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Operator: Good day, everyone, and thank you for standing by. Welcome to the Second Quarter 26 Financial Results Conference Call. At this time, participants are in a listen-only mode. After the presentation, there will be a question and answer session. To ask a question, you will need to press *11 on your telephone. You will then hear a message advising that your hand is raised. To withdraw your question, please press *11 again. Please be advised that today's conference is being recorded. Now it is my pleasure to hand the conference to the Chief Transformation Officer, Adrian Zarate. Please proceed.
Adrian Zarate: Thank you, operator, and good morning, everyone. Welcome to today's call to discuss DIRTT's Second Quarter 26 Financial Results. Joining me on the call today are Benjamin Urban, our Chief Executive Officer; and Fareeha Khan, our Chief Financial Officer. Today's call will include forward-looking statements within the meaning of applicable Canadian and United States securities laws. These statements are based on our current expectations and are not guarantees of future performance. Actual results may differ materially from those expressed or implied by these statements. We will also reference non-GAAP measures during this call, including adjusted EBITDA and adjusted gross profit. Reconciliations of these measures to the most directly comparable non-GAAP measures can be found in our quarterly filing and supplemental materials. With that, I will turn the call over to Fareeha to review our financial results.
Fareeha Khan: Thank you, Adrian, and good morning, everyone. Revenue for the second quarter of 2026 was $40.3 million compared to $38.9 million in the prior year period. Representing growth of ~4% year over year. Product revenue totaled $38.9 million while service revenue was $1.4 million. Commercial activity remained a significant contributor to product revenue during the quarter, reflecting continued strength in our largest end market. Gross profit for the quarter was $14 million compared to $10.8 million in the second quarter of 2025. Gross margin expanded to 34.7% compared to 27.8% in the prior year period, reflecting moderated tariff and other input costs ongoing transformation execution, and improvements in operating efficiency. Adjusted gross profit was $14.9 million compared to $11.8 million in the prior year period, while adjusted gross profit margin improved to 37% compared to 30.4% in the second quarter of 2025. Total operating expenses were $12.7 million, down from $15.2 million in the prior year period. The decrease reflects lower spending across sales and general and administrative (G&A), operations support, and technology and development functions. Partially offset by increased stock based compensation and reorganization expenses. Excluding stock based compensation, depreciation, amortization, and reorganization expenses, operating expenses also declined year over year, reflecting actions taken to simplify the organization, improve operating efficiency,, and better align our cost structure. with the needs of the business. Reorganization expense was approximately $1.1 million during the quarter, and reflects continued actions associated with the company's transformation initiatives. Operating income for the quarter was $1.3 million compared to an operating loss of $4.3 million in the second quarter of 2025. Net income after tax was $1.1 million compared to a net loss after tax of $6.6 million in the prior year period. The improvement was driven primarily by higher gross profits, lower operating expenses, reduced foreign exchange headwinds, and continued execution of our operating strategy. Adjusted EBITDA was $4.7 million or 11.8% of revenue. Compared to an adjusted EBITDA loss of $2 million or negative 5.2% of revenue in the prior year period. Turning to liquidity. Net cash provided by operating activities was $900 thousand during the quarter compared to net cash used in operating activities of $3.9 million in the second quarter of 2025. We ended the quarter with approximately $14.8 million of cash and cash equivalents. For the first 6 months of 26, revenue was $82.7 million compared to $80.2 million in the prior year period. Gross profit was $27 million or 32.6% of revenue compared to $25.4 million or 31.6% of revenue for the prior year period. Adjusted gross profit was $28.9 million or 34.9% of revenue compared to $27.3 million or 34.1% of revenue in the prior year period. Adjusted EBITDA was $6.1 million or 7.4% of revenue compared to approximately breakeven adjusted EBITDA. In the prior year period. Based on our performance to date and current expectations regarding Project timing and revenue conversion, we are updating our 2026 outlook to revenue of 175 million to $185 million and adjusted EBITDA of between $21 million and $25 million Despite the revised revenue outlook, we remain confident in the underlying health of the business, our ability to continue expanding profitability and our capacity to create meaningful long-term value for shareholders. With that, I will turn the call over to Benjamin.
Benjamin Urban: Thank you, Fareeha. During the second quarter, DIRTT continued to execute against its operating strategy and make meaningful progress across the business. Our focus remains on strengthening commercial execution, improving forecasting discipline, enhancing operational efficiency, and positioning the business for sustainable profitable growth over time. The second quarter reflects meaningful progress across several key areas of the business, Revenue increased modestly year over year while gross profit and gross margin improved significantly. At the same time, operating expenses declined meaningfully compared to the prior year period. Despite continued investments in transformation initiatives. Commercial activity remained encouraging during the quarter. Commercial revenue increased significantly year over year and represented ~70% of product revenue compared to ~56% in the prior year period. We also saw modest growth in government related activity while health care remained relatively stable on a year-to-date basis despite quarterly variability. We continue to strengthen our commercial organization through targeted investments in leadership, organizational capability, and go-to-market effectiveness. As part of these efforts, we recently added a new vice president of commercial to help accelerate commercial execution. Enhance partner engagement, and improve go-to-market effectiveness across the organization. These initiatives are intended to improve conversion and support more consistent execution across the business. We also remain focused on improving pipeline quality, and forecasting reliability through enhanced qualification standards, and a continued emphasis on opportunities that align with our strategic priorities. We believe these initiatives provide greater visibility into future demand, and support more effective operational planning. The financial performance achieved this quarter reflects more than simply favorable year over year comparisons. It reflects deliberate actions taken over the past several quarters to simplify the business. Improve operating efficiency, and enhance profitability. These efforts are not only intended to reduce structural costs, but also to make it easier for customers, partners, and employees to do business with DIRTT. These actions are contributing to a simpler, more efficient operating model. And are already reflected in the year over year improvement in adjusted gross profit, and adjusted EBITDA. However, given the timing of implementation, we do not believe our reported results yet fully reflect the run rate benefit of the actions taken. We also continue to make targeted investments in leadership, commercial capabilities, technology, and other initiatives intended to support sustainable growth. With respect to tariffs, we are continuing to evaluate the potential impact of recent changes in the U.S. trade policy on our business. While uncertainty remains, we are assessing potential implications for our supply chain cost structure, pricing, and customer activity. Given the evolving policy environment, we are not yet in a position to quantify any potential financial impact. While our transformation initiatives cannot completely eliminate the impact of any material tariffs that may ultimately be imposed, the operational improvements implemented over the past several quarters have increased our resilience and improved our ability to respond as conditions evolve. Regarding the Falkbuilt litigation, proceedings remain ongoing. As previously disclosed, DIRTT is pursuing claims related to damages suffered in Canada, the United States,, and internationally. Given the nature of the process, we are not in a position to comment further at this time. Looking ahead, we remain focused on disciplined execution. While market conditions continue to evolve, we believe the actions taken to strengthen our commercial organization, improving operating discipline, and enhanced profitability position DIRTT to create long-term value for shareholders. I would like to thank our employees, partners, customers and shareholders for their continued support. With that, operator, please open the call for questions.
Operator: Thank you. As a reminder, if you do have a question, simply press *11 to get in the queue and wait for your name to be announced. To remove yourself, press *11 again. Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the presentation, there will be a question and answer session. To ask a question, you will need to press *11 on your telephone. You will then hear a message advising that your hand is raised. To withdraw your question, please press *11 again. Please be advised that today's conference is being recorded. Now it is my pleasure to hand the conference to the Chief Transformation Officer, Adrian Zarate. Please proceed.
Adrian Zarate: Thank you, operator, and good morning, everyone. Welcome to today's call to discuss DIRTT's Second Quarter 26 Financial Results. Joining me on the call today are Benjamin Urban, our Chief Executive Officer and Fareeha Khan, our Chief Financial Officer. Today's call will include forward-looking statements within the meaning of applicable Canadian and United States securities laws. These statements are based on our current expectations and are not guarantees of future performance. Actual results may differ materially from those expressed or implied by these statements. We will also reference non-GAAP measures during this call, including adjusted EBITDA and adjusted gross profit. Reconciliations of these measures to the most directly comparable non-GAAP measures can be found in our quarterly filing and supplemental materials. With that, I will turn the call over to Fareeha to review our financial results.
Fareeha Khan: Thank you, Adrian, and good morning, everyone. Revenue for the second quarter of 2026 was $40.3 million compared to $38.9 million in the prior year period. Representing growth of ~4% year over year. Product revenue totaled $38.9 million while service revenue was $1.4 million. Commercial activity remained a significant contributor to product revenue during the quarter, reflecting continued strength in our largest end market. Gross profit for the quarter was 14 million compared to $10.8 million in the second quarter of 2025. Gross margin expanded to 34.7% compared to 27.8% in the prior year period, reflecting moderated tariff and other input costs ongoing transformation execution, and improvements in operating efficiency. Adjusted gross profit was $14.9 million compared to 11.8 million in the prior year period, while adjusted gross profit margin improved to 37% compared to 30.4% in the second quarter of 2025. Total operating expenses were $12.7 million, down from $15.2 million in the prior year period. The decrease reflects lower spending across sales, general and administrative (G&A), operations support and technology and development functions. Partially offset by increased stock based compensation and reorganization expenses. Excluding stock based compensation, depreciation, amortization, and reorganization expenses, operating expenses also declined year over year, reflecting actions taken to simplify the organization, improve operating efficiency,, and better align our cost structure. with the needs of the business. Reorganization expense was approximately $1.1 million during the quarter, and reflects continued actions associated with the company's transformation initiatives. Operating income for the quarter was $1.3 million compared to an operating loss of $4.3 million in the second quarter of 2025. Net income after tax was $1.1 million compared to a net loss after tax of $6.6 million in the prior year period. The improvement was driven primarily by higher gross profits, lower operating expenses, reduced foreign exchange headwinds, and continued execution of our operating strategy. Adjusted EBITDA was $4.7 million or 11.8% of revenue. Compared to an adjusted EBITDA loss of $2 million or negative 5.2% of revenue in the prior year period. Turning to liquidity. Net cash provided by operating activities was $900 thousand during the quarter compared to net cash used in operating activities of $3.9 million in the second quarter of 2025. We ended the quarter with approximately 14.8 million of cash and cash equivalents. For the first 6 months of 26, revenue was 82.7 million compared to $80.2 million in the prior year period. Gross profit was $27 million or 32.6% of revenue compared to $25.4 million or 31.6% of revenue for the prior year period. Adjusted gross profit was $28.9 million or 34.9% of revenue compared to $27.3 million or 34.1% of revenue in the prior year period. Adjusted EBITDA was $6.1 million or 7.4% of revenue compared to approximately breakeven adjusted EBITDA. In the prior year period. Based on our performance to date and current expectations regarding project timing, and revenue conversion. we are updating our 2026 outlook to revenue of 175 million to $185 million and adjusted EBITDA of the business, of between $21 million and $25 million. Despite the revised revenue outlook, we remain confident in the underlying health of the business, our ability to continue expanding profitability, and our capacity to create meaningful long-term value for shareholders.
Benjamin Urban: With that, I will turn the call over to Benjamin. Thank you, Fareeha. During the second quarter, DIRTT continued to execute against its operating strategy and make meaningful progress across the business. Our focus remains on strengthening commercial execution, improving forecasting discipline, enhancing operational efficiency and positioning the business for sustainable profitable growth over time. The second quarter reflects meaningful progress across several key areas of the business. Revenue increased modestly year over year, while gross profit and gross margin improved significantly. At the same time, operating expenses declined meaningfully compared to the prior year period. Despite continued investments in transformation initiatives. Commercial activity remained encouraging during the quarter. Commercial revenue increased significantly year over year and represented ~70% of product revenue compared to ~56% in the prior year period. We also saw modest growth in government related activity, while health care remained stable on a year-to-date basis despite quarterly variability. We continue to strengthen our commercial organization through targeted investments in leadership, organizational capability, and go-to-market effectiveness. As part of these efforts, we recently added a new vice president of commercial to help accelerate commercial execution, enhance partner engagement, and improve go-to-market effectiveness across the organization. These initiatives are intended to improve conversion and support more consistent execution across the business. We also remain focused on improving pipeline quality, and forecasting reliability through enhanced qualification standards, and a continued emphasis on opportunities that align with our strategic priorities. We believe these initiatives provide greater visibility into future demand, and support more effective operational planning. The financial performance achieved this quarter reflects more than simply favorable year over year comparisons. It reflects deliberate actions taken over the past several quarters to simplify the business. Improve operating efficiency, and enhance profitability. These efforts are not only intended to reduce structural costs, but also to make it easier for customers, partners, and employees to do business with DIRTT. These actions are contributing to a simpler, more efficient operating model and are already reflected in the year over year improvement in adjusted gross profit and adjusted EBITDA. However, given the timing of implementation, we do not believe our reported results yet fully reflect the run rate benefit of the actions taken. We also continue to make targeted investments in leadership, commercial capabilities, technology, and other initiatives intended to support sustainable growth. With respect to tariffs, we are continuing to evaluate the potential impact of recent changes in the U.S. trade policy on our business. While uncertainty remains, we are assessing potential implications for our supply chain cost structure, pricing, and customer activity. Given the evolving policy environment, we are not yet in a position to quantify any potential financial impact. While our transformation initiatives cannot completely eliminate the impact of any material tariffs that may ultimately be imposed, the operational improvement implemented over the past several quarters have increased our resilience and improved our ability to respond as conditions evolve. Regarding the Falkbuilt litigation, proceedings remain ongoing. As previously disclosed, DIRTT is pursuing claims related to damages suffered in Canada, the United States,, and internationally. Given the nature of the process, we are not in a position to comment further at this time. Looking ahead, we remain focused on disciplined execution. While market conditions continue to evolve, we believe the actions taken to strengthen our commercial organization improving operating discipline and enhanced profitability, position DIRTT to create long-term value for shareholders. I would like to thank our employees, partners, customers and shareholders for their continued support. With that, operator, please open the call for questions.
Operator: Thank you. Thank you. But before we open the lines, I will turn it back to Benjamin for additional comments.
Benjamin Urban: Yes. Thank you, operator. I would like to also add that while we are disappointed to have reduced our outlook, we do remain confident in our ability to drive profitable growth through both of our sales channels. As a result of the transformation work undertaken, having optimized the cost structure of the business, our attention has turned fully toward optimizing our top line performance. Go ahead and open up for questions, operator.
Operator: Thank you. As a reminder, if you do have a question, simply press *11 to get into the queue and wait for your name to be announced. To remove yourself, press *11 again. Our first question is from Calum Purdy with ATB Cormark Capital Markets. Please proceed.
Analyst: Thanks, Benjamin and Fareeha. This is Calum Purdy from ATB Cormark filling in for Nick Wojciech. Can you hear me okay?
Benjamin Urban: I can hear you great. Good morning, Calum.
Analyst: Perfect. Morning. Really appreciate the update on the progress with pipeline visibility and quality here. To help us unpack that decision, are you seeing stronger conversion velocity in these institutional verticals like health care and education? Are there other areas that, like commercial or government, that remain a bit more measured? Can you just break down kind of by segment what it looks like in terms of visibility? For sure. From a vertical segment, I would say that we have greater visibility further out, particularly within the healthcare vertical. Part of that is due to our efforts through the construction services channel and some of that work is further out in duration. That being said, we do have some visibility as well similarly through the construction services channel with regards to the commercial office interior vertical and we are starting to see some traction there as well in conversion. You know, overall, with regards to the overall kind of full-year pipeline that we have discussed for the 12 month forward, while we are limited in the level of project specific or customer-specific pipeline-level detail we can provide publicly, we do believe that we have identified principal factors behind both the second quarter results and the revised outlook namely customer decision making timelines. This is with regards to your question around conversion rates and the timing of project awards or revenue conversion of when that hits. Great. Okay. that is great color. I really appreciate that. Yeah. Next question for me. I think that the recent OpEx reductions reflect that the strategic transformation framework really is working. So that is great. And we saw that flow through the financials with G&A down $1.2 million year-over-year. Sales and marketing down $1.1 million from last year. As you scale this revenue into the second half of the year towards your full year guidance, should we treat this lower OpEx run rate as your new baseline, or will some of the spend kind of naturally scale up back to supporting higher volumes? Yeah. I think that is a great question. I think it is early innings with regards to the performance on profitability. From the transformation efforts that have been underway. I think that there is some noise, right, just because it is happening real time that we should see incremental tailwinds as we move in through the second half of the year. As well as, you know, to your question around how we scale. Yes, we are confident in the 175 to 185. But as we have been focused on delivering profitable growth, recent investments in our commercial organization including that appointment of a new vice president of sales, reflect not just that commitment to grow top line, but in addition to the construction services momentum, we are also layering in and investing in additional sales representatives across the U.S. as well as exploring partner expansion.
Fareeha Khan: And Calum, just to add to that, we do believe those operating expense reductions are going to be sustained. But we will, of course, invest where appropriate. So for example, commercial is definitely an area of focus and we may do some investments in that line. Okay. Great. that is great color. I really appreciate that, guys. Thanks so much. Let's talk about tariffs just quickly, everyone's favorite. Yep. The new 50% tariff on the KUSMA compliant goods set to go into effect on August 19, are there any products in that list that are especially prevalent or hurtful to DIRTT if any at all. Understand that this is changing every day, so you may not have much color on it. So, Calum, what we do when it comes to tariffs, we have internal counsel, and we have specialized customs counsel who we discuss these matters with. At this stage, we do not believe those section 38 tariffs would materially affect DIRTT. Of course, the devil's in the details, so you would have to look at the HTS codes. But at this present point, we do not believe it will materially affect us.
Analyst: Okay. that is great color, and that is all from me, guys. Really appreciate it.
Benjamin Urban: Thanks. Appreciate it.
Operator: Thank you. As a reminder, if you do have a question, simply press *11. Our next question comes from Matthew Smith with Smith Capital. Please proceed.
Analyst: Thanks for taking the question. First, you guys have had this transformation for many for over a year. It seems like you guys consistently miss projections. I would love to better understand why the consulting contracts keep getting extended, and how should we think about this for small investors with some real money in this company?
Benjamin Urban: Yeah. As I mentioned, Matt, and thank you for the question this morning. You know, while I am limited in the level of project specific information I can share, but, namely, to your question around the revision and guidance and it being based primarily on, you know, customer decision making timelines of project awards, as you mentioned, and revenue conversion. What we have been doing through this transformation, right, is further improving the quality of how we are tracking what is coming through in our forecast in our pipeline, not just in the 12-month, but within the full year. And the higher quality and transformation work has yet to be fully reflected in-year, similar to what we were talking about with Calum with regards to you know, increases in profitability. But, similarly, a lot of the work that we have done in the commercial org to improve our forecasting capability we likely will not see some of that performance show up within the year. We will see more of that in 2027 as we have improved that. Do you have a timeline for when you think transformation will be completed? that is a great question. I would say that we have we have transitioned into more of a sustaining mode now from execution. In large part with a lot of the processes being back of house as well as how we are the commercial organization is in the early innings of that transformation. As I mentioned, we have made some changes within leadership We have also begun upgrading some of our sales representatives across the United States, in addition to layering in additional ones. So I would say that 1's got a little bit of a longer tail on it. But we would see that may materialize more so in 2027. But continuing to focus on 2026 to not only hit the guidance that we put out there, but push it. Great. And then thinking about the longer-term vision for the company? Given the structure, ownership and financial profile, How are you thinking about that? Could you clarify a bit? Yeah. I mean, assuming, like you said, some of the transformation is essentially done and you are effectively transitioning some of the things, how are you thinking about sort of next steps for potential ownership structure that kind of thing for the company? Yeah. Unfortunately, Matt, I cannot comment on that. but thanks for the question. Okay. Last question for me, how's the tech team thinking about the opportunity potentially with AI? To use DIRTT's technology position inside the Yeah. Yeah. We have been adopting AI internally, across the enterprise, but as 1 would expect even more so pointedly within the technology team, And we are seeing expansion improvements, in our programming and coding side, particularly for the design editor software. And that is not just for us, Matt. Right? that is across the rest of our customer base that also is utilizing that software, platform for their own uses. And so we are seeing good adoption there. And then as we layer that in across the rest of the enterprise, we are seeing efficiency gains, and how quickly we can turn. Do you have an idea for, like, a number, maybe on a margin, how AI might improve that? Or Yeah. No, Matt. Unfortunately, I cannot share that on the call. But appreciate the question. Okay. Thank you. Thank you, Matt.
Operator: Thank you so much. And we have a question from the line of David Nierenberg with D3. Please proceed.
Analyst: Thank you. Good morning, everyone.
Benjamin Urban: And Good morning, David. Congratulations for the continuing excellent work that you are doing to reduce the cost of the company and to reposition your channel strategy. That said, I would still like to better understand what caused the $10 million miss relative to revenue? Hope for Q2 and the second $10 million reduction for the second half of the year. And then I would like you to connect those answers to a longer term question for your longer term shareholders like us. What is the reason to believe that after years of struggle for various reasons, whether it is with FalkBilts internal board divisions, too much cost structure that was added by prior management. What is the reason, the fundamental reason why you all seem to continue to believe that there is a genuine prospect for future double digit revenue growth since cost alone is not going to bring us to Nirvana. Yeah, David. Thank you for that. that is a that is a great question. So I am going to unpack that into 2 pieces, David. 1, on why we believe we have confidence in our ability to scale on the operations side and you are right. there is no cost cutting way out of this. Right? Is that the improvements that we have made in the transformation and through many of the supplemental earnings decks that we have included that operating platform is not just a thing on paper. Right? Part of our challenge in the past in our ability to scale was because we were working off an operating platform that was antiquated. And so it was difficult for us to actually grow not just on the revenue side, but on the manufacturing and operations side. And so that transformation work that is been in earnest over the last year to solve that allowed us, obviously, through the increased probability results, our ability to not just get the business to function accordingly with where we are at, but where we are going. So that piece aside, more importantly, at this point in our time, to your question around confidence and ability to grow double digits, right, in the future, As we expanded the construction services channel, and this is interconnected, David, to the transformation in that when we began that, over a year ago and began executing projects last year in the first half of this year, frankly, we had additional work to do in that team from a transformation perspective to be able to execute, so we had a bit of a slowdown there, which now we are having a ramp up.
Fareeha Khan: And that team is operating at full capacity.
Benjamin Urban: That construction services channel, we still remain confident will become a double digit growth driver for DIRTT. And the rationale behind that, and I believe I might have commented in 1 of the previous questions, even if in the vertical segments of health care and commercial office interiors, We have 2 recent awards, with strategic accounts in the last quarter that are now moving forward. The reason those are so important is they are not singular projects like a normal, order would be per se that comes in through DIRTT. These are multiyear sticky revenue creation, such that it is not just 1 project, it is dozens of projects. And it allows us to scale faster. And so that is part of the rationale for why we remain confident. The other piece through our other sales channel, David, of our traditional partners that it is going to grow. Part of the rationale with the VP of sales that we hired additionally comes from that, that channel. And knows it better than anybody. Also comes from a competitor previous to that. So we have high confidence and hopes in his ability to grow our traditional partner model alongside us continuing to invest in construction services and grow that channel. So those are the 2 kind of pillars. And for those of those of you that are on the call, there is also a good slide in the supplemental earnings deck demonstrating where those 2 channels fall within our operating model. Can you tell us a bit more, please, about your new sales executive? And why you are confident in him? Or her? Yeah. So, the new VP of commercial that we hired has spent time within not just our partner community, but roughly 15 years prior to that with 1 of our leading competitors, particularly in the commercial office interior vertical. And so bringing some of that capability and, market intelligence to help us compete and help grow that side of our business is equally important, and we see equal opportunity there in not just adding additional partners, but also in as I mentioned, layering in additional sales representatives to expand top line. Well, thank you. I hope that in addition to his experience, this person also brings what John Maynard Keynes called animal spirits. That is a great comment, and I would say that you hit the nail on the head with that 1, David. Okay. Good luck. Thank you.
Operator: Thank you so much. Thank you. And this will conclude our Q&A session. I will turn it back to Benjamin for final comments.
Benjamin Urban: I have no final comments, operator. Thank you, everyone.
Operator: Thank you so much. And this will conclude our conference for today. Thank you for participating, and you may now disconnect.