DIRTT Announces Record Quarterly Revenue in Third Quarter 2014

CALGARY, ALBERTA--(Marketwired - Nov. 6, 2014) - 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 nine months ended September 30, 2014. 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

Highlights for the third quarter of 2014 include:

• Revenue increased by $9.9 million, or 27.1%, to $46.7 million compared with Q3 2013 and by $23.8 million, or 22.5%, to $129.4 million compared with the first nine months of 2013;
• Adjusted gross profit percentage (see "Non-IFRS Measures") was 42.3% for Q3 2014 and 42.2% for the first nine months of 2014;
• Adjusted EBITDA (see "Non-IFRS Measures") increased by $3.7 million to $5.3 million for Q3 2014 and by $4.7 million to $10.1 million for the first nine months of 2014;
• Net income of $0.02 per share for Q3 2014 versus a loss of ($0.01) per share in Q3 2013;
• Strong market acceptance of newly launched Enzo Approach was a significant contributor to Q3 2014 results; and
• Conversion of US$5,047,634.46 principal amount of 14% senior subordinated convertible notes, including accrued interest, into an aggregate of 2,380,006 common shares in the capital of DIRTT.

"This was the strongest quarter in DIRTT's history," said Mogens Smed, CEO of DIRTT. "We benefitted from strong industry fundamentals and our recent and ongoing investments in multiple growth initiatives ranging from sales and marketing staff to new client solutions. Our largest individual project in the quarter was valued at $1.1 million, which demonstrates the growth potential of our core business focused on small and medium enterprises. In the fourth quarter, we expect to begin realizing revenue from the US$30 million contract we announced in June 2014, which should provide additional upside through the end of 2014 and into 2015."

Summary Financial Results
	Three months ended		Nine months ended
	September 30, 2014	September 30, 2013	September 30, 2014	September 30, 2013
($ thousands, except per share amounts)	$	$	$	$
Revenue	46,651	36,708	129,384	105,593
Gross profit	19,145	14,209	52,993	40,693
Gross profit %	41.0%	38.7%	41.0%	38.5%
Adjusted gross profit % (1)	42.3%	39.4%	42.2%	39.9%
Selling, general and administrative ("SG&A")	17,844	14,311	52,273	42,003
Adjusted SG&A (1)	14,963	12,736	45,200	37,048
Adjusted SG&A as a % of revenue (1)	32.1%	34.7%	34.9%	35.1%
Operating income (loss)	1,301	(102)	720	(1,310)
Finance costs	82	1,418	1,282	4,094
Adjusted EBITDA (1)	5,259	1,585	10,123	5,443
Income tax expense (recovery)	54	(741)	133	333
Net income (loss)	1,526	(494)	(599)	(6,344)
Net income (loss) per basic and diluted share:	0.02	(0.01)	(0.01)	(0.17)
Cash flows provided by operating activities before changes in non-cash working capital (1)	5,882	1,369	10,179	5,699
As at			September 30, 2014	December 31, 2013
($ thousands)			$	$
Cash and cash equivalents			24,999	34,373
Working capital			39,731	39,851
Long-term debt			6,454	8,092

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

Financial Review

The following financial information should be read in conjunction with the Company's condensed consolidated financial statements and management's discussion and analysis for the three and nine months ended September 30, 2014, which will be available at http://www.sedar.com and http://ir.dirtt.net/financial-reports/.

Revenue

Revenue increased by $9.9 million or 27.1% in the three months ended September 30, 2014 compared with the same period in 2013. Revenue increased by $23.8 million or 22.5% in the nine months ended September 30, 2014 compared with the same period in 2013. The increase in revenue was mainly due to a general improvement in business levels during 2014 compared with 2013. Higher sales in the Saudi Arabia healthcare market drove additional growth in the year to date period. As a significant amount of revenue is generated by the US market, DIRTT also benefitted from a stronger US dollar during the three and nine months ended September 30, 2014.

Included in the total revenue reported for the three months ended September 30, 2014, was the remaining one-third of the $12.0 million of significant projects announced in January 2014. These projects, for leading players in the energy, insurance and healthcare sectors, were completed as of the third quarter of 2014.

Adjusted Gross Profit

Adjusted gross profit as a percentage of revenue increased by 2.9% from 39.4% to 42.3% in the three months ended September 30, 2014 compared with the same period in 2013. Adjusted gross profit as a percentage of revenue increased by 2.3% from 39.9% to 42.2% in the nine months ended September 30, 2014 compared with the same period in 2013. The increase was due primarily to significantly better results in the first nine months of 2014 compared with the same period in 2013, leading to greater efficiencies driven by higher overall volumes in DIRTT's production facilities.

Adjusted Selling, General and Administrative ("SG&A") Expenses

Adjusted SG&A is SG&A less depreciation expense and stock-based compensation expense. Adjusted SG&A expenses increased by $2.2 million, or 17.5%, in the three months ended September 30, 2014 compared with the same period in 2013.

Adjusted SG&A as a percentage of revenue decreased by 2.6% from 34.7% to 32.1% in the three months ended September 30, 2014 compared with the same period in 2013. The most significant change can be attributed directly to sales-related efforts as salaries and benefits increased by $1.0 million and commission expense for internal sales representatives and industry specific experts increased by $0.5 million, in line with the higher revenue volumes in the current quarter. For the nine months ended September 30, 2014, adjusted SG&A expenses increased by $8.2 million or 22.0% compared with the same period in 2013. Adjusted SG&A as a percentage of revenue decreased by 0.2% from 35.1% to 34.9% compared with the same period in 2013.

Adjusted EBITDA

Adjusted EBITDA increased by $3.7 million for the three months ended September 30, 2014 compared with the same period in 2013. The increase was mainly due to the $9.9 million increase in revenue, and the resulting improved adjusted gross profit percentage which grew from 39.4% to 42.3%. These amounts were partially offset by increased adjusted SG&A of $2.2 million for the reasons discussed above.

Adjusted EBITDA increased by $4.7 million in the nine months ended September 30, 2014 compared with the same period in 2013. The increase was mainly due to the $23.8 million increase in revenue, and the resulting improved adjusted gross profit percentage which grew from 39.9% to 42.2%. These amounts were partially offset by increased adjusted SG&A of $8.2 million for the reasons discussed above.

Outlook

The American Institute of Architects' (AIA) Architecture Billings Index (ABI) can be a useful leading economic indicator of how non-residential billing activity in the US construction market could trend. The most recent September billing and inquiries numbers continued to show growth, building on an improving trend following poor weather in the first quarter of the year. Billing activity also continued to grow across all four reported regions and was especially strong in the South, Midwest and West. Both DIRTT and the AIA believe these numbers point to improved fundamentals that could support growth across all segments of the building industry for the next nine to 12 months.

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) continuing to invest in ICE and new innovative interior construction solutions; (3) capitalizing on recent and continued investment in new industry verticals such as healthcare; (4) capitalizing on recent and continued investment alongside new international DPs such as the Middle East; and (5) penetrating new industries such as the hospitality and residential sectors.

In June 2014, DIRTT received notice of award for a project valued in excess of US$30.0 million to DIRTT and its DP Agile OFIS of Houston, Texas, which is scheduled to commence during the fourth quarter of 2014 and is expected to be substantially completed in 2015.

Liquidity and Capital Resources

At September 30, 2014, DIRTT had $25.0 million in cash and cash equivalents compared with $34.4 million at December 31, 2013. At September 30, 2014, the Company had an undrawn US$18.0 million revolving operating 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 that 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.

Conference Call Details

DIRTT will host a conference call and webcast on Friday, November 7, 2014 at 7 a.m. MT (9 a.m. ET) to discuss its third quarter results in greater detail. President and Interim CFO Scott Jenkins 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://www.newswire.ca/en/webcast/detail/1431752/1590814

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, passcode 24847005, from noon (ET) Friday November 7, 2014 to midnight (ET) Friday, November 14, 2014 or through the webcast archives at 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 prefab 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 teams support 100 DPs throughout North America, the Middle East and Asia. For more information please visit dirtt.net.

To find out more about DIRTT (TSX:DRT) please visit our website dirtt.net or contact us at ir@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 2014 and beyond; project timetables; 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 global financial crises;
• 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 and consultants;
• commodity price risk;
• risks related to restricted covenants;
• 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 12 months ended December 31, 2013, all of which are available at http://www.sedar.com.

Market and Industry Data

Certain market and industry data contained in this press 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.