Boulais. Wayne is the Managing Director of Tensility Venture Partners, a VC firm. Wayne has been a director since 2015, but will be retiring today at today's AGM. On behalf of the Board and management, please join me in thanking Wayne for his contributions over the past 6 years. Thank you very much, Wayne; Michael Ford, Michael is the Head of Global Real Estate and Security for Microsoft; Denise Karkkainen, Denise is an experienced director and governance expert, who brings years of knowledge in commercial real estate development, property management and finance; Shauna King, Shauna is the former VP of Finance and Business Operations for Yale University and was previously at PepsiCo in multiple roles; Todd Lillibridge, Todd brings years of experience in the health care real estate space, including with Ventas Inc., a health care real estate investment trust; Jim Lynch, Jim is the Senior Vice President and General Manager for Autodesk Construction Solutions; Kevin O'Meara, Kevin is our President and CEO; Diana Rhoten, Diana brings expertise in design, innovation and strategy, and was most recently the Associate Partner and Managing Director of the New York office of IDEO LP. Next, I would like -- I'd also like to introduce you to the members of the DIRTT executive leadership team. All of them are participating in the virtual meeting today. In addition to our CEO, Kevin O'Meara, the members of the executive leadership team are Geoff Krause, Chief Financial Officer; Jennifer Warawa, Chief Commercial Officer; Jeff Calkins, Chief Operating Officer; Mark Greffen, Chief Technology Officer; Lindsay Gusso, our Chief Human Resources Officer; Chuck Kraus, Senior VP, General Counsel and Corporate Secretary. We will first deal with the formal business of the meeting, and then Kevin will give a brief review of 2020, includes how we are viewing 2020 and beyond. So let us move to the formal business items and call the meeting to order. I appoint Chuck Kraus to act as secretary for today's meeting and the representatives of Computershare Trust company to act as scrutineers. We use notice-and-access as our method of communicating with shareholders for this year's meeting. Access the meeting materials, including the notice of meeting, management information circular and proxy statement and form of proxy were made available to shareholders on or about March 26, 2021. The declaration of mailing is available for inspection by any shareholder upon request. I would ask that the secretary file a copy of such with the minutes of today's meeting. I've been advised by the scrutineers that quorum has been met for the meeting. The scrutineer's report is available for inspection by any shareholder and I would ask that the secretary file a copy of such with the minutes of today's meeting. To facilitate the timely completion of the formal business, arrangements have been made with certain shareholders to move and second the motions to be considered. We will conduct the votes on all matters before us by online ballot. The online ballot is open now for all resolutions. You can choose to vote on each resolution now or to wait until the conclusion of the discussion on each resolution prior to voting. If you have already completed and returned your form of proxy or voting instruction form, it is not necessary for you to do anything. However, if you wish to change your vote and are permitted to do so, you may do so by voting online now. With that said, I declare today's meeting regularly called and properly constituted for the transaction of business. The first item of business is a presentation of the 2020 audited financial statements of DIRTT, together with the auditor's report thereon. Shareholders are not required to approve the financial statements. However, management is available to answer any questions concerning the financial statements and the auditor's report during the Q&A session following the meeting. The next item of business is the election of the directors of DIRTT. As disclosed in the management information circular and proxy statement, each director will be elected individually and not as a slate. Eight individuals are to be elected, each to hold office until the next meeting of shareholders, or until such person's successor is duly elected or appointed. The Director nominees are: Michael Ford; Shauna King; Denise Karkkainen; Todd Lillibridge; Jim Lynch; Kevin O'Meara; Steve Parry; and Diana Rhoten. May I have a move for such business.

Mr. Chair, my name is Nandini Somayaji, and I move that the company's director nominees be elected as directors of the company to hold office until the close of the next annual meeting or until their successors are duly elected or appointed.

Thank you. Is there a seconder?

Mr. Chair, my name is Kim MacEachern, and I second the motion.

Thank you. Is there any discussion on this motion?

Mr. Chair, we have no questions at this time.

As there is no further discussion, I now call for a vote on the motion before the meeting. Will all voting delegates that have not previously voted on this motion or that wish to change their previously submitted vote, please enter your votes. [Voting]

The next item of business is the appointment of the company's independent registered public accounting firm. May I have a motion for such business?

Mr. Chair, I move that PricewaterhouseCoopers LLP be appointed as the company's independent registered public accounting firm to hold office until the close of the next annual meeting as such remuneration is may be determined by the Board of Directors.

Thank you. Is there a seconder?

Mr. Chair, I second the motion.

Thank you. Is there any discussion of this motion?

Mr. Chair, we have no questions at this time.

As there is no discussion, I now call for a vote on the motion before the meeting. Will all voting delegates that have not previously voted on this motion or that wish to change their previously submitted votes, please enter your votes. We will pause for a moment to allow all votes to be entered. [Voting]

Thank you for everyone who has participated in the formal business of today's meeting. The polls are now closed, and I'm advised by the scrutineers that all motions have passed by the requisite approval threshold. Accordingly, each of the motions at this meeting is carried. The final voting results will be available on the company's website and on SEDAR and on EDGAR following the meeting. That now concludes the formal business at today's meeting. I will now pass things over to Kevin O'Meara to provide an update to our shareholders. Kevin and our CFO, Geoff Krause, will be available to answer questions.

Thank you, Steve, and thank you, everyone, for joining us here today. We'll turn to the agenda, where we want to cover 3 topics. One is a brief review of 2020; next is our approach to 2021; and finally, how we're thinking about sustainability at DIRTT and our plans for more formalized reporting going forward. As you may recall, we introduced our strategic plan in November of 2019, and it had 3 pillars. We can advance the slide, please. The 3 pillars were: innovation; manufacturing excellence; and commercial execution. On the innovation side, we're building on the company's 15-year track record of having outstanding innovation, both on the product solutions side as well as on the proprietary software side. In manufacturing, we are implementing lean manufacturing techniques to ensure that our people were able to work safely that we delivered outstanding quality and customer service to our customers and that we operate as efficiently as possible. And finally, to build out our commercial organization, including enhanced sales management and standing up a strategic marketing organization. The next slide shows our 2020 highlights. On the innovation side, we released 2 new low profile walls, Inspire and Reflect, as well as our most comprehensive ICE software released in the company's history. On the manufacturing side, we took our safety record from 4.9 incidents in 2019 to below 0.5 in 2020. We were able to reach the continuous improvement phase of our lean journey, and make several strides, including potentially the most important are Rock Hill, South Carolina plant. On the commercial side, we stood up our strategic marketing organization and began aggressively driving lead generation. We appointed a Director of strategic accounts. The COVID pandemic required us to launch a virtual client tours that have been highly successful that we expect will continue post pandemic. And we also continue to introduce a variety of sales tools, both for our distribution partners and our sales reps. Perhaps the most important sales tool is our total cost assessment that allows our reps and distribution partners to benchmark the cost of using DIRTT versus conventional construction. Now as we turn to 2021, what 2021 is all about is taking advantage of the platform that we've built in 2020 as well as capitalizing on certain aspects of the pandemic, primarily the adaptability of our solutions and our ability to have very short lead times and compress the construction schedule. We're also going to take advantage of our newly established marketing capabilities to continue to generate leads, provide sales tools to our reps and partners as well as establish ourselves as industry thought leaders. We're also going to take advantage of our enhanced industry vertical sales teams and our strategic account sales groups. One of the other things that would be in a position to take advantage of in 2021 is infrastructure investments that we made. Last year, we completely renovated our Chicago DIRTT Experience Center, and that is currently open and welcoming customers on a COVID-safe basis. Our Dallas DIRTT Experience Center is being constructed as we speak, and we expect to open that in the third quarter. Our Rock Hill, South Carolina plant is half an hour from the Charlotte airport and it's the state-of-the-art plant for manufacturing wall tiles. The plant is currently producing tiles, will be fully commissioned next month. With respect to sustainability, every aspect of what the company does is all about sustainability. It starts with the manufacturing process where we use our proprietary ICE software to precisely engineer and design the solutions that are manufactured, eliminating waste. We use sustainable materials as much as possible throughout the entire production process, but sustainability doesn't stop the day someone moves in. In fact, the most important aspect of our sustainability is our ability to deploy the modular aspect of our solutions to easily adapt our spaces to changing client needs on a very clean, efficient basis without generating substantial waste that leads to waste in landfills. Now migrating from sustainability to ESG, there's 3 components of our focus on ESG. First is our people, making sure that they're able to operate safely as well as that we employ a diverse workforce that feels fully included that can bring their authentic selves to work every day. Next, the aspects of our products that we just talked about. And perhaps most importantly is how we run our business because that impacts every aspect of what we do. We've been working to encapsulate all 3 aspects of ESG into a formal report that we're planning on issuing this coming quarter. In conclusion, 2021 is all about taking advantage of the hard work that's been put in place leading up to it, to be able to capitalize on our marketing capabilities, sales tools that we have put in place as well as our new manufacturing capabilities. And finally, making sure that we're able to be absolutely transparent with all the great things we're doing from a sustainability and ESG standpoint. And with that, I will open it up to any questions that we may have.

Kevin and Geoff, we have a couple of questions from our attendees. First question, as we emerge from the pandemic, there has been significant discussion regarding employees' interest in working from home and company's willingness to accommodate them. What do you think will be the impact on the intermediate and long-term prospects for DIRTT?

It's clearly easier to operate in a growing nonresidential construction market, the ones contracting. However, no one knows what the impact of work from home may be on the market overall. But regardless of what happens, the market is enormous. And one of the things that we've been able to do with our enhanced marketing capability is to really identify target customer segments and make sure that we match that to our value proposition to really enhance our ability to serve them. We also think the changing dynamic of the office over time will benefit us because people are going to need to make changes to their spaces. They're also highly attuned for new projects to the adaptability of the modular aspect of what we do. So when you put all these things together, while nobody can forecast the future really, one of the benefits of DIRTT is our ability to be adaptable to the space. We operate in an enormous market, and we have the ability to target those markets to enhance our ability to be successful and to drive sales growth.

Thank you very much, Kevin. One more question. You have stated previously that as the pandemic unfolded, you scaled back certain aspects of the implementation of your strategic plan. What is your current thinking regarding executing aspects of your plan that have been deferred, both specific initiatives and timing?

There are several. The timing, we'll just have to see based on how the coming quarters play out from a profitability and cash flow standpoint as well as our expectation for subsequent quarters. In terms of where we would spend expenses or capital, one would be, we did defer some hiring in our commercial function. We deemed priority to hires. We would take another look at those, either enhancing our marketing organization or our sales force in certain markets. I think there's enhancements we'd like to do to our ICE soft platform -- ICE software platform, I should say, to streamline now what we do as well as migrate portions of it to the cloud. I think there's some more infrastructure we can build in terms of our DXCs. We do plan to put a DIRTT Experience Center in Rock Hill. We would very much like to do one in Northern California as well as enhance our existing DIRTT Experience Center in Toronto. And we also think that we probably will put some new equipment in Calgary based on the learnings from the Rock Hill facility. And then lastly, Rock Hill currently is configured to do our painted chromacoat tiles. At some point in time, enhance their capabilities with the specialty tiles as well as potentially our case work as well.

Great. Thank you very much, Kevin. There are no other questions from the attendees.

Ladies and gentlemen, that concludes the management presentation and Q&A. Thank you all very much for attending the meeting today.