DIRTT Announces Record Quarterly and Annual Revenue With 2015 Q4 and Year-End Results

CALGARY, ALBERTA--(Marketwired - March 16, 2016) - DIRTT Environmental Solutions Ltd. ("DIRTT" or the "Company") (TSX:DRT), a leading technology-enabled designer, manufacturer and installer of fully customized, prefabricated interiors, today announced its financial results for the three- and 12-month periods ended December 31, 2015. This news release contains references to Canadian dollars and United States dollars. Canadian dollars are referred to as "$" and United States dollars are referred to as "US$".

Selected Highlights

For the three-and 12-month periods ended December 31, 2015 the Company reported:

• Revenue for the quarter increased by $7.0 million, or 12.2%, over Q4 2014, to $65.0 million, and increased by $49.3 million, or 26.3%, to $236.6 million for 2015, compared with fiscal 2014;
• Adjusted gross profit as a percentage of revenue (see "Non-IFRS Measures") for the three and 12 months ended December 31, 2015 increased to 45.1% and 44.2%, compared with 44.4% and 42.9% in the prior year periods, respectively;
• Adjusted EBITDA (see "Non-IFRS Measures") in the fourth quarter decreased slightly over the prior year period from $9.8 million to $9.6 million, but increased from $19.9 million in 2014 to $34.7 million in 2015, an increase of 74.3%;
• Net cash flows provided by operating activities before changes in non-cash working capital (see "Non-IFRS Measures") were $37.2 million, an increase of $17.2 million over 2014;
• Entry into an exclusive strategic collaboration with Corning Incorporated to bring Corning^® Willow^® Glass to DIRTT's suite of interior construction solutions;
• Accelerating investment in innovative new solutions for key industry verticals such as healthcare, education, assisted living and the commercial sector;
• Launch of new residential interior and timber frame construction offerings at DIRTT's annual sales, marketing and training initiative in Chicago (called DIRTT Connext™); and
• International sales expansion through planned opening of London, United Kingdom Green Learning Center in early 2016.

"DIRTT continues to demonstrate to our valued clients, partners and the broader construction industry the benefits of our innovative solutions and technology," said Mogens Smed, CEO of DIRTT. "The quality, speed, customization, future flexibility and sustainability of DIRTT is being recognized by Fortune 500 companies, small businesses, hospitals and schools throughout North America, the Middle East and soon the United Kingdom. Furthermore, 2015 demonstrated the leverage and future potential of our business model as we continue to grow revenues." DIRTT President Scott Jenkins added, "DIRTT continued to demonstrate very strong year-over-year growth in 2015. Our solutions continued to gain traction as we invested heavily in growth through a combination of sales and marketing initiatives, hiring, technology and product development. In the fourth quarter, we generated record quarterly revenue and solid growth over a strong prior year as our small and medium-sized contracts replaced revenue from larger contracts and from the challenged energy sector."

"The second half of the year was particularly strong as we saw reduced business volatility, evidenced by consistent order entry, steady manufacturing volumes and favorable product mix, which all contributed to improved margins," said Derek Payne, CFO of DIRTT. "In 2015 we took the opportunity to strengthen our balance sheet, providing us with maximum flexibility to act on a range of growth initiatives in 2016 and beyond."

Summary Financial Results

	Q4	Q4	Year ended December 31,
	2015	2014	2015	2014
	($ thousands, except per share amounts)
Revenue	64,988	57,945	236,625	187,329
Gross profit	28,443	25,050	101,456	78,043
Gross profit %	43.8%	43.2%	42.9%	41.7%
Adjusted gross profit (1)	29,330	25,716	104,496	80,279
Adjusted gross profit % (1)	45.1%	44.4%	44.2%	42.9%
Selling, general and administrative ("SG&A")	21,073	18,470	85,230	70,235
SG&A as a % of revenue	32.4%	31.9%	36.0%	37.5%
Adjusted SG&A (1)	20,135	16,495	72,613	61,187
Adjusted SG&A as a % of revenue (1)	31.0%	28.5%	30.7%	32.7%
Operating income	7,370	6,580	16,226	7,300
Adjusted EBITDA (1)	9,573	9,793	34,709	19,916
Adjusted EBITDA as % of revenue (1)	14.7%	16.9%	14.7%	10.6%
Income tax (recovery) expense	(1,501)	504	291	637
Net income	9,127	6,553	17,892	5,954
Net income per share - basic and diluted	0.11	0.09	0.22	0.08
Cash flows provided by operating activities	7,481	13,363	32,693	13,789
Cash flows provided by operating activities (1) before changes in non-cash working capital	12,998	9,858	37,212	20,037
As at December 31,			2015	2014
Cash and cash equivalents			91,405	39,836
Working capital			103,858	50,434
Long-term debt			9,161	9,852

Note: (1) See "Non-IFRS Measures".

Revenue

Revenue increased by $7.0 million, or 12.2%, for Q4 2015 compared with Q4 2014. Q4 2014 revenue included $5.0 million from the previously announced US$30.0 million US energy sector project compared to $0.1 million in Q4 2015. During Q4 2015, the Company received notification that the contract is on hold until further notice. This business was offset by a general increase in activity from small and medium-sized projects. While total volume increased modestly quarter over quarter, the strengthening US dollar increased the Canadian dollar value of US revenue. Sales to the energy sector accounted for 7% of total revenue in Q4 2015, down from 24% of total revenue in Q4 2014. The reduction reflects the absence of contribution from the previously announced US$30.0 million contract and a general decline in activity in this sector as a result of falling energy prices. This decline was more than offset by increases in revenue from the financial, insurance and real estate and management, professional and scientific services sectors.

Revenue increased by $49.3 million, or 26.3%, for the year ended December 31, 2015 compared with the same period in 2014. The increase was due to the contribution of $8.6 million from the previously announced US$30.0 million contract (2014 - $5.4 million), continued momentum throughout North American markets, and the strengthening US dollar. During the year ended December 31, 2015, the energy sector accounted for 10% of total revenue, down from 20% of total revenue in 2014. This decline was more than offset by increases in revenue from the financial, insurance and real estate; technology and retail trade sectors. These results demonstrate the overall strength in the North American construction market, and the diversity of DIRTT's network, reach and unique offerings.

Adjusted Gross Profit

Adjusted gross profit for the year ended December 31, 2015 improved to $104.5 million from $80.3 million for the year ended December 31, 2014 with adjusted gross profit percentage widening 1.3% to 44.2% from 42.9%. The increase was due primarily to significantly higher revenue and favorable product mix resulting in reduced material costs in 2015 compared with 2014. Higher overall production volumes in 2015 allowed DIRTT to more effectively leverage the fixed component of cost of goods sold, which also contributed to the higher adjusted gross profit percentage. During the year ended December 31, 2015, material costs as a percentage of revenue improved by 2.6% compared with 2014, partially due to product mix and leverage from higher revenue levels. Higher production volumes enable better absorption of fixed costs included in cost of goods sold, such as facilities costs and indirect labor costs. During the year ended December 31, 2015, indirect labor and product costs, which are mostly fixed costs, improved by 1.1% as a percentage of revenue compared with 2014.

The stronger US dollar also contributed to higher adjusted gross profit in the three months and year ended December 31, 2015, as the positive impact on US dollar revenue exceeded the negative impact on US dollar-based production costs.

Adjusted SG&A Expenses

Adjusted selling, general and administrative expenses ("Adjusted SG&A") is SG&A before deductions for non-cash depreciation and amortization of non-manufacturing-related assets, stock-based compensation expense and non-cash one-time commission adjustment. See "Non-IFRS Measures". Adjusted SG&A as a percentage of revenue increased by 2.5%, from 28.5%, to 31.0% in Q4 2015 compared with Q4 2014. Adjusted SG&A expenses increased by $3.6 million, or 22.1%, for Q4 2015 compared with Q4 2014. The increase reflects DIRTT's ongoing investment in long-term growth. The most significant changes can be attributed directly to sales-related efforts as salaries and benefits increased by $2.0 million. These costs reflect adding personnel focused on generating and supporting higher business volumes. Other increases in adjusted SG&A in Q4 2015 included non-cash marketing promotional items of $0.9 million and travel and marketing costs of $0.4 million. Non-cash marketing activities are used to showcase DIRTT's latest innovations and provide our partners with real-life examples of how best to position DIRTT's value proposition.

Adjusted SG&A as a percentage of revenue decreased by 2.0%, from 32.7%, to 30.7% in the year ended December 31, 2015 compared with the same period in 2014. Adjusted SG&A expenses increased by $11.4 million, or 18.7%, for the year ended December 31, 2015 compared with 2014. The change was largely due to increases in salaries and benefits of $4.9 million, travel and marketing costs of $3.0 million, non-cash marketing promotional items of $1.2 million, and $1.2 million in other operating expense items. The increase in salaries and benefits are for the same reasons discussed above. The increase in travel and marketing costs in 2015 was due largely to DIRTT Connext, the previously discussed annual sales, marketing and training initiative held in Chicago in June. The total cost for DIRTT Connext in 2015 was $2.3 million, compared with $1.3 million in the prior year.

The stronger US dollar contributed to the overall increase in adjusted SG&A expenses across the organization for the three months and year ended December 31, 2015, as certain of these expenditures are denominated in US dollars.

Adjusted EBITDA

Adjusted EBITDA decreased by $0.2 million, or 2.2%, for Q4 2015 compared with Q4 2014. Adjusted EBITDA as a percentage of revenue for Q4 2015 weakened by 2.2%, from 16.9%, to 14.7% over Q4 2014. The decrease was mainly due to higher adjusted SG&A expenses of $3.6 million for the reasons discussed above. This amount was partially offset by the $7.0 million increase in revenue and the resulting improvement in adjusted gross profit of $3.6 million.

Adjusted EBITDA grew by $14.8 million, or 74.3%, for the year ended December 31, 2015 compared with 2014. Adjusted EBITDA as a percentage of revenue for the year ended December 31, 2015 improved by 4.1%, from 10.6%, to 14.7% over the same period in 2014. The change was mainly due to the $49.3 million improvement in revenue and the resulting increase in adjusted gross profit of $24.2 million. These amounts were partially offset by higher adjusted SG&A expenses of $11.4 million for the reasons discussed above.

Outlook

Construction is a major global industry and consists of building new structures, making additions and modifications to existing structures, as well as conducting maintenance, repair and leasehold improvements on existing structures. The total US construction market was US$1.1 trillion in 2015, of which US$674 billion was attributable to non-residential building and US$423 billion was attributable to residential building [Source: US Census Bureau]. This includes both new building and renovation projects. Total US non-residential and residential construction spending is forecast to grow to US$796 billion and US$512 billion, respectively, in 2019 [Source: FMI US Markets Construction Overview 2016]. DIRTT believes conventional construction activities are fraught with challenges including cost overruns, quality issues, labor shortages and time delays and increasingly organizations are looking for a better way to build out their interior spaces, whether for new buildings or renovations.

DIRTT's growth strategy consists of five key initiatives: (1) increasing penetration of existing markets by providing continued support and increased investment to existing distribution partners ("DPs") throughout North America; (2) expanding into new geographies, such as the Middle East and United Kingdom, by capitalizing on recent and continued investment alongside new international DPs; (3) penetrating new vertical markets such as the healthcare, education and residential sectors; (4) continuing to invest in ICE and new innovative interior construction solutions such as the Enzo Approach, residential interiors and timber frame construction; and (5) partnering with industry leaders to monetize innovative solutions - a recent example of which is the Corning^® Willow^® Glass initiative signed in February 2015.

With the recent launch of DIRTT's residential and timber frame solutions at DIRTT Connext, the Company officially entered into these markets. DIRTT does not expect to see meaningful revenue from these markets in the near term.

DIRTT believes its Solutions are a superior alternative to conventional construction in all sectors of the construction industry, and that a continued increase in construction activity can be expected to result in an ongoing improvement in revenue. The Company plans to invest additional resources on a range of initiatives including the further development of ICE and the development of new DIRTT Solutions and test projects, pursuing further opportunities in healthcare, education and government, and identifying new opportunities in the hospitality and residential sectors of the construction industry. The Company's product development team has been and, is expected to continue to be, expanded to address industry-specific challenges and opportunities.

The American Institute of Architects' (AIA) Architecture Billings Index (ABI) can be a useful leading economic indicator of how non-residential billing activity could trend. In its review of the January 2016 numbers, the AIA suggested that falling energy prices and growing international economic concerns contributed to a very slight decline in billings growth. However, the volume of inquiries continued to increase, albeit at a slightly lower pace sequentially, following a generally positive performance in 2015. Both DIRTT and the AIA believe these overall numbers still point to solid fundamentals that could support growth across all segments of the building industry for the next nine to 12 months.

DIRTT believes that extended softness in global commodity pricing could result in continued weakness for the energy sector in 2016. The gross US$30.0 million contract announced in mid-2014 remains deferred until further notice. Growth in non-energy related sectors is more than offsetting the current weakness in the energy sector, which represented approximately 10% of DIRTT's revenue in 2015. DIRTT anticipates some benefits from reduced input costs for raw materials and transportation charges as a result of softness in global commodity pricing for the first half and potentially the remainder of 2016.

Liquidity and Capital Resources

At December 31, 2015, DIRTT had $91.4 million in cash and cash equivalents compared with $39.8 million at December 31, 2014. At December 31, 2015, we also had access to an undrawn US$18.0 million revolving credit facility.

Non-IFRS Measures

Adjusted gross profit, adjusted gross profit %, adjusted SG&A, adjusted SG&A as a percentage of revenue, EBITDA, adjusted EBITDA, and cash provided by operating activities before changes in non-cash working capital are non-IFRS measures used by management to assess the Company's performance and financial condition. Consequently, they do not have a standard meaning as prescribed by IFRS, and are therefore unlikely to be comparable to similar measures presented and calculated by other companies. DIRTT believes the non-IFRS measures are useful supplemental measures that may assist investors in assessing the financial performance and the cash anticipated to be generated by DIRTT's business. The non-IFRS measures should not be considered as the sole measure of the Company's performance and should not be considered in isolation from, or as a substitute for, analysis of its financial statements. For a reconciliation of these non-IFRS measures see the Company's management's discussion and analysis for the year ended December 31, 2015, available at http://www.sedar.com.

Conference Call Details

DIRTT will host a conference call and webcast on Thursday, March 17, 2016 at 9 a.m. ET, 7 a.m. MT to discuss its fourth quarter and year-end results in greater detail. President Scott Jenkins and CFO Derek Payne will host the call.

To access the conference call by telephone dial +1 647.427.7450 (Toronto and international callers) or 1.888.231.8191 (toll-free in North America). Please call 10 minutes prior to the start of the call. In addition, a live webcast (listen only mode) of the conference call will be available at:

http://event.on24.com/r.htm?e=1150619&s=1&k=29193B6AF733A3025C6BBE437C1DDC5E

Investors are invited to submit questions by email before and during the conference call. Please send them to ir@dirtt.net.

A replay of the conference call will be available at +1 416.849.0833 or 1.855.859.2056 by entering the passcode 63320806, from noon (ET) Thursday, March 17, 2016 to midnight (ET) Thursday, March 24, 2016 or through the webcast archives at http://www.newswire.ca or on DIRTT's website at ir.dirtt.net/.

About DIRTT

DIRTT Environmental Solutions (Doing it Right This Time) uses its proprietary 3D software to design, manufacture and install fully customized prefabricated interiors. The Company's customers in the corporate, government, education and healthcare sectors benefit from DIRTT's precise design and costing; rapid lead times with the highest levels of customization and flexibility; and faster, cleaner construction.

DIRTT's manufacturing facilities are in Phoenix, Savannah, Kelowna and Calgary. DIRTT's team supports more than 100 DPs throughout North America, the Middle East and Asia. DIRTT trades on the Toronto Stock Exchange under the symbol "DRT." For more information visit www.dirtt.net.

Forward-Looking Statements

Certain information and statements contained in this news release constitute "forward-looking information" and "forward-looking statements" (collectively, "Forward-Looking Information") as defined under applicable Canadian securities laws and the Company hereby cautions investors about important factors that could cause the Company's actual results or outcomes to differ materially from those projected in any Forward-Looking Information contained in this news release. Any statements that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions or future events or performance (often, but not always, through the use of words or phrases such as "will likely result", "are expected to", "will continue", "is anticipated", "believes", "estimated", "intends", "plans", "projection" and "outlook"), are not historical facts and may be forward-looking and may involve estimates, assumptions and uncertainties which could cause actual results or outcomes to differ materially from those expressed in such Forward-Looking Information.

In particular and without limitation, this news release contains Forward-Looking Information pertaining to the following: comments with respect to the Company's revenue, objectives and priorities for 2016 and beyond; project timetables; its growth strategies and opportunities; its ability to meet working capital requirements and financial obligations; use and deployment of the Company's capital; and its outlook for its operations and the Canadian, US and international economies, and in particular, the US construction industry.

With respect to Forward-Looking Information contained in this news release, assumptions have been made regarding the Company, among other things:

• its ability to manage its growth;
• competition in its industry;
• its ability to enhance current products and develop and introduce new products;
• its ability to obtain components and products from suppliers on a timely basis and on favorable terms;
• its ability to obtain qualified staff and equipment in a timely and cost-efficient manner;
• the regulatory framework governing taxes in Canada and the US and any other jurisdictions in which the Company may conduct its business in the future;
• future development plans for its assets unfolding as currently envisioned;
• future capital expenditures to be made by the Company;
• future sources of funding for its capital program;
• the impact of increasing competition on the Company; and
• its success in identifying risks to its business and managing the risks mentioned below.

The Company's actual results or outcomes could differ materially from those expressed in the Forward-Looking Information as a result of the risks normally encountered in its industry such as:

• maintaining and managing growth;
• history of losses;
• risks related to new technology;
• competition risks;
• operating results and financial condition fluctuations on a quarterly and annual basis;
• risks related to intellectual property;
• risks related to additional capital requirements;
• customer base and market acceptance;
• software and product defects and design risks;
• availability of key supplies;
• dependence on key personnel;
• commodity price risk;
• credit risk;
• the effect of government regulation;
• risks related to international expansion;
• risks related to physical facilities;
• legal risks;
• foreign currency and fiscal matters;
• risks related to future acquisitions;
• risks related to Forward-Looking Information;
• reliance on third parties; and
• conflicts of interest.

Since actual results or outcomes could differ materially from those expressed in the Forward-Looking Information provided by or on behalf of the Company, investors and others should not place undue reliance on any such Forward- Looking Information.

DIRTT cautions that the foregoing lists of factors are not exhaustive. Further, Forward-Looking Information is made as of the date hereof, and the Company undertakes no obligation to update Forward-Looking Information to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events, except as required by applicable Canadian securities laws. New factors emerge from time to time, and it is not possible for DIRTT's management to predict all of these factors and to assess in advance the impact of each such factor on the Company's business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in Forward-Looking Information. No assurance can be given that these expectations will prove to be correct and such Forward-Looking Information contained in this news release should not be unduly relied upon. In addition, this news release may contain Forward-Looking Information attributed to third party industry sources.

For a detailed description of the risks and uncertainties facing the Company and its business and affairs, readers should refer to the Company's annual financial statements, management's discussion and analysis and annual information form for the year ended December 31, 2015, all of which are available at http://www.sedar.com.

Market and Industry Data

Certain market and industry data contained in this news release is based upon information from government or other third party publications, reports and websites or based on estimates derived from such publications, reports and websites. Government and other third party publications and reports do not guarantee the accuracy or completeness of their information. While the Company believes this data to be reliable, market and industry data is subject to variations and cannot be verified with complete certainty due to limits on the availability and reliability of raw data, the voluntary nature of the data-gathering process and other limitations and uncertainties inherent in any statistical survey. Accordingly, the accuracy, currency and completeness of this information cannot be guaranteed. DIRTT has not independently verified any of the data from government or other third party sources referred to in this press release or ascertained the underlying assumptions relied upon by such sources.