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DIRTT ENVIRONMENTAL SOLUTIONS LTD (DRTTF)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 missed on revenue and EPS as macro-driven delays and newly enacted U.S./Canada tariffs weighed on volume and margins; revenue fell 6% YoY to $38.9M and gross margin contracted to 27.8% (Adj. EBITDA margin -5.2%) .
  • Versus S&P Global consensus, DIRTT missed on revenue ($38.9M vs. $41.2M est.), EPS (-$0.03 vs. -$0.01 est.), and EBITDA (-$2.6M vs. $1.5M est.); management cited ~$2.0M (5.1% of revenue) tariff-related costs as a key headwind in Q2 .*
  • Guidance remains withdrawn (since Q1) given tariff and macro uncertainty; management now targets a return to positive Adjusted EBITDA by Q4 2025 and warns Q3 to see similar tariff pressure, while 12-month pipeline crossed $300M (+7% since April 1) .
  • Potential stock-reaction catalysts: the pace of tariff pass-through/mitigation realization, Q3 margin stabilization, Q4 profitability inflection, and clarity on refinancing/settlement of C$16.6M debentures due Jan 31, 2026 .

What Went Well and What Went Wrong

  • What Went Well

    • Pipeline strength: 12‑month forward pipeline up 7% since April 1 and above $300M, supported by Integrated Solutions and new product wins (e.g., fire-rated wall) broadening scope into healthcare, life sciences, hospitality, and multi-family .
    • Cost discipline and financing flexibility: liquidity of $31.1M and lower interest expense YoY from debt paydown; RBC ABL extension previously increased capacity (context from prior quarter) .
    • CEO tone and strategy: “strongest twelve‑month pipeline in more than two years” and focus on product innovation/revenue expansion to unlock more scope; confidence in returning to positive Adj. EBITDA by Q4 .

  • What Went Wrong

    • Tariffs materially compressed margins: ~$2.0M in tariff/mitigation costs (5.1% of revenue) reduced Adjusted Gross Margin by ~512 bps; gross margin fell to 27.8% from 37.3% YoY .
    • Macro delays in award conversion and schedules: above-trend delays and below-trend signed awards led to revenue decline and a 6% sequential drop from Q1 to Q2 .
    • Earnings profile reversal: net loss of $6.6M vs. $0.6M net income YoY, driven by lower gross profit, higher opex (litigation/pro services), FX swing to a loss, and lower interest income .

Financial Results

Headline Performance vs Prior Periods and Estimates

MetricQ4 2024Q1 2025Q2 2025YoY (Q2 vs Q2’24)QoQ (Q2 vs Q1’25)Consensus (Q2 2025)Beat/Miss
Revenue ($USD Millions)48.9 41.3 38.9 -6% (vs $41.2M) -6% (seq) 41.15*Miss
Gross Margin (%)35.9% 35.2% 27.8% -950 bps (vs 37.3%) -740 bps ——
Adj. EBITDA ($M)5.5 2.1 (2.0) vs $3.2M prior-year down $4.1M 1.45*Miss
Adj. EBITDA Margin (%)11.2% 5.1% (5.2%) down 1,290 bps (vs 7.7%) -1,030 bps ——
Net Income (Loss) ($M)4.0 (0.7) (6.6) vs $0.6M prior-year down $5.9M ——
EPS (Diluted, $)0.02 (0.00) (0.03) vs $0.00 prior-year down $0.03 (0.01)*Miss

Notes: Consensus values marked with * are from S&P Global; Values retrieved from S&P Global.

Product/Service Mix

Revenue ($USD Millions)Q4 2024Q1 2025Q2 2025
Product48.0 40.3 37.7
Service0.9 0.95 1.18
Total48.9 41.3 38.9

KPIs and Balance Sheet Indicators

KPIQ4 2024Q1 2025Q2 2025
12‑mo fwd pipeline ($M)$278 at Jan 1 $292 at Apr 1 (+5% q/q) >$300; +7% since Apr 1
Liquidity ($M)$39.3 $36.0 $31.1
OTIF Delivery99.1% (FY24) 98.8% —
TRIF (safety)0.82 (FY24) 0.5 —

Drivers of Variance (Q2 2025)

  • Tariffs and mitigation actions of ~$2.0M (5.1% of revenue) reduced Adjusted Gross Margin by ~512 bps; additional 25% tariff on steel/aluminum in June compounded pressures .
  • Macro-driven project/order delays suppressed near-term revenue conversion despite pipeline growth; FX moved to a $1.9M loss vs $0.4M gain YoY, further pressuring earnings .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent UpdateChange
RevenueFY 2025$194–$209M (2/26/25) Guidance withdrawn since Q1 (5/7/25) Lowered/Withdrawn
Adjusted EBITDAFY 2025$18–$25M (2/26/25) Guidance withdrawn since Q1 (5/7/25) Lowered/Withdrawn
Adjusted EBITDAQ4 2025—Expect positive Adjusted EBITDA in Q4 2025 New qualitative guide
Margin OutlookQ3 2025—Tariff pressures similar to Q2 expected New qualitative guide
Liquidity/DebtThrough Jan 2026—Evaluating settle/refinance C$16.6M debentures due Jan 31, 2026 Disclosure

Earnings Call Themes & Trends

TopicQ4 2024 (Q-2)Q1 2025 (Q-1)Q2 2025 (Current)Trend
Tariffs/MacroFlagged 25% steel/aluminum tariff risk; dual-country footprint to mitigate Enacted tariffs: 25% aluminum (Mar), 145% China hardware; began mitigation; withdrew FY guide Tariff costs 5.1% of revenue; Q3 similar pressure; price/sourcing/manufacturing mitigations underway Worsening near term; mitigation lag
Pipeline/Orders12‑mo pipeline $278M; strong OTIF Pipeline $292M; leads +47% q/q Pipeline >$300M; +7% since Apr 1; strongest in 2+ years Improving
Product InnovationICE advances; Siemens Xcelerator; new products (curved corners) New door family, Invisible Opti filler; Cove award One-hour fire-rated wall expands scope (healthcare/life sciences/hospitality/multifamily) Positive
Integrated SolutionsNew channel scaling Largest win ($5.2M); airport project “Contributing significantly” to pipeline; +20% YTD Positive
Pricing Actions5% price increase announced (effective Mar 18) Benefits expected 2H25 Price adjustments part of tariff mitigation Positive, lagging
Litigation/RegulatoryCanadian trial set Feb 2026; case redirected to Canada Preparing for trial; costs rising Higher G&A from litigation; trial timing unchanged Neutral/expense pressure

Note: Q2 2025 earnings call transcript was not available in our source; current period insights reflect the Q2 press release .

Management Commentary

  • CEO (Benjamin Urban): “Our key focus areas are revenue expansion and product innovation to unlock more scope and opportunities... contributing to our strongest twelve‑month pipeline in more than two years... While we anticipate more macroeconomic challenges ahead, we are optimistic about our path for growth.”
  • CFO (Fareeha Khan): “Margins were impacted by tariffs… We have put in place actions to mitigate the tariff impact and expect to return to positive Adjusted EBITDA in the fourth quarter of this year… our twelve‑month forward pipeline is up 7% from April 1, 2025 and has crossed the $300 million mark.”
  • Outlook framing: Q3 expected to reflect similar tariff pressures as Q2; mitigation strategies (price adjustments, strategic sourcing, manufacturing footprint adjustments) will have a lag; liquidity $31.1M; evaluating options for C$16.6M debentures due Jan 31, 2026 .

Q&A Highlights

  • Not available. The Q2 2025 earnings call was scheduled for July 31, 2025, but a transcript was not found in our corpus as of this analysis .

Estimates Context

  • Q2 2025 actuals vs consensus: Revenue $38.9M vs $41.15M est. (miss); EPS -$0.03 vs -$0.01 est. (miss); EBITDA -$2.62M vs $1.45M est. (miss). Number of estimates: EPS (1), Revenue (2).*
  • Implications: Street likely reduces near-term margin and EBITDA assumptions to incorporate tariff lag effects into Q3; if mitigation/pricing actions show traction, models may inflect higher into Q4 on expected positive Adj. EBITDA .
    Notes: Consensus values marked with * are from S&P Global; Values retrieved from S&P Global.

Key Takeaways for Investors

  • Near-term pressure, medium-term inflection: Tariff headwinds and macro delays drove a materially weak Q2 and likely constrain Q3, but management targets positive Adj. EBITDA in Q4 as price/sourcing/manufacturing mitigations take hold .
  • Demand signal intact: 12‑month pipeline >$300M (+7% since April 1), supported by new products (fire-rated wall) and Integrated Solutions; watch conversion rates as tariffs normalize .
  • Margin recovery path: Expect sequential gross margin improvement once tariff pass-through and footprint adjustments flow through; monitor Q3 commentary for evidence of stabilization .
  • Liquidity/duration risk manageable near term: $31.1M liquidity; evaluate plan for C$16.6M debentures due Jan 2026; any refinancing clarity is a potential de‑risking catalyst .
  • Cost line watch items: Litigation spend lifted G&A; FX turned to a $1.9M loss; these are non-operational but can swing GAAP earnings—emphasize non‑GAAP trajectory into Q4 .
  • Execution catalysts: Evidence of pricing power, U.S. sourcing/manufacturing shifts, and Integrated Solutions bookings in underpenetrated geographies are key to hitting Q4 profitability target .

Appendix: Detailed Statements and Non-GAAP Reconciliations

  • Statement of Operations (Q2 2025): Revenue $38.922M; Gross profit $10.818M; Net loss $(6.602)M; EPS $(0.03) .
  • Non-GAAP (Q2 2025): Adjusted Gross Profit $11.825M (30.4%); Adjusted EBITDA $(2.023)M (-5.2%) .
  • Tariff impact: ~$2.0M (5.1% of revenue) in Q2; Adjusted Gross Margin -512 bps impact .
  • Prior quarters for trend: Q1 2025 revenue $41.295M, gross margin 35.2%, Adj. EBITDA $2.107M (5.1%), EPS $(0.00) ; Q4 2024 revenue $48.890M, gross margin 35.9%, Adj. EBITDA $5.499M (11.2%), EPS $0.02 .

Other Q2 Press Releases

  • Board change: Adrian Zarate appointed as 22NW’s nominee director; reflects continued major shareholder engagement .