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

Hello, and welcome to the Annual and Special Meeting of Shareholders for DIRTT Environmental Solutions Ltd. Please note that today's meeting is being recorded. If you participate in today's meeting and disclose personal information, you will be deemed to consent to the recording, transfer and use of same. If you disclose personal information of another person in today's meeting, you will be deemed to represent and warrant to Computershare and the corporation that you first obtained all required consent for the disclosure, recording, transfer and use of such personal information from all appropriate persons before your disclosure. [Operator Instructions] It is now my pleasure to turn today's meeting over to Mr. Ken Sanders. Mr. Sanders, the floor is yours.

Thank you. We have a little video to play first. [Presentation]

Okay. Great to see everyone here. I'm Ken Sanders. I'm Chair of the Board of Directors of DIRTT, and welcome to the 2023 Annual General and Special Meeting of the Shareholders. So welcome, everyone, back to our Calgary headquarters. I'm also going to act as the Chair of this meeting. And in that regard, I'm going to ask this meeting be called to order. A couple of things I wanted to share with you about this meeting. First of all, it is a hybrid meeting. So in addition to the people here, obviously, in person, it's great to see you all, we also have a number of shareholders joining us remotely. So it's a virtual meeting. In that regard, any shareholder who is here or joining us virtually can ask questions, can also vote as long as they comply with the rules as set forth in our proxy statement, which was published earlier. The other thing I wanted to share, and some of you here may already know this, some of you joining remotely may not. But this is the first time we've had an Annual General Meeting of the shareholders at our headquarters in 6 years since 2017. And there are a lot of reasons for that. Obviously, COVID took out a couple of years. Leadership transitions encouraged prior leaders to hold these meetings offsite. But I'm really happy on behalf of the whole Board to welcome everyone home back to our headquarters, which is exactly where these meetings belong. And again, welcome everyone who's here. It's great to see you all here in person. Thank you. I want to take a moment to introduce a few people. First of all, my fellow Board members, Aron English, who's up there. Raise your hand, Aron. Also Benjamin Urban. Where -- there you go, Benjamin. Benjamin, of course, is our CEO and also serves on our Board. Also wanted to introduce members of our executive team who are here, Brad Little, our CFO; Rich Hunter, our COO; Mark Greffen, our Chief Technology Officer; and Nandini Somayaji, who's our General Counsel and also Corporate Secretary. So welcome all of you. I want to give you a quick run of the show today just to give you an idea of what's coming up. I'm going to make a couple of quick comments and acknowledgments to a handful of people to kick the meeting off, then Benjamin is going to do a presentation we've titled Building the Future, a little review of 2022 and a hint of what's to come. The middle is sort of the dry and hopefully boring part of this meeting, where I'm going to read from a script, but it's really important because it's really the time where we get to tabulate the final votes and move and second the various motions that need to be made. And at the conclusion of that business meeting, we'll announce the results of those votes. And then following that, we'll have a question-and-answer session with myself, and also Benjamin and Brad, who many of you have already heard from multiple times on our quarterly earnings call, will also join me up here for some interactive Q&A. And then the Q&A, again, will be open to people here physically as well as people joining us remotely. I want to say some thank yous to some key people. First is Cory Mitchell. And many of you here in Calgary may have had a chance to meet Cory over the past year. He joined the DIRTT Board, along with most of us, frankly, last April 26. He was part of the 2 people who represented 22NW along with Aron English. Cory has really not only been a remarkable colleague and collaborator and Board member, but he's a great friend. And I just want to say thank you to Cory. He's not here today, but hopefully, he's listening online. Early, when we first came together as a Board, he really created tremendous value by spending time with our operations teams in the factories, really helped educate all of us who arrived here about how DIRTT works and what we did well and so forth. And I just want to acknowledge and thank Cory. As most of you know, he is not standing for reelection. He chose not to do that this year. He's transitioning from 22NW. He has a new venture he's starting up. I'm sure it's going to be very successful. So we wish him all the best, but we just want to say thank you. And if I can get a round of applause for Cory, that would be great. The next person I want to say thank you to is Mark Greffen, our Chief Technology Officer. Mark -- and I'm going to talk a little bit about what Mark has done for the company. He's been here, I think, 18 years. He's played a variety of roles for DIRTT the last 4 years as Chief Technology Officer, really been an incredible leader in the brain trust of this company who developed ICE, our technology platform, has been an amazing contributor. And most recently, he was a key leader in the effort to close the strengthened partnership we have with AWI, with Armstrong World Industries. As I'm sure you heard about a few weeks ago, we entered into a technology-sharing agreement with them. As part of that, $11 million of their money landed in our banking account, which we really appreciate. It was a great deal for DIRTT and AWI. It's really a strengthening of the partnership we have. But Mark was in the middle of that for months and months, negotiating that, closing that. It's an incredible, incredible thing that he did. Mark has chosen now that this is the time for him to throttle back a little bit, spend more time with his family, maybe pursue some other opportunities. So he's going to be transitioning away from DIRTT as of June 8. But again, I just want to personally thank Mark. He's an incredible leader, a great colleague, a good friend. And thank you so much for everything you've done for DIRTT over the years. And I do. Look at that picture. Come on, he's a nice guy. Anyway, and the last 3 people I want to acknowledge and thank are -- there we go, Benjamin, Brad and Rich, none of whom yet has actually hit their first anniversary. They haven't circled the sun yet at DIRTT, coming up in a couple of months. But they really have been incredible leaders at DIRTT. We've -- I personally, and I know the whole Board has really enjoyed collaborating with them, working with them. And I want to say something important. They are all exceptional leaders as individuals. But what's even more important is how they work as a team, how they collaborate, how they're engaged in dialogue, how they listen to different perspectives. And we talk a lot about this in many of our leadership meetings on the Board that whenever you have a great well-functioning team that's creative, that's collaborative, that's innovative, that creates value, the smartest person in the room is never an individual. The smartest person in the room is the team. And that's true whether it's the Board of Directors, whether it's an executive leadership team, whether it's a project team, whether it's a sales team. And that idea of dialogue, of listening to and offering different perspectives and, through those conversations, making the best decisions for the company is really, really important. So I've been thrilled to see them perform not just as outstanding executives on their own but really working together as a team, not only between the 3 of them but with many, many other outstanding leaders we have at the company, which they are always very gracious to acknowledge and thank. Again, the 3 of you, welcome aboard, and thank you so much for everything you do for DIRTT. And with that, I'm going to turn it over to Benjamin, who's going to walk you through a presentation called Building the Future. Thank you, Ben.

Thank you, everyone, for joining us for our annual meeting. Adding to some of Ken's comments, I just wanted to say a special thank you to all of the employees as well as to our construction partners, without which either of you, we wouldn't be here. So thank you all for what you do for DIRTT. We are building the future of DIRTT, and we have a clear path ahead of us. And with the continued dedication from all of you and our construction partners, we will be successful. I'd like to take a moment to reflect on the last year and not just thank but acknowledge some of the most recognizable companies in the world that we've had the pleasure of doing business with and delivering solutions to. Many of these are noticeable and that you would know them from your day-to-day lives. That's too small. But anyone from Amazon to Tesla, BMW, Visa, these are all marquee customers of ours that have invested in DIRTT and truly believe in the value proposition that we provide. I'm also going to share towards the end of this presentation a little bit about some specific key projects that we delivered this year, which helps demonstrate some of those reasons that people work with DIRTT. Of the different groups or verticals that we do participate in, we were just talking about the commercial organization. The next would be with health care, is another one of our strategic verticals that we participate in. Kaiser Permanente, Mayo Clinic, UTHealth, AdventHealth, the list goes on. But as we see the future of DIRTT proceed and 2023 unfold, we're continuing to see growth in our health care vertical. We also have a government vertical that we track. And again, you'll see some familiar -- you won't recognize them because nobody can read words that small. But the Federal Reserve, National Institute of Health, Department of Defense, Department of Energy are all large DIRTT clients. Lastly is our education. And this would be, again, some familiar names up there, University of Calgary, University of Texas, Queen's University as well as University of Kansas. In addition to our customers, and I mentioned our partners, they are a critical component. I'd like to say just a valued thank you to our construction partners because they are the manner in which we deliver all these solutions to all of our customers. And in just this last year, we've added 7 new partners in total as well as 10 expansions. We have 130 locations across North America, and we continue to see that base of partnership grow. I'd also like to take a moment to recognize a few of our partners in the top 3 of 2022: Alfred Williams Companies (sic) [ Alfred Williams & Company ], COR and another that's dear to my heart, AGILE INTERIORS. And I've had some influence there. And then other top-performing partners in 2022 that were added at the top of their class. These are some of the expansion partners that we've had over the last year. There are some familiar names there, and I wanted to thank them for their continued investment in DIRTT. The experience centers as well as their staff are a significant investment, and they are a critical component of how we go to market. [Presentation]

I think that deserves a round of applause. Thank you for that, David. So this year has been -- this last year has been transformational at DIRTT, and I think all those voices from the employees echo a lot of that. The journey has demonstrated a remarkable resilience to change and has shown that we have the ability to lean in. And all of our employees are a testament to what we have accomplished. The period of change that we've stuck through, all of our employees here, and managed to show that resilience, I think we will see much more of that as we move into 2024. I did want to comment on just a handful of the things that were accomplished and the milestones that we were able to surpass. We have an entire new Board of Directors. We have a new CEO. We have a new CFO. We have a new COO. We've added to our distribution and construction partner base significantly. We've had evolved brand launch, optimized manufacturing capacity and capabilities. We've launched our entire sales team on to Salesforce.com. We've relaunched our CEU program. That's just the tip of the iceberg of all the things that have actually been accomplished in the last year. So I wanted to comment on that and congratulate everybody at DIRTT for a job well done. The other thing that we had happen, we also had one of our original cofounders of DIRTT return to the fold with Geoff Gosling. And he is a dear friend of mine, so I'm so glad to have him back within our community. This comment that he has here couldn't be more appropriate for the world that we live in today. Uncertainty is the hallmark of where we are, and no other company or solution like DIRTT embraces that and leans into it and has the solutions to support it. Many companies choose DIRTT for a very specific reason. They're chasing something, be it quality, cost assurance, flexibility in change, freedom to change or simply speed or aesthetic. And I'm going to share some examples of some different projects over this last year that are worth us kind of looking back on and reflecting on it, that all of these things and all of these projects represent at least one of those reasons. What's fascinating about all of them is they also benefited from what DIRTT does, not knowing that they were going to. And the ability that we have to derisk every stage of construction will show through in some of these examples. I'm also going to start with a video real quick that Geoff created that is around change and what that means to DIRTT in demonstrating our relevance over time, which then you'll see in some of these projects. And David, I don't think there's music with this, correct? Correct. So essentially, these presentations around the relevance of time is if you look at the blue line, which is our conventional construction and then you look at red, DIRTT allows us to have micro adjustments, micro changes such that our relevance over time are so much more consistent and they're impactful. In construction, you build something, in 2 years, 3 years, 4 years, it becomes painful enough that you make a change, right? And this jigsaw, as you go along, demonstrates how much more DIRTT is relevant and is able to adapt to uncertainty. Google Bay View, headquarters. So we'll start with one of our marquee projects from the commercial vertical. In order for them to -- back to that comment on uncertainty and relevance over time and our ability to adapt and change. They had a need to adapt to a changing environment, and they had no idea how much more relevant that would be now than it was when they designed this campus years ago and where we are. So this tech giant turned to DIRTT to create not just a sustainable but also a people-first space that supported a variety of different styles that -- for today and that evolved. And there's actually a great video that Google put together that I'll show you that represents this. [Presentation]

A fantastic project. I have been fortunate enough to visit a few of the different Google locations as has some of our Board members and other people. And it is impactful to see those working spaces and how people thrive throughout those. This next project, One Safe Place for the San Diego District Attorney, is another really empowering space that's using everything that DIRTT has. And you can tell just from the picture, you have heavy timber construction, you have embedded technology, you have our case work, you have raised access flooring. They really did take everything that we do to help create these environments. For this specific project, it's actually a one-stop shop, if you will, for resource for people dealing with trauma. And this allowed the county to create an adaptable space in that they weren't quite sure how they were going to actually deploy this, and they have reconfigured and changed and adapted that space as needed over the last year. They're already actually expanding to another part of that building with a similar buildout. Great project in our health care vertical with UTHealth. This was for a multi-clinic space, so they were consolidating disparate specialties from dermatology to cancer to imaging all underneath one roof from 5 different locations. And really DIRTT was the only path that they could use from a speed perspective and the ability we had to shorten their overall construction schedule. Interestingly enough, we had never done any work with UTHealth, and this was a multimillion-dollar project, which was their first foray with us and has now become a standard that they're deploying across all of their facilities. Alaska Airlines at the Portland International Airport, many of you might have actually seen this. It's a beautiful space. And what's really interesting is that because of the major renovation going on in that terminal, DIRTT was the clear path for them to build this and design for disassembly knowing that ultimately this will be relocated to Seattle's airport. And so how could they build sustainably on time, on budget and be able to then actually relocate the entire buildout to another airport? And so it's an investment for them that they'll actually continue to move as necessary. Choctaw Nation. They've been a DIRTT customer for years and actually deployed, again, all of our solutions, including our fiber deep networks. And for them, it was around creating a space that was headquarters not just for the nation but for leadership. They have health care services that are deployed through that campus as well as extended education programs all underneath one roof. So this 0.5 million square foot facility, they actually change pretty much every weekend. There's something happening there. And all of those buildings that are -- I believe there's 20-plus buildings that are all connected with our connected infrastructure and fiber networks. Allina Health in Brooklyn and through our Minneapolis partner. This is coming up in 2023 a little bit and into 2024. And part of the customization aspect was critical for them. That was what really resonated, and that allowed them to create a stress-free environment that was warm and comforting and welcoming and was a change in direction from them previously using conventional construction. Lehigh University, and again, this is in our education vertical. And this is in Boston. Very much built around being sustainable, LEED-certified, student-focused space. And this research institution used the DIRTT solution to increase collaboration, improve acoustics and decrease the cost of their maintenance over time, which they found to be difficult. Alamo Colleges, one last one on the education vertical. So this district manages actually 5 different post-secondary institutions in San Antonio. And so the best education for their 60,000 students was using DIRTT solutions to deploy throughout that. This was also very much schedule-driven, which we tend to see more frequently in many of our education verticals. Moving on to ESG. I just wanted to touch on our ESG report. So last year, we were actually -- we've been awarded or nominated twice now for the best ESG report in small cap category. And we're hoping to hopefully win this year or at least get nominated. But today, we're actually proud to announce that we're releasing our 2022 ESG report a month earlier than we have previously as well. Sustainability is at the core of everything we do. It's in our actual corporate name, and we're eager to continue improving those efforts to contribute to a better environment. So what's next for DIRTT? As we continue to grow and build the future of DIRTT and pass those new milestones, how do we go about that? And we actually -- while also simultaneously driving operational excellence, we have never had as clear a view as we have now of what the future of DIRTT looks like. And how are we actually going to grow? And one is by continuing to grow and diversify our construction partner base as well as our sales force. While we do that, that does a few things. It helps us realign with our partners and ensure that all of our combined resources are headed in that same direction. It's also through new sales channels. So by adding new sales channels, that allows us through strategic partnerships like AWI, which Ken mentioned, as well as SmartLabs and others, and adding key accounts as well, gives us new channels that we haven't typically tapped into historically for organic growth through product and innovation and technology. So we're capturing this market share through not just enhancements to our current product offerings but also driving innovation with the new solutions that we are rolling out through our product development team. One key element that I wanted to comment on that's happening in product and innovation as well as with Geoff Gosling's return is that everything that we are doing now supports DIRTT's core DNA. Ensuring that as we release new products, we release new innovations, as we partner with strategic partners, it is all in deference to that original DNA, ensuring that we have really success and viability as we move forward with these new solutions. Lastly, through operational excellence. None of this would be attainable if we weren't able to actually deliver our projects on time in full with the lowest efficiencies possible. Our journey to zero with our operations team has proven to be quite successful. We are in an entirely different place than we were at this point in time last year. And so all 4 of those key components will help us with how do we build the future of DIRTT. With that, I'm going to hand it to Ken to do the exciting part of the business meeting.

Thank you, Benjamin. First of all, a big round of applause. All right. So that's a very challenging act to follow especially when we're going to transition to the dry and hopefully boring part of this meeting. But I don't want to make light of it because it's important to realize we are a publicly traded company, and we have outside investors who choose to invest in our company or not to. And once a year, they have an opportunity to weigh in, to reelect or not reelect the Board, to weigh in on things like our LTI program, which many of you participate in, growing and expanding that, and other matters. So it's something that we do treat very seriously. It's also important with these business meetings that we comply with our own bylaws, with other regulatory requirements of publicly held company shareholder meetings both in Canada and the U.S. So Nandini has helpfully written me a script, which I'm going to read, and that's sort of the dry part. So this shouldn't last very long. It's institutionally important, but it's not terribly exciting especially after following Benjamin's awesome presentation. But we're going to get through it. And then after that, like I mentioned, we'll have some interactive Q&A. So as Chair, I will now ask that the business meeting come to order. And in accordance with the bylaws of DIRTT, I appoint Nandini Somayaji to act as the Secretary for today's meeting and the representatives of Compushare Trust Company who are around the corner to act as scrutineers. Scrutineers, as you may know, means they count the votes and they sort of monitor participation. We used notice and access as our method of communicating with shareholders for this year's meeting. Access to 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 April 20, 2023. The declaration of mailing is available for inspection by any shareholder upon request. And 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 a quorum has been met for the meeting. The scrutineers' 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 my wonderful colleagues here in front to move and second the motions to be considered. We will conduct the votes on all matters before us by ballot. Anyone attending in person who is entitled to vote should have received ballots at the time of registration with the scrutineer. The online ballot is also open now for all resolutions. You can choose to vote on each resolution now or 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 the tabling of the 2022 audited financial statements of DIRTT and the auditor's report thereof, which were published at the end of February. 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. 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. Seven individuals are to be elected, each to hold office until the next meeting of the shareholders or until such person's successor is duly elected or appointed. The director nominees are Douglas Edwards, Aron English, Shaun Noll, Scott Robinson, Scott Ryan, Ken Sanders and Benjamin Urban. May I have a motion for such business?

Chair, I move that the nominees with the greatest number of votes 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 second?

Mr. Chair, I second the motion.

Thank you. Is there any discussion on this motion? No discussion. As there is no further discussion, we will now proceed to vote on this motion by way of ballot. If you have not already completed the ballots, I ask that you please complete the ballots and provide them to the scrutineers. If you're voting online, please complete your ballot now. We're going to take a quick break to let that happen. [Voting]

Okay. We're going to keep going. And by the way, we will be announcing the results of each of these motions at the end of this business meeting coming up soon. The next item of business is the appointment of the company's independent registered public accounting firm. The online ballot is also now open for the resolution relating to the appointment of such accounting firm. May I please have a motion for that business?

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

Thank you. Is there a second?

Mr. Chair, I second the motion.

Thank you. Any discussion on this motion? As there is no discussion, we will now proceed to vote on this motion by way of ballot. If you have not already completed the ballots, I ask you to please complete them at this time and provide the completed ballots to the scrutineers. If you are voting online, please complete your ballot now. [Voting]