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DIRTT Environmental Solutions Ltd. — Management Reports 2025
Jul 30, 2025
47167_rns_2025-07-30_2ab4ff8d-0db8-40c4-b2c9-57325bc952fc.pdf
Management Reports
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The Management's Discussion and Analysis of Financial Condition and Results of Operations for DIRTT Environmental Solutions Ltd. ("MD&A") is also included in the Form 10-Q for the period ended June 30, 2025 filed on SEDAR+ on July 30, 2025 in its entirety ("Form 10-Q"). Capitalized terms without definition in this MD&A are as defined elsewhere in the Form 10-Q. All references to US$ or $ are to U.S. dollars and references to C$ are to Canadian dollars.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited interim condensed consolidated financial statements and related notes and other financial information appearing in this Quarterly Report. This discussion contains forward-looking statements reflecting our current expectations and estimates and assumptions concerning events and financial trends that may affect our future operating results or financial position. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors, including those described under the headings “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements” appearing elsewhere in this Quarterly Report.
Summary of Financial Results
DIRTT Environmental Solutions Ltd. and its subsidiary (“DIRTT”, the “Company”, “we” or “our”) is a leader in industrialized construction for interior spaces. DIRTT’s system of physical products and digital tools empowers organizations, together with construction and design leaders, to build high-performing, adaptable, interior environments. Operating in the workplace, healthcare, education, and public sector markets, DIRTT’s system provides total design freedom, and greater certainty in cost, schedule, and outcomes.
DIRTT’s proprietary design integration software, ICE® (“ICE” or “ICE software”), translates the vision of architects and designers into a 3D model that also acts as manufacturing information. ICE is also licensed to our Construction Partners and certain third parties, including Armstrong World Industries, Inc. (“AWI”) which owns a 50% interest in the rights, title and interests in certain intellectual property rights in a portion of the ICE software that is used by AWI.
Key Second Quarter Highlights and Other Recent Developments
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Revenue for the quarter ended June 30, 2025 was $38.9 million, a decrease of $2.3 million or 6%, from $41.2 million for the same period of 2024. We entered the second quarter of 2025 with an 8% higher twelve-month forward pipeline as compared to April 1, 2024. However, we started experiencing above-trend scheduling delays and below-trend signed awards driven by macroeconomic conditions, including the imposition of additional tariffs, which we believe are unrelated to DIRTT, resulting in lower revenue this quarter.
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Gross profit and gross profit margin for the quarter ended June 30, 2025 were $10.8 million or 27.8% of revenue compared to $15.4 million or 37.3% of revenue for the quarter ended June 30, 2024. Adjusted Gross Profit (see “– Non-GAAP Financial Measures”) for the three months ended June 30, 2025 was $11.8 million, a decrease from $16.2 million. Adjusted Gross Profit for the second quarter of 2024. Adjusted Gross Profit Margin (see “– Non-GAAP Financial Measures”) was 30.4% in the second quarter of 2025, a decrease from 39.4% in the comparative period of 2024. Gross profit and Adjusted Gross Profit for the quarter ended June 30, 2025 were negatively impacted due to the decline in revenues as well as tariff costs that commenced in March 2025.
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During the first six months of 2025, various tariffs have been levied by the U.S. and Canadian governments. We incurred $2.0 million (5.1% of total revenue) and $2.6 million (3.3% of total revenue) in tariffs and costs related to tariff mitigation actions for the three and six months ended June 30, 2025, respectively. DIRTT is most impacted by the 25% tariff levied on Canadian aluminum exports to the United States which increased to 50% in June 2025.
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Net loss after tax and net loss margin for the second quarter of 2025 was $6.6 million and 17.0%, respectively, compared to $0.6 million net income after tax and net income margin of 1.4% for the same period of 2024. The decrease in net income is primarily the result of a $4.6 million decrease in gross profit, a $0.8 million increase in operating expenses, a $2.3 million decrease in foreign exchange gain, and a $0.3 million decrease in interest income, partially offset by a decrease of $0.5 million in interest expense and $0.2 million in income tax expense.
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Adjusted EBITDA (see “– Non-GAAP Financial Measures”) for the second quarter of 2025 was $(2.0) million, or (5.2%) of revenue, a decrease of $5.2 million from $3.2 million, or 7.7% of revenue, for the second quarter of 2024. Lower Adjusted EBITDA was mainly driven by a $4.4 million decrease in Adjusted Gross Profit and an increase in operating expenses.
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Cash on hand decreased by $5.3 million in the second quarter of 2025 to $23.1 million, compared to a $0.5 million increase in cash in the second quarter of 2024. The decrease in cash in the second quarter of 2025 was driven by $3.9 million of net cash flows used in operating activities, $1.0 million in capital expenditures, and an aggregate of $0.6 million in common share repurchases from the Shares NCIB (as defined herein) and repurchase of convertible debt through the Debentures NCIB (as defined herein). The increase in cash for the second quarter of 2024 was mainly due to $1.6 million of cash flows provided by operating activities.
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On June 12, 2025, we began trading on the OTCQX under the symbol “DRTTF.” The Company previously traded on, and upgraded to OTCQX from, the OTC Pink® Market.
Pipeline
The table below presents our qualified leads and twelve-month forward pipeline as at July 1, 2025, January 1, 2025 and July 1, 2024. We define qualified leads as the quantity of projects being pursued as of the date presented, and define our pipeline as the estimated potential revenue from qualified leads where a client has engaged DIRTT and is assessing DIRTT as a potential provider of prefabricated interior solutions. We believe these metrics are helpful to estimate near-term performance, particularly given the macroeconomic factors that affect our operating environment, including labor availability, interest rate changes, delayed contracts and slowed construction schedules driven by changing tariff policies and potential recessionary impacts on construction projects.
As of July 1, 2025, our twelve-month forward pipeline increased by 18% year-over-year and by 12% from January 1, 2025, illustrated in the table below.
| As at | |||||
|---|---|---|---|---|---|
| July 1, 2025 | January 1, 2025 | % Change | July 1, 2024 | % Change | |
| Twelve-Month Forward Pipeline ($000s) | |||||
| Commercial | 169,698 | 147,609 | 15 | 148,300 | 14 |
| Healthcare | 71,957 | 51,214 | 41 | 55,497 | 30 |
| Government | 48,930 | 55,203 | (11) | 35,358 | 38 |
| Education | 20,342 | 24,292 | (16) | 23,703 | (14) |
| 310,927 | 278,318 | 12 | 262,858 | 18 | |
| Leads (#) | 1,362 | 1,012 | 35 | 1,098 | 24 |
Price Increases and Impact of Tariffs
On February 11, 2025, we announced a price increase of 5% on all orders placed after March 18, 2025, and price adjustments on certain products in response to market feedback and to mitigate the impact of rising raw material costs.
Commencing in February 2025, the U.S. government proposed and enacted various tariffs. Refer to “Outlook” and “Risk Factors” for further discussion on these tariffs. As of the date of this report, the following tariffs are currently in effect that materially affect DIRTT:
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On March 12, 2025, a 25% tariff was levied on steel and aluminum imports from Canada into the United States. As disclosed in our Annual Report on Form 10-K, DIRTT manufactures aluminum components, which are machined and processed in Calgary, Alberta as well as Savannah, Georgia. Aluminum costs represent approximately 10% of our total product revenue. This tariff impacts aluminum exports from our Calgary plants to our U.S. customers.
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On March 13, 2025, Canada responded to the U.S. tariffs by announcing reciprocal tariffs. As disclosed in our Annual Report on Form 10-K, approximately 92% of DIRTT’s raw materials are sourced in North America and certain products are imported from the U.S. to Canada. We incurred costs on these reciprocal tariffs but note that the Canadian government has put a six month pause on these tariffs, effective April 15, 2025. If these tariffs are maintained, we will look into seeking exemptions or alternative suppliers to mitigate this tariff impact.
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On April 9, 2025, tariffs of 145% were levied on imports from China into the U.S., which were subsequently reduced on May 12, 2025 to 30% for 90 days. On June 11, 2025, China and the U.S. agreed to reduce overall tariffs by 115%. The Company imports certain raw materials from China (approximately 6% of total raw material spend, representing 3% of total product revenue). In response, we increased the price of certain hardware by 10%, effective June 5, 2025.
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On June 3, 2025, the U.S. government announced a tariff increase, raising duties on all steel and aluminum imports from 25% to 50%. In response, we added a surcharge of 3.5% on all orders placed after June 20, 2025.
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On July 8, 2025, the U.S. government announced a possible 50% tariff on copper effective August 1, 2025.
As tariff changes are announced, we will continue to consider the impact to our business. The most significant tariff impacting DIRTT is the 50% aluminum and steel tariff. Over time, we expect the impact of tariffs (if maintained at current levels) to be balanced through the price increases, surcharges and various internal tariff mitigation strategies. However, until the price increase and surcharges are fully passed onto customers, which we expect to occur later in 2025, we anticipate the tariffs will result in a compression on our margins.
Outlook
DIRTT continued to experience challenges related to macroeconomic uncertainty in the second quarter of 2025, primarily driven by the United States’ changing tariff policy. In the second quarter of 2025, revenue was under pressure and lower than expected due to delayed contracts and slowed construction schedules, despite winning work. This trend is evidenced by our revenue declining 6% from the first quarter of 2025 to the second quarter of 2025. Despite this decline, our twelve-month forward pipeline increased 7% from April 1, 2025 compared to July 1, 2025.
The imposition of tariffs decreased Adjusted Gross Profit Margin by 512 basis points in the second quarter of 2025. In June 2025, an additional 25% tariff was levied on aluminum and steel imports into the United States. Whilst we cannot predict the go-forward policy, we have implemented a variety of tariff mitigation strategies, including price adjustments, strategic sourcing, and manufacturing footprint adjustments to preserve margins. We expect there to be a lag between the date the tariffs were incurred and when our mitigation strategies will be realized. Our third quarter financial results are currently expected to reflect similar tariff pressures to the second quarter. We expect to return to positive Adjusted EBITDA by the fourth quarter of 2025.
The construction industry continues to face challenges such as labor shortages and supply chain pressures and DIRTT's value proposition is even more relevant. Markets seem to be accepting the tariff situation and we hope for normalcy to return to our order conversion in the next two quarters. We are focusing on growth and transforming our business to compete more directly with conventional construction by expanding our commercial channels, innovating our product offering, and increasing operational excellence. For the first time in two years, our twelve-month forward pipeline has crossed the $300 million level. Our Integrated Solutions pipeline has increased by 20% from the beginning of the year. With the introduction of fire-rated walls and other product innovations this quarter, DIRTT is now able to capture more scope on projects than before (i.e. healthcare and life sciences) and is also now able to expand into previously untapped markets such as hospitality and multi-family housing.
Our balance sheet is strong, including $31.1 million of liquidity (comprising of unrestricted cash and available borrowings), although we experienced negative cash flows from operations in the three months ended June 30, 2025. There is C$16.6 million ($12.2 million) principal due under the January Debentures (as defined herein), which mature on January 31, 2026, and we are evaluating whether we will settle or refinance this debt.
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Non-GAAP Financial Measures
Note Regarding Use of Non-GAAP Financial Measures
Our interim condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). These GAAP financial statements include non-cash 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 in this Quarterly Report 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 period-over-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 and debt facilities, or foreign exchange movements), asset base (depreciation and amortization), tax consequences, reorganization expense, unusual or infrequent charges or gains (such as gain on extinguishment of debt, and impairment charges), stock-based compensation, and government subsidies. We remove the impact of foreign exchange gain (loss) from Adjusted EBITDA. Foreign exchange gains and losses can vary significantly period-to-period due to the impact of changes in the U.S. and Canadian dollar exchange rates on foreign currency denominated monetary items on the balance sheet and are not reflective of the underlying operations of the Company. In periods where production levels are abnormally low, unallocated overheads are recognized as an expense in the period in which they are incurred. In addition, management bases certain forward-looking estimates and budgets on non-GAAP financial measures, primarily Adjusted EBITDA. We have not reconciled forward-looking non-GAAP measures, including Adjusted EBITDA guidance, to its corresponding GAAP measures due to the high variability and difficulty in making accurate forecasts and projections, particularly with respect to non-operating income and expenditures, which are difficult to predict and subject to change.
Depreciation and amortization, stock-based compensation expense, reorganization expense, foreign exchange gains and losses, gain on extinguishment of debt, impairment charges, net interest income on cash deposits, interest expense on outstanding debt and debt facilities, and tax expense 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 receipts and 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 receipts and 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 Quarterly Report, and a description of the calculation for each measure is included.
| Adjusted Gross Profit | Gross profit before deductions for depreciation and amortization |
|---|---|
| Adjusted Gross Profit Margin | Adjusted Gross Profit divided by revenue |
| EBITDA | Net income before interest, taxes, depreciation, and amortization |
| Adjusted EBITDA | EBITDA adjusted to remove foreign exchange gains or losses; impairment charges; reorganization expenses; stock-based compensation expense; unusual or infrequent charges (such as gain on extinguishment of debt); and any other non-core gains or losses |
| Adjusted EBITDA Margin | Adjusted 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.
Results of Operations
Three and Six Months Ended June 30, 2025, Compared to the Three and Six Months Ended June 30, 2024
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||
|---|---|---|---|---|---|---|
| 2025 | 2024 | % Change | 2025 | 2024 | % Change | |
| ($ in thousands) | ($ in thousands) | |||||
| Revenue | 38,922 | 41,201 | (6) | 80,217 | 82,048 | (2) |
| Gross Profit | 10,818 | 15,375 | (30) | 25,360 | 30,023 | (16) |
| Gross Profit Margin | 27.8% | 37.3% | 31.6% | 36.6% | ||
| Operating expenses | ||||||
| Sales and marketing | 5,293 | 6,062 | (13) | 10,470 | 11,982 | (13) |
| General and administrative | 5,743 | 4,391 | 31 | 11,223 | 8,957 | 25 |
| Operations support | 1,872 | 1,841 | 2 | 3,902 | 3,616 | 8 |
| Technology and development | 1,480 | 1,436 | 3 | 2,708 | 2,687 | 1 |
| Stock-based compensation | 594 | 427 | 39 | 1,333 | 1,102 | 21 |
| Reorganization | 174 | 202 | (14) | 384 | 340 | 13 |
| Impairment charge on Rock Hill Facility | - | - | NA | - | 530 | (100) |
| Total operating expenses | 15,156 | 14,359 | 6 | 30,020 | 29,214 | 3 |
| Operating (loss) income | (4,338) | 1,016 | (527) | (4,660) | 809 | 676 |
| Operating margin | (11.1)% | 2.5% | (5.8)% | 1.0% | ||
| Gain on extinguishment of convertible debentures | 7 | - | 100 | 14 | 2,931 | (100) |
| Foreign exchange (loss) gain | (1,912) | 358 | (634) | (2,024) | 1,277 | (258) |
| Interest income | 232 | 482 | (52) | 494 | 971 | (49) |
| Interest expense | (485) | (945) | (49) | (936) | (1,999) | (53) |
| (2,158) | (105) | (1,955) | (2,452) | 3,180 | (177) | |
| Net (loss) income before tax | (6,496) | 911 | (813) | (7,112) | 3,989 | (278) |
| Current and deferred income tax expense | 106 | 315 | (66) | 151 | 348 | (57) |
| Net (loss) income after tax | (6,602) | 596 | (1,208) | (7,263) | 3,641 | (299) |
Revenue
Revenue mainly reflects sales to our construction partners ("Construction Partners") for resale to their clients and, in limited circumstances, our direct sales to clients. We are investing in our Integrated Solutions team to grow revenue and increase direct sales to clients where such opportunities are not available to our Construction Partners. Our revenue is generally affected by the timing of when orders are executed, particularly large orders, which can add variability to our financial results and shift revenue between quarters.
The following table sets forth the contribution to revenue of our DIRTT product and service offerings:
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||
|---|---|---|---|---|---|---|
| 2025 | 2024 | % Change | 2025 | 2024 | % Change | |
| ($ in thousands) | ($ in thousands) | |||||
| Product | 33,475 | 36,141 | (7) | 69,699 | 71,017 | (2) |
| Transportation | 4,091 | 3,859 | 6 | 8,029 | 7,814 | 3 |
| License fees from Construction Partners | 175 | 176 | (1) | 359 | 384 | (7) |
| Total product revenue | 37,741 | 40,176 | (6) | 78,087 | 79,215 | (1) |
| Installation and other services | 1,181 | 1,025 | 15 | 2,130 | 2,833 | (25) |
| 38,922 | 41,201 | (6) | 80,217 | 82,048 | (2) |
Revenue for the three months ended June 30, 2025 was $38.9 million, a decrease of $2.3 million compared to $41.2 million in the comparative period of 2024. Due to market uncertainties and other macroeconomic factors, we are seeing a delay in the decision making of our customers resulting in delayed project starts, resulting in lower revenue this quarter. Given the growth in our twelve-month forward pipeline compared to prior year, we believe this is a timing matter and not indicative of a decline in DIRTT's business. Revenue for the six months ended June 30, 2025 was $80.2 million, a decrease from $82.0 million in the comparative period of 2024 for the same reasons explained above. For the quarter ended June 30, 2025, we did not collect any of the 3.5% surcharge on orders placed on or after June 20, 2025 and did not collect a material amount of the 5% price increase on orders placed on or after March 18, 2025, due to negotiated price holds. Surcharge recovery and price increases are expected to be collected in the second half of the year. See "Price Increases and Impact of Tariffs."
Installation and other services revenue was $1.2 million for the quarter ended June 30, 2025 compared to $1.0 million in the quarter ended June 30, 2024, and $2.1 million for the six months ended June 30, 2025 compared to $2.8 million in the same period of 2024. This revenue primarily reflects services performed by our ICE teams for third parties. Except in limited circumstances, historically our Construction Partners, rather than the Company, perform installation services. As our Integrated Solutions team grows, we expect to see a modest increase in installation services.
Our success is partly dependent on our ability to profitably develop our Construction Partner network to expand our market penetration and ensure best practices are shared across local markets. At June 30, 2025, we had 70 Construction Partners (June 30, 2024: 76; December 31, 2024: 71) servicing multiple locations. We also continue to work on developing our Integrated Solutions team and partnering with our Construction Partner network to drive revenue for DIRTT.
The following tables present our product and transportation revenue by vertical market:
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||
|---|---|---|---|---|---|---|
| 2025 | 2024 | % Change | 2025 | 2024 | % Change | |
| ($ in thousands) | ($ in thousands) | |||||
| Commercial | 20,808 | 28,018 | (26) | 48,906 | 58,197 | (16) |
| Healthcare | 9,165 | 4,800 | 91 | 16,369 | 7,849 | 109 |
| Government | 3,007 | 5,092 | (41) | 5,656 | 8,567 | (34) |
| Education | 4,586 | 2,090 | 119 | 6,797 | 4,218 | 61 |
| License fees from Construction Partners | 175 | 176 | (1) | 359 | 384 | (7) |
| Total product revenue | 37,741 | 40,176 | (6) | 78,087 | 79,215 | (1) |
| Service revenue | 1,181 | 1,025 | 15 | 2,130 | 2,833 | (25) |
| 38,922 | 41,201 | (6) | 80,217 | 82,048 | (2) |
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| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||
|---|---|---|---|---|
| 2025 | 2024 | 2025 | 2024 | |
| (in %) | (in %) | |||
| Commercial | 56 | 70 | 63 | 74 |
| Healthcare | 24 | 12 | 21 | 10 |
| Government | 8 | 13 | 7 | 11 |
| Education | 12 | 5 | 9 | 5 |
| Total Product Revenue(1) | 100 | 100 | 100 | 100 |
(1) Excludes license fees from Construction Partners.
Commercial sales decreased by 26% for the second quarter of 2025 from the second quarter of 2024. The quarter ended June 30, 2025 had fewer large commercial projects compared to the quarter ended June 30, 2024. Healthcare revenues increased by 91% in the second quarter of 2025 from the same period of 2024, primarily due to four key projects shipping in the second quarter of 2025 and larger projects in 2025. Sales in the healthcare sector tend to be larger individual projects and are subject to timing due to a typically longer sales cycle, resulting in variability in sales levels. We have made several investments in new product solutions (such as COVE™ and Applied Headwalls) and additions to the business development team to increase product placement in future healthcare and life science construction projects. Government sales in the second quarter of 2025 decreased by 41% from the second quarter of 2024 primarily due to a customer order delay of a large project due to site readiness. We are monitoring our Government pipeline for any adverse impacts from actions being taken by the U.S. government. Education sales in the second quarter of 2025 increased by 119% from the same period of 2024 due to a higher volume of large projects.
Revenue continues to be derived almost exclusively from projects in North America and predominantly from the United States. The following table presents our revenue dispersion by geography:
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||
|---|---|---|---|---|---|---|
| 2025 | 2024 | % Change | 2025 | 2024 | % Change | |
| ($ in thousands) | ($ in thousands) | |||||
| Canada | 4,044 | 4,659 | (13) | 10,922 | 7,728 | 41 |
| U.S. | 34,878 | 36,542 | (5) | 69,295 | 74,320 | (7) |
| 38,922 | 41,201 | (6) | 80,217 | 82,048 | (2) |
For the three months ended June 30, 2025, 10% of revenue was from Canada, as compared to 11% for the three months ended June 30, 2024. Historically, approximately 10-15% and 85-90% of revenues are derived from sales to Canada and the United States, respectively. We expect the historical split to continue.
Sales and marketing expenses
Sales and marketing expenses decreased by $0.8 million to $5.3 million for the three months ended June 30, 2025 from $6.1 million for the three months ended June 30, 2024. The decrease was driven by a $0.4 million decrease in salary and benefits costs, $0.2 million lower commission costs as a result of lower revenues, a $0.2 million decrease in travel, meals and entertainment costs, and a $0.1 million decrease in other costs, partially offset by a $0.1 million increase in marketing and tradeshow expenses.
Sales and marketing expenses decreased by $1.5 million to $10.5 million for the six months ended June 30, 2025 from $12.0 million for the six months ended June 30, 2024. The decrease was driven by a $0.8 million decrease in salaries and benefits costs, a $0.3 million decrease in commission costs as a result of lower revenues, a $0.1 million decrease in pass through charges, a $0.1 million decrease in travel, meals and entertainment costs, a $0.1 million decrease in building costs, a $0.1 million decrease in office and communications costs, a $0.1 million decrease in professional services costs, and a $0.1 million decrease in depreciation and amortization expenses. The decrease was partially offset by a $0.2 million increase in marketing and tradeshow expenses.
General and administrative expenses
General and administrative expenses increased by $1.4 million to $5.7 million for the three months ended June 30, 2025, from $4.4 million for the three months ended June 30, 2024. The increase was primarily related to a $0.7 million increase in professional services costs as a result of litigation costs as we prepare for the Falkbuilt Litigation (as defined herein), a $0.5 million increase in salaries and benefits costs, a $0.2 million increase in board fees and expenses, and a $0.1 million increase in public company costs, partially offset by a $0.1 million decrease in building and infrastructure costs.
General and administrative expenses increased by $2.3 million to $11.2 million for the six months ended June 30, 2025, from $9.0 million for the six months ended June 30, 2024. The increase was primarily related to a $1.6 million increase in professional services costs as a result of litigation costs as we prepare for the Falkbuilt Litigation, a $0.7 million increase in salaries and benefits costs, a $0.3 million increase in board fees and expenses, a $0.1 million increase in public company costs, a $0.1 million loss on disposal of manufacturing equipment, and a $0.1 million gain on auction of assets from our Rock Hill facility in South Carolina (the "Rock Hill Facility") that occurred in 2024 and was not repeated in 2025. The increase was partially offset by a $0.4 million decrease in building and infrastructure costs and a $0.2 million decrease in depreciation and amortization expenses.
Operations support expenses
Operations support is comprised primarily of project managers, order entry and other professionals that facilitate the integration of our Construction Partner project execution, our manufacturing operations, and support staff for the Integrated Solutions team. Operations support expenses slightly increased by $0.03 million for the three months ended June 30, 2025 to $1.9 million compared to $1.8 million for the comparative period of 2024.
Operations support expenses increased by $0.3 million for the six months ended June 30, 2025 to $3.9 million, from $3.6 million for the comparative period of 2024. The increase was primarily related to a $0.2 million increase in salaries and benefits costs, a $0.1 million increase in tradeshow expenses, a $0.1 million increase in product research and development costs, partially offset by a $0.1 million decrease in travel, meals and entertainment costs.
Technology and development expenses
Technology and development expenses relate to non-capitalizable costs associated with our product and software development teams, and are primarily comprised of salaries and benefits of technical staff. Technology and development expenses slightly increased $0.04 million to $1.5 million for the three months ended June 30, 2025 compared to $1.4 million for the three months ended June 30, 2024.
Technology and development expenses remained consistent at $2.7 million for each of the six months ended June 30, 2025 and 2024.
Stock-based compensation
Stock-based compensation expense for the three and six months ended June 30, 2025 was $0.6 million and $1.3 million respectively, compared to $0.4 million and $1.1 million in the same periods of 2024. Stock-based compensation expense is dependent on share price in a period for fair value adjustments made on cash-settled DSU awards and grants, exercises, expirations or forfeitures made on other awards. The increase in expense was largely due to an increase in RSU expense as a result of a higher number of RSUs granted and outstanding for the quarter ended June 30, 2025 compared to the same period of 2024, partially offset by a decrease in DSU expenses as a result of decreasing share prices during the second quarter of 2025.
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Impairment charge on Rock Hill Facility
On September 27, 2023, the Company decided to permanently close the Rock Hill Facility. Certain assets, including manufacturing equipment, which met held-for-sale criteria at that time were reclassified from property, plant and equipment. At March 31, 2024, we determined that the assets held for sale balance of $0.5 million was to be reduced to $nil resulting in a $0.5 million impairment charge for such quarter.
The Company had $nil impairment charges in the three and six months ended June 30, 2025.
Gain on extinguishment of debentures
The gain on extinguishment of debentures of $0.01 million and $0.01 million for the three and six months ended June 30, 2025, respectively, relates to the Debentures NCIB and was calculated as the difference between the repayment and the net carrying value of the extinguished principal less unamortized issuance costs of C$0.1 million ($0.1 million) and C$0.2 million ($0.1 million) (refer to Note 4 of our Interim Condensed Consolidated Financial Statements for additional information). During the three and six months ended June 30, 2024, an aggregate of $nil and C$10.5 million ($7.8 million) in principal amount of Debentures was repurchased for cancellation through the Issuer Bid, which triggered an extinguishment of debt of $nil and C$3.9 million ($2.9 million).
Foreign exchange (loss) gain
Foreign exchange loss or gain decreased from a gain of $0.4 million and $1.3 million for the three and six months ended June 30, 2024 to a loss of $1.9 million and $2.0 million for the same periods in 2025. The decrease is primarily related to the strengthening of the Canadian dollar relative to the U.S. dollar over the three and six months ended June 30, 2025. The majority of our revenue is collected in U.S. dollars (approximately 90%), and approximately 70% of the costs incurred in the three and six months ended June 30, 2025, were denominated in Canadian dollars.
Interest income
Interest income for the three and six months ended June 30, 2025 was $0.2 million and $0.5 million compared to $0.5 million and $1.0 million for the comparative periods of 2024. The decreased interest income is due to declining prime rates that determine interest yields on the Company's lower cash equivalents during the three and six months ended June 30, 2025 compared to the same periods of 2024.
Interest expense
Interest expense decreased by $0.5 million from $0.9 million in the quarter ended June 30, 2024 to $0.5 million for the three months ended June 30, 2025, and by $1.1 million from $2.0 million for the six months ended June 30, 2024, to $0.9 million for the six months ended June 30, 2025. This decrease is largely due to repayment of debt throughout the year ended December 31, 2024 and during the first six months of 2025, reducing the interest payable on current and long-term debt.
Income tax
Income tax expense for the three and six months ended June 30, 2025 decreased to $0.1 million and $0.2 million, respectively, from $0.3 million in each of the same periods of 2024. The current tax expense represents the income tax provision after the utilization of non-capital loss carry forwards against current period taxable income. The provision for income taxes comprises U.S. and Canadian federal, state and provincial taxes based on pre-tax income. Despite positive indications of future profitability, including the strength of our pipeline, the Company has determined that it is unlikely that a deferred tax asset will be recognized. Given the history of losses, the Company plans to maintain a valuation allowance against the deferred tax asset. As at June 30, 2025, the Company had a valuation allowance of $30.0 million (December 31, 2024: $30.0 million) against deferred tax assets. The Company plans to continue to evaluate indicators on whether a valuation allowance continues to be needed. For the quarter ended June 30, 2025, the Company utilized a balance of its non-capital loss carry-forwards in Canada and the United States. As at June 30, 2025, we had C$104.5 million of non-capital loss carry-forwards in Canada and $47.1 million of non-capital loss carry-forwards in the United States. These loss carry-forwards will begin to expire in 2037.
Net (loss) income after tax
Net loss after tax was $6.6 million or $0.03 net loss per share, basic and diluted, in the three months ended June 30, 2025, a decrease of $7.2 million from net income after tax of $0.6 million or $0.00 net income per share, basic and diluted, for the three months ended June 30, 2024. The decrease in net income is primarily the result of a $4.6 million decrease in gross profit, a $0.8 million increase in operating expenses, a $2.3 million decrease in foreign exchange gain, and a $0.3 million decrease in interest income, partially offset by decreases of $0.5 million in interest expense and $0.2 million in income tax expense.
Net loss after tax was $7.3 million or $0.04 net loss per share, basic and diluted, for the six months ended June 30, 2025, a decrease of $10.9 million from net income after tax of $3.6 million or $0.02 net income per share, basic and diluted, for the six months ended June 30, 2024. The decrease in net income from the six months ended June 30, 2024 is primarily the result of a $2.9 million gain on extinguishment of convertible debt as a result of the Issuer Bid, a $4.7 million decrease in gross profit, a $3.3 million decrease in foreign exchange gain, a $0.5 million decrease in interest income, a $0.8 million increase in operating expenses, partially offset by a $1.1 million decrease in interest expense and a $0.2 million decrease in income tax expense.
Adjusted Gross Profit and Adjusted Gross Profit Margin for the Three and Six months ended June 30, 2025 and 2024
The following table presents a reconciliation for the three and six months ended June 30, 2025 and 2024 of Adjusted Gross Profit to our gross profit and Adjusted Gross Profit Margin to gross profit margin, which are the most directly comparable GAAP measures for the periods presented:
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||
|---|---|---|---|---|
| 2025 | 2024 | 2025 | 2024 | |
| ($ in thousands) | ($ in thousands) | |||
| Gross profit | 10,818 | 15,375 | 25,360 | 30,023 |
| Gross profit margin | 27.8% | 37.3% | 31.6% | 36.6% |
| Add: Depreciation and amortization expense | 1,007 | 845 | 1,964 | 1,689 |
| Adjusted Gross Profit | 11,825 | 16,220 | 27,324 | 31,712 |
| Adjusted Gross Profit Margin | 30.4% | 39.4% | 34.1% | 38.7% |
For the quarter ended June 30, 2025, gross profit margin decreased to 27.8% compared to 37.3% for the same period of 2024. Adjusted Gross Profit Margin was 30.4% for the second quarter of 2025, down from 39.4% in the comparative period of 2024, a decline of 900 basis points. The decrease in Adjusted Gross Profit Margin was primarily attributable to the $2.3 million reduction in revenue and tariff related costs of $2.0 million (512 basis points).
For the six months ended June 30, 2025, gross profit margin decreased to 31.6%, compared to 36.6% in the prior year period. Adjusted Gross Profit Margin was 34.1%, compared to 38.7% in the same period of 2024, a decrease of 460 basis points. The year-to-date margin decline reflects the same underlying factors observed in the second quarter, including a $1.8 million reduction in revenue and a $2.6 million increase in tariff related costs (327 basis points).
EBITDA and Adjusted EBITDA for the Three and Six months ended June 30, 2025 and 2024
The following table presents a reconciliation for the results for the three and six months ended June 30, 2025 and 2024 of EBITDA and Adjusted EBITDA to our net (loss) income after tax, and of Adjusted EBITDA Margin to net (loss) income margin, which are the most directly comparable GAAP measures for the periods presented:
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||
|---|---|---|---|---|
| 2025 | 2024 | 2025 | 2024 | |
| ($ in thousands) | ($ in thousands) | |||
| Net (loss) income after tax for the period | (6,602) | 596 | (7,263) | 3,641 |
| Add back (deduct): | ||||
| Interest expense | 485 | 945 | 936 | 1,999 |
| Interest income | (232) | (482) | (494) | (971) |
| Income tax expense | 106 | 315 | 151 | 348 |
| Depreciation and amortization | 1,547 | 1,521 | 3,027 | 3,055 |
| EBITDA | (4,696) | 2,895 | (3,643) | 8,072 |
| Foreign exchange loss (gain) | 1,912 | (358) | 2,024 | (1,277) |
| Stock-based compensation | 594 | 427 | 1,333 | 1,102 |
| Reorganization expense(2) | 174 | 202 | 384 | 340 |
| Gain on extinguishment of convertible debentures(2) | (7) | - | (14) | (2,931) |
| Impairment charge on Rock Hill Facility (2) | - | - | - | 530 |
| Adjusted EBITDA | (2,023) | 3,166 | 84 | 5,836 |
| Net (Loss) Income Margin(1) | (17.0)% | 1.4% | (9.1)% | 4.4% |
| Adjusted EBITDA Margin | (5.2)% | 7.7% | 0.1% | 7.1% |
(1) Net (loss) income after tax divided by revenue.
(2) Reorganization expenses, the gain on extinguishment of convertible debentures (refer to Note 4 of the interim condensed consolidated financial statements) and the impairment charge on the Rock Hill Facility are not core to our business and are therefore excluded from the Adjusted EBITDA calculation.
For the three months ended June 30, 2025, Adjusted EBITDA decreased by $5.2 million to a $2.0 million loss from $3.2 million and Adjusted EBITDA Margin decreased to (5.2%) from 7.7% for the same period of 2024. This reflects a $4.4 million decrease in Adjusted Gross Profit (explained above), a $0.5 million increase in salaries and benefits costs as we invest in our business, a $0.9 million increase in professional services costs largely due to higher litigation costs related to the Falkbuilt Litigation, and a $0.3 million increase in public company costs and board fees, offset by a $0.2 million decrease in commissions as a result of lower revenue, a $0.3 million decrease in travel, meals and entertainment costs, a decrease of $0.3 million from loss on disposal, and a $0.1 million decrease in other costs.
For the six months ended June 30, 2025, Adjusted EBITDA decreased by $5.8 million to $0.1 million from $5.8 million and Adjusted EBITDA Margin decreased to 0.1% from 7.1%, for the same period of 2024. This reflects a $4.4 million decrease in Adjusted Gross Profit, a $1.8 million increase in professional services costs largely associated with higher litigation costs related to the Falkbuilt Litigation, a $0.4 million increase in public company costs and board fees, and a $0.3 million increase in marketing and tradeshow expenses, partially offset by a $0.3 million decrease in commissions from lower revenue, a $0.5 million decrease in building and infrastructure costs, a decrease of $0.2 million from loss on disposal, and a $0.1 million decrease in other costs.
13
Liquidity and Capital Resources
As at June 30, 2025, the Company had $23.1 million of cash on hand and C$10.9 million ($8.0 million) of available borrowings, compared to $29.3 million of cash on hand and C$14.4 million ($10.0 million) of available borrowings as at December 31, 2024. Through the first six months of 2025, the Company used $6.2 million of cash primarily due to the payment of $4.0 million to repurchase common shares under the Shares NCIB and Share Repurchase and $1.8 million for capital expenditures.
We have assessed the Company’s liquidity as at June 30, 2025, taking into account our sales outlook for the next twelve months, our budget and expected cash outflows and our existing cash balances and available credit facilities. Based upon this analysis, we believe the Company has sufficient liquidity to remain a going concern for at least the next twelve months. We note that the January Debentures amounting to C$16.6 million ($12.2 million) as of June 30, 2025 are due on January 31, 2026 and have therefore been classified as current on our balance sheet. We are evaluating whether we will settle or refinance this debt. Another C$15.1 million ($11.0 million) of principal is due under the December Debentures (as defined herein), which mature on December 31, 2026 (and therefore not yet classified as current), and we are also evaluating our options for this debt.
To the extent that existing cash and cash equivalents and available facilities are not sufficient to fund future activities, we may seek to raise additional funds through equity or debt financings. If additional funds are raised through the incurrence of indebtedness, such indebtedness may have rights that are senior to holders of our Debentures and our equity securities or contain instruments that may be dilutive to our existing shareholders. Any additional equity or debt financing may be dilutive to our existing shareholders. While we believe we can access capital markets when needed or under acceptable terms, there can be no assurance that we will be able to do so, particularly in light of recent market conditions.
We note that as of the date of this report, the imposition of trade barriers, including tariffs, quotas, embargoes, safeguards, and customs restrictions between Canada and the U.S., may increase the cost or reduce the supply of materials and products available to us, increase shipping times, affect our customers’ construction needs or budgets, affect the demand for our products or our product mix or require us to modify our supply chain organization, manufacturing facilities, or other current business practices, any of which could harm our business, financial condition, and results of operations.
Equity and Debt Issuances and Buyback Programs
During the past two years, we have executed various debt and share buyback programs. The Issuer Bid, Debenture Repurchase, Debentures NCIB, Shares NCIB and the Share Repurchase (each as defined herein) were initiated after careful consideration of cash flow, and the Company continues to evaluate uses of cash on hand. As discussed in the “Part II, Item 1A. Risk Factors” section and elsewhere of this Quarterly Report, proposed and implemented tariffs on Canadian exports into the United States, and vice versa, may have a material impact on future cash flows and liquidity, which the Company will continue to monitor.
In January 2021, we issued C$40.3 million of convertible unsecured subordinated debentures (the “January Debentures”) for net proceeds after costs of C$37.6 million ($29.5 million). The January Debentures accrue interest at a rate of 6.00% per annum and are convertible into common shares of DIRTT at an exercise price of C$4.65 per common share, or if not converted will mature and be repayable on January 31, 2026. Interest and principal are payable in cash or shares at the option of the Company.
On December 1, 2021, we issued C$35.0 million of convertible unsecured subordinated debentures (the “December Debentures”, and collectively with the January Debentures, the “Debentures”) for net proceeds after costs of C$32.7 million ($25.6 million). The December Debentures accrue interest at a rate of 6.25% per annum and are convertible into common shares of DIRTT at an exercise price of C$4.20 per common share, or if not converted, will mature and be repayable on December 31, 2026. Interest and principal are payable in cash or shares at the option of the Company.
On November 21, 2023, the Company announced a rights offering, which closed on January 9, 2024, for aggregate gross proceeds of C$30.0 million (net proceeds of $21.3 million) (the “Rights Offering”). As a result of the Rights Offering, the conversion price was adjusted to C$4.03 per common share for the January Debentures, and C$3.64 per common share for the December Debentures.
On February 15, 2024, the Company announced a substantial issuer bid and tender offer (the “Issuer Bid”), under which the Company offered to repurchase for cancellation: (i) up to C$6,000,000 principal amount of the January Debentures at a purchase price of C$720 per C$1,000 principal amount of January Debentures; and (ii) up to C$9,000,000 principal amount of the December Debentures at a purchase price of C$600 per C$1,000 principal amount of December Debentures. Holders of Debentures who validly tendered and did not withdraw their Debentures received the applicable purchase price, plus a cash payment for all accrued and unpaid interest up to, but excluding, the date on which such Debentures were taken up by the Company. The applicable purchase price was denominated in Canadian dollars and payments of amounts owed to holders of deposited Debentures, including for interest, were made in Canadian dollars. The Issuer Bid expired on March 22, 2024 and DIRTT purchased C$4.7 million ($3.5 million) aggregate principal amount of the January Debentures and C$5.8 million ($4.3 million) aggregate principal amount of the December Debentures, representing approximately 11.66% of the January Debentures and 16.50% of the December Debentures issued and outstanding at that time. The Company took up all the Debentures tendered pursuant to the Issuer Bid for aggregate consideration of C$7.0 million ($5.2 million) (comprised of C$6.9 million ($5.1 million) repayment on principal and interest of C$0.1 million ($0.1 million)).
On August 2, 2024, the Company entered into an agreement with 22NW Fund LP (“22NW”), to purchase for cancellation an aggregate of C$18,915,000 principal amount of the January Debentures at a purchase price of C$684.58 per C$1,000 principal amount of January Debentures and C$13,638,000 principal amount of the December Debentures at a purchase price of C$665.64 per C$1,000 principal amount of December Debentures, for an aggregate purchase price of C$22,104,591.45, inclusive of a cash payment for all accrued and unpaid interest up to, but excluding, the date on which such Debentures were purchased by the Company (the “Debenture Repurchase”). The purchase price of each series of Debentures (excluding the cash payment for accrued and unpaid interest) represented a discount of approximately 4% to the average trading price of the applicable series of Debentures on the TSX for the 20 trading days preceding August 2, 2024. As a result of the Debenture Repurchase, 22NW no longer holds any Debentures.
On August 28, 2024, the Company commenced the Debentures normal course issuer bid (the “Debentures NCIB”) which will terminate no later than August 27, 2025. Under the Debentures NCIB, DIRTT is permitted to acquire up to C$1,664,200 principal amount of the January Debentures and C$1,558,700 principal amount of the December Debentures. As at June 30, 2025, C$0.5 million ($0.4 million) and C$0.07 million ($0.05 million) principal amounts of the December Debentures and January Debentures had been acquired through the Debentures NCIB, respectively. As at June 30, 2025, C$16.6 million ($12.2 million) principal amount of the January Debentures and C$15.1 million ($11.0 million) principal amount of the December Debentures were outstanding.
On December 20, 2024, the Company commenced a normal course issuer bid for common shares (the “Shares NCIB”) which will terminate no later than December 19, 2025. Under the Shares NCIB, DIRTT is permitted to acquire up to 7,515,233 common shares. All purchases will be made on the open market at the market price of common shares at the time of acquisition. Any common shares acquired through the Shares NCIB will be immediately cancelled.
On February 13, 2025, the Company entered a share repurchase agreement with NGEN III, LP (“NGEN”) to purchase for cancellation 3,920,844 common shares held by NGEN (the “NGEN Shares”) at a purchase price of $0.80 per NGEN Share (the “Share Repurchase”). Following the Share Repurchase, there were 189,643,903 common shares outstanding. The NGEN Shares repurchased under the Share Repurchase were counted against the maximum number of shares that may be repurchased pursuant to the Shares NCIB being 7,515,233 shares. As at June 30, 2025, 5,169,255 common shares had been repurchased and cancelled for proceeds of C$5.7 million ($4.0 million) through the Shares NCIB and the Share Repurchase.
As explained above, initiating the debt and share buybacks was done after careful consideration of cash flow and with consideration to the risk of proposed and implemented tariffs.
14
15
Facilities
On February 12, 2021, the Company entered into a loan agreement governing a C$25.0 million senior secured revolving credit facility with the Royal Bank of Canada ("RBC"), as lender (the "RBC Facility"). Under the RBC Facility, the Borrowing Base is up to a maximum of 90% of investment grade or insured accounts receivable plus 85% of eligible accounts receivable plus the lesser of 75% of the book value of eligible inventory and 85% of the net orderly liquidation value of eligible inventory less any reserves for potential prior ranking claims. Interest is calculated at the Canadian or U.S. prime rate plus 30 basis points or at the Canadian Dollar Offered Rate or LIBOR plus 155 basis points. Under the RBC Facility, if the "Aggregate Excess Availability", defined as the Borrowing Base less any loan advances or letters of credit or guarantee and if undrawn including unrestricted cash is less than C$5.0 million, the Company is subject to a fixed charge coverage ratio ("FCCR") covenant of 1.10:1 on a trailing twelve-month basis. Additionally, if the FCCR has been below 1.10:1 for the three immediately preceding months, the Company is required to maintain a reserve account equal to the aggregate of one year of payments on outstanding loans on the Canada Leasing Facility and a leasing facility in the United States that is no longer available (together, the "Leasing Facilities"). Should an event of default occur or the Aggregate Excess Availability be less than C$6.25 million for five consecutive business days, the Company would enter a cash dominion period whereby the Company's bank accounts would be blocked by RBC and daily balances will set-off any borrowings and any remaining amounts made available to the Company.
On February 9, 2023, the Company extended the RBC Facility (the "Extended RBC Facility"). The Extended RBC Facility has a maximum borrowing base of C$15.0 million and a one-year term. Interest is calculated as at the Canadian or U.S. prime rate plus 75 basis points or at the Canadian Dollar Offered Rate or LIBOR plus 200 basis points. Under the Extended RBC Facility, until such time that the trailing twelve-month FCCR is above 1.25 for three consecutive months, a cash balance equivalent to one-year's worth of Leasing Facilities payments must be maintained.
On February 9, 2024, the Company extended the Extended RBC Facility (the "Second Extended RBC Facility"). The maximum availability under the Second Extended RBC Facility is subject to the borrowing base calculation to a maximum of C$15.0 million and a one-year term. Interest is calculated as at the Canadian or U.S. prime rate plus 75 basis points or at the Canadian Dollar Offered Rate or Adjusted Term CORRA or Term SOFR plus the Term SOFR Adjustment, in each case, plus 200 basis points. The Second Extended RBC Facility removed the three-month FCCR covenant, which resulted in the release of $0.1 million of restricted cash during the first quarter of 2024 (the Company had $0.4 million restricted cash as at December 31, 2023). On February 11, 2025, the Company extended the Second Extended RBC Facility (the "Third Extended RBC Facility") for a period of two weeks up to February 25, 2025 whilst the Company and RBC completed negotiations.
On February 20, 2025, the Company extended the Third Extended RBC Facility (the "Fourth Extended RBC Facility"). The Fourth Extended RBC Facility is subject to the borrowing base calculation based on accounts receivable balances to a maximum of C$25.0 million and matures on November 30, 2025. Interest is calculated as the Canadian or U.S. prime rate plus 50 basis points or at the Term CORRA Rate as adjusted by the Term CORRA Adjustment or Term SOFR plus the Term SOFR Adjustment, in each case plus 175 basis points. At June 30, 2025, available borrowings were C$10.9 million ($8.0 million) (December 31, 2024 – C$14.4 million ($10.0 million) of available borrowings), calculated in the same manner as the RBC Facility described above, of which no amounts have been drawn. The Fourth Extended RBC Facility also includes a new letter of credit facility guaranteed by the Export Development of Canada of C$5 million. The Company has also entered into a bonding facility with Great Midwest Insurance Company, and any other company that is part of or added to Skyward Specialty Insurance Group, Inc. ("Skyward"), which allows access to a $15.0 million bonding facility subject to an individual maximum of $5 million. Under the terms of the facility with Skyward, any bonds issued will be secured through Letters of Credit issued pursuant to the Fourth Extended RBC Facility.
The Company has a C$5.0 million equipment leasing facility in Canada (the "Canada Leasing Facility") of which, as of June 30, 2025, C$4.4 million ($3.3 million) has been drawn and C$4.0 million ($2.9 million) has been repaid. The Canada Leasing Facility has a seven-year term and bears interest at 4.25%. The Company did not make any draws on the Canada Leasing Facility during the years ended June 30, 2025 and 2024.
We are restricted from paying dividends unless Payment Conditions (as defined in the Fourth Extended RBC Facility) are met, including having a net borrowing availability of at least C$5.0 million over the proceeding 30-day period, and having a trailing twelve-month fixed charge coverage ratio above 1.10:1 and certain other conditions. The Fourth Extended RBC Facility is currently secured by substantially all of our real and personal property located in Canada and the United States.
16
Analysis of Cash Flow Changes During the Three and Six Months Ended June 30, 2025 and 2024
The following table summarizes our consolidated cash flows for the periods indicated:
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||
|---|---|---|---|---|
| 2025 | 2024 | 2025 | 2024 | |
| ($ in thousands) | ($ in thousands) | |||
| Net cash flows (used in) provided by operating activities | (3,922) | 1,643 | (238) | (400) |
| Net cash flows (used in) investing activities | (979) | (844) | (1,708) | (563) |
| Net cash flows (used in) provided by financing activities | (642) | (150) | (4,243) | 15,973 |
| Effect of foreign exchange on cash, cash equivalents and restricted cash | 200 | (109) | 1 | (339) |
| Net (decrease) increase in cash, cash equivalents and restricted cash | (5,343) | 540 | (6,188) | 14,671 |
| Cash, cash equivalents and restricted cash, beginning of period | 28,686 | 39,230 | 29,531 | 25,099 |
| Cash, cash equivalents and restricted cash, end of period | 23,343 | 39,770 | 23,343 | 39,770 |
Operating Activities
For the three months ended June 30, 2025, net cash flows used in operating activities were $3.9 million compared to $1.6 million provided in the same period of 2024. The decrease in cash flows provided by operations in the second quarter of 2025 is largely due to a $1.4 million decrease in working capital compared to a $0.9 million decrease in working capital in the second quarter of 2024, and a $5.2 million decrease in Adjusted EBITDA.
For the six months ended June 30, 2025, net cash flows used in operating activities were $0.2 million compared to $0.4 million used in the same period of 2024. The decrease in cash flows provided by operations was largely driven by a $0.3 million increase in working capital in the six months ended June 30, 2025 compared to a $5.0 million decrease in working capital in the six months ended June 30, 2024, partially offset by a $5.8 million decrease in Adjusted EBITDA.
Investing Activities
We invested $1.0 million and $1.8 million in capital expenditures for the three and six months ended June 30, 2025, compared to $0.9 million and $1.7 million for the three and six months ended June 30, 2024, respectively. The capital expenditures in the three and six months ended June 30, 2025 consisted of $0.4 million and $0.9 million on capitalized software, $0.2 million and $0.3 million on manufacturing upgrades, $0.1 million and $0.2 million on marketing, $0.03 million and $0.2 million on leasehold improvements, and $0.2 million on other asset spend.
Financing Activities
We used $0.6 million of cash in financing activities for the three months ended June 30, 2025 and $4.2 million in the six months ended June 30, 2025, compared to $0.2 million used in the three months ended June 30, 2024 and $16.0 million provided in the six months ended June 30, 2024. The increase in net cash flows used in financing activities from the second quarter of 2024 compared to the second quarter of 2025 is driven by a $0.5 million increase in common share repurchases under the Shares NCIB that was not available for the three months ended June 30, 2024, and a $0.1 million increase in repayment of convertible debt under the Debentures NCIB. These increases were offset by a $0.1 million decrease in employee tax payments on vesting RSUs.
Cash used in the six months ended June 30, 2025 was mainly driven by the $4.0 million spent in repurchases of common shares through the Shares NCIB and the Share Repurchase, and $0.2 million repayment on convertible debt through the Debentures NCIB. The cash provided by financing activities in the six months ended June 30, 2024 was driven by $21.3 million of net proceeds received from the Rights Offering, partially offset by $5.1 million used for the repurchase for cancellation of C$10.5 million principal amount of Debentures as a result of the Issuer Bid.
18
Contractual Obligations
There have been no material changes in our contractual obligations during the six months ended June 30, 2025, as compared to those disclosed in the "Management's Discussion and Analysis of Financial Condition and results of Operations - Contractual Obligations" in our Annual Report on Form 10-K, other than the forthcoming additional commitments related to the commencement of a DXC lease in Houston. See Note 15, "Commitments" to our interim condensed consolidated financial statements in this Quarterly Report for additional information.
Significant Accounting Policies and Estimates
There have been no material changes in our significant accounting policies during the six months ended June 30, 2025, as compared to those disclosed in "Management's Discussion and Analysis of Financial Condition and Results of Operations – Significant Accounting Policies and Estimates" in our Annual Report on Form 10-K. For information regarding significant accounting policies and estimates, please refer to Item 7 and Item 8 in our Annual Report on Form 10-K. As disclosed in Note 3, "Adoption of New and Revised Accounting Standards" to our interim condensed consolidated financial statements appearing in this Quarterly Report, we are evaluating the impact of Accounting Standards Update No. 2023-09, "Improvements to Income Tax Disclosures" ("ASU-2023-09") which further disaggregated information on an entity's tax rate reconciliation and income taxes paid. The amendments in ASU-2023-09 are effective for fiscal years beginning after December 15, 2024, on a prospective basis with an option of retrospective application. The Company expects the impact to be limited to disclosures.
Recent Accounting Pronouncements
For information regarding recent accounting pronouncements, please refer to Note 3, "Adoption of New and Revised Accounting Standards," to our condensed consolidated interim financial statements and "–Significant Accounting Policies and Estimates" appearing in this Quarterly Report.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes to our market risk exposures since our disclosures in our Annual Report on Form 10-K. For information regarding our exposure to certain market risks, please refer to Item 7A. "Quantitative and Qualitative Disclosures about Market Risk" in our Annual Report on Form 10-K. The Company's cash and cash equivalents are predominantly all with one AA rated financial institution.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the Company's reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our principal executive officers and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
As required by Rule 13a-15 under the Exchange Act, our principal executive officers and principal financial officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2025. Based upon their evaluation, our principal executive officers and principal financial officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the quarter ended June 30, 2025, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
19
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
There have been no material developments in the legal proceedings previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2024 (the “2024 Form 10-K”), as updated in our Form 10-Q for the quarter ended March 31, 2025, except as described below.
In 2019, Falkbuilt filed a lawsuit against DIRTT in the Court of Queen’s bench in Alberta (as it was then), alleging that DIRTT had misappropriated and misused their alleged proprietary information in furtherance of DIRTT’s product development. In June 2025, Falkbuilt requested discontinuance on a without costs basis on account of the delay. DIRTT has accepted this offer and the discontinuance of claim was filed in the Court of King's Bench of Alberta on July 17, 2025.
Item 1A. Risk Factors
In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors and other cautionary statements described under the heading “Risk Factors” included in our 2024 Form 10-K, as updated in our Form 10-Q for the quarter ended March 31, 2025, which could materially affect our businesses, financial condition, or results of operations. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table summarizes the common shares repurchased and cancelled during the period:
| Period | Total number of shares purchased | Average price paid per share | Total number of shares purchased as part of publicly announced programs^{(1)(2)(3)} | Maximum number of shares that may yet be purchased under the program^{(1)(2)(3)} |
|---|---|---|---|---|
| January 1, 2025 - January 31, 2025 | 109,556 | $ 0.77 | 109,556 | 7,347,199 |
| February 1, 2025 - February 28, 2025^{(4)} | 4,074,200 | $ 0.80 | 153,356 | 3,272,999 |
| March 1, 2025 - March 31, 2025 | 255,351 | $ 0.69 | 255,351 | 3,017,648 |
| April 1, 2025 - April 30, 2025 | 266,546 | $ 0.73 | 266,546 | 2,751,102 |
| May 1, 2025 - May 31, 2025 | 197,129 | $ 0.66 | 197,129 | 2,553,973 |
| June 1, 2025 - June 30, 2025 | 266,473 | $ 0.61 | 266,473 | 2,287,500 |
| Total | 5,169,255 | 1,248,411 | 2,287,500 |
(1) The normal course issuer bid for common shares was announced on December 18, 2024 and commenced on December 20, 2024;
(2) The maximum number of common shares approved to be purchased under the Shares NCIB is 7,515,233 common shares;
(3) The expiration date of the Shares NCIB is December 19, 2025. As of July 1, 2025, the number of shares available to be purchased under the Shares NCIB is 2,287,500; and
(4) Includes 3,920,844 common shares that were repurchased from NGEN under the Share Repurchase at a purchase price of $0.80 per share. The Share Repurchase was completed on February 14, 2025. The Share Repurchase was a privately negotiated transaction and was not made pursuant to the Shares NCIB or any other publicly announced share repurchase programs, although it was counted against the NCIB limit.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
20
Insider Trading Arrangements
None.