DIRTT Environmental Solutions Ltd. (DRTT) on Q2 2021 Results - Earnings Call Transcript
Operator: Good morning. My name is Cia and I will be the conference operator today. At this time, I would like to welcome everyone to the DIRTT’s 2021 Q2 Financial Results Conference Call. Thank you. At this time, I would like to turn the conference over to Kim MacEachern. Please go ahead.
Kim MacEachern: Thank you, operator and good morning everyone. Welcome to today’s call to discuss DIRTT’s second quarter 2021 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 companied by presentation slides. To access the slides, please view them from the webpage of this webcast or on our website. Today’s call will include forward-looking statements within the meaning of applicable Canadian and United States securities laws. These statements are based on the company’s current intent, expectations and projections and they are not guarantees of future performance. In addition, this call will reference non-GAAP results, excluding special items. Please reference our Form 10-Q as filed on August 4, 2021 with the Securities and Exchange Commission, or SEC and other reports and filings with the SEC for 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 would now like to turn the call over to Kevin.
Kevin O’Meara: Thank you, Kim and thank you, to everyone joining us today. Starting on Slide 4, as expected, revenue for the second quarter of $41.1 million was nearly 40% higher than our first quarter revenue, strengthening our conviction that the first quarter of 2021 represented the trough of our pandemic impact in revenue, even though the overall environment remains challenging. We are closely monitoring potential surges in COVID infection rates driven by the Delta variant and the resulting impact on demand, labor availability, supply chains and our own operations. Healthcare represented 34% of revenue this quarter, higher than our typical healthcare mix of approximately 20% to 25%, driven by two larger projects. The first was approximately $2 million from the delivery of the COVID vaccination trailers we discussed on our last quarterly call. And the second was over $6 million in revenue from projects for our long-standing strategic account. While our revenue from this client will be less over the balance of the year, we are pleased with both the confidence and the prospects for their business they showed and their longstanding confidence in DIRTT Solutions. Looking at a broader market perspective, I would like to reiterate some comments I made during our last quarterly call. Conventional construction is continuing to experience input price pressures, a lack of skilled on-site labor and material shortages from supply chain constraints, in addition to other delays in project schedules. These realities make our long-term customer value proposition more attractive, but unfortunately also delay our ability to realize upticks in commercial activity. From a cost perspective, we have strategically elected not to pass along raw material price increases in order to enhance our relative price competitiveness versus conventional construction. While this decision will weigh on our gross profit margins in the short-term, it’s our expectation that the increased price competitiveness of our solutions will ultimately drive higher demand, allowing us to improve profitability through the absorption of unused labor capacity and fixed cost leverage within our plants. From the perspective of project schedules, the challenges in conventional construction, combined with permitting backlogs are resulting in unanticipated and abnormally long schedule delays, both in the number of projects experiencing delays and the longer duration of the delays. These delays will continue for a period of time as permitting delays will translate into delays from municipal building code inspectors during the project’s execution. On the one hand, DIRTT is uniquely positioned to recapture a portion of the time lost to schedule delays, making us a more attractive option compared to conventional construction. However, as DIRTT is installed in the final stages of a project, these delays are negatively impacting the timing of our project delivery. We have maintained sufficient raw material inventory and labor capacity in our plants to sustain our 3-week lead times and 99% on time and complete job site delivery performance. Regardless of our own capabilities, many of our end clients are experiencing delays, which has resulted in a corresponding shift of our projects from the second half of 2021 into 2022. We now expect a slower pace of recovery with third quarter revenue anticipated to be similar to the second quarter. At the same time, we continue to be encouraged by the level of customer engagement we are seeing. Currently, nearly every conversation we have with a current prospective client starts with their expressing a need for flexible, adaptable spaces. The dialogue often expands into skilled labor shortages and schedule delays, all of which are central to DIRTT’s customer value proposition. Our increased customer engagement is evidenced by the growth in the number of strategic account relationships in development, which increased to 44 versus 40 at the end of last quarter and by the increased demand for tours, both virtually and more frequently now in person. In June, we had a 30-month high for the number of tours we hosted. We expect demand for customer tours to continue to increase as we opened our Dallas DIRTT Experience Center late in the fourth quarter. Even more exciting, we have been successful in a number of large strategic account RFPs, which we define as projects in excess of $2 million, the delivery dates beginning in 2022. This is an important accomplishment, because we know that having a sustainable pipeline of large projects is necessary to achieve our growth targets. This was a goal we articulated in the strategic plan we presented in November 2019. And this goal was met despite the many unforeseen challenges we have since experienced. To be clear, we are still in the early stages of establishing the pipeline we believe is necessary to drive our long-term revenue growth targets. However, we are encouraged by the gradual building of the number of large projects in our pipeline. We continue to leverage our total cost of ownership, or TCO tool, to illustrate the advantages DIRTT brings versus conventional construction and our strategic marketing team continues to work closely with our sales team to strengthen how we convey our customer value proposition to end clients as well as to the architect, design and general contractor community. We made considerable progress in strengthening our distribution partner networking sales force since the beginning of 2020. Over that time, we have added 11 new distribution partners and 28 new sales reps. Some of the partner additions supplemented in existing market, others replaced incumbent partners. Without exception, the replacement partners are larger and better capitalized than the partners they replaced. Nevertheless, they began as DIRTT partners during the pandemic generally with smaller teams, a minimal interior construction pipeline and an on-boarding process that was conducted virtually. As such, they have had a limited impact on our revenue to date. As we emerge from the pandemic and these new partners were able to supplement their teams and build their sales pipelines, their potential impact is significant. Our new sales reps have had limited personal client interaction and their training has been virtual versus in-person in Calgary as was the practice pre-pandemic. Similar to our new distribution partners, our new sales reps have made a limited contribution to our revenue to date, but represent significant future sales potential. During the second quarter, we were able to have in-person client distribution partner and sales meetings and the dramatic difference between personal interaction versus meeting virtually on a computer monitor cannot be overstated. In conclusion, we encourage that the sales activity we see within the organization is a result of the investments and progress we have made within our commercial organization over the last 18 months. While many challenges remain, we are delivering on our strategic plan in a market that has shown some signs of recovery from pandemic lows and where the cost and schedule dynamics of our largest competitor, conventional construction should be favorable to DIRTT. We see a market that is demanding flexibility and adaptability in their physical spaces. This is not a discussion limited to return-to-work initiatives, but rather as a more widely being considered in all projects. Our ability to empower people to build sustainably for the future with cost certainty in our accelerated schedule is unique in the industry and we are better positioned than ever before to execute on that opportunity. With that, I will turn the call over to Geoff for review of the financials.
Geoff Krause: Thank you, Kevin. I am going to start with a quick review of our liquidity on Slide 5. We finished the second quarter of 2021 with $58.3 million of cash compared to $58.7 million at March 31 this year. In the second quarter of 2021, cash provided by operations was $0.1 million. Capital expenditures of $6.4 million in the second quarter were funded by equipment leasing facility draws of $8.4 million. In addition and in accordance with the terms of the leasing facility, we restricted a further $1.7 million of cash and made $0.6 million of scheduled repayments. We expect to draw an additional $2 million to $3 million on our equipment leasing facilities in the third quarter of 2021. Our working capital management focus continued in the second quarter with no recordable disruptions or delays in accounts receivable collections. Days sales outstanding, net of deposits, income taxes and government subsidies receivable continued to run at under 30 days. Net working capital at June 30 was $67.2 million and our current ratio was 2.8x, down from 3.4x at March 31, 2021, but up from 2.7x at December 31, 2020, and still very healthy. Updating on government subsidies, in the second quarter, we qualified for $3.4 million through two Canadian government programs, the Canadian Emergency Wage Subsidy and the Canadian Emergency Rent Subsidy. From a cash perspective, $2.5 million was receivable at June 30, 2021, with most of that received in July. Both programs were just recently extended to October 23, 2021. They were set to expire September 25, 2021 in the last federal budget and we will continue to evaluate our eligibility for each qualifying period. Turning to the financial results on Slide 6, as expected, revenue for the second quarter returned to quarterly revenue ranges we experienced in the first half of 2020 and showed a substantial sequential increase from Q1 of this year. Revenue of $41.1 million was weighted 34% to the healthcare vertical for the reasons Kevin outlined earlier. Due to the lumpiness of product revenue, we would anticipate our revenue mix by vertical will revert to historical ratings over the short to mid-term. As Kevin also mentioned, many of our customers are experiencing schedule delays in their projects. While we have seen little disruption to our manufacturing or installation times, these broader project delays have resulted in greater forecasting uncertainty and a number of our projects being pushed from the second half of 2021 into 2022. Consequently, we are now expecting a slower pace of recovery in the second half of 2021, with third quarter revenue anticipated to be similar to the second quarter. I would like to emphasize, however, that we remain encouraged by the increase in sales activity, success in large project RFPs and growth and opportunities, but recognize that the conversion to revenue will likely take longer than we previously anticipated due to all the upstream factors we have discussed today. On Slide 7, adjusted gross profit was $11.3 million or 27.4% of revenue, a decline of $4.9 million from the quarter ended June 30, 2020. The reduction was attributable to $1.3 million of higher transportation costs due to third-party trucking cost increases, $1.3 million of higher direct material costs due to the combined impact of a 5% increase in the cost of materials and a specialized project that required additional third-party manufacturing inputs, $0.5 million of incremental costs related to our new Rock Hill plant as well as an estimated $1.1 million impact of a stronger Canadian dollar on Canadian-based manufacturing costs. I will also point out that in Q2 of last year we had a $1.2 million reversal of timber provision, which did not reoccur this year. I would like to remind everyone of two strategic decisions we made as it pertains to pressures we are experiencing in adjusted gross profit. First, we are currently running with excess manufacturing capacity and have done so deliberately to be prepared for increasing demand. The speed and magnitude of the recovery and how quickly it turns into orders for us remains highly uncertain as we come out of the pandemic. Our variable factory labor is sticky to the downside and there is a minimum amount of staffing we need at our facilities to keep them responsive to activity levels. We believe there would be risk associated with reducing these costs, should we see an accelerated return to revenue growth. That said we are working to further optimize our costs in light of the commissioning of our new Rock Hill facility and the capacity it provides. The strength of our balance sheet and the steps we have taken to increase liquidity enable us to undertake this strategy. Second, as Kevin noted earlier, we have made the deliberate decision not to pass along higher direct material cost to the customer in the face of the modest inflationary pressures we are experiencing. It is our view that the increase in our relative price competitiveness versus conventional construction will drive higher demand, allowing us to improve profitability through absorption of unused labor capacity and fixed cost leverage within our plants. As activity improves, we expect gross margins to improve accordingly. That said, we are actively monitoring inflationary pressures and their impacts on our cost structure. Turning to the breakdown of operating expenses on Slide 8, sales and marketing expenses increased by $1.4 million over the comparable quarter last year as travel restrictions eased and travel, meals and entertainment expenses increased. The increase was also attributable to salary and wage expense as we continue to build our sales organization. General and administrative expenses increased by $1.6 million due to the impact of a stronger Canadian dollar, higher salaries and benefits expense and professional fees. Operations support expenses and technology and development expenses both decreased nominally. While we called up the negative effects of the stronger Canadian dollar on gross profit already, we saw a similar effect on our SG&A spread across the four categories of sales and marketing, G&A, operations support and technology and development. In total, the impact of the stronger Canadian dollar on Canadian-based SG&A was about $1.3 million in the quarter and $1.9 million year-to-date. Excluding depreciation and stock-based compensation from this, so as to determine the impacts on adjusted EBITDA, the estimated impact was $1.2 million and $1.7 million for the 3 and 6 months of 2021 respectively. In the second quarter of 2021, the Canadian dollar vis-à-vis the U.S. dollar was $1.23 versus 1.39% last year. On a year-to-date basis in 2021, it was $1.25 versus $1.37 last year. On Slide 9, adjusted EBITDA and adjusted EBITDA margin for the quarter decreased to $6.8 million loss or negative 16.6% from $0.3 million or 0.6% in the same period of 2020. This reflects a $4.9 million decrease in adjusted gross profit and increased expenses, as I have already discussed. As a reminder, we excluded government subsidies from our adjusted EBITDA. I would point out that the combined impacts of the stronger Canadian dollar and our Canadian dollar expenses in the quarter on both gross profit and SG&A was about $2.4 million. Turning to Slide 10, net loss increased to $9.7 million or $0.11 net loss per share in the second quarter from net income of $0.3 million or $0.00 per share in the second quarter of 2020. The increased loss is primarily the result of a $5 million decrease in gross profit, a $4.2 million increase in operating expenses, a $0.9 million reduction in government subsidies and a $0.7 million increase in interest expense. These decreases were partially offset by $0.9 million reduction in foreign exchange losses. In conclusion, on Slide 11, we are encouraged by the sequential increase in quarterly revenue and the return to 2020 levels. We remain cautious, however, on the timing of our recovery through the second half of the year. The steps we have taken to bolster our liquidity, including lease financing to cover the majority of the cost of our new South Carolina facility and the convertible debenture financing in January 2021 give us the confidence to stay the course as we see encouraging early indications of the commercial success of our strategic plan and improvements in economic conditions. While we remain ready to take actions should this condition deteriorate, we plan to maintain our current cost and manufacturing capacity structure, subject to optimization to ensure that we are well poised from both the sales and production standpoint to take full advantage of what we believe will eventually be a very robust market. We believe that if we are able to drive higher revenues, there is ample leverage in our business model to achieve significant profitability. Operator, we would like to now open the call for questions.
Operator: Thank you, sir. And your first question will come from Greg Palm with Craig-Hallum Capital. Please go ahead.
Danny Eggerichs: Yes, this is Danny Eggerichs on for Greg today. Thanks for taking the questions.
Kevin O’Meara: Good morning, Danny.
Danny Eggerichs: I guess as we are looking at second half revenue, you kind of said slower pace of revenue growth in the second half. I think for Q3 that those comments are pretty clear, but looking out to Q4, is there any expectation for Q4 growth still or has the entirety of that kind of second half activity shifted into 2022?
Kevin O’Meara: Yes. Danny, we haven’t given guidance on Q4 as you probably noticed. I think the key things there is it’s still very opaque. We are seeing delays push out. We are doing what we can to mitigate that and hold projects into the quarter, but it’s pretty opaque for us. We are expecting that the recovery itself is slower than what we had originally anticipated, but also as you would have heard from our comments, we are quite encouraged about ‘22.
Danny Eggerichs: Got it. And then maybe just touching on the decision not to pass material inflation on to the customer, maybe a little bit behind the scenes, color on puts and takes, I guess, attacking that increased demand with competitive pricing versus maybe constraints to margins for the near-term I guess how should we look at that?
Kevin O’Meara: I think that’s – the way to look at it is as we look at what the price increases were relative to our historical norms there is a couple of things in place. First of all, we had the impact of the higher cost trailers roll through, which through the quarter, which impacted our prices. I think the other thing that we have seen is the intact – impact in our overall material pricing is perhaps less than we would expect. And that’s a result of a lot of the work that we have done in the plant. In fact, the pricing, when we look at our materials, it’s actually at similar levels as a percentage of our revenue relative to 2018, 2017. So, we have been able to absorb a lot of that through efficiencies. When you look at the overall fixed cost structure of our plants that we have in the unused excess labor capacity, we get a lot more impact from profitability and impact by using up that excess capacity and that fixed cost leverage by driving increased demand through the competitiveness that we believe will come out of not raising our prices. And so that’s the plan. Obviously, we are going to continue to monitor it and if they keep driving up, we will take a look at it, but we think we get better bang for the buck of increased competitiveness.
Danny Eggerichs: Great. That’s helpful. And then maybe one more on the large strategic accounts and maybe the increased activity you have seen in the pipeline? And maybe on the RFPs you have been seeing, are those coming from existing clients or are those new customers, what can you say on that?
Kevin O’Meara: Sure. I think I will be able to give you a little bit of color on that. From both existing and new clients, we are quite pleased with the activity that’s going on in our strategic account group, and you would have seen that we had another 10% increase in the amount of accounts that we are engaged with. On the RFPs themselves, we define large is greater than $2 million, they are across multiple industries. Those include healthcare, financials, energy, professional services and tech. So, it’s a broad range. They were also competitive, and so we were against other organizations there and came out ahead. So, we are quite encouraged by that. We are now into the scope and scheduling discussions with them and delivery expected on those in 2022 and ‘23.
Danny Eggerichs: And are those more for activity and remodel or new construction?
Kevin O’Meara: I think they are primarily in the new construction range, but I suspect it’s a combination of the two.
Danny Eggerichs: Got it. I will leave it there. Thanks.
Operator: The next question will come from Rupert Merer with National Bank. Please go ahead.
Rupert Merer: Good morning everyone.
Kevin O’Meara: Good morning.
Geoff Krause: Good morning.
Rupert Merer: With the larger project awards that you have discussed and a push of the revenue next year, it seems like you have more visibility on future revenue than what we might have had last quarter. I am just wondering if you can talk to us in terms of sort of the scale of the backlog and the visibility that you are going to have into sales and how that’s trending?
Kevin O’Meara: Rupert, it’s Kevin. What I would tell you is – and you have been following this for a while, to compare and contrasting for several years ago, the tools that we have in place, CRM systems, PowerBi and so forth, the people that are doing the analysis and the quality of the sales reps and how we train them to do the forecasting are all significantly better than what it would have been a couple of years ago. The issue and just giving you a direct answer to your question is the operating environment. And now there is two dynamics going on. One, we have talked about in – which was the supply chain issues, and that is continuing. Unfortunately, the world has not been set up to do a hard reset after a pandemic. And then the other, which we are probably seeing a little bit more south of the border than north is the Delta variant. And so trying to figure out the exact timing of these is very, very difficult. So, I do feel like we have a better job of kind of overall having our arms around us where the opportunities, general magnitude and so forth but in terms of exact timing, it’s more difficult than ever, given the operating environment.
Rupert Merer: Okay. Do you have a sense of the scale of the backlog though, timing aside, just the dollar number of jobs for which you have been awarded contracts or have good visibility on contracts?
Kevin O’Meara: We have a decent sense of that. One of the things we have experienced over the course of the project getting designed and so forth is the scope and scale can move around fairly substantially. And so at any given time, we have got a decent sense as to where things stand, and sometimes it’s good news. I am not giving an example. I think we mentioned this in the last quarter. We are early days with our TCO tool. We had a relatively modest glass-front on the project. They were able to morph into an entire full solution that was already a magnitude larger. So, we have those things happen from time to time, which are good things. And so it’s more dynamic than you would think it would be otherwise.
Rupert Merer: Okay, thanks. And if we look at the strategic relationships, can you give us more color on what’s contemplated in the strategic relationships? Maybe how the structure of those relationships can help you with RFPs, even if it’s just getting an opportunity to bid on some of these RFPs? I mean you mentioned that the processes have been competitive. What competitive advantages do you get out of these relationships?
Kevin O’Meara: Well, I think, first of all, you need to recognize that not every one of the strategic accounts goes straight to RFP. A fair number of them are just either we have done business with them in the past or it’s a relationship where people know that they want to work with us and they are not formally bidding out any of their work and so that’s important to note. But when things do go to RFP, it’s the full array of our customer value proposition. The customization of what we do, the scope of what we do, nobody else can do. The adaptability is better than anybody else’s. The ICE software that we deploy, it is 10 trollers above anybody else, and so all of those come into play. It depends on the customer and what they are really looking for. Where we really shine is when somebody is doing a full solution with solid walls, glass walls, technology, power, etcetera, etcetera, where you get into more cost competitive situations and where there is more competitors is where people are just looking at simple glass-front conference rooms, and that’s where it might get to be a little bit more competitive. And even in those situations, we are looking to expand those into being a broader scope.
Rupert Merer: So, are you finding there are any cases here where some of DIRTT’s capabilities are being scoped into the RFPs, and maybe that gives you a competitive advantage or pricing a competitive advantage, any other elements, the relationships that will help you in the future?
Kevin O’Meara: It’s all of the above. I mean, you are building – make no mistake about it. We would prefer not to be in RFP process. We would prefer to leverage a relationship where we just start working on projects. I, not surprisingly, tend to take a fairly active role in leading some of the strategic accounts and starting new relationships. What I would like to encourage clients to be able to say, let us pick a project that you are in the design phase and let us show you what we can do. Let us just do one and then see how it plays out and kind of go from there and show our capabilities. That’s the ideal way to do it, building on our relationship and using the various tools that we have at hand. We recently came out with a very effective DIRTT overview sales presentation that I have used with a couple of potential strategic accounts. The DIRTT Experience Centers play in. They are strategically located. We have got New York and Chicago that are very active. Dallas has been very active even though it’s under construction. So, people can touch and feel what we do, and then you leverage it into an ongoing relationship and show them how you can make their business better because they are doing business with us, be it common design standards, reduced cycle time, better quality and so forth.
Rupert Merer: Okay, thanks for the color.
Operator: Your next question will come from Josh Wilson with Raymond James. Please go ahead.
Josh Wilson: Good morning, Kevin and Geoff. Thanks for taking my questions.
Kevin O’Meara: Good morning.
Josh Wilson: I wanted to get into the delays a little more. I think last quarter, you talked about orders improving month-over-month in each of February through April. Can you give us a sense of how order entry trended through the quarter and into July?
Geoff Krause: It’s – well, it’s been – as you would expect through the pandemic naturally consistent with other companies’ costs that we are choppy. We have had good days. We have had slower days, but it all kind of trends to where we are looking at, where we are looking at Q3 to be consistent with Q2. It’s pretty much all I can say on that.
Josh Wilson: And what’s your sense of how much – I don’t know what it’s called, backlog is probably not quite the right word, but how much of your current activity is still jobs that were in process prior to pandemic versus brand new jobs?
Geoff Krause: I think most of the – most of the pre pandemic stuff has played out. I think we are into stuff that we have hinted in the last call. If you remember, our lead time is 6 to 24 months in general, depending on the size of the project. So, I think most of that is stuff that we have hinted. I can’t say the fair numbers but I think that would be 90% the case.
Josh Wilson: And as we think about OpEx sequentially, given that sales are flat, should we assume those are also fairly flat or were some of your new hires towards the end of the quarter, we don’t quite have the full run-rate on those?
Kevin O’Meara: You will see a bit of – we have got a few hires to build on the sales and marketing side. I wouldn’t say anything really material there. I think we are planning for our Connect Trade show in October, so that would come in Q4. So that’s going to kick up a bit of cost. So, I think the other thing to think about is, as things open up a little bit, travel and entertainment expenses can increase, and that’s a good thing. That means that our salespeople are getting in front of the clients and selling more. So, if I compare where we were in Q2 of this year versus Q2 when the pandemic hit, we are up about 4x in their travel. Now, if I compare it to where we were in 2019, we are down – we are about 45% of where we were in 2019. So, I expect that cost is continue – is going to continue to grow a little bit, probably not to the same level as we were in 2019 because people have realized they can do stuff virtually, but we will see that increasing. And as I said, that’s a good thing. That means our sales people are getting up and talking to people and looking to close sales.
Josh Wilson: Got it. I will turn it over to others.
Operator: The next question will come from Neil Linsdell with iA Capital Markets. Please go ahead.
Neil Linsdell: Hey, good morning guys.
Kevin O’Meara: Good morning, Neil.
Neil Linsdell: Geoff, just sticking on the short-term, if I am trying to model out the gross margin and the EBITDA margin in Q3 and Q4, now that Rock Hill is fully functional, is there anything we should think about other than what you have already said with the pressure, the transportation costs and anything that would really change the gross margin from the level that we saw in Q2 as we look through the end of the year?
Geoff Krause: It’s really top line focused. We had the fixed cost of Rock Hill in the second quarter, which we called out. We will do some optimization between plants. However, the real key movers for us will be as revenue increases and as I said in the remarks, we deliberately chose to keep that capacity in place. It’s really easy to knock down your capacity. It’s a lot harder to bring it back up, so deliberately keeping that in place.
Neil Linsdell: So, it’s really all scaling on the revenue side. And if we look at the pickup in 2022, you previously had some pretty lofty targets for like 2023, is those kind of off the table now within this macro environment?
Geoff Krause: We haven’t pulled it off the table because quite frankly, we are not sure what’s – how fast ‘22 is going to recover. We will see. I think it’s just too soon to say.
Neil Linsdell: Okay. So – but you have not built out the capacity to be able to support those targets, but you are just – it’s all a macro environment. And then if we look at maybe north and south of the border, but even within the U.S., are you seeing certain areas that you are getting more traction as far as people or companies trying to reconfigure their office space or specifically I am thinking in healthcare, are you getting healthcare facilities now that are willing to look at those major revamps to try and fix how we’re going to work with our space post pandemic.
Kevin O’Meara: I would say that the vast majority of what we are looking at is not so much adapting existing spaces as it is new projects, be it a new project in an existing building or a brand new building, and it’s across the board. Geographically, it would be just the large commercial construction markets as well as typically, we talked about in terms of the talent intensive businesses, which can be some of the higher tech businesses and things like that. We will skew a little bit higher to that as well. The larger ticket items are going to be the new projects as opposed to somebody tweaking their space. That may come about over the next 18 months as those people get back in the space and looking for things that they need to work a little bit differently but at the moment, that has not been a huge part of it. But I will tell you, you mentioned healthcare, in particular, there is – I think we will find over the next few years, the adoption rate of what we do in healthcare will be significantly faster than what it’s been historically just from the conversation I am having. It’s almost like they are doing our sales presentation for us in terms of talking about the importance of adaptability and not knowing as an need telehealth room and those kinds of things.
Neil Linsdell: Okay. Yes, healthcare has always been one of my favorite aspects. Just finally, can you just kind of recap on the CapEx spending, where you stand now? I guess Rock Hill’s finished. Dallas is getting finished. You talked about I think $2 million to $3 million in Q3 still being spent on this build out. After that, are we looking at going down to a more normalized CapEx of $8 million or $10 million a year or what should we look at from that perspective?
Geoff Krause: Yes. So to clarify, the $2 million to $3 million is the draw on our leasing facility. So we can only draw on our leasing facility once all the payments have been done and the title has passed to us. So that’s more on the financing side as opposed to the capital expenditure side of the equation. If you – when you – as we said in Q1 we are thinking – we are currently seeing expenses around $14 million this year from a cash basis. As we look to next year with Rock Hill done, yes, you are probably right. We are probably in that $8 million to $10 million range. Depending on what demand looks like, we still, at some point, want to put casework into Rock Hill. We still will want to do expanding some of our DXCs into some underserved markets, but those will be more game content decisions. There is still investment to be made on that side, but some of that does depend upon activity levels of vertical.
Neil Linsdell: Okay, that’s it for me. Thanks a lot.
Kevin O’Meara: Thank you.
Operator: And at this time, there are no further questions. I would like to turn the conference over to Kevin O’Meara for any closing comments.
Kevin O’Meara: Thank you. As always, I would like to thank the extraordinary commitment and efforts of our employees and distribution partners. I continue to strongly believe that the path we are on, guided by our strategic plan and executed by our incredibly talented team we have at DIRTT, will propel our organization forward as we strengthen our brand and market presence and begin to deliver tangible results in the market. Thank you for joining us today.
Operator: Ladies and gentlemen, thank you for participating in today’s conference. You may now disconnect.
