Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations for the fiscal years ended December 31, 2025 and 2024 together with our consolidated financial statements and related notes and other financial information appearing in this Annual Report. The 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 “Special Note Regarding Forward-Looking Statements” appearing elsewhere in the Annual 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 Software”), translates the vision of architects and designers into a 3D model that also acts as manufacturing information. ICE Software 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 ICE Software that is used by AWI.
Key Fourth Quarter 2025 Highlights and Other Recent Developments
Revenue for the fourth quarter of 2025 was $50.9 million, an increase of $2.0 million or 4% from $48.9 million for the same period in 2024 and in line with the expected guidance range of $48.0 million to $52.0 million provided in the third quarter of 2025. Volumes have returned to normal following higher than normal push out rates earlier in the year, and revenue has also benefited from the 5% price increase and 3.5% tariff surcharge announced in the first quarter of 2025.
Gross profit and gross profit margin for the fourth quarter of 2025 was $18.6 million or 36.6% of revenue, an increase from $17.5 million or 35.9% of revenue for the same period of 2024. Adjusted Gross Profit and Adjusted Gross Profit Margin (see “– Non-GAAP Financial Measures”) for the fourth quarter of 2025 was $19.7 million or 38.7% of revenue. This represents an increase in Adjusted Gross Profit from $19.0 million, but a decrease compared to Adjusted Gross Profit Margin of 38.8% of revenue in the fourth quarter of 2024. The slight decreases in Adjusted Gross Profit Margin despite higher revenue is the result of tariff costs.
Net loss after tax for the fourth quarter of 2025 was $3.7 million compared to $4.0 million net income after tax for the same period of 2024. The decrease in net income is primarily the result of one-time impairment charges of $2.9 million largely relating to the termination of the Rock Hill, South Carolina manufacturing facility (the “Rock Hill Facility”) lease, an increase in foreign exchange loss of $2.4 million, and an increase in reorganization expense of $1.8 million, and a $1.5 million increase in other operating expenses, partially offset by a $1.1 million increase in gross profit.
Adjusted EBITDA (see “– Non-GAAP Financial Measures”) for the fourth quarter of 2025 was $6.2 million, or 12.1% of revenue, an improvement of $0.7 million from $5.5 million or 11.2% of revenue for the fourth quarter of 2024. Higher Adjusted EBITDA was mainly driven by the increased Adjusted Gross Profit discussed above. Adjusted EBITDA for the fourth quarter of 2025 was in line with the expected guidance range of $5.0 to $7.0 million provided in the third quarter of 2025.
Cash on hand decreased by $5.8 million in the fourth quarter of 2025 to $20.3 million, compared to a $5.7 million increase in cash in the fourth quarter of 2024. The decrease in cash in the fourth quarter of 2025 was driven by $4.3 million of net cash flows used by operating activities, $1.2 million used in investing activities, and $0.3 million used in financing activities. We experienced a negative cash flow from operating activities due to an $6.5 million decrease in working capital which arose from record sales occurring in December 2025 as well as a $1.0 million lease termination payment associated with the exit of the Rock Hill Facility lease.
On November 4, 2025, the Company entered into the Fifth Extended RBC Facility (as defined herein), which matures on November 30, 2026.
On November 26, 2025, the Company announced two strategic short-term appointments of board members Scott Robinson and Adrian Zarate as Executive Chairman of the Board and Chief Transformation Officer, respectively, to accelerate the Company’s transformation plan.
On December 11, 2025, we entered into an agreement with Business Development Bank of Canada (“BDC”) pursuant to which BDC committed to lending the Company up to C$15.0 million subject to the satisfaction of certain conditions. The conditions were amended on January 30, 2026 and February 6, 2026 (see “– Liquidity and Capital Resources”).
On December 18, 2025, the Company announced the renewal of the Shares NCIB (as defined herein) 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 Toronto Stock Exchange (“TSX”) at the market price of common shares at the time of acquisition. Any common shares acquired through the Renewed Shares NCIB will be immediately cancelled.
On January 5, 2026, the Company announced that it entered into an agreement for an early termination of the lease at its former Rock Hill Facility, effective December 30, 2025. The Company recognized a one-time, non-cash impairment expense related to leasehold improvements of $2.3 million.
On January 12, 2026, the Company announced that Richard Hunter, President and Chief Operating Officer, departed from the Company and Aaron Merkin joined the Company as the Chief Technology Officer, both effective January 12, 2026.
On January 31, 2026, the Company repaid the principal amount of the Company’s issued and outstanding 6.00% convertible unsecured subordinated debentures (the “January Debentures”) of C$16.6 million ($12.1 million).
On February 2, 2026, the Company’s 8-week trial against Falkbuilt Ltd. (“Falkbuilt”), Messrs. Smed and Loberg and several other former DIRTT employees alleging breaches of restrictive covenants, fiduciary duties, employment duties and confidentiality (the “Falkbuilt Litigation”) commenced. DIRTT is pursuing damages and losses it suffered in Canada, the United States, and abroad in the Court of King’s Bench of Alberta.
On February 11, 2026, in connection with the financing from BDC, the Company entered into a priority agreement with RBC and BDC, and amended the Fifth Extended RBC Facility (as defined herein).
On February 13, 2026, the Company received financing of C$5.5 million ($4.0 million) from BDC to refinance the outstanding January Debentures, which were repaid on January 31, 2026.
On February 17, 2026, the Company announced that it had entered into a support and standstill agreement, effective February 13, 2026, (the “2026 Support Agreement”) with 22NW Fund, L.P. (“22NW”), DIRTT’s largest shareholder, and 726 BF LLC and 726 BC LLC (collectively, the “726 Entities”), which amends the support and standstill agreement previously entered into by the Company, 22NW and WWT Opportunity #1 LLC in respect of certain matters.
On February 17, 2026, the Company also announced that Jeremy Gold, a Managing Director at the Briger Family Office, was appointed to the Board of Directors effective February 13, 2026, under the terms of the 2026 Support Agreement.
Key Annual 2025 Highlights
Revenues for the year ended December 31, 2025, were $168.9 million, a decrease of $5.5 million or 3% from $174.3 million for the year ended December 31, 2024. The decrease in revenue, as compared to 2024, was primarily the result of higher than normal order delays in the second and third quarters of the year related to macroeconomic uncertainty and specific job site readiness.
Gross profit and gross profit margin for the year ended December 31, 2025, was $55.4 million or 32.8% of revenue, a decrease from $64.4 million or 36.9% of revenue for the year ended December 31, 2024. Adjusted Gross Profit (see “– Non-GAAP Financial Measures”) for the year ended December 31, 2025, was $59.5 million, a decrease from $68.3 million for the year ended December 31, 2024. Adjusted Gross Profit Margin (see “– Non-GAAP Financial Measures”) for the year ended December 31, 2025, was 35.2%, a decrease from 39.2% for the year ended December 31, 2024. The decreased Adjusted Gross Profit and Adjusted Gross Profit Margin are the result of a decline in revenues as well as $6.8 million in tariff-related costs incurred beginning in March 2025.
During the year ended December 31, 2025, various tariffs were levied by the U.S. and Canadian governments. We incurred $6.8 million (4.0% of total revenue) in tariffs and costs related to tariff mitigation actions. DIRTT is most impacted by the 25% tariff levied on Canadian aluminum exports to the United States which increased to 50% in June 2025. In the third and fourth quarters of 2025, costs relating to existing tariffs were substantially mitigated through price increases and other actions taken earlier in the year.
Net loss after tax for the year ended December 31, 2025, was $14.4 million compared to $14.8 million net income after tax for the year ended December 31, 2024. The decrease in net income after tax was primarily the result of a $8.9 million decrease in gross profit, a $3.8 million increase in reorganization expenses, one-time impairment charges and gain on disposal of lease of $1.6 million, a $10.4 million decrease in gain on extinguishment of convertible debt, a $4.7 million increase in foreign exchange loss, a $1.2 million increase in other operating expenses, and a $0.6 million decrease in interest income, partially offset by a $2.1 million decrease in interest expense.
Adjusted EBITDA (see “– Non-GAAP Financial Measures”) for the year ended December 31, 2025 was $7.4 million or 4.4% of revenue, a decrease of $8.0 million from $15.4 million or 8.8% of revenue for the year ended December 31, 2024, for the above noted reasons.
On February 5, 2025, the US District Court for the Northern District of Utah dismissed DIRTT’s lawsuit against Falkbuilt Ltd. in Utah on procedural grounds. In DIRTT’s similar lawsuit against Falkbuilt in Canada, an eight-week trial, which commenced on February 2, 2026. DIRTT is pursuing damages and losses it suffered in Canada, the United States, and abroad in the Court of King's Bench of Alberta.
On February 13, 2025, the Company entered into a share repurchase with NGEN III, LP (“NGEN”) pursuant to which the Company purchased for cancellation 3,920,844 common shares of DIRTT at a purchase price of $0.80 per common share from NGEN (the “Share Repurchase”). The purchase price was a 1% discount to the closing price of the common shares on the TSX on January 27, 2025 (converted into U.S. Dollars using the February 13, 2025 closing exchange rate published by the Bank of Canada). The Share Repurchase closed on February 14, 2025.
On June 12, 2025, we began trading on the OTCQX under the symbol “DRTTF.” The Company previously traded on, and upgraded to OTCQX from, the OTC Pink® Market.
On August 26, 2025, the Company announced the renewal of the normal course issuer bid for the Company’s outstanding January Debentures and December Debentures (as defined herein) (the “Renewed Debentures NCIB”), which commenced on August 28, 2025 and permits DIRTT to acquire up to C$1,656,900 principal amount of the January Debentures and C$1,493,500 principal amount of the December Debentures. As at December 31, 2025, C$0.01 million and C$nil principal amounts of the December Debentures and January Debentures were acquired through the Renewed Debentures NCIB, respectively. For the year ended December 31, 2025, C$0.4 million principal amount of the December Debentures, and C$0.1 million principal amount of the January Debentures, had been acquired through the Debentures NCIB and Renewed Debentures NCIB, collectively. On January 31, 2026, the Company repaid the January Debentures on maturity.
Pipeline
The table below presents our qualified leads and twelve-month forward pipeline as at January 1, 2026 and January 1, 2025. We define qualified leads as the quantity of projects being pursued as of the date presented, and define our pipeline as the estimated potential revenue from qualified leads where a client has engaged DIRTT and is assessing DIRTT as a potential provider of prefabricated interior solutions. We believe these metrics are helpful to estimate near-term performance, particularly given the macroeconomic factors that affect our operating environment, including labor availability, interest rate changes, and potential recessionary impacts on construction projects. There can be no assurance that our estimated qualified leads is accurate or that such qualified leads will deliver the revenue we expect.
As of January 1, 2026, our twelve-month forward pipeline increased by 20% from January 1, 2025, illustrated in the table below.
January 1, 2026
January 1, 2025
% Change
Twelve-Month Forward Pipeline ($ 000s)
Commercial
Healthcare
Government
Education
Leads (#)
Price Increases and Impact of Tariffs
On February 11, 2025, we announced a price increase of 5% on all orders placed after March 18, 2025, and price adjustments on certain products in response to market feedback and to mitigate the impact of rising raw material costs.
Commencing in February 2025, the U.S. government proposed and enacted various tariffs. Refer to “Risk Factors” for further discussion on these tariffs. As of the date of this report, the following tariffs are currently in effect that materially affect DIRTT:
On March 12, 2025, a 25% tariff was levied on steel and aluminum imports from Canada into the U.S. As disclosed in this report, DIRTT manufactures aluminum components, which are machined and processed in Calgary, Alberta as well as Savannah, Georgia. Aluminum costs represent approximately 9% of our total product revenue. This tariff impacts aluminum exports from our Calgary plants to our U.S. customers.
On March 13, 2025, Canada responded to the U.S. tariffs by announcing reciprocal tariffs. Approximately 89% of DIRTT’s raw materials are sourced in North America and certain products are imported from the U.S. to Canada. We incurred costs on these reciprocal tariffs but note that the scope of these tariffs has fluctuated over time, and to the extent these tariffs are meaningfully maintained, we will look into seeking exemptions or alternative suppliers to mitigate their impact.
On April 9, 2025, tariffs of 145% were levied on imports from China into the U.S. On June 11, 2025, China and the U.S. agreed to reduce overall tariffs by 115% to a rate of 30%. On November 4, 2025, the tariff rate was reduced by a further 10% to 20%. The Company imports certain raw materials from China (approximately 7% of total raw material spend, representing 2% of total product revenue). In response, we increased the price of certain hardware by 10%, effective June 5, 2025.
On June 3, 2025, the U.S. government announced a tariff increase, raising duties on all steel and aluminum imports from 25% to 50%. In response, we added a surcharge of 3.5% on all orders placed after June 20, 2025.
If further tariff changes are announced, we will consider the impact of such changes to our business. The most significant tariff impacting DIRTT at present is the 50% aluminum and steel tariff. We expect to continue mitigating the impact of prevailing tariffs through pricing actions, surcharges and various other internal tariff mitigation strategies. In February 2026, we announced an additional 1% price surcharge to mitigate rising aluminum prices.
Outlook
December 2025 was our highest revenue-grossing month in two years, culminating in $50.9 million of revenue and $6.2 million of Adjusted EBITDA for the fourth quarter of 2025, consistent with our guidance of $48.0 million to $52.0 million of revenue and $5.0 million to $7.0 million of Adjusted EBITDA.
The broader macroeconomic backdrop remains supportive, as the Dodge Momentum Index increased through year-end and, despite a slight decline in January 2026, remained well above its January 2025 level.
Concurrent with these industry and macroeconomic developments, we have continued to transform and optimize our business. In early 2025, the Company established a transformation office to accelerate the execution of strategic initiatives focused on streamlining processes, supporting the Construction Services team, and improving productivity across the organization (the “Transformation Office”). To support these efforts, the Company announced two short-term strategic leadership appointments. Scott Robinson was appointed Executive Chairman of the Board and Adrian Zarate was appointed Chief Transformation Officer, each effective November 26, 2025. These leaders are working closely with the executive team to implement operational and financial elements of the Company’s transformation plan. Refer to Note 5 of the consolidated financial statements for costs related to these initiatives. The program is expected to be completed in 2026.
The Company’s balance sheet remains strong, with $32.1 million of liquidity, consisting of unrestricted cash and available borrowing capacity, and modest indebtedness of $23.4 million.
In addition, the Company is currently involved the Falkbuilt Litigation. The trial commenced on February 2, 2026 and remains ongoing. DIRTT is pursuing damages and losses it suffered in Canada, the United States, and abroad in the Court of King’s Bench of Alberta.
Non-GAAP Financial Measures
Note Regarding Use of Non-GAAP Financial Measures
Our 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 Annual 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 sale of software and patents, gain on extinguishment of convertible debt, gain on disposal of lease, and impairment charges), stock-based compensation, related party expense, and government subsidies. We remove the impact of foreign exchange () from Adjusted EBITDA. Foreign exchange and 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, including Adjusted EBITDA guidance, to its corresponding GAAP measures due to the high variability and in making accurate forecasts and projections, particularly with respect to non-operating income and expenditures, which are to predict and subject to change.
Government subsidies, depreciation and amortization, stock-based compensation expense, reorganization expense, foreign exchange gains and losses, gain on extinguishment of convertible debt, impairment charges, gain on sale of software and patents, net interest income on cash deposits, interest expense on outstanding debt and debt facilities, tax expense, related party expense, gain on disposal of lease, and legal provisions 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 Annual 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; impairment charges; reorganization expenses; stock-based compensation expense; government subsidies; unusual or infrequent charges and gains such as gain on sale of software and patents and gain on extinguishment of convertible debt; related party expense; and any other non-core gains or losses
Adjusted EBITDA Margin
Adjusted EBITDA divided by revenue
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
Year Ended December 31, 2025 Compared to the Year Ended December 31, 2024
For the Year Ended, December 31
% Change
($ in thousands)
Revenue
Gross Profit
Gross Profit Margin
Operating expenses
Sales and marketing
General and administrative
Operations support
Technology and development
Reorganization
Stock-based compensation
Impairment charge
Gain on disposal of lease
Total operating expenses
Operating (loss) income
Operating margin
Interest expense
Foreign exchange (loss) gain
Interest income
Gain on extinguishment of convertible debentures
Net (loss) income before tax
Current and deferred income tax expense
Net (loss) income after tax
Revenue
Revenue reflects sales to our Construction Partners for resale to their clients and, in limited circumstances, our direct sales to clients through Construction Services. 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.
The following table sets forth the contribution to revenue of our product and service offerings.
For the Year Ended December 31,
% Change
($ in thousands)
Product
Transportation
License fees from Construction Partners
Total product revenue
Installation and other services
Revenue for the year ended December 31, 2025, was $168.9 million, a decrease of $5.5 million or 3% from the year ended December 31, 2024, primarily due to delays in project start dates. The delays in projects were largely related to market uncertainties as well as specific job site readiness. When project delays occur, the project is typically deferred 1-12 months from the original planned start date. For the year ended December 31, 2025, we recorded $1.9 million in revenue related to the 3.5% surcharge on orders placed on or after June 20, 2025. The 5% price increase on orders placed on or after March 18, 2025 has been reflected in revenue. See “Price Increases and Impact on Tariffs.”
Installation and other services revenue was $4.8 million for the year ended December 31, 2025, compared to $4.7 million in the year ended December 31, 2024. This revenue primarily reflects services performed by our technology teams for third parties. Except in limited circumstances, historically our Construction Partners, rather than the Company, perform installation services. As we work on developing our Construction Services offerings, we expect to see a modest increase in installation and other services revenue.
Our success is partly dependent on our ability to profitably develop our Construction Partner network to expand our market penetration and ensure best practices are shared across local markets. At December 31, 2025, we had 66 (2024 - 71) Construction Partners servicing multiple locations. We also continue to work on developing our Construction Services offerings and partnering with our Construction Partner network to drive revenue for DIRTT.
We periodically analyze our revenue growth by vertical markets in the defined markets of commercial, healthcare, government and education.
For the Year Ended December 31,
% Change
($ in thousands)
Commercial
Healthcare
Government
Education
License fees from Construction Partners
Total product revenue
Service revenue
For the Year Ended December 31,
Commercial
Healthcare
Government
Education
Total Product Revenue (1)
(1) Excludes license fees from Construction Partners.
Commercial sales decreased by 19% for the year ended December 31, 2025, primarily due to higher than normal order delays due to job sites not being ready. Healthcare revenues increased by 90% in the year ended December 31, 2025, from the prior year, primarily due to a higher volume of projects at a higher value with four large projects being shipped in the fourth quarter 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 continue to invest in growing healthcare through expanding product offerings and targeted business development efforts. Government sales decreased by 34% from the prior year due to lower value projects in 2025 compared to 2024. Education sales in 2025 increased by 52% from the prior year, primarily due to higher value projects in 2025 compared to 2024.
Revenue continues to be derived almost exclusively from projects in North America and predominantly from the United States. The following table presents our revenue dispersion by geography:
For the Year Ended December 31,
% Change
($ in thousands)
Canada
In 2025, 12% of revenue was from Canada, as compared to 14% in 2024. Historically, approximately 11-15% and 85-89% of revenues are derived from sales to Canada and the United States, respectively.
Sales and marketing expenses
Sales and marketing expenses decreased by $2.3 million to $20.6 million for the year ended December 31, 2025, from $22.9 million for the year ended December 31, 2024. The decrease was primarily comprised of a $1.1 million decrease in commissions and pass through charges as a result of lower revenues, a $0.4 million decrease in travel, meals and entertainment expenses, a $0.2 million decrease in professional services costs, a $0.2 million decrease in salaries and benefits costs, a $0.3 million decrease in depreciation and amortization expenses, a $0.1 million decrease in marketing and tradeshow expenses, and a $0.1 million decrease in office costs.
General and administrative expenses
General and administrative expenses increased $3.7 million to $23.6 million for the year ended December 31, 2025, from $19.9 million for the year ended December 31, 2024. The increase was primarily driven by a $2.0 million legal provision (refer to Note 22 of our Consolidated Financial Statements for additional information), a $0.8 million increase in professional services costs, primarily as a result of litigation costs related to the Falkbuilt Litigation, a $0.5 million increase in board fees, a $0.4 million bad debt expense related to the write off of Phoenix sublease income (refer to Note 8 of our Consolidated Financial Statements for additional information), a $0.4 million increase in salaries and benefits costs, and a $0.2 million increase in communication costs. These increases were offset by a $0.5 million decrease in building and infrastructure costs, and a $0.2 million decrease in depreciation and amortization expenses.
Operations support expenses
Operations support is comprised primarily of our Construction Services team, project managers, order entry and other professionals that facilitate the integration of our Construction Partner and other customers’ project execution and our manufacturing operations. Operations support expenses of $7.9 million in 2025 increased $0.5 million from $7.4 million in 2024. The increase was largely driven by a $0.2 million increase in salaries and benefits costs, a $0.2 million increase in marketing and tradeshows expenses, and a $0.2 million increase in product research and development costs. The increase was offset by a $0.1 million decrease in travel, meals and entertainment expenses.
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 by $0.7 million to $4.6 million for the year ended December 31, 2025, compared to $5.3 million for the year ended December 31, 2024. The decrease was primarily related to a $0.8 million decrease in salaries and benefits costs, a $0.3 million loss on disposal of a previously capitalized software development project in 2024 not repeated in 2025, and a $0.1 million decrease in communication costs. The decrease was offset by a $0.5 million increase in professional services 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.
Stock-based compensation expense for the year ended December 31, 2025, was $3.0 million, consistent with prior year.
Reorganization
For the year ended December 31, 2025, we incurred $4.9 million of reorganization costs compared to $1.1 million during the year ended December 31, 2024. Reorganization expenses for the year ended December 31, 2025 primarily relate to termination and consultant costs associated with our transformation plan (refer to Note 5 of our Consolidated Financial Statements for additional information),
while the reorganization costs in the year ended December 31, 2024 relate to the movement of inventory and equipment from the Rock Hill Facility for use at our facility in Calgary, Alberta.
Impairment charge
The Company finalized the decision to close the Rock Hill Facility in the third quarter of 2023. The Company’s reassessment of the useful lives of the manufacturing equipment at the Rock Hill Facility resulted in an $8.7 million impairment charge in the twelve months ended December 31, 2023.
Certain assets, including manufacturing equipment, which met held-for-sale criteria at that time were reclassified from property, plant and equipment. At March 31, 2024, we determined that the assets held for sale balance of $0.5 million was to be reduced to $nil, resulting in a $0.5 million impairment charge for the first quarter of 2024. We were not able to determine the likelihood of recoverability based on the current market interest in the equipment.
Effective December 30, 2025, the Company entered into an agreement for an early termination of the lease at the Rock Hill Facility. As such, the remaining leasehold improvements were measured at the lower of the net book value versus the fair value less cost to sell resulting in an impairment charge of $2.3 million during 2025.
Additionally, the Company incurred an impairment charge of $0.7 million related to impairment of right-of-use assets at our Phoenix Facility in the fourth quarter of 2025.
Gain on disposal of lease
On December 30, 2025, the Company entered an early termination agreement for its Rock Hill Facility lease. As a result, the Company recognized a $0.9 million gain on the derecognition of the lease liability and ROU asset associated with this terminated lease.
Gain on extinguishment of convertible debt
During the year ended December 31, 2025, C$0.5 million ($0.3 million) principal amount of Debentures was repurchased for cancellation through the Debentures NCIB and Renewed Debentures NCIB, in aggregate, which triggered an extinguishment of debt. The gain on extinguishment of debentures of $0.02 million for the year ended December 31, 2025, was calculated as the difference between the repayment and the net carrying value of the extinguished principal less unamortized issuance costs (refer to Note 7 of our Consolidated Financial Statements for additional information).
During the year ended December 31, 2024, C$43.4 million ($31.8 million) in principal amount of Debentures was repurchased for cancellation through the Issuer Bid, Debenture Repurchase, and Debentures NCIB which triggered an extinguishment of debt. The gain on extinguishment of $10.4 million for the year ended December 31, 2024, was calculated as the difference between the repayment and the net carrying value of the extinguished principal less unamortized issuance costs (refer to Note 7 of our Consolidated Financial Statements for additional information).
Foreign exchange gain (loss)
In the year ended December 31, 2025, we had a foreign exchange loss of $1.7 million compared to a gain of $3.0 million in the year ended December 31, 2024, due to the strengthening of the Canadian dollar relative to the U.S. dollar throughout 2025 as compared to 2024.
Interest income
Interest income decreased to $0.9 million for the year ended December 31, 2025, compared to $1.6 million in the year ended December 31, 2024, primarily the result of declining interest rates yielded on lower cash balances in the year ended December 31, 2025.
Interest expense
Interest expense decreased by $2.1 million from $4.0 million for the year ended December 31, 2024, to $1.9 million for the year ended December 31, 2025. This decrease is largely due to repayment of debt throughout the years ended December 31, 2024 and 2025, reducing the interest payable on current and long-term debt.
Income tax
The provision for income taxes comprises U.S. and Canadian federal, state and provincial taxes based on pre-tax income. Income tax expense for the year ended December 31, 2025, was $0.5 million, compared to $0.4 million for the same period of 2024. For the year ended December 31, 2025, the Company recorded valuation allowances of $1.0 million (2024 - $3.8 million utilized) against deferred tax assets incurred during the year as the Company has experienced cumulative losses in recent years. Due to the Company’s history of negative earnings, it is not more likely than not that the Company’s deferred tax assets will be utilized in the near term.
As at December 31, 2025, we had C$117.0 million of loss carry-forwards in Canada and $48.2 million in the United States. These loss carry-forwards will begin to expire in 2032.
Net (loss) income after tax
Net loss after tax decreased to $14.4 million or $0.08 net loss after tax per share, basic and diluted, in the year ended December 31, 2025, from net income after tax of $14.8 million or $0.08 and $0.07 net income after tax per share, basic and diluted, in the year ended December 31, 2024. The decreased income is primarily the result of a $8.9 million decrease in gross profit, a $3.8 million increase in reorganization expenses, one-time impairment charge and gain on disposal of lease of $1.6 million, a $10.4 million decrease in gain on extinguishment of convertible debt, a $4.7 million increase in foreign exchange loss, and a $0.6 million decrease in interest income, a $2.0 million legal provision (refer to Note 22 of our Consolidated Financial Statements for additional information), partially offset by a $2.1 million decrease in interest expense and a $0.7 million decrease in other operating expenses.
Three Months Ended December 31, 2025 Compared to the Three Months ended December 31, 2024
For the Three Months Ended December 31,
% Change
($ in thousands)
Revenue
Gross Profit
Gross Profit Margin
Operating expenses
Sales and marketing
General and administrative
Operations support
Technology and development
Reorganization
Stock-based compensation
Impairment charge
Gain on disposal of lease
Total operating expenses
Operating (loss) income
Operating margin
Interest expense
Foreign exchange (loss) gain
Interest income
Gain on extinguishment of convertible debentures
Net (loss) income before tax
Current and deferred income tax expense
Net (loss) income after tax
Our fourth quarter revenue was $50.9 million, an increase of $2.0 million or 4% from $48.9 million for the same period in 2024. The fourth quarter of 2025 had a higher volume of healthcare projects at a higher value, partially offset by the benefit from four large commercial projects that were completed in the fourth quarter of 2024.
Annual 2025 Non-GAAP Measures
Adjusted Gross Profit and Adjusted Gross Profit Margin for the Years Ended December 31, 2025, 2024 and 2023
The following table presents a reconciliation for the years ended December 31, 2025, 2024, and 2023 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 Year Ended, December 31
Gross profit
Gross profit margin
Add: Depreciation and amortization expense
Adjusted Gross Profit
Adjusted Gross Profit Margin
For the year ended December 31, 2025, gross profit and gross profit margin decreased to $55.4 million or 32.8% from $64.4 million or 36.9% for the prior year. Adjusted Gross Profit and Adjusted Gross Profit Margin decreased to $59.5 million or 35.2% for the year ended December 31, 2024, from $68.3 million or 39.2% for the year ended December 31, 2024.
The decrease in Adjusted Gross Profit was a result of a decrease in revenue due to higher than normal order delays due to job sites not being ready. In addition, there was an increase in tariff-related costs that commenced in March 2025 that resulted in a decrease to gross profit.
EBITDA and Adjusted EBITDA for the Years Ended December 31, 2025, 2024 and 2023
The following table presents a reconciliation for the results of 2025, 2024 and 2023 of EBITDA and Adjusted EBITDA to our net (loss) income, and of Adjusted EBITDA Margin to net (loss) income margin, which are the most directly comparable GAAP measures for the years presented:
For the Year Ended, December 31
Net (loss) income after tax for the period
Add back (deduct):
Interest expense
Interest income
Income tax expense
Depreciation and amortization
EBITDA
Reorganization expense (2)
Stock-based compensation
Impairment charge (2)
Gain on disposal of lease (2)
Related party expense (2)
Foreign exchange loss (gain)
Gain on extinguishment of convertible debentures (2)
Government subsidies (2)
Gain on sale of software and patents (2)
Legal provision (2)
Phoenix sublease write-off (2)
Adjusted EBITDA
Net (Loss) Income Margin (1)
Adjusted EBITDA Margin
Net (loss) income divided by revenue.
Reorganization expenses, the gain on sale of software and patents, the gain on extinguishment of convertible debt, the impairment charge, legal provision, the Phoenix sublease write-off, the gain on disposal of lease, related party expense and government subsidies are not core to our business and are therefore excluded from the Adjusted EBITDA calculation (refer to Note 4, Note 5, Note 6, Note 7, Note 8, Note 22, and Note 24 of the Consolidated Financial Statements).
For the year ended December 31, 2025, Adjusted EBITDA and Adjusted EBITDA Margin decreased by $8.0 million to $7.4 million or 4.4% of revenue from $15.4 million or 8.8% of revenue in the same period of 2024. This reflects an $8.8 million decrease in Adjusted Gross Profit, discussed above, a $0.4 million decrease in salaries and benefits costs, a $1.1 million decrease in pass through charge and commissions as a result of lower revenues, a $0.5 million decrease in building and infrastructure costs, a $0.5 million decrease in travel, meals and entertainment, offset by a $2.0 million legal provision (refer to Note 22 of our Consolidated Financial Statements for additional information), a $1.0 million increase in professional services costs, a $0.5 million in board fees, a $0.2 million increase in research and development costs, a $0.2 million increase in marketing and tradeshow costs, and a $0.1 million increase in communication costs.
Reconciliation of Q4 2025 Non-GAAP Measures
Adjusted Gross Profit and Adjusted Gross Profit Margin for the Three Months Ended December 31, 2025, 2024 and 2023
The following table presents a reconciliation for the three months ended December 31, 2025, 2024, and 2023 of Adjusted Gross Profit to our gross profit, and Adjusted Gross Profit Margin to gross profit margin, which is the most directly comparable GAAP measures for the periods presented:
For the Three Months Ended December 31,
($ in thousands)
Gross profit
Gross profit margin
Add: Depreciation and amortization expense
Adjusted Gross Profit
Adjusted Gross Profit Margin
EBITDA and Adjusted EBITDA for the Three Months Ended December 31, 2025, 2024 and 2023
The following table presents a reconciliation for the results of three months ended December 31, 2025, 2024 and 2023 of EBITDA and Adjusted EBITDA to our net (loss) income after tax, and of Adjusted EBITDA Margin to net (loss) income margin, which are the most directly comparable GAAP measures for the years presented:
For the Three Months Ended December 31,
($ in thousands)
Net (loss) income after tax for the period
Add back (deduct):
Interest expense
Interest income
Income tax expense
Depreciation and amortization
EBITDA
Reorganization expense (2)
Stock-based compensation
Impairment charge (2)
Gain on disposal of lease (2)
Foreign exchange loss (gain)
Gain on extinguishment of convertible debentures (2)
Gain on sale of software and patents (2)
Legal provision (2)
Phoenix sublease write-off (2)
Adjusted EBITDA
Net (Loss) Income Margin (1)
Adjusted EBITDA Margin
Net (loss) income divided by revenue.
Reorganization expenses, the gain on sale of software and patents, the gain on extinguishment of convertible debt, the impairment charge, and the Phoenix sublease write-off, the gain on disposal of lease are not core to our business and are therefore excluded from the Adjusted EBITDA calculation (refer to Note 4, Note 5, Note 6, Note 7 and Note 22 of the Consolidated Financial Statements).
Year Ended December 31, 2024 Compared to the Year Ended December 31, 2023
Discussion and analysis of our financial condition and results of operations for the fiscal year ended December 31, 2024 compared to the fiscal year ended December 31, 2023, is included under the heading Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, as filed with the SEC and applicable securities commissions or similar regulatory authorities in Canada on February 26, 2025.
Liquidity and Capital Resources
As at December 31, 2025, the Company had $20.3 million of cash on hand and C$16.3 million ($11.8 million) of available borrowings, compared to $29.3 million of cash on hand and C$14.4 million ($10.0 million) of available borrowings as at December 31, 2024. Through the year ended December 31, 2025, the Company used $9.0 million in cash flows primarily for the payment of $4.4 million to repurchase common shares under the Shares NCIB and Share Repurchase, $4.1 million for capital expenditures, $0.4 million for the repayment of debt and $0.2 million of net cash flows used in operating activities.
We have assessed the Company’s liquidity as at December 31, 2025, taking into account our sales outlook for the next twelve months, our budget, forecast and expected cash outflows and our existing cash balances, debt 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 January Debentures amounting to C$16.6 million ($12.1 million) as at December 31, 2025 were due and paid in full on January 31, 2026 and have therefore been classified as current on our balance sheet. Another C$14.8 million ($10.8 million) of principal is due under the December Debentures, which mature on December 31, 2026. We are evaluating whether we will settle or refinance this debt.
On October 28, 2025, we entered into a non-binding term sheet with the BDC for proposed financing of up to C$15.0 million, the net proceeds of which are expected to be used to further strengthen our balance sheet and partially repay the January Debentures. 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 conditions were amended on January 30, 2026 and February 9, 2026. The Company received $5.5 million from BDC on February 13, 2026. The next disbursement of C$4.5 million is subject to the receipt of certain landlord waivers and other conditions. The last disbursement of C$5.0 million is expected to be in the second half of the year, subject to certain conditions.
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.
The Fifth Extended RBC Facility includes a customary “Restricted Payments” covenant that prohibits us from, among other things, repurchasing our common shares, unless we have satisfied certain conditions (the “Payment Conditions”). The Payment Conditions include a condition that, after giving effect to the relevant Restricted Payment, 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. RBC has agreed to provide a waiver pursuant to Section 8.3 of the Fifth Extended RBC Facility in connection with the foregoing.
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 December Debentures 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., 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 (refer to “Item 1.A Risk Factors” section).
Equity and Debt Issuances and Buyback Programs
During 2025, we continued to execute on various debt and share buyback programs. The Issuer Bid, 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 I, Item 1A. Risk Factors” section and elsewhere of this Annual Report, proposed and implemented tariffs on Canadian exports into the United States, 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 C$40.3 million principal amount of 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. Interest and principal were payable in cash or shares at the option of the Company.
On December 1, 2021, we issued C$35.0 million principal amount 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. During the year ended December 31, 2025, C$0.3 million ($0.2 million) principal amounts of the December Debentures and C$0.06 million ($0.04 million) principal amounts of the January Debentures had been acquired through the Debentures NCIB. On August 26, 2025, the Company announced the Renewed 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. Under the Renewed Debentures NCIB, DIRTT is permitted to acquire up to C$1,656,900 principal amount of the January Debentures and C$1,493,500 principal amount of the December Debentures. During the year ended December 31, 2025, C$0.1 million ($0.1 million) principal amounts of the December Debentures and $0.01 million ($0.01 million) principal amounts of the January Debentures had been acquired through the Renewed Debentures NCIB. As at December 31, 2025, C$16.6 million ($12.1 million) principal amount of the January Debentures and C$14.8 million ($10.8 million) principal amount of the December Debentures were outstanding. On January 31, 2026, the Company repaid the outstanding balance of the January Debentures with cash on hand.
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 Renewed Shares NCIB which commenced December 19, 2025, and is expected to terminate on December 21, 2026. 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 into 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. For the year ended December 31, 2025, 5,780,996 common shares had been repurchased and cancelled for proceeds of C$6.2 million ($4.4 million) through the 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”). Under the RBC Facility, the Borrowing Base is up to a maximum of 90% of investment grade or insured accounts receivable plus 85% of eligible accounts receivable plus the lesser of 75% of the book value of eligible inventory and 85% of the net orderly liquidation value of eligible inventory less any reserves for potential prior ranking claims. Interest is calculated at the Canadian or U.S. prime rate plus 30 basis points or at the Canadian Dollar Offered Rate or LIBOR plus 155 basis points. Under the RBC Facility, if the “Aggregate Excess Availability”, defined as the Borrowing Base less any loan advances or letters of credit or guarantee and if undrawn including unrestricted cash is less than C$5.0 million, the Company is subject to a fixed charge coverage ratio (“FCCR”) covenant of 1.10:1 on a trailing twelve-month basis. Additionally, if the FCCR was below 1.10:1 for the three immediately preceding months, the Company would be required to maintain a reserve account equal to the aggregate of one year of payments on outstanding loans on the Canada Leasing Facility and a leasing facility in the United States that is no longer available (together, the “Leasing Facilities”). Should an event of default occur or the Aggregate Excess Availability be less than C$6.25 million for five consecutive business days, the Company would enter a cash dominion period whereby the Company’s bank accounts would be blocked by RBC and daily balances will set-off any borrowings and any remaining amounts made available to the Company.
On February 9, 2023, the Company extended the RBC Facility (the “Extended RBC Facility”). The Extended RBC Facility has a maximum borrowing base of C$15.0 million and a one-year term. Interest was calculated as at the Canadian or U.S. prime rate plus 75 basis points or at the Canadian Dollar Offered Rate or LIBOR plus 200 basis points. Under the Extended RBC Facility, until such time that the trailing twelve-month FCCR is above 1.25 for three consecutive months, a cash balance equivalent to one-year’s worth of Leasing Facilities payments would be required to be maintained.
On February 9, 2024, the Company extended the Extended RBC Facility (the “Second Extended RBC Facility”). The maximum availability under the Second Extended RBC Facility is subject to the borrowing base calculation to a maximum of C$15.0 million and a one-year term. Interest is calculated as at the Canadian or U.S. prime rate plus 75 basis points or at the Canadian Dollar Offered Rate
or Adjusted Term CORRA or Term SOFR plus the Term SOFR Adjustment, in each case, plus 200 basis points. The Second Extended RBC Facility removed the three-month FCCR covenant, which resulted in the release of $0.1 million of restricted cash during the first quarter of 2024 (the Company had $0.4 million restricted cash as at December 31, 2023). On February 11, 2025, the Company extended the Second Extended RBC Facility (the “Third Extended RBC Facility”) for a period of two weeks up to February 25, 2025 whilst the Company and RBC completed negotiations.
On February 20, 2025, the Company extended the Third Extended RBC Facility (the “Fourth Extended RBC Facility”). The Fourth Extended RBC Facility is subject to the borrowing base calculation based on accounts receivable balances to a maximum of C$25.0 million and matures on November 30, 2025. 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. The Fourth Extended RBC Facility also includes a new letter of credit facility guaranteed by the Export Development of Canada of C$5 million. The Company has also entered into a bonding facility with Great Midwest Insurance Company, and any other company that is part of or added to Skyward Specialty Insurance Group, Inc. (“Skyward”), which allows access to a $15.0 million bonding facility subject to an individual maximum of $5 million. Under the terms of the facility with Skyward, any bonds issued will be secured through letters of credit issued pursuant to the Fourth Extended RBC Facility.
On November 4, 2025, the Company extended the Fourth Extended RBC Facility (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 December 31, 2025, available borrowings were C$16.3 million ($11.8 million) (December 31, 2024 – C$14.4 million ($10.0 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.
The Fifth Extended RBC Facility includes a customary “Restricted Payments” covenant that prohibits us from, among other things, repurchasing our common shares, unless we have satisfied certain conditions (the “Payment Conditions”). The Payment Conditions include a condition that, after giving effect to the relevant Restricted Payment, 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. RBC has agreed to provide a waiver pursuant to Section 8.3 of the Fifth Extended RBC Facility 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 December 31, 2025, 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 years ended December 31, 2025 and 2024.
We are restricted from paying dividends unless Payment Conditions (as defined in the Fifth Extended RBC Facility) are met, including having a net borrowing availability of at least C$5.0 million over the proceeding 30-day period, and having a trailing twelve-month fixed charge coverage ratio above 1.10:1 and certain other conditions. The Fifth Extended RBC Facility is currently secured by substantially all of our real and personal property located in Canada and the United States.
The following table summarizes our consolidated cash flows for the years indicated:
For the Year Ended, December 31
Net cash flows (used in) provided by operating activities
Net cash flows (used in) provided by investing activities
Net cash flows (used in) financing activities
Effect of foreign exchange on cash, cash equivalents and restricted cash
Net (decrease) increase in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash, beginning of period
Cash, cash equivalents and restricted cash, end of period
For the Year Ended, December 31
Cash and cash equivalents
Restricted cash
Total cash, cash equivalents and restricted cash
Operating Activities
Net cash flows used by operating activities were $0.2 million for the year ended December 31, 2025, compared to $7.3 million provided by operating activities for the year ended December 31, 2024. The decrease in cash flows provided by operations during the year ended December 31, 2025 is largely due to a decrease of $8.0 million in Adjusted EBITDA.
Investing Activities
We invested $1.6 million in property, plant and equipment during the year ended December 31, 2025, compared to the prior year’s investment in property, plant and equipment of $1.4 million. The capital expenditures for the years ended December 31, 2025 and December 31, 2024, respectively, primarily consisted of $0.5 million and $0.4 million on manufacturing upgrades, $0.4 million and $0.3 million of information technology investments, $0.5 million and $0.1 million in marketing investments, and $0.2 million and $0.5 million in leasehold improvements. We invested $1.7 million on capitalized software during the year ended December 31, 2025 compared to $1.6 million for the year ended December 31, 2024. In 2024, we benefited from proceeds on sale of assets held for sale of $1.0 million.
Financing Activities
For the year ended December 31, 2025, $5.0 million of cash was used in financing activities compared to $0.4 million used during the year ended December 31, 2024. During the year ended December 31, 2025, $4.4 million was used in repurchases of common shares through the Shares NCIB and the Share Repurchase, and $0.4 million repayment on convertible debt through the Debentures NCIB and Renewed Debentures NCIB. During the year ended December 31, 2024, $0.4 million of cash was used in financing activities, comprising $21.5 million repayment of debt under the Issuer Bid, Debenture Repurchase, Debentures NCIB and $0.2 million relating to employee tax payments on vesting RSUs, $0.1 million of scheduled repayments under the Canada Leasing Facility, offset by $21.3 million of proceeds received from the Rights Offering.
Consolidated cash flows for the quarter as indicated:
For the Three Months Ended December 31,
($ in thousands)
Net cash flows (used in) provided by operating activities
Net cash flows (used in) provided by investing activities
Net cash flows (used in) financing activities
Effect of foreign exchange on cash, cash equivalents and restricted cash
Net (decrease) increase in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash, beginning of period
Cash, cash equivalents and restricted cash, end of period
Contractual Obligations
The following table summarizes DIRTT’s contractual obligations at December 31, 2025:
Payments due by period
Less than
Greater than
1 year
1 to 3 years
3 to 5 years
5 years
Total
($ in thousands)
Accounts payable and accrued liabilities
Other liabilities
Customer deposits and deferred revenue
Current and long-term portion of long-term debt and accrued interest 1
Lease liabilities (undiscounted)
Purchase obligations
Total
Includes principal and interest. Refer to Note 14 of our Consolidated Financial Statements for additional information.
Critical Accounting Policies and Estimates
Our significant accounting policies are described in Note 2 to our Consolidated Financial Statements appearing in Item 8 of this Annual Report. Our critical accounting estimates include the areas where we have made what we consider to be particularly difficult, subjective or complex judgments in making estimates, and where these estimates can significantly affect our financial results under different assumptions and conditions. We prepare our financial statements in conformity with GAAP. As a result, we are required to make estimates, judgments and assumptions that we believe are reasonable based upon the information available. These estimates, judgments and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the periods presented. Actual results could be different from these estimates. Critical estimates and assumptions made by management include:
Estimates of liabilities associated with the potential and amount of warranty, legal claims and other contingencies
We have warranty obligations with respect to manufacturing defects on most of our manufactured products. Warranty periods generally range from one to ten years. We have recorded a reserve for estimated warranty and related costs based on historical experience and periodically adjust these provisions to reflect actual experience. We assess the adequacy of our warranty accrual on a quarterly basis, and adjust the previous amounts recorded, if necessary, to reflect the change in estimate of the future costs of claims yet to be serviced. Typically, product deficiencies requiring our warranty are identified and remediated within a year of production. The following provides information with respect to our warranty accrual. At December 31, 2025 and 2024, we had $0.9 million and $0.8 million,
respectively, accrued for warranty and other provisions, and third-party costs associated with remedying deficiencies were $0.6 million during the fiscal year ended December 31, 2025, consistent with the fiscal year ended December 31, 2024.
We establish reserves for estimated legal contingencies when we believe a loss on litigation is probable and the amount of the loss can be reasonably estimated. Revisions to contingent liability reserves are reflected in operations in the period in which there are changes in facts and circumstances that affect our previous assumptions with respect to the likelihood or amount of loss. Reserves for contingent liabilities are based upon our assumptions and estimates regarding the probable outcome of the matter. We estimate the probable cost by evaluating historical precedent as well as the specific facts relating to each contingency (including the opinion of outside advisors). Should the outcome differ from our assumptions and estimates, or other events result in a material adjustment to the accrued estimated reserves, revisions to the estimated reserves for contingent liabilities would be required and would be recognized in the period the new information becomes known. 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 liability. At December 31, 2025 and 2024, we had $2.0 million (relating to the Department of Justice matter) and $0.05 million provided for legal provisions, respectively.
Estimates of useful lives of depreciable assets, the fair value of long-term assets used for impairment calculations and the fair value less costs to sell for assets held for sale
We evaluate the recoverability of our property, plant, and equipment (“PP&E”), capitalized software costs and right of use assets when events or changes in circumstances indicate a potential impairment exists. If impairment is indicated, the impairment loss is measured as the amount the assets carrying value exceeds the fair value of the assets.
Our determination of the fair value associated with long-term assets involves significant estimates and assumptions, including those with respect to the determination of asset groups, future cash inflows and outflows, discount rates, and asset lives. These significant estimates require considerable judgment, which could affect our future results if the current estimates of future performance and fair values change.
We estimate the useful lives of PP&E, capitalized software costs and right of use assets based on the period over which the assets are expected to be available for use. The estimated useful lives are reviewed annually and are updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or other limits on the use of the relevant assets. In addition, the estimation of the useful lives of the relevant assets may be based on internal technical evaluation and experience with similar assets. It is possible, however, that future results of operations could be materially affected by changes in the estimates brought about by changes in factors mentioned above. The amounts and timing of recorded expenses for any period would be affected by changes in these factors and circumstances. A reduction in the estimated useful lives of the PP&E and capitalized software assets would increase the recorded expenses and decrease the non-current assets.
The Company classifies an asset group (“asset”) as held for sale in the period that (i) it has approved and committed to a plan to sell the asset, (ii) the asset is available for immediate sale in its present condition, (iii) an active program to locate a buyer and other actions required to sell the asset have been initiated, (iv) the sale of the asset is probable and transfer of the asset is expected to qualify for recognition as a completed sale within one year (subject to certain events or circumstances), (v) the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value, and (vi) it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. The Company initially and subsequently measures a long-lived asset that is classified as held for sale at the lower of its carrying value or fair value less any costs to sell. Any loss resulting from this measurement is recognized in the consolidated statement of operations and comprehensive loss in the period in which the held for sale criteria are met. We estimate the fair value less costs to sell based on market prices and discussions with potential buyers on the assets that are held for sale. The amounts and timing that the assets held for sale are sold could be impacted on the ability to market and sell the assets held for sale, and find a suitable buyer.
Estimates of future taxable earnings used to assess the realizable value of deferred tax assets
We use the asset and liability method of accounting for income taxes. Under this method, deferred income tax assets and liabilities arise from temporary differences between the tax bases of assets and liabilities and their carrying amounts reported in our Consolidated Financial Statements. Deferred income tax assets also reflect the benefit of unutilized tax losses that can be carried forward to reduce income taxes in future years. Such method requires the exercise of significant judgment in determining whether or not it is more likely than not our deferred tax assets may be realized and, therefore, can be recognized in our Consolidated Financial Statements. Also, estimates are required to determine the expected timing upon which tax assets will be realized and upon which tax liabilities will be
settled. We assess the ability to recover our deferred tax assets every quarter and concluded that a valuation allowance was required against our deferred tax assets at December 31, 2025 of $30.9 million (2024 - $30.0 million).
Tax interpretations, regulations, and legislation in the various jurisdictions in which the Company and its subsidiary operate
The determination of our provision for income taxes requires significant judgment, the use of estimates and the interpretation and application of complex tax laws. Our provision for income taxes reflects a combination of income earned and taxed in the various U.S. federal and state, and Canadian federal and provincial, jurisdictions. Jurisdictional tax law changes, increases or decreases in permanent differences between book and tax items, accruals or adjustments of accruals for tax contingencies or valuation allowances, and the change in the mix of earnings from these taxing jurisdictions all affect the overall effective tax rate.
We have no liability for uncertain tax positions. However, should we accrue for such liabilities, when and if they arise in the future, we will recognize interest and penalties associated with uncertain tax positions as part of our income tax provision.
Estimates of the fair value of stock awards, including whether the performance criteria will be met and measurement of the ultimate payout amount
We use a fair-value based approach for measuring stock-based compensation and record compensation expense over an award’s vesting period based on the award’s fair value at the date of grant. Our awards vest based on performance and service conditions, and compensation expense is recognized on a straight-line basis. Stock-based compensation expense is recognized only for those awards that ultimately vest.
Estimates of ability and timeliness of customer payments of accounts receivable
Our expected credit loss reflects reserves for customer receivables to reduce receivables to amounts expected to be collected. Management uses significant judgment in estimating expected credit losses. In estimating the Company’s current estimate of expected credit losses, management considers 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. While we believe these processes effectively address our exposure for doubtful accounts and credit losses which have historically been within expectations, changes in the economy, industry, or specific customer conditions may require adjustments to the expected credit loss. We have a contract with a trade credit insurance provider, whereby a portion of our trade receivables are insured. The trade credit insurance provider determines the coverage amount, if any, on a customer-by-customer basis. Based on our trade receivables balance as at December 31, 2025 and 2024, approximately 59% and 82%, respectively, of that balance was covered by the trade credit insurance provider.
At December 31, 2025, we had an allowance for expected credit loss of $0.1 million (2024 - $0.1 million).
Recent Accounting Pronouncements
Please refer to Note 3 to our Consolidated Financial Statements presented elsewhere in this Annual Report.
Item 7A. Quantitative and Qualitati ve Disclosures About Market Risk.
Our financial assets and liabilities consist primarily of cash and cash equivalents, restricted cash, trade and accrued receivables, other receivables, deposits and long-term receivables, accounts payable and accrued liabilities, other liabilities, and long-term debt and accrued interest. We are exposed to market, credit and liquidity risks associated with financial assets and liabilities. We currently do not use financial derivatives to reduce exposures from changes in foreign exchange rates, commodity prices, or interest rates. We do not hold or use any derivative instruments for trading or speculative purposes. Our Board of Directors has responsibility for the establishment and approval of overall risk management policies, including those related to financial instruments. Management performs continuous assessments to ensure that all significant risks related to financial instruments are reviewed and addressed in light of changes to market conditions and operating activities.
Credit risk
Our principal financial assets are cash and cash equivalents, trade and accrued receivables, other receivables and deposits.
Our credit risk is primarily concentrated in our trade and accrued receivables as we do not believe that we are exposed to any significant credit risk related to our cash and cash equivalents, other receivables and deposits. The amounts disclosed in the consolidated balance sheet for trade and accrued receivables and other receivables are net of allowances for doubtful accounts. Allowances are provided for the Company’s current estimate of all expected credit losses using the lifetime expected credit loss model. As at December 31, 2025 and 2024, our allowance was $0.1 million. 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. In addition, we acquired trade credit insurance effective April 1, 2020. At December 31, 2025, approximately 59% of our trade accounts receivable are insured, relating to accounts receivables from counterparties deemed creditworthy by the insurer and excluding accounts receivable from government entities, that have arisen since April 1, 2020, when the trade credit insurance became effective. Our trade balances are spread over a broad Construction Partner base, which is geographically dispersed. No single Construction Partner accounted for than 10% of revenue in 2025 or 2024. In addition, and where possible, we collect a 50% deposit on sales, excluding government and certain other clients.
Market risk
Market risk is the risk that changes in market prices, such as interest rates and foreign currency exchange rates, will affect our income or the value of the financial instruments held.
Foreign exchange risk
The majority (approximately 85% to 90%) of our revenue is collected in U.S. dollars, and approximately 35% of our costs are also incurred in U.S. dollars. Most other revenue and costs are denominated in Canadian dollars. As a result, we are exposed to fluctuations in the U.S. dollar against the Canadian dollar, which could have a positive or negative impact on our revenue and costs. The recent weakening of the U.S. dollar versus the Canadian dollar in 2025 has had a negative impact on results.
Our financial instruments are exposed primarily to fluctuations in the Canadian dollar. The following table details our exposure to currency risk at the reporting dates and a sensitivity analysis to changes in currency. The sensitivity analysis includes Canadian dollar-denominated monetary items and adjusts their translation at period end for their respective change in the Canadian dollar. For the respective weakening of the Canadian dollar, there would be an equal and opposite impact on net income (loss) and comprehensive (loss) income.
Effect of net income
and comprehensive
income for the
year ended
Amount
Change in
December 31, 2025
(C$ in thousands)
Currency (%)
(C$ in thousands)
Cash and cash equivalents
Trade and accrued receivables
Other receivables
Other assets
Accounts payable and accrued liabilities
Other liabilities
Current portion of long-term debt and accrued interest
Long-term debt
Total
Commodity price risk
We consume raw materials such as aluminum, hardware, wood and veneer, timber, plastic, electrical wiring and components, paint and powder, fabric, and vinyl. While aluminum represents the largest component of our raw materials’ expenditures, overall aluminum spend comprises only approximately 9% of product revenues and, therefore, absolute exposure to price fluctuations has a limited impact on profitability.
Interest rate risk
The Fourth Extended RBC Facility was subject to the borrowing base calculation based on accounts receivable balances to a maximum of C$25.0 million. On November 4, 2025, the Company entered into the Fifth Extended RBC Facility. 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.
We did not draw on the facilities during 2023, 2024 or 2025 and were, therefore not exposed to any interest rate risk.
The Company’s Leasing Facilities and Debentures bear interest at fixed interest rates and are therefore not subject to interest rate risk. Subsequent to year end the January Debentures were fully settled and the Company entered into the Loan which is also subject to fixed interest rates.
Item 8. Financial Statement s and Supplementary Data.
INDEX
Page No.
Report of Independent Registered Public Accounting Firm (PCAOB ID 271 )
Consolidated Balance Sheets, as at December 31, 2025 and 2024
Consolidated Statements of Operations and Comprehensive (Loss) Income for the years ended December 31, 2025, 2024 and 2023
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2025, 2024 and 2023
Consolidated Statements of Cash Flows for the years ended December 31, 2025, 2024 and 2023
Notes to the Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of DIRTT Environmental Solutions Ltd.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of DIRTT Environmental Solutions Ltd. and its subsidiaries (the Company) as of December 31, 2025 and 2024, and the related consolidated statements of operations and comprehensive (loss) income, of changes in shareholders’ equity and of cash flows for each of the three years in the period ended December 31, 2025, including the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue from Contracts with Customers - Product Sales
As described in Notes 2 and 20 to the consolidated financial statements, the Company’s revenue recognized from product sales was $146.4 million for the year ended December 31, 2025. The Company recognizes revenue upon transfer of control of promised goods to customers at the transaction price, an amount that reflects the consideration the Company expects to receive in exchange for those goods. The Company’s main performance obligation to customers is the delivery of products in accordance with purchase orders. Each purchase order defines the transaction price for the products purchased under the arrangement. The Company’s standard sales terms are Free On Board shipping point.
The principal consideration for our determination that performing procedures relating to revenue from contracts with customers is a critical audit matter is a high degree of auditor effort in performing procedures related to the Company’s revenue recognition.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included, among others (i) testing revenue recognized for a sample of revenue transactions by obtaining and inspecting source documents, such as purchase orders, invoices, bills of lading and subsequent cash receipts; and (ii) confirming a sample of outstanding customer invoice balances as of December 31, 2025 and, for confirmations not returned, obtaining and inspecting source documents, such as invoices, bills of lading and subsequent cash receipts.
/s/ PricewaterhouseCoopers LLP
Chartered Professional Accountants
Calgary, Canada
February 25, 2026
We have served as the Company’s auditor since 2017.
DIRTT Environmental Solutions Ltd.
Consolidated B alance Sheets
(Stated in thousands of U.S. dollars)
As at December 31,
As at December 31,
ASSETS
Current Assets
Cash and cash equivalents
Restricted cash
Trade and accrued receivables, net of expected credit losses of $ 0.1 million at December 31, 2025 and December 31, 2024
Other receivables
Inventory
Prepaids and other current assets
Total Current Assets
Property, plant and equipment, net
Capitalized software, net
Operating lease right-of-use assets, net
Other assets
Total Assets
LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities
Other liabilities
Customer deposits and deferred revenue
Current portion of long-term debt and accrued interest
Current portion of lease liabilities
Total Current Liabilities
Long-term debt
Long-term lease liabilities
Total Liabilities
SHAREHOLDERS’ EQUITY
Common shares, unlimited authorized without par value, 191,912,548 issued and outstanding at December 31, 2025 and 193,605,237 issued and outstanding at December 31, 2024
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Total Shareholders’ Equity
Total Liabilities and Shareholders’ Equity
Refer to Note 2 for policy on Common Shares.
Refer to Note 22 for Commitments.
Refer to Note 25 for Subsequent Events.
The accompanying notes are an integral part of these consolidated financial statements.
DIRTT Environmental Solutions Ltd.
Consolidated Statements of Operation s and Comprehensive (Loss) Income
(Stated in thousands of U.S. dollars, except per share data)
For the Year Ended December 31,
Product revenue
Service revenue
Total revenue
Product cost of sales
Service cost of sales
Total cost of sales
Gross profit
Expenses
Sales and marketing
General and administrative
Operations support
Technology and development
Reorganization
Stock-based compensation
Impairment charge
Gain on disposal of lease
Related party expense
Total operating expenses
Operating (loss) income
Interest expense
Foreign exchange (loss) gain
Interest income
Gain on extinguishment of convertible debentures
Government subsidies
Gain on sale of software and patents
Net (loss) income before tax
Income taxes
Current and deferred income tax expense
Net (loss) income after tax
Net (loss) income per share
Net (loss) income per share − basic
Net (loss) income per share − diluted
Weighted average number of shares outstanding (in thousands)
Basic
Diluted
Refer to Note 24 for Related Party Transactions included in this statement.
The prior year comparatives have been revised in line with current year presentation - refer to Earnings per share in Note 19.
The accompanying notes are an integral part of these consolidated financial statements.
DIRTT Environmental Solutions Ltd.
Consolidated Statements of Operations and Comprehensive (Loss) Income (continued)
(Stated in thousands of U.S. dollars)
For the Year Ended December 31,
Net (loss) income after tax for the year
Exchange differences on translation of foreign operations
Comprehensive (loss) income for the year
The accompanying notes are an integral part of these consolidated financial statements.
DIRTT Environmental Solutions Ltd.
Consolidated Statements of Cha nges in Shareholders’ Equity
(Stated in thousands of U.S. dollars, except for share data)
Accumulated
Number of
Additional
other
Total
Common
Common
paid-in
comprehensive
Accumulated
shareholders’
shares
shares
capital
loss
deficit
equity
As at December 31, 2022
Stock-based compensation
Issued on vesting of RSUs and Share Awards
Issued for employee share purchase plan
Issued to settle related party debt
RSUs and Share Awards withheld to settle employee tax obligations
Foreign currency translation adjustment
Net loss for the year
As at December 31, 2023
Stock-based compensation
Issued on vesting of RSUs
Issued on Rights Offering
RSUs withheld to settle employee tax obligations
Issued for employee share purchase plan
Cancelled from Normal Course Issuer Bid
Foreign currency translation adjustment
Net income for the year
As at December 31, 2024
Stock-based compensation
Issued on vesting of RSUs
Settlement of DSU liability (as defined in Note 17)
RSUs withheld to settle employee tax obligations
Issued for employee share purchase plan
Cancelled from Shares NCIB and Share Repurchase (as each defined in Note 18)
Foreign currency translation adjustment
Net loss for the year
As at December 31, 2025
The accompanying notes are an integral part of these consolidated financial statements.
DIRTT Environmental Solutions Ltd.
Consolidated Stateme nts of Cash Flows
(Stated in thousands of U.S. dollars)
For the Year Ended December 31,
Cash flows from operating activities:
Net (loss) income for the period
Adjustments:
Depreciation and amortization
Impairment charge
Stock-based compensation
Foreign exchange loss (gain)
Gain on extinguishment of convertible debt
Accretion of convertible debentures
Loss on disposal
Gain on sale of software and patents
Changes in operating assets and liabilities:
Trade and accrued receivables
Other receivables
Inventory
Prepaid and other assets, current and long term
Accounts payable and accrued liabilities
Other liabilities
Customer deposits and deferred revenue
Current portion of long-term debt and accrued interest
Lease liabilities
Net cash flows (used in) provided by operating activities
Cash flows from investing activities:
Purchase of property, plant and equipment, net of accounts payable changes
Capitalized software development expenditures
Other asset expenditures
Recovery of software development expenditures
Proceeds on sale of property, plant, and equipment
Proceeds on sale of assets held for sale
Proceeds on sale of software and patents
Net cash flows (used in) provided by investing activities
Cash flows from financing activities:
Common share repurchases
Repayment of long-term debt
Net proceeds received from Rights Offering
Employee tax payments on vesting of RSUs
Net cash flows (used in) financing activities
Effect of foreign exchange on cash, cash equivalents and restricted cash
Net (decrease) increase in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash, beginning of period
Cash, cash equivalents and restricted cash, end of period
Supplemental disclosure of cash flow information:
Interest paid
Income taxes paid
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheet.
As at December 31,
Cash and cash equivalents
Restricted cash
Total cash, cash equivalents and restricted cash
The accompanying notes are an integral part of these consolidated financial statements.
DIRTT Environmental Solutions Ltd.
Notes to the Consolidate d Financial Statements
(Amounts stated 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 software”), translates the vision of architects and designers into a 3D model that also acts as manufacturing information. ICE Software is also licensed to unrelated companies and Construction Partners of the Company.
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”. On June 12, 2025, the Company began trading on the OTCQX® Best Market (“OTCQX”) under the symbol “DRTTF.” The Company previously traded on, and upgraded to OTCQX from, the OTC Pink® Market.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
These consolidated financial statements (“Financial Statements”), including comparative figures, have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
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 and its subsidiary. All intercompany balances, income and expenses, unrealized gains and losses and dividends resulting from intercompany transactions have been eliminated upon consolidation.
Basis of measurement
These Financial Statements have been prepared on the historical cost convention except for certain financial instruments, assets held for sale and stock-based compensation that are measured at fair value, as explained in the accounting policies below. Historical cost is generally based on the fair value of the consideration given in exchange for assets.
Use of estimates
The preparation of the Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and the disclosure of contingent liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Such estimates primarily relate to unsettled transactions and events as of the date of the Financial Statements. Estimates are based on historical data and experience, as well as various other factors that management considers reasonable under the circumstances. Actual outcomes can differ from these estimates.
Significant estimates and assumptions made by management include:
Estimates of ability and timeliness of customer payments of trade receivables;
Estimates of useful lives of depreciable assets as well as the fair value of long-term assets and future cash flows used for impairment calculations;
Determining the fair value less costs to sell of the assets held for sale;
Estimates of future taxable earnings used to assess the realizable value of deferred tax assets and the ability to recognize a deferred tax asset;
Estimates of inventory obsolescence based on slow moving inventory items;
Tax interpretations, regulations and legislation in the various jurisdictions in which the Company and its subsidiary operate;
Estimates of the fair value of stock awards, including whether the performance criteria will be met and measurement of the ultimate payout amount; and
Estimates of liabilities associated with the potential and amount of warranty, legal claims and other contingencies.
Segments
Management has determined that DIRTT has one operating segment. The Company’s chief executive officer, president and chief operating officer, and chief financial officer, who are DIRTT’s chief operating decision makers, review financial information on a consolidated and aggregate basis, together with certain operating metrics principally, to make decisions about how to allocate resources and to measure the Company’s performance.
Foreign currency translation
DIRTT Environmental Solutions Ltd. is a Canadian company and its functional currency is the Canadian dollar. DIRTT’s wholly owned subsidiary, DIRTT Environmental Solutions Inc., is domiciled in the United States and its functional currency is the U.S. dollar.
Assets and liabilities denominated in foreign currencies, other than those held through foreign subsidiaries, are translated into the transacting company’s functional currency at the year-end exchange rate for monetary items, and at the historical exchange rates for non-monetary items. Foreign currency revenues and expenses are translated at the exchange rates in effect on the dates of the related transactions. Foreign exchange gains and losses, other than those arising from the translation of the Company’s net investments in its foreign subsidiary, are included in income.
The accounts of the Company’s U.S. dollar subsidiary is translated into Canadian dollars, and the Financial Statements are translated into U.S. dollars for financial statement presentation. Assets and liabilities are translated using year-end exchange rates, and revenues, expenses, gains and losses are translated using average monthly exchange rates. Foreign exchange gains and losses arising from the translation of the Company’s assets and liabilities are included in “comprehensive (loss) income for the year”.
Cash and cash equivalents and restricted cash
Cash and cash equivalents include cash on hand held at banks and cash equivalents, which are defined as highly liquid investments with original maturities of three months or less. Restricted cash is a reserve account not available for immediate or general business use and is required as collateral to commercial credit cards or when certain requirements are not met under the terms of the Company’s senior secured credit facility (as defined in Note 14).
Trade and other receivables, net of expected credit losses
Accounts receivable are recorded at the invoiced amount, do not require collateral and do not bear interest. The Company estimates its allowance for doubtful accounts using the current expected credit loss methodology, which is designed to capture the Company’s current estimate of all expected credit losses.
Inventory
Inventory is comprised of raw materials and work in progress. The Company does not typically carry a significant amount of finished goods inventory. Inventory is valued at the lower of weighted average cost and net realizable value. Net realizable value is based on an item’s usability in the manufacturing of the Company’s products. The Company records an allowance for obsolescence when the net realizable value of inventory items declines below weighted average cost. Net realizable value is determined based on current market prices for inventory less the estimated cost to sell. Work in progress is valued at an estimate of cost, including attributable overheads, based on stage of completion.
Fixed production overheads are allocated to inventory on the basis of normal capacity of the production facilities. In periods where production levels are abnormally low, unallocated overheads are separately recognized as an expense in the period in which they are incurred.
Assets held for sale
The Company classifies an asset group (“asset”) as held for sale in the period that (i) it has approved and committed to a plan to sell the asset, (ii) the asset is available for immediate sale in its present condition, (iii) an active program to locate a buyer and other actions required to sell the asset have been initiated, (iv) the sale of the asset is probable and transfer of the asset is expected to qualify for recognition as a completed sale within one year (subject to certain events or circumstances), (v) the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value, and (vi) it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. The Company initially and subsequently measures a long-lived asset that is classified as held for sale at the lower of its carrying value or fair value less any costs to sell. Any loss resulting from this measurement is recognized in the consolidated statement of operations and comprehensive loss in the period in which the held for sale criteria are met. Upon designation as an asset held for sale, the Company stops recording depreciation expense on the asset.
The Company assesses the fair value of assets held for sale less any costs to sell at each reporting period until the asset is no longer classified as held for sale.
Leases
The Company categorizes leases at their inception as either operating or finance leases. Leases where the Company assumes substantially all of the rewards or ownership and leases where ownership is transferred at the end of the lease term, or by way of a bargain purchase option, are classified as finance leases. Upon initial recognition, the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability, so as to achieve a constant rate of interest on the balance of the liability. Finance charges are recognized in the statement of operations.
The Company’s Leasing Facilities (as defined in Note 14) are accounted for as finance leases as ownership of the equipment is expected to return to the Company at the end of the lease term. These transactions are not accounted for as a sale of the underlying equipment as the Company continues to control the equipment.
For leases categorized as operating, the Company determines if an arrangement is a lease or contains a lease element at inception. The arrangement is a lease if it conveys the right to the Company to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. Operating leases are separately disclosed as operating lease right-of-use (“ROU”) assets, with a corresponding lease liability split between current and long-term components on the balance sheet. Operating leases with an initial term of 12 months or less are not included on the balance sheet.
The Company recognizes lease expense for these leases on a straight-line basis over the lease term. ROU assets represent the right to use an underlying asset for the lease term and operating lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Upon derecognition of ROU assets and operating lease liabilities, costs associated with cease-use liabilities, including costs for early termination, will reduce the ROU asset in calculating any gain or loss from early termination.
Property, plant and equipment
Property, plant and equipment are recorded at cost, including direct costs, attributable indirect costs and carrying costs, less accumulated depreciation and any accumulated impairment losses. Expenditures for repairs and maintenance are expensed as incurred, while renewals and betterments are capitalized.
Depreciation is charged to the consolidated statement of operations on a straight-line basis over the estimated useful lives of the assets. The estimated useful lives of the Company’s property, plant and equipment are as follows:
Building
25 years
Manufacturing equipment
10 years
Leasehold improvements
Over term of lease ( 1 to 8 years)
Office equipment
5 years
Tooling and prototypes
4 years
Computer equipment
3 years
Vehicles
3 years
When assets are disposed of or retired, the cost and accumulated depreciation and impairment losses are removed from the respective accounts and any resulting gain or loss is reflected in operating expenses.
Capitalized software costs
The Company capitalizes costs related to internally developed software during the application development stage when (i) the preliminary project stage is completed, (ii) management has authorized further funding for the completion of the project, and (iii) it is probable that the project will be completed and performed as intended. Capitalized costs include costs of personnel and related expenses for employees and third parties directly attributable to the projects. Capitalization of these costs ceases once the project is substantially complete and the software is ready for its intended purpose. Costs incurred for significant upgrades and enhancements are also capitalized. Costs related to preliminary project activities and post implementation activities, including training, maintenance and minor modifications or enhancements are expensed as incurred. Capitalized software costs are amortized on a straight-line basis over the estimated useful life of the developed asset, which is five years . Management evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of the assets.
Software development is considered internal-use as it is used to design and sell the DIRTT products and is not included in the end client’s product. Revenues received from Construction Partners for ICE Software are recognized as revenues as they are considered an element of the product sale. Any incidental third-party revenues received for the ICE Software are credited against capitalized software costs. The Company follows this accounting policy for cloud computing arrangements that are considered a service contract, however, these projects are capitalized to prepaids and other assets on the balance sheet and are expensed as an operating cost, as opposed to amortization, over the expected term of the software service contract.
Impairment of long-lived assets
Management evaluates the recoverability of the Company’s property, plant and equipment, capitalized software costs and ROU assets when events or changes in circumstances indicate a potential impairment exists. Events and changes in circumstances considered by the Company in determining whether the carrying value of long-lived assets may not be recoverable include, but are not limited to, significant changes in performance relative to expected operating results, significant changes in the use of the assets, significant negative industry or economic trends, and changes in the Company’s business strategy. Impairment testing is performed at an asset level that represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities (an “asset group”). In determining if impairment exists, the Company estimates the undiscounted cash flows to be generated from the use and ultimate disposition of the asset group. If impairment is indicated based on a comparison of the assets’ carrying values and the undiscounted cash flows, the impairment loss is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets.
Convertible Debentures
The Company accounts for convertible debentures as liabilities. Embedded features included in the convertible debentures that require bifurcation are accounted for separately. Costs incurred directly related to the issuance of convertible debentures are presented as a direct deduction against the carrying amount of the convertible debentures and are amortized to interest expense using the effective interest method.
Income taxes
Income tax expense is comprised of current and deferred tax. Income tax is recognized in the consolidated statement of operations and comprehensive income (loss) except to the extent it relates to items recognized directly in equity.
Current tax
Current tax expense is based on the results for the year, adjusted for items that are not taxable or not deductible. Current tax is calculated using tax rates and laws that were enacted at the end of the reporting period. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. Provisions are established where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred tax
Deferred tax is recognized, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated balance sheet. Deferred income tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates and laws that will be in effect when the differences are expected to reverse.
The effect of a change in income tax rates on deferred income tax assets and liabilities is recognized in income in the period during which the change occurs.
When appropriate, the Company records a valuation allowance against deferred tax assets to reflect that these tax assets may not be realized. In determining whether a valuation allowance is appropriate, the Company considers whether it is more likely than not that all or some portion of the Company’s deferred tax assets will not be realized, based on management’s judgment using available evidence about future events.
At times, tax benefits claims may be challenged by a tax authority. Tax benefits are recognized only for tax positions that are more likely than not sustainable upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 % likely to be realized upon settlement. A liability for “unrecognized tax benefits” is recorded for any tax benefits claimed in the Company’s tax returns that do not meet these recognition and measurement standards.
Revenue recognition
The Company accounts for revenue in accordance with topic 606, Revenue from Contracts with Customers, (“ASC 606”) and Subtopic 340-40, Other Assets and Deferred Costs – Contracts with Customers. Under ASC 606, an entity recognizes revenue in a manner that reflects the transfer of promised goods or services to customers in an amount which the entity expects to be entitled in exchange for those goods or services.
The Company recognizes revenue upon transfer of control of promised goods or services to customers at the transaction price, an amount that reflects the consideration the Company expects to receive in exchange for those goods or services. Transaction price is calculated as selling price net of variable consideration which may include estimates for sales incentives related to current period product revenue. Revenue is measured at the fair value of the consideration received or receivable, after discounts, rebates and sales taxes or income taxes and duties.
Product sales
The Company recognizes revenue upon transfer of control of products to the customer, which typically occurs upon shipment. The Company’s main performance obligation to customers is the delivery of products in accordance with purchase orders. Each purchase order defines the transaction price for the products purchased under the arrangement. Construction Partners typically sell DIRTT product to end clients and issue purchase orders to the Company to manufacture the product. Construction Partners utilize ICE Software licenses to sell DIRTT products. The ICE Software licenses sold to Construction Partners are not considered a separate performance obligation as they are not distinct, and ICE Software license revenue is recognized in conjunction with product sales. The Construction Partner ICE Software revenue is recognized over the license period.
The Company’s standard sales terms are Free On Board shipping point, which comprise the majority of sales. The Company usually requires a 50 % progress payment on receipt of certain orders, excluding certain government orders or in some special contractual situations. Customer deposits received are recognized as a liability on the balance sheet until revenue recognition criteria is met. At the point of shipment, the customer is generally required to pay the balance of the sales price within 30 days. The Company’s sales arrangements do not have any material financing components. In addition, the Company’s customer arrangements do not produce contract assets that are material to its consolidated financial statements.
The Company provides sales commissions to internal and external sales representatives which are earned in the period in which revenue is recognized.
The Company accounts for product transportation revenue and costs as fulfillment activities and presents the associated costs in costs of goods sold in the period in which the Company sells its product.
Contracts containing multiple performance obligations
The Company offers certain arrangements whereby a customer can purchase products and installation together, which are generally capable of being distinct and accounted for as separate performance obligations. Where multiple performance obligations exist, the Company determines revenue recognition by (1) identifying the contract with the customer, (2) identifying the performance obligation in the contract, (3) determining the transaction price, (4) allocating the transaction price to the performance obligations based on the relative standalone selling prices, typically based on cost plus a reasonable margin, and (5) recognizing revenue as the performance obligations are satisfied.
Installation and other services
The Company provides installation and other services for certain customers as a distinct performance obligation. Revenue from installation services is recognized over time as the service is performed.
Principal vs Agent Considerations
The Company evaluates the presentation of revenue on a gross vs. net basis based on whether it acts as a principal by controlling the product or service sales to customers. In certain instances, the Company facilitates contracting of certain sales on behalf of Construction Partners. The Company records these revenues on a gross basis when the Company is obligated to fulfill the service and has the risk associated with service delivery. The Company records these revenues on a net basis when the Construction Partner has the obligation to fulfill the services and has the risk associated with service delivery.
Rebates
Rebates to Construction Partners and customers are accrued for and recognized as a reduction of revenue at the date of the sale to the customer. Rebates include amounts collected directly by the Company owed to Construction Partners or customers in accordance with their agreements. Other sales discounts are deducted immediately from sales invoices.
Contract balances
Timing of revenue recognition may differ from the timing of invoicing to customers. The Company records an unbilled receivable when revenue is recognized prior to invoicing. As the Company’s contracts are less than one year in duration, the Company has elected to apply the practical expedients to expense costs related to costs to obtain contracts and not disclose unfulfilled performance obligations. As deferred revenue and customer deposits are typically recognized during the year, the Company does not account for financing elements.
Warranties
The Company provides a warranty on all products sold to its clients and Construction Partner’s clients. Warranties are not sold separately to customers. Provisions for the expected cost of warranty obligations are recognized based on an analysis of historical costs for warranty claims relative to current activity levels and adjusted for factors based on management’s assessment that increase or decrease the provision. Warranty provision is recognized in cost of goods sold. Warranty claims have historically not been material and do not constitute a separate performance obligation.
Stock-based compensation
The Company follows the fair value-based approach to account for options, share awards and restricted share units (“RSUs”). Compensation expense and an increase in “Additional paid-in capital” are recognized for options and RSUs over their vesting period based on their estimated fair values on the grant date, as determined using the Black-Scholes option pricing model for the majority of options and the market value of the Company’s common shares on the grant date for share awards and RSUs. Certain executive RSUs have performance conditions and are valued using a Monte Carlo model.
On exercise of stock options and RSUs, the recorded fair value of the option or RSU is removed from “Additional paid-in capital” and credited to “Share capital”. For options, any consideration paid by employees is credited to “Share capital” when the option is exercised. The Company’s stock options and RSUs are not shares of the Company and have no rights to vote, receive dividends, or any other rights as a shareholder of the Company.
Stock-based compensation expense is also recognized for performance share units (“PSUs”) and deferred share units (“DSUs”) using the fair value method. Compensation expense is recognized over the vesting period and the corresponding amount is recorded as a liability on the balance sheet.
The Company measures the DSUs granted under the LTIP (as defined herein) beginning in the second quarter 2023, using the closing price of the Company’s common shares on the grant date as the present intention is to settle the New DSUs in equity. This is recognized as an increase to stock-based compensation and the corresponding liability on the balance sheet.
Technology and development expenditures
Technology and development expenses are comprised primarily of salaries and benefits associated with the Company’s product and software development personnel which do not qualify for capitalization. These costs are expensed as incurred and exclude certain information technology costs used in operations which are classified as general and administrative costs.
Government subsidies
The Company accounts for government subsidies on an accrual basis when the conditions for eligibility are met. The Company has adopted an accounting policy to present government subsidies as other income. The nature, significant terms and conditions of government subsidies are disclosed in the Financial Statements.
Common shares
In lieu of a par value for common shares, the Company has elected to calculate any cancellation of common shares using the stated value of shares. The excess of purchase cost over stated value of shares cancelled upon repurchase will be recorded as additional paid-in capital.
Earnings per share
Basic earnings per share is calculated using the weighted average number of common shares outstanding during the year and adjusted for any change in capital structure events triggering retroactive changes to weighted average number of common shares outstanding. Diluted earnings per share is calculated using the treasury stock method for determining the dilutive impact of stock options, RSUs, PSUs, PRSUs and New DSUs. The Company follows the “if converted” method for accounting for the impact of convertible debentures on net income (loss) per share, whereby interest charges applicable to the convertible debentures are added to the numerator and the convertible debentures are assumed to have been converted at the beginning of the period (or time of issuance, if later), and the resulting common shares are added to the denominator.
Fair value of financial instruments
ASC 820, “Fair Value Measurements,” requires entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized on the consolidated balance sheet, for which it is practicable to estimate fair value. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
The Company’s fair value analysis is based on the degree to which the fair value is observable and grouped into categories accordingly:
Level 1 financial instruments are those which can be derived from quoted market prices (unadjusted) in active markets for similar financial assets or liabilities.
Level 2 financial instruments are those which can be derived from inputs that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices). Level 2 financial instruments include current and long-term debt. The carrying amounts of these instruments approximates fair value due to limited changes to interest rates and the Company’s credit rating since issuance.
Level 3 financial instruments are those derived from valuation techniques that include inputs for the financial asset or liability which are not based on observable market data (unobservable inputs). The Company does not have any Level 3 financial instruments.
The carrying amounts of cash and cash equivalents and restricted cash; trade and accrued receivables, other receivables; accounts payable and accrued liabilities; other liabilities; and customer deposits approximate fair value due to their short-term nature.
3. ADOPTION OF NEW ACCOUNTING STANDARDS AND RECENT PRONOUNCEMENTS ISSUED
On December 14, 2023, the FASB issued Accounting Standards Update No. 2023-09, “Improvements to Income Tax Disclosures” (the “ASU-2023-09”) further disaggregated information on an entity’s tax rate reconciliation and income taxes paid. The amendments in ASU-2023-09 was effective for fiscal years beginning after December 15, 2024. The Company has adopted this standard.
On November 5, 2024, the FASB issued Accounting Standards Update No. 2024-03, “Disaggregation of Income Statement Expenses” (the “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” (the “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 is evaluating the impact of the adoption of this standard.
On July 30, 2025, the FASB issued Accounting Standards Update No. 2024-05, “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 amendments in ASU-2025-05 are effective for fiscal years beginning after December 15, 2025. The Company is evaluating the impact of the adoption of this standard.
On September 18, 2025, the FASB issued Accounting Standards Update No. 2025-06, “Targeted Improvements to the Accounting for Internal-Use Software” (the “ASU-2025-06”) which amends certain aspects of the accounting for and disclosure of software costs. 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 trend.
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 with annual reporting periods beginning after December 15, 2027. The Company is evaluating the impact of the adoption of this trend.
Although there are several other new accounting standards issued or proposed by the FASB, which the Company has adopted or will adopt, as applicable, the Company does not believe any of these accounting pronouncements has had or will have a material impact on its Financial Statements.
4. GOVERNMENT SUBSIDIES
In the United States, the Employee Retention Credit (“ERC”) was established by Section 2301 of the Coronavirus Aid, Relief, and Economic Security Act to provide an incentive for employers to keep their employees on their payroll during COVID-19 closures. The ERC is a refundable payroll tax credit based on qualified wages paid by an eligible employer between March 12, 2020, and October 1, 2021, for companies experiencing a significant decline in gross receipts during a calendar quarter or having operations fully or partially suspended during the quarter due to COVID-19. During the third quarter of 2022, the Company determined it was eligible for the ERC for the first three quarters of 2021 and filed a claim for $ 7.3 million in payroll tax credits ($ 7.1 million net of expenses). As at December 31, 2023, the $ 7.3 million of these claimed credits (plus an additional $ 0.2 million of interest) were received.
For the twelve months ended December 31, 2024 and 2025 , no government subsidies were claimed or received.
5. REORGANIZATION AND ASSETS HELD FOR SALE
Temporary Suspension of Operations and Subsequent Closure at the Rock Hill Facility
On September 27, 2023, the Company decided to permanently close the Rock Hill Facility. Certain assets, including manufacturing equipment, which met held for sale criteria at that time were reclassified from property, plant and equipment. During the three months ended March 31, 2024, $ 1.0 million of the assets held for sale were sold. At March 31, 2024, the assets held for sale
balance was reduced from $ 0.5 million to $ nil , resulting in a $ 0.5 million impairment charge for the first quarter as we were not able to determine the likelihood of a sale based on the market interest at that time.
Assets classified as held for sale as at December 31, 2023, of $ 1.6 million consisted of manufacturing equipment previously used in the Rock Hill Facility (refer to Note 11). As part of the decision to permanently close the Rock Hill Facility, $ 10.3 million of assets were assessed against the assets held for sale criteria and reclassified from property, plant and equipment to assets held for sale in the third quarter of 2023. The assets were measured at the lower of the net book value versus the fair value less cost to sell resulting in an impairment charge of $ 8.7 million . At March 31, 2024, the assets held for sale balance was reduced from $ 0.5 million to $ nil , resulting in a $ 0.5 million impairment charge for the first quarter as we were not able to determine the likelihood of a sale based on the market interest at that time. These assets were subsequently disposed.
As at December 31,
Assets held for sale, opening
Proceeds from sale of assets held for sale
Impairment charge on reassessment
Net book value transferred from property, plant and equipment
Assets held for sale, ending
To move the assets or dispose of the assets at the Rock Hill Facility, the Company fully settled the principal balance of the U.S. leasing facility in the fourth quarter of 2023. Principal payments of $ 7.8 million and interest penalties of $ 0.4 million were incurred (refer to Note 14). As a result of this settlement, $ 2.6 million of restricted cash was released to the Company in the fourth quarter of 2023.
Effective December 30, 2025, the Company entered into an agreement for an early termination of the lease at the Rock Hill Facility. As such, the remaining leasehold improvements were measured at the lower of the net book value versus the fair value less cost to sell resulting in an impairment charge of $ 2.3 million during 2025.
Transformation Office
In 2024, DIRTT’s leadership team set up a new team, the Construction Services team (previously referred to as Integrated Solutions), to support our Construction Partner network in increasing market share and accessing markets to which we previously did not have access. In early 2025, a transformation office was established to accelerate the strategic transformation of our business by streamlining the Company’s processes and procedures, supporting Construction Services and improving productivity across the Company (the “Transformation Office”). We are incurring consultant costs to assist in, advise, and implement our transformation process, as well as various non-recurring expenses. The program is planned to be completed in 2026.
For the year ended December 31, 2025, 2024, and 2023, the following reorganization costs incurred relate to the above mentioned initiatives:
For the Year Ended December 31,
Termination benefits
Transformation Office costs
Rock Hill Facility temporary suspension and closure of operations
Other costs
Phoenix Facility closure
Total reorganization costs
Reorganization costs in accounts payable and accrued liabilities at January 1, 2025
Reorganization expense
Reorganization costs paid
Reorganization costs in accounts payable and accrued liabilities at December 31, 2025
Of the $2 .1 million reorganization costs in accounts payable and accrued liabilities as at December 31, 2025 (December 31, 2024 - $ 0.1 million), $ 1.8 million relates to termination benefits (December 31, 2024 - $ 0.07 million) and $ 0.3 million relates to other reorganization costs (December 31, 2024 - $0.03 million).
6. GAIN ON SALE OF SOFTWARE AND PATENTS
There were no sales of software and patents during the years ended December 31, 2025 and December 31, 2024.
In 2023, the Company entered into a Co-Ownership Agreement (the “Co-Ownership Agreement”) and a partial patent assignment agreement with AWI. The agreements provided for a cash payment from AWI to the Company of $ 10.0 million, subject to certain routine closing conditions, in exchange for the partial assignment to AWI and resulting co-ownership of 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 (the “Applicable ICE Software Code”), including a 50 % interest in the patent rights that relate to the Applicable ICE Software Code. Under the Co-Ownership Agreement, the Company also agreed to provide AWI a transfer of knowledge concerning the source code of the Applicable ICE Software Code. In exchange for completing the knowledge transfer, the Company received an additional cash payment of $ 1.0 million in the fourth quarter of 2023. The Co-Ownership Agreement provides that the Company and AWI have separate exclusive fields of use and restrictive covenants with respect to the Applicable ICE Software Code and related intellectual property, which survive until either party elects to separate from its relationship with the other and for five years thereafter. The Company concurrently entered into an Amended and Restated Master Services Agreement (the “ARMSA”) with AWI, under which AWI had also prepaid certain development services to be provided by DIRTT. The ARMSA will automatically if the Co-Ownership Agreement is or expires, and may also be if either party the fields of use or restrictive covenants in the Co-Ownership Agreement.
The $ 11.0 million of proceeds on the sale of the 50 % interest in the Applicable ICE Software Code, pursuant to the Co-Ownership Agreement, during 2023. In accordance with GAAP, the proceeds were first applied to the net book value of the related costs of software of $ 2.9 million and patents (other assets) of $ 0.9 million. The residual amount of $ 7.1 million was recognized as a gain in the consolidated statement of operations. Further, $ 1.8 million was received during 2023 as a prepayment under the ARMSA, which was recognized into revenue during 2023 and the first quarter of 2024. Part of the proceeds of this transaction were used to settle one of our equipment leases of $ 1.6 million and resulted in the release of $ 0.4 million of restricted cash during 2023 (refer to Note 14).
7. GAIN ON EXTINGUISHMENT OF CONVERTIBLE DEBENTURES
On February 15, 2024, the Company commenced a substantial issuer bid and tender offer (the “Issuer Bid”) pursuant to which the Company offered to repurchase for cancellation: (i) up to C$ 6.0 million principal amount of its issued and outstanding January Debentures (as defined in Note 14) at a purchase price of C$ 720 per C$ 1,000 principal amount of January Debentures, and (ii) up to C$ 9.0 million principal amount of its issued and outstanding December Debentures (as defined in Note 14 and together with the January Debentures, the “Debentures”), at a purchase price of C$ 600 per C$ 1,000 principal amount of December Debentures.
C$ 4.7 million ($ 3.5 million) aggregate principal amount of the January Debentures and C$ 5.8 million ($ 4.3 million) aggregate principal amount of December Debentures were validly deposited and not withdrawn at the expiration of the Issuer Bid on March 22, 2024 , representing approximately 11.66 % of the January Debentures and 16.50 % of the December Debentures issued and outstanding at that time. The Company took up all the Debentures tendered pursuant to the Issuer Bid for aggregate consideration of C$ 7.0 million ($ 5.2 million) (comprised of C$ 6.9 million ($ 5.1 million) repayment on principal and interest of C$ 0.1 million ($ 0.1 million)).
On August 2, 2024, the Company entered into a Convertible Debenture Repurchase Agreement (the “Repurchase Agreement”) with 22NW, pursuant to which the Company purchased for cancellation an aggregate of C$ 18,915,000 principal amount of the January Debentures at a purchase price of C$ 684.58 per C$ 1,000 principal amount of January Debentures and C$ 13,638,000 principal amount of the December Debentures at a purchase price of C$ 665.64 per C$ 1,000 principal amount of December Debentures, for an aggregate purchase price of C$ 22,104,591.45 , inclusive of a cash payment for all accrued and unpaid interest up to, but excluding, the date on which such Debentures were purchased by the Company (the “Debenture Repurchase”). The Debenture Repurchase closed on August 2, 2024. The purchase price of each series of Debentures (excluding the cash payment for accrued and unpaid interest) represented a discount of approximately 4 % to the average trading price of the applicable series of Debentures on the Toronto Stock Exchange (the “TSX”) for the 20 trading days preceding August 2, 2024 . Following the Debenture Repurchase, C$ 16,642,000 principal amount of the January Debentures and C$ 15,587,000 principal amount of the December Debentures remained outstanding and 22NW no longer held any Debentures.
On August 28, 2024, the Company commenced a normal course issuer bid (the “Debentures NCIB”) for the Debentures which expired on August 27, 2025 . On August 26, 2025, the Company announced the renewal of the Debentures NCIB which commenced on August 28, 2025 upon expiry of the Debentures NCIB (the “Renewed Debentures NCIB”). The Renewed Debentures NCIB is expected to terminate on August 27, 2026 with respect to the December Debentures and terminated on January 31, 2026 with respect to the January Debentures, concurrent with the maturity date of the January Debentures. 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 year ended December 31, 2025 , C$ 0.3 million ($ 0.2 million) principal amounts of the December Debentures and C$ 0.06 million ($ 0.04 million) principal amounts of the January Debentures had been acquired through the Debentures NCIB. Under the Renewed Debentures NCIB, DIRTT is permitted to acquire up to C$ 1,656,900 principal amount of the January Debentures and C$ 1,493,500 principal amount of the December Debentures. For the year ended December 31, 2025 , C$ 0.1 million ($ 0.1 million) principal amounts of the December Debentures and C$ 0.01 million ($ 0.01 million) principal amounts of the January Debentures had been acquired through the Renewed Debentures NCIB.
For the year ended December 31, 2025, the gain on extinguishment of convertible debentures relate to the above mentioned initiatives:
For the Year Ended December 31,
Extinguishment of convertible debentures
Less:
Principal repayment through the Debentures NCIB and Renewed Debentures NCIB
Principal repayment through the Repurchase Agreement
Principal repayment through the Issuer Bid
Gain on extinguishment of convertible debentures
In accordance with GAAP, it was determined that the C$ 0.5 million ($ 0.3 million) repayment on convertible debt through the Debentures NCIB and the Renewed Debentures NCIB, in aggregate, in the year ended December 31, 2025 (C$ 29.2 million ($ 21.4 million) repayment of convertible debt through the Issuer Bid, the Debenture Repurchase, and the Debentures NCIB in the year ended December 31, 2024 ), triggered an extinguishment of C$ 0.5 million ($ 0.3 million) (C$ 43.4 million ($ 31.8 million) for the year ended December 31, 2024 ) of principal amount of debt. The gain on extinguishment of C$ 0.03 million ($ 0.02 million) for the year ended December 31, 2025 (C$ 14.2 million ($ 10.4 million) for the year ended December 31, 2024 ), was calculated as the difference between the repayment and the net carrying value of the extinguished principal less unamortized issuance costs.
8. LEASES
The Company leases office and factory space under various operating leases. As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The Company gives consideration to instruments with similar cha racteristics when calculating its incremental borrowing rate. The Company’s operating leases have remaining lease terms of 1 year to 8 years. L ease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.
The weighted average remaining lease term and weighted average dis count rate at December 31, 2025, was six years (2024 - eight years ) and 6.8 % (2024 – 7.1 %), respectively.
The Company entered into a sublease arrangement for part of the Phoenix Facility during the second quarter of 2022, commencing July 1, 2022. The Company entered in to an additional sublease arrangement for the remaining part of the Phoenix Facility during the third quarter of 2024, commencing October 1, 2024, which was terminated in the fourth quarter of 2025 resulting in $0.5 million of bad debt expense. The Company is actively pursuing options to sublease this area. Additionally, the Company entered into a sublease agreement for the Plano, DXC to one of our Construction Partners in that region, in which the subtenant has assumed responsibility for all monthly rent, utilities, maintenance, taxes and other costs as of April 1, 2023, through December 31, 2024. The Plano sublease agreement was extended for an additional four years, through October 31, 2028.
In May 2025, the Company entered into a leasing agreement for a Houston DXC. Undiscounted cash flows associated with this lease are $ 1.4 million. The rent obligations have been discounted at a rate of 6.05 % to determine the lease liability.
On December 30, 2025, the Company entered an early termination agreement for its Rock Hill Facility lease (refer to Note 5). As a result of this termination, the lease liability and ROU asset associated with this lease have been derecognized. Undiscounted cash
flows associated with this modification were $ 10.5 million. The termination of the lease resulted in a $ 1.0 million fee paid for the termination and a $ 0.9 million gain on disposal.
In November 2025, the Company modified and existing agreement for a Calgary manufacturing facility to extend the leasing term for an additional three years . Undiscounted cash flows associated with this modification are C$ 3.5 million. ($2.6 million). The rent obligations have been discounted at a rate of 5.15 % to determine the lease liability.
In the fourth quarter of 2025, we determined that the Phoenix Facility (which was closed in 2022) was impaired. The Company determined that there were no impairment indicators for the facilities in use.
The following table includes ROU assets included on the balance sheet at December 31, 2025 and 2024:
ROU Assets
Cost
Accumulated depreciation
Net book value
At January 1, 2024
Disposals
Modifications
Depreciation expense
Exchange differences
At December 31, 2024
Additions
Termination of Rock Hill Facility lease
Disposals
Modifications
Depreciation expense
Exchange differences
At December 31, 2025
The components of the lease cost for the years ended December 31, 2025, 2024 and 2023 were as follows:
For the year ended December 31,
Operating lease cost (1)
Fixed lease cost
Sublease income
Total operating lease cost
(1) The lease costs, net of sublease income, are reflected in the Consolidated Statements of Operations and Comprehensive (Loss) Income as follows:
For the year ended December 31,
Cost of goods sold
Selling and marketing
General and administrative
Technology and development
Total operating lease cost
The following table includes lease liabilities included on the balance sheet at December 31, 2025 and 2024:
Lease Liability
At January 1,
Additions
Termination of Rock Hill Facility lease
Modifications
Accretion
Repayment of lease liabilities
Exchange differences
At December 31,
Current lease liabilities
Long-term lease liabilities
The following table includes maturities of operating lease liabilities at December 31, 2025:
Thereafter
Total
Total lease liability
Difference between undiscounted cash flows and lease liability
9. TRADE AND ACCRUED RECEIVABLES
Accounts receivable are recorded at the invoiced amount, do not require collateral and 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 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 wellbeing of our customers. In addition, we acquired trade credit insurance effective April 1, 2020. At December 31, 2025 , approximately 59% of our trade accounts receivable are insured, relating to accounts receivables from counterparties deemed creditworthy by the insurer and excluding accounts receivable from government entities. In addition, and where possible, we collect a 50 % deposit on sales, excluding government and certain other clients.
Our trade balances are spread over a broad Construction Partner base, which is geographically dispersed. For the years ended December 31, 2025 and December 31, 2024 , no single Construction Partner accounted for greater than 10 % of revenue.
As At December 31,
Current
Overdue
Less: expected credit losses
Trade and accrued receivables, net of expected credit losses
No change to our expected credit loss was required during the year ended December 31, 2025, or December 31, 2024 for our trade receivables. We however have an expected credit loss on the sublease income of our Phoenix lease of $ 0.5 million. Receivables
are generally considered to be past due when over 60 days old, unless there is a separate payment arrangement in place for the collection of the receivable.
10. INVENTORY
As at December 31,
Raw material
Allowance for obsolescence
Work in progress
As of December 31, 2025, the Company had $ 0.5 million (2024 - $ 0.9 million) provided for inventory that is not expected to be used in future production and the associated expense has been recorded to cost of goods sold. During 2025, the Company wrote off $ 0.8 million of inventory against the provision (2024 - $ 1.7 million) and made an additional provision of $ 0.4 million (2024 - $ 1.0 million). In addition, the Company recorded direct write offs against inventory of $nil (2024 - $ 0.1 million). Production overheads capitalized in work in progress were $ 0.3 million at December 31, 2025 (2024 - $ 0.4 million).
11. PROPERTY, PLANT AND EQUIPMENT, NET
Office and computer equipment
Factory equipment
Leasehold improvements
Total
Cost
At December 31, 2023
Additions
Disposals
Exchange differences
At December 31, 2024
Additions
Impairment (1)
Disposals
Exchange differences
At December 31, 2025
Accumulated depreciation and impairment
At December 31, 2023
Depreciation expense
Disposals
Exchange differences
At December 31, 2024
Depreciation expense
Impairment (1)
Disposals
Exchange differences
At December 31, 2025
Net book value
At December 31, 2024
At December 31, 2025
Effective December 30, 2025, the Company entered into an agreement for an early termination of the lease at the Rock Hill Facility. As such, the remaining leasehold improvements were measured at the lower of the net book value versus the fair value less cost to sell resulting in an impairment charge of $ 2.3 million during 2025 (Refer to Note 5).
The following table presents a reconciliation of the impairment charge incurred for the year ended December 31, 2025:
For the Year Ended December 31,
Cost of impaired leasehold improvements
Accumulated depreciation of impaired leasehold improvements
Impairment charge
As at December 31, 2025 , the Company had $ 0.2 million of assets in progress of completion which were excluded from assets subject to depreciation ( 2024 – $ 0.4 million).
As at December 31, 2024 the Company determined that there were no impairment indicators warranting an impairment test.
12. CAPITALIZED SOFTWARE, NET
For the Year Ended December 31,
Cost
As at January 1
Additions
Recovery of software development expenditures
Disposals
Exchange differences
As at December 31
Accumulated amortization
As at January 1
Amortization expense
Exchange differences
As at December 31
Net book value
Estimated amortization expense on capitalized software is $ 1.3 million in 2026, $ 1.1 million in 2027, $ 0.9 million in 2028, $ 0.5 million in 2029, and $ 0.2 million in 2030.
13. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES AND OTHER LIABILITIES
As at December 31
Trade accounts payable
Accrued liabilities
Wages and commissions payable
Rebates accrued (1)
In 2025 , $ 0.7 million of rebates were earned ( 2024 - $ 1.9 million) and $ 0.7 mill ion were paid (2024 - $ 1.6 million).
Other liabilities
As at December 31
Warranty and other provisions (1)
Deferred share unit liability
Sublease deposits
Income taxes payable
Other equipment lease liability
Other provisions
Other liabilities
The following table presents a reconciliation of the warranty provisions balance:
As At December 31,
As at January 1,
Additions to warranty provision
Payments related to warranties
14. LONG-TERM DEBT
Leasing
Facilities
Convertible
Debentures
Total Debt
Balance at January 1, 2024
Accretion of issue costs
Accrued interest
Interest payments
Principal repayments
Gain on extinguishment
Exchange differences
Balance at December 31, 2024
Current portion of long-term debt and accrued interest
Long-term debt
Balance at January 1, 2025
Accretion of issue costs
Accrued interest
Interest payments
Principal repayments
Gain on extinguishment
Exchange differences
Balance at December 31, 2025
Current portion of long-term debt and accrued interest
Long-term debt
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”). Under the RBC Facility, the Company is able to borrow up to a maximum of 90% of investment grade or insured accounts receivable plus 85% of eligible accounts receivable plus the lesser of (i) 75% of the book value of eligible inventory and (ii) 85% of the net orderly liquidation value of eligible inventory less any reserves for potential prior ranking claims (the “Borrowing Base”). Interest was calculated at the Canadian or U.S. prime rate plus 30 basis points or at the Canadian Dollar Offered Rate or LIBOR plus 155 basis points. Under the RBC Facility, if the “Aggregate Excess Availability”, (defined as the Borrowing Base less any loan advances or letters of credit or guarantee and if undrawn including unrestricted cash), is less than C$ 5.0 million, the Company was subject to a fixed charge coverage ratio (“FCCR”) covenant of 1.10:1 on a trailing twelve-month basis. Additionally, if the FCCR was below 1.10:1 for the three immediately preceding months, the Company would be required to maintain a reserve account equal to the aggregate of one year of payments on outstanding loans on the Leasing Facilities (defined
below). Should an event of default occur or the Aggregate Excess Availability be less than C$ 6.25 million for five consecutive business days, the Company would enter a cash dominion period whereby the Company’s bank accounts would be blocked by RBC and daily balances will offset any borrowings and any remaining amounts made available to the Company.
On February 9, 2023, the Company extended the RBC Facility (the “Extended RBC Facility”). The Extended RBC Facility had a maximum borrowing base of C$ 15 million and a one-year term. Interest was calculated as at the Canadian or U.S. prime rate plus 75 basis points or the Canadian Dollar Offered Rate or Term Secured Overnight Financing Rate (“Term SOFR”) plus 200 basis points plus the Term SOFR Adjustment (as defined in the amended loan agreement governing the Extended RBC Facility). Under the Extended RBC Facility, if the trailing twelve-month FCCR was not above 1.25 for three consecutive months, a cash balance equivalent to one year’s worth of Leasing Facilities payments would be maintained. Effective October 2023, inventory was scoped out of the Borrowing Base.
On February 9, 2024, the Company extended the Extended RBC Facility (the “Second Extended RBC Facility”). The Second Extended RBC Facility is subject to the borrowing base calculation to a maximum of C$ 15 million and a one-year term. Interest is calculated at the Canadian or U.S. prime rate plus 75 basis points or at the Canadian Dollar Offered Rate or Adjusted Term CORRA or Term SOFR plus the Term SOFR Adjustment, in each case plus 200 basis points. The Second Extended RBC Facility removed the three-month FCCR covenant, which resulted in the release of $ 0.1 million of restricted cash during 2024 (the Company had $ 0.4 million restricted cash as at December 31, 2023). On February 11, 2025, the Company extended the Second Extended RBC Facility f or a period of two weeks up to February 25, 2025 whilst the Company and RBC completed negotiations.
On February 20, 2025, the Company extended the Third Extended RBC Facility (the “Fourth Extended RBC Facility”). The Fourth Extended RBC Facility is subject to the borrowing base calculation based on accounts receivable balances to a maximum of C$ 25.0 million and matures on November 30, 2025 . 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. Under the RBC Facility, if the “Aggregate Excess Availability” (defined as the Borrowing Base less any loan advances or letters of credit or guarantee and if undrawn including unrestricted cash), was less than C$ 3.0 million for at least thirty consecutive calendar days, the Company is subject to a FCCR covenant of 1.10:1 on a trailing twelve-month basis . The Fourth Extended RBC Facility also includes a new letter of credit facility guaranteed by the Export Development of Canada of C$ 5.0 million. The Company has also entered into a bonding facility with Great Midwest Insurance Company, and any other company that is part of or added to Skyward Specialty Insurance Group, Inc. (“Skyward”), which allows access to a $ 15.0 million bonding facility subject to an individual maximum of $ 5.0 million. Under the terms of the facility with Skyward, any bonds issued will be secured through letters of credit issued pursuant to the Fourth Extended RBC Facility. At December 31, 2025, no bonds have been issued through such bonding facility.
On November 4, 2025, the Company extended the Fourth Extended RBC Facility (the “Fifth Extended RBC Facility”). The Fifth Extended RBC Facility matures on 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 December 31, 2025, available borrowings are C$ 16.3 million ($ 11.8 million) (December 31, 2024 – C$ 14.4 million ($ 10.0 million) of available borrowings), calculated in the same manner as the RBC Facility described above, of which no amounts have been drawn. As described below, as at December 31, 2025, the Company was not in compliance with certain covenants under the Fifth Extended RBC Facility. RBC has agreed to provide a waiver pursuant to Section 8.3 of the Fifth Extended RBC Facility in connection with the foregoing.
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$15 million under the Loan and incorporates permitting specific encumbrances to BDC and the Priority Agreement. The Seventh Amended RBC Facility also releases certain mortgage collateral held by RBC.
The Fifth Extended RBC Facility includes a customary “Restricted Payments” covenant that prohibits us from, among other things, repurchasing our common shares, unless we have satisfied certain conditions (the “Payment Conditions”). The Payment Conditions include a condition that, after giving effect to the relevant Restricted Payment, our FCCR be at least 1.10 to 1.00 on a trailing 12-month basis. In February 2026, we and RBC determined that our purchases of our common shares under our NCIB in December 2025 did not comply with the Restricted Payments covenant because our FCCR was below 1.10 to 1.00. RBC has agreed to provide a waiver pursuant to Section 8.3 of the Fifth Extended RBC Facility in connection with the foregoing.
Leasing Facilities
The Company has a C$ 5.0 million equipment leasing facility in Canada (the “Canada Leasing Facility”) of which C$ 4.4 million ($ 3.2 million) has been drawn and C$3.9 million ($ 3.0 million) has been repaid, and a $ 14.0 million equipment leasing facility in the United States of which $ 13.3 million has been drawn and repaid (the “U.S. Leasing Facility” and, together with the Canada Leasing Facility, the “Leasing Facilities”) with RBC. The Canada Leasing Facility has a seven-year term and bears interest at 4.25 %. Refer to Note 5 on the decision to permanently close the Rock Hill Facility. As part of this decision, the Company fully settled the $ 7.8 million principal balance of the U.S. Leasing Facility in the fourth quarter of 202 3. The U.S. Leasing Facility is no longer available to be drawn on. With the settlement of this liability, $ 2.6 million was released from restricted cash.
The Company did not make any draws on the Leasing Facilities during 2025 or 2024. 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$ 35.0 million ($ 27.5 million) bought-deal financing of convertible unsecured subordinated debentures (the “January Debentures”) with a syndicate of underwriters. On January 29, 2021, the Company issued a further C$ 5.25 million ($ 4.1 million) of the January Debentures under the terms of an overallotment option granted to the underwriters. The January Debentures matured and became repayable on January 31, 2026 (the “January Debentures Maturity Date”) and accrued interest at the rate of 6.00 % per annum payable semi-annually in arrears on the last day of January and July of each year commencing on July 31, 2021 until the January Debentures Maturity Date. Interest and principal were payable in cash or shares at the option of the Company. The January Debentures were convertible into common shares of DIRTT, at the option of the holder, at any time prior to the close of business on the business day prior to the earlier of the January Debentures Maturity Date and the date specified by the Company for redemption of the January Debentures. Costs of the transaction were approximately C$ 2.7 million, including the underwriters’ commission. As a result of the Rights Offering (refer to Note 16), the conversion price of the January Debentures was adjusted to C$ 4.03 per common share representing a conversion rate of 248.1390 common shares per C$ 1,000 principal amount. On March 22, 2024, the Company completed the Issuer Bid in which the Company repurchased for cancellation C$ 4.7 million ($ 3.5 million) of the principal balance of the January Debentures, and paid C$ 0.04 million ($ 0.03 million) of the interest payable on such January Debentures (refer to Note 7). On August 2, 2024, the Company completed the Debenture Repurchase. On August 28, 2024, the Company commenced the Debentures NCIB which expired on August 27, 2025. On August 26, 2025, the Company announced the Renewed Debentures NCIB which commenced on August 28, 2025 upon expiry of the Debentures NCIB. The Renewed Debentures NCIB on January 31, 2026, with respect to the January Debentures, concurrent with the maturity date of the January Debentures. During the year ended December 31, 2025, the Company repurchased for C$ 0.06 million ($ 0.04 million) principal amount of January Debentures, in aggregate, as part of the Debentures NCIB and Renewed Debentures NCIB (2024 - C$ 0.01 million ($ 0.01 million)). As at December 31, 2025, C$ 16.6 million ($ 12.1 million) principal amount of the January Debentures was outstanding (2024 - C$ 16.6 million ($ 11.6 million)). The January Debentures were paid on maturity on January 31, 2026.
On December 1, 2021, the Company completed a C$ 35.0 million ($ 27.4 million) bought-deal financing of convertible unsecured subordinated debentures (the “December Debentures”) with a syndicate of underwriters. The December Debentures will mature and be repayable on December 31, 2026 (the “December Debentures Maturity Date”) and accrue interest at the rate of 6.25 % per annum payable semi-annually in arrears on the last day of June and December of each year commencing on June 30, 2022 until the December Debentures Maturity Date. Interest and principal are payable in cash or shares at the option of the Company. The December Debentures will be convertible into common shares of DIRTT, at the option of the holder, at any time prior to the close of business on the business day prior to the earlier of the December Debentures Maturity Date and the date specified by the Company for redemption of the December Debentures. Costs of the transaction were approximately C$ 2.3 million, including the underwriters’ commission. As a result of the Rights Offering (refer to Note 16), the conversion price of the December Debentures was adjusted to C$ 3.64 per common share representing a conversion rate of 274.7253 common shares per C$ 1,000 principal amount. On March 22, 2024, the Company completed the Issuer Bid in which the Company repurchased for cancellation C$ 5.8 million ($ 4.3 million) of the principal balance of the December Debentures and paid C$ 0.08 million ($ 0.06 million) of the interest payable on such December Debentures (refer to Note 7). On August 2, 2024, the Company repurchased for C$ 13.6 million ($ 10.1 million) principal amount of December Debentures held by 22NW. On August 28, 2024, the Company commenced the Debentures NCIB which expired on August 27, 2025. On August 26, 2025, the Company announced the Renewed Debentures NCIB which commenced on August 28, 2025 upon expiry of the Debentures NCIB. The Renewed Debentures NCIB is expected to on August 27, 2026 with respect to the December Debentures. During the year ended December 31, 2025, the Company repurchased for C$ 0.4 million ($ 0.3 million) principal amount of the December Debentures, in aggregate, as part of the Debentures NCIB and Renewed Debentures NCIB (2024 - C$ 0.3 million ($ 0.2 million)). As at December 31, 2025, C$ 14.8 million ($ 10.8 million) principal amount of the December Debentures was outstanding (2024 - C$ 15.3 million ($ 10.6 million)).
Term 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$15.0 million (the “Loan”) subject to the satisfaction of certain conditions. The Letter was subsequently amended on January 30, 2026 and February 9, 2026 (the “Amended Letter”) to amend certain conditions.
Following the satisfaction of the conditions precedent set forth in the Letter, BDC will make an initial disbursement to the Company of C$5.5 million and, subject to certain conditions, a secondary disbursement of C$4.5 million and a third disbursement of C$5.0 million. The Loan will accrue interest at a rate equal to BDC’s floating base rate (currently 6.55% per annum) minus 0.75%. Monthly principal repayments of the Loan commence in May 2026 with additional monthly interest-only payments due on the last day of each month following the first disbursement. The Loan matures on April 30, 2032.
The obligations of the Company under the Amended Letter are secured by: (a) a general security agreement 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) a guarantee from DIRTT Environmental Solutions, Inc. for the full amount of the Loan; (c) various landlord’s waivers of distraint; (d) a first mortgage in the principal amount of US$5.0 million on the land and buildings located at 325 North Wells Street, Chicago, IL, USA and (e) a letter of credit for C$3.5 million for the third disbursement of C$5.0 million.
The proceeds of the Loan are expected to be used to partially refinance the Company’s outstanding 6.00% convertible debentures due January 31, 2026 (the "Debentures"). The remaining C$1.6 million principal amount of Debentures is expected to be repaid using cash on hand.
The Company received C$5.5 million from BDC on February 13, 2026. The next disbursement of C$4.5 million is subject to the receipt of certain landlord waivers and other conditions. The last disbursement of C$5.0 million is expected to be in the second half of the year, subject to certain conditions.
15. INCOME TAXES
Reconciliation of income taxes
The following reconciles income taxes calculated at the Canadian statutory rate with the actual income tax expense. The Canadian statutory rate includes federal and provincial income taxes. This rate was used because Canada is the domicile of the parent entity of the Company.
For the Year Ended December 31,
Net loss before tax
Canadian statutory rate
Expected income tax
Effect on taxes resulting from:
Provincial and state income taxes
Non-deductible expenses
Non-deductible stock-based compensation
Tax rate impacts
Adjustments related to prior year tax filings
Valuation allowance
Income tax expense
Current tax expense
Deferred tax recovery
Income tax expense
The provision for income taxes is comprised of federal, state, provincial and foreign taxes based on pre-tax income. In the United States, the CARES Act of 2020 allows, among other provisions, for the recovery of taxes paid over the preceding five years from current year losses.
The Company’s U.S. subsidiary’s result was taxable income for the year ended December 31, 2025 . The Company utilized prior year operating losses against this income; however, U.S. tax law does not allow for the full offset of losses against current year taxable income to reduce tax payable to zero. This resulted in current tax payable of $ 0.5 million in 2025 (2024 - $ 0.4 million).
Deferred tax assets and liabilities
Significant components of the Company’s deferred tax assets and liabilities as at December 31, 2025 and 2024 were as follows:
As at December 31, 2025
Assets
Liabilities
Net
Operating losses
Research and development expenditures
Property and equipment
Capitalized software and other assets
Valuation allowance
Other
Net deferred taxes
As at December 31, 2024
Assets
Liabilities
Net
Operating losses
Research and development expenditures
Property and equipment
Capitalized software and other assets
Valuation allowance
Other
Net deferred taxes
Summary of temporary difference movements during the year:
Balance
Recognized
Foreign
Balance
January 1, 2025
in Income
Exchange
December 31, 2025
Operating losses
Research and development
Property and equipment
Capitalized software and other assets
Other
Valuation allowance
Net deferred taxes
Balance
Recognized
Foreign
Balance
January 1, 2024
in Income
Exchange
December 31, 2024
Operating losses
Research and development
Property and equipment
Capitalized software and other assets
Other
Valuation allowance
Net deferred taxes
For the year ended December 31, 2025, the Company recorded valuation allowances of $1.0 million against deferred tax assets incurred during the year. A valuation allowance is recognized to the extent that it is more likely than not that the deferred tax assets will not be realized (2024 – $3 .8 million).
On an annual basis, the Company and its subsidiary file tax returns in Canada and various foreign jurisdictions. In Canada, the Company’s federal and provincial tax returns for the years 2020 to 2023 remain subject to examination by taxation authorities. In the United States, both the federal and state tax returns filed for the years 2019 to 2023 remain subject to examination by the taxation authorities.
Tax loss carryforwards and other tax pools
The significant components of the Company’s net future income tax deductions in these consolidated financial statements are summarized as follows:
Non-capital loss carry-forwards
Undepreciated capital costs
Share issuance costs
Scientific research and experimental development
tax incentives
Total future tax deductions
16. RIGHTS OFFERING
On November 21, 2023, the Company announced that the Board of Directors had approved a rights offering (the “Rights Offering”) to its common shareholders for aggregate gross proceeds of C$ 30.0 million ($ 22.4 million).
In connection with the Rights Offering, the Company entered into a standby purchase agreement, dated November 20, 2023 (the “Standby Purchase Agreement”) with 22NW and 726 BC LLC and 726 BF LLC (together, “726”), or their permitted assigns (collectively and including WWT Opportunity #1 LLC, to which 726 transferred all of their common shares to on December 1, 2023, the “Standby Purchasers”). Subject to the terms and conditions of the Standby Purchase Agreement, each Standby Purchaser agreed to exercise its Basic Subscription Privilege (as defined below) in full and to collectively purchase from the Company, at the subscription price, all common shares not subscribed for by holders of Rights (as defined below) under the Basic Subscription Privilege or Additional Subscription Privilege (as defined below), up to a maximum of C$ 15.0 million each, so that the maximum number of common shares that could be issued in connection with the Rights Offering would be issued and the Company would receive aggregate gross proceeds of C$ 30.0 million ($ 22.4 million). As described below, no standby fee was paid to the Standby Purchasers in connection with the Rights Offering; however, DIRTT reimbursed the Standby Purchasers for their reasonable expenses in the amount of $ 0.03 million each.
On January 9, 2024, the Company announced the completion of the Rights Offering to its common shareholders and the issuance of 85,714,285 common shares at a price of C$ 0.35 ($ 0.26 ) per whole common share for aggregate gross proceeds of C$ 30.0 million ($ 22.4 million) and aggregate net proceeds of $ 21.3 million ($ 1.1 million of costs associated with the Rights Offering). Each right distributed under the Rights Offering (each, a “Right”) entitled eligible holders to subscribe for 0.81790023 common shares, exercisable for whole common shares only, meaning 1.22264301 Rights were required to purchase one common share (the “Basic Subscription Privilege”). In accordance with applicable law, the Rights Offering included an additional subscription privilege (the “Additional Subscription Privilege”) under which eligible holders of Rights who fully exercised the Rights issued to them under their Basic Subscription Privilege, were entitled to subscribe for additional common shares, on a pro rata basis, that were not otherwise subscribed for under the Basic Subscription Privilege.
DIRTT issued an aggregate of 67,379,471 common shares pursuant to the Basic Subscription Privilege and 18,334,814 common shares pursuant to the Additional Subscription Privilege. As a result of the common shares issued under the Basic Subscription Privilege and Additional Subscription Privilege, no common shares were available for issuance pursuant to the Standby Purchase Agreement.
17. 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) 30,350,000 common shares plus (ii) the number of common shares subject to stock options previously granted under the Stock Option Plan that, following May 22, 2020, expire or are cancelled or terminated without having been exercised in full, have been reserved for issuance under the LTIP. Upon vesting of certain LTIP awards, the Company may withhold shares as a means of meeting DIRTT’s tax withholding requirements in respect of the withholding tax remittances required in respect of award holders. To the extent the fair value of the withheld shares upon vesting exceeds the grant date fair value of the instrument, the excess amount is credited to retained earnings or deficit.
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. 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
For the Year Ended December 31,
Equity-settled awards
Cash-settled awards
The following summarizes RSUs, PRSUs, PSUs (each as defined herein) and DSUs activity during the periods:
RSU Time-
RSU Performance-
Based
Based
PSU
DSU
Number of
Number of
Number of
Number of
units
units
units
units
Outstanding at December 31, 2023
Granted
Vested or settled
Withheld to settle employee tax obligations
Forfeited or expired
Outstanding at December 31, 2024
Granted
Vested or settled
Withheld to settle employee tax obligations
Forfeited or expired
Outstanding at December 31, 2025
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 three years and generally one-third of the RSUs vest every year over a three-year period from the date of grant. The RSUs will be settled following vesting by way of the provision of cash or shares to employees (or a combination thereof), at the discretion of the Company. The weighted average fair value of the RSUs granted in 2025 and 2024 was C$ 0.90 and C$ 0.68 , respectively, which was determined using the closing price of the Company’s common shares on their respective grant dates.
During 2023, 150,000 RSUs were granted to each of the chief executive officer, president and chief operating officer and chief financial officer which vested in the first and third quarters of 2024. During the third quarter of 2024, certain of the Company’s executives were granted (i) 5 million RSUs which will cliff vest on August 14, 2026 and (ii) 975,000 RSUs, one-third of which will vest every year over a three-year period from the date of grant, at a weighted average fair value of C$ 0.75 which was determined using the closing price of the Company’s common shares on their respective grant dates. Subsequent to year-end, the president and chief operating officer
departed the Company. Under his executive employment contract, 2,866,667 RSUs will vest on an accelerated basis on March 3, 2026. These RSUs, net of tax, will be settled in common shares.
During the fourth quarter of 2025, 200,000 RSUs were granted to the chief transformation officer, which vested immediately and were settled in common shares. The weighted average fair value of the RSUs granted was C$ 1.01 .
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, 66.7 % of the 2021 PRSUs vested on March 1, 2024, but none of the 2022 PRSUs vested upon completion of the three-year service period. As at December 31, 2024, the Company had 45,177 PRSUs outstanding. All PRSUs were expired as of December 31, 2025.
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 January 1, 2023 , to December 31, 2026 , with a cliff vesting term for December 31, 2026 . 2,584,161 PSUs were granted and depending on the level of performance, the PSUs will vest 100 %, 160 % or 190 % up to a maximum of 4,909,907 PSUs. Settlement will be made in the form of shares issued from treasury. The performance measures are a combination of Revenue and Earnings Before Interest, Taxes, Depreciation and Amortization and both targets have to be achieved. As of December 31, 2025, the fair value of these PSUs have been deemed to be nil based on the likelihood of achieving the targets compared to current results. During the third quarter of 2023, 738,553 PSUs with a $nil value were forfeited as a result of an executive departure. There are 1,845,608 PSUs with a $nil value outstanding as at December 31, 2025. Subsequent to year-end, the president and chief operating officer departed from the Company and 922,804 PSUs and were forfeited.
During the fourth quarter of 2025, 752,000 PSUs were granted to the chief transformation officer. The performance period is from November 26, 2025 until June 30, 2026 with a cliff vesting term for June 30, 2026. The performance measures relate to success of cost savings targets tied to transformation efforts by the Company. As of December 31, 2025, the PSUs have been deemed to have a value of $ 0.6 million.
During the fourth quarter of 2025, 510,000 PSUs were granted to employees. The performance period ended December 31, 2025. The performance measure was for the Company to reach a share price of C$ 1.85 and Adjusted EBITDA greater than $ 20 million. At of the end of the performance period, the conditions were not met and all PSUs related to this grant were forfeited. The fair value of the PSUs were deemed to be $nil at the time of the grant based on the likelihood of achieving the target.
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. During 2025 , the Company settled 0.3 million DSUs ( nil in 2024 ) to departed directors with a fair value of $ 0.2 million ($ nil in 2024). DSUs outstanding at December 31, 2025 had a fair value of $ 0.5 million which is included in other liabilities on the balance sheet (December 31, 2024 – $ 0.7 million).
Granted under 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 2025 and 2024 was C$ 0.89 ($ 0.64 ) and C$ 0.69 ($ 0.50 ), respectively, which was determined using the closing price of the Company’s common shares on the grant date. During 2025 , the Company settled 1.2 million New DSUs ( nil in 2024 ) to departed directors with a fair value of $ 0.6 million ($ nil in 2024). New DSUs outstanding at December 31, 2025 had a fair value o f $ 1.4 million which is included in other liabilities on the balance sheet (December 31, 2024 – $ 1.3 million).
Options
The following summarizes options granted, forfeited and expired during the periods:
Number of
Weighted average
options
exercise price C$
Outstanding at December 31, 2023
Forfeited
Expired
Outstanding and exercisable at December 31, 2024
Outstanding and exercisable at December 31, 2025
Range of exercise prices outstanding at December 31, 2023:
Options outstanding
Options exercisable
Weighted
Weighted
Weighted
Weighted
average
average
average
average
Number
remaining
exercise
Number
remaining
exercise
Range of exercise prices
outstanding
life
price C$
exercisable
life
price C$
Total
As at December 31, 2025, the Company had no outstanding options.
Dilutive instruments
For the years ended December 31, 2025 and December 31, 2023, respectively, 5.5 million and 3.6 million RSUs (including PRSUs), 2.3 million and 1.8 million New DSUS, 1.8 million PSUs, nil and 0.2 million options, and 34.5 million and 156.8 million shares would be issued if the principal amount of the Debentures were settled in our common shares at the year-end share price were excluded from the diluted weighted average number of common shares, as their effect would have been anti-dilutive to the net loss per share.
For the year ended December 31, 2024 , 2.3 million RSUs and PRSUs, 2.0 million New DSUs and 45.1 million shares which would have been issued if the principal amount of the Debentures were settled in common shares at the year-end price were included in the diluted earnings per share calculation (Note 19). 1.8 million PSUs and 0.2 million RSUs and PRSUs were excluded from the diluted weighted average number of common shares, as their effect would have been anti-dilutive to the net income per share.
18. SHARE REPURCHASES
On December 18, 2024, the Company announced a normal course issuer bid for common shares (the “Shares NCIB”), which commenced on December 20, 2024 , terminates on December 19, 2025 and permits DIRTT to acquire up to 7,515,233 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 acquisition. Any common shares acquired through the 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 3,920,844 common shares held by NGEN at a purchase price of $ 0.80 per share (the “Share Repurchase”). Pursuant to the terms of the NGEN Repurchase Agreement, the purchase price of $ 0.80 per share was a 1 % discount to the closing price of the common shares on the TSX on January 27, 2025 (converted into U.S. Dollars using the February 13, 2025 closing exchange rate published by the Bank of Canada). Upon completion of the Share Repurchase on February 14, 2025, there were 189,643,903 common shares outstanding. The common shares repurchased under the Share Repurchase counted against the maximum number of shares that may be repurchased pursuant to the Shares NCIB, being 7,515,233 shares.
On December 18, 2025, the Company announced the renewal of the Shares NCIB ("Renewed Shares NCIB") which commenced on December 22, 2025 , terminates on December 21, 2026 and permits DIRTT to acquire up to 9,593,878 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 acquisition. Any common shares acquired through the Shares NCIB will be immediately cancelled.
In addition to the Share Repurchase, DIRTT acquired and cancelled 1,860,152 common shares during the year ended December 31, 2025 , under the Shares NCIB ( 58,478 common shares for the year ended December 31, 2024) and nil shares under the Renewed Shares NCIB.
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
Maximum number of shares that may yet be purchased under the program
January 1, 2025 - January 31, 2025
February 1, 2025 - February 28, 2025 (1)
March 1, 2025 - March 31, 2025
April 1, 2025 - April 30, 2025
May 1, 2025 - May 31, 2025
June 1, 2025 - June 30, 2025
July 1, 2025 - July 31, 2025
August 1, 2025 - August 31, 2025
September 1, 2025 - September 30, 2025
October 1, 2025 - October 31, 2025
November 1, 2025 - November 30, 2025
December 1, 2025 - December 31, 2025 (2)
Total
(1) Includes 3,920,844 common shares that were repurchased from NGEN under the Share Repurchase at a purchase price of $0.80 per share. The Share Repurchase was completed on February 14, 2025. The Share Repurchase was a privately negotiated transaction and was not made pursuant to the Shares NCIB or any other publicly announced share repurchase programs, although it was counted against the Shares NCIB limit.
(2) The Renewed Shares NCIB commenced on December 22, 2025. In the month of December, 168,656 shares were purchased under the Shares NCIB and nil were purchased under the Renewed Shares NCIB, therefore no purchases were counted against the Renewed Shares NCIB limit of 9,593,878.
19. EARNINGS PER SHARE
On November 21, 2023, the Company announced a Rights Offering which allowed holders of common shares, as of the close of business on December 12, 2023, transferable subscription rights to purchase up to an aggregate of 85,714,285 common shares at a subscription price of C$ 0.35 per common share (refer to Note 16). An adjustment is required on the calculation of net loss per share for the year ended December 31, 2023 to account for the bonus factor that resulted from this event.
For the Year Ended December 31,
Net (loss) income per share – basic
Net (loss) income (thousands of U.S. dollars)
Weighted average number of shares outstanding (thousands of shares as previously calculated)
Weighted average number of shares outstanding (thousands of shares restated)
Net (loss) income per share (U.S. dollars) − basic (as previously calculated, prior to Rights Offering)
Net (loss) income per share (U.S. dollars) − basic (as on the Consolidated Statement of Operations)
Net (loss) income per share − diluted
Net (loss) income (thousands of U.S. dollars)
Interest on convertible debentures
Weighted average number of shares outstanding (thousands of shares as previously calculated)
Weighted average number of shares outstanding (thousands of shares restated)
Dilutive debentures on convertible debt (thousands of shares) (1)
Dilutive RSUs and PRSUs (thousands of shares) (2)
Dilutive New DSUs (thousands of shares) (2)
Weighted average number of shares outstanding (thousands of shares)
Net (loss) income per share (U.S. dollars) − diluted (as previously calculated, prior to Rights Offering)
Net (loss) income per share (U.S .dollars) − diluted (as on the Consolidated Statement of Operations)
(1) For years ended December 31, 2025 and 2023, the Net loss per share - diluted excludes the effect of 34.5 million and 156.8 million shares, respectively, that would be issued if the principal amount of the Debentures were settled in our common shares at the year-end price and are excluded as they would be anti-dilutive. For the year ended December 31, 2024, the Net income per share − diluted includes the effect o f 45.1 million shares related to the Debentures as they would have the potential to dilute basic earnings per share.
(2) For the years ended December 31, 2025 and 2023, the Net loss per share − diluted excludes the effect of 5.5 million and 3.6 million RSUs (including PRSUs) and nil and 1.8 million PSUs and 2.3 million and 1.8 million New DSUs, respectively, as these would be anti-dilutive. For the year ended December 31, 2024, the Net income per share − diluted includes the effect o f 2.3 million RSUs (including PRSUs) and 2.0 million New DSUs would have the potential to dilute basic earnings per share.
20. REVENUE
In the following table, revenue is disaggregated by performance obligation and timing of revenue recognition. All revenue comes from contracts with customers. Refer to Note 21 for the disaggregation of revenue by geographic region.
For the Year Ended December 31,
Product
Transportation
License fees from Construction Partners
Total product revenue
Installation and other services
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 Year Ended December 31,
At a point in time
Over time
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 is limited to installation, services and ongoing maintenance contracts with customers and is recorded as performance obligations are satisfied over the term of the contract.
Contract Liabilities
As at December 31,
Customer deposits
Deferred revenue
Contract liabilities
Contract liabilities primarily relate to deposits received from customers and maintenance revenue from license subscriptions. The balance of contract liabilities was lower as at December 31, 2025, compared to the prior year period mainly due to the timing of orders and payments. Contract liabilities as at December 31, 2024 and 2023 , respectively, totaling $ 4.0 million and $ 5.3 million were recognized as revenue during 2025 and 2024, respectively.
Sales by Industry
The Company periodically reviews product revenue by industry vertical market to evaluate trends and the success of industry specific sales initiatives. The nature of products sold to the various industries is consistent and therefore the periodic review is focused on sales performance.
For the Year Ended December 31,
Commercial
Healthcare
Government
Education
License fees from Construction Partners
Total product and transportation revenue
Installation and other services
21. SEGMENT REPORTING
The Company has one reportable and operating segment, and operates in two principal geographic locations, Canada and the United States. Revenue continues to be derived almost exclusively from projects in North America and predominantly from the United States. The Company’s revenue from operations from external customers, based on location of operations, and information about its non-current assets, is detailed below.
Revenue from external customers
For the Year Ended December 31,
Canada
Non-current assets
As at December 31,
As at December 31,
Canada
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 accounting policies of the solutions segment are the same as those described in Note 2 – significant accounting policies.
DIRTT’s chief operating decision maker in 2025 was the executive leadership team that includes the president and chief operating officer, chief financial officer, and the chief executive officer (subsequent to year-end, the president and chief operating officer departed the Company). The chief operating decision maker assesses performance for the solution segment and decides how to allocate resources based on gross profit and net (loss) income that also is reported on the consolidated statement of operations and comprehensive (loss) income as consolidated gross profit and net (loss) income. The measure of segment assets is reported on the balance sheet as total consolidated assets. The chief operating decision maker uses net (loss) income to evaluate income generated from segment assets (return on assets) in deciding whether to reinvest profits into the solution segment or into other parts of the entity, such as to repay long term debt.
Gross profit and net (loss) income are used to monitor budget versus actual results. The chief operating decision maker also uses net (loss) income 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) income after tax
For the Year Ended December 31,
Revenue
Operating expenses (1)
Operating (loss) income
Other (expenses)/income and (losses)/gains (2)
Net (loss) income after tax
Reconciliation of profit or loss
Adjustments and reconciling items
Net (loss) income after tax
(1) Includes Sales and marketing, General and administrative, Operations support, Technology and development, Stock-based compensation, Reorganization costs, Gain on disposal of lease, and Impairment charges
(2) Includes Tax expenses, non-recurring gains and losses, foreign exchange gain(loss), interest income, and interest expense
22. COMMITMENTS AND CONTINGENCIES
As at December 31, 2025, the Company had outstanding purchase obligations of approxi mately $ 4.0 million related to service commitments, inventory, and property, plant and equipment purchases (2024 – $ 4.2 million). Refer to Note 8 for lease commitments.
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 $2.0 million as at December 31, 2025 for the cost of a potential settlement of these matters with the Department of Justice.
23. LEGAL PROCEEDINGS
With respect to the DIRTT’s lawsuit against Falkbuilt Ltd. (“Falkbuilt”), Messrs. Smed and Loberg, and their associates, 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. In simple terms, the Utah Court decided that it would not hear DIRTT’s claim in Utah because Canada was more appropriate, and 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 for forum non conveniens. The briefing is complete as of April 15, 2025, and the parties are awaiting a decision.
In November 2024, the Alberta Court of King’s Bench scheduled an 8-week trial commencing February 2, 2026, and running until March 27, 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 .
In 2019, Falkbuilt filed a lawsuit against DIRTT in the Court of Queen’s bench in Alberta (as it was then), alleging that DIRTT had misappropriated and misused their alleged proprietary information in furtherance of DIRTT’s product development. In June 2025, Falkbuilt requested discontinuance on a without costs basis on account of the delay. DIRTT has accepted this offer and the discontinuance of claim was filed in the Court of King's Bench of Alberta on July 17, 2025.
No amounts are accrued for the above legal proceedings.
24. RELATED PARTY TRANSACTIONS
On March 15, 2023, the Company entered into a Debt Settlement Agreement (the “Debt Settlement Agreement”) with 22NW and Aron English, 22NW’s principal and a director of DIRTT, (together, the “22NW Group” ) who, collectively, beneficially owned approximately 19.5 % of the Company’s issued and outstanding common shares at such time. Pursuant to the Debt Settlement Agreement, the Company agreed to reimburse the 22NW Group for the costs incurred by the 22NW Group in connection with the contested director election at t he annual and special meeting of shareholders of the Company held on April 26, 2022, being approximately $ 1.6 million (the “Debt”).
Pursuant to the Debt Settlement Agreement, the Company agreed to repay the Debt by either, or a combination of (i) a payment in cash by the Company to the 22NW Group, and/or (ii) the issuance of equity securities of the Company to the 22NW Group. The liability as at March 31, 2023 was revalued using the closing common share price at March 31, 2023, and a $ 2.1 million liability and expense was recorded in the financial statements.
In connection with the Debt Settlement Agreement, on March 15, 2023, the Company entered into a share issuance agreement with the 22NW Group, pursuant to which the Company agreed to repay the Debt with the issua nce to the 22NW Group of 3,899,745 common shares at a deemed price of $ 0.40 per common share, subject to approval by the Company’s shareholders which was obtained at the Company’s annual and special meeting of shareholders held on May 30, 2023.
Other related party transactions for the year ended December 31, 2023, relate to the sale of DIRT T products and services to the 22NW Group for $ 0.3 million. The sale to the 22NW Group was based on price lists in force and terms that are available to all employees. There were no sales to the 22NW Group for the years ended December 31, 2025 and December 31, 2024.
On August 2, 2024, the Company entered into a Convertible Debenture Repurchase Agreement with 22NW Group to purchase for cancellation of C$ 18.9 million ($ 14.0 million) principal amount of the January Debentures and C$ 13.6 million ($ 10.1 million) principal amount of the December Debentures for an aggregate purchase price of C$ 22.1 million ($ 16.2 million). As at December 31, 2024, 22NW no longer held any Debentures. Interest earned on Debentures held by a related party is $ nil for the year ended December 31, 2025 ($ 1.0 million for the year ended December 31, 2024) . Interest was earned on terms applicable to all Debenture holders.
Additionally, on August 2, 2024, DIRTT entered into a support and standstill agreement (the “2024 Support Agreement”) with 22NW and WWT, DIRTT’s second largest shareholder, 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 Amended and Restated SRP. Additionally, each of 22NW and WWT has 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. Since the commencement of the 2024 Support Agreement, WWT acquired 156,250 shares in the year ended December 31, 2024 . As of 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.
To give effect to the terms of the 2024 Support Agreement, the Board adopted the Amended and Restated SRP, effective August 2, 2024, which amended and restated the Company’s shareholder rights plan agreement originally adopted by the Board on March 22, 2024 (the “Original SRP”). The Amended and Restated SRP was ratified by shareholders at the special meeting held on September 20, 2024 (the “SRP Meeting”). The Amended and Restated SRP revised the definition of “Exempt Acquisition” in order to permit WWT to acquire additional common shares without triggering the provisions of the Amended and Restated SRP. The Amended and Restated SRP is otherwise consistent with the Original SRP and is substantially similar to the rights plan adopted by the Company in 2021. Like the Original SRP, the Amended and Restated SRP is intended to help ensure that all shareholders of the Company are treated fairly and equally in connection with any unsolicited take-over bid or other acquisition of control of the Company (including by way of a “creeping” take-over bid). The Amended and Restated SRP was not adopted in response to any specific proposal to acquire control of the Company, and the Board was not aware of any pending or potential take-over bid for the Company at the time of the adoption.
25. SUBSEQUENT EVENTS
On January 31, 2026, the Company repaid the principal amount of the Company’s issued and outstanding 6.00% convertible unsecured subordinated debentures (the “January Debentures”) of C$16.6 million ($12.1 million).
In February 2026, the Company received C$5.5 million from BDC as part of the Loan. Related to this transaction, the Company entered into the Seventh Amended RBC Facility and the Priority Agreement.
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 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 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.
