EDGAR 10-K Filing

Company CIK: 1340476
Filing Year: 2025
Filename: 1340476_10-K_2025_0000950170-25-027896.json

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ITEM 1. BUSINESS
Item 1. Business.
Overview
DIRTT designs and manufactures adaptable, sustainable spaces where people work, learn and heal. Since 2004, DIRTT has grown to become a leader in industrialized construction providing a compelling alternative to conventional construction methods.
DIRTT’s construction system offers unrivaled speed, accuracy, and quality. Our product design and software platform, ICE® (“ICE” or “ICE Software”), simplifies preconstruction, production, and installation. These advantages provide our end users greater cost certainty and up to 30% shorter construction schedules compared to conventional construction methods.
DIRTT spaces are built for change and ready to adapt as needs evolve. Our design ensures components are interchangeable and can be repurposed for small updates or full reconfigurations without major renovation, cost, or waste.
Our approach to industrialized construction combines a portfolio of interior construction products with advanced digital tools. DIRTT’s first-of-its-kind software called ICE, serves as the engine for our industrialized construction system, enabling projects to be designed, visualized, organized, configured, priced, and manufactured off-site, with final assembly and installation completed at the job site. ICE empowers faster decision-making during design with real-time changes, visualization, and pricing information. ICE connects directly to DIRTT manufacturing facilities for end-to-end integration, precise manufacturing, production management, and coordination of the DIRTT scope. Our ICE Software is licensed to our Construction Partners (as defined herein), as well as other 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. In addition to the core ICE platform, our cloud-based virtual reality tool and app, called ICEreality, connects teams from anywhere in the world to walk through their virtual space together, while design changes can be made with real-time feedback on pricing.
We believe that our three strategic priorities, namely: a focus on cost-discipline, a continuous improvement philosophy, and a prudent and measured approach to capital investment will drive increased value creation for our employees, clients, Construction Partners, and shareholders.
We work with some of the most innovative clients, design teams, and construction professionals. We reach our clients through an internal sales team and international network of independent DIRTT Construction Partners (“Construction Partners” or “Partners”). Their DIRTT expertise makes them trusted professionals in their regions for pre-construction considerations, order, installation, and adaptation of interior spaces. DIRTT Construction Partners work with clients and construction teams, ensuring effective management and execution of the DIRTT scope on every project. Long term, they support reconfigurations, adaptations, and adjustments, continuously protecting our clients’ investments in DIRTT while ensuring their spaces stay relevant.
DIRTT was incorporated in Alberta, Canada, under the Business Corporations Act (Alberta) (“ABCA”) on March 4, 2003 and mostly recently amended and restated its articles on May 5, 2019. Our headquarters are located at 7303 30 Street SE, Calgary, Alberta, T2C 1N6, Canada, and our telephone number at that address is 403-723-5000. Our manufacturing facilities are in Calgary, Alberta and Savannah, Georgia.
We completed our initial public offering in Canada in November 2013 and listed our common shares on the Nasdaq Global Select Market (“Nasdaq”) in October 2019. Our common shares trade on the Toronto Stock Exchange (“TSX”) under the symbol “DRT”. Effective October 12, 2023, DIRTT’s common shares ceased to trade on the Nasdaq. DIRTT’s common shares are quoted on the OTC markets on the “OTC Pink Tier” under the symbol “DRTTF.”
Unless otherwise specified or the context otherwise requires, references to “we,” “us,” “our,” “its,” “the Company” or “DIRTT” mean DIRTT Environmental Solutions Ltd. and, where the context so requires, includes our subsidiaries.
Available Information
We file or furnish annual, quarterly and current reports, proxy statements and other documents with the U.S. Securities and Exchange Commission (“SEC”) under the Exchange Act. The SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers, including DIRTT, that file electronically with the SEC. We are also subject to requirements of applicable securities laws in Canada, and documents that we file with the securities commissions or similar regulatory authorities in Canada may be found at www.sedarplus.ca.
We make available free of charge through our website (www.dirtt.com) our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and, if applicable, amendments to those reports filed or furnished pursuant to Section 13(a) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC and the applicable securities commissions in Canada. In addition to the reports filed or furnished with the SEC and the applicable securities commissions in Canada, we publicly disclose information from time to time in our press releases, investor presentations posted on our website and at publicly accessible conferences. References to such information, including references to our Environmental, Social, and Governance (ESG) Report, and references to our website in this Annual Report, are provided as a convenience and do not constitute, and should not be deemed, an incorporation by reference of the information contained on, or available through, the website, and such information should not be considered part of this Annual Report.
We will provide without charge to you, upon your request, a copy of our annual report on Form 10-K for the year ended December 31, 2024, filed with the SEC and the applicable securities commissions or similar regulatory authorities in Canada. Requests for copies should be addressed to 7303 30 Street SE, Calgary, Alberta, T2C 1N6, Canada, Attention: Investor Relations.
Our Solutions
Our array of products and integrations give our clients the tools to create high-performing interiors that stay relevant into the future. Unlike conventional prefabricated products, our solutions do not have predetermined shapes, sizes, or configurations, empowering clients with design freedom to meet their needs. The core of our product philosophy is a construction system that uses a universal interface. By allowing interchangeable parts, DIRTT can maximize the life cycle for most of our products as well as the spaces they occupy. Committed to sustainability, we subscribe to non-obsolescence, where new DIRTT components work with DIRTT products that came before. Our solutions can be disassembled and reconfigured with minimal waste. With both design freedom and adaptability benefits, client spaces are tailored to their unique needs on day one and can be more easily reconfigured or adapted to stay relevant on day two and beyond.
Our solutions (“DIRTT Solutions”) are typically able to address over 90% of an interior space. Components are manufactured in DIRTT facilities and shipped to site for installation. The following table provides a brief description of our primary solutions:
DIRTT Solution
Description
Solid Walls
DIRTT’s solid walls offer extensive options with 4”, 6”, and 2” furring wall offerings. Solid walls connect seamlessly to other products in the DIRTT construction system and enable unique finishes, colors, and configurations. Wall cavities support electric, network, and technology integrations.
Glass Walls
DIRTT’s glass walls are available as double pane, classic center-mount, or the slimmer Inspire™ profiles. DIRTT glass walls can accommodate base building variance and acoustic requirements while remaining aesthetically pleasing.
Combination Walls
Solid and glass walls can be combined for a mix of privacy and transparency. Combination walls can be customized and configured to fit any design with the benefits of the DIRTT system.
Leaf Folding Walls®
The retractable modular wall system adds functionality with an effortless solution to quickly adapt space. Like other walls in the DIRTT portfolio, dimensions and finishes of Leaf™ can be customized.
Headwalls
This modular, multi-trade healthcare headwall system is an efficient, adaptable approach to healthcare construction. With extensive customization options and integrations, DIRTT Headwalls are an efficient way to meet unique healthcare compliance requirements.
Doors
DIRTT doors integrate seamlessly with DIRTT solid and glass wall assemblies. A wide range of types and styles are available, including swing doors, sliding doors, and pivot doors. Door options can meet smoke-rating and acoustic requirements.
Casework
DIRTT offers custom cabinets, closets, and storage solutions with consistent quality and efficient installation. Precision-manufactured casework is delivered with predictable lead times.
Timber
Traditional craftsmanship meets advanced, custom manufacturing to create striking designs and structural elements. Engineered to meet local requirements, DIRTT Timber integrates with broader DIRTT scopes to bring natural elements to spaces with rapid assembly on-site.
Electrical
DIRTT’s modular electrical system supports connected infrastructure needs. The pre-wired, modular distribution system includes pre-mounted and terminated device boxes installed at the factory to reduce project time and cost on-site. Plug-in connections allow for quick installations and easy modifications.
Networks
DIRTT’s Fiber to the Edge networks deliver unlimited bandwidth capability and longer-reaching signal strength while reducing supporting infrastructure needs and material costs. Industry-leading technology and future-ready infrastructure empowers smart building benefits. Copper-based network options reduce install time and increase flexibility.
Access Floors
Low-profile, fixed-height access floor provides an adaptable foundation for connected infrastructure with long-term accessibility for easy moves, additions, and changes.
In addition to our core product offering, DIRTT enables integrations with technology, custom graphics, writable surfaces, and Breathe® Living Walls. Further product information can be found on dirtt.com.
Sustainability and Environmental Matters
DIRTT aims to minimize the environmental impact of interior construction through careful material selection, efficient operations, a system designed for future adaptability, and long product lifecycles. We work with clients to understand their unique sustainability goals and identify how building with DIRTT can support LEED, WELL, Living Building Challenge, and other green building standards they may be targeting. Our sustainability team helps to calculate various elements of the DIRTT scope that support certification.
DIRTT’s agile construction system makes it quick, easy, and cost effective to evolve interior spaces through future reconfigurations and relocations, while reducing waste compared to conventional construction and demolition. Our agile system is designed for disassembly to reduce the carbon footprint of new construction and future changes. We further reduce waste through efficient manufacturing and pre-assembled solutions.
We regularly evaluate the environmental impact of our materials, considering impact on the wellness of the occupants using the spaces we build and life cycles of the products we make. DIRTT endeavors to use materials with high recycled content, bio-based content, and low or no volatile organic compounds (VOCs). Most DIRTT assemblies are certified through Science Certification Systems (SCS) Indoor Advantage Gold, recognizing their low-emitting properties. DIRTT wall panel and casework facilities are certified to handle materials with FSC® certification (FSC-C006900), ensuring FSC certified products may be specified.
We recognize the vital importance of reducing embodied carbon within DIRTT products. Our environmentally conscious production facilities are regularly evaluated by cross-functional teams who assess and implement energy efficiency strategies. For example, to further reduce our operational carbon footprint, DIRTT’s U.S. and Canadian factories are powered by renewable energy through our purchase of Green-e® and Direct Energy certified renewable energy credits (RECs). We further reduce the impact of our operations with recycling and waste diversion programs.
DIRTT releases an annual Environmental, Social, and Governance (ESG) report outlining our commitments to sustainability and the environment. It also provides disclosure of our current environmental and sustainability impacts. DIRTT has set goals to reduce landfill waste by the end of 2025 and to source or produce renewable energy to cover 100% of our factory operations.
Further information about DIRTT’s sustainability practices can be found at dirtt.com/sustainability.
Construction Partners and Sales Network
We primarily sell DIRTT Solutions through a network of Construction Partners working in conjunction with local DIRTT sales representatives, as well as internal DIRTT industry specialists, business development professionals and a dedicated Construction Partner support team. Construction Partners and local sales representatives are located in cities throughout the United States and Canada, with additional locations in Saudi Arabia, Mexico, the United Kingdom and Singapore. The use of a dispersed network of Construction Partners greatly enhances our ability to drive awareness of the DIRTT brand and understanding of our approach to construction throughout our markets.
As part of our distribution agreements, our Construction Partners are typically required to invest in their own DIRTT Experience Center (“DXC”) so that they are able to effectively showcase DIRTT Solutions. These DXCs are showrooms that provide mock-ups of DIRTT Solutions and related product offerings. DIRTT independently maintains DXCs in Calgary and Chicago.
Our Construction Partners operate under agreements that outline sales goals and marketing territories which are generally non-exclusive. We expect our Construction Partners to build regional DIRTT-dedicated teams and to use our ICE Software in the sales process. In addition to sales and marketing, our Construction Partners provide value throughout the construction process. At the pre-construction stage, Construction Partners provide design assistance services to the architect and designer; throughout the construction process, Construction Partners act as a specialty subcontractor to the general contractor and provide installation and other construction services. Post-move in, Construction Partners provide warranty work, ongoing maintenance and reconfiguring support. Local DIRTT sales representatives work closely with the Construction Partners throughout the process to ensure successful project implementation and the highest client satisfaction. Construction Partners generally place orders for DIRTT Solutions directly with us and pay us directly for such orders.
At December 31, 2024, we had a total of 71 Construction Partners and 39 sales representatives across North America. We are not dependent on any one Construction Partner or sales representative.
Strategic accounts are a cornerstone in our strategy to drive long-term sustainable and predictable growth. These types of clients manage large real estate footprints in numerous locations. For these clients, it is advantageous and important to establish consistency in design and execution, repeatability, and speed to market. While these relationships can take time to develop, once they are established, the time and resources required to execute additional projects is reduced, which we believe will create profitable, predictable revenue streams. In return, clients benefit from a single point of accountability at DIRTT, a strong network of partners, full lifecycle support from established design standards and pre-construction expert support for their architects, designers and general contractors from field work to post installation support.
In 2024, we launched an additional go-to-market channel called Integrated Solutions. This team provides sales, design, estimating, and project delivery services with our DIRTT Construction Partners and DIRTT sales representatives. Integrated Solutions increases our sales network’s capacity as well as targets revenues in channels without existing coverage. There are three key opportunity areas Integrated Solutions is focusing on; diversifying our customer profile, increasing volumes in smaller markets, and expanding into new sectors. Through these efforts, Integrated Solutions aims to simplify our go-to-market strategy and increase access to DIRTT’s portfolio of products.
Manufacturing and Properties
Our DIRTT Solutions are currently manufactured at our facilities in Calgary, Alberta (the “Calgary Facility”) and Savannah, Georgia (the “Savannah Facility”). In 2023, we announced our intention to permanently close our facility in Rock Hill, South Carolina (the “Rock Hill Facility”) because the Calgary and Savannah Facilities can meet current demands with annual production capacity of $400 million in revenue. Currently our wall surfaces (which we call panels), casework and timber solutions are manufactured in Calgary, while aluminum, glass and power components are manufactured in Calgary and Savannah. Through distributed manufacturing, we can shift production of some components among our manufacturing sites, reduce transportation times and costs, and meet targeted lead times.
Suppliers and Raw Materials
Our inventory balances consist primarily of raw materials, which are kept on hand as components of our custom manufacturing process. Managing our raw material inventory is essential to our business, given our short lead times from order to shipment and our high level of order customization. Our key manufacturing materials are aluminum, hardware, wood and glass. For the twelve months ended December 31, 2024, aluminum accounted for approximately 35% of our purchased materials, while wood, hardware and finishing powder & paint accounted for approximately 11%, 9%, and 11%, respectively. While we maintain multiple suppliers for key materials, for the twelve months ended December 31, 2024, (i) one supplier accounted for approximately 65% of our aluminum supply and two additional suppliers provided 21% and 9%, respectively, (ii) two suppliers accounted for approximately 64% and 25% of our wood supply, respectively, (iii) one supplier accounted for 100% of our paint and (iv) one supplier accounted for approximately 50% of our hardware supply.
Materials are sourced domestically and, to a much lesser extent, overseas. Approximately 92% of our materials are manufactured and purchased in North America. Purchase decisions are made on the basis of quality, cost, and ability to meet delivery requirements. We do not typically enter into long-term agreements with suppliers. In general, adequate supplies of raw materials are available to all our operations, but we continue to be impacted by inflationary price pressures across substantially all of our raw material requirements and aluminum purchases may be subject to market capacity constraints. Additionally, the imposition of tariffs or other trade barriers may further affect the pricing of our raw materials.
Technology and Development
We continue to focus on developing client-centric innovations and enhancements of both ICE Software and DIRTT Solutions with a primary focus on improving client experience, increasing market penetration and growing key markets. At December 31, 2024, we employed 73 employees within our technology and development groups and, including capitalized amounts, invested $7.6 million, $8.3 million and $10.3 million in 2024, 2023 and 2022, respectively, in innovation activities.
On May 9, 2023, the Company entered into a Partial Patent Assignment Agreement and a Co-Ownership Agreement (collectively, the “AWI Agreements”) with AWI. The AWI Agreements provide for the partial assignment to AWI and co-ownership of an undivided 50% interest in certain intellectual property rights (including related patents) in a portion of the Company’s ICE software that is used by AWI (the “Applicable ICE Code”), in exchange for a cash payment of $10.0 million. As part of the AWI Agreements, the Company provided AWI a transfer of knowledge concerning the Applicable ICE Code in exchange for an additional $1 million which was received in the fourth quarter of 2023. Under the AWI Agreements, the Company and AWI will have separate exclusive fields of use and certain restrictive covenants with respect to the Applicable ICE Code and related intellectual property rights, each of which survive until either party elects to separate its relationship from the other and for a period of five years thereafter.
Clients
DIRTT’s principal geographic markets are the United States and Canada. Our revenue is derived almost entirely from projects in North America sold by our North American Construction Partners.
Our revenue opportunities primarily come from commercial projects, including both new construction projects and renovations of existing buildings. Clients range from small owner-managed businesses to multinational Fortune 500 companies across a variety of industries, including healthcare, education, financial services, government and military, manufacturing, non-profit, energy, professional services, retail, technology, and hospitality. We view DIRTT Solutions as generally industry agnostic, with applications in many different industries with minimal adjustments. We are not dependent on any one client or industry segment. In 2024 and 2022, no single Construction Partner represented more than 10% of our revenue, while one client represented more than 10% of our revenue for the year ended December 31, 2023.
Competition
The overall market for interior construction is fragmented and highly competitive. The principal competitive factors in the interior construction industry include price (including cost certainty), speed, quality, customization, and service. Our main competitors are comprised primarily of conventional construction firms, individual tradespeople (including framers, drywall installers, and interior product designers) and modular systems manufacturers. Additionally, conventional construction firms are beginning to develop customizable wall paneling and other interior construction solutions and may directly compete with our DIRTT Solutions. We also compete with commercial furniture manufacturers, such as Teknion Corporation, Haworth Inc., Allsteel Inc. and Steelcase Canada Ltd., who offer a variety of prefabricated interior wall solutions. We expect competition to increase as new entrants or solutions enter the interior construction market. See Item 1A. “Risk Factors”.
Seasonality
The construction industry has also historically experienced seasonal slowdowns related to winter weather conditions and holiday schedules, which affect shipping and on-site installation dates, in the first quarter of each calendar year. Our business has generally, but not always, followed this trend with a slight time lag, leading to stronger sales in the second half of the year versus the first half. Weather factors can also influence third-party exterior construction schedules and site conditions, which may in turn affect timing of interior builds.
Due to the fixed nature of certain manufacturing costs, such as our facilities leases and related indirect operating costs, periods of higher revenue volume tend to generate higher gross profit and operating income margins, while periods of lower volume tend to result in lower gross profit and operating income margins. Quarters that contain consistent monthly manufacturing volumes tend to generate higher gross profit than those where manufacturing levels vary significantly from month to month.
Patent and Intellectual Property Rights
Our success depends, in part, upon our intellectual property rights relating to our products, production processes, our technology, including our ICE Software, and other operations. We rely on a combination of trade secret, nondisclosure and other contractual arrangements, as well as patent, copyright and trademark laws, to protect our proprietary rights and competitive advantage. We register our patents and trademarks as we deem appropriate and take measures to defend patents where we deem others are infringing on our patents. The following table presents the status as of December 31, 2024, of our issued and pending patents relating to various aspects of DIRTT Solutions and ICE Software:
Granted
Applications
Jurisdiction
Patents
Pending
Canada
United States
Europe (EU Designs and European Patent Office)
France
-
Germany
-
Great Britain (UK)
-
Singapore
-
Total
Our issued patents expire between 2025 and 2040. We do not believe that the expiration of any individual patent will have a material adverse effect on our business, financial condition or results of operations. As we develop innovations and new technology,
we expect to file additional and supplemental patents to protect our rights in those innovations and new technology. As described in more detail above, AWI owns a 50% interest in the rights, title and interests in the Applicable ICE Code, including a 50% interest in a portion of the patent rights that relate to the Applicable ICE Code.
Government Regulations
The operation of our business is subject to stringent and complex laws and regulations pertaining to health, safety, and the environment. As an owner or operator of various manufacturing facilities, we must comply with these laws and regulations at the federal, state, provincial and local levels in both the United States and Canada. Failure to comply with environmental laws and regulations may trigger a variety of administrative, civil, or criminal enforcement actions, including the assessment of monetary penalties, the imposition of investigative or remedial requirements, or the issuance of orders limiting current or future operations. Certain environmental statutes impose strict, joint and several liability for costs required to clean up and restore sites where hazardous substances or industrial wastes have been mismanaged or otherwise released.
While we do not believe that compliance with federal, state, provincial, or local environmental laws and regulations will have a material adverse effect on our business, financial position or results of operations, we cannot provide any assurances that future events, such as changes in existing laws or regulations, the promulgation of new laws or regulations, or the development or discovery of new facts or conditions related to our operations, will not cause us to incur significant costs.
Legal and Regulatory Proceedings
We may be involved from time to time in various lawsuits, claims, investigations, and other legal matters that arise in the ordinary course of business, including matters involving our products, intellectual property, relationships with suppliers, relationships with Construction Partners, relationships with competitors, employees, and other matters. We may, for example, be a party to various litigation matters that involve product liability, tort liability, and claims under other allegations, including claims from our employees either individually or collectively. We do not believe that any current claims, individually or in the aggregate, will have a material adverse effect on our financial condition, liquidity or results of operations. For additional information regarding our current legal proceedings, see Item 3. “Legal Proceedings.”
Human Capital Resources
As at December 31, 2024, DIRTT employed 847 employees, 99% full time, 1% part time. We had 842 full-time employees consisting of 564 employees in production, 79 employees in sales and marketing, 73 employees in technology and development, 67 employees in operations support, and 64 general and administrative employees. At year-end, approximately 46% of our workforce are salaried employees and approximately 54% are compensated on an hourly basis. As at December 31, 2024, approximately 23% of our workforce was based in the United States, and approximately 77% was based in Canada. Our 2024 hiring efforts were directed towards both our manufacturing and non-manufacturing functions.
Workplace Values and Equal Employment Opportunity
DIRTT recognizes the importance of attracting and retaining a talented, multifaceted workforce and fostering a sense of belonging within the organization. We value our employees for what they bring to our organization, including by embracing those from all backgrounds and experiences, and we seek to foster a workplace where everyone feels valued, respected and empowered. To support these values and objectives, we offer employees voluntary opportunities to participate in various learning streams and mentoring circles. We are committed to principles of equal employment opportunity and make hiring and other employment-related decisions based on merit, talent, skill, capability needs, and fit.
Culture & Engagement
DIRTT has put measures in place to assess and enhance the level of engagement and satisfaction of our employees. Specific activities include the deployment of a performance management tool catered to drive discussions around team goals, performance and development opportunities, and greater transparency around policy and procedures tied to cost and risk mitigation.
In 2024, we conducted an employee engagement survey through a platform called Employee Voice which focused on core themes of workplace civility, work-life balance, retention and job satisfaction. We had an 84% participation rate in our engagement survey. Targeted initiatives are being put in place to assess the progression of themes from the survey on overall employee engagement and experience.
Additional initiatives related to the progression of a strong workplace culture and active employee engagement include learning and development opportunities, enhanced communication platforms, employee recognition programs, a company-wide philanthropic organization, and a strong focus on virtual social events to further support engagement and connection of remote employees.
Connecting to our community is a critical piece of the DIRTT story. We continue to focus on establishing a stronger community investment program that demonstrates our drive to put community at the center of the business. This involves developing a strategy, carving out a roadmap of initiatives, and establishing a committee of employees across the organization. As part of our strategy, we are focusing our efforts on establishing meaningful engagement opportunities, creating inclusive giving campaigns, driving sustainable impact, and enabling our employees to connect on philanthropic efforts. In 2024, we launched our Hearts & Hands employee volunteer program which aims to foster a sense of community by encouraging employees to give back to society while building stronger connections with their colleagues. In the fourth quarter of 2024, we successfully completed our holiday giving campaign which was a coordinated in-person and virtual effort in support of food banks across North America, focusing on the cities in which we operate. The support for this campaign helped to reconnect DIRTT employees’ desire to give back with tangible outcomes for their communities.
Our core commitment to organizational safety resulted in a Total Recordable Incident Frequency (TRIF) of 0.82 in 2024, more than 80% below the industry average.
We use a range of compensation incentives which vary by role, including annual variable compensation determined based on a combination of achieving team objectives and financial targets for the Company; quarterly bonuses for our manufacturing personnel paid on adherence to targets related to safety, quality, delivery, inventory and productivity; and commissions based on sales. We also use various forms of stock-based compensation as a retention tool and to further align employee interests with the interests of our shareholders. We monitor our retention by way of voluntary turnover, which was 11% in 2024.
None of our employees are covered by collective bargaining agreements. We have never experienced labor-related work stoppages or strikes, and we believe we currently have a positive relationship with our employees.

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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors.
Investing in our common shares involves a high degree of risk. You should carefully consider the risks described below, as well as the other information in this Annual Report, including our consolidated financial statements and the related notes and Part II, Item 7. entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and in any documents incorporated in this Annual Report by reference, before deciding whether to invest in our common shares. The occurrence of any of the events or developments described below could harm our business, financial condition, results of operations, and growth prospects. In such an event, the market price of our common shares could decline, and you may lose all or part of your investment. Although we have discussed all known material risks, the risks described below are not the only ones that we may face. Additional risks and uncertainties not currently known to us or that we currently deem immaterial may also impair our business operations. Certain statements below are forward-looking statements. See also “Special Note Regarding Forward-Looking Statements” in this Annual Report.
Risks Related to Our Business and Industry
Our industry is highly competitive, and we may not be successful in educating potential clients about the benefits of our innovative and unique approach to interior construction as compared to conventional interior construction methods.
We operate in the highly competitive interior construction industry that is constantly developing and changing. We compete against conventional construction firms, individual tradespeople, modular systems, and commercial furniture manufacturers. New market entrants and conventional construction firms are also beginning to develop customizable wall paneling and other modular interior construction solutions, and we expect this trend to continue. In addition, we may face pricing pressure from competitors or new market entrants who take on projects at reduced prices or employ other competitive strategies. While we believe our innovative design, quality, schedule and cost certainty, and network of Construction Partners makes us well-positioned in the market, increasing competition could make it difficult to secure new projects at acceptable operating margins.
Our products are unique and offer an alternative to conventional construction techniques. Although offsite construction methods are gaining market acceptance, this still represents only a fraction of all construction methods and the overall construction market. Our ability to grow and increase market share depends, in part, on our success in continuing to increase demand for modular construction methods and products as an alternative to more traditional construction methods. While we intend to follow a strategy of innovative product development and strategic marketing efforts to enhance our position, there is no assurance that our solutions will attain a degree of market acceptance sufficient for sustained profitable operations. Failure to compete effectively by, among other things, meeting consumer preferences, developing and marketing innovative solutions, maintaining strong client service and distribution relationships, growing market share, and expanding our solutions capabilities could have a material adverse effect on our liquidity, financial condition, or results of operations.
Our co-founders’ and former executives’ competitive behavior against us could have an adverse effect on our business, financial condition and results of operations.
Our co-founders and former executives, Mogens Smed and Barrie Loberg, have started an interior construction and manufacturing company that we believe competes with us. They, along with a number of our former employees and Construction Partners who have joined their company, have in-depth knowledge about our business, including our customers, employees, products and prospects, and we may be adversely affected by increased competition arising out of this business venture. We are engaged in litigation with Messrs. Smed and Loberg, entities with which they are involved, and other individuals relating to, among other things, enforcement of non-competition and non-solicitation obligations, and alleged misappropriation of proprietary information by them or by us. If Messrs. Smed and Loberg further engage in a competitive business against us or if we are not successful in litigation, our business, financial condition and results of operations may be adversely affected. See Item 3. “Legal Proceedings.”
We depend heavily on our network of Construction Partners, and the loss or inattention of our Construction Partners, or the failure of our Construction Partners to meet their obligations to us, could materially and adversely affect our business, financial condition and results of operations.
We currently do not engage in many direct sales projects and rely almost exclusively on our network of Construction Partners to promote brand awareness, sell and market DIRTT Solutions, and provide design, installation, distribution and other services to clients on each project. While we are not dependent on any single Construction Partner, sales generated by approximately 10% of our Construction Partners comprised approximately 34% of our total revenues for 2024 (2023 - 37%) with one Construction Partner making up approximately 9% of total revenues (2023 - 12%). The loss of any top performing Construction Partners, particularly to our competitors, may negatively affect our sales, financial condition or results of operations. It may further impair our ability to maintain a market presence in a particular geographic region until a new Construction Partner relationship is established, which would require significant time and resources, given DIRTT is typically a standalone line of business in their portfolio.
Although we provide our Construction Partners with training, education, and support, they may be unable to successfully sell our DIRTT Solutions, execute projects or manage client experiences and relationships. In addition, our Construction Partners and their
clients may face financial difficulties or may become insolvent, which could result in the delay or cancellation of their plans to purchase DIRTT Solutions or lead to our inability to obtain payment of accounts receivable that they may owe. If we are unable to maintain a successful Construction Partner network, our business, financial condition, and results of operations could be materially and adversely affected.
The management team is working on a transformation plan, we may not be able to achieve some or all of the anticipated benefits of this transformation plan.
Our Board of Directors was entirely reconstituted at our annual and special meeting of shareholders held on April 26, 2022 and, since that meeting, there has been significant turnover in the Company’s leadership. In addition to overseeing the changes to DIRTT’s leadership, the reconstituted Board of Directors has undertaken an extensive review of DIRTT’s operations, a process which is still ongoing (see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Outlook”).
In response, the management team is working on a transforming plan to advance the business and grow revenue and manage profitability. Implementation of this transformation plan will require robust and reliable systems and processes across the organization. There is also no assurance that successful implementation will lead to sustainable, profitable growth, and may itself be disruptive to the Company. Failure to implement our transformation plan could materially and adversely affect our near-term sales, commercial activities, and ability to develop and sustain profitable growth. In addition, the success and timing of our implementation may be dependent upon external factors outside of our control.
Our strategy also depends in part on our ability to maintain and manage growth effectively. Growth in our headcount and operations may place significant demands on our management and operational and financial resources. Additionally, managing growth of our operations and personnel requires continuous improvement of our internal controls and reporting systems and procedures. Failure to effectively manage growth could result in difficulty providing current DIRTT Solutions and introducing future solutions, difficulty in securing clients and Construction Partners, declines in quality or client satisfaction, increases in costs or other operational difficulties. Any of these difficulties could lead to a loss of investor confidence and adversely affect our business performance, financial condition and results of operations.
Certain elements of DIRTT’s administrative systems may not be effective.
DIRTT has identified the need to upgrade its inventory management and cost accounting systems at some point in the future to enable scalable growth, and other information technology investments may be required in the future. The Company is currently unable to estimate the costs and timeline related to such upgrades. However, the success, in whole or in part, of such investments cannot be guaranteed. If the Company does not successfully or timely upgrade its inventory management and cost accounting systems, it may experience unforeseen challenges to its inventory and pricing strategies.
Environmental, social and governance (ESG) matters and conservation measures may adversely impact our or our customers’ business.
Societal expectations on companies to address, environmental and social impacts and investor, regulatory and societal expectations regarding voluntary and mandatory ESG-related disclosures may result in increased costs, reduced demand for our customers’ products, reduced profits, increased investigations and litigation, negative impacts on our stock price and reduced access to capital markets.
Moreover, while we may publish voluntary disclosures from time to time, certain statements in those voluntary disclosures may be based on expectations, assumptions and hypothetical scenarios that may or may not be representative of current or actual risks or events or forecasts of expected risks or events, including the costs associated therewith. Mandatory ESG-related disclosure is also emerging as an area where we may be, or may become, subject to required disclosures in certain jurisdictions, and any such mandatory disclosures may similarly necessitate the use of hypothetical, projected or estimated data, some of which is not controlled by us and is inherently subject to imprecision. Disclosures reliant upon such expectations, assumptions and hypothetical scenarios are necessarily uncertain and may be prone to error or subject to misinterpretation given the long timelines involved and the lack of an established single approach to identifying, measuring and reporting on many ESG matters. Further, we have announced various voluntary ESG targets in our annual Environmental, Social, and Governance (ESG) report outlining our commitments to sustainability, the environment, health and safety, and social initiatives, which are often aspirational. However, we cannot guarantee that we will be able to meet such voluntary targets in the manner or on such a timeline as initially contemplated, including, but not limited to, any unforeseen costs, changes to relevant accounting methodologies or technical difficulties associated with achieving such results. Any actual or perceived failure to meet our ESG targets could adversely impact our reputation and our customers’ image of our products and result in the loss of business or impede our growth initiatives. Adverse publicity regarding ESG issues and similar matters, whether or not justified, could have a negative impact on our reputation and may result in the loss of customers and our inability to secure new customer relationships. Further, our customers may be more selective for products that meet their ESG goals or standards, such as increasing demand for goods that result in lower emissions, and our products could be less competitive if we are unable to meet these standards. Despite our efforts to adapt to and address these concerns, our efforts may be insufficient. Additionally, the implementation of these initiatives may increase our costs. It is difficult to predict how our efforts with respect to social and sustainability matters will be evaluated by current and prospective investors or by our customers or business partners. Despite our voluntary actions, we may receive pressure from certain investors, lenders, or other groups to adopt more aggressive ESG-related goals or policies, but we cannot guarantee that we will be able to pursue or implement such goals because of potential costs or technical or operational obstacles.
Furthermore, our reputation, as well as our stakeholder relationships, could be adversely impacted as a result of stakeholder perceptions of statements made by us, our employees and executives, agents, or other third parties or public pressures from investors or policy groups to change our policies. Certain statements with respect to ESG matters are becoming increasingly subject to heightened scrutiny from public and governmental authorities related to the risk of potential “greenwashing,” i.e., misleading information or false claims overstating potential ESG benefits. For example, the SEC has recently taken enforcement actions against companies for ESG-related misconduct, including greenwashing. The SEC, various state agencies, non-governmental organizations and other private actors have also filed lawsuits under various securities and consumer protection laws alleging that certain ESG-statements, goals or standards were misleading, false or otherwise deceptive. Additionally, certain employment practices and social initiatives are the subject of scrutiny by both proponents and detractors of such policies, including by government actors, and the complex regulatory and legal frameworks applicable to such initiatives continue to evolve. We cannot be certain of the impact of such regulatory, legal and other developments on our business. Recent political developments in the U.S. may result in increased criticism or litigation risks, including from U.S. governmental agencies. These sentiments may focus on the Company’s environmental commitments (such as reducing GHG emissions), its pursuit of certain employment practices or its social initiatives that are alleged to be political or polarizing in nature or are alleged to violate laws based, in part, on changing priorities of, or interpretations by, federal agencies or state governments. Consideration of ESG-related factors in the Company’s decision-making could be subject to increased scrutiny and objection from such anti-ESG parties. As a result, we may face increased litigation risks from private parties and governmental authorities related to our ESG efforts. Moreover, any alleged claims of greenwashing against us or others in our industry may lead to negative sentiment. To the extent that we are unable to respond timely and appropriately to any negative publicity, our reputation could be harmed. Damage to our overall reputation could have a negative impact on our financial results and require additional resources to rebuild our reputation. Additionally, to the extent ESG matters negatively impact our reputation, we may not be able to compete as effectively to recruit or retain employees, which may adversely affect our operations. Such ESG matters may also impact our customers, which may result in reduced demand for certain of our products and services.
As a result of amendments to the Competition Act (Canada), certain public representations by a business regarding the benefits of the work it is doing to protect or restore the environment or mitigate the environmental and ecological causes or effects of climate change may violate the Competition Act (Canada)'s deceptive marketing practices provisions. These amendments include substantial financial penalties and, effective June 20, 2025, a private right of action which will permit private parties to seek an order from the Competition Tribunal under the deceptive marketing practices provisions. Uncertainty surrounding the interpretation and enforcement of this legislation may expose the Company to increased litigation and financial penalties, the outcome and impacts of which can be difficult to assess or quantify and may have a material adverse effect on DIRTT’s business, reputation, financial condition, and results.
Risks Relating to Our Products and Software
We are subject to fluctuations in the prices of raw materials and commodities, which could adversely affect our liquidity, operating margins and financial condition.
We purchase raw materials, including aluminum, glass, and wood, from a number of local and global suppliers. The costs of these commodities can fluctuate due to changes in global supply and demand, inflation, speculation in commodities futures, and the imposition of any new, or changes in existing, tariffs, embargoes or other trade barriers, which can also interrupt supply. In addition, we have not historically entered into long-term agreements with vendors and may be exposed to short-term and long-term price fluctuations as a result.
Aluminum represents the largest component of our raw materials consumption. We have experienced fluctuations in the price of aluminum and anticipate that these fluctuations will continue in the future. In particular, during 2021 through 2023, we experienced significant price inflation across substantially all of our materials, largely due to pandemic-induced supply chain constraints. From time to time, the U.S. government has imposed tariffs on steel and aluminum and limited the amounts of steel and aluminum coming into the United States based on the countries of origin of those imports. In 2024, we sourced the majority of our aluminum from North America and sourced under 10% of our raw materials from outside North America. Nonetheless, substantial, prolonged upward trends in aluminum and other commodity prices, along with tariffs and import limitations, could significantly increase our costs and adversely affect our liquidity, operating margins, and financial condition. In particular, additional tariffs imposed by the U.S. government, and any potential retaliatory measures, may affect us and our suppliers, including on the costs of raw materials and pricing of our solutions. See also “-New and existing trade policies, tariffs or import/export regulations imposed by the U.S., Canada or other foreign governments may adversely affect our ability to source and sell our products profitably, or at all.”
We rely on a limited number of outside suppliers for certain key components and materials, and failure or delay in obtaining the necessary components or materials could delay or prevent the manufacturing or distribution of our DIRTT Solutions.
We rely on certain key suppliers for raw materials and components, including aluminum, glass, wood, paint, and hardware. We maintain multiple suppliers for key materials, although for the year ended December 31, 2024, (i) one supplier accounted for approximately 65% of our aluminum supply and two additional suppliers provided approximately 21% and 9%, respectively (ii) two suppliers accounted for approximately 64% and 25% of our wood supply, (iii) one supplier accounted for 100% of our paint, and (iv) one supplier accounted for approximately 50% of our hardware supply.
While we believe there are other vendors for most of our key requirements, certain materials and components meeting our quality standards are available only through a limited number of vendors. If we are required to obtain another source for these materials or components, we may not be able to obtain pricing on as favorable terms or on terms comparable to our competitors. Any failure or delay in obtaining the necessary raw materials or components in the quantities and quality required may result in increased costs and delays in manufacturing or distributing our products, which could have a material adverse effect on our liquidity, financial condition, or results of operations. A vendor may also choose, subject to existing contracts, to modify its relationship with us due to general economic concerns or specific concerns relating to that vendor or us, at any time. These modifications might include additional requirements from our suppliers that we provide them additional security in the form of prepayments or with letters of credit. Any significant change in the terms that we have with our key suppliers could materially and adversely affect our liquidity, financial condition, or results of operations.
We may be unsuccessful in designing, introducing, or selling new solutions, solution features, or software, which also may cause us to become less competitive.
As our competitors and others develop new technologies in the future, we may be placed at a competitive disadvantage if we fail to keep pace with technological advancements within our industry. Our future success depends in part on our continuing ability to promote and demonstrate the value of DIRTT Solutions, as well as our ability to develop and sell new solutions, solution features, or software that differentiate our solutions and achieve market acceptance in a timely and cost-effective manner. We incur significant costs associated with our research and development that may not result in increased revenue or demand for DIRTT Solutions and that could negatively affect our results of operations. Rapidly changing technology, evolving regulatory and industry standards, and changing consumer trends, demands, and requirements require us to continuously innovate and develop new, high-quality solutions, solutions features and software. Additionally, such rapid technological changes, standards and preferences could render the complex and proprietary technology of our software and solutions obsolete. We may not be able to implement new technologies on a timely basis or at an acceptable cost. New solutions, solution features, or software may also be less successful than we anticipated, and such offerings may fail to achieve market acceptance. If we fail to respond quickly and cost-effectively to a changing market and changing consumer preferences, our competitive position, financial condition, and results of operations could be adversely affected. Outside of the ongoing evaluation of new construction market sectors, we are considering various partnerships that aide into the advancement and development of the construction industry. This includes diversifying our current prefabricated offerings, aligning with sourcing companies, and establishing initiatives with other companies embracing the mindset of change. While these actions strengthen our stakes in the prefabrication market, we may be unsuccessful in generating revenue through these initiatives.
Our software and products may have design defects, deficiencies, or other unknown risks, and we may incur additional costs to fix any such defects, deficiencies, or other risks, or be subject to warranty or product liability claims.
Our software and solutions are complex and must meet both the technical requirements of our clients and applicable building codes and regulations. Our solutions may contain undetected errors or design and manufacturing defects, and our software may experience quality or reliability problems, or contain bugs or other defects. Software defects may also cause errors in our manufacturing or miscalculations in ordering and pricing, which could lead us to incur losses and perhaps lose market share to competitors. Product or software defects could cause us to incur warranty costs, product liability costs, and repair and remediation costs. Although we maintain warranty reserves based on production, historical claims, and estimates, future warranty claims may exceed our reserves. Similarly, while we maintain insurance of the types and amounts we consider commercially prudent in view of industry practice, such insurance coverage may not be sufficient to protect us against substantial claims. Such claims could be expensive to defend, could divert resources, including the attention of management and other personnel for significant periods, and regardless of the ultimate outcome could result in negative publicity. Increased costs to address product warranty claims or to defend against product liability claims, may result in increased expenses and adversely affect our financial condition or results of operations.
Risks Relating to Market Conditions
New and existing trade policies, tariffs or import/export regulations imposed by the U.S., Canada or other foreign governments may adversely affect our ability to source and sell our products profitability, or at all.
On February 1, 2025, the U.S. government announced a 25% tariff on product imports from certain countries, including Mexico and Canada, and 10% tariffs on product imports from certain other countries, including China. These actions have resulted in, and may result in additional retaliatory measures on U.S. goods. Specifically, the Canadian federal government imposed similar tariffs on U.S. goods imported into Canada in response to the U.S.’s imposition of tariffs.
Further, on February 10, 2025, President Trump issued an Executive Order imposing 25% tariffs on steel and aluminum imported into the U.S. These tariffs are proposed to become effective March 12, 2025 and would be in addition to any other tariffs on such imported goods. DIRTT imports raw materials from, and has manufacturing facilities in, both Canada and the U.S. Accordingly, while the extent and duration of any tariffs imposed by the U.S. or Canada, and the resulting impact on our business, are difficult to predict at this time, such tariffs may affect our ability to import raw materials and sell our products profitably. 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.
Global economic, political and social conditions and financial markets, such as geopolitical conflict or the imposition of tariffs by the U.S., may impact our ability to do business and adversely affect our liquidity, financial condition, and results of operations.
Our industry is cyclical and highly sensitive to macroeconomic conditions. Overall declines or reductions in construction and renovation due to economic downturns, unemployment and office vacancies, changing return-to-office trends, difficulties in the financial services sector and credit markets, and imposition of tariffs, embargoes or other trade barriers can impact the demand for our products. Financial difficulties experienced by our suppliers, Construction Partners or clients could also result in, among other things, inadequate project financing, project delays, inability to pay accounts receivable or disruptions in our supply chain. Political uncertainty surrounding trade or other international disputes could also have a negative impact on customer confidence, inflation, interest rates and the economy in general. Any general economic, political, or social conditions that may contribute to financial difficulties experienced by us, our suppliers, Construction Partners, or clients may adversely affect our liquidity, financial condition and results of operations.
We are exposed to currency exchange rates, interest rates, tax rates, and other fluctuations, including those resulting from changes in laws.
Our revenues and expenses are collected and paid in different currencies, including the U.S. dollar and Canadian dollar. Fluctuations in the relative values of any such currency expose us to foreign exchange risk and could have a material and adverse effect on our cash flows, revenues and results of operations. We also have currency exchange exposure to the extent of a mismatch between foreign-currency denominated revenues and expenditures - in particular, where U.S. dollar revenues do not equal U.S. dollar expenditures. We are not currently using exchange rate derivatives to manage currency exchange rate risks. There are currently no significant restrictions on the repatriation of capital and distribution of earnings to foreign entities from any of the jurisdictions in which we operate. There can be no assurance that such restrictions will not be imposed in the future.
Most of DIRTT’s debt is on fixed interest rates. The Fourth Extended RBC Facility (as defined below) is subject to market interest rates. We are not currently using interest rate derivatives to manage interest rate risks. If interest rates rise, this could have a material and adverse effect on our cash flows, revenues and results of operations and may adversely affect our ability to access financing. We are currently undrawn on our Fourth Extended RBC Facility.
Compliance with new or amended tax laws and regulations could have a material adverse effect on our business. We base our tax positions upon our understanding of the tax laws (including, applicable tax treaties) of the countries in which we have assets or conduct business activities. However, our tax positions are subject to review and possible challenges by taxing authorities, including as to the computation and allocation of income, transfer pricing and other complex issues. This includes adverse changes to the manner in which Canada, the United States and other countries tax local and foreign corporations and interpret or change their tax laws and applicable tax treaties, including in light of the increased focus by the U.S. Congress, the Canadian government, the Organization for Economic Co-operation and Development and other government agencies in jurisdictions where we do business on issues related to the taxation of multinational corporations. We cannot determine in advance the extent to which such jurisdictions may amend their tax laws, review our tax positions, or assess additional taxes or interest and penalties on such taxes. In addition, our effective tax rate may be increased by changes in the valuation of deferred tax assets and liabilities, our cash management strategies, local tax rates, or interpretations of tax laws.
Risks Relating to Intellectual Property and Information Security
We may be unable to maintain, protect or enforce our intellectual property rights, and we may be accused of infringing intellectual property rights of others.
We rely on a combination of contract, copyright, patent, trademark and trade secret laws, confidentiality procedures and other measures to protect our intellectual property. There is no guarantee that our various contractual rights, patents, copyrights, trademarks and trade secrets will offer sufficient protection of our products and services or prevent misappropriation of our proprietary rights in our products, software or processes. We also may not be granted patents, copyrights registrations or trademark registrations on our pending or proposed applications, and granted applications may be challenged, invalidated or circumvented in the future. Despite our best efforts to maintain and enforce our intellectual property, monitoring unauthorized use of our intellectual property is difficult and costly, and the steps we have taken may not be sufficient to effectively prevent third parties from infringing, misappropriating, diluting or otherwise violating our intellectual property rights. Despite our precautions, it may be possible for unauthorized third parties to use information that we regard as proprietary to create products or services that compete with ours. We enforce our intellectual property rights where appropriate, but the cost of doing so may be substantial and could outweigh the potential benefits, and we may be unsuccessful in our enforcement efforts. Failure to protect or maintain the proprietary nature of our intellectual property could adversely affect our ability to sell original products and adversely affect our business, financial condition and results of operations.
Additionally, our competitors or other third parties may own, or claim to own, intellectual property in technology areas relating to our technology, including ICE Software, manufacturing processes, and DIRTT Solutions. Although we do not believe that our software or DIRTT Solutions infringe or misappropriate the proprietary rights of any third parties, litigation related to such claims, whether or not meritorious, may subject us to significant liabilities, require us to enter into royalty and licensing arrangements on unfavorable terms, prevent us from assembling certain of our products or licensing certain of our intellectual property, subject us to injunctions restricting our sale of products or services, cause severe disruptions to our operations or the marketplaces in which we compete, or require us to satisfy indemnification commitments with our clients, including contractual provisions under various license arrangements. A damages award against us could include an award of royalties or lost profits and, if a court finds willful infringement, treble damages and attorneys’ fees. This may cause us to expend significant costs and resources, and could adversely affect our business, financial condition or results of operations.
If we are unable to protect our information technology systems against data corruption, cyber-based attacks or network security breaches, our operations could be disrupted and our reputation and profitability could be negatively affected.
In the ordinary course of our business, we generate, collect and store confidential and proprietary information, including intellectual property, business information, and other proprietary information. The secure storage, maintenance, and transmission of, and access to, this information is important to our operations and reputation. We use automated software and hardware solutions to protect our on-premise and cloud infrastructure; conduct routine third-party evaluations and vulnerability testing to identify and mitigate risks; and deploy employee training programs throughout the company. Although we have experienced cyber-based attacks, to our knowledge, we have not experienced any material disruptions or breaches of our information technology systems or platforms. However, there is no guarantee that our security systems, or processes or procedures designed to protect our information technology systems are adequate to safeguard against all cybersecurity risks or human error. Any security breach involving the misuse, loss or other unauthorized disclosure of confidential information of a client, Construction Partner, employee, supplier or Company information could result in financial losses, exposure to litigation and liability (including regulatory liability), damage to our reputation, and disruption to our operations, all of which could have a material adverse effect on our business, financial condition or results of operations. While we maintain commercially prudent cybersecurity insurance consistent with industry practice, such insurance may not be sufficient to cover all losses relating to data loss or an information security breach.
The regulatory environment related to information security, data collection and use, and privacy is complex and continuously evolving and compliance with laws, rules, regulations or other requirements could result in additional costs. The costs associated with information security, such as increased investment in technology, the costs of compliance with privacy laws, and costs incurred to prevent or remediate information security breaches, could be substantial and adversely affect our business. A significant compromise
of sensitive employee, Construction Partner, client or supplier data in our possession could result in legal damages and regulatory penalties. In addition, the costs of defending actions, responding to complaints, or remediating breaches could be material.
Damage to our information technology and software systems could impair our ability to effectively provide DIRTT Solutions and adversely affect our reputation, relationships with clients, financial condition or results of operations.
Our information technology and software networks and systems, which include the processing, transmission and storage of information, are integrated with our manufacturing processes are essential to our business operations. These systems are vulnerable to, among other things, damage or interruption from power outages, network failures or natural disasters, loss or corruption of data, human error, employee misconduct and difficulties associated with upgrades, installations of major software or hardware, and integration with new systems. While we maintain retention backups to geo-diverse digital and physical locations and have a recovery data center, the data center and other protective measures we take could prove to be inadequate. Any disruption in our systems or unauthorized disclosure of information could result in delayed manufacturing and delivery of our DIRTT Solutions, legal claims, a loss of intellectual property and a disruption in operations, all of which could adversely affect our reputation, relationships with clients, financial condition or results of operations.
Our core intellectual property in the ICE Code is jointly owned with a third party, who may fail to comply with its contractual obligations to protect and enforce our intellectual property rights.
AWI owns a 50% interest in the rights, title and interests in certain intellectual property rights in the Applicable ICE Code, including a 50% interest in the patent rights that relate to the Applicable ICE Code. As part of AWI’s purchase of the Applicable ICE Code, AWI must comply with contractual obligations designed to protect the Applicable ICE Code from infringement, misappropriation, misuse or exposure to unauthorized third parties. However, despite our efforts to monitor AWI’s actions, we may not become aware of AWI’s failure to comply with its obligations or we may not have adequate time to address such failure before there are adverse impacts to our business. Additionally, even if we attempt to require AWI to comply with its obligations to enforce our intellectual property rights, AWI may refuse or may not take adequate steps to do so. AWI’s failure to protect or maintain the proprietary nature of the Applicable ICE Code could adversely affect our ability to sell original products or adversely affect our business, financial condition or results of operations.
AWI may fail to meet certain security and non-disclosure obligations designed to prevent our competitors or other unauthorized third parties from accessing the Applicable ICE Code. Despite our efforts to enforce our rights and monitor any inadequacies, we may not have access to AWI’s internal security or business practices. Additionally, we may not be successful in preventing AWI from exposing the source code of the Applicable ICE Code to third parties or in protecting our intellectual property rights in the Applicable ICE Code. Any unauthorized access to the Applicable ICE Code in AWI’s possession could substantially and adversely affect our business or competitive advantage and management may have to expend significant time and resources to address unauthorized access and disclosure, all of which could have a material adverse effect on our business, financial condition or results of operations.
Risks Relating to Government Regulations and Enforcement
We may incur significant costs complying with environmental, health and safety laws and related claims, and failure to comply with these laws and regulations could expose us to significant liabilities, which could materially adversely affect our business and results of operations.
We are, and may become, subject to laws, regulations, and other requirements with respect to workers’ health and safety and environmental matters in the United States, Canada and other countries in which we may operate. Environmental laws and regulations impose, among other things, restrictions, liabilities and obligations in connection with the production, processing, preparation, handling, storage, transportation, disposal and management of wastes and other substances, and the prevention and remediation of environmental effects. Health and safety laws and regulations impose, among other things, requirements designed to ensure the protection of workers. New or more stringent laws and regulations, including those relating to climate change and greenhouse gas emissions, may be adopted in the future and could impact our facilities, raw material suppliers, the transportation and distribution of our solutions, and our clients, which could reduce demand for our solutions or cause us to incur additional operating costs. In addition, certain foreign laws and regulations may affect our ability to export products outside of, or import products into, the United States or Canada. Failure to comply with these requirements may result in civil or criminal liability, damages and fines, and our operations could be curtailed, suspended or shutdown and our reputation, ability to attract employees, and results of operations could be adversely affected. Private lawsuits, including claims for remediation of contamination, personal injury or property damage, or actions by regional, national, state and local regulatory agencies, including enforcement or cost-recovery actions, may materially increase our costs.
These factors may materially increase the amount we must invest to bring our processes into compliance with legal requirements and impose additional expenses on our operations. In addition, any changes in these laws or regulations or changes in our manufacturing processes may require us to request changes to our existing permits or obtain new permits. We may also be unable to obtain or maintain, from time to time, all required environmental regulatory approvals. A delay in obtaining any required environmental regulatory approvals or the failure to obtain and comply with such approvals could materially adversely affect our business and results of operations.
Risks Relating to Financial Results
We have had negative cash flow from operating activities.
We had negative cash flow from operating activities for prior years, including the years ended December 31, 2022 and 2021. Continued negative operating cash flow may compromise our ability to make interest and principal payments on the issued and outstanding 6.00% convertible unsecured subordinated debentures due January 31, 2026 (the “January Debentures”) and the issued and outstanding 6.25% convertible unsecured subordinated debentures due December 31, 2026 (the “December Debentures”, and collectively with the January Debentures, the “Debentures”) on a timely basis, or at all, and to execute our transformation plan. Until we are able to generate positive cash flow from operating activities over a sustained period, our ability to finance our operations will be dependent on our cash reserves and available credit facilities and, if required, our ability to obtain additional external financing. Although we had $7.3 million and $14.8 million in cash provided from operating activities for the years ended December 31, 2024 and 2023, respectively, and we anticipate we will have positive cash flow from operating activities over at least the next twelve months, we cannot guarantee that such future cash flow will be sufficient, or other changes to our circumstances will not necessitate additional financial resources to fund our operating activities.
We have undertaken various actions to improve our cash flow and balance sheet in the short term, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources”. Although we anticipate these actions will strengthen our balance sheet and liquidity position, we cannot guarantee that such future cash flow will be sufficient or other changes to our circumstances will not necessitate additional financial resources to fund our operating activities.
We have experienced a history of losses, and despite certain periods of profitability in recent years, we may not be able to generate sufficient revenue to achieve and sustain profitability.
We have incurred significant losses since commencing business. We incurred net losses after tax of $14.6 million and $55.0 million for the years ended December 31, 2023 and 2022, respectively. For the year ended December 31, 2024, we have net income after tax of $14.8 million, but still have an accumulated deficit of $166.1 million. These losses and accumulated deficits were due in part to the substantial investments made to grow our business and acquire clients, to further develop our service offerings through product and software development, to ensure that we have sufficient production capacity and capability to deliver on our commitment of rapid delivery times and to preserve our production, innovation and commercial capabilities through the economic disruption caused by the global COVID-19 pandemic in anticipation of an increase in construction activity as the pandemic impacts abated. Past results may not be indicative of our future performance, and there can be no assurance that we will continue to generate net income in the future.
We have experienced, and may experience in the future, quarterly and yearly fluctuations in results of operations and financial condition.
Our results of operations and financial condition may continue to fluctuate from one quarter or year to another due to a number of factors, some of which are outside of our control. For example, we usually experience seasonal slowdowns in the first quarter of each calendar year, leading to stronger sales in the second half of the year versus the first half, and weather conditions may also delay delivery and installation on some projects. Furthermore, sales that we anticipate in one quarter may be pushed into another quarter, affecting both quarters’ results, and our actual or projected results of operations may fail to match our past performance. These events could in turn cause the market price of our common shares to fluctuate. In particular, if our results of operations do not meet the expectations of securities analysts or investors, who may derive their expectations by extrapolating data from recent historical results of operations, the market price of our common shares will likely decline. Due to our high fixed manufacturing costs and operating expenses, quarterly volatility in sales volumes could result in periods of low operating cash flow and negatively affect our liquidity. Due to these risk factors, quarter-to-quarter or year-to-year comparisons of our results of operations may not be an indicator of future performance.
We have recognized, and may recognize in the future, impairment charges for our goodwill and certain other non-current assets.
Significant negative industry or economic trends, disruptions to our business, planned or unexpected significant changes in the use of the assets, and sustained market capitalization declines may result in the impairment of non-current assets. In 2022, we had an indicator of impairment for our non-current assets. In 2023, we announced our intention to close the Rock Hill Facility, which resulted in an impairment charge on the reclassification of assets held for use to assets held for sale. As at December 31, 2024, we did not have any impairment indicators for our non-current assets. Any further charges relating to impairments could have a material adverse impact on our consolidated statement of operations in the period in which the impairment is recognized.
Risks Related to Our Common Shares and Corporate Structure
Our share price has been and may continue to be volatile, which could cause the value of your investment to decline.
Our common shares are listed on the TSX under the symbol “DRT” and are quoted on the OTC’s Pink Tier under the symbol “DRTTF.” The price of our common shares has in the past fluctuated significantly, and may fluctuate significantly in the future, depending upon a number of factors, many of which are beyond our control and may adversely affect the market price of our common shares. These factors include: (i) variations in quarterly results of operations; (ii) deviations in our earnings from publicly disclosed forward-looking guidance; (iii) changes in earnings estimates by analysts; (iv) our announcements or our competitors’ announcements of significant contracts, acquisitions, strategic partnerships or joint ventures; (v) general conditions in the offsite construction and manufacturing industries; (vi) sales of our common shares by our significant shareholders; (vii) fluctuations in stock market price and volume; and (viii) other general economic conditions. Additionally, the Shares NCIB and the Share Repurchase from NGEN (each as defined herein) and any other common share repurchase we may complete in the future, may further decrease the number of outstanding common shares, which could decrease liquidity in the market of the common shares and increase the volatility of its trading price.
In the past, following periods of volatility in the trading price of a company’s securities, securities class action litigation has been brought against that company. If our share price is volatile, we may become the target of securities litigation in both the United States and Canada. Securities litigation could result in substantial costs and divert management’s attention and resources from our business and could have an adverse effect on our business, financial condition and results of operations.
Our common shares are quoted on the OTC’s Pink Tier, and there may be a limited trading market in the Company’s common shares in the United States. As a result of the limited trading market, investors may experience limited liquidity, and may experience limited ability to sell shares in the open market.
Our common shares are quoted on the OTC’s Pink Tier under the symbol “DRTTF.” There may be a limited trading market in the Company’s common shares in the United States. As a result of the limited trading market of our common shares, investors in our common shares may experience limited demand for their common shares, which may limit their ability to sell their shares in the open market.
We are governed by the corporate laws of Alberta, Canada, which in some cases have a different effect on shareholders than the corporate laws of the United States.
We are governed by the ABCA and other relevant laws, which may affect the rights of shareholders differently than those of a company governed by the laws of a U.S. jurisdiction, and may, together with our charter documents, have the effect of delaying, deterring or discouraging another party from acquiring control of our company by means of a tender offer, a proxy contest or otherwise, or may affect the price an acquiring party would be willing to offer in such an instance. The material differences between the ABCA and Delaware General Corporation Law (“DGCL”), that may have the greatest such effect include, but are not limited to, the following: (i) for certain extraordinary corporate transactions (such as amalgamations or amendments to our articles), the ABCA generally requires the voting threshold to be a special resolution passed by not less than two-thirds of the votes cast by the shareholders who voted in respect of the resolution, whereas DGCL generally only requires a majority vote; and (ii) under the ABCA, registered holders or beneficial owners (as defined in the ABCA) of not less than 5% of our common shares in aggregate can requisition our directors to call a special meeting of shareholders, whereas such right does not exist under the DGCL. We cannot predict whether investors will find our company and our common shares less attractive because we are governed by the corporate laws of Alberta, Canada.
Our two largest shareholders, 22NW and WWT, are able to exercise voting influence over matters which may require shareholder approval due to their ownership of our common shares, and their interests may conflict with or differ from the interests of our other shareholders. In addition, the Amended and Restated SRP and the Support Agreement limit the concentration of ownership of our common shares by shareholders other than 22NW and WWT, which may make it more difficult for a shareholder to acquire the Company.
As of November 5, 2024, 22NW Fund, L.P. (“22NW”) and Aron English (collectively, the “22NW Group”) and WWT Opportunity #1 LLC (“WWT”) and Shaun Noll (collectively, the “WWT Group”) owned 29.7% and 27.6% of our outstanding common shares, respectively, together beneficially owning approximately 57.3% of our outstanding common shares. So long as the 22NW Group and WWT Group and their respective affiliates continue to directly or indirectly own a significant amount of our common shares, they will, in certain circumstances, have voting influence over matters requiring shareholder approval, including amendments to our amended and restated articles of amalgamation, and approval of significant corporate transactions (barring any requirement for such shareholder to recuse itself from any such vote pursuant to applicable securities law, corporate law or the rules and regulations of any applicable stock exchanges). Further, Aron English and Shaun Noll, who serve as the investment manager and Managing Member of the 22NW Group and WWT Group, respectively, also serve as directors on the Company’s Board of Directors. This could have the effect of delaying or preventing a change of control of the Company, and would make the approval of certain transactions difficult or impossible without the support of these shareholders.
In addition, the Amended and Restated Shareholder Rights Plan, effective August 2, 2024 (the “Amended and Restated SRP”), which was ratified by shareholders at a special meeting held on September 20, 2024, was adopted by the Board in order to help ensure that all shareholders of the Company are treated fairly and equally in connection with any unsolicited take-over bid or other acquisition of control of the Company. The Amended and Restated SRP may discourage, delay, or prevent a change of control or acquisition of the Company, even if such action may be considered beneficial by some shareholders, and could limit the price that investors would be willing to pay in the future for the Company’s common shares.
Because we are a corporation incorporated in Alberta and some of our directors and officers are residents of Canada, it may be difficult for investors in the United States to enforce civil liabilities against us or our directors and officers based solely upon the federal securities laws of the United States. Similarly, it may be difficult for Canadian investors to enforce civil liabilities against our directors and officers residing outside of Canada.
We are a corporation amalgamated and existing under the laws of Alberta with our principal place of business in Calgary, Alberta, Canada. Some of our directors and officers are residents of Canada and a substantial portion of our assets and those of such persons are located outside the United States. Consequently, it may be difficult for U.S. investors to effect service of process within the United States upon us or our directors or officers who are not residents of the United States, or to realize in the United States upon judgments of courts of the United States predicated upon civil liabilities under the Securities Act of 1933. Investors should not assume that Canadian courts: (i) would enforce judgments of U.S. courts obtained in actions against us or such persons predicated upon the civil liability provisions of the U.S. federal securities laws or the securities or blue sky laws of any state within the United States or (ii) would enforce, in original actions, liabilities against us or such persons predicated upon the U.S. federal securities laws or any such state securities or blue sky laws.
Similarly, some of our directors and officers are residents of countries other than Canada and all or a substantial portion of the assets of such persons are located outside Canada. As a result, it may be difficult for Canadian investors to initiate a lawsuit within Canada against these non-Canadian residents. In addition, it may not be possible for Canadian investors to collect from these non-Canadian residents judgments obtained in courts in Canada predicated on the civil liability provisions of securities legislation of certain of the provinces and territories of Canada. It may also be difficult for Canadian investors to succeed in a lawsuit in the United States, based solely on violations of federal, provincial or territorial securities laws.
The repurchase and cancellation of our Debentures in 2024 could adversely affect the price or liquidity of the Debentures.
On March 22, 2024, the Company completed a substantial issuer bid (“Issuer Bid”) in which the Company repurchased for cancellation C$4.7 million of the January Debentures and C$5.8 million of the principal balance of the December Debentures.
On August 2, 2024, the Company purchased for cancellation an aggregate of C$18,915,000 principal amount of the January Debentures and C$13,638,000 principal amount of the December Debentures from 22NW (the “Debenture Repurchase”). Following the Issuer Bid and Debenture Repurchase, C$16,642,000 principal amount of the January Debentures and C$15,587,000 principal amount of the December Debentures remained outstanding and 22NW no longer held any debentures.
On August 26, 2024, the Company announced a normal course issuer bid for the January Debentures and December Debentures (the “Debentures NCIB”). For the quarter ended December 31, 2024, C$0.3 million and C$0.01 million principal amounts of the December Debentures and January Debentures, respectively, were acquired and cancelled.
The Issuer Bid, the Debenture Repurchase, and the Debentures NCIB have decreased, and the Debentures NCIB may further decrease, the number of outstanding Debentures, which could decrease liquidity in the market of the Debentures and increase the volatility of the prices at which they trade. Repurchases of Debentures may also cause the prices of the Debentures to differ from what they would be in the absence of such repurchase. There can be no assurance any such repurchases will ultimately enhance shareholder value.
General Risks
Difficulties in recruiting and retaining qualified officers or employees, or experiencing labor shortages or disruptions, could have a material adverse effect on our business and results of operations.
Our success will depend in part on our ability to attract, develop, and retain qualified personnel as needed. We have undergone significant changes at a senior management level during recent years. Any changes to members of our senior management may be disruptive to our operations, including by diverting our Board of Directors’ and management’s time and attention and a decline in employee morale. If there are any delays in transitions, our business could be negatively impacted. We may be affected by labor shortages or disruptions, particularly in locations where we operate manufacturing facilities. If we fail to attract or retain qualified personnel, or experience labor shortages or disruptions, we could incur higher recruiting expenses, a loss of manufacturing capabilities, or inability to respond to significant increases in demand, all of which could have a material adverse effect on our business and results of operations.
We may have additional capital needs in the future and may not be able to obtain additional capital or financing on acceptable terms.
We plan to continually invest in business growth and may require additional funds to respond to business opportunities, such as expanding our sales and marketing activities, developing new software, acquiring complementary businesses, products or technology, and expanding or enhancing our manufacturing capabilities, including factory automation. To the extent that our existing capital is insufficient to meet our requirements, we may need to undertake equity or debt financings to secure additional funds. Further issuances of equity or convertible debt securities may result in significant share dilution. Additional new equity securities issued could have rights, preferences and privileges superior to those of our currently issued and outstanding common shares. Additional debt financings may involve restrictive covenants relating to our capital-raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities. We cannot provide any assurance that sufficient debt or equity financing will be available for necessary or desirable expenditures or acquisitions, or to cover losses, and accordingly, our ability to continue to support our business growth and to respond to business challenges could be significantly limited, and our liquidity could be materially and adversely affected.
We may engage in future mergers, acquisitions, agreements, consolidations, or other corporate transactions that could adversely affect our business, financial condition, and results of operations.
While we currently have no specific plans to acquire any businesses, we may, in the future, seek to expand our business and capabilities through acquiring compatible technology, products or businesses. Additionally, we may explore other corporate transactions, including mergers, agreements, consolidations, or joint ventures, that we believe may be beneficial to our business or further specific business goals. Acquisitions involve certain risks and uncertainties, including, among other things, (i) difficulty integrating the newly acquired businesses and operations in an efficient and cost-effective manner; (ii) inability to maintain relationships with key clients, vendors and other business partners of the acquired businesses; (iii) potential loss of key employees of the acquired businesses; (iv) exposure to litigation or other claims in connection with our assumption of certain claims and liabilities of the acquired businesses; (v) diversion of management’s time and focus; and (vi) possible write-offs or impairment charges related to the acquired businesses. The occurrence of any of these risks could adversely affect our business, financial condition, and results of operations.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments.
None.

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ITEM 2. PROPERTIES
Item 2. Properties.
Our principal executive offices are located in Calgary, Alberta, where we lease approximately 73,000 square feet of office and manufacturing space. Our lease expires in September 2030. Our principal manufacturing facilities are currently located in Calgary, Alberta; and Savannah, Georgia. On February 22, 2022, we announced our intention to close the Phoenix manufacturing facility and DXC. On September 27, 2023, we announced our intention to permanently close the Rock Hill Facility.
Our wall surfaces (which we call panels), casework and timber solutions are manufactured in Calgary, while aluminum, glass and power components are manufactured in Calgary and Savannah. In Calgary, we lease an aggregate of approximately 400,000 square feet of manufacturing space across four facilities (excluding our principal offices), which leases expire in January 2026, January 2030, September 2027, and January 2034. In Savannah, we lease approximately 81,000 square feet of manufacturing space, which lease expires in February 2029. In Phoenix, we lease approximately 130,000 square feet of manufacturing space across two facilities, which leases expire in March 2027. As at December 31, 2024, all of our Phoenix space is subleased for the remainder of our lease. In October 2019, we entered into a fifteen-year lease, which DIRTT may extend for two additional five-year periods at its option, for a panel factory of approximately 130,000 square feet in Rock Hill, South Carolina. Should the need arise, we have the expansion rights to lease an additional 130,000 square feet of space. We are pursuing options to sublease this area following the September 27, 2023 announcement of our intention to permanently close operations at this location and do not plan to exercise the additional five-year extension period. In March 2020, we entered into an eight-year lease, which DIRTT may extend an additional five years at its option, of approximately 18,000 square feet of space for a DXC in Plano, Texas. During March 2023, we entered into an agreement to sublease our DXC in Plano to one of our Construction Partners in that region, from April 1, 2023, through October 31, 2028.
In Chicago, Illinois, we own approximately 6,200 square feet of office space, which we use to operate a DXC.
Through distributed manufacturing, we can shift production of some components among our manufacturing sites, reduce transportation times and costs, and meet targeted lead times. We believe that our current and planned facilities are adequate for our current needs and that suitable additional or substitute space would be available if needed.

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ITEM 3. LEGAL PROCEEDINGS
Item 3. 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, 2023, and our Quarterly Report on Form 10-Q for the quarter ended September 30, 2024 except as described below regarding DIRTT’s litigation against Falkbuilt Ltd. (“Falkbuilt”), Messrs. Smed and Loberg, and their associates.
With respect to the DIRTT’s lawsuit against Falkbuilt in Utah, on February 5, 2025, the U.S. District Court for the Northern District of Utah (the “Utah Court”) granted Falkbuilt’s motion to dismiss the case, on the basis of forum non conveniens. In simple terms, the Utah Court decided that it would not hear DIRTT’s claim in Utah because Canada was more appropriate and Canadian law applies to most of DIRTT’s claims. Further the Utah Court found that DIRTT’s Canadian company, DIRTT Environmental Solutions Ltd., owns the trade secrets that were the subject matter of the Utah claim, so whether the theft of those trade secrets occurred in Canada or abroad, they would result in injury to DIRTT Environmental Solutions Ltd. and should be pursued in Canada. The Utah Court, in essence, redirected the determination of those damages from Utah to Canada, being the appropriate forum for the legal dispute.
In DIRTT’s similar lawsuit against Falkbuilt in Canada, in November 2024, the Court of King’s Bench of Alberta scheduled an 8-week trial commencing February 2, 2026, and running continuously until March 27, 2026. With the trial’s commencement date less than a year away, DIRTT is pursuing damages and losses it suffered in Canada, the United States, and abroad in the Court of King’s Bench of Alberta. The Canadian Court will determine whether Falkbuilt, Mogens Smed, Barrie Loberg and others wrongfully caused DIRTT to suffer damages, which could exceed $50,000,000.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures.
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information; Holders of Record
Our common shares are traded on the TSX under the symbol “DRT” and are quoted on the OTC Markets on the “OTC Pink Tier” under the symbol “DRTTF”. Quotations of our common shares on the OTC Pink Tier reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
As of February 17, 2025, there were 189,629,164 common shares outstanding and 153 shareholders of record.
ISSUER PURCHASES OF SECURITIES
Period
(a)
Total Number of Shares (or Units) Purchased
(b)
Average Price Paid per Share (or Unit)
(c)
Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs(1)(2)(3)
(d)
Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs(1)(2)(3)
October 1, 2024 - October 31, 2024
-
-
-
-
November 1, 2024 - November 30, 2024
-
-
-
-
December 1, 2024 - December 31, 2024
58,478
$0.96
58,478
7,456,755
Total
58,478
58,478
7,456,755
(1) The normal course issuer bid for common shares was announced on December 18, 2024 and commenced on December 20, 2024 (the “Shares NCIB”);
(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.
Dividends
We have not declared or paid any cash dividends on our common shares to date. The declaration and payment of dividends is at the discretion of the Board of Directors, taking into account (i) our earnings, capital requirements and financial condition, (ii) restrictions on our ability to pay dividends under the Fourth Extended RBC Facility, and (iii) such other factors as the Board of Directors considers relevant. The Fourth Extended RBC Facility generally limits our ability to pay any dividends or make any other distribution on our outstanding common shares. See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Credit Facility” for more information. If and when our Board of Directors declares cash dividends on our common shares, such dividends may be declared and paid in either U.S. dollars or Canadian dollars.
Recent Sales of Unregistered Securities
None.

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ITEM 6. SELECTED FINANCIAL DATA
Item 6. [Reserved]

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations for the fiscal years ended December 31, 2024 and 2023 together with our consolidated financial statements and related notes and other financial information appearing in this Annual Report. The 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 “Special Note Regarding Forward-Looking Statements” appearing elsewhere in the Annual 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 Fourth Quarter 2024 Highlights and Other Recent Developments
•Revenues for the fourth quarter of 2024 were $48.9 million, a decrease of $2.0 million or 4.0% from $50.9 million for the same period in 2023. The decrease in revenue, as compared to the same period of 2023, was primarily the result of a higher volume of large projects completed in the fourth quarter of 2023.
•Gross profit and gross profit margin for the fourth quarter of 2024 was $17.5 million or 35.9% of revenue, a decrease from $19.2 million or 37.8% of revenue for the same period of 2023. Adjusted Gross Profit and Adjusted Gross Profit Margin (see “- Non-GAAP Financial Measures”) for the fourth quarter of 2024 was $19.0 million or 38.8% of revenue. This represents a decrease from $20.1 million or 39.5% of revenue in the fourth quarter of 2023. These decreases in Adjusted Gross Profit Margin are the result of lower revenues and a $0.7 million increase to our inventory obsolescence provision.
•Net income after tax for the fourth quarter of 2024 was $4.0 million compared to a $1.0 million net income after tax for the same period of 2023. The increase in net income is primarily the result of a $2.0 million decrease in operating expenses (operating expenses in the fourth quarter of 2023 included a $0.8 million impairment charge on the Rock Hill Facility which was not repeated in the fourth quarter of 2024), a $2.6 million increase in foreign exchange gain, a $0.8 million decrease in interest expense and a $0.3 million decrease in tax expense. These benefits were offset by a $1.7 million decrease in gross profit, and a $1.0 million decrease of gain on sale of software and patents that resulted from the completion of the knowledge transfer to AWI that occurred in the fourth quarter of 2023 and was not repeated in 2024.
•Adjusted EBITDA (see “- Non-GAAP Financial Measures”) for the fourth quarter of 2024 was $5.5 million, or 11.2% of revenue, an improvement of $1.2 million from $4.3 million or 8.5% of revenue for the fourth quarter of 2023. Higher Adjusted EBITDA was mainly driven by the decrease in operating expenses, offset by the decrease in Adjusted Gross Profit due to the above noted reasons.
•Cash on hand increased by $5.7 million in the fourth quarter of 2024 to $29.5 million, compared to a $2.7 million increase in cash in the fourth quarter of 2023. The increase in cash in the fourth quarter of 2024 was driven by $6.2 million of cash flows from operations and a positive impact of $0.3 million foreign exchange gain, offset by $0.7 million in capital expenditures and $0.1 million from repayment of debt and other financing activities .
•On November 26, 2024, the Company announced that Holly Hess Groos joined our board of directors (“Board” or “Board of Directors”) and was appointed as the Chair of the Audit Committee.
•On December 18, 2024, the Company announced a normal course issuer bid for its common shares (the “Shares NCIB”), which commenced on December 20, 2024 and will terminate no later than December 19, 2025. The Shares NCIB permits DIRTT to acquire up to 7,515,233 of its common shares. All purchases will be made on the open market through the facilities of the Toronto Stock Exchange (“TSX”) 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 5, 2025, the US District Court for the Northern District of Utah dismissed DIRTT’s lawsuit against Falkbuilt Ltd. (“Falkbuilt”) in Utah on procedural grounds. In DIRTT’s similar lawsuit against Falkbuilt in Canada, the Court of King’s Bench of Alberta has scheduled an eight-week trial to commence February 2, 2026. With the Canadian trial commencing less than a year away, DIRTT is pursuing damages and losses it suffered in Canada, the United States, and abroad in the Court of King's Bench of Alberta.
•On February 13, 2025, the Company entered into a share repurchase with NGEN III, LP (“NGEN”) pursuant to which the Company purchased for cancellation 3,920,844 common shares of DIRTT at a purchase price of $0.80 per common share purchased from NGEN (the “Share Repurchase”). The purchase of $0.80 per share was a 1% discount to the closing price of the common shares on the TSX on January 27, 2025 (converted into U.S. Dollars using the February 13, 2025 closing exchange rate published by the Bank of Canada). The common shares repurchased under the Share Repurchase were counted against DIRTT’s annual normal course issuer bid share limit (the “NCIB Annual Limit”). Following completion of the Share Repurchase, the Company’s outstanding NCIB Annual Limit was reduced to 3,422,494. The Share Repurchase closed on February 14, 2025.
Key Annual 2024 Highlights
•Revenues for the year ended December 31, 2024, were $174.3 million, a decrease of $7.6 million or 4% from $181.9 million for the year ended December 31, 2023. The decrease in revenue, as compared to the same period of 2023, was primarily the result of three large healthcare projects, one key education project and a larger volume of commercial projects that were completed in 2023 and were not repeated in 2024. Annual revenue was in line with the expected guidance range of $165 million to $175 million provided in the second quarter of 2024.
•Gross profit and gross profit margin for the year ended December 31, 2024, was $64.4 million or 36.9% of revenue, an increase from $59.5 million or 32.7% of revenue for the year ended December 31, 2023. Adjusted Gross Profit (see “- Non-GAAP Financial Measures”) for the year ended December 31, 2024, was $68.3 million, an increase from $65.1 million for the year ended December 31, 2023. Adjusted Gross Profit Margin (see “- Non-GAAP Financial Measures”) for the year ended December 31, 2024, was 39.2%, an improvement from 35.8% for the year ended December 31, 2023. The improved Adjusted Gross Profit and Adjusted Gross Profit Margin are the result of improved material optimization to offset the inflationary impacts on material costs. Fixed costs decreased $2.3 million compared to 2023 as we aligned overhead costs and support costs with current operations after having finalized the decision to close the Rock Hill Facility in the third quarter of 2023.
•Net income after tax for the year ended December 31, 2024, was $14.8 million compared to a $14.6 million net loss after tax for the year ended December 31, 2023. The increase in net income after tax was the result of a $4.8 million increase in gross profit, a $15.9 million decrease in operating expenses (which includes an $8.2 million decrease in impairment charge on the Rock Hill Facility and a decrease of $1.9 million in reorganization expenses), a $10.4 million gain on extinguishment of debt relating to the Issuer Bid, Debenture Repurchase and the Debentures NCIB (each as defined herein), a $1.1 million increase in interest income, a $0.9 million decrease in interest expense and a $3.6 million increase in foreign exchange gain, offset by a $7.1 million gain on software sale from 2023 not repeated in 2024, and a $0.2 million decrease in government subsidies.
•Adjusted EBITDA (see “- Non-GAAP Financial Measures”) for the year ended December 31, 2024 was $15.4 million or 8.8% of revenue, an improvement of $7.5 million from $7.9 million or 4.4% of revenue for the year ended December 31, 2023, for the above noted reasons. Adjusted EBITDA for the year ended December 31, 2024 exceeded the guidance range of $12 to $15 million.
•On January 9, 2024, the Company announced the completion of the rights offering to its common shareholders, resulting in the issuance of 85,714,285 common shares at a price of C$0.35 ($0.26) per whole common share for aggregate gross proceeds of C$30.0 million ($22.4 million) (the “Rights Offering”). DIRTT issued an aggregate of 67,379,471 common shares pursuant to the Basic Subscription Privilege and 18,334,814 common shares pursuant to the Additional Subscription Privilege. As a result of the common shares issued under the Basic Subscription Privilege and Additional Subscription Privilege, no common shares were available for issuance pursuant to the Standby Purchase Agreement (each as defined in Note 16 to our Consolidated Financial Statements).
•On February 15, 2024, the Company commenced a substantial issuer bid and tender offer (the “Issuer Bid”), for our Debentures. Upon expiration of the Issuer Bid on March 22, 2024, DIRTT purchased C$4.7 million aggregate principal amount of its January Debentures and C$5.8 million aggregate principal amount of its December Debentures, representing approximately 11.66% of the January Debentures and 16.50% of the December Debentures issued and outstanding at the time. The Company took up all the Debentures tendered pursuant to the Issuer Bid for aggregate consideration of C$7.0 million (including interest of C$0.1 million) resulting in a $2.9 million gain on extinguishment of debt.
•On June 30, 2024, then-Chair of the Board of Directors Mr. Ken Sanders retired from the Board of Directors. On July 1, 2024, the Company announced that the Board of Directors elected Mr. Scott Robinson to serve as Board Chair to replace Mr. Sanders.
•On August 2, 2024, the Company and 22NW Fund, L.P. (“22NW”) closed the Debenture Repurchase in which the Company purchased for cancellation an aggregate of C$18.9 million ($14.0 million) principal amount of the January Debentures and C$13.6 million ($10.1 million) principal amount of the December Debentures from 22NW. As at December 31, 2024, C$16.6 million ($11.6 million) principal amount of the January Debentures and C$15.3 million ($10.6 million) principal amount of the December Debentures remained outstanding, and 22NW no longer held any Debentures.
•On August 2, 2024, the Board of Directors adopted the Amended and Restated SRP, which superseded the previous Shareholder Rights Plan adopted on March 22, 2024. The Amended and Restated SRP was approved by the Company’s shareholders at a special meeting held on September 20, 2024 (the “SRP Meeting”). The Company also entered into a support and standstill agreement (the “Support Agreement”) with 22NW, DIRTT’s largest shareholder, and WWT Opportunity #1 LLC (“WWT”), DIRTT’s second largest shareholder. The Support Agreement replaces the previously announced support and standstill agreement entered into with 22NW on March 22, 2024.
•On August 28, 2024, the Company commenced the Debentures NCIB, which permits DIRTT 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 December 31, 2024, C$0.3 million ($0.2 million) and C$0.01 million ($0.01 million) principal amounts of the December Debentures and January Debentures, respectively, had been acquired through the Debentures NCIB.
Pipeline
The table below presents our qualified leads and twelve-month forward pipeline as at January 1, 2025 and January 1, 2024. We define qualified leads as the quantity of projects being pursued as of the date presented, and define our pipeline as the estimated potential revenue from qualified leads where a client has engaged DIRTT and is assessing DIRTT as a potential provider of prefabricated interior solutions. We believe these metrics are helpful to estimate near-term performance, particularly given the macroeconomic factors that affect our operating environment, including labor availability, interest rate changes, and potential recessionary impacts on construction projects.
As of January 1, 2025, our twelve-month forward pipeline increased by 3% from January 1, 2024, illustrated in the table below.
As at
January 1, 2025
January 1, 2024
% Change
Twelve-Month Forward Pipeline ($ 000s)
Commercial
147,609
176,789
(17
)
Healthcare
51,214
41,221
Government
55,203
34,813
Education
24,292
17,117
278,318
269,940
Leads (#)
1,012
The January 1, 2024 pipeline included a large commercial project awarded to us in the first quarter of 2024, but the project was phased over a three-year period. As a result, the twelve-month forward pipeline decreased by $22.9 million while the project value remained in the full pipeline. After accounting for this phasing, the twelve-month pipeline increased by $31.3 million.
We believe our pipeline has higher integrity and has more projects further along the process, and therefore we are maintaining our revenue guidance for 2025 at $194 million to $209 million.
Outlook
The segment of construction that DIRTT operates in represents a $40 billion addressable market with increasing expansion opportunities. DIRTT continues to capture more market share by solving construction’s key challenges through innovative product development, technology-enabled efficiency, and a simplified installation process. Adoption of offsite, prefabricated construction is accelerating due to sustainability goals, trade labor shortages, and rising costs. DIRTT pioneered its unique construction method over 20 years ago and remains able to deliver schedule acceleration, cost certainty, unlimited aesthetic customization, and an end product that can be repurposed and reused to minimize waste. Everything we manufacture is de-mountable and infinitely re-configurable to adapt to the ever-changing needs of our customers.
Last quarter, we shared our strategic priorities through 2027, including revenue growth, continued expansion of DIRTT’s proprietary ICE software, accelerated innovation, and investment in talent. In the fourth quarter of 2024, we continued mapping our path to growth with a focus on innovating how we go to market. Our primary source of revenue remains our extensive network of independent DIRTT Construction Partners (“Construction Partners” or “Partners”). While we continue to develop and expand this network, including advancing 15 Partners to a higher status tier in 2025, we are also mapping additional growth paths to unlock greater pipeline. For example, we believe there are geographic areas of North America that lack sufficient coverage by our existing network into which we can expand and we are also expanding our offering to include more estimating, pre-construction, and installation services, both directly and through Partners. In 2024, we launched an additional go-to-market channel called Integrated Solutions. This team provides sales, design, estimating, and project delivery services with our Construction Partners and DIRTT sales representatives. Integrated Solutions increases our sales network’s capacity as well as targets revenues in channels without existing coverage. There are three key opportunity areas Integrated Solutions is focusing on; diversifying our customer profile, increasing volumes in smaller markets, and expanding into new sectors. Through these efforts, Integrated Solutions aims to simplify our go-to-market strategy and increase access to DIRTT’s portfolio of products.
Raw material prices continue to increase and 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 these rising costs.
We continue to advance our ICE offering, including the addition of several new features that streamline processes and reduce customer inquiries. In response to user feedback, we optimized the ICE Manager application to improve the interface and added an “Early Access” feature to allow beta testers and developers to access applications for further testing and improvement. An update in December 2024 introduced itemized part pricing and automated casework plan details, saving DIRTT 50 to 75 hours per week in designer time and improving efficiency for customers. We continue to evaluate artificial intelligence (“AI”) for software development, including catalogue creation. DIRTT is evaluating a code generative AI resource to develop a web-based freight quoting tool, with the potential to save approximately 200 hours of development time and remove a manual touch-point for our customers.
DIRTT has made significant strides with product innovation and partnerships. For example, the COVE™, our low-acuity solution for emergency departments, officially launched in November 2024 and is already earning significant industry recognition. In addition to previously announced product awards from the 2024 Healthcare Facilities Symposium and Expo, we were recently awarded the Gold Touchstone Award from the Center for Health Design, and will be recognized in March at the 2025 International Summit & Exhibition on Health Facility Planning, Design & Construction PDC Summit. In the fourth quarter of 2024, we also released curved solid corners for our solid wall solution, which is already seeing strong demand with active project quotes in the market. We are also innovating our market approach through strategic partnerships. In December 2024, DIRTT joined the Siemen’s Xcelerator program to further drive our digital transformation in the construction sector by leveraging automation, Internet of Things and digital twin technology to seamlessly connect our physical assets with their digital counterparts. This will help enable continuous monitoring, predictive maintenance, optimized space utilization, and enhanced process efficiency.
We have a bold operations goal of zero defects, missed deliveries, and workplace injuries. In 2024, DIRTT's on time in full (OTIF) delivery performance was 99.1%, the highest in our history. We also achieved a total recordable incident rate (TRIF) of 0.82 for 2024, which is 80% below the industry average.
Through the fourth quarter of 2024, the US economy continued its economic expansion post-COVID with inflation reaching closer to the Federal Reserve 2% target. The recent pause in interest rate cuts by the Federal Reserve highlights a commitment to reaching a 2% target. The new administration in the United States has expressed support for deregulation, lower taxes, and creating a favorable economic climate for businesses in America. Return to office mandates have increased, with financial services and technology leading the way. Additionally, a favorable environment for mergers and acquisitions will be an additional demand driver for interior construction. The Kastle Systems weekly occupancy index continues to trend upwards. On the other hand, recent reports of Department of Government Efficiency suggests there may be decreased demand on our General Services Administration Contract, which represented less than 0.6% of our revenues in 2024. The impact of these various developments on our business is uncertain.
We see continued demand growth in our healthcare segment with national spending growing significantly since pre-COVID and are dedicating resources to capture this trend. Similarly, national education construction spending surpassed its pre-COVID highs in 2024. Overall, excluding the tariff risk described below, we are observing a supportive macro-economic environment in the United States that we believe will support increasing demand of our products.
The announcement in February 2025 of a 25% tariff on all Canadian imports into the U.S., and Canada’s subsequent announcement of retaliatory tariffs on U.S. good imported into Canada, has created uncertainty across multiple sectors, including the construction industry. While Canada and the U.S. have agreed to delay the imposition of such tariffs until March 6, 2025, the ultimate extent and duration of such tariffs is unknown, and significant uncertainty continues to exist in respect of future tariffs or other trade barriers in general. In addition, on February 10, 2025, an Executive Order was issued by the White House imposing 25% tariffs on steel and aluminum entering the U.S., effective March 12, 2025. As at the date hereof, the outcome and extent of these tariffs is uncertain. 92% of DIRTT’s raw materials are from North America, and DIRTT has manufacturing facilities both in the U.S. and Canada. Our Canadian facilities import some raw materials from the U.S., and our U.S. facilities import some raw materials from Canada. While tariffs would have a cost impact on our business, we believe our presence in both Canada and the U.S. provides us with strategic flexibility. We have been, and continue to be, proactively preparing for potential tariffs and we believe that we have multiple paths to mitigate the impact of tariffs on our business, including alternative material sourcing and manufacturing locations.
We are maintaining our previously provided 2025 guidance, which is set forth below. Given the significant uncertainty surrounding tariffs, our 2025 guidance may not be realized should any significant tariff impacts arise subsequent to the date hereof.
•2025 Revenue: $194 to 209 million
•2025 Adjusted EBITDA: $18 to 25 million
We finalized our 2025 budget in early January 2025. We plan to increase our capital expenditure by more than 50% from 2024, as we continue to invest in improving efficiencies in our plants, investing in our DXC footprint and investments in ICE.
Non-GAAP Financial Measures
Note Regarding Use of Non-GAAP Financial Measures
Our 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 Annual 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), the impact of under-utilized capacity on gross profit, tax consequences, reorganization expense, unusual or infrequent charges or gains (such as gain on sale of software and patents, gain on extinguishment of debt and impairment charges), stock-based compensation, related party expense, 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.
Government subsidies, depreciation and amortization, stock-based compensation expense, reorganization expense, foreign exchange gains and losses, gain on extinguishment of debt, impairment charges, gain on sale of software and patents, net interest income on cash deposits, interest expense on outstanding debt and debt facilities, tax expense and related party 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 Annual 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; government subsidies; unusual or infrequent charges and gains such as gain on sale of software and patents and gain on extinguishment of debt; related party expense; 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
Year Ended December 31, 2024 Compared to the Year Ended December 31, 2023
For the Year Ended December 31,
% Change
($ in thousands)
Revenue
174,313
181,931
(4
)
Gross Profit
64,375
59,542
Gross Profit Margin
36.9
%
32.7
%
Operating expenses
Sales and marketing
22,938
25,235
(9
)
General and administrative
19,903
21,655
(8
)
Operations support
7,438
7,832
(5
)
Technology and development
5,262
5,820
(10
)
Stock-based compensation
2,965
2,306
Reorganization
1,113
3,009
(63
)
Impairment charge on Rock Hill Facility
8,716
(94
)
Related party expense
-
1,524
(100
)
Total operating expenses
60,149
76,097
(21
)
Operating income (loss)
4,226
(16,555
)
Operating margin
2.4
%
(9.1
)%
Gain on extinguishment of convertible debt
10,426
-
Foreign exchange (loss) gain
2,974
(626
)
Interest income
1,587
Interest expense
(3,995
)
(4,927
)
(19
)
Gain on sale of software and patents
-
7,130
(100
)
Government subsidies
-
(100
)
10,992
2,303
Net income (loss) before tax
15,218
(14,252
)
Current and deferred income tax expense
Net income (loss) after tax
14,770
(14,584
)
Revenue
Revenue reflects sales to our Construction Partners for resale to their clients and, in limited circumstances, our direct sales to clients. 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 product and service offerings.
For the Year Ended December 31,
% Change
($ in thousands)
Product
152,856
158,405
(4
)
Transportation
16,066
17,674
(9
)
License fees from Construction Partners
(12
)
Total product revenue
169,660
176,919
(4
)
Installation and other services
4,653
5,012
(7
)
174,313
181,931
(4
)
Revenue for the year ended December 31, 2024, was $174.3 million, a decrease of $7.6 million or 4% from the year ended December 31, 2023, primarily due to three healthcare projects, one key education project and a larger volume of high value commercial projects that were completed in 2023 and were not repeated in 2024.
Installation and other services revenue was $4.7 million for the year ended December 31, 2024, compared to $5.0 million in the year ended December 31, 2023. This revenue primarily reflects services performed by our ICE design teams for third parties. Except in limited circumstances, our Construction Partners, rather than the Company, perform installation services.
Our success is partly dependent on our ability to profitably develop our Construction Partner network to expand our market penetration and ensure best practices are shared across local markets. At December 31, 2024, we had 71 (2023 - 72) Construction Partners servicing multiple locations.
We periodically analyze our revenue growth by vertical markets in the defined markets of commercial, healthcare, government and education.
For the Year Ended December 31,
% Change
($ in thousands)
Commercial
121,518
116,693
Healthcare
21,230
33,970
(38
)
Government
17,114
13,446
Education
9,060
11,970
(24
)
License fees from Construction Partners
(12
)
Total product revenue
169,660
176,919
(4
)
Service revenue
4,653
5,012
(7
)
174,313
181,931
(4
)
For the Year Ended December 31,
(in %)
Commercial
Healthcare
Government
Education
Total Product Revenue(1)
(1) Excludes license fees from Construction Partners.
Commercial sales increased by 4% for the year ended December 31, 2024. Healthcare revenues decreased by 38% in the year ended December 31, 2024, from the prior year, primarily due to three large healthcare projects which were completed in 2023 and did not repeat in 2024. 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 construction projects. This had led to multiple project commitments set to commence in 2025. Those investments continue in 2025 and are expected to expand into life sciences. Government sales increased by 27% from the prior year. Similar to healthcare, government revenues tend to be larger individual projects. We plan to update our government agreements in 2025 and expect an expansion in the number of our state government agreements. Education sales in 2024 decreased by 24% from the prior year, primarily due to one $1.4 million education project that was completed in 2023. Our sales team has focused on southern markets with high public funding activity to build a stronger education pipeline.
Revenue continues to be derived almost exclusively from projects in North America and predominantly from the United States. The following table presents our revenue dispersion by geography:
For the Year Ended December 31,
% Change
($ in thousands)
Canada
23,921
19,934
U.S.
150,392
161,997
(7
)
174,313
181,931
(4
)
In 2024, 14% of revenue was from Canada, as compared to 11% in 2023. Historically, approximately 11-15% and 85-89% of revenues are derived from sales to Canada and the United States, respectively.
Sales and marketing expenses
Sales and marketing expenses decreased by $2.3 million to $22.9 million for the year ended December 31, 2024, from $25.2 million for the year ended December 31, 2023. The decrease was largely made up of a $1.0 million decrease in pass through charges, a $0.9 million decrease in building and infrastructure costs, a $0.7 million decrease in commissions, and a $0.3 million decrease in office costs and communication costs. The decreases were offset by an increase of $0.3 million in salaries and benefits and a $0.3 million increase in marketing and tradeshows costs related to the “Partner Camp” event hosted by the Company for our Construction Partners held at the end of the third quarter of 2024.
General and administrative expenses
General and administrative expenses decreased $1.8 million to $19.9 million for the year ended December 31, 2024, from $21.7 million for the year ended December 31, 2023. The decrease was driven by a $0.9 million decrease in salaries and benefits, a $0.9 million decrease in office costs, a $0.3 million decrease in depreciation, a $0.3 million decrease in communication costs, a $0.2 million decrease in public company costs, a $0.1 million decrease in travel and entertainment, a $0.1 million decrease in building and infrastructure costs, and a $0.1 million increase in gain on disposal. These decreases were offset by a $1.2 million increase in professional legal fees as a result of the SRP Meeting, the Debenture Repurchase, the Support Agreement and the Debentures NCIB which occurred in the third quarter of 2024, and the Shares NCIB that we commenced in the fourth quarter of 2024.
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 and our manufacturing operations. Operations support expenses of $7.4 million in 2024 decreased $0.4 million from $7.8 million in 2023. The decrease was largely driven by a $0.6 million decrease in salaries and benefits and was slightly offset by a $0.1 million increase in travel 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 decreased by $0.6 million to $5.3 million for the year ended December 31, 2024, compared to $5.8 million for the year ended December 31, 2023. The decrease was primarily related to a $0.7 million decrease in salaries and benefits costs, a $0.2 million decrease in building and infrastructure costs, and a $0.1 million decrease in depreciation expense. These decreases were offset by a $0.3 million write off of a previously capitalized software development project, and a $0.1 million increase in professional services costs.
Stock-based compensation
Stock-based compensation expense for the year ended December 31, 2024, was $3.0 million compared to $2.3 million in 2023. The increase was due to fair value adjustments on cash settled DSU awards as a result of the increased share price between December 31, 2023 and December 31, 2024.
Reorganization
For the year ended December 31, 2024, we incurred $1.1 million of reorganization costs compared to $3.0 million during the year ended December 31, 2023. Reorganization expenses for the year ended December 31, 2024 primarily relate to the movement of inventory and equipment from the Rock Hill Facility for use at our facility in Calgary, Alberta, while the reorganization costs in the year ended December 31, 2023 were largely made up of termination costs associated with actions taken to streamline our back office and operational support functions.
Impairment charge on Rock Hill Facility
The Company finalized the decision to close the Rock Hill Facility in the third quarter of 2023. The Company’s reassessment of the useful lives of the manufacturing equipment at the Rock Hill Facility resulted in an $8.7 million impairment charge in the twelve months ended December 31, 2023.
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 the first quarter of 2024. We were not able to determine the likelihood of recoverability based on the current market interest in the equipment.
Related party expense
On March 15, 2023, the Company entered into a Debt Settlement Agreement (the “Debt Settlement Agreement”) with 22NW and Aron English, 22NW’s principal and a director of DIRTT, (together, the “22NW Group”) who, collectively, beneficially owned approximately 19.5% of the Company’s issued and outstanding common shares at such time. Pursuant to the Debt Settlement Agreement, the Company agreed to reimburse the 22NW Group for the costs incurred by the 22NW Group in connection with the contested director election at the annual and special meeting of shareholders of the Company held on April 26, 2022, being $1.6 million (the “22NW Debt”).
Pursuant to the Debt Settlement Agreement, the Company agreed to repay the 22NW Debt by either, or a combination of (i) a payment in cash by the Company to the 22NW Group, and/or (ii) the issuance of equity securities of the Company to the 22NW Group.
In connection with the Debt Settlement Agreement, on March 15, 2023, the Company entered into a share issuance agreement with the 22NW Group, pursuant to which the Company agreed to repay the 22NW Debt with the issuance to the 22NW Group of 3,899,745 common shares at a deemed price of $0.40 per common share, subject to approval by shareholders.
At the annual general and special meeting of shareholders held on May 30, 2023, shareholders voted to approve the issuance of common shares, and on June 2, 2023, the Company issued 3,899,745 common shares to 22NW Group as repayment for the 22NW Debt. Upon settlement, the debt was revalued at the higher of the deemed price of $0.40 per common share and the May 30, 2023, market price of $0.38 per common share, resulting in a recovery from the balance recorded at March 31, 2023 which had been valued at a price of $0.53 per common share.
Gain on extinguishment of convertible debt
During the year ended December 31, 2024, C$43.4 million ($31.8 million) in principal amount of Debentures was repurchased for cancellation through the Issuer Bid, Debenture Repurchase, and Debentures NCIB which triggered an extinguishment of debt. The gain on extinguishment of $10.4 million for the year ended December 31, 2024, was calculated as the difference between the repayment and the net carrying value of the extinguished principal less unamortized issuance costs of C$1.2 million ($0.9 million) (refer to Note 7 of our Consolidated Financial Statements for additional information).
Foreign exchange gain (loss)
In the year ended December 31, 2024, we had a foreign exchange gain of $3.0 million compared to a loss of $0.6 million in the year ended December 31, 2023, due to the weakening of the Canadian dollar relative to the U.S. dollar.
Interest income
Interest income increased to $1.6 million for the year ended December 31, 2024, compared to $0.5 million in the year ended December 31, 2023, as we benefited from higher interest rates on higher cash balances.
Interest expense
Interest expense decreased by $0.9 million from $4.9 million for the year ended December 31, 2023, to $4.0 million for the year ended December 31, 2024. This decrease is largely due to repayment of debt throughout the year ended December 31, 2024, offset by $0.9 million of unamortized issuance costs related to Debentures that were expensed as a result of the repurchase and cancellation of such debt.
Government subsidies
The Company was not eligible and did not receive any new government subsidies in the year ended December 31, 2024. The Company received $0.2 million of interest with the collection of the Employee Retention Credit (“ERC”) during the year ended December 31, 2023.
Gain on sale of software and patents
On May 9, 2023, we entered into a Co-Ownership Agreement and a Partial Patent Assignment agreement (collectively, the “AWI Agreements”) with AWI. The AWI Agreements provided for a cash payment from AWI to the Company of $10.0 million in exchange for the partial assignment to AWI and resulting co-ownership of a 50% interest in the rights, title and interests in certain intellectual property rights in the Applicable ICE Code, including a 50% interest in the patent rights that relate to the Applicable ICE Code. Pursuant to the AWI Agreements, we also provided AWI a transfer of knowledge concerning the source code of the Applicable ICE Code. In exchange for completing the knowledge transfer, we received an additional cash payment of $1.0 million in the fourth quarter of 2023. The AWI Agreements provide that we and AWI have separate exclusive fields of use and includes certain restrictive covenants with respect to the Applicable ICE Code and related intellectual property, which survive until either party elects to separate from its relationship with the other and for five years thereafter. We concurrently entered into an Amended and Restated Master Services Agreement (the “ARMSA”) with AWI, under which AWI has also prepaid for certain development services to be provided by DIRTT. The ARMSA will automatically terminate if the AWI Agreement is terminated or expires and may also be terminated if either party breaches the exclusive fields of use or restrictive covenants in the AWI Agreement.
The $11.0 million of proceeds on the sale of the 50% interest in the Applicable ICE code, pursuant to the AWI Agreement, was received during the second quarter of 2023. In accordance with GAAP, the proceeds were first applied to the net book value of the related costs of software of $2.9 million and patents (other assets) of $0.9 million. The residual amount of $7.1 million was recognized as a gain in the consolidated statement of operations. Further, $1.8 million was received during 2023 as a prepayment under the ARMSA, which payment was recognized into revenue during 2023 and the first quarter of 2024. Part of the proceeds of this transaction were used to settle one of our equipment leases of $1.6 million and resulted in the release of $0.4 million of restricted cash.
Income tax
The provision for income taxes comprises U.S. and Canadian federal, state and provincial taxes based on pre-tax income. Income tax expense for the year ended December 31, 2024, was $0.4 million, compared to $0.3 million for the same period of 2023. For the year ended December 31, 2024, the Company recorded valuation allowances of $3.8 million (2023 - $4.2 million) against deferred tax assets incurred during the year as the Company has experienced cumulative losses in recent years. Due to the Company’s history of negative earnings, it is not more likely than not that the Company’s deferred tax assets will be utilized in the near term.
As at December 31, 2024, we had C$86.1 million of loss carry-forwards in Canada and $51.3 million in the United States. These loss carry-forwards will begin to expire in 2032.
Net income after tax
Net income after tax increased to $14.8 million or $0.07 net income after tax per share (diluted) in the year ended December 31, 2024, from a net loss after tax of $14.6 million or $0.13 net loss after tax per share in the year ended December 31, 2023. The increased income is primarily the result of a $4.8 million increase in gross profit and a $15.9 million decrease in operating expenses (which includes an $8.2 million decrease in impairment charge on the Rock Hill Facility and a decrease of $1.9 million in reorganization expenses), a $10.4 million gain on extinguishment of debt relating to the Issuer Bid, Debenture Repurchase and the Debentures NCIB, a $1.1 million increase in interest income, a $0.9 million decrease in interest expense and a $3.6 million increase in foreign exchange gain, offset by a $7.1 million gain on sale of software and patents from the AWI sale in 2023 that did not repeat in 2024, and a $0.2 million decrease in government subsidies.
Three Months Ended December 31, 2024 Compared to the Three Months ended December 31, 2023
For the Three Months Ended December 31,
% Change
($ in thousands)
Revenue
48,890
50,933
(4
)
Gross Profit
17,539
19,238
(9
)
Gross Profit Margin
35.9
%
37.8
%
Operating expenses
Sales and marketing
5,773
6,933
(17
)
General and administrative
5,112
5,652
(10
)
Operations support
1,907
2,268
(16
)
Technology and development
1,281
1,765
(27
)
Stock-based compensation
1,060
(237
)
Reorganization
Impairment charge on Rock Hill Facility
-
Total Operating expenses
15,302
17,297
(12
)
Operating income
2,237
1,941
Operating margin
4.6
%
3.8
%
Gain on extinguishment of convertible debt
-
Foreign exchange gain (loss)
2,057
(567
)
Interest income
Interest expense
(471
)
(1,291
)
(64
)
Gain on sale of software and patents
-
(100
)
1,878
(654
)
Net income before tax
4,115
1,287
Current and deferred income tax expense
(77
)
(77
)
Net income after tax
4,038
Our fourth quarter revenue was $48.9 million, a decrease of $2.0 million or 4% from $50.9 million for the same period in 2023. Historically, our fourth quarter revenue is lower than second and third quarter revenues due to seasonality. The fourth quarter of 2023 had a higher commercial volume of commercial projects, offset by the benefit from four large commercial projects that were completed in the fourth quarter of 2024.
Annual 2024 Non-GAAP Measures
Adjusted Gross Profit and Adjusted Gross Profit Margin for the Years Ended December 31, 2024, 2023 and 2022
The following table presents a reconciliation for the years ended December 31, 2024, 2023, and 2022 of Adjusted Gross Profit to our gross profit and Adjusted Gross Profit Margin to gross profit margin, which are the most directly comparable GAAP measures for the periods presented:
For the Year Ended December 31,
($ in thousands)
Gross profit
64,375
59,542
28,160
Gross profit margin
36.9
%
32.7
%
16.4
%
Add: Depreciation and amortization expense
3,953
5,525
10,789
Adjusted Gross Profit
68,328
65,067
38,949
Adjusted Gross Profit Margin
39.2
%
35.8
%
22.6
%
For the year ended December 31, 2024, gross profit and gross profit margin increased to $65.0 million or 36.9% from $59.5 million or 32.7% for the prior year. Adjusted Gross Profit and Adjusted Gross Profit Margin increased $68.3 million or 39.2% for the year ended December 31, 2024, from $65.1 million or 35.8% for the year ended December 31, 2023.
The improvement in Adjusted Gross Profit was a result of material optimization to offset the inflationary impacts on material costs. Fixed costs decreased $2.3 million compared to 2023 as we aligned overhead costs and support with current operations after having finalized the decision to close the Rock Hill Facility in the third quarter of 2023. Idle facility costs incurred since the suspension of operations at the Rock Hill Facility were $1.7 million for the year ended December 31, 2024, compared to $2.0 million for the previous year, and are included in cost of sales. We are pursuing options to sublease the Rock Hill Facility to offset idle facility costs in 2025 and beyond.
EBITDA and Adjusted EBITDA for the Years Ended December 31, 2024, 2023 and 2022
The following table presents a reconciliation for the results of 2024, 2023 and 2022 of EBITDA and Adjusted EBITDA to our net income (loss), and of Adjusted EBITDA Margin to net income (loss) margin, which are the most directly comparable GAAP measures for the years presented:
For the Year Ended December 31,
($ in thousands)
Net income (loss) after tax for the period
14,770
(14,584
)
(54,963
)
Add back (deduct):
Interest expense
3,995
4,927
5,160
Interest income
(1,587
)
(490
)
(51
)
Tax expense
Depreciation and amortization
6,575
8,934
15,119
EBITDA
24,201
(881
)
(34,714
)
Foreign exchange (gain) loss
(2,974
)
(1,445
)
Stock-based compensation
2,965
2,306
4,277
Reorganization expense(3)
1,113
3,009
13,461
Gain on extinguishment of convertible debt(3)
(10,426
)
-
-
Impairment charge on Rock Hill Facility (3)
8,716
-
Gain on sale of software and patents(3)
-
(7,130
)
-
Related party expense (2)
-
1,524
-
Government subsidies(3)
-
(236
)
(7,765
)
Adjusted EBITDA
15,409
7,934
(26,186
)
Net Income (Loss) Margin(1)
8.5
%
(8.0
)%
(31.9
)%
Adjusted EBITDA Margin
8.8
%
4.4
%
(15.2
)%
(1)Net income (loss) divided by revenue.
(2)The related party transaction is a non-recurring transaction that is not core to our business and is excluded from the Adjusted EBITDA calculation (refer to Note 24 of the consolidated financial statements).
(3)Reorganization expenses, the gain on sale of software and patents, the gain on extinguishment of convertible debt, the impairment charge on the Rock Hill Facility, related party expense and government subsidies are not core to our business and are therefore excluded from the Adjusted EBITDA calculation (refer to Note 4, Note 5, Note 6 and Note 7 of the consolidated financial statements).
For the year ended December 31, 2024, Adjusted EBITDA and Adjusted EBITDA Margin increased by $7.5 million to $15.4 million or 8.8% of revenue from $7.9 million or 4.4% of revenue in the same period of 2023. This reflects a $3.3 million increase in Adjusted Gross Profit, discussed above, a $1.9 million decrease in salaries and benefits costs, a $1.7 million decrease in pass through charge and commissions as a result of lower revenues, a $1.2 million decrease in building and infrastructure costs, a $1.0 million decrease in office costs, offset by a $1.3 million increase in professional services as a result of the SRP Meeting held in the third quarter as well as costs associated with the Debenture Repurchase, the Support Agreement, the Shares NCIB, the Debentures NCIB and a $0.3 million net increase in individual costs.
Reconciliation of Q4 2024 Non-GAAP Measures
Adjusted Gross Profit and Adjusted Gross Profit Margin for the Three Months Ended December 31, 2024, 2023 and 2022
The following table presents a reconciliation for the three months ended December 31, 2024, 2023, and 2022 of Adjusted Gross Profit to our gross profit, and Adjusted Gross Profit Margin to gross profit margin, which is the most directly comparable GAAP measures for the periods presented:
For the Three Months Ended December 31,
($ in thousands)
Gross profit
17,539
19,238
11,589
Gross profit margin
35.9
%
37.8
%
27.3
%
Add: Depreciation and amortization expense
1,441
1,997
Adjusted Gross Profit
18,980
20,107
13,586
Adjusted Gross Profit Margin
38.8
%
39.5
%
32.0
%
EBITDA and Adjusted EBITDA for the Three Months Ended December 31, 2024, 2023 and 2022
The following table presents a reconciliation for the results of three months ended December 31, 2024, 2023 and 2022 of EBITDA and Adjusted EBITDA to our net income (loss) after tax, and of Adjusted EBITDA Margin to net income (loss) margin, which are the most directly comparable GAAP measures for the years presented:
Three months ended December 31,
($ in thousands)
Net income (loss) for the period
4,038
(5,906
)
Add back (deduct):
Interest expense
1,291
1,225
Interest income
(275
)
(219
)
(1
)
Income tax expense
Depreciation and amortization
2,033
1,718
2,917
EBITDA
6,344
4,077
(1,728
)
Foreign exchange (gain) loss
(2,057
)
Stock-based compensation
1,060
(237
)
Reorganization expense(3)
1,180
Gain on extinguishment of convertible debt(3)
(17
)
-
-
Impairment charge on Rock Hill Facility (3)
-
-
Gain on sale of software and patents(3)
-
(985
)
-
Adjusted EBITDA
5,499
4,338
Net Income (Loss) Margin(1)
8.3
%
1.9
%
(13.9
)%
Adjusted EBITDA Margin
11.2
%
8.5
%
1.4
%
(1)Net income (loss) divided by revenue.
(2)The related party transaction is a non-recurring transaction that is not core to our business and is excluded from the Adjusted EBITDA calculation (refer to Note 24 of the consolidated financial statements).
(3)Reorganization expenses, the gain on sale of software and patents, the gain on extinguishment of convertible debt, the impairment charge on the Rock Hill Facility and government subsidies are not core to our business and are therefore excluded from the Adjusted EBITDA calculation (refer to Note 4, Note 5, Note 6 and Note 7 of the consolidated financial statements).
Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022
Discussion and analysis of our financial condition and results of operations for the fiscal year ended December 31, 2023, compared to the fiscal year ended December 31, 2022, is included under the heading Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, as filed with the SEC and applicable securities commissions or similar regulatory authorities in Canada on February 21, 2024.
Liquidity and Capital Resources
As at December 31, 2024, the Company had $29.3 million of cash on hand and C$14.4 million ($10.0 million) of available borrowings, compared to $24.7 million of cash on hand and C$13.6 million ($10.3 million) of available borrowings as at December 31, 2023. Through the year ended December 31, 2024, the Company generated $4.4 million in cash flows compared to $10.9 million over fiscal year 2023. Gross profit for the year ended December 31, 2024, was $65.0 million, or 36.9% of revenue, compared to the same period in 2023, which generated gross profit of $59.5 million, or 32.7% of revenue. Cash flows were increased in 2024 by the proceeds of the Rights Offering (as defined herein) of $21.3 million and improved operational results, offset by a $21.5 million repayment of debt under the Issuer Bid, Debenture Repurchase and Debentures NCIB. In 2023, the Company benefited from the receipt of $11.0 million of cash from the AWI sale (no similar transaction occurred in 2024), and a receipt of the $7.3 million of government subsidies.
The Issuer Bid, Debenture Repurchase, Debentures NCIB and Shares NCIB were initiated after careful consideration of cash flow, and the Company continues to evaluate uses of cash on hand. As discussed in the “Risk Factors” section, proposed tariffs on Canadian exports into the United States may have a material impact on future cash flows and liquidity, which the Company will continue to monitor.
We have executed upon several initiatives to improve liquidity over the last two years. In May 2023, we entered into an agreement with AWI resulting in the receipt of $12.8 million of cash throughout 2023. In May 2024, we extended our agreement to sublease our Plano DXC to one of our Construction Partners in that region. Under the sublease agreement, the subtenant has assumed responsibility for the monthly rent, utilities, maintenance, taxes and other costs as of April 1, 2023, through October 31, 2028, providing us annualized savings of approximately $1.0 million. In September 2024, we entered into an agreement to sublease the remainder of our facility in Phoenix. Under the sublease agreement, the subtenant has assumed responsibility for the monthly rent, utilities, maintenance, taxes and other costs as of October 1, 2024, through March 31, 2027, providing us annualized savings of approximately $0.6 million. We are continuing to pursue sublease opportunities for the Rock Hill Facility and expect these initiatives to result in positive cash inflows in 2025.
On November 21, 2023, the Company announced the Rights Offering, which closed on January 9, 2024, for aggregate gross proceeds of C$30.0 million (net proceeds of $21.3 million).
In January 2021, we issued C$40.3 million of 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. As a result of the Rights Offering, the conversion price was adjusted to C$4.03 per common share. 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 the December 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. As a result of the Rights Offering, the conversion price was adjusted to C$3.64 per common share. Interest and principal are payable in cash or shares at the option of the Company.
On February 15, 2024, the Company announced 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, 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 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. Following the Debenture Repurchase, 22NW no longer held any Debentures.
On August 28, 2024, the Debentures NCIB commenced and 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 December 31, 2024, C$0.3 million ($0.2 million) and C$0.01 million ($0.01 million) principal amounts of the December Debentures and January Debentures had been acquired through the Debentures NCIB, respectively. As at December 31, 2024, C$16.6 million ($11.6 million) principal amount of the January Debentures and C$15.2 million ($10.6 million) principal amount of the December Debentures were outstanding.
On February 4, 2024, the Company entered into a Litigation Funding Agreement with a third party for the funding of up to $4.0 million of litigation costs in respect of specific claims against Falkbuilt, Inc., Falkbuilt Ltd. and Henderson. In return, the Company has agreed to pay from any proceeds received from the settlement of such claims, a reimbursement of funded amounts plus diligence and underwriting costs, plus a multiple of such funded amount based on certain milestones. As part of this agreement, the Company is subject to a general security arrangement over its assets. The agreement was terminated in December 2024. The Company is currently considering whether to pursue further litigation funding, as we believe we have sufficient funds to finance the litigation. There is additional timeline certainty as the Canadian litigation trial date has been set for February 2, 2026.
On December 20, 2024, the Shares NCIB commenced and 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. As at December 31, 2024, 58,478 common shares had been repurchased and cancelled for proceeds of C$0.1 million ($0.04 million).
On February 13, 2025, the Company entered into the Share Repurchase with NGEN to purchase for cancellation 3,920,844 common shares of DIRTT (“Common Shares”) currently held by NGEN (the “NGEN Shares”) at a purchase price of $0.80 per NGEN Share. Following the Share Repurchase, there were 189,643,903 Common Shares outstanding, and NGEN no longer held any Common Shares. The NGEN Shares repurchased under the Share Repurchase were counted against the NCIB Annual Limit. Following completion of the Share Repurchase, the Company’s outstanding NCIB Annual Limit is 3,422,494 Common Shares.
As explained above, initiating the share buyback was done after careful consideration of cash flow and with consideration to the risk of proposed tariffs.
We have assessed the Company’s liquidity as at December 31, 2024, taking into account our sales outlook for the next twelve months, 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.
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 we will be able to do so.
In February 2021, we 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 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. On February 9, 2023, the Company extended the RBC Facility. The maximum availability under the Extended RBC Facility was subject to the borrowing base calculation to a maximum of C$15 million and a one-year term. Effective October 2023, inventory was scoped out of the Borrowing Base. On February 9, 2024, the Company extended the Extended RBC Facility (the “Second Extended RBC Facility”). The Second Extended RBC Facility is subject to the borrowing base calculation to a maximum of C$15 million and a one-year term. Available borrowings under the Extended RBC Facility as at December 31, 2024, were C$14.4 million ($10.0 million). 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 entered into the Fourth 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. 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 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 December 31, 2024, C$4.4 million ($3.1 million) has been drawn and C$3.9 million ($2.7 million) has been repaid, and a $14.0 million equipment leasing facility in the United States of which $13.3 million has been drawn and repaid, as of December 31, 2024, (the “U.S. Leasing Facility” and, together with the Canada Leasing Facility, the “Leasing Facilities”) with RBC, and one of its affiliates. The Canada Leasing Facility has a seven-year term and bears interest at 4.25%. In connection with the Company’s decision to close the Rock Hill Facility, we settled the liability related to the U.S. Leasing Facility ($7.8 million). The U.S. Leasing Facility is no longer available to be drawn on. With the settlement of this liability, we released $2.6 million of restricted cash during 2023.
The following table summarizes our consolidated cash flows for the years indicated:
For the Year Ended December 31,
($ in thousands)
Net cash flows provided by (used in) operating activities
7,344
14,821
(44,260
)
Net cash flows (used in) provided by investing activities
(1,900
)
7,657
(4,024
)
Net cash flows used in financing activities
(415
)
(11,605
)
(874
)
Effect of foreign exchange on cash, cash equivalents and restricted cash
(597
)
(13
)
(11
)
Net increase (decrease) in cash, cash equivalents and restricted cash
4,432
10,860
(49,169
)
Cash, cash equivalents and restricted cash, beginning of period
25,099
14,239
63,408
Cash, cash equivalents and restricted cash, end of period
29,531
25,099
14,239
For the Year Ended December 31,
Cash and cash equivalents
29,288
24,744
10,821
Restricted cash
3,418
Total cash, cash equivalents and restricted cash
29,531
25,099
14,239
Operating Activities
Net cash flows provided by operating activities were $7.3 million for the year ended December 31, 2024, compared to $14.8 million provided by operating activities for the year ended December 31, 2023. The decrease in cash flows provided by operations is due to the receipt of $7.3 million cash proceeds from government subsidies, which was not repeated in 2024, offset by $5.9 million in other working capital changes. This decrease was offset by an increase in cash flows due to improved operational results (including a $7.5 million increase in Adjusted EBITDA and a $1.9 million decrease in reorganization expenses) in the year ended December 31, 2024 compared to 2023.
Investing Activities
Cash flows provided by investing activities during the year ended December 31, 2023, benefited from $11.0 million of proceeds from the AWI transaction which was not repeated in 2024.
We invested $1.4 million in property, plant and equipment during the year ended December 31, 2024, which was consistent with the prior year’s investment in property, plant and equipment of $1.2 million. Expenditures consisted of $0.5 million of leasehold improvements, $0.2 million of marketing investments, $0.3 million of information technology investments and $0.4 million of manufacturing upgrades for the year ended December 31, 2024. We invested $1.6 million on capitalized software during the year ended December 31, 2024, compared to $1.8 million for the year ended December 31, 2023.
Financing Activities
For the year ended December 31, 2024, $0.4 million of cash was used in financing activities, comprising $21.5 million repayment of debt under the Issuer Bid, Debenture Repurchase, Debentures NCIB and $0.2 million relating to employee tax payments on vesting RSUs, $0.1 million of scheduled repayments under the Canada Leasing Facility, offset by $21.3 million of proceeds received from the Rights Offering. For the year ended December 31, 2023, $11.6 million of cash was used in financing activities mainly driven by $2.2 million of scheduled repayments and $9.4 million of early repayments under the U.S. Leasing Facility and the Canada Leasing Facility.
Consolidated cash flows for the quarter as indicated:
For the Three Months Ended December 31,
($ in thousands)
Net cash flows provided by operating activities
6,222
10,134
3,249
Net cash flows (used in) provided by investing activities
(741
)
(429
)
Net cash flows (used in) provided by financing activities
(126
)
(8,193
)
Effect of foreign exchange on cash, cash equivalents and restricted cash
Net increase in cash, cash equivalents and restricted cash
5,664
2,662
3,810
Cash, cash equivalents and restricted cash, beginning of period
23,867
22,437
10,429
Cash, cash equivalents and restricted cash, end of period
29,531
25,099
14,239
Credit Facility
On February 12, 2021, the Company entered into 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 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 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 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. At December 31, 2024, available borrowings were C$14.4 million ($10.0 million) (2023 - C$13.6 million ($10.3 million) of available borrowings), calculated in the same manner as the RBC Facility described above, of which no amounts have been drawn. 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 entered 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 entered into 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. 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, which allows access to a $15 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 under the Canada Leasing Facility of which C$4.4 million ($3.1 million) has been drawn and C$3.9 million ($2.7 million) has been repaid, and a $14.0 million equipment leasing facility in the United States of which $13.3 million has been drawn and repaid under the U.S. Leasing Facility with RBC. The Canada Leasing Facility has a seven-year term and bears interest at 4.25%.
As part of the decision to close the Rock Hill Facility, the Company fully settled the liability related to the U.S. Leasing Facility of $7.8 million in the fourth quarter of 2023. The U.S. Leasing Facility is no longer available to be drawn on. With the settlement of this liability, $2.6 million was released from restricted cash during 2023.
The Company did not make any draws on the Leasing Facilities during the years ended December 31, 2024 and 2023.
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$5 million over the proceeding 30-day period, and having a trailing twelve-month fixed charge coverage ratio above 1.10:1 and certain other conditions. The Fourth Extended RBC Facility is currently secured by substantially all of our real and personal property located in Canada and the United States.
Contractual Obligations
The following table summarizes DIRTT’s contractual obligations at December 31, 2024:
Payments due by period
Less than
Greater than
1 year
1 to 3 years
3 to 5 years
5 years
Total
($ in thousands)
Accounts payable and accrued liabilities
16,352
-
-
-
16,352
Other liabilities
3,217
-
-
-
3,217
Customer deposits and deferred revenue
4,028
-
-
-
4,028
Current and long-term portion of long-term debt and accrued interest1
1,461
23,371
-
24,955
Lease liabilities (undiscounted)
5,812
9,627
7,906
16,196
39,541
Purchase obligations
4,238
-
-
-
4,238
Total
35,108
32,998
8,029
16,196
92,331
(1)Includes principal and interest. Refer to Note 14 of our Consolidated Financial Statements for additional information.
Critical Accounting Policies and Estimates
Our significant accounting policies are described in Note 2 to our Consolidated Financial Statements appearing in Item 8 of this Annual Report. Our critical accounting estimates include the areas where we have made what we consider to be particularly difficult, subjective or complex judgments in making estimates, and where these estimates can significantly affect our financial results under different assumptions and conditions. We prepare our financial statements in conformity with GAAP. As a result, we are required to make estimates, judgments and assumptions that we believe are reasonable based upon the information available. These estimates, judgments and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the periods presented. Actual results could be different from these estimates. Critical estimates and assumptions made by management include:
Estimates of liabilities associated with the potential and amount of warranty, legal claims and other contingencies
We have warranty obligations with respect to manufacturing defects on most of our manufactured products. Warranty periods generally range from one to ten years. We have recorded a reserve for estimated warranty and related costs based on historical experience and periodically adjust these provisions to reflect actual experience. We assess the adequacy of our warranty accrual on a quarterly basis, and adjust the previous amounts recorded, if necessary, to reflect the change in estimate of the future costs of claims yet to be serviced. Typically, product deficiencies requiring our warranty are identified and remediated within a year of production. The following provides information with respect to our warranty accrual. At December 31, 2024 and 2023, we had $0.8 million and $0.9 million, respectively, accrued for warranty and other provisions, and third-party costs associated with remedying deficiencies were $0.6 million during the fiscal year ended December 31, 2024, as compared to $1.2 million during the fiscal year ended December 31, 2023.
We establish reserves for estimated legal contingencies when we believe a loss on litigation is probable and the amount of the loss can be reasonably estimated. Revisions to contingent liability reserves are reflected in operations in the period in which there are changes in facts and circumstances that affect our previous assumptions with respect to the likelihood or amount of loss. Reserves for contingent liabilities are based upon our assumptions and estimates regarding the probable outcome of the matter. We estimate the probable cost by evaluating historical precedent as well as the specific facts relating to each contingency (including the opinion of outside advisors). Should the outcome differ from our assumptions and estimates, or other events result in a material adjustment to the accrued estimated reserves, revisions to the estimated reserves for contingent liabilities would be required and would be recognized in the period the new information becomes known. At December 31, 2024 and 2023, we had $0.05 million provided for legal provisions.
Estimates of useful lives of depreciable assets, the fair value of long-term assets used for impairment calculations and the fair value less costs to sell for assets held for sale
We evaluate the recoverability of our property, plant, and equipment (“PP&E”), capitalized software costs and right of use assets when events or changes in circumstances indicate a potential impairment exists. If impairment is indicated, the impairment loss is measured as the amount the assets carrying value exceeds the fair value of the assets.
Our determination of the fair value associated with long-term assets involves significant estimates and assumptions, including those with respect to the determination of asset groups, future cash inflows and outflows, discount rates, and asset lives. These significant estimates require considerable judgment, which could affect our future results if the current estimates of future performance and fair values change.
We estimate the useful lives of PP&E, capitalized software costs and right of use assets based on the period over which the assets are expected to be available for use. The estimated useful lives are reviewed annually and are updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or other limits on the use of the relevant assets. In addition, the estimation of the useful lives of the relevant assets may be based on internal technical evaluation and experience with similar assets. It is possible, however, that future results of operations could be materially affected by changes in the estimates brought about by changes in factors mentioned above. The amounts and timing of recorded expenses for any period would be affected by changes in these factors and circumstances. A reduction in the estimated useful lives of the PP&E and capitalized software assets would increase the recorded expenses and decrease the non-current assets.
The Company classifies an asset group (“asset”) as held for sale in the period that (i) it has approved and committed to a plan to sell the asset, (ii) the asset is available for immediate sale in its present condition, (iii) an active program to locate a buyer and other actions required to sell the asset have been initiated, (iv) the sale of the asset is probable and transfer of the asset is expected to qualify for recognition as a completed sale within one year (subject to certain events or circumstances), (v) the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value, and (vi) it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. The Company initially and subsequently measures a long-lived asset that is classified as held for sale at the lower of its carrying value or fair value less any costs to sell. Any loss resulting from this measurement is recognized in the consolidated statement of operations and comprehensive loss in the period in which the held for sale criteria are met. We estimate the fair value less costs to sell based on market prices and discussions with potential buyers on the assets that are held for sale. The amounts and timing that the assets held for sale are sold could be impacted on the ability to market and sell the assets held for sale, and find a suitable buyer.
Estimates of future taxable earnings used to assess the realizable value of deferred tax assets
We use the asset and liability method of accounting for income taxes. Under this method, deferred income tax assets and liabilities arise from temporary differences between the tax bases of assets and liabilities and their carrying amounts reported in our Consolidated Financial Statements. Deferred income tax assets also reflect the benefit of unutilized tax losses that can be carried forward to reduce income taxes in future years. Such method requires the exercise of significant judgment in determining whether or not it is more likely than not our deferred tax assets may be realized and, therefore, can be recognized in our Consolidated Financial Statements. Also, estimates are required to determine the expected timing upon which tax assets will be realized and upon which tax liabilities will be settled. We assess the ability to recover our deferred tax assets every quarter and concluded that a valuation allowance was required against our deferred tax assets at December 31, 2024 of $30.0 million (2023 - $34.5 million).
Tax interpretations, regulations, and legislation in the various jurisdictions in which the Company and its subsidiary operate
The determination of our provision for income taxes requires significant judgment, the use of estimates and the interpretation and application of complex tax laws. Our provision for income taxes reflects a combination of income earned and taxed in the various U.S. federal and state, and Canadian federal and provincial, jurisdictions. Jurisdictional tax law changes, increases or decreases in permanent differences between book and tax items, accruals or adjustments of accruals for tax contingencies or valuation allowances, and the change in the mix of earnings from these taxing jurisdictions all affect the overall effective tax rate.
We have no liability for uncertain tax positions. However, should we accrue for such liabilities, when and if they arise in the future, we will recognize interest and penalties associated with uncertain tax positions as part of our income tax provision.
Estimates of the fair value of stock awards, including whether the performance criteria will be met and measurement of the ultimate payout amount
We use a fair-value based approach for measuring stock-based compensation and record compensation expense over an award’s vesting period based on the award’s fair value at the date of grant. Our awards vest based on service conditions, and compensation expense is recognized on a straight-line basis. Stock-based compensation expense is recognized only for those awards that ultimately vest.
Estimates of ability and timeliness of customer payments of accounts receivable
Our expected credit loss reflects reserves for customer receivables to reduce receivables to amounts expected to be collected. Management uses significant judgment in estimating expected credit losses. In estimating the Company’s current estimate of expected credit losses, management considers historical credit loss experience as well as forward-looking information in order to establish rates for each class of financial receivable with similar risk characteristics. While we believe these processes effectively address our exposure for doubtful accounts and credit losses which have historically been within expectations, changes in the economy, industry, or specific customer conditions may require adjustments to the expected credit loss. We have a contract with a trade credit insurance provider, whereby a portion of our trade receivables are insured. The trade credit insurance provider determines the coverage amount, if any, on a customer-by-customer basis. Based on our trade receivables balance as at December 31, 2024 and 2023, approximately 82% and 93%, respectively, of that balance was covered by the trade credit insurance provider.
At December 31, 2024, we had an allowance for expected credit loss of $0.1 million (2023 - $0.1 million).
Recent Accounting Pronouncements
Please refer to Note 3 to our Consolidated Financial Statements presented elsewhere in this Annual Report.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Our financial assets and liabilities consist primarily of cash and cash equivalents, restricted cash, trade and accrued receivables, other receivables, deposits and long-term receivables, accounts payable and accrued liabilities, other liabilities, and long-term debt and accrued interest. We are exposed to market, credit and liquidity risks associated with financial assets and liabilities. We currently do not use financial derivatives to reduce exposures from changes in foreign exchange rates, commodity prices, or interest rates. We do not hold or use any derivative instruments for trading or speculative purposes. Our Board of Directors has responsibility for the establishment and approval of overall risk management policies, including those related to financial instruments. Management performs continuous assessments to ensure that all significant risks related to financial instruments are reviewed and addressed in light of changes to market conditions and operating activities.
Credit risk
Our principal financial assets are cash and cash equivalents, trade and accrued receivables, other receivables and deposits.
Our credit risk is primarily concentrated in our trade and accrued receivables as we do not believe that we are exposed to any significant credit risk related to our cash and cash equivalents and prepaid expenses. The amounts disclosed in the consolidated balance sheet for trade and accrued receivables and other receivables are net of allowances for doubtful accounts. Allowances are provided for the Company’s current estimate of all expected credit losses using the lifetime expected credit loss model. As at December 31, 2024 and 2023, our allowance was $0.1 million. In order to manage and assess our risk, management maintains credit policies that include regular review of credit limits of individual receivables and systematic monitoring of aging of trade receivables and the financial well-being of our customers. In addition, we acquired trade credit insurance effective April 1, 2020. At December 31, 2024, approximately 82% of our trade accounts receivable are insured, relating to accounts receivables from counterparties deemed creditworthy by the insurer and excluding accounts receivable from government entities, that have arisen since April 1, 2020, when the trade credit insurance became effective. Our trade balances are spread over a broad Construction Partner base, which is geographically dispersed. No single Construction Partner accounted for greater than 10% of revenue in 2024 (2023- one). In addition, and where possible, we collect a 50% deposit on sales, excluding government and certain other clients.
Market risk
Market risk is the risk that changes in market prices, such as interest rates and foreign currency exchange rates, will affect our income or the value of the financial instruments held.
Foreign exchange risk
The majority (approximately 85% to 90%) of our revenue is collected in U.S. dollars, and approximately 40% of our costs are also incurred in U.S. dollars. Most other revenue and costs are denominated in Canadian dollars. As a result, we are exposed to fluctuations in the U.S. dollar against the Canadian dollar, which could have a positive or negative impact on our revenue and costs. The recent strengthening of the U.S. dollar versus the Canadian dollar in 2024 has had a positive impact on results.
Our financial instruments are exposed primarily to fluctuations in the Canadian dollar. The following table details our exposure to currency risk at the reporting dates and a sensitivity analysis to changes in currency. The sensitivity analysis includes Canadian dollar-denominated monetary items and adjusts their translation at period end for their respective change in the Canadian dollar. For the respective weakening of the Canadian dollar, there would be an equal and opposite impact on net income (loss) and comprehensive income (loss).
Effect of net
income and
comprehensive
income for the
Amount
Change in
year ended
(C$ in thousands)
Currency (%)
December 31, 2024
Cash and cash equivalents
4,387
%
Trade and accrued receivables
5,593
%
Other receivables
%
Other assets
%
Accounts payable and accrued liabilities
15,659
%
1,566
Other liabilities
3,342
%
Current portion of long-term debt and accrued interest
%
Long-term debt
31,231
%
3,123
Total
61,139
%
6,113
Commodity price risk
We consume raw materials such as aluminum, hardware, wood and veneer, timber, plastic, electrical wiring and components, paint and powder, fabric and vinyl. While aluminum represents the largest component of our raw materials’ expenditures, overall aluminum spend comprises only approximately 10% of product revenues and, therefore, absolute exposure to price fluctuations has a minimal impact on profitability.
Interest rate risk
In February 2021, we entered into the RBC Facility which was extended on February 9, 2023 under the Extended RBC Facility. On February 9, 2024, the Company extended the Extended RBC Facility under the Second Extended RBC Facility. The Second Extended RBC Facility has a maximum borrowing base of C$15 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. On February 20, 2025, the Company entered into 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. We did not draw on the facilities during 2022, 2023 or 2024 and were, therefore not exposed to any interest rate risk.
The Company’s Leasing Facilities and Debentures bear interest at fixed interest rates and are therefore not subject to interest rate risk.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial Statements and Supplementary Data.
INDEX
Page No.
Report of Independent Registered Public Accounting Firm (PCAOB ID 271)
Consolidated Balance Sheets, as at December 31, 2024 and 2023
Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended December 31, 2024, 2023 and 2022
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2024, 2023 and 2022
Consolidated Statements of Cash Flows for the years ended December 31, 2024, 2023 and 2022
Notes to the Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of DIRTT Environmental Solutions Ltd.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of DIRTT Environmental Solutions Ltd. and its subsidiaries (the Company) as of December 31, 2024 and 2023, and the related consolidated statements of operations, of comprehensive income (loss), of changes in shareholders’ equity and of cash flows for each of the three years in the period ended December 31, 2024, including the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission (SEC) and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue from Contracts with Customers - Product Sales
As described in Notes 2 and 20 to the consolidated financial statements, the Company’s revenue recognized from product sales was $153 million for the year ended December 31, 2024. The Company recognizes revenue upon transfer of control of promised goods to customers at the transaction price, an amount that reflects the consideration the Company expects to receive in exchange for those goods. The Company’s main performance obligation to customers is the delivery of products in accordance with purchase orders. Each purchase order defines the transaction price for the products purchased under the arrangement. The Company’s standard sales terms are Free On Board shipping point.
The principal consideration for our determination that performing procedures relating to revenue from contracts with customers is a critical audit matter is a high degree of auditor effort in performing procedures related to the Company’s revenue recognition.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included, among others (i) testing revenue recognized for a sample of revenue transactions by obtaining and inspecting source documents, such as purchase orders, invoices, bills of lading and subsequent cash receipts; and (ii) confirming a sample of outstanding customer invoice balances as of December 31, 2024 and, for confirmations not returned, obtaining and inspecting source documents, such as invoices, bills of lading and subsequent cash receipts.
/s/ PricewaterhouseCoopers LLP
Chartered Professional Accountants
Calgary, Alberta, Canada
February 26, 2025
We have served as the Company’s auditor since 2017, which includes periods before the Company became subject to SEC reporting requirements.
DIRTT Environmental Solutions Ltd.
Consolidated Balance Sheets
(Stated in thousands of U.S. dollars)
As at December 31,
As at December 31,
ASSETS
Current Assets
Cash and cash equivalents
29,288
24,744
Restricted cash
Trade and accrued receivables, net of expected credit losses of
$0.1 million at December 31, 2024 and at December 31, 2023
19,494
15,787
Other receivables
Inventory
15,109
16,577
Prepaids and other current assets
2,609
4,023
Assets held for sale
-
1,555
Total Current Assets
67,159
63,525
Property, plant and equipment, net
20,199
25,077
Capitalized software, net
2,548
2,450
Operating lease right-of-use assets, net
25,369
29,813
Other assets
2,945
3,452
Total Assets
118,220
124,317
LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities
16,352
19,880
Other liabilities
3,217
2,482
Customer deposits and deferred revenue
4,028
5,290
Current portion of long-term debt and accrued interest
Current portion of lease liabilities
5,619
5,255
Total Current Liabilities
29,575
33,748
Long-term debt
21,993
55,267
Long-term lease liabilities
24,062
28,201
Total Liabilities
75,630
117,216
SHAREHOLDERS’ EQUITY
Common shares, unlimited authorized without par value, 193,605,237 issued and outstanding at December 31, 2024 and 105,377,667 issued and outstanding at December 31, 2023
219,023
196,128
Additional paid-in capital
8,206
7,954
Accumulated other comprehensive loss
(18,541
)
(16,125
)
Accumulated deficit
(166,098
)
(180,856
)
Total Shareholders’ Equity
42,590
7,101
Total Liabilities and Shareholders’ Equity
118,220
124,317
Refer to Note 2 for policy on Common Shares.
Refer to Note 22 for Commitments.
Refer to Note 25 for Subsequent Events.
The accompanying notes are an integral part of these consolidated financial statements.
DIRTT Environmental Solutions Ltd.
Consolidated Statements of Operations and Comprehensive Income (Loss)
(Stated in thousands of U.S. dollars, except per share data)
For the Year Ended December 31,
Product revenue
169,660
176,919
166,256
Service revenue
4,653
5,012
5,905
Total revenue
174,313
181,931
172,161
Product cost of sales
107,468
119,728
140,058
Service cost of sales
2,470
2,661
3,943
Total cost of sales
109,938
122,389
144,001
Gross profit
64,375
59,542
28,160
Expenses
Sales and marketing
22,938
25,235
26,950
General and administrative
19,903
21,655
25,462
Operations support
7,438
7,832
9,498
Technology and development
5,262
5,820
7,555
Stock-based compensation
2,965
2,306
4,277
Reorganization
1,113
3,009
13,461
Impairment charge on Rock Hill Facility
8,716
-
Related party expense
-
1,524
-
Total operating expenses
60,149
76,097
87,203
Operating income (loss)
4,226
(16,555
)
(59,043
)
Gain on extinguishment of convertible debt
10,426
-
-
Foreign exchange gain (loss)
2,974
(626
)
1,445
Interest income
1,587
Interest expense
(3,995
)
(4,927
)
(5,160
)
Government subsidies
-
7,765
Gain on sale of software and patents
-
7,130
-
10,992
2,303
4,101
Net income (loss) before tax
15,218
(14,252
)
(54,942
)
Income taxes
Current and deferred income tax expense
Net income (loss) after tax
14,770
(14,584
)
(54,963
)
Net income (loss) per share
Net income (loss) per share - basic
0.08
(0.13
)
(0.55
)
Net income (loss) per share - diluted
0.07
(0.13
)
(0.55
)
Weighted average number of shares outstanding (in thousands)
Basic
190,542
116,135
99,826
Diluted
240,239
116,135
99,826
Refer to Note 24 for Related Party Transactions included in this statement.
The prior year comparatives have been revised in line with current year presentation - refer to Earnings per share in Note 19.
The accompanying notes are an integral part of these consolidated financial statements.
DIRTT Environmental Solutions Ltd.
Consolidated Statement of Comprehensive Income (Loss)
(Stated in thousands of U.S. dollars)
For the Year Ended December 31,
Net income (loss) after tax for the period
14,770
(14,584
)
(54,963
)
Exchange differences on translation of foreign operations
(2,416
)
(19
)
(190
)
Comprehensive income (loss) for the period
12,354
(14,603
)
(55,153
)
The accompanying notes are an integral part of these consolidated financial statements.
DIRTT Environmental Solutions Ltd.
Consolidated Statements of Changes in Shareholders’ Equity
(Stated in thousands of U.S. dollars, except for share data)
Accumulated
Number of
Additional
other
Total
Common
Common
paid-in
comprehensive
Accumulated
shareholders’
shares
shares
capital
loss
deficit
equity
As at December 31, 2021
85,345,433
181,782
13,200
(15,916
)
(111,300
)
67,766
Stock-based compensation
-
-
3,943
-
-
3,943
Issued on vesting of RSUs and Share Awards
3,149,061
7,088
(7,088
)
-
-
-
RSUs and Share Awards withheld to settle employee tax obligations
-
-
(1,032
)
-
(9
)
(1,041
)
Issued for employee share purchase plan
720,901
-
-
-
Issued on private placement
8,667,449
2,181
-
-
-
2,181
Foreign currency translation adjustment
-
-
-
(190
)
-
(190
)
Net loss for the year
-
-
-
-
(54,963
)
(54,963
)
As at December 31, 2022
97,882,844
191,347
9,023
(16,106
)
(166,272
)
17,992
Stock-based compensation
-
-
1,713
-
-
1,713
Issued on vesting of RSUs and Share Awards
1,886,868
2,756
(2,756
)
-
-
-
Issued for employee share purchase plan
1,708,210
-
-
-
Issued to settle related party debt
3,899,745
1,523
-
-
-
1,523
RSUs and Share Awards withheld to settle employee tax obligations
-
-
(26
)
-
-
(26
)
Foreign currency translation adjustment
-
-
-
(19
)
-
(19
)
Net loss for the year
-
-
-
-
(14,584
)
(14,584
)
As at December 31, 2023
105,377,667
196,128
7,954
(16,125
)
(180,856
)
7,101
Stock-based compensation
-
-
1,532
-
-
1,532
Issued on vesting of RSUs
1,363,328
1,124
(1,124
)
-
-
-
Issued on Rights Offering
85,714,285
21,272
-
-
-
21,272
RSUs withheld to settle employee tax obligations
-
-
(162
)
-
(12
)
(174
)
Issued for employee share purchase plan
1,208,435
-
-
-
Cancelled from Normal Course Issuer Bid
(58,478
)
(45
)
-
-
(39
)
Foreign currency translation adjustment
-
-
-
(2,416
)
-
(2,416
)
Net income for the year
-
-
-
-
14,770
14,770
As at December 31, 2024
193,605,237
219,023
8,206
(18,541
)
(166,098
)
42,590
The accompanying notes are an integral part of these consolidated financial statements.
DIRTT Environmental Solutions Ltd.
Consolidated Statements of Cash Flows
(Stated in thousands of U.S. dollars)
For the Year Ended December 31,
Cash flows from operating activities:
Net income (loss) for the period
14,770
(14,584
)
(54,963
)
Adjustments:
Depreciation and amortization
6,575
8,934
15,119
Impairment charge on Rock Hill Facility
8,716
-
Stock-based compensation
2,965
2,306
3,342
Foreign exchange loss (gain)
(3,152
)
1,099
(1,813
)
Gain on extinguishment of convertible debt
(10,426
)
-
-
Gain on sale of software and patents
-
(7,130
)
-
Accretion of convertible debentures
1,491
Loss (gain) on disposal
(133
)
Changes in operating assets and liabilities:
Trade and accrued receivables
(4,005
)
(1,833
)
(179
)
Other receivables
7,406
(4,432
)
Inventory
5,961
(4,716
)
Prepaid and other assets, current and long term
1,215
Accounts payable and accrued liabilities
(2,742
)
2,137
Other liabilities
(12
)
(421
)
(109
)
Customer deposits and deferred revenue
(1,240
)
2,477
Current portion of long-term debt and accrued interest
(437
)
(40
)
(149
)
Lease liabilities
Net cash flows (used in) provided by operating activities
7,344
14,821
(44,260
)
Cash flows from investing activities:
Purchase of property, plant and equipment, net of accounts
payable changes
(1,400
)
(1,242
)
(2,394
)
Capitalized software development expenditures
(1,636
)
(1,794
)
(1,677
)
Other asset expenditures
(153
)
(398
)
(443
)
Recovery of software development expenditures
Proceeds on sale of property, plant, and equipment
Proceeds on sale of assets held for sale
1,025
-
-
Proceeds on sale of software and patents
-
10,950
-
Net cash flows (used in) provided by investing activities
(1,900
)
7,657
(4,024
)
Cash flows from financing activities:
Repayment of long-term debt
(21,486
)
(11,579
)
(2,470
)
Net proceeds received from Rights Offering
21,272
-
-
Employee tax payments on vesting of RSUs
(162
)
(26
)
(1,041
)
Common share repurchase
(39
)
-
-
Proceeds issued on private placement
-
-
1,990
Proceeds received on long-term debt
-
-
Net cash flows used in financing activities
(415
)
(11,605
)
(874
)
Effect of foreign exchange on cash, cash equivalents and
restricted cash
(597
)
(13
)
(11
)
Net increase (decrease) in cash, cash equivalents and
restricted cash
4,432
10,860
(49,169
)
Cash, cash equivalents and restricted cash, beginning of period
25,099
14,239
63,408
Cash, cash equivalents and restricted cash, end of period
29,531
25,099
14,239
Supplemental disclosure of cash flow information:
Interest paid
(2,874
)
(3,977
)
(4,423
)
Income taxes received (paid)
(754
)
3,212
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within
the consolidated balance sheets.
For the year ended December 31,
Cash and cash equivalents
29,288
24,744
10,821
Restricted cash
3,418
Total cash, cash equivalents and restricted cash
29,531
25,099
14,239
The accompanying notes are an integral part of these consolidated financial statements.
DIRTT Environmental Solutions Ltd.
Notes to the Consolidated Financial Statements
(Amounts stated in thousands of U.S. dollars unless otherwise stated)
1. GENERAL INFORMATION
DIRTT Environmental Solutions Ltd. and its subsidiary (“DIRTT”, the “Company”, “we” or “our”) 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, 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 unrelated companies and Construction Partners of the Company. As of May 9, 2023, Armstrong World Industries, Inc. (“AWI”) owns a 50% interest in the rights, titles and interest in certain intellectual property rights in a portion of the ICE Software that is used by AWI.
DIRTT is incorporated under the laws of the province of Alberta, Canada, its headquarters is located at 7303 - 30th Street S.E., Calgary, AB, Canada T2C 1N6 and its registered office is located at 4500, 855 - 2nd Street S.W., Calgary, AB, Canada T2P 4K7. DIRTT’s common shares trade on the Toronto Stock Exchange under the symbol “DRT”. Effective October 12, 2023, DIRTT’s common shares ceased to trade on The Nasdaq Capital Markets. DIRTT’s common shares are quoted on the OTC Markets on the “OTC Pink Tier” under the symbol “DRTTF”.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
These consolidated financial statements (“Financial Statements”), including comparative figures, have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
In these Financial Statements, unless otherwise indicated, all dollar amounts are expressed in United States (“U.S.”) dollars. DIRTT’s financial results are consolidated in Canadian dollars, the Company’s functional currency, and the Company has adopted the U.S. dollar as its reporting currency. All references to US$ or $ are to U.S. dollars and references to C$ are to Canadian dollars.
Principles of consolidation
The Financial Statements include the accounts of DIRTT and its subsidiary. All intercompany balances, income and expenses, unrealized gains and losses and dividends resulting from intercompany transactions have been eliminated upon consolidation.
Basis of measurement
These Financial Statements have been prepared on the historical cost convention except for certain financial instruments, assets held for sale and stock-based compensation that are measured at fair value, as explained in the accounting policies below. Historical cost is generally based on the fair value of the consideration given in exchange for assets.
Use of estimates
The preparation of the Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and the disclosure of contingent liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Such estimates primarily relate to unsettled transactions and events as of the date of the Financial Statements. Estimates are based on historical data and experience, as well as various other factors that management considers reasonable under the circumstances. Actual outcomes can differ from these estimates.
Significant estimates and assumptions made by management include:
•Estimates of ability and timeliness of customer payments of trade receivables;
•Estimates of useful lives of depreciable assets as well as the fair value of long-term assets and future cash flows used for impairment calculations;
•Determining the fair value less costs to sell of the assets held for sale;
•Estimates of future taxable earnings used to assess the realizable value of deferred tax assets and the ability to recognize a deferred tax asset;
•Estimates of inventory obsolescence based on slow moving inventory items;
•Tax interpretations, regulations and legislation in the various jurisdictions in which the Company and its subsidiary operate;
•Estimates of the fair value of stock awards, including whether the performance criteria will be met and measurement of the ultimate payout amount; and
•Estimates of liabilities associated with the potential and amount of warranty, legal claims and other contingencies.
Segments
Management has determined that DIRTT has one operating segment. The Company’s chief executive officer, president and chief operating officer, and chief financial officer, who are DIRTT’s chief operating decision makers, review financial information on a consolidated and aggregate basis, together with certain operating metrics principally, to make decisions about how to allocate resources and to measure the Company’s performance.
Foreign currency translation
DIRTT Environmental Solutions Ltd. is a Canadian company and its functional currency is the Canadian dollar. DIRTT’s wholly owned subsidiary, DIRTT Environmental Solutions Inc., is domiciled in the United States and its functional currency is the U.S. dollar.
Assets and liabilities denominated in foreign currencies, other than those held through foreign subsidiaries, are translated into the transacting company’s functional currency at the year-end exchange rate for monetary items, and at the historical exchange rates for non-monetary items. Foreign currency revenues and expenses are translated at the exchange rates in effect on the dates of the related transactions. Foreign exchange gains and losses, other than those arising from the translation of the Company’s net investments in its foreign subsidiary, are included in income.
The accounts of the Company’s U.S. dollar subsidiary is translated into Canadian dollars, and the Financial Statements are translated into U.S. dollars for financial statement presentation. Assets and liabilities are translated using year-end exchange rates, and revenues, expenses, gains and losses are translated using average monthly exchange rates. Foreign exchange gains and losses arising from the translation of the Company’s assets and liabilities are included in “comprehensive income (loss) for the year”.
Cash and cash equivalents and restricted cash
Cash and cash equivalents include cash on hand held at banks and cash equivalents, which are defined as highly liquid investments with original maturities of three months or less. Restricted cash is a reserve account not available for immediate or general business use and is required as collateral to commercial credit cards or when certain requirements are not met under the terms of the Company’s senior secured credit facility (as defined in Note 14).
Trade and other receivables, net of expected credit losses
Accounts receivable are recorded at the invoiced amount, do not require collateral and do not bear interest. The Company estimates its allowance for doubtful accounts using the current expected credit loss methodology, which is designed to capture the Company’s current estimate of all expected credit losses.
Inventory
Inventory is comprised of raw materials and work in progress. The Company does not typically carry a significant amount of finished goods inventory. Inventory is valued at the lower of weighted average cost and net realizable value. Net realizable value is based on an item’s usability in the manufacturing of the Company’s products. The Company records an allowance for obsolescence when the net realizable value of inventory items declines below weighted average cost. Net realizable value is determined based on current market prices for inventory less the estimated cost to sell. Work in progress is valued at an estimate of cost, including attributable overheads, based on stage of completion.
Fixed production overheads are allocated to inventory on the basis of normal capacity of the production facilities. In periods where production levels are abnormally low, unallocated overheads are separately recognized as an expense in the period in which they are incurred.
Assets held for sale
The Company classifies an asset group (“asset”) as held for sale in the period that (i) it has approved and committed to a plan to sell the asset, (ii) the asset is available for immediate sale in its present condition, (iii) an active program to locate a buyer and other actions required to sell the asset have been initiated, (iv) the sale of the asset is probable and transfer of the asset is expected to qualify for recognition as a completed sale within one year (subject to certain events or circumstances), (v) the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value, and (vi) it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. The Company initially and subsequently measures a long-lived asset that is classified as held for sale at the lower of its carrying value or fair value less any costs to sell. Any loss resulting from this measurement is recognized in the consolidated statement of operations and comprehensive loss in the period in which the held for sale criteria are met. Upon designation as an asset held for sale, the Company stops recording depreciation expense on the asset.
The Company assesses the fair value of assets held for sale less any costs to sell at each reporting period until the asset is no longer classified as held for sale.
Leases
The Company categorizes leases at their inception as either operating or finance leases. Leases where the Company assumes substantially all of the rewards or ownership and leases where ownership is transferred at the end of the lease term, or by way of a bargain purchase option, are classified as finance leases. Upon initial recognition, the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability, so as to achieve a constant rate of interest on the balance of the liability. Finance charges are recognized in the statement of operations.
The Company’s Leasing Facilities (as defined in Note 14) are accounted for as finance leases as ownership of the equipment is expected to return to the Company at the end of the lease term. These transactions are not accounted for as a sale of the underlying equipment as the Company continues to control the equipment.
For leases categorized as operating, the Company determines if an arrangement is a lease or contains a lease element at inception. The arrangement is a lease if it conveys the right to the Company to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. Operating leases are separately disclosed as operating lease right-of-use (“ROU”) assets, with a corresponding lease liability split between current and long-term components on the balance sheet. Operating leases with an initial term of 12 months or less are not included on the balance sheet.
The Company recognizes lease expense for these leases on a straight-line basis over the lease term. ROU assets represent the right to use an underlying asset for the lease term and operating lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term.
Property, plant and equipment
Property, plant and equipment are recorded at cost, including direct costs, attributable indirect costs and carrying costs, less accumulated depreciation and any accumulated impairment losses. Expenditures for repairs and maintenance are expensed as incurred, while renewals and betterments are capitalized.
Depreciation is charged to the consolidated statement of operations on a straight-line basis over the estimated useful lives of the assets. The estimated useful lives of the Company’s property, plant and equipment are as follows:
Building
25 years
Manufacturing equipment
10 years
Leasehold improvements
Over term of lease (1 to 13 years)
Office equipment
5 years
Tooling and prototypes
4 years
Computer equipment
3 years
Vehicles
3 years
When assets are disposed of or retired, the cost and accumulated depreciation and impairment losses are removed from the respective accounts and any resulting gain or loss is reflected in operating expenses.
Capitalized software costs
The Company capitalizes costs related to internally developed software during the application development stage when (i) the preliminary project stage is completed, (ii) management has authorized further funding for the completion of the project, and (iii) it is probable that the project will be completed and performed as intended. Capitalized costs include costs of personnel and related expenses for employees and third parties directly attributable to the projects. Capitalization of these costs ceases once the project is substantially complete and the software is ready for its intended purpose. Costs incurred for significant upgrades and enhancements are also capitalized. Costs related to preliminary project activities and post implementation activities, including training, maintenance and minor modifications or enhancements are expensed as incurred. Capitalized software costs are amortized on a straight-line basis over the estimated useful life of the developed asset, which is five years. Management evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of the assets.
Software development is considered internal-use as it is used to design and sell the DIRTT products and is not included in the end client’s product. Revenues received from Construction Partners for ICE Software are recognized as revenues as they are considered an element of the product sale. Any incidental third-party revenues received for the ICE Software are credited against capitalized software costs. The Company follows this accounting policy for cloud computing arrangements that are considered a service contract, however, these projects are capitalized to prepaids and other assets on the balance sheet and are expensed as an operating cost, as opposed to amortization, over the expected term of the software service contract.
Impairment of long-lived assets
Management evaluates the recoverability of the Company’s property, plant and equipment, capitalized software costs and ROU assets when events or changes in circumstances indicate a potential impairment exists. Events and changes in circumstances considered by the Company in determining whether the carrying value of long-lived assets may not be recoverable include, but are not limited to, significant changes in performance relative to expected operating results, significant changes in the use of the assets, significant negative industry or economic trends, and changes in the Company’s business strategy. Impairment testing is performed at an asset level that represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities (an “asset group”). In determining if impairment exists, the Company estimates the undiscounted cash flows to be generated from the use and ultimate disposition of the asset group. If impairment is indicated based on a comparison of the assets’ carrying values and the undiscounted cash flows, the impairment loss is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets.
Convertible Debentures
The Company accounts for convertible debentures as liabilities. Embedded features included in the convertible debentures that require bifurcation are accounted for separately. Costs incurred directly related to the issuance of convertible debentures are presented as a direct deduction against the carrying amount of the convertible debentures and are amortized to interest expense using the effective interest method.
Income taxes
Income tax expense is comprised of current and deferred tax. Income tax is recognized in the consolidated statement of operations and comprehensive income (loss) except to the extent it relates to items recognized directly in equity.
Current tax
Current tax expense is based on the results for the year, adjusted for items that are not taxable or not deductible. Current tax is calculated using tax rates and laws that were enacted at the end of the reporting period. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. Provisions are established where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred tax
Deferred tax is recognized, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated balance sheet. Deferred income tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates and laws that will be in effect when the differences are expected to reverse.
The effect of a change in income tax rates on deferred income tax assets and liabilities is recognized in income in the period during which the change occurs.
When appropriate, the Company records a valuation allowance against deferred tax assets to reflect that these tax assets may not be realized. In determining whether a valuation allowance is appropriate, the Company considers whether it is more likely than not that all or some portion of the Company’s deferred tax assets will not be realized, based on management’s judgment using available evidence about future events.
At times, tax benefits claims may be challenged by a tax authority. Tax benefits are recognized only for tax positions that are more likely than not sustainable upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50% likely to be realized upon settlement. A liability for “unrecognized tax benefits” is recorded for any tax benefits claimed in the Company’s tax returns that do not meet these recognition and measurement standards.
Revenue recognition
The Company accounts for revenue in accordance with topic 606, Revenue from Contracts with Customers, (“ASC 606”) and Subtopic 340-40, Other Assets and Deferred Costs - Contracts with Customers. Under ASC 606, an entity recognizes revenue in a manner that reflects the transfer of promised goods or services to customers in an amount which the entity expects to be entitled in exchange for those goods or services.
The Company recognizes revenue upon transfer of control of promised goods or services to customers at the transaction price, an amount that reflects the consideration the Company expects to receive in exchange for those goods or services. Transaction price is calculated as selling price net of variable consideration which may include estimates for sales incentives related to current period product revenue. Revenue is measured at the fair value of the consideration received or receivable, after discounts, rebates and sales taxes or income taxes and duties.
Product sales
The Company recognizes revenue upon transfer of control of products to the customer, which typically occurs upon shipment. The Company’s main performance obligation to customers is the delivery of products in accordance with purchase orders. Each purchase order defines the transaction price for the products purchased under the arrangement. Construction Partners typically sell DIRTT product to end clients and issue purchase orders to the Company to manufacture the product. Construction Partners utilize ICE licenses to sell DIRTT products. The ICE licenses sold to Construction Partners are not considered a separate performance obligation as they are not distinct, and ICE license revenue is recognized in conjunction with product sales. The Construction Partner ICE Software revenue is recognized over the license period.
The Company’s standard sales terms are Free On Board shipping point, which comprise the majority of sales. The Company usually requires a 50% progress payment on receipt of certain orders, excluding certain government orders or in some special contractual situations. Customer deposits received are recognized as a liability on the balance sheet until revenue recognition criteria is met. At the point of shipment, the customer is generally required to pay the balance of the sales price within 30 days. The Company’s sales arrangements do not have any material financing components. In addition, the Company’s customer arrangements do not produce contract assets that are material to its consolidated financial statements.
The Company provides sales commissions to internal and external sales representatives which are earned in the period in which revenue is recognized.
The Company accounts for product transportation revenue and costs as fulfillment activities and presents the associated costs in costs of goods sold in the period in which the Company sells its product.
Contracts containing multiple performance obligations
The Company offers certain arrangements whereby a customer can purchase products and installation together, which are generally capable of being distinct and accounted for as separate performance obligations. Where multiple performance obligations exist, the Company determines revenue recognition by (1) identifying the contract with the customer, (2) identifying the performance obligation in the contract, (3) determining the transaction price, (4) allocating the transaction price to the performance obligations based on the relative standalone selling prices, typically based on cost plus a reasonable margin, and (5) recognizing revenue as the performance obligations are satisfied.
Installation and other services
The Company provides installation and other services for certain customers as a distinct performance obligation. Revenue from installation services is recognized over time as the service is performed.
Principal vs Agent Considerations
The Company evaluates the presentation of revenue on a gross vs. net basis based on whether it acts as a principal by controlling the product or service sales to customers. In certain instances, the Company facilitates contracting of certain sales on behalf of Construction Partners. The Company records these revenues on a gross basis when the Company is obligated to fulfill the service and has the risk associated with service delivery. The Company records these revenues on a net basis when the Construction Partner has the obligation to fulfill the services and has the risk associated with service delivery.
Construction Partner rebates
Rebates to Construction Partners (“Partner Rebates”) are accrued for and recognized as a reduction of revenue at the date of the sale to the customer. Partner Rebates include amounts collected directly by the Company owed to Construction Partners in accordance with their Construction Partner agreements, being the difference between the price to the end customer and the Construction Partners’ price. Other sales discounts are deducted immediately from sales invoices.
Contract balances
Timing of revenue recognition may differ from the timing of invoicing to customers. The Company records an unbilled receivable when revenue is recognized prior to invoicing. As the Company’s contracts are less than one year in duration, the Company has elected to apply the practical expedients to expense costs related to costs to obtain contracts and not disclose unfulfilled performance obligations. As deferred revenue and customer deposits are typically recognized during the year, the Company does not account for financing elements.
Warranties
The Company provides a warranty on all products sold to its clients and Construction Partner’s clients. Warranties are not sold separately to customers. Provisions for the expected cost of warranty obligations are recognized based on an analysis of historical costs for warranty claims relative to current activity levels and adjusted for factors based on management’s assessment that increase or decrease the provision. Warranty provision is recognized in cost of goods sold. Warranty claims have historically not been material and do not constitute a separate performance obligation.
Stock-based compensation
The Company follows the fair value-based approach to account for options, share awards and restricted share units (“RSUs”). Compensation expense and an increase in “Additional paid-in capital” are recognized for options and RSUs over their vesting period based on their estimated fair values on the grant date, as determined using the Black-Scholes option pricing model for the majority of options and the market value of the Company’s common shares on the grant date for share awards and RSUs. Certain executive RSUs have performance conditions and are valued using a Monte Carlo model.
On exercise of stock options and RSUs, the recorded fair value of the option or RSU is removed from “Additional paid-in capital” and credited to “Share capital”. For options, any consideration paid by employees is credited to “Share capital” when the option is exercised. The Company’s stock options and RSUs are not shares of the Company and have no rights to vote, receive dividends, or any other rights as a shareholder of the Company.
Stock-based compensation expense is also recognized for performance share units (“PSUs”) and deferred share units (“DSUs”) using the fair value method. Compensation expense is recognized over the vesting period and the corresponding amount is recorded as a liability on the balance sheet.
The Company measures the DSUs granted under the 2023 and 2024 LTIP (the “New DSUs”) using the closing price of the Company’s common shares on the grant date as the present intention is to settle the New DSUs in equity. This is recognized as an increase to stock-based compensation and the corresponding liability on the balance sheet.
Technology and development expenditures
Technology and development expenses are comprised primarily of salaries and benefits associated with the Company’s product and software development personnel which do not qualify for capitalization. These costs are expensed as incurred and exclude certain information technology costs used in operations which are classified as general and administrative costs.
Government subsidies
The Company accounts for government subsidies on an accrual basis when the conditions for eligibility are met. The Company has adopted an accounting policy to present government subsidies as other income. The nature, significant terms and conditions of government subsidies are disclosed in the Financial Statements.
Common shares
In lieu of a par value for common shares, the Company has elected to calculate any cancellation of common shares using the stated value of shares. The excess of purchase cost over stated value of shares cancelled upon repurchase will be recorded as additional paid-in capital.
Earnings per share
Basic earnings per share is calculated using the weighted average number of common shares outstanding during the year and adjusted for any change in capital structure events triggering retroactive changes to weighted average number of common shares outstanding. Diluted earnings per share is calculated using the treasury stock method for determining the dilutive impact of stock options, RSUs, PSUs, PRSUs and New DSUs. The Company follows the “if converted” method for accounting for the impact of convertible debentures on net income (loss) per share, whereby interest charges applicable to the convertible debentures are added to the numerator and the convertible debentures are assumed to have been converted at the beginning of the period (or time of issuance, if later), and the resulting common shares are added to the denominator.
Fair value of financial instruments
ASC 820, “Fair Value Measurements,” requires entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized on the consolidated balance sheet, for which it is practicable to estimate fair value. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
The Company’s fair value analysis is based on the degree to which the fair value is observable and grouped into categories accordingly:
•Level 1 financial instruments are those which can be derived from quoted market prices (unadjusted) in active markets for similar financial assets or liabilities.
•Level 2 financial instruments are those which can be derived from inputs that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices). Level 2 financial instruments include current and long-term debt. The carrying amounts of these instruments approximates fair value due to limited changes to interest rates and the Company’s credit rating since issuance.
•Level 3 financial instruments are those derived from valuation techniques that include inputs for the financial asset or liability which are not based on observable market data (unobservable inputs). The Company does not have any Level 3 financial instruments.
The carrying amounts of cash and cash equivalents and restricted cash; trade and accrued receivables, other receivables; accounts payable and accrued liabilities; other liabilities; and customer deposits approximate fair value due to their short-term nature.
3. ADOPTION OF NEW ACCOUNTING STANDARDS AND RECENT PRONOUNCEMENTS ISSUED
In November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2023-07 “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (ASU 2023-07), which requires an enhanced disclosure of significant segment expenses on an annual and interim basis. This guidance was effective for the annual periods beginning the year ended December 31, 2024, and for interim periods beginning January 1, 2025.
On December 14, 2023, the FASB issued Accounting Standards Update No. 2023-09, “Improvements to Income Tax Disclosures” (the “ASU-2023-09”) 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 is evaluating the impact of the adoption of this standard and expects the impact to be limited to disclosures.
On November 5, 2024, the FASB issued Accounting Standards Update No. 2024-03, “Disaggregation of Income Statement Expenses” (the “ASU-2024-03”) which requires further disaggregated information on an entity’s types of expenses presented to better understand the components of an entity’s expense captions. The amendments within ASU-2024-03 are effective for annual reporting periods starting December 15, 2026, and interim periods beginning after December 15, 2027, on a prospective basis with an option of retrospective application. The Company is evaluating the impact of the adoption of this standard and expects the impact to be limited to disclosures.
On November 27, 2024, the FASB issued Accounting Standards Update No. 2024-04, “Induced Conversions of Convertible Debt Instruments” (the “ASU-2024-04”) which requires discussing an entity’s assessment of induced conversion and debt extinguishment of convertible debt instruments. The amendments in ASU-2024-04 are effective for fiscal years beginning after December 15, 2025, on a prospective basis with an option of retrospective application. The Company is evaluating the impact of the adoption of this standard.
Although there are several other new accounting standards issued or proposed by the FASB, which the Company has adopted or will adopt, as applicable, the Company does not believe any of these accounting pronouncements has had or will have a material impact on its Financial Statements.
4. GOVERNMENT SUBSIDIES
In the United States, the Employee Retention Credit (“ERC”) was established by Section 2301 of the Coronavirus Aid, Relief, and Economic Security Act to provide an incentive for employers to keep their employees on their payroll during COVID-19 closures. The ERC is a refundable payroll tax credit based on qualified wages paid by an eligible employer between March 12, 2020, and October 1, 2021, for companies experiencing a significant decline in gross receipts during a calendar quarter or having operations fully or partially suspended during the quarter due to COVID-19. During the third quarter of 2022, the Company determined it was eligible for the ERC for the first three quarters of 2021 and filed a claim for $7.3 million in payroll tax credits ($7.1 million net of expenses). As at December 31, 2023, the $7.3 million of these claimed credits (plus an additional $0.2 million of interest) were received.
For the twelve months ended December 31, 2024, no government subsidies were claimed or received.
5. REORGANIZATION AND ASSETS HELD FOR SALE
The Company had undertaken a number of reorganization initiatives beginning in 2022. In the year ended December 31, 2024, there were no new initiatives.
Closure of Phoenix Aluminum Manufacturing Facility (the “Phoenix Facility”)
On February 22, 2022, we commenced the process of closing our Phoenix Facility, shifting related manufacturing to both our Savannah and Calgary aluminum manufacturing facilities. The closure of the Phoenix Facility was substantially completed in the second quarter of 2022. The Company entered into a sublease arrangement during the second quarter of 2022, commencing July 1, 2022, which exceeds the contractual lease commitments under the Right of Use assets. During the year ended December 31, 2024, the Company entered into a sublease agreement for the Phoenix Facility that commenced on October 1, 2024 and terminates on March 24, 2027.
Workforce Reductions, Board and Management Changes
In February and July of 2022, we announced our intention to eliminate a portion of our salaried workforce, including manufacturing and office positions, along with other cost reduction initiatives. The Company’s Board of Directors was reconstituted following a proxy contest in April 2022, which was deemed a change of control under the Company’s insurance policy resulting in additional insurance expenditures. Further, the Company made changes to several executive officer roles during the year ended December 31, 2022. During the year ended December 31, 2023, we continued to review costs, resulting in the elimination of additional salaried positions in the second and third quarters of 2023. These actions resulted in the Company incurring certain one-time termination costs. During the year ended December 31, 2024, no termination costs related to restructuring were incurred.
Temporary Suspension of Operations and Subsequent Closure at the Rock Hill Facility
On August 23, 2022, we announced the temporary suspension of operations at our Rock Hill Facility, shifting related manufacturing to our Calgary manufacturing facility. Costs associated with this idle facility, included in costs of sales, were $1.7 million for the year ended December 31, 2024 (2023 - $2.0 million).
On September 27, 2023, we announced our intention to permanently close the Rock Hill Facility. We have moved certain assets to our other facilities and disposed of the remaining assets. The assets disposed of were reclassified and measured as assets held for sale (see table below) as at December 31, 2023. As a result of this decision, we incurred $8.7 million of impairment charges associated with the transfer of assets from held for use to held for sale. During the year ended December 31, 2024, all assets have been moved out of the facility and are in the process of being set up at our other facilities. The Company will continue to maintain the Rock Hill Facility building lease and is pursuing a sublease arrangement. Based on prevailing market prices in the area, no impairment indicators exist as at December 31, 2024 for the Right of Use asset of $6.2 million and the related leasehold improvements of $2.5 million.
Reorganization costs incurred related to the above-mentioned initiatives:
For the year ended December 31,
Termination benefits
-
2,162
7,042
Insurance costs on change of control
-
-
3,691
Phoenix facility closure
-
Professional Services
-
-
1,021
Rock Hill Facility temporary suspension and closure of operations
1,101
Other costs
Total reorganization costs
1,113
3,009
13,461
Reorganization costs in accounts payable and accrued liabilities at January 1, 2024
Reorganization expense
1,113
Reorganization costs paid
(1,592
)
Reorganization costs in accounts payable and accrued liabilities at December 31, 2024
Of the $0.1 million reorganization costs in accounts payable and accrued liabilities as at December 31, 2024 (December 31, 2023 - $0.6 million), $0.07 million relates to termination benefits (December 31, 2023 - $0.5 million) and $0.03 million relates to Rock Hill Facility reorganization costs (December 31, 2023 - $0.1 million). The Company has moved the remaining assets at the Rock Hill Facility to other operating locations.
Assets held for sale
Assets classified as held for sale as at December 31, 2023, of $1.6 million consisted of manufacturing equipment previously used in the Rock Hill Facility (refer to Note 11). As part of the decision to permanently close the Rock Hill Facility, $10.3 million of assets were assessed against the assets held for sale criteria and reclassified from property, plant and equipment to assets held for sale in the third quarter of 2023. The assets were measured at the lower of the net book value versus the fair value less cost to sell resulting in an impairment charge of $8.7 million. During the three months ended March 31, 2024, $1.0 million of the assets held for sale were sold. At March 31, 2024, the assets held for sale balance was reduced from $0.5 million to $nil, resulting in a $0.5 million impairment charge for the first quarter as we were not able to determine the likelihood of a sale based on the market interest at that time. These assets were subsequently disposed.
As at December 31,
Assets held for sale, opening
1,555
-
Proceeds from sale of assets held for sale
(1,025
)
-
Impairment charge on reassessment
(530
)
(8,716
)
Net book value transferred from property, plant and equipment
-
10,271
Assets held for sale, ending
-
1,555
To move the assets or dispose of the assets at the Rock Hill Facility, the Company fully settled the principal balance of the U.S. leasing facility in the fourth quarter of 2023. Principal payments of $7.8 million and interest penalties of $0.4 million were incurred (refer to Note 14). As a result of this settlement, $2.6 million of restricted cash was released to the Company in the fourth quarter of 2023.
Discontinuation of Reflect Product Line and Other Charges Incurred
In August 2022, the Company discontinued the Reflect and other product lines, resulting in a one-time inventory write-down of $1.0 million, and an acceleration of amortization expense associated with ICE development for Reflect.
Additionally, the Company accelerated the depreciation of certain items of property, plant and equipment associated with the closure of the Phoenix Facility resulting in additional depreciation incurred in the first quarter of 2022.
These costs were included in cost of sales:
For the Year Ended December 31,
Provision for inventory of discontinued product lines
-
-
1,035
Accelerated amortization associated with product line discontinuation
-
-
1,019
Accelerated depreciation and amortization associated with closure of the Phoenix Facility
-
-
1,054
Incremental cost of sales
-
-
3,108
6. GAIN ON SALE OF SOFTWARE AND PATENTS
There were no sales of software and patents during the year ended December 31, 2024.
On May 9, 2023, the Company entered into a Co-Ownership Agreement (the “Co-Ownership Agreement”) and a partial patent assignment agreement with AWI. The agreements provided for a cash payment from AWI to the Company of $10.0 million, subject to certain routine closing conditions, in exchange for the partial assignment to AWI and resulting co-ownership of 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 (the “Applicable ICE Code”), including a 50% interest in the patent rights that relate to the Applicable ICE Code. Under the Co-Ownership Agreement, the Company also agreed to provide AWI a transfer of knowledge concerning the source code of the Applicable ICE Code. In exchange for completing the knowledge transfer, the Company received an additional cash payment of $1.0 million in the fourth quarter of 2023. The Co-Ownership Agreement provides that the Company and AWI have separate exclusive fields of use and restrictive covenants with respect to the Applicable ICE Code and related intellectual property, which survive until either party elects to separate from its relationship with the other and for five years thereafter. The Company concurrently entered into an Amended and Restated Master Services Agreement (the “ARMSA”) with AWI, under which AWI had also prepaid certain development services to be provided by DIRTT. The ARMSA will automatically terminate if the Co-Ownership Agreement is terminated or expires, and may also be terminated if either party breaches the exclusive fields of use or restrictive covenants in the Co-Ownership Agreement.
The $11.0 million of proceeds on the sale of the 50% interest in the Applicable ICE code, pursuant to the Co-Ownership Agreement, during 2023. In accordance with GAAP, the proceeds were first applied to the net book value of the related costs of software of $2.9 million and patents (other assets) of $0.9 million. The residual amount of $7.1 million was recognized as a gain in the consolidated statement of operations. Further, $1.8 million was received during 2023 as a prepayment under the ARMSA, which was recognized into revenue during 2023 and the first quarter of 2024. Part of the proceeds of this transaction were used to settle one of our equipment leases of $1.6 million and resulted in the release of $0.4 million of restricted cash during 2023 (refer to Note 14).
7. GAIN ON EXTINGUISHMENT OF CONVERTIBLE DEBENTURES
On February 15, 2024, the Company commenced a substantial issuer bid and tender offer (the “Issuer Bid”) pursuant to which the Company offered to repurchase for cancellation: (i) up to C$6.0 million principal amount of its issued and outstanding January Debentures (as defined in Note 14) at a purchase price of C$720 per C$1,000 principal amount of January Debentures, and (ii) up to C$9.0 million principal amount of its issued and outstanding December Debentures (as defined in Note 14), at a purchase price of C$600 per C$1,000 principal amount of December Debentures.
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 December Debentures were validly deposited and not withdrawn at the expiration of the Issuer Bid on March 22, 2024, 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 (as defined in Note 14) 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 a Convertible Debenture Repurchase Agreement with 22NW Fund, LP (“22NW”), pursuant to which the Company purchased 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 Debenture Repurchase closed on August 2, 2024. 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 Toronto Stock Exchange (the “TSX”) for the 20 trading days preceding August 2, 2024. Following the Debenture Repurchase, C$16.6 million ($12.0 million) principal amount of the January Debentures and C$15.6 million ($11.2 million) principal amount of the December Debentures remained outstanding and 22NW no longer holds any Debentures.
On August 28, 2024, the Company commenced 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 December 31, 2024, C$0.3 million ($0.2 million) and C$0.01 million ($0.01 million) principal amounts of the December Debentures and January Debentures, respectively, were acquired through the Debentures NCIB.
In accordance with GAAP, it was determined that the C$29.2 million ($21.4 million) repayment on convertible debt through the Issuer Bid, the Debenture Repurchase, and the Debentures NCIB, triggered an extinguishment of C$43.4 million ($31.8 million) of principal amount of debt. The gain on extinguishment of $10.4 million for the year ended December 31, 2024, was calculated as the difference between the repayment and the net carrying value of the extinguished principal less unamortized issuance costs of C$1.2 million ($0.9 million) (refer to Note 14).
8. LEASES
The Company leases office and factory space under various operating leases. As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The Company gives consideration to instruments with similar characteristics when calculating its incremental borrowing rate. The Company’s operating leases have remaining lease terms of 1 year to 13 years. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.
The weighted average remaining lease term and weighted average discount rate at December 31, 2024, was eight years (2023 - nine years) and 7.1% (2023 - 6.3%), respectively.
The Company entered into a sublease arrangement for part of the Phoenix Facility during the second quarter of 2022, commencing July 1, 2022. The Company entered in to an additional sublease arrangement for the remaining part of the Phoenix Facility during the third quarter of 2024, commencing October 1, 2024. Additionally, the Company entered into a sublease agreement for the Plano DXC to one of our Construction Partners in that region, in which the subtenant has assumed responsibility for all monthly rent, utilities, maintenance, taxes and other costs as of April 1, 2023, through December 31, 2024. The Plano sublease agreement was extended for an additional four years, through October 31, 2028.
The following table includes ROU assets included on the balance sheet at December 31, 2024 and 2023:
ROU Assets
Cost
Accumulated depreciation
Net book value
At January 1, 2023
48,061
(17,571
)
30,490
Disposals
(2,667
)
2,308
(359
)
Modifications
3,866
(196
)
3,670
Depreciation expense
-
(4,312
)
(4,312
)
Exchange differences
(272
)
At December 31, 2023
49,856
(20,043
)
29,813
Disposals
(958
)
-
Modifications
-
Depreciation expense
-
(3,945
)
(3,945
)
Exchange differences
(2,113
)
1,042
(1,071
)
At December 31, 2024
47,357
(21,988
)
25,369
As at December 31, 2024 and 2023 the Company determined that there were no impairment indicators.
The components of the lease cost for the years ended December 31, 2024 and 2023 were as follows:
For the year ended December 31,
Operating lease cost (1)
Fixed lease cost
6,069
6,688
6,719
Sublease income
(1,908
)
(1,393
)
(344
)
Total operating lease cost
4,161
5,295
6,375
(1) The lease costs, net of sublease income, are reflected in the Consolidated Statements of Operations and Comprehensive Income (Loss) as follows:
For the year ended December 31,
Cost of goods sold
4,183
4,427
4,647
Selling and marketing
1,356
General and administrative
(304
)
(113
)
Technology and development
Total operating lease cost
4,161
5,295
6,375
The following table includes lease liabilities included on the balance sheet at December 31, 2024 and 2023:
Lease Liability
At January 1,
33,456
33,423
Disposals
-
(406
)
Modifications
3,866
Accretion
2,129
2,272
Repayment of lease liabilities
(5,339
)
(5,942
)
Exchange differences
(1,137
)
At December 31,
29,681
33,456
Current lease liabilities
5,619
5,255
Long-term lease liabilities
24,062
28,201
In February 2024, the New York DXC lease reached the end of the lease term.
In April 2024, the Company modified an existing agreement for a Calgary manufacturing facility to extend the leasing term for an additional three years. Undiscounted cash flows associated with this modification are $1.3 million. The rent obligations have been discounted at a rate of 11.57% to determine the lease liability.
The following table includes maturities of operating lease liabilities at December 31, 2024:
5,812
5,303
4,324
4,135
3,771
Thereafter
16,196
Total
39,541
Total lease liability
29,681
Difference between undiscounted cash flows and lease liability
9,860
9. TRADE AND ACCRUED RECEIVABLES
Accounts receivable are recorded at the invoiced amount, do not require collateral and do not bear interest. The Company estimates an allowance for credit losses using the lifetime expected credit loss at each measurement date, taking into account historical credit loss experience as well as forward-looking information in order to establish rates for each class of financial receivable with similar risk characteristics. Adjustments to this estimate are recognized in the statement of operations.
In order to manage and assess our risk, management maintains credit policies that include regular review of credit limits of individual receivables and systematic monitoring of aging of trade receivables and the financial wellbeing of our customers. In addition, we acquired trade credit insurance effective April 1, 2020. At December 31, 2024, approximately 83% of our trade accounts receivable are insured, relating to accounts receivables from counterparties deemed creditworthy by the insurer and excluding accounts receivable from government entities. In addition, and where possible, we collect a 50% deposit on sales, excluding government and certain other clients.
Our trade balances are spread over a broad Construction Partner base, which is geographically dispersed. For the year ended December 31, 2024, no single Construction Partner accounted for greater than 10% of revenue, compared to 2023 in which one Construction Partner accounted for greater than 10% of revenue.
As at December 31,
Current
16,677
12,070
Overdue
2,916
3,818
19,593
15,888
Less: expected credit losses
(99
)
(101
)
19,494
15,787
No change to our expected credit loss was required during the year ended December 31, 2024, or December 31, 2023. Receivables are generally considered to be past due when over 60 days old, unless there is a separate payment arrangement in place for the collection of the receivable.
10. INVENTORY
As at December 31,
Raw material
14,198
16,787
Allowance for obsolescence
(863
)
(1,666
)
Work in progress
1,774
1,456
15,109
16,577
As of December 31, 2024, the Company had $0.9 million (2023 - $1.7 million) provided for inventory that is not expected to be used in future production and the associated expense has been recorded to cost of goods sold. During 2024, the Company wrote off $1.7 million of inventory against the provision (2023 - $1.0 million) and made an additional provision of $1.0 million (2023 - $0.9 million). In addition, the Company recorded direct write offs against inventory of $0.1 million (2023 - $0.5 million). Production overheads capitalized in work in progress were $0.4 million at December 31, 2024 (2023 - $0.2 million).
11. PROPERTY, PLANT AND EQUIPMENT, NET
Office and computer equipment
Factory equipment
Leasehold improvements
Total
Cost
At December 31, 2022
27,456
66,109
39,763
133,328
Additions
1,242
Disposals
(127
)
(375
)
(2,186
)
(2,688
)
Transferred to assets held for sale
-
(13,260
)
-
(13,260
)
Exchange differences
1,495
At December 31, 2023
28,125
53,664
38,328
120,117
Additions
1,400
Disposals
(1,003
)
(4,709
)
(2
)
(5,714
)
Exchange differences
(580
)
(3,146
)
(1,677
)
(5,403
)
At December 31, 2024
27,408
46,184
36,808
110,400
Accumulated depreciation and impairment
At December 31, 2022
20,524
38,821
32,461
91,806
Depreciation expense
2,041
3,661
1,824
7,526
Disposals
(127
)
(272
)
(2,098
)
(2,497
)
Transferred to assets held for sale
-
(2,989
)
-
(2,989
)
Exchange differences
1,194
At December 31, 2023
22,562
39,908
32,570
95,040
Depreciation expense
1,778
2,491
1,190
5,459
Disposals
(877
)
(4,780
)
(2
)
(5,659
)
Exchange differences
(592
)
(2,403
)
(1,644
)
(4,639
)
At December 31, 2024
22,871
35,216
32,114
90,201
Net book value
At December 31, 2023
5,563
13,756
5,758
25,077
At December 31, 2024
4,537
10,968
4,694
20,199
As at December 31, 2024, the Company had $0.4 million of assets in progress of completion which were excluded from assets subject to depreciation (2023 - $0.2 million).
On September 27, 2023, the Company announced its intention to permanently close the Rock Hill Facility in South Carolina. $10.3 million of manufacturing equipment at Rock Hill was transferred to assets held for sale during the year ended December 31, 2023 (refer to Note 5).
As at December 31, 2024 and 2023 the Company determined that there were no impairment indicators warranting an impairment test.
12. CAPITALIZED SOFTWARE, NET
For the Year Ended December 31,
Cost
As at January 1
30,252
34,546
Additions
1,636
1,794
Recovery of software development expenditures
(249
)
(127
)
Disposals
(316
)
(6,641
)
Exchange differences
(2,481
)
As at December 31
28,842
30,252
Accumulated amortization
As at January 1
27,802
30,140
Amortization expense
Disposals
-
(3,766
)
Exchange differences
(2,188
)
As at December 31
26,294
27,802
Net book value
2,548
2,450
The disposal of capitalized software in 2023 with a net book value of $2.9 million, relates to the AWI transaction (refer to Note 6).
Estimated amortization expense on capitalized software is $0.9 million in 2025, $0.8 million in 2026, $0.7 million in 2027, $0.5 million in 2028, and $0.2 million in 2029.
13. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES AND OTHER LIABILITIES
As at December 31
Trade accounts payable
11,243
12,378
Accrued liabilities
2,895
5,500
Wages and commissions payable
1,540
1,688
Rebates accrued(1)
16,352
19,880
(1)In 2024, $1.9 million of rebates were earned (2023 - $2.6 million) and $1.6 million were paid (2023 - $4.4 million).
Other liabilities
As at December 31
Warranty and other provisions(1)
Deferred share unit liability
2,028
1,086
Sublease deposits
Income taxes payable
-
Other equipment lease liability
-
Other provisions
Other liabilities
3,217
2,482
(1)The following table presents a reconciliation of the warranty provisions balance:
As at December 31,
As at January 1,
1,278
Additions to warranty provision
1,208
Payments related to warranties
(664
)
(1,613
)
14. LONG-TERM DEBT
Revolving
Credit Facility
Leasing
Facilities
Convertible
Debentures
Total Debt
Balance at December 31, 2022
-
11,812
53,623
65,435
Accretion of issue costs
-
-
Accrued interest
-
3,411
3,937
Interest payments
-
(526
)
(3,451
)
(3,977
)
Principal repayments
-
(11,579
)
-
(11,579
)
Exchange differences
-
1,343
1,594
Balance at December 31, 2023
-
55,624
56,108
Current portion of long-term debt and accrued interest
-
Long-term debt
-
54,862
55,267
Balance at December 31, 2023
-
55,624
56,108
Accretion of issue costs
-
-
1,491
1,491
Accrued interest
-
2,402
2,437
Interest payments
-
(35
)
(2,839
)
(2,874
)
Principal repayments
-
(78
)
(21,408
)
(21,486
)
Gain on extinguishment
-
-
(10,426
)
(10,426
)
Exchange differences
-
(33
)
(2,865
)
(2,898
)
Balance at December 31, 2024
-
21,979
22,352
Current portion of long-term debt and accrued interest
-
Long-term debt
-
21,698
21,993
Revolving Credit Facility
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 Company is able to borrow up to a maximum of 90% of investment grade or insured accounts receivable plus 85% of eligible accounts receivable plus the lesser of (i) 75% of the book value of eligible inventory and (ii) 85% of the net orderly liquidation value of eligible inventory less any reserves for potential prior ranking claims (the “Borrowing Base”). Interest was 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 was 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 Leasing Facilities (defined below). 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 offset 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 million and a one-year term. Interest is calculated as at the Canadian or U.S. prime rate plus 75 basis points or the Canadian Dollar Offered Rate or Term Secured Overnight Financing Rate (“Term SOFR”) plus 200 basis points plus the Term SOFR Adjustment (as defined in the amended loan agreement governing the Extended RBC Facility). Under the Extended RBC Facility, if the trailing twelve-month FCCR is not above 1.25 for three consecutive months, a cash balance equivalent to one year’s worth of Leasing Facilities payments must be maintained. Effective October 2023, inventory was scoped out of the Borrowing Base.
On February 9, 2024, the Company extended the Extended RBC Facility (the “Second Extended RBC Facility”). The Second Extended RBC Facility is subject to the borrowing base calculation to a maximum of C$15 million and a one-year term. Interest is calculated 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. At December 31, 2024, available borrowings are C$14.4 million ($10.0 million) (December 31, 2023 - C$13.6 million ($10.3 million) of available borrowings), calculated in the same manner as the RBC Facility described above, of which no amounts have been drawn. The Second Extended RBC Facility removed the three-month FCCR covenant, which resulted in the release of $0.1 million of restricted cash during 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 for a period of two weeks up to February 25, 2025 whilst the Company and RBC completed negotiations.
On February 20, 2025, the Company entered into 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. 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, which allows access to a $15 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.
Leasing Facilities
The Company has a C$5.0 million equipment leasing facility in Canada (the “Canada Leasing Facility”) of which C$4.4 million ($3.1 million) has been drawn and C$3.9 million ($2.7 million) has been repaid, and a $14.0 million equipment leasing facility in the United States of which $13.3 million has been drawn and repaid (the “U.S. Leasing Facility” and, together with the Canada Leasing Facility, the “Leasing Facilities”) with RBC. The Canada Leasing Facility has a seven-year term and bears interest at 4.25%. Refer to Note 5 on the decision to permanently close the Rock Hill Facility. As part of this decision, the Company fully settled the $7.8 million principal balance of the U.S. Leasing Facility in the fourth quarter of 2023. The U.S. Leasing Facility is no longer available to be drawn on. With the settlement of this liability, $2.6 million was released from restricted cash.
The Company did not make any draws on the Leasing Facilities during 2024 or 2023. The associated financial liabilities are shown on the consolidated balance sheet in the current portion of long-term debt and accrued interest and long-term debt.
Convertible Debentures
On January 25, 2021, the Company completed a C$35.0 million ($27.5 million) bought-deal financing of convertible unsecured subordinated debentures (the “January Debentures”) with a syndicate of underwriters. On January 29, 2021, the Company issued a further C$5.25 million ($4.1 million) of the January Debentures under the terms of an overallotment option granted to the underwriters. The January Debentures will mature and be repayable on January 31, 2026 (the “January Debentures Maturity Date”) and accrue interest at the rate of 6.00% per annum payable semi-annually in arrears on the last day of January and July of each year commencing on July 31, 2021 until the January Debentures Maturity Date. Interest and principal are payable in cash or shares at the option of the Company. The January Debentures will be convertible into common shares of DIRTT, at the option of the holder, at any time prior to the close of business on the business day prior to the earlier of the January Debentures Maturity Date and the date specified by the Company for redemption of the January Debentures. Costs of the transaction were approximately C$2.7 million, including the underwriters’ commission. As a result of the Rights Offering (as defined herein) (refer to Note 16), the conversion price of the January Debentures was adjusted to C$4.03 per common share representing a conversion rate of 248.1390 common shares per C$1,000 principal amount. On March 22, 2024, the Company completed the Issuer Bid in which the Company repurchased for cancellation C$4.7 million ($3.5 million) of the principal balance of the January Debentures, and paid C$0.04 million ($0.03 million) of the interest payable on such January Debentures (refer to Note 7). On August 2, 2024, the Company completed the Debenture Repurchase and repurchased for cancellation C$18.9 million ($14.0 million) principal amount of the January Debentures held by 22NW. On August 26, 2024, the Company announced the Debentures NCIB, which commenced on August 28, 2024. During the fourth quarter of 2024, the Company repurchased for cancellation C$0.01 million ($0.01 million) principal amount of January Debentures as part of the Debentures NCIB. As at December 31, 2024, C$16.6 million ($11.6 million) principal amount of the January Debentures was outstanding.
On December 1, 2021, the Company completed a C$35.0 million ($27.4 million) bought-deal financing of convertible unsecured subordinated debentures (the “December Debentures” and, collectively with the January Debentures, the “Debentures”) with a syndicate of underwriters. The December Debentures will mature and be repayable on December 31, 2026 (the “December Debentures Maturity Date”) and accrue interest at the rate of 6.25% per annum payable semi-annually in arrears on the last day of June and December of each year commencing on June 30, 2022 until the December Debentures Maturity Date. Interest and principal are payable in cash or shares at the option of the Company. The December Debentures will be convertible into common shares of DIRTT, at the option of the holder, at any time prior to the close of business on the business day prior to the earlier of the December Debentures Maturity Date and the date specified by the Company for redemption of the December Debentures. Costs of the transaction were approximately C$2.3 million, including the underwriters’ commission. As a result of the Rights Offering (refer to Note 16), the conversion price of the December Debentures was adjusted to C$3.64 per common share representing a conversion rate of 274.7253 common shares per C$1,000 principal amount. On March 22, 2024, the Company completed the Issuer Bid in which the Company repurchased for cancellation C$5.8 million ($4.3 million) of the principal balance of the December Debentures and paid C$0.08 million ($0.06 million) of the interest payable on such December Debentures (refer to Note 7). On August 2, 2024, the Company repurchased for cancellation C$13.6 million ($10.1 million) principal amount of December Debentures held by 22NW. On August 26, 2024, the Company announced the Debentures NCIB which commenced on August 28, 2024. During the fourth quarter of 2024, the Company repurchased for cancellation C$0.3 million ($0.2 million) principal amount of December Debentures as part of the Debentures NCIB. As at December 31, 2024, C$15.3 million ($10.6 million) principal amount of the December Debentures was outstanding.
15. INCOME TAXES
Reconciliation of income taxes
The following reconciles income taxes calculated at the Canadian statutory rate with the actual income tax expense. The Canadian statutory rate includes federal and provincial income taxes. This rate was used because Canada is the domicile of the parent entity of the Company.
For the Year Ended December 31,
Net income (loss) before tax
15,218
(14,252
)
(54,942
)
Canadian federal statutory income tax rate
15.0
%
15.0
%
15.0
%
Expected income tax
2,283
(2,138
)
(8,241
)
Effect on taxes resulting from:
Provincial and state income taxes
1,024
(1,368
)
(5,165
)
Valuation allowance
(3,809
)
4,224
13,590
Non-deductible expenses
Non-deductible stock-based compensation
-
-
Tax rate impacts
(243
)
(665
)
Adjustments related to prior year tax filings
(332
)
Income tax expense
Current tax expense
Deferred tax recovery
-
-
-
Income tax expense
Effective income tax rate
2.9
%
(2.3
)%
0.0
%
The provision for income taxes is comprised of federal, state, provincial and foreign taxes based on pre-tax income. In the United States, the CARES Act of 2020 allows, among other provisions, for the recovery of taxes paid over the preceding five years from current year losses.
The Company’s U.S. subsidiary’s result was taxable income for the year ended December 31, 2024. The Company utilized prior year operating losses against this income; however, U.S. tax law does not allow for the full offset of losses against current year taxable income to reduce tax payable to zero. This resulted in current tax payable of $0.4 million in 2024 (2023 - $0.3 million).
Deferred tax assets and liabilities
Significant components of the Company’s deferred tax assets and liabilities as at December 31, 2024 and 2023 were as follows:
As at December 31, 2024
Assets
Liabilities
Net
Operating losses
29,134
-
29,134
Research and development expenditures
-
Property and equipment
-
(2,576
)
(2,576
)
Capitalized software and other assets
-
(1,187
)
(1,187
)
Valuation allowance
-
(30,049
)
(30,049
)
Other
4,324
-
4,324
Net deferred taxes
33,812
(33,812
)
-
As at December 31, 2023
Assets
Liabilities
Net
Operating losses
35,690
-
35,690
Research and development expenditures
-
Property and equipment
-
(3,883
)
(3,883
)
Capitalized software and other assets
-
(1,033
)
(1,033
)
Valuation allowance
-
(34,529
)
(34,529
)
Other
3,388
-
3,388
Net deferred taxes
39,445
(39,445
)
-
Summary of temporary difference movements during the year:
Balance
Recognized
Foreign
Balance
January 1, 2024
in Income
Exchange
December 31, 2024
Operating losses
35,690
(5,771
)
(785
)
29,134
Research and development expenditures
(4
)
(9
)
Property and equipment
(3,883
)
1,216
(2,576
)
Capitalized software and other assets
(1,033
)
(168
)
(1,187
)
Valuation allowance
(34,529
)
3,809
(30,049
)
Other
3,388
4,324
Net deferred taxes
-
-
-
-
Balance
Recognized
Foreign
Balance
January 1, 2023
in Income
Exchange
December 31, 2023
Operating losses
33,740
1,431
35,690
Research and development expenditures
Property and equipment
(6,017
)
2,182
(48
)
(3,883
)
Capitalized software and other assets
(1,599
)
(17
)
(1,033
)
Valuation allowance
(29,812
)
(4,224
)
(493
)
(34,529
)
Other
3,352
3,388
Net deferred taxes
-
-
-
-
For the year ended December 31, 2024, the Company recorded valuation allowances of $3.8 million against deferred tax assets incurred during the year. A valuation allowance is recognized to the extent that it is more likely than not that the deferred tax assets will not be realized (2023 - $4.2 million).
On an annual basis, the Company and its subsidiary file tax returns in Canada and various foreign jurisdictions. In Canada, the Company’s federal and provincial tax returns for the years 2020 to 2023 remain subject to examination by taxation authorities. In the United States, both the federal and state tax returns filed for the years 2019 to 2023 remain subject to examination by the taxation authorities.
Tax loss carryforwards and other tax pools
The significant components of the Company’s net future income tax deductions in these consolidated financial statements are summarized as follows:
C$
C$
$
$
Non-capital loss carry-forwards
86,108
114,119
51,312
55,469
Undepreciated capital costs
5,637
3,903
2,815
5,626
Share issuance costs
2,444
2,454
-
-
Scientific research and experimental development tax incentives
1,971
1,971
-
-
Total future tax deductions
96,160
122,447
54,127
61,095
16. RIGHTS OFFERING
On November 21, 2023, the Company announced that the Board of Directors had approved a rights offering (the “Rights Offering”) to its common shareholders for aggregate gross proceeds of C$30.0 million ($22.4 million).
In connection with the Rights Offering, the Company entered into a standby purchase agreement, dated November 20, 2023 (the “Standby Purchase Agreement”) with 22NW and 726 BC LLC and 726 BF LLC (together, “726”), or their permitted assigns (collectively and including WWT Opportunity #1 LLC (“WWT”), to which 726 transferred all of their common shares to on December 1, 2023, the “Standby Purchasers”). Subject to the terms and conditions of the Standby Purchase Agreement, each Standby Purchaser agreed to exercise its Basic Subscription Privilege (as defined below) in full and to collectively purchase from the Company, at the subscription price, all common shares not subscribed for by holders of Rights (as defined below) under the Basic Subscription Privilege or Additional Subscription Privilege (as defined below), up to a maximum of C$15.0 million each, so that the maximum number of common shares that could be issued in connection with the Rights Offering would be issued and the Company would receive aggregate gross proceeds of C$30.0 million ($22.4 million). As described below, no standby fee was paid to the Standby Purchasers in connection with the Rights Offering; however, DIRTT reimbursed the Standby Purchasers for their reasonable expenses in the amount of $0.03 million each.
On January 9, 2024, the Company announced the completion of the Rights Offering to its common shareholders and the issuance of 85,714,285 common shares at a price of C$0.35 ($0.26) per whole common share for aggregate gross proceeds of C$30.0 million ($22.4 million) and aggregate net proceeds of $21.3 million ($1.1 million of costs associated with the Rights Offering). Each right distributed under the Rights Offering (each, a “Right”) entitled eligible holders to subscribe for 0.81790023 common shares, exercisable for whole common shares only, meaning 1.22264301 Rights were required to purchase one common share (the “Basic Subscription Privilege”). In accordance with applicable law, the Rights Offering included an additional subscription privilege (the “Additional Subscription Privilege”) under which eligible holders of Rights who fully exercised the Rights issued to them under their Basic Subscription Privilege, were entitled to subscribe for additional common shares, on a pro rata basis, that were not otherwise subscribed for under the Basic Subscription Privilege.
DIRTT issued an aggregate of 67,379,471 common shares pursuant to the Basic Subscription Privilege and 18,334,814 common shares pursuant to the Additional Subscription Privilege. As a result of the common shares issued under the Basic Subscription Privilege and Additional Subscription Privilege, no common shares were available for issuance pursuant to the Standby Purchase Agreement.
17. STOCK-BASED COMPENSATION
In May 2020, shareholders approved the DIRTT Environmental Solutions Ltd. Long-Term Incentive Plan (the “2020 LTIP”). The 2020 LTIP replaced the predecessor incentive plans, being the Performance Share Unit Plan (“PSU Plan”) and the Amended and Restated Stock Option Plan (“Stock Option Plan”). Following the approval of the 2020 LTIP, no further awards will be made under either the Stock Option Plan or the PSU Plan, but both remain in place to govern the terms of any awards that were granted pursuant to such plans and remain outstanding.
In May 2023, shareholders approved the DIRTT Environmental Solutions Ltd. Amended and Restated Long-Term Incentive Plan (the “2023 LTIP”) at the annual and special meeting of shareholders. The 2023 LTIP gives the Company the ability to award options, share appreciation rights, restricted share units, deferred share units, restricted shares, dividend equivalent rights, and other share-based awards and cash awards to eligible employees, officers, consultants and directors of the Company and its affiliates. In accordance with the 2023 LTIP, the sum of (i) 12,350,000 common shares plus (ii) the number of common shares subject to stock options previously granted under the Stock Option Plan that, following May 30, 2023, expire or are cancelled or terminated without having been exercised in full, were reserved for issuance under the 2023 LTIP. Upon vesting of certain LTIP awards, the Company may withhold and sell shares as a means of meeting DIRTT’s tax withholding requirements in respect of the withholding tax remittances required in respect of award holders. To the extent the fair value of the withheld shares upon vesting exceeds the grant date fair value of the instrument, the excess amount is credited to retained earnings or deficit.
In May 2024, shareholders approved the DIRTT Environmental Solutions Ltd. Second Amended and Restated Long-Term Incentive Plan (the “2024 LTIP”) at the annual and special meeting of shareholders. The effective date of the 2024 LTIP is May 9, 2024. The 2024 LTIP gives the Company the ability to award options, share appreciation rights, restricted share units, deferred share units, restricted shares, dividend equivalent rights, and other share-based awards and cash awards to eligible employees, officers, consultants and directors of the Company and its affiliates. In accordance with the 2024 LTIP, the sum of (i) 27,350,000 common shares plus (ii) the number of common shares subject to stock options previously granted under the Stock Option Plan that, following May 22, 2020, expire or are cancelled or terminated without having been exercised in full, have been reserved for issuance under the 2024 LTIP. Upon vesting of certain LTIP awards, the Company may withhold and sell shares as a means of meeting DIRTT’s tax withholding requirements in respect of the withholding tax remittances required in respect of award holders. To the extent the fair value of the withheld shares upon vesting exceeds the grant date fair value of the instrument, the excess amount is credited to retained earnings or deficit.
Deferred share units (“DSUs”) have historically been granted to non-employee directors under the Deferred Share Unit Plan for Non-Employee Directors (as amended and restated, the “DSU Plan”) and settleable only in cash. The 2024 LTIP gives the Company the ability to settle DSUs in either cash or common shares, while consolidating future share-based awards under a single plan. The terms of the DSU Plan are otherwise materially unchanged as incorporated into the 2024 LTIP. Effective May 30, 2023, no new awards will be made under the DSU Plan, but awards previously granted under the DSU Plan will continue to be governed by the DSU Plan. DSUs are settled following cessation of services with the Company.
Stock-based compensation expense
For the Year Ended December 31,
Equity-settled awards
2,466
2,331
3,943
Cash-settled awards
(25
)
2,965
2,306
4,277
The following summarizes RSUs, PRSUs (as defined herein), share awards, PSUs and DSUs activity during the periods:
RSU Time-
RSU Performance-
Share
Based
Based
Awards
PSU
DSU
Number of
Number of
Number of
Number of
Number of
units
units
units
units
units
Outstanding at December 31, 2022
1,885,337
343,919
-
-
1,165,319
Granted
3,599,500
-
522,883
2,584,161
2,276,731
Vested or settled
(1,105,225
)
(258,760
)
(522,883
)
-
(355,878
)
Withheld to settle employee tax obligations
(64,230
)
-
-
-
-
Forfeited or expired
(784,818
)
(21,130
)
-
(738,553
)
-
Outstanding at December 31, 2023
3,530,564
64,029
-
1,845,608
3,086,172
Granted
8,612,553
-
-
-
1,689,028
Vested or settled
(1,350,754
)
(12,574
)
-
-
(741,306
)
Withheld to settle employee tax obligations
(351,672
)
-
-
-
-
Forfeited or expired
(179,900
)
(6,278
)
-
-
-
Outstanding at December 31, 2024
10,260,791
45,177
-
1,845,608
4,033,894
Restricted share units (time-based vesting)
Except as noted below, outstanding restricted share units (“RSUs”) that vest based on time have an aggregate time-based vesting period of three years and generally one-third of the RSUs vest every year over a three-year period from the date of grant. At the end of a three-year term, the associated RSUs will be settled by way of the provision of cash or shares to employees (or a combination thereof), at the discretion of the Company. The weighted average fair value of the RSUs granted in 2024 and 2023 was C$0.68 and C$0.46, respectively, which was determined using the closing price of the Company’s common shares on their respective grant dates. During 2023, 150,000 RSUs were granted to each of the chief executive officer, president and chief operating officer and chief financial officer which vested in the first and third quarters of 2024.
During the third quarter of 2024, certain of the Company’s executives were issued (i) 5 million RSUs which will cliff vest on August 14, 2026 and (ii) 975,000 RSUs, one-third of which will vest every year over a three-year period from the date of grant, in each case such vesting is generally subject to continued employment. Once vested, the RSUs will be settled by way of the provision of cash or shares to employees (or a combination thereof), at the discretion of the Company. The weighted average fair value of the RSUs granted was C$0.75, which was determined using the closing price of the Company’s common shares on the grant date.
Restricted share units (performance-based vesting)
During 2022 and 2021, restricted share units were granted to executives with service and performance-based conditions for vesting (the “PRSUs”). If the Company’s share price increases to certain values for 20 consecutive trading days, as outlined below, a percentage of the PRSUs will vest at the end of the three-year service period or on their departure, based on terms agreed.
The grant date fair value of the 2022 and 2021 PRSUs were valued using the Monte Carlo valuation method and determined to have a weighted average grant date fair value of C$1.87 and C$3.27, respectively.
Based on share price performance since the date of grant, 66.7% of the 2021 PRSUs vested on March 1, 2024, but none of the 2022 PRSUs will vest upon completion of the three-year service period.
% of PRSUs Vesting
33.3
%
66.7
%
100.0
%
150.0
%
2021 and 2022 PRSUs
$
3.00
$
4.00
$
5.00
$
7.00
Share awards
During the first quarter of 2022, certain executives were issued share awards in lieu of cash paid variable incentive compensation (“Share Awards”). These Share Awards vested upon grant. The fair value of the Share Awards granted was C$2.40 ($1.88), which was determined using the closing price of the Company’s common shares on the grant date. In the fourth quarter of 2022, 59,488 Share Awards were issued to employees as a component of their compensation.
In the first quarter of 2023, 36,254 Share Awards were issued to a consultant as compensation for services rendered. During the second quarter of 2023, certain executives were issued Share Awards in lieu of cash paid variable incentive compensation. These Share Awards vested upon grant. The fair value of the Share Awards granted was C$0.49 ($0.34), which was determined using the closing price of the Company’s common shares on the grant date. There were no Share Awards granted or vested during 2024.
Performance share units
During the second quarter of 2023, certain executives were issued a strategic equity grant through performance share units (“PSUs”). The performance period of the PSUs is from January 1, 2023, to December 31, 2026, with a cliff vesting term for December 31, 2026. 2,584,161 PSUs were granted and depending on the level of performance, the PSUs will vest 100%, 160% or 190% up to a maximum of 4,909,907 PSUs. Settlement will be made in the form of shares issued from treasury. The performance measures are a combination of Revenue and Earnings Before Interest, Taxes, Depreciation and Amortization and both targets have to be achieved. As of December 31, 2024, the fair value of these PSUs have been deemed to be nil based on the likelihood of achieving the targets compared to current results. During the third quarter of 2023, 738,553 PSUs with a $nil value were forfeited as a result of an executive departure and 1,845,608 PSUs with a $nil value are outstanding as at December 31, 2024.
Deferred share units
Granted under the DSU Plan
The fair value of the DSU liability and the corresponding expense is charged to profit or loss at the grant date. Subsequently, at each reporting date between the grant date and settlement date, the fair value of the liability is remeasured with any changes in fair value recognized in the statement of operations and comprehensive income (loss) for the period. The weighted average fair value of the DSUs granted in 2023 was C$0.63 ($0.47), which was determined using the closing price of the Company’s common shares on the grant date. DSUs outstanding at December 31, 2024, had a fair value of $0.7 million which is included in other liabilities on the balance sheet (2023 - $0.5 million).
Granted under the 2023 and 2024 LTIP
DSUs granted after May 30, 2023, (the “New DSUs”) will be settled by way of the provision of cash or shares (or a combination thereof) to the Directors, at the discretion of the Company. The Company intends to settle these DSUs through issuances of common shares. The weighted average fair value of the New DSUs granted in 2024 and 2023 was C$0.69 ($0.50) and C$0.46 ($0.34), respectively, which was determined using the closing price of the Company’s common shares on the grant date. New DSUs outstanding at December 31, 2024, had a fair value of $1.3 million which is included in other liabilities on the balance sheet (2023 - $0.6 million).
Options
The following summarizes options granted, forfeited and expired during the periods:
Number of
Weighted average
options
exercise price C$
Outstanding at December 31, 2022
1,480,069
7.03
Forfeited
(1,006,935
)
7.00
Expired
(263,725
)
$
6.46
Outstanding and exercisable at December 31, 2023
209,409
7.71
Forfeited
(2,000
)
7.84
Expired
(207,409
)
7.70
Outstanding and exercisable at December 31, 2024
-
-
Range of exercise prices outstanding at December 31, 2023:
Options outstanding
Options exercisable
Weighted
Weighted
Weighted
Weighted
average
average
average
average
Number
remaining
exercise
Number
remaining
exercise
Range of exercise prices
outstanding
life
price C$
exercisable
life
price C$
C$6.01 - C$7.00
16,350
0.71
$
6.12
16,350
0.71
$
6.12
C$7.01 - C$8.00
193,059
0.38
$
7.84
193,059
0.38
$
7.84
Total
209,409
209,409
As at December 31, 2024, the Company had no outstanding options.
Dilutive instruments
For the year ended December 31, 2024, 2.3 million RSUs and PRSUs, 2.0 million New DSUs and 45.1 million shares which would have been issued if the principal amount of the Debentures were settled in common shares at the year-end price were included in the diluted earnings per share calculation. 1.8 million PSUs and 0.2 million RSUs and PRSUs were excluded from the diluted weighted average number of common shares, as their effect would have been anti-dilutive to the net income per share.
For the years ended December 31, 2023 and 2022, 1.8 million and nil PSUs, 3.6 million and 2.2 million RSUs and PRSUs, 0.2 million and 1.5 million options, 1.8 million and nil New DSUs and 156.8 million and 109.1 million shares would be issued if the principal amount of the Debentures were settled in our common shares at the year-end share price were excluded from the diluted weighted average number of common shares, as their effect would have been anti-dilutive to the net loss per share.
18. SHARE REPURCHASES
On December 18, 2024, the Company announced a normal course issuer bid for common shares (the “Shares NCIB”), which commenced on December 20, 2024, terminates on December 19, 2025 and permits DIRTT to acquire up to 7,515,233 common shares. All purchases will be made on the open market through the facilities of the TSX at the market price of common shares at the time of acquisition. Any common shares acquired through the Shares NCIB will be immediately cancelled. Under this program, DIRTT acquired and cancelled 58,478 common shares during the year ended December 31, 2024.
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
Maximum number of share that may yet be purchased under the program
December 20, 2024 - December 31, 2024
58,478
$
0.96
58,478
7,456,755
Total
58,478
58,478
7,456,755
19. EARNINGS PER SHARE
On November 21, 2023, the Company announced a Rights Offering which allowed holders of common shares, as of the close of business on December 12, 2023, transferable subscription rights to purchase up to an aggregate of 85,714,285 common shares at a subscription price of C$0.35 per common share (refer to Note 16). An adjustment is required on the calculation of net loss per share for the year ended December 31, 2023, as well as retrospectively for the year ended December 31, 2022, to account for the bonus factor that resulted from this event.
For the Year Ended December 31,
Net income (loss) per share - basic
Net income (loss) (thousands of U.S. dollars)
$
14,770
$
(14,584
)
$
(54,963
)
Weighted average number of shares outstanding (thousands of shares as previously calculated)
NA
101,984
87,662
Weighted average number of shares outstanding (thousands of shares restated)
190,542
116,135
99,826
Net income (loss) per share (U.S. dollars) − basic (as previously calculated, prior to Rights Offering)
NA
$
(0.14
)
$
(0.63
)
Net income (loss) per share (U.S. dollars) − basic (as on the Consolidated Statement of Operations)
$
0.08
$
(0.13
)
$
(0.55
)
Net income (loss) per share − diluted
Net income (loss) (thousands of U.S. dollars)
$
14,770
$
(14,584
)
$
(54,963
)
Interest on convertible debentures
$
2,400
NA
NA
$
17,170
$
(14,584
)
$
(54,963
)
Weighted average number of shares outstanding (thousands of shares as previously calculated)
NA
101,984
87,662
Weighted average number of shares outstanding (thousands of shares restated)
190,542
116,135
99,826
Dilutive debentures on convertible debt (thousands of shares) (1)
45,140
-
-
Dilutive RSUs and PRSUs (thousands of shares) (2)
2,556
-
-
Dilutive New DSUs (thousands of shares) (2)
2,019
-
-
Weighted average number of shares outstanding (thousands of shares as previously calculated)
NA
116,135
99,826
Weighted average number of shares outstanding (thousands of shares restated)
240,239
116,135
99,826
Net income (loss) per share (U.S. dollars) − diluted (as previously calculated, prior to Rights Offering)
NA
$
(0.14
)
$
(0.63
)
Net income (loss) per share (U.S .dollars) − diluted (as on the Consolidated Statement of Operations)
$
0.07
$
(0.13
)
$
(0.55
)
(1) For years ended December 31, 2023 and 2022, the Net loss per share - diluted excludes the effect of 156.8 million and 109.1 million shares that would be issued if the principal amount of the Debentures were settled in our common shares at the year-end price and are excluded as they would be anti-dilutive. For the year ended December 31, 2024, the Net income per share − diluted includes the effect of 45.1 million shares related to the Debentures as they would have the potential to dilute basic earnings per share.
(2) For the years ended December 31, 2023 and 2022, the Net loss per share − diluted excludes the effect of 3.6 million and 2.2 million RSUs (including PRSUs) and 1.8 million and nil PSUs and 1.8 million and nil New DSUs, as these would be anti-dilutive. For the year ended December 31, 2024, the Net income per share − diluted includes the effect of 2.3 million RSUs (including PRSUs) and 2.0 million New DSUs would have the potential to dilute basic earnings per share.
20. REVENUE
In the following table, revenue is disaggregated by performance obligation and timing of revenue recognition. All revenue comes from contracts with customers. Refer to Note 21 for the disaggregation of revenue by geographic region.
For the Year Ended December 31,
Product
152,856
158,405
147,448
Transportation
16,066
17,674
18,030
License fees from Construction Partners
Total product revenue
169,660
176,919
166,256
Installation and other services
4,653
5,012
5,905
174,313
181,931
172,161
DIRTT sells its products and services pursuant to fixed-price contracts which generally have a term of one year or less. The transaction price used in determining the amount of revenue to recognize from fixed-price contracts is based upon agreed contractual terms with each customer and is not subject to variability.
For the Year Ended December 31,
At a point in time
168,922
176,079
165,478
Over time
5,391
5,852
6,683
174,313
181,931
172,161
Revenue recognized at a point in time represents the majority of the Company’s sales. Revenue is recognized when a customer obtains legal title to the product, which is when ownership of the product is transferred to, or services are delivered to, the customer. Revenue recognized over time is limited to installation and ongoing maintenance contracts with customers and is recorded as performance obligations are satisfied over the term of the contract.
Contract Liabilities
As at December 31,
Customer deposits
4,028
5,290
4,458
Deferred revenue
-
-
Contract liabilities
4,028
5,290
4,866
Contract liabilities primarily relate to deposits received from customers and maintenance revenue from license subscriptions. The balance of contract liabilities was lower as at December 31, 2024, compared to the prior year period mainly due to the timing of orders and payments. Contract liabilities as at December 31, 2023 and 2022, respectively, totaling $5.3 million and $4.9 million were recognized as revenue during 2024 and 2023, respectively.
Sales by Industry
The Company periodically reviews product revenue by industry vertical market to evaluate trends and the success of industry specific sales initiatives. The nature of products sold to the various industries is consistent and therefore the periodic review is focused on sales performance.
For the Year Ended December 31,
Commercial
121,518
116,693
115,102
Healthcare
21,230
33,970
19,739
Government
17,114
13,446
16,564
Education
9,060
11,970
14,073
License fees from Construction Partners
Total product and transportation revenue
169,660
176,919
166,256
Installation and other services
4,653
5,012
5,905
174,313
181,931
172,161
21. SEGMENT REPORTING
The Company has one reportable and operating segment, and operates in two principal geographic locations, Canada and the United States. Revenue continues to be derived almost exclusively from projects in North America and predominantly from the United States. The Company’s revenue from operations from external customers, based on location of operations, and information about its non-current assets, is detailed below.
Revenue from external customers
For the Year Ended December 31,
Canada
23,921
19,934
25,477
U.S.
150,392
161,997
146,684
174,313
181,931
172,161
Non-current assets
As at December 31,
Canada
25,924
30,033
U.S.
25,137
30,759
51,061
60,792
DIRTT has one reportable segment: solutions. The DIRTT solutions segment derives revenues from customers by providing physical products and digital tools through our ICE software to create interior spaces for our customers across the commercial, healthcare, education and government industries. The solutions segment provides digital tools (access to ICE software) and physical products to create modular interior construction spaces for our customers. The accounting policies of the solutions segment are the same as those described in Note 2 - significant accounting policies.
DIRTT’s chief operating decision maker is the executive leadership team that includes the president and chief operating officer, chief financial officer, and the chief executive officer. The chief operating decision maker assesses performance for the solution segment and decides how to allocate resources based on gross profit and net loss that also is reported on the consolidated statement of operations and comprehensive income (loss) as consolidated gross profit and net income (loss). The measure of segment assets is reported on the balance sheet as total consolidated assets. The chief operating decision maker uses net income to evaluate income generated from segment assets (return on assets) in deciding whether to reinvest profits into the solution segment or into other parts of the entity, such as to repay long term debt.
Gross profit and net income (loss) are used to monitor budget versus actual results. The chief operating decision maker also uses net income in competitive analysis by benchmarking to DIRTT’s competitors. The competitive analysis along with the monitoring of budgeted versus actual results are used in assessing performance of the segment and in establishing management’s compensation.
DIRTT derives revenue primarily in North America and manages the business activities on a consolidated basis. The technology used in the customer arrangements is based on a single software platform that is deployed to, and implemented by, customers in a similar manner.
Segment profit and loss reconciliation to net income (loss) after tax
For the Year Ended December 31,
($ in thousands)
Revenue
174,313
181,931
172,161
Operating expenses (1)
60,149
76,097
87,203
Operating income (loss)
4,226
(16,555
)
(59,043
)
Other income/(expenses) and gains/(losses) (2)
10,544
1,971
4,080
Net income (loss) after tax
14,770
(14,584
)
(54,963
)
Reconciliation of profit or loss
Adjustments and reconciling items
-
-
-
Net income (loss) after tax
14,770
(14,584
)
(54,963
)
(1) Includes Sales and marketing, General and administrative, Operations support, Technology and development, Stock-based compensation, Reorganization costs, Related party expenses, and Impairment charges
(2) Includes Tax expenses, non-recurring gains and losses, government subsidies, foreign exchange gains(losses), interest income, and interest expenses
22. COMMITMENTS
As at December 31, 2024, the Company had outstanding purchase obligations of approximately $4.2 million related to inventory and property, plant and equipment purchases (2023 - $2.8 million). Refer to Note 8 for lease commitments.
23. LEGAL PROCEEDINGS
The Company is pursuing multiple lawsuits against its former founders, Mogens Smed and Barrie Loberg, their new company Falkbuilt Ltd. (“Falkbuilt”), and other related individual and corporate defendants for violations of fiduciary duties and non-competition and non-solicitation covenants contained in their executive employment agreements, and the misappropriation of DIRTT’s confidential and proprietary information in violation of numerous Canadian and U.S. state, and federal laws pertaining to the protection of DIRTT’s trade secrets and proprietary information and the prevention of false advertising and deceptive trade practices.
As of December 31, 2024, the Company’s litigation against Falkbuilt, Messrs. Smed and Loberg, and their associates was comprised of two main lawsuits: (i) an action in the Alberta Court of King’s Bench instituted on May 9, 2019, against Falkbuilt, Messrs. Smed and Loberg, and several other former DIRTT employees alleging breaches of restrictive covenants, fiduciary duties, and duties of loyalty, fidelity and confidentiality, and the misappropriation of DIRTT’s confidential information (the “Canadian Non-Compete Case”); and (ii) an action in the U.S. District Court for the Northern District of Utah instituted on December 11, 2019, against Falkbuilt, Smed, and other individual and corporate defendants alleging misappropriation of DIRTT’s confidential information, trade secrets, business intelligence and customer information (the “Utah Misappropriation Case”). Claims previously pending before in the U.S. District Court for the Northern District of Texas have been included in the Utah Misappropriation Case.
Falkbuilt also filed a lawsuit against the Company on November 5, 2019, in the Court of King’s Bench of Alberta, alleging that DIRTT has misappropriated and misused their alleged proprietary information in furtherance of DIRTT’s product development. Falkbuilt seeks monetary relief and an interim, interlocutory and permanent injunction of DIRTT’s alleged use of the alleged proprietary information. The Company believes that the suit is without merit and filed an application for summary judgment to dismiss Falkbuilt’s claim.
On the first matter, on October 25, 2024, the Honourable Mr. Justice Poelman of the Court of King’s Bench of Alberta granted a Court Order directing the Clerk of the Court to schedule an 8-week trial on the first available dates after December 8, 2025, to determine all the issues (including damages and liability). The trial is scheduled to commence February 2, 2026.
In the Utah Misappropriation Case, on April 11, 2023, the United States Court of Appeals for the Tenth Circuit reversed the U.S. District Court for the Northern District of Utah’s decision that Utah was an inconvenient forum for DIRTT’s claims against Falkbuilt and others for the misappropriation of confidential information, trade secrets, business intelligence and customer information. The Texas Unfair Competition Case was dismissed in March 2022, without prejudice, in reliance upon the now-reversed decision in the Utah Misappropriation Case, described above. On March 4, 2024, Defendants jointly moved to move the case to Canada again. Notwithstanding all the prior litigation, on March 28, 2024, Falkbuilt moved to stay the Utah case until the Court ruled on the renewed motion to dismiss (the “Second Motion to Dismiss”). On February 5, 2025, the Utah District Court granted the Second Motion to Dismiss for forum non conveniens, without prejudice. The Utah Court, in essence, redirected the determination of those damages from Utah to Canada, being the appropriate forum for the legal dispute. With the Canadian trial commencing less than a year away, DIRTT is pursuing damages and losses it suffered in Canada, the United States, and abroad in the Court of King's Bench of Alberta.
No amounts are accrued for the above legal proceedings.
24. RELATED PARTY TRANSACTIONS
On March 15, 2023, the Company entered into a Debt Settlement Agreement (the “Debt Settlement Agreement”) with 22NW and Aron English, 22NW’s principal and a director of DIRTT, (together, the “22NW Group”) who, collectively, beneficially owned approximately 19.5% of the Company’s issued and outstanding common shares at such time. Pursuant to the Debt Settlement Agreement, the Company agreed to reimburse the 22NW Group for the costs incurred by the 22NW Group in connection with the contested director election at the annual and special meeting of shareholders of the Company held on April 26, 2022, being approximately $1.6 million (the “Debt”).
Pursuant to the Debt Settlement Agreement, the Company agreed to repay the Debt by either, or a combination of (i) a payment in cash by the Company to the 22NW Group, and/or (ii) the issuance of equity securities of the Company to the 22NW Group. The liability as at March 31, 2023 was revalued using the closing common share price at March 31, 2023, and a $2.1 million liability and expense was recorded in the financial statements.
In connection with the Debt Settlement Agreement, on March 15, 2023, the Company entered into a share issuance agreement with the 22NW Group, pursuant to which the Company agreed to repay the Debt with the issuance to the 22NW Group of 3,899,745 common shares at a deemed price of $0.40 per common share, subject to approval by the Company’s shareholders which was obtained at the Company’s annual and special meeting of shareholders held on May 30, 2023.
Other related party transactions for the year ended December 31, 2023, relate to the sale of DIRTT products and services to the 22NW Group for $0.3 million. The sale to the 22NW Group was based on price lists in force and terms that are available to all employees. There were no sales to the 22NW Group for the year ended December 31, 2024.
On August 2, 2024, the Company entered into a Convertible Debenture Repurchase Agreement with 22NW Group to purchase for cancellation of C$18.9 million ($14.0 million) principal amount of the January Debentures and C$13.6 million ($10.1 million) principal amount of the December Debentures for an aggregate purchase price of C$22.1 million ($16.2 million). Interest earned on such Debentures to, but not including, the date of repurchase for the year ended December 31, 2024 was $1.0 million, and $0.9 million for the year ended December 31, 2023. Interest is earned on terms applicable to all Debenture holders. As at December 31, 2024, 22NW no longer held any Debentures.
Also on August 2, 2024, DIRTT entered into a support and standstill agreement (the “Support Agreement”) with 22NW and WWT, DIRTT’s second largest shareholder, which replaced the support and standstill agreement entered into with 22NW on March 22, 2024. Under the Support Agreement, both 22NW and WWT agreed to certain voting and standstill obligations, including voting in favor of the management director nominees at each of DIRTT’s next two annual general meetings and voting in favor of the ratification of the Amended and Restated SRP. Additionally, each of 22NW and WWT has the right to designate a director nominee at each of DIRTT’s next two annual general meetings, and is subject to certain restrictions with respect to commencing a take-over bid for the Company. The Support Agreement also permits WWT to acquire up to 4,067,235 additional shares through market purchases (representing approximately 2% of the then issued and outstanding shares), which provides WWT with an opportunity to own the same number of shares as 22NW (being 57,447,988 shares, or approximately 29.8% of the issued and outstanding shares as of the date of the Support Agreement). The Support Agreement otherwise prohibits each of 22NW and WWT from acquiring any additional shares. Since the commencement of the Support Agreement, WWT acquired 156,250 shares in the year ended December 31, 2024.
To give effect to the terms of the Support Agreement, the Board adopted the Amended and Restated SRP, effective August 2, 2024, which amended and restated the Company’s shareholder rights plan agreement originally adopted by the Board on March 22, 2024 (the “Original SRP”). The Amended and Restated SRP was ratified by shareholders at the special meeting held on September 20, 2024 (the “SRP Meeting”). The Amended and Restated SRP revised the definition of “Exempt Acquisition” in order to permit WWT to acquire additional common shares without triggering the provisions of the Amended and Restated SRP. The Amended and Restated SRP is otherwise consistent with the Original SRP and is substantially similar to the rights plan adopted by the Company in 2021. Like the Original SRP, the Amended and Restated SRP is intended to help ensure that all shareholders of the Company are treated fairly and equally in connection with any unsolicited take-over bid or other acquisition of control of the Company (including by way of a “creeping” take-over bid). The Amended and Restated SRP was not adopted in response to any specific proposal to acquire control of the Company, and the Board was not aware of any pending or potential take-over bid for the Company at the time of the adoption.
25. SUBSEQUENT EVENTS
On February 1, 2025, the President of the United States of America issued executive orders to impose new tariffs on goods being imported into the United States of America from Canada, Mexico and China. If implemented, these new tariffs could adversely impact the Canadian economy, consumer spending, inflation, Canadian dollar valuation and the Company’s financial results. Further, on February 10, 2025 the President of the United States of America issued another executive order imposing additional 25% tariffs on steel and aluminum imports from various countries including Canada.
The actual impact of the new tariffs or any retaliatory tariffs is subject to several factors including the effective date, duration of such tariffs, changes in the applied rates, scope and nature of the tariffs in the future, any countermeasures that the target countries may take and any mitigating actions that may become available. These developments also introduce a degree of uncertainty regarding the potential impact on supply chains, cost structures and market dynamics. 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 impact our business, financial condition, and results of operations. The Company will continue to monitor the evolving trade landscape and its implications on operations and financial performance.
On February 13, 2025, the Company entered into a share repurchase agreement (the “Repurchase Agreement”) with NGEN III, LP (“NGEN”), pursuant to which the Company purchased for cancellation 3,920,844 common shares currently held by NGEN at a purchase price of $0.80 per share (the “Share Repurchase”). Pursuant to the terms of the Repurchase Agreement, the purchase price of $0.80 per share was a 1% discount to the closing price of the common shares on the TSX on January 27, 2025 (converted into U.S. Dollars using the February 13, 2025 closing exchange rate published by the Bank of Canada). Upon completion of the Share Repurchase on February 14, 2025, there were 189,643,903 common shares outstanding, and NGEN no longer held any common shares of the Company. The common shares repurchased under the Share Repurchase counts against DIRTT’s annual normal course issuer bid share limit (the “NCIB Annual Limit”). Following completion of the Share Repurchase, the Company’s outstanding NCIB Annual Limit is 3,422,494.

---

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.

---

ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. Controls and Procedures.
Evaluation of 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 officer 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 officer and principal financial officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2024. Based upon their evaluation, our principal executive officer 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.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act, as amended. Our management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the 2013 framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO framework) to evaluate the effectiveness of internal control over financial reporting. Management believes that the COSO framework is a suitable framework for its evaluation of financial reporting because it is free from bias, permits reasonably consistent qualitative and quantitative measurements of our internal control over financial reporting, is sufficiently complete so that those relevant factors that would alter a conclusion about the effectiveness of our internal control over financial reporting are not omitted and is relevant to an evaluation of internal control over financial reporting.
Based on its evaluation under the framework in Internal Control-Integrated Framework, our management concluded that the Company maintained effective internal control over financial reporting at a reasonable assurance level as of December 31, 2024, based on those criteria.
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) and 15d-15(f) under the Exchange Act) during the quarter ended December 31, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

---

ITEM 9B. OTHER INFORMATION
Item 9B. Other Information.
None.

---

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers and Corporate Governance.
The information required by this Item is incorporated herein by reference to the information that will be contained in our information circular and proxy statement (“proxy statement”) related to the 2025 Annual Meeting of Shareholders, which we intend to file with the SEC within 120 days of the end of our fiscal year pursuant to General Instruction G(3) of Form 10-K.

---

ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation.
The information required by this Item is incorporated herein by reference to the information that will be contained in our proxy statement related to the 2025 Annual Meeting of Shareholders, which we intend to file with the SEC within 120 days of the end of our fiscal year pursuant to General Instruction G(3) of Form 10-K.

---

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this Item is incorporated herein by reference to the information that will be contained in our proxy statement related to the 2025 Annual Meeting of Shareholders, which we intend to file with the SEC within 120 days of the end of our fiscal year pursuant to General Instruction G(3) of Form 10-K.

---

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this Item is incorporated herein by reference to the information that will be contained in our proxy statement related to the 2025 Annual Meeting of Shareholders, which we intend to file with the SEC within 120 days of the end of our fiscal year pursuant to General Instruction G(3) of Form 10-K.

---

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accounting Fees and Services.
The information required by this Item is incorporated herein by reference to the information that will be contained in our proxy statement related to the 2025 Annual Meeting of Shareholders, which we intend to file with the SEC within 120 days of the end of our fiscal year pursuant to General Instruction G(3) of Form 10-K.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits, Financial Statement Schedules.
(a)The following documents are filed as part of the report:
(1)Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets, as at December 31, 2024 and 2023
Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2024, 2023 and 2022
Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31, 2024, 2023 and 2022
Consolidated Statements of Cash Flows for the Years Ended December 31, 2024, 2023 and 2022
Notes to the Consolidated Financial Statements
(2)Financial Statement Schedules
All schedules have been omitted as they are either not required or not applicable or the required information is included in the Consolidated Financial Statements or notes thereto.
(3)See Item 15(b)
(b)Exhibits:
Exhibit
No.
Exhibit or Financial Statement Schedule
3.1
Restated Articles of Amalgamation of DIRTT Environmental Solutions Ltd. (incorporated by reference to Exhibit 3.1 to the Registrant’s Registration Statement on Form 10, File No. 001-39061, filed on September 20, 2019).
3.2
Amended and Restated Bylaw No.1 of DIRTT Environmental Solutions Ltd. (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, File No. 001-39061, filed on May 22, 2020).
4.1*
Description of Registrant’s Securities.
4.2
Base Indenture, dated January 25, 2021, by and among DIRTT Environmental Solutions Ltd., Computershare Trust Company of Canada and Computershare Trust Company, National Association as Trustees (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K, File No. 001-39061, filed on January 29, 2021).
4.3
Supplemental Indenture, dated January 25, 2021, by and among the Company, Computershare Trust Company of Canada and Computershare Trust Company, National Association as Trustees (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K, File No. 001-39061, filed on January 29, 2021).
4.4
Second Supplemental Indenture, dated December 1, 2021, by and among the Company, Computershare Trust Company of Canada and Computershare Trust Company, National Association as Trustees (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K, File No. 001-39061, filed on December 1, 2021).
4.5
Amended and Restated Shareholder Rights Plan Agreement, dated as of August 2, 2024, by and between DIRTT Environmental Solutions Ltd. and Computershare Trust Company of Canada, as rights agent (incorporated by reference to Exhibit 4.1 of the Registrants Current Report on Form 8-K,File No. 001-39061, filed August 2, 2024).
10.1#
Loan Agreement, dated February 12, 2021, by and among the Royal Bank of Canada, DIRTT Environmental Solutions Ltd. and DIRTT Environmental Solutions, Inc., as borrowers (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, File No. 001-39061, filed on February 19, 2021).
10.2#
First Amendment and Consent to Loan Agreement, dated November 15, 2021, by and among the Royal Bank of Canada, as lender, and DIRTT Environmental Solutions Ltd. and DIRTT Environmental Solutions, Inc., as borrowers (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, File No. 001-39061, filed on November 23, 2021).
Exhibit
No.
Exhibit or Financial Statement Schedule
10.3+
Amended and Restated Incentive Stock Option Plan (incorporated by reference to Exhibit 10.2 to the Registrant’s Registration Statement on Form 10, File No. 001-39061, filed on September 20, 2019).
10.4+
DIRTT Environmental Solutions Ltd. Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, File No. 001-39061, filed on May 22, 2020).
10.5+
Form of Option Award Agreement Under the DIRTT Environmental Solutions Ltd. Long-Term Incentive Plan (incorporated by reference to Exhibit 4.4 to the Registrant’s Registration Statement on Form S-8, File No. 333-238689, filed on May 26, 2020).
10.6+
Form of Time-Based Restricted Share Unit Award Agreement Under the DIRTT Environmental Solutions Ltd. Long-Term Incentive Plan (incorporated by reference to Exhibit 4.5 to the Registrant’s Registration Statement on Form S-8, File No. 333-238689, filed on May 26, 2020).
10.7+
DIRTT Environmental Solutions Ltd. 2022 Employee Share Purchase Plan (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q File No. 001-39061, filed on May 4, 2022).
10.8+
Form of Performance-Based Restricted Share Unit Award Agreement Under the DIRTT Environmental Solutions Ltd. Long-Term Incentive Plan (incorporated by reference to Exhibit 4.6 to the Registrant’s Registration Statement on Form S-8, File No. 333-238689, filed on May 26, 2020).
10.9+
Deferred Share Unit Plan for Non-Employee Directors (incorporated by reference to Exhibit 10.4 to the Registrant’s Registration Statement on Form 10, File No. 001-39061, filed on September 20, 2019).
10.10+
DIRTT Environmental Solutions Ltd. Amended and Restated Employee Share Purchase Plan (incorporated by reference to Exhibit 4.4 to the Registrant’s Registration Statement on Form S-8, File No. 333-234143, filed on October 9, 2019).
10.11+
Executive Employment Agreement, dated June 22, 2022 by and between DIRTT Environmental Solutions Ltd. and Benjamin Urban (incorporated by reference to Exhibit 10.4 to the Registrant’s Form 10-Q, File No. 001-39061, filed on July 27, 2022).
10.12+
Executive Employment Agreement, dated August 12, 2022, by and between DIRTT Environmental Solutions Inc. and Richard Hunter (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 10-Q, File No. 001-39061, filed on November 14, 2022).
10.13+
Executive Employment Agreement, dated August 2, 2023, by and between DIRTT Environmental Solutions Inc. and Fareeha Khan (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 10-Q, File No. 001-39061, filed on November 9, 2023).
10.14+
Indemnity Agreement, dated April 26, 2022, between the Company and Douglas A. Edwards, together with a schedule identifying other substantially identical agreements between the Company and each of the other persons identified on the schedule (incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q File No. 001-39061, filed on May 4, 2022).
10.15+
Indemnity Agreement, dated June 22, 2022, between DIRTT Environmental Solutions Ltd and Benjamin Urban, together with a schedule identifying other substantially identical agreements between the Company and each of the other persons identified on the schedule (incorporated by reference to Exhibit 10.5 to the Registrant’s Form 10-Q, File No. 001-39061, filed on July 27, 2022).
10.16+
Indemnity Agreement, dated August 11, 2022, between DIRTT Environmental Solutions Ltd and Richard Hunter, together with a schedule identifying other substantially identical agreements between the Company and each of the other persons identified on the schedule (incorporated by reference to Exhibit 10.6 to the Registrant’s Form 10-Q, File No. 001-39061, filed on November 14, 2022).
Exhibit
No.
Exhibit or Financial Statement Schedule
10.17+
Indemnity Agreement, dated August 2,2023, between DIRTT Environmental Solutions Ltd and Fareeha Khan (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 10-Q, File No. 001-39061, filed on November 9, 2023).
10.18#
Industrial Lease, dated September 15, 2012, by and between Piret (7303-30th Street SE) Holdings Inc. and DIRTT Environmental Solutions Ltd. (incorporated by reference to Exhibit 10.23 to the Registrant’s Registration Statement on Form 10, File No. 001-39061, filed on September 20, 2019).
10.19#
Agreement of Lease, dated November 5, 2013, by and between Dundee Industrial Twofer (GP) Inc. and DIRTT Environmental Solutions Ltd., as amended by the Lease Amending Agreement, dated October 21, 2016, by and between Dream Industrial Twofer (GP) Inc. (formerly known as Dundee Industrial Twofer (GP) Inc.) and DIRTT Environmental Solutions Ltd. (incorporated by reference to Exhibit 10.24 to the Registrant’s Registration Statement on Form 10, File No. 001-39061, filed on September 20, 2019).
10.20#
Lease of Industrial Space, dated February 12, 2015, by and between Hoopp Realty Inc./Les Immeubles Hoopp Inc., by its duly authorized agent, Triovest Realty Advisors Inc., and DIRTT Environmental Solutions Ltd., as amended by the Amendment of Lease, dated April 16, 2015, the Lease Modification Agreement, dated October 27, 2015, the Third Amendment of Lease, dated November 12, 2015, the Fourth Amendment of Lease, dated January 8, 2016 and the Fifth Amendment of Lease, dated August 9, 2019 (incorporated by reference to Exhibit 10.25 to the Registrant’s Registration Statement on Form 10, File No. 001-39061, filed on September 20, 2019).
10.21#
Lease Agreement, dated March 29, 2011, by and between EastGroup Properties, L.P. and DIRTT Environmental Solutions, Inc. (incorporated by reference to Exhibit 10.26 to the Registrant’s Registration Statement on Form 10, File No. 001-39061, filed on September 20, 2019).
10.22#
Lease, dated July 1, 2015, by and between Majik Ventures, L.L.C. and DIRTT Environmental Solutions, Inc., as amended by the First Amendment to Lease, dated May 11, 2017, by and between CAM Investment 352 LLC and DIRTT Environmental Solutions, Inc. (incorporated by reference to Exhibit 10.27 to the Registrant’s Registration Statement on Form 10, File No. 001-39061, filed on September 20, 2019).
10.23#
Industrial Lease Agreement, dated October 2, 2008, by and between 141 Knowlton Way, LLC and DIRTT Environmental Solutions, Inc., as amended by the First Amendment to Industrial Lease Agreement, dated March 11, 2009, and the Second Amendment to Industrial Lease Agreement, dated August 23, 2018, by and between SH7-Savannah, LLC and DIRTT Environmental Solutions, Inc. (incorporated by reference to Exhibit 10.28 to the Registrant’s Registration Statement on Form 10, File No. 001-39061, filed on September 20, 2019).
10.24#
Lease Agreement, dated October 7, 2019, by and between DIRTT Environmental Solutions, Inc. and SP Rock Hill Legacy East #1, LLC (incorporated by reference to Exhibit 10.4 to the Registrant’s Form 10-Q, File No. 001-39061, filed on November 7, 2019).
10.25#
Second Amendment to Lease dated July 6, 2020, by and between SP ROCK HILL LEGACY EAST #1, LLC, an Indiana limited liability company, and DIRTT ENVIRONMENTAL SOLUTIONS, INC., a Colorado corporation (incorporated by reference to Exhibit 10.4 to the Registrant’s Form 10-Q, File No. 001-39061, filed on July 29, 2020).
10.26#
Lease Agreement between Tennyson Campus Owner, LP and DIRTT Environmental Solutions, Inc. dated March 4, 2020 (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 10-Q, File No. 001-39061, filed on May 6, 2020).
10.27#
Lease Amending Agreement, dated April 6, 2022, by and between Piret (7303 - 30th Street SE) Holdings Inc. and DIRTT Environmental Solutions Ltd (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 10-Q, File No. 001-39061, filed on July 27, 2022).
10.28
Letter Agreement, dated January 7, 2021, by and among DIRTT Environmental Solutions Ltd., DIRTT Environmental Solutions, Inc. and Royal Bank of Canada (incorporated by reference to Exhibit 1.1 to the Registrant’s Current Report on Form 8-K, File No. 001-39061, filed on January 13, 2021).
Exhibit
No.
Exhibit or Financial Statement Schedule
10.29+
Subscription Agreement, dated November 14, 2022, by and between DIRTT Environmental Solutions Ltd. and 22NW Fund, LP, together with a schedule identifying substantially identical agreements between DIRTT Environmental Solutions Ltd. and each shareholder and U.S. director and executive officer listed on the schedule and identifying the material differences between each of those agreements and the filed Subscription Agreement (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K, File No. 001-39061, filed on November 18, 2022).
10.30
Release, dated November 30, 2022, by and among DIRTT Environmental Solutions Ltd., 726 BC LLC and 726 BF LLC ((incorporated by reference to Exhibit 10.1 to the Registrant's Form 8-K, File No. 001-39061, filed on November 30, 2022).
10.31#
Second Amendment to Loan Agreement, dated February 9, 2023, by and among DIRTT Environmental Solutions Ltd., DIRTT Environmental Solutions, Inc. and Royal Bank of Canada (incorporated by reference to Exhibit 10.45 to the Registrant’s Form 10-K,File No. 001-39061, filed on February 22, 2023).
10.32+#
Co-ownership Agreement by and between DIRTT Environmental Solutions Ltd. and Armstrong World Industries, Inc., effective May 9, 2023 (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 10-Q,File No. 001-39061, filed on August 2, 2023).
10.33+#
DIRTT Environmental Solutions Ltd. Amended and Restated Long Term Incentive Program effective May 30, 2023 (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 10-Q,File No. 001-39061, filed on August 2, 2023).
10.34
DIRTT Environmental Solutions Ltd. 2022 Employee Share Purchase Plan (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q File No. 001-39061, filed on May 4, 2022)
10.35#
Third Amendment to Loan Agreement, dated February 9, 2024, by and among DIRTT Environmental Solutions Ltd., DIRTT Environmental Solutions, Inc. and Royal Bank of Canada (incorporated by reference to Exhibit 10.39 to the Registrant’s Current Report on Form 10-K, File No. 001-39061, filed on February 24, 2024).
10.36
Lease Amending Agreement, dated February 6, 2023, by and between HOOPP Realty Inc./Les Immeubles HOOPP Inc., (6335 - 57th Street SE) and DIRTT Environmental Solutions Ltd (incorporated by reference to Exhibit 10.40 to the Registrant’s Current Report on Form 10-K, File No. 001-39061, filed on February 21, 2024).
10.37#
Indemnity Agreement, dated March 4, 2024, between DIRTT Environmental Solutions Ltd and Shalima Pannikode.(incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 10-Q, File No. 001-39061, filed on May 8, 2024).
10.38
Support and Standstill Agreement, dated as of March 22, 2024, by and between DIRTT Environmental Solutions Ltd. and 22NW Fund, LP (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 8-K, File No. 001-39061, filed on March 25, 2024).
10.39
DIRTT Environmental Solutions Second Amended and Restated DIRTT Environmental Solutions Ltd. Long Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s Current report on Form 8-K, File No. 001-39061, filed May 10, 2024).
10.40#
Convertible Debenture Repurchase Agreement, dated as of August 2, 2024, by and between DIRTT Environmental Solutions Ltd. and 22NW Fund, LP (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K,File No. 001-39061, filed August 2, 2024).
10.41#
Support and Standstill Agreement, dated as of August 2, 2024, by and among DIRTT Environmental Solutions Ltd., 22NW Fund, LP and WWT Opportunity #1 LLC (incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K,File No. 001-39061, filed August 2, 2024).
10.42*#
Indemnity Agreement, dated November 26, 2024, between DIRTT Environmental Solutions Ltd. and Holly Hess Groos.
Exhibit
No.
Exhibit or Financial Statement Schedule
10.43*#
Triparty Agreement dated February 20, 2025, by and among Royal Bank of Canada, Great Midwest Insurance Company and any other company that is part of or added to Skyward Specialty Insurance Group, Inc. for which surety business is underwritten by the Skyward Specialty surety division and DIRTT Environmental Solutions Ltd. and DIRTT Environmental Solutions, Inc.
10.44*#
Fourth Amendment to Loan Agreement, dated February 12, 2025, by and among DIRTT Environmental Solutions Ltd., DIRTT Environmental Solutions, Inc. and Royal Bank of Canada.
10.45*#
Fifth Amendment to Loan Agreement, dated February 20, 2025, by and among DIRTT Environmental Solutions Ltd., DIRTT Environmental Solutions, Inc. and Royal Bank of Canada.
10.46#
Lease Amending Agreement dated April 25, 2024, by and between Piret (7303 - 30th Street SE) Holdings Inc. and DIRTT Environmental Solutions Ltd.
19.1
Insider Trading Policy
19.2
Insider Trading Policy (Pre-clearance group)
21.1*
Subsidiaries of DIRTT Environmental Solutions Ltd.
23.1*
Consent of PricewaterhouseCoopers, L.L.P., independent registered public accounting firm.
31.1*
Certification of the Principal Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*
Certification of the Principal Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**
Certification of the Principal Executive Officer required by 18 U.S.C. 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**
Certification of the Principal Financial Officer required by 18 U.S.C. 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*
Inline XBRL Instance Document
101.SCH*
Inline XBRL Taxonomy Extension Schema Document
101.CAL*
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*
Inline XBRL Taxonomy Extension Presentation Linkbase Document
Cover Page Interactive Data File (embedded within the Inline XBRL document)
* Filed herewith.
** Furnished herewith.
+ Compensatory plan or agreement.
# Information in this exhibit identified by brackets is confidential and has been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K because it is not material and is the type of information that the Company customarily treats as private or confidential. An unredacted copy of this exhibit will be furnished to the Securities and Exchange Commission on a supplemental basis upon request.
 Certain exhibits and schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule or exhibit will be furnished to the Securities and Exchange Commission upon request.