[10-Q] DIRTT ENVIRONMENTAL SOLUTIONS LTD Quarterly Earnings Report
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number
(Exact name of registrant as specified in its charter)
Alberta, (State or other jurisdiction of incorporation or organization) |
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Securities registered pursuant to Section 12(b) of the Exchange Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes
The registrant had
DIRTT ENVIRONMENTAL SOLUTIONS LTD.
FORM 10-Q
FOR THE QUARTER ENDED March 31, 2026
TABLE OF CONTENTS
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Page |
Cautionary Statement Regarding Forward-Looking Statements |
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ii |
PART I – FINANCIAL INFORMATION |
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4 |
Item 1. Financial Statements (Unaudited) |
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4 |
Interim Condensed Consolidated Balance Sheet |
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4 |
Interim Condensed Consolidated Statement of Operations and Comprehensive Loss |
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5 |
Interim Condensed Consolidated Statement of Changes in Shareholders’ Equity |
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7 |
Interim Condensed Consolidated Statement of Cash Flows |
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8 |
Notes to the Unaudited Interim Condensed Consolidated Financial Statements |
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9 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. Quantitative and Qualitative Disclosures About Market Risk |
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Item 4. Controls and Procedures |
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36 |
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PART II – OTHER INFORMATION |
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37 |
Item 1. Legal Proceedings |
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Item 1A. Risk Factors |
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37 |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
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37 |
Item 3. Defaults Upon Senior Securities |
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38 |
Item 4. Mine Safety Disclosures |
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38 |
Item 5. Other Information |
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38 |
Item 6. Exhibits |
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39 |
i
Cautionary Statement Regarding Forward-Looking Statements
Certain statements contained in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2026 (this “Quarterly Report”) are “forward-looking statements” within the meaning of “safe harbor” provisions of the United States Private Securities Litigation Reform Act of 1995, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and “forward-looking information” within the meaning of applicable Canadian securities laws. All statements, other than statements of historical fact included in this Quarterly Report, regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this Quarterly Report, the words “anticipate,” “believe,” “expect,” “estimate,” “intend,” “plan,” “project,” “outlook,” “may,” “will,” “should,” “would,” “could,” “can,” “continue,” the negatives thereof, variations thereon and other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. Forward-looking statements are based on certain estimates, beliefs, expectations and assumptions made in light of management’s experience and perception of historical trends, current conditions and expected future developments, as well as other factors that may be appropriate.
Forward-looking statements necessarily involve unknown risks and uncertainties, which could cause actual results or outcomes to differ materially from those contained in, or expressed or implied by such statements. Due to the risks, uncertainties and assumptions inherent in forward-looking information, you should not place undue reliance on forward-looking statements. Factors that could have a material adverse effect on our business, financial condition, results of operations and growth prospects can be found in the section titled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2025, filed with the U.S. Securities and Exchange Commission (the “SEC”) and applicable securities commissions or similar regulatory authorities in Canada on February 25, 2026 (our “Annual Report on Form 10-K”), and in this Quarterly Report under “Part II, Item 1A. Risk Factors.” These factors include, but are not limited to, the following:
ii
These risks are not exhaustive. Because of these risks and other uncertainties, our actual results, performance or achievement, or industry results, may be materially different from the anticipated or estimated results discussed in the forward-looking statements in this Quarterly Report. New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors nor can we assess the effects of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in, or expressed or implied by, any forward-looking statements. Our past results of operations are not necessarily indicative of our future results. You should not place undue reliance on any forward-looking statements, which represent our beliefs, assumptions and estimates only as of the dates on which they were made, as predictions of future events. We undertake no obligation to update these forward-looking statements, even though circumstances may change in the future, except as required under applicable securities laws. We qualify all of our forward-looking statements by these cautionary statements.
iii
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
DIRTT Environmental Solutions Ltd.
Interim Condensed Consolidated Balance Sheet
(Unaudited – Stated in thousands of U.S. dollars)
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As at March 31, |
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As at December 31, |
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2026 |
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2025 |
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ASSETS |
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Current Assets |
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Cash and cash equivalents |
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Restricted cash |
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Trade and accrued receivables, net of expected credit losses of $ |
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Other receivables |
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Inventory |
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Prepaids and other current assets |
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Total Current Assets |
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Property, plant and equipment, net |
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Capitalized software, net |
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Operating lease right-of-use assets, net |
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Other assets |
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Total Assets |
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LIABILITIES |
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Current Liabilities |
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Accounts payable and accrued liabilities |
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Other liabilities |
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Customer deposits and deferred revenue |
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Current portion of long-term debt and accrued interest |
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Current portion of lease liabilities |
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Total Current Liabilities |
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Long-term debt |
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Long-term lease liabilities |
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Total Liabilities |
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SHAREHOLDERS’ EQUITY |
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Common shares, unlimited authorized without par value, |
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Additional paid-in capital |
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Accumulated other comprehensive loss |
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( |
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( |
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Accumulated deficit |
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( |
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( |
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Total Shareholders’ Equity |
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Total Liabilities and Shareholders’ Equity |
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The accompanying notes are an integral part of these interim condensed consolidated financial statements.
4
DIRTT Environmental Solutions Ltd.
Interim Condensed Consolidated Statement of Operations
(Unaudited - Stated in thousands of U.S. dollars)
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For the Three Months Ended March 31, |
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2026 |
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2025 |
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Product revenue |
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Service revenue |
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Total revenue |
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Product cost of sales |
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Service cost of sales |
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Total cost of sales |
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Gross profit |
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Expenses |
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Sales and marketing |
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General and administrative |
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Operations support |
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Technology and development |
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Stock-based compensation |
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Reorganization |
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Total operating expenses |
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Operating loss |
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( |
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Interest income |
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Gain on extinguishment of convertible debentures |
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Foreign exchange gain (loss) |
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Interest expense |
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( |
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( |
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( |
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Net loss before tax |
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( |
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( |
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Income taxes |
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Current and deferred income tax expense |
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Net loss after tax |
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( |
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Net loss per share |
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Net loss per share − basic and diluted |
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( |
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Weighted average number of shares outstanding (in thousands) |
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Basic and diluted |
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5
DIRTT Environmental Solutions Ltd.
Interim Condensed Consolidated Statement of Comprehensive Loss
(Unaudited - Stated in thousands of U.S. dollars)
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For the Three Months Ended March 31, |
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2026 |
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2025 |
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Net loss after tax for the period |
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( |
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( |
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Exchange differences on translation of foreign operations |
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( |
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Comprehensive loss for the period |
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( |
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( |
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The accompanying notes are an integral part of these interim condensed consolidated financial statements.
6
DIRTT Environmental Solutions Ltd.
Interim Condensed Consolidated Statement of Changes in Shareholders’ Equity
(Unaudited – Stated in thousands of U.S. dollars, except for share data)
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Accumulated |
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Number of |
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Additional |
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other |
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Total |
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Common |
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Common |
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paid-in |
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comprehensive |
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Accumulated |
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shareholders’ |
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shares |
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shares |
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capital |
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loss |
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deficit |
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equity |
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As at December 31, 2024 |
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( |
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Stock-based compensation |
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- |
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- |
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- |
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- |
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Issued on vesting of RSUs |
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( |
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- |
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- |
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- |
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Issued for employee share purchase plan |
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- |
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- |
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- |
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Cancelled from Shares NCIB and Share Repurchase (as each defined in Note 9) |
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( |
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( |
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- |
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- |
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( |
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RSUs withheld to settle employee tax obligations |
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- |
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- |
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( |
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- |
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- |
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( |
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Foreign currency translation adjustment |
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- |
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- |
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- |
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- |
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Net loss for the period |
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- |
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- |
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- |
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- |
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( |
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( |
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As at March 31, 2025 |
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( |
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As at December 31, 2025 |
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( |
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( |
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Stock-based compensation |
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- |
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- |
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- |
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- |
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Issued on vesting of RSUs |
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( |
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- |
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- |
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- |
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RSUs withheld to settle employee tax obligations |
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- |
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- |
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( |
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- |
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( |
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( |
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Issued for employee share purchase plan |
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- |
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- |
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- |
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Cancelled from Shares NCIB (as defined in Note 9) |
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( |
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( |
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- |
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- |
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( |
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Foreign currency translation adjustment |
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- |
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- |
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- |
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( |
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- |
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( |
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Net loss for the period |
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- |
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- |
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- |
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- |
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( |
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( |
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As at March 31, 2026 |
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( |
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The accompanying notes are an integral part of these interim condensed consolidated financial statements.
7
DIRTT Environmental Solutions Ltd.
Interim Condensed Consolidated Statement of Cash Flows
(Unaudited – Stated in thousands of U.S. dollars)
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For the Three Months Ended March 31, |
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2026 |
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2025 |
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Cash flows from operating activities: |
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Net loss for the period |
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( |
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Adjustments: |
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Depreciation and amortization |
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Stock-based compensation |
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Foreign exchange (gain) loss |
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Gain on extinguishment of convertible debt |
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Accretion of convertible debentures |
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Loss on disposal |
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Changes in operating assets and liabilities: |
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Trade and accrued receivables |
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( |
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Other receivables |
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( |
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Inventory |
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Prepaid and other assets, current and long term |
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Accounts payable and accrued liabilities |
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( |
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Other liabilities |
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( |
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Customer deposits and deferred revenue |
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( |
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Current portion of long-term debt and accrued interest |
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( |
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( |
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Lease liabilities |
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( |
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Net cash flows provided by operating activities |
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Cash flows from investing activities: |
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Purchase of property, plant and equipment, net of accounts |
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( |
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( |
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Capitalized software development expenditures |
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( |
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( |
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Other asset expenditures |
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( |
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( |
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Recovery of software development expenditures |
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Net cash flows (used in) investing activities |
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( |
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( |
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Cash flows from financing activities: |
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Common share repurchases |
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( |
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( |
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Repayment of long-term debt |
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( |
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( |
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Employee tax payments on vesting of RSUs |
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( |
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( |
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Net proceeds received on long-term debt |
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Net cash flows (used in) financing activities |
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( |
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( |
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Effect of foreign exchange on cash, cash equivalents and |
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( |
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( |
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Net decrease in cash, cash equivalents and |
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( |
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( |
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Cash, cash equivalents and restricted cash, beginning of period |
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Cash, cash equivalents and restricted cash, end of period |
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Supplemental disclosure of cash flow information: |
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Interest paid |
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( |
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( |
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Income taxes paid |
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( |
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( |
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The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within |
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the consolidated balance sheet. |
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As at March 31, |
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2026 |
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2025 |
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Cash and cash equivalents |
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Restricted cash |
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Total cash, cash equivalents and restricted cash |
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The accompanying notes are an integral part of these interim condensed consolidated financial statements.
8
DIRTT Environmental Solutions Ltd.
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
(Amounts 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 (“Construction Partners”), including Armstrong World Industries, Inc. (“AWI”), which owns a
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” and on the OTCQX® Best Market (“OTCQX”) under the symbol “DRTTF.”
2. BASIS OF PRESENTATION
The accompanying unaudited interim condensed consolidated financial statements (the “Financial Statements”) have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X and, accordingly, the Financial Statements do not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of the Company, the Financial Statements contain all adjustments necessary, consisting of only normal recurring adjustments, for a fair statement of its financial position as of March 31, 2026, and its results of operations and cash flows for the three months ended March 31, 2026 and 2025. The condensed balance sheet at December 31, 2025, was derived from audited annual financial statements but does not contain all of the footnote disclosures from the annual financial statements. These Financial Statements should be read in conjunction with the audited consolidated financial statements as of December 31, 2025 and 2024 and for each of the three years in the period ended December 31, 2025 included in the Annual Report on Form 10-K of the Company as filed with the U.S. Securities and Exchange Commission (the “SEC”) and applicable securities commission or similar regulatory authorities in Canada on February 25, 2026 (the “Annual Report on Form 10-K”).
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 Environmental Solutions Ltd. and its subsidiary. All intercompany balances, income and expenses, unrealized gains and losses, and dividends resulting from intercompany transactions have been eliminated on consolidation.
9
Basis of measurement
Seasonality
Sales of the Company’s products are driven by consumer and industrial demand for interior construction solutions. The timing of customers’ construction projects can be influenced by a number of factors including the prevailing economic climate and weather.
3. ADOPTION OF NEW AND REVISED ACCOUNTING STANDARDS
On November 5, 2024, the FASB issued Accounting Standards Update No. 2024-03, “Disaggregation of Income Statement Expenses” (“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 this to impact the presentation and disclosures of the Consolidated Statement of Operations and Comprehensive (Loss) Income.
On November 27, 2024, the FASB issued Accounting Standards Update No. 2024-04, “Induced Conversions of Convertible Debt Instruments” (“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 has adopted this standard and expects minimal impact, as the Company has no existing convertible debt instruments to which this update applies.
On July 30, 2025, the FASB issued Accounting Standards Update No. 2025-05, “Financial Instruments - Credit Losses” (“ASU-2025-05”) which requires additional consideration when estimating the expected credit losses for current accounts receivable and current contract assets arising from transactions accounted for under Topic 606. The amendments in ASU-2025-05 are effective for fiscal years beginning after December 15, 2025. The Company has adopted this standard and expects minimal impact to the financial statements and disclosures.
On September 18, 2025, the FASB issued Accounting Standards Update No. 2025-06, “Intangibles - Goodwill and Other - Internal-Use Software” (“ASU-2025-06”) which targets improvements to the accounting for internal-use software. The amendments in ASU-2025-06 are effective for fiscal years 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.
On December 8, 2025, the FASB issued Accounting Standards Update No. 2025-11, “Narrow-Scope Improvements to Interim Reporting” (the “ASU-2025-11”) which clarifies the guidance on interim reporting disclosures. The amendments in ASU-2025-11 are effective for interim reporting periods within annual reporting periods beginning after December 15, 2027. The Company is evaluating the impact of the adoption of this standard.
10
4. REORGANIZATION
Transformation Office
In early 2025, a transformation office was set up, to accelerate the strategic transformation of our business by streamlining the Company’s processes and procedures, supporting the Construction Services channel, and improving productivity across the Company (the “Transformation Office”). We are incurring one-time consultant costs to assist in, advise, and implement our transformation actions, as well as one-time termination benefits as a result of elimination of positions. The program is planned to be completed in 2026.
For the three months ended March 31, 2026 and 2025, the following reorganization costs incurred relate to the above mentioned initiatives:
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For the Three Months Ended March 31, |
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2026 |
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2025 |
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Termination benefits |
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Transformation Office costs |
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Rock Hill Facility closure of operations |
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Other costs |
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Total reorganization costs |
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Reorganization costs in accounts payable and accrued liabilities at January 1, 2026 |
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Reorganization expense |
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Reorganization costs paid |
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( |
) |
Reorganization costs in accounts payable and accrued liabilities at March 31, 2026 |
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Of the $
5. TRADE AND ACCRUED RECEIVABLES
Accounts receivable are recorded at the invoiced amount, do not require collateral and typically 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 consolidated 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 well-being of our customers. At March 31, 2026, approximately 66% of our trade accounts receivable are trade credit insured, relating to accounts receivable from counterparties deemed creditworthy by the insurer and excluding accounts receivable from government entities. In addition, where possible, we collect a
Our trade balances are spread over a broad Construction Partner base, which is geographically dispersed. For the three months ended March 31, 2026, two Construction Partners accounted for greater than
The Company’s aged receivables were as follows:
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As at |
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March 31, 2026 |
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December 31, 2025 |
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Current |
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Overdue |
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Less: expected credit losses |
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( |
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( |
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Trade and accrued receivables, net of expected credit losses |
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11
No adjustment to our expected credit losses of $
6. OTHER LIABILITIES
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As at |
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March 31, 2026 |
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December 31, 2025 |
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Warranty provisions (1) |
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DSU liability |
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Income taxes payable |
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Sublease deposits |
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Other provisions and other liabilities |
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Other liabilities |
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As at |
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March 31, 2026 |
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December 31, 2025 |
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As at January 1, |
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Additions to warranty provision |
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Payments related to warranties |
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( |
) |
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( |
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As previously disclosed, DIRTT Environmental Solutions Inc. received a subpoena for records in relation to an ongoing inquiry by the U.S. Department of Justice into certain projects and services provided by a third party and DIRTT dating back to 2014. The Company is complying with the subpoena and cooperating with the U.S. Department of Justice. There have been ongoing discussions regarding the possible resolution of these matters with the U.S. Department of Justice without admitting or denying liability. Based on the discussions to date, the Company provided $
7. LONG-TERM DEBT
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Leasing |
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Convertible |
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BDC |
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Total Debt |
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Balance at January 1, 2025 |
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Accretion of issue costs |
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Accrued interest |
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Interest payments |
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( |
) |
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( |
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( |
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Principal repayments |
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( |
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( |
) |
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( |
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Gain on extinguishment |
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( |
) |
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( |
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Exchange differences |
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Balance at December 31, 2025 |
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Current portion of long-term debt and accrued interest |
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Long-term debt |
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Balance at January 1, 2026 |
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Issuances |
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Accretion of issue costs |
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Accrued interest |
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Interest payments |
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( |
) |
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( |
) |
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( |
) |
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( |
) |
Principal repayments |
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( |
) |
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( |
) |
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( |
) |
|
Exchange differences |
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( |
) |
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( |
) |
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( |
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( |
) |
Balance at March 31, 2026 |
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Current portion of long-term debt and accrued interest |
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Long-term debt |
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12
Revolving Credit Facility
On February 12, 2021, the Company entered into a loan agreement governing a C$25.0 million senior secured revolving credit facility with the Royal Bank of Canada (“RBC”), as lender (the “RBC Facility”), as disclosed in our Annual Report on Form 10-K. The Company has extended the RBC Facility a number of times since 2023, including on November 4, 2025 (the “Fifth Extended RBC Facility”). The Fifth Extended RBC Facility matures on
On February 11, 2026 and in connection with the Loan (as defined herein), the Company amended the Fifth Extended RBC Facility (the “Seventh Amended RBC Facility”) and, together with its subsidiary, entered into priority agreements with RBC and BDC (collectively, the “Priority Agreement”). The Seventh Amended RBC Facility matures on November 30, 2026 and is subject to the same borrowing base terms as the previous facility. The Seventh Amended RBC Facility allows the Company to incur indebtedness to BDC of C$
On March 11, 2026, the Company entered into the Waiver and Eighth Amendment to Loan Agreement (the “Eighth Amended RBC Facility”), which matures on
At March 31, 2026, available borrowings under the Eighth Amended RBC Facility are C$
Leasing Facilities
The Company has a C$
The Company did not make any draws on the Canada Leasing Facility during the three months ended March 31, 2026 (2025 – $nil). The associated financial liabilities are shown on the consolidated balance sheet in the current portion of long-term debt and accrued interest and long-term debt.
Convertible Debentures
On January 25, 2021, the Company completed a C$
13
on
On December 1, 2021, the Company completed a C$
BDC Loan
On December 11, 2025, the Company entered into a letter agreement (the “Letter”) with the Business Development Bank of Canada (“BDC”), pursuant to which BDC committed to lending the Company up to C$
Following the satisfaction of the conditions precedent set forth in the Letter, the Company received an initial
14
disbursement of C$
The obligations of the Company under the Amended Letter are secured by: (a) general security agreements from the Company granting (i) a first-ranking security interest in specific equipment, and (ii) a second priority security interest in all other present and after acquired personal property (excluding consumer goods), subject to certain registered charges; (b) guarantees from DIRTT Environmental Solutions, Inc. for the full amount of the Loan, supported by general security agreements granting (i) a first ranking security interest in specific equipment and (ii) second priority security interest in all other present and after acquired personal property (excluding consumer goods), subject to certain registered charges; (c) various landlord’s waivers of distraint; (d) first mortgage in the principal amount of US$
The following table includes principal maturities of the BDC Loan at March 31, 2026:
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BDC |
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2026 |
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797 |
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2027 |
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1,196 |
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2028 |
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1,196 |
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2029 |
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1,196 |
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2030 |
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1,196 |
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Thereafter |
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|
1,594 |
|
Total |
|
|
7,175 |
|
8. STOCK-BASED COMPENSATION
In May 2020, shareholders approved the DIRTT Environmental Solutions Ltd. Long Term Incentive Plan, which was subsequently amended and restated in each of 2023, 2024 and 2025 and is currently called the DIRTT Environmental Solutions Ltd. Third Amended and Restated Long-Term Incentive Plan (as amended and restated, the “LTIP”). Each amendment and restatement was approved by our shareholders. The 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”). No further awards have been or will be granted under either the Stock Option Plan or the PSU Plan following initial approval of the LTIP in May of 2020, but both plans remain in place to govern the terms of any awards that were granted pursuant to such plans.
The 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 LTIP, the sum of (i)
Prior to May of 2023, deferred share units (“DSUs”) were 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.
15
As of May 30, 2023, the LTIP provides 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 LTIP. Effective May 30, 2023, no new awards have been or 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
|
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For the Three Months Ended March 31, |
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2026 |
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2025 |
|
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Equity-settled awards |
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Cash-settled awards |
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( |
) |
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The following summarizes RSUs, PRSUs, PSUs (each as defined herein) and DSUs activity during the periods:
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RSU Time- |
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RSU Performance- |
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Based |
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Based |
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PSU |
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DSU |
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Number of |
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Number of |
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Number of |
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Number of |
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||||
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units |
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units |
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units |
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units |
|
||||
Outstanding at December 31, 2024 |
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Granted |
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Vested or settled |
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( |
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Withheld to settle employee tax obligations |
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( |
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Forfeited or expired |
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( |
) |
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( |
) |
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Outstanding at March 31, 2025 |
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- |
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Outstanding at December 31, 2025 |
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- |
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Granted |
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- |
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Vested or settled |
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( |
) |
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- |
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Withheld to settle employee tax obligations |
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( |
) |
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- |
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Forfeited or expired |
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( |
) |
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- |
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( |
) |
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Outstanding at March 31, 2026 |
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- |
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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
Restricted share units (performance-based vesting)
During 2022 and 2021, RSUs were granted to executives with service and performance-based conditions for vesting based on the Company’s share price performance (the “PRSUs”). Based on share price performance since the date of grant,
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
16
During the fourth quarter of 2025, the Company granted
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 profit or loss for the period. DSUs outstanding at March 31, 2026 had a fair value of $
Granted under the 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 DSUs granted in the first three months of 2026 and 2025 was C$
Dilutive Instruments
For the three months ended March 31, 2026 and three months ended March 31, 2025,
9. SHARE REPURCHASES
On December 18, 2024, the Company announced a normal course issuer bid for common shares (the “Shares NCIB”), which commenced on
On December 18, 2025, the Company announced the renewal of the Shares NCIB which commenced on December 22, 2025 and will terminate on December 21, 2026 (the “Renewed Shares NCIB”). The Renewed Shares NCIB permits DIRTT to acquire up to 9,593,878 of its 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 the acquisition. Any common shares acquired through the Renewed Shares NCIB will be immediately cancelled.
On February 13, 2025, the Company entered into a share repurchase agreement (the “NGEN Repurchase Agreement”) with NGEN III, LP (“NGEN”), pursuant to which the Company purchased for cancellation
17
the Share Repurchase count against the maximum number of shares that could be repurchased pursuant to the Shares NCIB, being
Under the Renewed Shares NCIB, DIRTT acquired and cancelled
The following table summarizes the common shares repurchased and cancelled during the period:
Period |
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Total number of shares purchased |
|
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Average price paid per share |
|
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Total number of shares purchased as part of publicly announced programs |
|
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Maximum number of shares that may yet be purchased under the program |
|
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January 1, 2026 - January 31, 2026 |
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$ |
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February 1, 2026 - February 28, 2026 |
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$ |
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March 1, 2026 - March 31, 2026 |
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$ |
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Total |
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10. REVENUE
In the following table, revenue is disaggregated by performance obligation and timing of revenue recognition. All revenue comes from contracts with customers. See Note 11 for the disaggregation of revenue by geographic region.
|
|
For the Three Months Ended March 31, |
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2026 |
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2025 |
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Product |
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Transportation |
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License fees from Construction Partners |
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Total product revenue |
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Installation and other services |
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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 Three Months Ended March 31, |
|
|||||
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2026 |
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2025 |
|
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At a point in time |
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Over time |
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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 includes pre-construction services, license fees, installation and ongoing maintenance contracts with customers and is recorded as performance obligations which are satisfied over the term of the contract.
18
Contract Liabilities
|
|
As at |
|
|||||||||
|
|
March 31, 2026 |
|
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December 31, 2025 |
|
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December 31, 2024 |
|
|||
Customer deposits |
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Deferred revenue |
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Contract liabilities |
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|
|||
Contract liabilities primarily relate to deposits received from customers and maintenance revenue from license subscriptions. The balance of contract liabilities was higher as at March 31, 2026 compared to December 31, 2025 mainly due to the timing of orders and payments. Contract liabilities as at December 31, 2025 and 2024 totaling $
Sales by Industry
The Company periodically reviews the growth of product and transportation revenue by vertical market to evaluate the success of industry-specific sales initiatives. The nature of products sold to the various industries is consistent and therefore review is focused on sales performance.
|
|
For the Three Months Ended March 31, |
|
|||||
|
|
2026 |
|
|
2025 |
|
||
Commercial |
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|
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Healthcare |
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Government |
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|
||
Education |
|
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|
||
License fees from Construction Partners |
|
|
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|
||
Total product and transportation revenue |
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|
||
Installation and other services |
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|
||
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|
|
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|
||
11. SEGMENT REPORTING
The Company has
Revenue from external customers
|
|
For the Three Months Ended March 31, |
|
|||||
|
|
2026 |
|
|
2025 |
|
||
Canada |
|
|
|
|
|
|
||
U.S. |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Non-current assets
|
|
As at March 31, |
|
|
As at December 31, |
|
||
|
|
2026 |
|
|
2025 |
|
||
Canada |
|
|
|
|
|
|
||
U.S. |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
19
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.
DIRTT’s chief operating decision makers are its chief financial officer and chief executive officer. The chief operating decision makers assess performance for the solutions segment and decide how to allocate resources based on gross profit and net income (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 makers use net income to evaluate income generated from segment assets (return on assets) in deciding whether to reinvest profits into the solutions segment or into other parts of the entity, such as to repay long-term debt.
Net income (loss) are used to monitor budget versus actual results. The chief operating decision makers also use net income (loss) 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 loss after tax
|
|
For the Three Months Ended March 31, |
|
|||||
|
|
2026 |
|
|
2025 |
|
||
|
|
($ in thousands) |
|
|||||
Revenue |
|
|
|
|
|
|
||
Operating expenses (1) |
|
|
|
|
|
|
||
Operating loss |
|
|
( |
) |
|
|
( |
) |
Other (expenses)/income and (losses)/gains (2) |
|
|
( |
) |
|
|
( |
) |
Net loss after tax |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
||
Reconciliation of profit or loss |
|
|
|
|
|
|
||
Adjustments and reconciling items |
|
|
|
|
|
|
||
Net loss after tax |
|
|
( |
) |
|
|
( |
) |
(1)
(2)
12. INCOME TAXES
20
13. COMMITMENTS AND CONTINGENCIES
As at March 31, 2026, the Company had outstanding purchase obligations of approximately $6
As previously disclosed, DIRTT Environmental Solutions Inc. received a subpoena for records in relation to an ongoing inquiry by the U.S. Department of Justice into certain projects and services provided by a third party and DIRTT dating back to 2014. The Company is complying with the subpoena and cooperating with the Department of Justice. There have been ongoing discussions regarding the possible resolution of these matters with the Department of Justice without admitting or denying liability. Based on the discussions to date, the Company provided $
14. RELATED PARTY TRANSACTIONS
On August 2, 2024, DIRTT entered into a support and standstill agreement (the “2024 Support Agreement”) with 22NW and WWT Opportunity #1 LLC (“WWT”), DIRTT’s second largest shareholder at the time, which replaced the support and standstill agreement entered into with 22NW on March 22, 2024. Under the 2024 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 Company's amended and restated shareholder rights plan. Additionally, each of 22NW and WWT had 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 2024 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 2024 Support Agreement). The 2024 Support Agreement otherwise prohibits each of 22NW and WWT from acquiring any additional shares. As a result of the share sale by WWT to the 726 Entities on February 13, 2026 as described below, WWT is no longer entitled to its nomination right under the 2024 Support Agreement. Except as amended by the 2026 Support Agreement described below, the 2024 Support Agreement otherwise remains in force.
On February 17, 2026, the Company entered into a support and standstill agreement (the “2026 Support Agreement”) with 22NW, and 726 BF LLC and 726 BC LLC (collectively, the “726 Entities”), which amends the 2024 Support Agreement in respect of certain matters. The 2026 Support Agreement was entered into in connection with the acquisition by the 726 Entities of certain common shares from WWT, as a result of which the 726 Entities own collectively approximately 15.0% of the Company's outstanding common shares. Under the 2026 Support Agreement, each of 22NW and the 726 Entities has the right to designate a director nominee at the Company's annual general meeting to be held in 2026 (the “2026 Meeting”), so long as they respectively own at least the lesser of (i) 10% of the then outstanding common shares, or (ii) 19,174,445 common shares. Under the 2026 Support Agreement, both 22NW and the 726 Entities are subject to certain voting and standstill obligations, including voting in favor of the management director nominees at the 2026 Meeting. Additionally, 22NW and the 726 Entities are each subject to certain restrictions with respect to commencing a take-over bid for the Company. The 2026 Support Agreement otherwise prohibits each of 22NW and the 726 Entities from acquiring any additional common shares and terminates on the date which is 90 days following the 2026 Meeting. Pursuant to the terms of the 2026 Support Agreement, the Company appointed Jeremy Gold, Managing Director, Briger Family Office, to the Board effective February 13, 2026. Mr. Gold is the nominee director for the 726 Entities under the 2026 Support Agreement.
21
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited interim condensed consolidated financial statements and related notes and other financial information appearing in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2026 (this “Quarterly Report”). This 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 “Cautionary Statement Regarding Forward-Looking Statements” appearing elsewhere in this Quarterly 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 First Quarter Highlights and Other Recent Developments
22
23
Pipeline
The table below presents our qualified leads and twelve-month forward pipeline as at April 1, 2026, January 1, 2026, and April 1, 2025. 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.
As of April 1, 2026, our twelve-month forward pipeline increased by 16% year-over-year and by 1% from January 1, 2026, illustrated in the table below.
|
|
As at |
|
|||||||||||||||||
|
|
April 1, 2026 |
|
|
January 1, 2026 |
|
|
% Change |
|
|
April 1, 2025 |
|
|
% Change |
|
|||||
Twelve-Month Forward Pipeline ($ 000s) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Commercial |
|
|
181,834 |
|
|
|
183,323 |
|
|
|
(1 |
) |
|
|
163,579 |
|
|
|
11 |
|
Healthcare |
|
|
59,582 |
|
|
|
65,962 |
|
|
|
(10 |
) |
|
|
61,171 |
|
|
|
(3 |
) |
Government |
|
|
52,795 |
|
|
|
52,796 |
|
|
|
(0 |
) |
|
|
44,861 |
|
|
|
18 |
|
Education |
|
|
43,496 |
|
|
|
30,763 |
|
|
|
41 |
|
|
|
21,947 |
|
|
|
98 |
|
|
|
|
337,707 |
|
|
|
332,844 |
|
|
|
1 |
|
|
|
291,558 |
|
|
|
16 |
|
Leads (#) |
|
|
1,421 |
|
|
|
1,457 |
|
|
|
(2 |
) |
|
|
1,490 |
|
|
|
(5 |
) |
24
Price Increases and Impact of Tariffs
Throughout 2025 and into 2026, the U.S. Government proposed and enacted various tariffs, as disclosed in our Annual Report on Form 10-K. As of the date of this report, tariff revisions were announced effective April 6, 2026. We are reviewing the impact of these revisions on our business. Since we released our Annual Report on Form 10-K, conflict in the Middle East, including Iran, has resulted in rising oil and aluminum prices which are compressing our gross margin. In response, we have implemented an 8% freight and 1% aluminum price surcharge. We continue to monitor and mitigate the impact of tariffs and raw material costs through pricing actions, surcharges, and other operational strategies.
On February 20, 2026, the U.S. Supreme Court issued a decision invalidating tariffs imposed under the International Emergency Economic Powers Act. As a result of this ruling, we may be eligible for a refund of certain tariffs previously paid on imported goods. The financial impact of these events is uncertain, as it is unclear to what extent tariff payments will be refunded, what processes will govern such refunds, or if we can fully collect amounts previously paid. We are evaluating the impact of these developments on our business and financial statements. No adjustments have been recorded in the accompanying interim condensed consolidated financial statements as the recoverability and timing of any such refund remains uncertain and we cannot reasonably predict or estimate the financial impact.
Outlook
As we progress further into 2026, DIRTT is building on the momentum engendered in the second half of 2025. While macroeconomic and industry-related headwinds persist - including trade policy-related volatility, uncertainty around project timing, and delayed capital expenditure decisions - their impact on our business has diminished materially as mitigation actions have been implemented and industry participants have adjusted to the revised trade environment.
The tariff response initiated in early 2025 is now fully implemented. What began as a defensive measure has been embedded into our operating model, evolving into a structural advantage and providing manufacturing flexibility on both sides of the border that few competitors in industrialized construction possess.
Our pipeline reflects these improving dynamics. The twelve‑month forward‑looking pipeline is approximately $338 million, representing an increase of 16% compared to the first quarter of 2025. The scheduling delays and suppressed award activity we identified early last year have continued to normalize. We are seeing renewed alignment between partners and clients around defined project schedules, while cancellations and losses remain de minimis – consistent with demand having been deferred rather than foregone.
Construction Services continues to develop as a revenue channel, accounting for approximately $55 million of the pipeline. In contrast to traditional product-led opportunities, Construction Services engagements are typically governed by contractual arrangements that provide greater commercial visibility once awarded and tend to convert to revenue more consistently. As this channel evolves, it supports broader sales coverage and should improve pipeline-to-revenue conversion. These results reflect continued execution of the Company’s transformation initiatives, including operating model-driven process standardization, cost optimization, partner enablement, and enhanced go-to-market coverage. Collectively, these efforts strengthen DIRTT’s ability to convert pipeline into revenue and earnings. As a result, the Company is better positioned to translate demand into execution and profitability than at any point in its recent history.
With ample liquidity, a growing pipeline, improving conversion trends, and a streamlined operating model, DIRTT remains focused on disciplined execution and long-term value creation for shareholders, partners, and employees.
25
Non-GAAP Financial Measures
Note Regarding Use of Non-GAAP Financial Measures
Our interim condensed 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 Quarterly 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), tax consequences, reorganization expense, unusual or infrequent charges or gains (such as gain on extinguishment of debt), stock-based compensation, 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 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 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.
Depreciation and amortization, stock-based compensation expense, reorganization expense, foreign exchange gains and losses, gain on extinguishment of debt, net interest income on cash deposits, interest expense on outstanding debt and debt facilities, and tax 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 Quarterly 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; reorganization expenses; stock-based compensation expense; unusual or infrequent charges (such as gain on extinguishment of debt); and any other non-core gains or losses |
|
|
Adjusted EBITDA Margin |
Adjusted EBITDA divided by revenue |
26
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
Three Months Ended March 31, 2026, Compared to the Three Months Ended March 31, 2025
|
|
For the Three Months Ended March 31, |
|
|||||||||
|
|
2026 |
|
|
2025 |
|
|
% Change |
|
|||
|
|
($ in thousands) |
|
|||||||||
Revenue |
|
|
42,432 |
|
|
|
41,295 |
|
|
|
3 |
|
Gross Profit |
|
|
13,001 |
|
|
|
14,542 |
|
|
|
(11 |
) |
Gross Profit Margin |
|
|
30.6 |
% |
|
|
35.2 |
% |
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|||
Sales and marketing |
|
|
5,031 |
|
|
|
5,177 |
|
|
|
(3 |
) |
General and administrative |
|
|
5,436 |
|
|
|
5,480 |
|
|
|
(1 |
) |
Operations support |
|
|
1,615 |
|
|
|
2,030 |
|
|
|
(20 |
) |
Technology and development |
|
|
941 |
|
|
|
1,228 |
|
|
|
(23 |
) |
Stock-based compensation |
|
|
875 |
|
|
|
739 |
|
|
|
18 |
|
Reorganization |
|
|
2,367 |
|
|
|
210 |
|
|
|
1,027 |
|
Total operating expenses |
|
|
16,265 |
|
|
|
14,864 |
|
|
|
9 |
|
Operating loss |
|
|
(3,264 |
) |
|
|
(322 |
) |
|
|
914 |
|
Operating margin |
|
|
(7.7 |
)% |
|
|
(0.8 |
)% |
|
|
|
|
Interest income |
|
|
82 |
|
|
|
262 |
|
|
|
(69 |
) |
Gain on extinguishment of convertible debentures |
|
|
- |
|
|
|
7 |
|
|
|
(100 |
) |
Foreign exchange gain (loss) |
|
|
339 |
|
|
|
(112 |
) |
|
|
403 |
|
Interest expense |
|
|
(350 |
) |
|
|
(451 |
) |
|
|
(22 |
) |
|
|
|
71 |
|
|
|
(294 |
) |
|
|
124 |
|
Net loss before tax |
|
|
(3,193 |
) |
|
|
(616 |
) |
|
|
418 |
|
Current and deferred income tax expense |
|
|
80 |
|
|
|
45 |
|
|
|
78 |
|
Net loss after tax |
|
|
(3,273 |
) |
|
|
(661 |
) |
|
|
395 |
|
Revenue
Revenue mainly reflects sales to our construction partners (“Construction Partners”) for resale to their clients and, in some circumstances, our direct sales to clients. We are investing in our Construction Services channel to grow revenue and increase direct sales to clients where such opportunities are not available to our Construction Partners. 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.
27
The following table sets forth the contribution to revenue of our DIRTT product and service offerings:
|
|
For the Three Months Ended March 31, |
|
|||||||||
|
|
2026 |
|
|
2025 |
|
|
% Change |
|
|||
|
|
($ in thousands) |
|
|||||||||
Product |
|
|
36,306 |
|
|
|
36,224 |
|
|
|
0 |
|
Transportation |
|
|
4,292 |
|
|
|
3,938 |
|
|
|
9 |
|
License fees from Construction Partners |
|
|
218 |
|
|
|
184 |
|
|
|
18 |
|
Total product revenue |
|
|
40,816 |
|
|
|
40,346 |
|
|
|
1 |
|
Installation and other services |
|
|
1,616 |
|
|
|
949 |
|
|
|
70 |
|
|
|
|
42,432 |
|
|
|
41,295 |
|
|
|
3 |
|
Revenue for the three months ended March 31, 2026 was $42.4 million, an increase of $1.1 million compared to $41.3 million in the comparative period of 2025. The first quarter is our seasonally slowest quarter and was relatively flat compared to the same quarter in the prior year. See “Price Increases and Impact of Tariffs.” for a discussion on pricing increases announced in the quarter.
Installation and other services revenue was $1.6 million for the quarter ended March 31, 2026 compared to $0.9 million in the quarter ended March 31, 2025. Historically, this revenue primarily reflects services performed by our ICE teams for third parties. Except in limited circumstances, historically our Construction Partners, rather than the Company, perform installation services. For the quarter ended March 31, 2026, our Construction Services channel was involved in a higher number of installation projects resulting in a 70% growth in that revenue stream.
Our success is partly dependent on our ability to profitably develop our Construction Partner network to expand our market penetration and ensure best practices are shared across local markets. At March 31, 2026, we had 60 Construction Partners (March 31, 2025: 69; December 31, 2025: 66) servicing multiple locations. We also continue to work on developing our Construction Services team and partnering with our Construction Partner network to drive revenue for DIRTT.
The following tables present our product and transportation revenue by vertical market:
|
|
For the Three Months Ended March 31, |
|
|||||||||
|
|
2026 |
|
|
2025 |
|
|
% Change |
|
|||
|
|
($ in thousands) |
|
|||||||||
Commercial |
|
|
24,635 |
|
|
|
28,098 |
|
|
|
(12 |
) |
Healthcare |
|
|
12,001 |
|
|
|
7,204 |
|
|
|
67 |
|
Government |
|
|
2,624 |
|
|
|
2,649 |
|
|
|
(1 |
) |
Education |
|
|
1,338 |
|
|
|
2,211 |
|
|
|
(39 |
) |
License fees from Construction Partners |
|
|
218 |
|
|
|
184 |
|
|
|
18 |
|
Total product revenue |
|
|
40,816 |
|
|
|
40,346 |
|
|
|
1 |
|
Service revenue |
|
|
1,616 |
|
|
|
949 |
|
|
|
70 |
|
|
|
|
42,432 |
|
|
|
41,295 |
|
|
|
3 |
|
|
|
For the Three Months Ended March 31, |
|
|||||
|
|
2026 |
|
|
2025 |
|
||
|
|
(in %) |
|
|||||
Commercial |
|
|
62 |
|
|
|
70 |
|
Healthcare |
|
|
29 |
|
|
|
18 |
|
Government |
|
|
6 |
|
|
|
7 |
|
Education |
|
|
3 |
|
|
|
5 |
|
Total Product Revenue(1) |
|
|
100 |
|
|
|
100 |
|
(1) Excludes license fees from Construction Partners.
28
Commercial sales decreased by 12% for the first quarter of 2026 from the first quarter of 2025. The quarter ended March 31, 2026 had fewer large commercial projects compared to the quarter ended March 31, 2025. Healthcare revenues increased by 67% in the first quarter of 2026 compared to the same period of 2025, primarily due to the first quarter of 2026 having a larger volume of projects than those in the same period of 2025. 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 healthcare and life science construction projects. Government sales in the first quarter of 2026 decreased by 1% compared to the first quarter of 2025 primarily due to the projects in 2026 having smaller value than those in the same period of 2025. Education sales in the first quarter of 2026 decreased by 39% from the same period of 2025 due to a lower volume of high value projects in 2026 compared to the same period of 2025.
Revenue continues to be derived almost exclusively from projects in North America and predominantly from the U.S. The following table presents our revenue dispersion by geography:
|
|
For the Three Months Ended March 31, |
|
|||||||||
|
|
2026 |
|
|
2025 |
|
|
% Change |
|
|||
|
|
($ in thousands) |
|
|||||||||
Canada |
|
|
5,808 |
|
|
|
6,878 |
|
|
|
(16 |
) |
U.S. |
|
|
36,624 |
|
|
|
34,417 |
|
|
|
6 |
|
|
|
|
42,432 |
|
|
|
41,295 |
|
|
|
3 |
|
For the three months ended March 31, 2026, 14% of revenue was from Canada, as compared to 17% for the three months ended March 31, 2025. Historically, approximately 10-15% and 85-90% of revenues are derived from sales to Canada and the United States, respectively. We expect the historical split to continue.
Sales and marketing expenses
Sales and marketing expenses decreased by $0.1 million to $5.0 million for the three months ended March 31, 2026, compared to $5.2 million for the three months ended March 31, 2025.
General and administrative expenses
General and administrative expenses were $5.4 million for the three months ended March 31, 2026, a minor decrease from $5.5 million for the three months ended March 31, 2025.
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, our manufacturing operations, and support staff for the operational processes team. Operations support expenses decreased by $0.4 million for the three months ended March 31, 2026 to $1.6 million from $2.0 million for the comparative period of 2025 primarily due to a $0.3 million decrease in salaries and benefits 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 $0.3 million to $0.9 million for the three months ended March 31, 2026 compared to $1.2 million for the three months ended March 31, 2025. The decrease is primarily related to a $0.2 million decrease in salaries and benefits costs.
Stock-based compensation
Stock-based compensation expense is dependent on share price in a period for fair value adjustments made on cash-settled deferred share units (“DSUs”) awards and grants, exercises, expirations or forfeitures made on other awards.
29
Stock-based compensation expense for the three months ended March 31, 2026 was $0.9 million compared to $0.7 million in the same period of 2025. The increase in expense was largely due to an increase in performance share units (“PSUs”) expense, slightly offset by a decrease in DSU expense in the first quarter of 2026, compared to the first quarter of 2025.
Reorganization
Reorganization expenses for the three months ended March 31, 2026 were $2.4 million, compared to $0.2 million in the three months ended March 31, 2025. Reorganization expenses for the three months ended March 31, 2026, primarily relate to termination benefit costs and consultant costs associated with our transformation plan, as described in Note 4 of our interim condensed consolidated financial statements, while the reorganization costs for the three months ended March 31, 2025 were largely made up of movement of inventory and equipment from the facility at Rock Hill, South Carolina (the “Rock Hill Facility”) for use at the Calgary facility.
Foreign exchange gain (loss)
Foreign exchange loss or gain increased from a loss of $0.1 million for the three months ended March 31, 2025 to a gain of $0.3 million for the same period of 2026. The increase is primarily related to the weakening of the Canadian dollar over the three months ended March 31, 2026.
Interest income
Interest income for the three months ended March 31, 2026 was $0.1 million compared to $0.3 million for the comparative period of 2025. The decreased interest income is due to declining prime rates on the Company’s lower cash equivalents during the three months ended March 31, 2026 compared to the same period of 2025.
Interest expense
Interest expense decreased by $0.1 million from $0.5 million in the quarter ended March 31, 2025 to $0.4 million for the three months ended March 31, 2026. This decrease is largely due to repayment of the 6% January Debentures on January 31, 2026. The BDC loan of C$10 million was advanced during February and March 2026 and bears an interest rate of 5.8% .
Income tax
Income tax expense for the three months ended March 31, 2026 increased to $0.1 million from $0.04 million in the three months ended March 31, 2025. The current tax expense represents the income tax provision after the utilization of non-capital loss carry forwards against current period taxable income. The provision for income taxes comprises U.S. and Canadian federal, state and provincial taxes based on pre-tax income. Despite positive indications of future profitability, including the strength of our pipeline, the Company has determined that it is unlikely that a deferred tax asset will be recognized. Given the history of losses, the Company plans to maintain a valuation allowance against the deferred tax asset. As at March 31, 2026, the Company had a valuation allowance of $31.2 million (December 31, 2025: $30.9 million) against deferred tax assets. The Company plans to continue to evaluate indicators on whether a valuation allowance continues to be needed. As at March 31, 2026, we had C$115.9 million of non-capital loss carry-forwards in Canada and $41.8 million of non-capital loss carry-forwards in the United States. These loss carry-forwards will begin to expire in 2037.
Net loss after tax
Net loss after tax was $3.3 million or $0.02 net loss per common share, basic and diluted, in the three months ended March 31, 2026, a decrease of $2.6 million from net loss after tax of $0.7 million or $0.00 net loss per common share, basic and diluted, for the three months ended March 31, 2025. The increase in net loss is primarily the result of a $2.2 million increase in reorganization expenses, a $1.5 million decrease in gross profit, and a $0.2 million decrease in interest income. The decreases were offset by a $0.8 million decrease in other operating expenses, and a $0.5 million increase in foreign exchange gains.
30
Adjusted Gross Profit and Adjusted Gross Profit Margin for the Three months ended March 31, 2026 and 2025
The following table presents a reconciliation for the three months ended March 31, 2026 and 2025 of Adjusted Gross Profit to our gross profit and Adjusted Gross Profit Margin to gross profit margin, which are the most directly comparable GAAP measures for the periods presented:
|
|
For the Three Months Ended March 31, |
|
|||||
|
|
2026 |
|
|
2025 |
|
||
|
|
($ in thousands) |
|
|||||
Gross profit |
|
|
13,001 |
|
|
|
14,542 |
|
Gross profit margin |
|
|
30.6 |
% |
|
|
35.2 |
% |
Add: Depreciation and amortization expense |
|
|
946 |
|
|
|
957 |
|
Adjusted Gross Profit |
|
|
13,947 |
|
|
|
15,499 |
|
Adjusted Gross Profit Margin |
|
|
32.9 |
% |
|
|
37.5 |
% |
For the quarter ended March 31, 2026, gross profit margin decreased to 30.6% compared to 35.2% for the same period of 2025. Adjusted Gross Profit Margin was 32.9% for the first quarter of 2026, down from 37.5% in the comparative period of 2025. The decrease in Adjusted Gross Profit Margin was primarily attributable to higher aluminum prices, lower margins on higher installation projects, and higher tariff costs. With respect to higher aluminum prices, we have put in place a 1% tariff surcharge on orders placed after March 18, 2026 to help mitigate the impact of rising aluminum prices.
EBITDA and Adjusted EBITDA for the Three months ended March 31, 2026 and 2025
The following table presents a reconciliation for the results for the three months ended March 31, 2026 and 2025 of EBITDA and Adjusted EBITDA to our net (loss) after tax, and of Adjusted EBITDA Margin to net (loss) margin, which are the most directly comparable GAAP measures for the periods presented:
|
|
For the Three Months Ended March 31, |
|
|||||
|
|
2026 |
|
|
2025 |
|
||
|
|
($ in thousands) |
|
|||||
Net loss after tax for the period |
|
|
(3,273 |
) |
|
|
(661 |
) |
Add back (deduct): |
|
|
|
|
|
|
||
Interest income |
|
|
(82 |
) |
|
|
(262 |
) |
Interest expense |
|
|
350 |
|
|
|
451 |
|
Income tax expense |
|
|
80 |
|
|
|
45 |
|
Depreciation and amortization |
|
|
1,427 |
|
|
|
1,480 |
|
EBITDA |
|
|
(1,498 |
) |
|
|
1,053 |
|
Stock-based compensation |
|
|
875 |
|
|
|
739 |
|
Reorganization expense(2) |
|
|
2,367 |
|
|
|
210 |
|
Foreign exchange (gain) loss |
|
|
(339 |
) |
|
|
112 |
|
Gain on extinguishment of convertible debentures(2) |
|
|
- |
|
|
|
(7 |
) |
Adjusted EBITDA |
|
|
1,405 |
|
|
|
2,107 |
|
Net Loss Margin(1) |
|
|
(7.7 |
)% |
|
|
(1.6 |
)% |
Adjusted EBITDA Margin |
|
|
3.3 |
% |
|
|
5.1 |
% |
(1) Net (loss) after tax divided by revenue.
(2) Reorganization expenses (refer to Note 4 of the interim condensed consolidated financial statements) and the gain on extinguishment of convertible debentures are not core to our business and are therefore excluded from the Adjusted EBITDA calculation.
For the three months ended March 31, 2026, Adjusted EBITDA decreased by $0.7 million to $1.4 million from $2.1 million and Adjusted EBITDA Margin decreased to 3.3% from 5.1% for the same period of 2025. This decrease is attributed to the $1.6 million decrease in Adjusted Gross Profit (explained above) offset by a decrease in operating expenses (excluding reorganization expense and stock-based compensation) of $0.9 million.
31
Liquidity and Capital Resources
As at March 31, 2026, the Company had $15.0 million of cash on hand and C$14.0 million ($10.1 million) of available borrowings, compared to $20.3 million of cash on hand and C$16.3 million ($11.8 million) of available borrowings as at December 31, 2025. Through the first three months of 2026, the Company used $5.3 million of cash primarily for the repayment of $12.1 million outstanding January Debentures, $0.7 million for capital expenditures, $0.4 million for tax payments on vesting restricted share units (“RSUs”), $0.1 million to repurchase common shares and debentures under the Renewed Shares NCIB and Renewed Debentures NCIB (as defined herein), offset by $6.9 million net proceeds received from the BDC loan and $1.2 million of net cash flows provided by operating activities.
We have assessed the Company’s liquidity as at March 31, 2026, taking into account our sales outlook for the next twelve months, our budget, forecast and expected cash outflows, 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. We note that the outstanding principal balance of the December Debentures (as defined herein) amounting to C$14.8 million ($10.6 million) as of March 31, 2026 are due on December 31, 2026 and have therefore been classified as current on our balance sheet. We are evaluating whether we will settle or refinance this debt.
On December 11, 2025, the Company entered into a letter agreement (the “Letter”) with BDC, pursuant to which BDC committed to lending the Company up to C$15.0 million (the “Loan”) subject to the satisfaction of certain conditions. The Letter was subsequently amended on January 30, 2026, February 9, 2026 and March 9, 2026. Following the satisfaction of the conditions precedent set forth in the Letter, the Company received an initial disbursement of C$5.5 million on February 13, 2026 and, following satisfaction of certain additional conditions, a secondary disbursement of C$4.5 million on March 11, 2026. Subject to certain conditions, it is expected that BDC will make a third disbursement of C$5.0 million in the second half of 2026.
On November 4, 2025, the Company entered into the Fifth Extended RBC Facility (as defined herein), which matures on November 30, 2026. The Fifth Extended RBC Facility is subject to the same borrowing base terms as the previous facility; with the borrowing base calculation based on accounts receivable balances to a maximum of C$25.0 million. 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.
On February 11, 2026 and in connection with the Loan, the Company entered into the Seventh Amended RBC Facility and the Priority Agreement (each as defined herein). The Seventh Amended RBC Facility matures on November 30, 2026 and is subject to the same borrowing base terms as the previous facility. The Seventh Amended RBC Facility allows the Company to incur indebtedness to BDC of C$15 million under the Loan and incorporates permitting specific encumbrances to BDC and the Priority Agreement. The Seventh Amended RBC Facility releases certain mortgage collateral held by RBC.
On March 11, 2026, the Company entered into the Waiver and Eighth Amendment to Loan Agreement (the “Eighth Amended RBC Facility”), which matures on November 30, 2026. The Eighth Amended RBC Facility is subject to the same borrowing base terms stated in the Seventh Amended RBC Facility. The Eighth Amended RBC Facility includes a customary “Restricted Payments” covenant that prohibits us from, among other things, repurchasing our common shares and paying dividends, unless we have satisfied certain conditions (the “Payment Conditions”). The Payment Conditions include conditions that, after giving effect to the relevant Restricted Payment, the Company has a net borrowing availability of at least C$5.0 million over the preceding 30-day period, and our fixed charge coverage ratio (“FCCR”) be at least 1.10 to 1.00 on a trailing 12-month basis. In February 2026, we and RBC determined that our purchases of our common shares under our NCIB in December 2025 did not comply with the Restricted Payments covenant because our FCCR was below 1.10 to 1.00. The Eighth Amended RBC Facility provided a waiver in connection with the foregoing.
32
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 (as defined herein) 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 that we will be able to do so, particularly in light of recent market conditions.
We note that as of the date of this report, the imposition of trade barriers, including tariffs, quotas, embargoes, safeguards, and customs restrictions between Canada and the U.S. as well as the current conflict in the Middle East, including Iran, 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.
Equity and Debt Issuances and Buyback Programs
During 2025, we continued to execute on various debt and share buyback programs. The Debenture Repurchase, Debentures NCIB, Renewed Debentures NCIB, Shares NCIB, Renewed Shares NCIB, and the Share Repurchase (each as defined herein) were initiated after careful consideration of cash flow, and the Company continues to evaluate uses of cash on hand. As discussed in the “Part II, Item 1A. Risk Factors” section and elsewhere of this Quarterly Report, proposed and implemented tariffs on Canadian exports into the U.S., and vice versa, may have a material impact on future cash flows and liquidity, which the Company will continue to monitor.
In January 2021, we issued the January Debentures for net proceeds after costs of C$37.6 million ($29.5 million). The January Debentures accrued interest at a rate of 6.00% per annum and were convertible into common shares of DIRTT at an exercise price of C$4.65 per common share, or if not converted would mature and be repayable on January 31, 2026. The Company repaid the outstanding principal and interest on the January Debentures on January 31, 2026.
On December 1, 2021, we issued C$35.0 million of convertible unsecured subordinated debentures (the “December Debentures”, and collectively with the January Debentures, the “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. Interest and principal are payable in cash or shares at the option of the Company.
On August 28, 2024, the Company commenced the Debentures normal course issuer bid (the “Debentures NCIB”) which expired on August 27, 2025. Under the Debentures NCIB, DIRTT was 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. For the three months ended March 31, 2025, C$0.03 million ($0.02 million) and C$0.1 million ($0.1 million) principal amounts of the December Debentures and January Debentures, respectively, had been acquired through the Debentures NCIB. On August 26, 2025, the Company announced the renewal of the Debentures NCIB which commenced August 28, 2025 and is expected to terminate on August 27, 2026 for the December Debentures and terminated on January 31, 2026 for the January Debentures, concurrent with the maturity date of the January Debentures (the “Renewed Debentures NCIB”). Under the Renewed Debentures NCIB, DIRTT was permitted to acquire up to C$1,656,900 principal amount of the January Debentures and is permitted to acquire C$1,493,500 principal amount of the December Debentures. For the three months ended March 31, 2026, C$0.03 million ($0.02 million) principal amounts of the December Debentures and $nil principal amounts of the January Debentures had been acquired through the Renewed Debentures NCIB. As at March 31, 2026, C$14.8 million ($10.6 million) principal amount of the December Debentures are outstanding.
On December 20, 2024, the Company commenced a normal course issuer bid for common shares (the “Shares NCIB”) which terminated on December 19, 2025. Under the Shares NCIB, DIRTT was 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 were immediately cancelled. On December 18, 2025, the Company announced the renewal of the Shares NCIB which commenced December 19, 2025,
33
and is expected to terminate on December 21, 2026 (the “Renewed Shares NCIB”). Under the Renewed Shares NCIB, DIRTT is permitted to acquire up to 9,593,878 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.
On February 13, 2025, the Company entered a share repurchase agreement with NGEN III, LP (“NGEN”) to purchase for cancellation 3,920,844 common shares held by NGEN (the “NGEN Shares”) at a purchase price of $0.80 per NGEN Share (the “Share Repurchase”). Following the Share Repurchase, there were 189,643,903 common shares outstanding. The NGEN Shares repurchased under the Share Repurchase were counted against the maximum number of shares that may be repurchased pursuant to the Shares NCIB being 7,515,233 shares. As at March 31, 2026, 6,047,480 common shares had been repurchased and cancelled for proceeds of C$6.5 million ($4.6 million) through the Shares NCIB, Renewed Shares NCIB, and the Share Repurchase.
As explained above, initiating the debt and share buybacks was done after careful consideration of cash flow and with consideration to the risk of proposed and implemented tariffs.
Facilities
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”), as disclosed in our Annual Report on Form 10-K. The Company has extended the RBC Facility a number of times since 2023, including on November 4, 2025 (the “Fifth Extended RBC Facility”). The Fifth Extended RBC Facility expires November 30, 2026 and is subject to the same borrowing base terms as the previous facility, with the borrowing base calculation based on accounts receivable balances to a maximum of C$25.0 million. 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. At March 31, 2026, available borrowings were C$14.0 million ($10.1 million) (December 31, 2025 – C$16.3 million ($11.8 million) of available borrowings), calculated in the same manner as the RBC Facility described above, of which no amounts have been drawn.
On February 11, 2026 and in connection with the Loan, the Company amended the Fifth Extended RBC Facility (the “Seventh Amended RBC Facility”) and entered into a priority agreement with RBC and BDC (the “Priority Agreement”). The Seventh Amended RBC Facility matures on November 30, 2026 and is subject to the same borrowing base terms as the previous facility. The Seventh Amended RBC Facility allows the Company to incur indebtedness to BDC of C$15 million under the Loan and incorporates permitting specific encumbrances to BDC and the Priority Agreement. The Seventh Amended RBC Facility also releases certain mortgage collateral held by RBC.
On March 11, 2026, the Company entered into the Waiver and Eighth Amendment to Loan Agreement (the “Eighth Amended RBC Facility”), which matures on November 30, 2026. The Eighth Amended RBC Facility is subject to the same borrowing base terms stated in the Seventh Amended RBC Facility. The Eighth Amended RBC Facility includes a customary “Restricted Payments” covenant that prohibits us from, among other things, repurchasing our common shares and paying dividends, unless we have satisfied certain conditions (the “Payment Conditions”). The Payment Conditions include conditions that, after giving effect to the relevant Restricted Payment, the Company has a net borrowing availability of at least C$5.0 million over the preceding 30-day period, and our FCCR be at least 1.10 to 1.00 on a trailing 12-month basis. In February 2026, we and RBC determined that our purchases of our common shares under our NCIB in December 2025 did not comply with the Restricted Payments covenant because our FCCR was below 1.10 to 1.00. The Eighth Amended RBC Facility provided a waiver in connection with the foregoing.
The Company has a C$5.0 million equipment leasing facility in Canada (the “Canada Leasing Facility”) of which, as of March 31, 2026, C$4.4 million ($3.2 million) has been drawn and C$4.0 million ($3.0 million) has been repaid. The Canada Leasing Facility has a seven-year term and bears interest at 4.25%. The Company did not make any draws on the Canada Leasing Facility during the quarters ended March 31, 2026 and 2025.
The Eighth Amended RBC Facility is currently secured by substantially all of our real and personal property located in Canada and the United States. The Seventh Amended RBC Facility released certain mortgage collateral held by RBC.
34
Analysis of Cash Flow Changes During the Three Months Ended March 31, 2026 and 2025
The following table summarizes our consolidated cash flows for the periods indicated:
|
|
|
|
For the Three Months Ended March 31, |
|
|||||
|
|
|
|
2026 |
|
|
2025 |
|
||
|
|
|
|
($ in thousands) |
|
|||||
Net cash flows provided by operating activities |
|
|
|
|
1,207 |
|
|
|
3,684 |
|
Net cash flows (used in) investing activities |
|
|
|
|
(731 |
) |
|
|
(729 |
) |
Net cash flows (used in) financing activities |
|
|
|
|
(5,696 |
) |
|
|
(3,609 |
) |
Effect of foreign exchange on cash, cash equivalents and restricted cash |
|
|
|
|
(107 |
) |
|
|
(191 |
) |
Net decrease in cash, cash equivalents and restricted cash |
|
|
|
|
(5,327 |
) |
|
|
(845 |
) |
Cash, cash equivalents and restricted cash, beginning of period |
|
|
|
|
20,575 |
|
|
|
29,531 |
|
Cash, cash equivalents and restricted cash, end of period |
|
|
|
|
15,248 |
|
|
|
28,686 |
|
Operating Activities
For the three months ended March 31, 2026, net cash flows provided by operating activities were $1.2 million compared to $3.7 million in the same period of 2025. The decrease in cash flows provided by operations in the first quarter of 2026 is largely due to the $2.2 million increase in reorganization costs.
Investing Activities
We invested $0.7 million in capital expenditures for the three months ended March 31, 2026, compared to $0.8 million for the three months ended March 31, 2025. The capital expenditures in the three months ended March 31, 2026 and the three months ended March 31, 2025 primarily consisted of $0.3 million and $0.5 million on capitalized software, $0.2 million and $0.1 million on manufacturing upgrades, $0.1 million and $0.1 million on leasehold improvements, respectively.
Financing Activities
We used $5.7 million of cash in financing activities for the three months ended March 31, 2026 compared to $3.6 million used in the three months ended March 31, 2025. Net cash flows used in financing activities for the first quarter of 2026 was driven by the full repayment of the outstanding January Debenture of $12.1 million, $0.4 million for tax payments on vesting RSUs, $0.1 million to repurchase common shares and debentures under the Renewed Shares NCIB and Renewed Debentures NCIB, offset by $6.9 million net proceeds received from the BDC loan. Cash used in the three months ended March 31, 2025 was mainly driven by the $3.5 million spent in common share repurchases through the Shares NCIB and the Share Repurchase.
Contractual Obligations
In addition to the contractual obligations disclosed in the “Management’s Discussion and Analysis of Financial Condition and results of Operations - Contractual Obligations” in our Annual Report on Form 10-K, we received gross proceeds of C$10.0 million ($7.2 million) from BDC. .Monthly principal repayments of the Loan commence in May 2026 and additional monthly interest payments are due on the last day of each month, beginning on March 31, 2026. The Loan matures on April 30, 2032. Refer to Note 7 in our condensed consolidated interim financial statements.
Critical Accounting Policies and Estimates
There have been no material changes in our critical accounting policies during the three months ended March 31, 2026, as compared to those disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K. For information regarding critical accounting policies and estimates, please refer to Item 7 and Item 8 in our Annual Report on Form 10-K. As disclosed in Note 3, “Adoption of New and Revised Accounting Standards” to our interim condensed consolidated financial statements appearing in this Quarterly Report, we have adopted Accounting Standards Update No. 2024-04, “Induced Conversions of Convertible Debt Instruments” (“ASU-2024-04”) which requires discussing an entity’s assessment of induced conversion and debt extinguishment of convertible debt instruments. The Company
35
has adopted this standard and expects minimal impact, as the Company has no existing convertible debt instruments to which this update applies. The Company has also adopted Accounting Standards Update No. 2025-05, “Financial Instruments - Credit Losses” (the “ASU-2025-05”) which requires additional consideration when estimating the expected credit losses for current accounts receivable and current contract assets arising from transactions accounted for under Topic 606. The Company expects minimal impact to the financial statements and disclosures.
Recent Accounting Pronouncements
For information regarding recent accounting pronouncements, please refer to Note 3, “Adoption of New and Revised Accounting Standards,” to our condensed consolidated interim financial statements and “–Significant Accounting Policies and Estimates” appearing in this Quarterly Report.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes to our market risk exposures since our disclosures in our Annual Report on Form 10-K. For information regarding our exposure to certain market risks, please refer to Item 7A. “Quantitative and Qualitative Disclosures about Market Risk” in our Annual Report on Form 10-K. The Company’s cash and cash equivalents are predominantly all with one AA rated financial institution.
Item 4. 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 Securities Exchange Act of 1934, as amended (the “Exchange Act”) is accumulated and communicated to management, including our principal executive officers 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 officers and principal financial officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2026. Based upon their evaluation, our principal executive officers 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.
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) under the Exchange Act) during the quarter ended March 31, 2026, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
36
PART II – OTHER INFORMATION
Item 1. 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, 2025 (our “2025 Form 10-K”), 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, ruling that it would not hear DIRTT’s claim in Utah because Canada was more appropriate, and because 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. On March 4, 2025, DIRTT filed a motion for reconsideration pursuant to Federal Rules of Civil Procedure, Rule 60(b). The reconsideration requests relief from the Utah Court’s February 5, 2025, Memorandum Decision and Order granting the Defendant’s motion to dismiss for forum non conveniens. On March 19, 2026, the Utah Court denied the Plaintiff’s motion for relief. DIRTT filed a notice of appeal from the February 5, 2025 and March 19, 2026 rulings. The Court has not set a final briefing schedule.
In November 2024, the Alberta Court of King’s Bench scheduled a 10-week trial commencing February 2, 2026 through April 10, 2026, with additional dates reserved in July 2026, for DIRTT’s action against Falkbuilt, Messrs. Smed and Loberg and several other former DIRTT employees alleging breaches of restrictive covenants, fiduciary duties, employment duties and confidentiality. 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 Court of King’s Bench will determine whether Falkbuilt, Messrs. Smed and Loberg and others wrongfully caused DIRTT to suffer damages, which could exceed $50,000,000.
Item 1A. Risk Factors
In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors and other cautionary statements described under the heading “Risk Factors” included in our 2025 Form 10-K, which could materially affect our businesses, financial condition, or results of operations. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
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(1)(2) |
|
|
Maximum number of shares that may yet be purchased under the program(1)(2) |
|
||||
January 1, 2026 - January 31, 2026 |
|
|
116,253 |
|
|
$ |
0.64 |
|
|
|
116,253 |
|
|
|
9,477,625 |
|
February 1, 2026 - February 28, 2026 |
|
|
53,085 |
|
|
$ |
0.65 |
|
|
|
53,085 |
|
|
|
9,424,540 |
|
March 1, 2026 - March 31, 2026 |
|
|
38,668 |
|
|
$ |
0.69 |
|
|
|
38,668 |
|
|
|
9,385,872 |
|
Total |
|
|
208,006 |
|
|
|
|
|
|
208,006 |
|
|
|
9,385,872 |
|
|
(1) The Renewed Shares NCIB was announced on December 18, 2025, commenced on December 22, 2025 and will terminate on December 21, 2026,
(2) The maximum number of common shares approved to be purchased under the Renewed Shares NCIB is 9,593,878, of which 9,385,872 remain
37
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
38
Item 6. Exhibits
EXHIBIT INDEX
Exhibit No. |
|
Description |
|
|
|
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 |
|
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). |
4.2 |
|
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). |
4.3 |
|
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). |
10.1* |
|
Waiver and Eighth Amendment to Loan Agreement, dated March 11, 2026, by and among DIRTT Environmental Solutions Ltd., DIRTT Environmental Solutions, Inc. and Royal Bank of Canada. |
10.2* |
|
Amendment of Letter of Offer for BDC Loan, dated March 9, 2026, by and among DIRTT Environmental Solutions Ltd., DIRT Environmental Solutions, Inc. and Business development Bank of Canada. |
10.3 |
|
Support Agreement, dated February 13, 2026, among the Company, 22NW Fund, LP, 726 BF LLC, and 726 BC LLC (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on February 17, 2026). |
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 |
104* |
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* |
|
Filed herewith |
** |
|
Furnished herewith |
39
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
DIRTT ENVIRONMENTAL SOLUTIONS LTD. |
||
|
|
|
|
|
By: |
|
/s/ Fareeha Khan |
|
|
|
Fareeha Khan |
|
|
|
Chief Financial Officer (Duly Authorized Officer, Principal Financial Officer and Principal Accounting Officer) |
|
|
|
|
Date: May 6, 2026 |
|
|
|
40