DIRTT Environmental Solutions (TSE:DRT) reported higher second-quarter revenue, expanded margins and a return to profitability, while lowering its full-year revenue outlook to reflect customer decision-making timelines and the timing of project awards and revenue conversion.
Revenue for the second quarter of 2026 rose approximately 4% year over year to CAD 40.3 million, including CAD 38.9 million in product revenue and CAD 1.4 million in service revenue. Chief Financial Officer Fareeha Khan said commercial activity remained a significant contributor during the quarter.
Margins Expand as Operating Expenses Decline
Adjusted gross profit rose to CAD 14.9 million from CAD 11.8 million a year earlier. Adjusted gross profit margin was 37.0%, compared with 30.4% in the second quarter of 2025.
Total operating expenses declined to CAD 12.7 million from CAD 15.2 million in the prior-year period. The reduction reflected lower spending across sales and marketing, general and administrative, operational support, and technology and development functions. Those declines were partially offset by higher stock-based compensation and reorganization expenses.
Reorganization expense totaled approximately CAD 1.1 million during the quarter, associated with the company’s transformation initiatives. Khan said operating expenses also declined year over year after excluding stock-based compensation, depreciation, amortization and reorganization costs.
DIRTT recorded operating income of CAD 1.3 million, compared with an operating loss of CAD 4.3 million in the second quarter of 2025. Net income after tax was CAD 1.1 million, compared with a CAD 6.6 million net loss a year earlier.
Adjusted EBITDA was CAD 4.7 million, or 11.8% of revenue, compared with an adjusted EBITDA loss of CAD 2.0 million, or negative 5.2% of revenue, in the prior-year quarter.
Commercial Mix and Transformation Efforts
Chief Executive Officer Benjamin Urban said commercial revenue increased significantly from a year earlier and represented approximately 70% of product revenue, up from about 56% in the prior-year quarter. Government-related activity posted modest growth, while healthcare activity was relatively stable on a year-to-date basis despite quarterly variability, he said.
Urban said the company is making targeted investments in commercial leadership, organizational capabilities and go-to-market effectiveness. DIRTT recently hired a new vice president of commercial to help improve execution, partner engagement and conversion.
The company is also working to improve pipeline quality and forecast reliability through enhanced qualification standards and a focus on opportunities aligned with strategic priorities. In response to analyst questions, Urban said DIRTT has greater visibility further out in healthcare, partly due to work through its Construction Services channel. He also cited visibility and initial conversion traction in commercial office interiors through that channel.
Urban said the company’s transformation work has simplified processes in back-office and manufacturing operations, though the commercial organization remains earlier in its transformation. He said some commercial-related benefits may materialize more meaningfully in 2027.
Khan said the company expects operating-expense reductions to be sustained, while continuing to invest selectively in areas such as commercial capabilities. Urban said DIRTT is adding sales representatives in the United States and exploring partner expansion.
Outlook Revised on Project Timing
For the first six months of 2026, DIRTT generated revenue of CAD 82.7 million, compared with CAD 80.2 million in the prior-year period. Gross profit was CAD 27.0 million, or 32.6% of revenue, compared with CAD 25.4 million, or 31.6% of revenue, a year earlier.
First-half adjusted gross profit was CAD 28.9 million, or 34.9% of revenue, compared with CAD 27.3 million, or 34.1% of revenue, in the prior-year period. Adjusted EBITDA totaled CAD 6.1 million, or 7.4% of revenue, compared with approximately breakeven in the first half of 2025.
The company updated its 2026 outlook to revenue between CAD 175 million and CAD 185 million and adjusted EBITDA between CAD 21 million and CAD 25 million. Management said the revised revenue outlook reflects current expectations for project timing and revenue conversion.
Urban said the principal factors behind the second-quarter performance and revised outlook were customer decision-making timelines, the timing of project awards and when revenue converts. Despite the reduced outlook, he said management remains confident in the company’s ability to drive profitable growth through both sales channels.
Urban highlighted Construction Services as a potential growth driver, citing recent strategic-account awards in healthcare and commercial office interiors. He said these arrangements can involve multiyear revenue opportunities spanning multiple projects rather than a single order. The company also expects its traditional partner channel to remain a growth focus.
Tariffs, Litigation and Technology
Management said it continues to assess the potential effects of evolving U.S. trade policy on DIRTT’s supply chain, cost structure, pricing and customer activity. Khan said that, based on the company’s current assessment and consultation with internal and specialized customs counsel, it does not believe the referenced Section 301 tariffs would materially affect DIRTT. She added that the details of applicable tariff classifications remain important.
Urban said the company’s operational improvements have increased its flexibility to respond to potential tariff changes, though the initiatives cannot completely eliminate the impact of material tariffs that could be imposed.
DIRTT also said proceedings related to its litigation with Falkbuilt remain ongoing. Urban said the company is pursuing claims for damages in Canada, the United States and internationally, but declined to provide further comment.
On technology, Urban said DIRTT has been adopting artificial intelligence internally, including within its technology team. He said the company has seen efficiency improvements in programming and coding related to its Design Editor software platform, as well as broader efficiency gains across the enterprise, but did not quantify the potential financial impact.
About DIRTT Environmental Solutions (TSE:DRT)
Dirtt Environmental Solutions Ltd is a manufacturer of customized interiors. The company combines its (3D) design, configuration, and manufacturing software (ICE or ICE Software) with in-house manufacturing of its prefabricated interior construction solutions and a distribution partner (DP) network. It offers services to various sectors which include healthcare, education, commercial and other sectors. DIRTT operates its activity through the U.S and Canada of which, the United States generates a majority of revenue.
