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Edited Transcript of DRT.TO earnings conference call or presentation 26-Feb-20 3:00pm GMT

Q4 2019 DIRTT Environmental Solutions Ltd Earnings Call

CALGARY Mar 11, 2020 (Thomson StreetEvents) -- Edited Transcript of DIRTT Environmental Solutions Ltd earnings conference call or presentation Wednesday, February 26, 2020 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Geoffrey D. Krause

DIRTT Environmental Solutions Ltd. - CFO

* Kevin P. O'Meara

DIRTT Environmental Solutions Ltd. - President, CEO & Director

* Kim MacEachern

DIRTT Environmental Solutions Ltd. - Director of IR

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Conference Call Participants

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* Gregory William Palm

Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst

* Hassaan Khan

National Bank Financial, Inc., Research Division - Associate

* Joshua Kenneth Wilson

Raymond James & Associates, Inc., Research Division - Senior Research Associate

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Presentation

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Operator [1]

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Good morning. My name is Kernisia, and I will be your conference operator today. At this time, I would like to welcome everyone to the DIRTT's 2019 Q4 and Year-End Financial Results Conference Call. (Operator Instructions)

I will now like to turn the conference over to Ms. MacEachern. Ma'am, you may begin.

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Kim MacEachern, DIRTT Environmental Solutions Ltd. - Director of IR [2]

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Thank you, operator. Good morning, everyone, and welcome today's call to discuss DIRTT's Fourth Quarter and Full-Year 2019 Results. Joining me on the call are DIRTT's Chief Executive Officer, Kevin O'Meara; and Chief Financial Officer, Geoff Krause.

Management's prepared remarks today are accompanied by presentation slides. To access the slides, please view them from the web page of this webcast or go to the Investors section of DIRTT's website. The earnings press release that was issued yesterday afternoon can also be found on our website. We will begin with opening remarks from Kevin on Slide 4, followed by Geoff providing a review of our results and our current outlook.

We will then move to the Q&A portion of the call.

Today's call will include forward-looking statements. These statements are based on the company's current intent, expectations and projections, they are not guarantees of future performance. A variety of factors could cause actual results to differ materially, including factors discussed during this call and in the Risk Factors section of our Form 10-K as filed on February 25, 2020, with the Securities and Exchange Commission, or SEC, and other reports and filings with the SEC.

In addition, as this call will include references to non-GAAP results, excluding special items, please reference the company's management discussion and analysis available in the Investors section of dirtt.com, or on www.sedar.com, or www.edgar.com for further information regarding forward-looking statements and reconciliations of non-GAAP results to GAAP results. I will also remind you that this webcast is being recorded, and a replay will be available today at approximately 1:00 p.m. Eastern Time.

I will now turn the call over to Kevin.

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Kevin P. O'Meara, DIRTT Environmental Solutions Ltd. - President, CEO & Director [3]

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Thank you, Kim, and thank you to everyone joining us today to review the results of our fourth quarter and full year 2019. 2019 was an impactful year for DIRTT. We made progress in our transformation of the company from a founder-led start-up into a professionally managed operating company.

However, the year wasn't without challenges. Revenue for the fourth quarter was within the expected range we discussed in our last call, coming in at $53.2 million, representing a 19% decline from the third quarter of 2019. These numbers reflect the disruption in sales activity that we experienced throughout 2019 and spoke to throughout the year. Disruption was particularly evident with respect to the number of large projects we executed in 2019, which was considerably lower than in 2018. One goal of our strategic plan is to build a sustainable pipeline of large projects through both strategic accounts and large project teams.

These projects are often characterized by longer sales cycles, meaning it's too early in the implementation of our plan to have realized tangible results. To be clear, our plan is designed to drive sustainable and profitable growth irrespective of project size. Our distribution partners have responded positively to our strategic plan and its ability to help them grow their sales. This is demonstrated by 7 of our existing distribution partners seeking to expand geographically and provide representation in underserved markets, 2 of these partners are now representing DIRTT in New York City. The 7 existing partners delivered over 14% of our revenue last year.

Within our national accounts group, we are in active discussions on 4 new agreements, the expansion of 2 existing accounts and have several other relationships in development. National accounts represent a meaningful opportunity as they allow us to deliver multiple projects over time with a single client, who understand and has embraced our value proposition. This builds client loyalty, improves our customer service and reduces our sales and execution costs. Based on our current pipeline, we expect several small projects with national accounts to commence in late 2020.

We are actively recruiting for the sales positions we identify as necessary to build our organization and have filled key roles, including a Vice President of Strategic Marketing, who would be critical to creating a marketing capability that has never existed at DIRTT, and a Vice President of Commercial Operations, who will significantly enhance our sales analysis and forecasting. Although identifying and recruiting the right mix of experience and talent is a time-consuming process, we are on track to have all open positions filled by the end of 2020.

Turning to our manufacturing operations. Safety remains a primary focus. We are very pleased that we achieved a 50% reduction in safety-related recordable incidents at the end of the year compared to 2018. Last month, we had a recordable injury-free month. We believe our goal of having injury rates below BLS standard is achievable in 2020.

We're seeing progress in both our manufacturing quality and delivery objectives, a key contributor to achieving sales excellence with our partners and clients. We also achieved our goal of commissioning a new manufacturing line which enables us to bring in-house a planning function that addresses the tile warping issue that occurred in 2018 and in 2019.

We remain on schedule and on budget with respect to our new tile and millwork facility in South Carolina. As a reminder, in addition to eliminating single-plant reliance risk, its state-of-the-art technology will improve material yield and labor efficiency. We made some purposeful decisions regarding our manufacturing labor force in the fourth quarter and into the new year. To address excess labor capacity in our factories, we implemented both planned shutdowns of our production facilities during slower periods and a 14% head count reduction of factory employees.

We believe the productivity and efficiency improvements outlined in our strategic plan will enable us to return to higher revenue levels without reinstating head count. Innovation remains at the core of our strategy and we continue to invest accordingly. We are working to bring our newest innovations, the Inspire low profile and Reflect ultra-sleek glass wall systems into our proprietary ICE software system in the second and third quarter of 2020.

This simplifies the design and specification for the sales function, streamlines interaction with the factory and it speeds up the delivery of these products. We are experiencing strong reception from partners and clients for these new products and are currently quoting a number of projects.

With that, I will turn the call over to Geoff for a financial review.

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Geoffrey D. Krause, DIRTT Environmental Solutions Ltd. - CFO [4]

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Thank you, Kevin. Starting on Slide 5. Revenue for the fourth quarter declined to $53.2 million compared to $74.4 million last year. Our fourth quarter revenue was within, albeit at the low end of our guidance range. For the full year 2019, revenue was $247.7 million, a decline of 10% from $274.7 million in 2018. As Kevin discussed, we have been experiencing a prolonged disruption to our sales pipeline, particularly with respect to larger projects. We have seen a similar percentage decrease in the first 2 months of 2020 compared to the first 2 months of the fourth quarter, indicating a slow start to the year.

To provide a little more color, we know the primary contributor to the decrease in revenue Q3 to Q4 and year-over-year are due to a decrease in revenue from those large projects. Moreover, we have not seen any such projects in the first 2 months of 2020. We have some visibility into larger projects in our pipeline, the timing and amounts, however, are very difficult to predict. While we work through the transformation of our commercial organization and with the support and expansion of our partner network, we are rebuilding our pipeline with associated revenues expected to be realized in the second half of 2020 at the earliest or into 2021.

Turning to Slide 6. Adjusted gross profit margin for the quarter was 33.4% in the fourth quarter, down from 40.2% in the prior year. The decline in revenue during the fourth quarter resulted in a negative leverage on fixed costs, which accounted for most of the decline. As a reminder, historically, indirect cost comprise approximately 22% of adjusted cost of goods sold. You can find a detailed description of the components of adjusted cost of goods sold on Slide 90 of our Analyst Day presentation in the Investor Relations section of our website.

Additionally, we recorded a $2.5 million provision in the fourth quarter which pertains to certain timber projects installed between 2016 and the third quarter of 2019. By way of background, we recently determined that certain spruce glulam timbers that were recommended in the design of 44 projects met Class B rather than Class A flame spread specification. The financial value of projects impacted is $1.7 million. We have reserved a liability of $2.5 million in the event that removal and replacement of the timber is required.

At the same time, we are investigating less costly solutions and potential recovery from third parties and our insurers. Excluded from adjusted gross profit calculations in the fourth quarter of 2019 are $2.2 million of overhead and labor costs associated with operating at abnormally low capacity levels. These costs were charged directly to cost of sales rather than as a cost attributable to production. This reflects abnormal excess capacity that we experienced in the quarter and includes the cost of plant head count. Since December and into the first quarter, we have taken steps to reduce this head count. We are continuing to actively manage our plants during what we consider to be a temporary slow period, including the utilization of furloughs where necessary.

For the full year, adjusted gross profit margin was 39.5% compared to 42.4% in the prior year. This decrease was driven primarily from negative leverage on fixed costs due to lower revenue, the timber provision and $2.5 million of costs incurred earlier this year to eliminate further warping of our tiles, which we've discussed in previous quarters.

Slide 7 details the breakdown of operating expenses. As you can see, sales and marketing expenses decreased to $8 million for the fourth quarter of 2019 from $10.5 million in the prior year.

In the full year, they declined to $33.9 million from $40.6 million. Included in expenses for the full year were $2 million of onetime consulting costs related to the sales and marketing plan, offset by a $3.4 million reduction in commission expense on lower revenue, a $2.6 million reduction in nonsales generating travel, meals and entertainment and lower salary and benefit expenses due to reductions in sales and marketing head count year-over-year.

As Kevin noted, we are an active recruitment mode to build out our sales and marketing organization in accordance with our strategic plan. General and administrative expenses decreased to $6.6 million for the fourth quarter of 2019 from $7.1 million in the prior year period. For the full year, they decreased to $27.6 million from $28.7 million.

In 2019, personnel costs were lower as a result of reductions in head count and variable compensation, offset by $1.3 million in costs associated with ongoing litigation and onetime costs, including $2.6 million related to listing our common shares on the NASDAQ. This compares to $2.1 million of onetime costs in 2018 related to proxy and activist defense as special committee work for the Board of Directors.

Operation support expenses increased to $3.3 million for the fourth quarter of 2019 from $2.1 million in the prior year period. For the full year, they increased to $11 million from $8.1 million. The annual increase is attributable to cost -- consultant costs of $1.1 million incurred to assist with the evaluation of current operations and with the rectification of the tile warping issue.

In addition, we saw increased personnel costs due to higher head count to better support both project execution and our distribution partners.

Technology and development expenses increased to $1.9 million for the fourth quarter of 2019 from $1.1 million in the prior year period. For the full year, they totaled $7.8 million compared to $4.2 million for 2018. This is primarily attributable to a decrease in capitalized salaries as a mix of projects we undertook included a higher proportion of efforts related to business process improvements that are not eligible for capitalization. We anticipate this trend to continue into 2020.

Looking at Slide 8 and 9, I would like to start by clarifying a revision we have made to the calculation of adjusted EBITDA. For the fourth quarter and full year 2019, we removed the impact of all foreign exchange gains and losses from adjusted EBITDA. Previously, we adjusted only for noncash foreign exchange gains or losses on debt revaluation. Foreign exchange gains and losses can vary significantly period-on-period due to the impact of changes in the U.S. and Canadian dollar exchange rates on foreign currency denominated monetary balance sheet items. These are not reflective of the company's underlying operations. Accordingly, we believe that excluding all such foreign exchange gains and losses from adjusted EBITDA provides a metric more reflective of our operations. We have presented a reconciliation to our prior calculation of adjusted EBITDA in the slides. The change in the calculation of adjusted EBITDA benefited 2019 with the add back of $1.5 million in net losses -- foreign exchange losses. 2018 adjusted EBITDA was reduced by the exclusion of $3.8 million of foreign exchange gains.

For the quarter, adjusted EBITDA and adjusted EBITDA margin decreased to negative $3.4 million or a negative 6.4% compared to $10.2 million or 13.7% in the 2018 period. For the full year, adjusted EBITDA and adjusted EBITDA margin decreased to $18.2 million and 7.4%, respectively, from $39.1 million and 14.2% in the full year 2018. This reflects an $18.6 million decrease in adjusted gross profit, the $2.2 million of cost of underutilized capacity and the impact of onetime costs, partially offset by ongoing cost control.

Turning to Slides 10 and 11. Net loss for the quarter of 2019 was $7.5 million or $0.09 a share compared to net income in the prior year period of $3.1 million or $0.04 a share. For the full year, net loss was $4.4 million or $0.05 per share versus net income of $5.6 million or $0.07 a share for 2018. The decline for the full year was primarily the result of $20.6 million decrease in gross margin, $5.7 million of onetime costs, $1.3 million of litigation costs and a $4.5 million increase in foreign exchange loss. These cost increases were offset by a $3.6 million reduction in commission expense, a $2.8 million reduction in reorganization expenditures and $8.7 million impairment in 2018 with no impairments in 2019, a $2.3 million reduction in income tax expense and other operating cost reductions.

Turning to the balance sheet. During 2019, we made substantial progress in our working capital management, finishing the year with net working capital of $58.6 million compared to $69.8 million at December 31, 2018. This included cash balances of $47.2 million with no debt compared to cash net of debt at December 31, 2018, of $47.8 million, right where we thought we would be. We will continue this focus in 2020 as we execute on our strategic plan. Our days sales outstanding was 31 days at the end of 2019, a decrease from 48 days at the end of 2018.

From a capital expenditure perspective, approximately $4.5 million of equipment deposits were paid in 2019 for our Carolina tile and millwork facility. This facility eliminates single plant reliance risk and is designed to improve material yield with significantly improved labor efficiency. Construction of the building shell by the developer is underway and key components of the manufacturing equipments are expected to be delivered to site in the third quarter of 2020, with related 2020 spend of approximately $7.5 million. The $6.5 million balance of the facility's $18.5 million expected cost relates primarily to commissioning and other activities. We are on track for the commencement of commercial operations in the first quarter of 2021, but we have the flexibility to defer the $6.5 million of expenditures and delay the commissioning date based on business activity levels. Excluding this new facility, our ongoing capital expenditures for 2020 are anticipated to be between $12 million and $15 million, directed towards our DXC refresh, our CRM implementation, software development activities as well as ongoing sustaining activities in our plants and offices.

In summary, we have demonstrated strong cost control and cash management, despite the decline in revenue. We have processes, checks and controls in place as we manage our way through this lower sales period, ensuring we remain financially sound.

As we begin to see the benefits of the strategic plan show up in our revenue, this discipline will serve us well from a profitability perspective, driving out the margins we are targeting in 2023 and driving superior shareholder value.

With that said, we will now open up the line for questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question is from Greg Palm with Craig-Hallum Capital.

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Gregory William Palm, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [2]

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I guess, just starting with the strategic plan. It's been, I think, over 3 months now since you introduced that. So I guess, in your opinion, what's gone right since that time period and maybe vice-versa, what sort of things are you encountering that maybe are more challenging compared to your initial expectations?

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Kevin P. O'Meara, DIRTT Environmental Solutions Ltd. - President, CEO & Director [3]

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We're pretty much on track with executing the strategic plan and enough time has not passed for there to be any major dislocations. Pleased with the 2 really critical hires that we outlined during the prepared remarks, the -- which evolved. It's a little bit different as we've highlighted is just the pipeline of large projects. And as we've discussed on earlier calls, we are doing a tremendous amount of work to understand the pipeline, the forecasting, magnitude and so forth. And so that continues to be refined and our Vice President of Commercial Operations is spending every waking hour on that. And then also, as we're experiencing the sales cycle is probably a little bit longer than we would have fully realized.

It tended to fall towards the year sales cycle because that's a round number. In reality, those take a little bit longer. So I think the strategic plan is playing out pretty much as we would have expected. The pipeline underlying the business in terms of the large projects going back several years and predating us is less than I would have thought initially.

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Gregory William Palm, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [4]

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Okay. I mean, knowing that it's going to take some time, at least another couple of quarters before we actually see this hit the P&L in terms of benefits. I mean, internally, what are some of the key metrics that you're following? Something that we should be tracking just to track overall progress on what's going on.

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Kevin P. O'Meara, DIRTT Environmental Solutions Ltd. - President, CEO & Director [5]

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Well, there's only 2 questions. The question is what are we tracking? And then what should you be tracking? We look at orders every day. And so we're keeping an eye on our daily order, volume. We look as we're evolving our client experience with a number of client visits, how that's comparing to the past, and those sorts of activity-based metrics where we're finding our measurements of the fund, and where we're finding win rates and that kind of thing. I think from your perspective, ultimately, it's year-over-year sales growth. It's consecutive sales growth. And it's also, as the year progresses, what we're able to share in a qualitative sense going forward.

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Gregory William Palm, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [6]

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Okay, makes sense. And I guess, last one. So revenue was down 30% in Q4. It obviously sounds like it's going to be down a significant percent year-over-year in Q1. The end markets are clearly not shrinking by that magnitude. So I guess, if you're losing business, do you know where it's going at this point? Is it other competitors in the prefab space? Is there more of a shift back to conventional? I mean, where are these large projects that are still going on in the industry, where are they going?

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Geoffrey D. Krause, DIRTT Environmental Solutions Ltd. - CFO [7]

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Okay. So I want to address the first part of your question and then the second part of your question. The first part of your question, you have to realize that the comp in the fourth quarter of last year was the biggest record that the company ever produced based on 1 project in particular.

As it relates to where these things going. One of the interesting aspects of DIRTT is we don't spend a lot of time thinking about the direction of the conventional of the commercial construction market. We don't look at what's changing and what are people forecasting and things like that, it's completely irrelevant. What we look at is our market segmentation. And within that, where do we have the highest likelihood of success, which is what our marketing plan is all about. And so we're decoupled from that. But the answer to your second question is, is that it's just -- it's building conventionally. It's projects that were not sold a year to 2 years ago and hence forth are being built conventionally.

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Operator [8]

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Our next question is from Hassaan Khan with National Bank Financial.

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Hassaan Khan, National Bank Financial, Inc., Research Division - Associate [9]

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I'm calling on behalf of Rupert. Can we get some color on margin expectations? I know it's a bit early, but margin expectations for Q1, are they going to be the same relative to last time this year?

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Geoffrey D. Krause, DIRTT Environmental Solutions Ltd. - CFO [10]

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Sorry, I missed the last part of your question.

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Hassaan Khan, National Bank Financial, Inc., Research Division - Associate [11]

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Just like margin expectations for Q1. And if they're going to be similar to Q1 '18.

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Geoffrey D. Krause, DIRTT Environmental Solutions Ltd. - CFO [12]

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So we won't specifically give guidance numbers on that. With the lower revenue certainly, that will have an impact on our -- the fixed cost within our facilities and the leverage that we see on that, which will impact our gross margin. We have taken steps in the December and into January to reduce overall plant head count. And we've dropped that head count down to -- but down by 14%, which brings us back down to 2017 levels. We are in the midst of hiring within our sales and marketing organization. But the rest of the organization, keeping reasonably flat relative to the Q4 levels. So that's how we're thinking about that.

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Hassaan Khan, National Bank Financial, Inc., Research Division - Associate [13]

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Great. Just one more. In terms of the drop in sales, could you give us more color on -- was it primarily related to larger weakness, regional market segment or partner distribution -- distribution partner related, where did you see...

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Geoffrey D. Krause, DIRTT Environmental Solutions Ltd. - CFO [14]

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If you're looking at it year-over-year, the single biggest driver of the decline is a single project in health care that was executed in the fourth quarter of last year that was not replaced in the fourth quarter -- fourth quarter of '18 that was not replaced in the fourth quarter of '19.

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Hassaan Khan, National Bank Financial, Inc., Research Division - Associate [15]

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I'm just talking about a normalized level, if you take that project out.

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Geoffrey D. Krause, DIRTT Environmental Solutions Ltd. - CFO [16]

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Sorry, I missed the question.

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Kevin P. O'Meara, DIRTT Environmental Solutions Ltd. - President, CEO & Director [17]

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If you take the project out, do you want to stick to the...

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Geoffrey D. Krause, DIRTT Environmental Solutions Ltd. - CFO [18]

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Sorry, if you take the project out, as we talked about in our MD&A and in our prepared remarks, our larger projects, which we've defined as $2 million, we've seen a drop in those. We see our base develop business below that staying solid. The large projects by their nature are lumpy and occur across the various regions. So there's really not a single area to look at. The one thing I would highlight is the reduction in the percentage of health care year-over-year is driven almost entirely from that single project. So it has increased from 2017 levels, but we do see the impacts of that.

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Operator [19]

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(Operator Instructions) Your next question is from Josh Wilson with Raymond James.

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Joshua Kenneth Wilson, Raymond James & Associates, Inc., Research Division - Senior Research Associate [20]

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Drilling down to, again, on the sales outlook for the 1Q decline. Any particular end markets to call out there? And can you give us a sense of what the large project representation was in 1Q and 2Q '19 as we try and figure out what's at risk in the coming quarters?

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Geoffrey D. Krause, DIRTT Environmental Solutions Ltd. - CFO [21]

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So the larger projects in -- I'll start with your second question first. The larger projects in kind of Q1, Q2 of '19, were about 1/3 of the overall revenues of that period. So by not having that, obviously, in the first 2 months of 2020. Obviously, that contributes significant portion to the decrease.

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Joshua Kenneth Wilson, Raymond James & Associates, Inc., Research Division - Senior Research Associate [22]

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In terms of end markets, is that still mostly health care?

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Geoffrey D. Krause, DIRTT Environmental Solutions Ltd. - CFO [23]

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No, in the end markets, we're seeing -- I think it's broadly distributed. We're seeing good opportunities in our health care and our commercial side. So I wouldn't pin it on any single market or any single region.

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Joshua Kenneth Wilson, Raymond James & Associates, Inc., Research Division - Senior Research Associate [24]

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Okay. And then regarding the head count reduction that you did in December. Can you quantify what the savings from that might be?

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Geoffrey D. Krause, DIRTT Environmental Solutions Ltd. - CFO [25]

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So it was in total, including temporary staff, just over -- it was between December and January, so it wasn't just all in December. 14% of the staff is about just over 100 people, so if you take an average salary times that you kind of get to your number.

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Joshua Kenneth Wilson, Raymond James & Associates, Inc., Research Division - Senior Research Associate [26]

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Got it. And can you give us an update on what your goals are for working capital at the end of 2020 as it relates to inventory days and day sales?

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Geoffrey D. Krause, DIRTT Environmental Solutions Ltd. - CFO [27]

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Days sales, we want to keep around with 31 days, 20 to 31 days is really what we're looking at now.

If we have some major projects where we need to give a bit on the days sales, we may do that.

On the inventory, we're looking at inventory turns of about 8.8x. I'd like to see some improvement off of that, but we've been fairly consistent on that.

I think we'll get more bang for our buck, actually on the strategic sourcing side of the equation -- on the strategic sourcing side of the equation, which will probably show up in the last -- latter half of the year.

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Operator [28]

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At this time, there are no further questions, I would now like to turn the conference back over to Kevin.

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Kevin P. O'Meara, DIRTT Environmental Solutions Ltd. - President, CEO & Director [29]

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Thank you, operator. To summarize, we've articulated the plan that we strongly believe will result in increased adoption in market penetration within the interior construction market. We are working with a group of exceptionally talented professionals to help execute our plan and are working closely with our partners in power and support them.

2020, as we presented at our Analyst Day last November, and for reference on Slide 12, we are focused on the following measurements of success, staffing our commercial organization. Nearly 25% of the new positions we discussed in November have been filled, including the critical role of Vice President of Strategic Marketing and Vice President of Commercial Operations, implementing sales tools. Our CRM system implementation is on schedule, we're also launching a best-in-class partner portal in the first half of 2020. And developing total cost of ownership tool to assist our sales reps, partners and everyone involved in the construction process to accurately assess the value DIRTT delivers over conventional construction, including both Day 1 cost and ongoing operating costs. Tracking conversion rates at every stage of the sales funnel. We've begun tracking conversion rates in our current forecasting system and that ability will be enhanced when our new CRM system is installed. Securing at least 2 national account agreements. We're in active discussions with 4 new accounts and 2 existing accounts. Injury rates below BLS standard. We achieved a 50% reduction in injury rates in 2019 compared to 2018 and believe our goal of being below BLS standard is achievable in 2020, particularly since we started the year with an injury-free January. Our successful efforts in dramatically improving our safety record has allowed us to devote additional time to improving our quality and on-time delivery performance as well as drive efficiency throughout the operations.

We will complete our step function improvements in all aspects of our lean transformation by the end of 2020 and then enter the continuous improvement phase of our lean journey. While we're in the early stages of transforming DIRTT, we're making progress on our initiatives and our confidence in our long-term market potential and our goals of reaching $450 million to $550 million in revenue, and an adjusted EBITDA margin between 18% and 22% of revenue is unwavering. This concludes today's call.

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Operator [30]

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This concludes today's conference. You may now disconnect.