Keystone Financial podcasthttps://keystocks.com/stock-talk-podcast-show-notes/stock-talk-podcast-episode-295
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YSOT DIRTT Environmental Solutions Inc. (DRT: TSX)
| COMPANY DATA |
| Symbol | DRT: TSX |
| Stock Price | $1.00 |
| Market Cap | $190M |
Company Description
DIRTT is a provider of industrialized construction for interior environments within Workplace, Healthcare, Education and the Public Sector. DIRTT offers comprehensive prefabricated modular solutions including complete interior solutions, drywall alternative, glass partitions, casework, power, networks, floors and more. The company also has its design integration Software (ICE) which enables smart, precise design manufacturing.
Brett covered the stock in February of 2025 when the stock was at $1.18 per share and this was following the company’s Q3 financial results, but I thought that I would do a quick update given we spoke with Benjamin (CEO) in Vegas last week at the Planet Microcap conference. So if we look at the last year period the stock is up about 46%, but since its 2019 highs over 6 years ago the stock is down over 80%.
The poor stock price performance over the long term primarily comes down to a lack of profitability, as gross margins were compressed significantly in 2022, but margins have begun to recover following Benjamin Urban becoming the company’s new CEO in the summer of 2022.
Since then, gross margins have increased back to where they were pre COVID toward the mid 30% range and this is due to cost reduction measures, manufacturing efficiencies and price increases. Plus, operating expenses have also decreased due to a reduction in salaries and office costs as Benjamin reduced staff by approximately 30%.
As such, the company has now posted 7 consecutive quarters of positive Adj. EBITDA…. Posting an Adj. EBITDA margin of 8.8% in FY 2024, up from 4.4% in FY 2023.
Financials
Now looking at the recent quarter of Q4 2024 ended December 31, 2024 (all numbers are in USD):
- Revenue decreased 4% to $49 million. And annual revenue was $174.3 million which was in line with the company’s guidance range of $165-$175M.
- Gross profit margin was down slightly to 35.9% from 37.8% for the same period last year.
- Net Income was $4.0 million or about $0.02 per share, up from $955 thousand or $0.008 per share in Q4 2023.
- Adjusted EBITDA for Q4 was $5.5 million or 11% margin, up 28% from the same period in 2023.
- The balance sheet is in good health now with net debt & leases of $22.7M, but as Brett noted this follows a rights offering which they used to pay off a significant portion of their convertible debt, so you can see the business now has a forward net debt to EBITDA multiple of about 1.1x but shares outstanding have increased from about 116M to about 190M shares outstanding.
So overall I would say the business is certainly trending in the right direction.
Outlook
Now looking forward, the business is guiding 2025 toward revenue of $194-$209M (15.6% growth over 2024) and Adj. EBITDA of $18-$25M (39.5% growth over 2024) and would be a 10.7% Adj. EBITDA margin at the midpoint. But the business is looking for both revenue growth and margin expansion in the year compared to FY 2024.
I will note that this 2025 guidance does not take into account potential significant impact of tariffs, and does not include benefits from the new “integrated channel” which is essentially the company’s plan to diversify its distribution to construction contractors.
As the company is looking to expand beyond its current distribution network of “Furniture Dealers” and is beginning to onboard construction contractors. Benjamin says he has been making good headway on this new revenue diversification strategy and believes that in early 2026 – due to adding several construction partners – it will become its own line item as it will potentially represent over 10% of revenue coming in.
Looking at the valuation the stock trades with a fwd valuation of 7.4x EV/Adj. EBITDA, so I believe the company is reasonably priced, but EBITDA margins are relatively low at about 10%, so I would not expect the stock to demand a significant EBITDA multiple at this point.
Conclusion
- DIRTT appears to be trending in the right direction, with the business turning around under the control of new CEO Benjamin Urban. Costs are down, margins are up, and the business is looking at diversifying its revenue distribution channels.
- The company has approximately $400M revenue capacity with its current facilities and the ICE software platform allows the company to have a 10-day manufacturing lead time which is quite impressive.
- The balance sheet is in decent shape with a forward net debt-to-EBITDA multiple of 1.1x, although DIRTT’s outstanding shares are now up to 189M shares outstanding, but the company did recently instate an NCIB.
- Management’s FY 2025 Revenue and Adj. EBITDA guidance is promising, but there remains uncertainty around tariffs impacting the business and higher sensitivity to macroeconomic conditions due to their industry. At a fwd valuation of 7.4x EV/EBITDA, I believe the company is reasonably priced, but EBITDA margins are relatively low at about 10%, so I would not expect the stock to demand a significant EBITDA multiple at this point. But like Brett said when he covered them in February, there is a case to be made that the business offers value if they can execute going forward.
Overall, I think its an intriguing turnaround story and we will certainly be monitoring the business in 2025 as they execute on their guidance and work to add construction contractors to their distribution channel.