Mr. Benjamin Urban reports

DIRTT REPORTS FIRST QUARTER 2023 FINANCIAL RESULTS

DIRTT Environmental Solutions Ltd. has released its financial results for the three months ended March 31, 2023. All financial information in this news release is presented in U.S. dollars, unless otherwise stated.

First quarter 2023 highlights:

• Revenue decreased 4 per cent to $36.7-million for the quarter, compared with the prior-year first quarter.
• Gross profit margin improved by 1,507 basis points from the first quarter of 2022 due to previously implemented price increases and reductions made to its fixed-cost structure.
• Net loss improved by $11.6-million to ($11.4-million), or 50 per cent, from the prior-year first quarter loss of ($23.0-million).
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) (1) improved $8.4-million, or 70 per cent year over year, despite lower revenue.
• Unrestricted cash of $8.1-million compared with $10.8-million at Dec. 31, 2022.
• Liquidity of $13.3-million compared with $16.1-million at Dec. 31, 2022.
• Twelve-month forward sales pipeline was $252-million as of April 1, 2023, an increase of 2 per cent from Jan. 1, 2023, and a 4-per-cent increase from Jan. 1, 2022 (2).
• On May 9, 2023, DIRTT entered into an agreement with Armstrong World Industries Inc. (AWI) related to the co-ownership of certain intellectual property rights in a portion of the ICE software for cash consideration.

(1) A non-generally accepted accounting principle financial measure.

(2) In the first quarter of 2023, it changed its methodology for calculating its forward 12-month pipeline. It reports the number of qualified leads separately and no longer includes the value of qualified leads, calculated as qualified leads multiplied by average project value, in the calculation of its forward 12-month pipeline. For additional information, refer to the quarterly report on Form 10-Q filed with the Securities and Exchange Commission on May 9, 2023.

Management commentary

Benjamin Urban, chief executive officer, remarked: "I am proud of the way our team has responded to increased economic uncertainty and volatility within our first quarter pipeline. While our first quarter revenue performance does not meet our expectations, we are already seeing the results from our commercial reorganization undertaken earlier in the year. We have experienced an increase in both our order pace and pipeline beginning in April, being awarded several large projects with Bechtel, Apache and Visa that are expected to deliver $10-million to $15-million in aggregated revenue this year. DIRTT is also excited to establish a deeper collaboration with AWI and believes it will provide additional resources and investment to move the ICE software forward, while leveraging the relationship to identify and capitalize on new commercial opportunities and possible revenue growth capabilities."

Bradley Little, chief financial officer, added: "The pricing, cost reduction and cash initiatives implemented over the previous six to nine months have served to mitigate against market uncertainty and delayed project schedules during the first quarter. This resulted in improved margins and improved adjusted EBITDA year over year on lower volumes. This improved cost structure provides us with a solid platform that we believe will enable us to deliver profitable growth in the future. We are making good progress on our non-dilutive strategic cash initiatives, which are expected to deliver meaningful cash proceeds to the company in 2023."

Outlook

Its 12-month forward sales pipeline at April 1, 2023, excluding leads, was $252-million, an increase of 2 per cent from Jan. 1, 2023, and a 4-per-cent increase year over year (1).

At April 1, 2023, qualified leads being pursued with expected projects in the next 12 months were 969, compared with 721 at Jan. 1, 2023, and 395 as of Jan. 1, 2022.

Like many other companies, it is impacted by uncertain macroeconomic conditions, including layoffs in the technology sector, a reduction in short-term needs for office space and increasing interest rates impacting borrowings. Certain larger projects that were planned for the first two quarters of 2023 have been deferred or cancelled, resulting in muted growth in its pipeline as of April 1, 2023.

In response to these factors, it has taken a thoughtful look at its cost structure over the past three months. During the first quarter of 2023, as it discussed in its previous filings, it took actions to reduce annualized operating expenses by approximately $5.0-million. In addition, during the second quarter to date, it has taken additional actions that it expects to generate $4.0-million in annualized savings, including a planned head count reduction with annualized savings of approximately $3.1-million exclusive of termination benefits of $700,000. These reductions are designed to improve efficiencies and streamline its back office and order fulfilment processes in light of the longer-range uncertainty. These actions are not expected to have a material impact on product delivery.

Despite the uncertainty and current economic environment, it is seeing the benefits of the reorganization of its commercial organization and experienced an increase in both its order pace and pipeline beginning in April and May, 2023.

(1) In the first quarter of 2023, it changed its methodology for calculating its forward 12-month pipeline. See prior explanation of such changes.

Conference call and webcast details

A conference call and a webcast for the investment community are scheduled for May 10, 2023, at 8 a.m. MDT (10 a.m. EDT). The call and webcast will be hosted by Mr. Urban, and Bradley Little, chief financial officer.

The call is being webcast live on the company's website. The webcast is listen only. Those interested in participating in the question-and-answer session should follow the conference call dial-in instructions below.

Participants may register for the call to receive the dial-in numbers and unique PIN to listen to the call seamlessly. It is recommended that you join 10 minutes prior to the event start, although you may register and dial in at any time during the call.

Investors are invited to submit questions to ir@dirtt.com before the call. Supplemental information slides will be available within the webcast and at the DIRTT website prior to the call start.

A webcast replay of the call will be available on DIRTT's website.

About DIRTT Environmental Solutions Ltd.

DIRTT is a leader in industrialized construction. 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, health care, education and public sector markets, DIRTT has a system providing total design freedom and greater certainty in cost, schedule and outcomes.

Headquartered in Calgary, Alta., Canada, DIRTT trades on the Nasdaq under the symbol DRTT and on the Toronto Stock Exchange under the symbol DRT.

We seek Safe Harbor.