DIRTT Environmental Solutions (TSE:DRT) reported a 19% increase in third-quarter revenue and a return to operating profitability, helped by higher volumes, lower tariff-related costs and reduced operating expenses.
The company maintained its full-year 2026 outlook but said it expects revenue and adjusted EBITDA to finish toward the low end of their respective ranges, based on project timing and revenue conversion.
Third-quarter revenue rose to $44.7 million from $37.7 million a year earlier. Product revenue increased to $41.5 million from $36.7 million, while service revenue climbed to $3.2 million from $1 million, Chief Financial Officer Fareeha Khan said.
Net income after tax was $17.1 million, compared with a $3.7 million loss in the prior-year quarter. The result included a $13.1 million non-cash income tax benefit associated with the recognition of a deferred tax asset, primarily related to net operating loss carryforwards.
Margins Improve as Costs Decline
Gross profit rose to $15.7 million from $11.5 million, and gross margin expanded to 35.1% from 30.4%. Khan attributed the improvement primarily to higher volumes and lower tariff and tariff mitigation costs, partly offset by rising material costs.
Tariff and tariff mitigation costs fell to $0.3 million from $1.9 million a year earlier. Adjusted gross profit increased to $16.6 million from $12.5 million, with the adjusted margin rising to 37.1% from 33.1%.
Operating expenses declined to $11.3 million from $15.2 million, reflecting lower spending across several functions and reduced stock-based compensation and reorganization expenses. Operating income was $4.4 million, compared with an operating loss of $3.7 million a year earlier.
Adjusted EBITDA rose to $6.5 million, or 14.6% of revenue, from $1.2 million, or 3.1% of revenue. Cash provided by operating activities declined to $3.1 million from $4.4 million. DIRTT ended the quarter with $19.3 million in cash and cash equivalents, up from $14.8 million at June 30.
Commercial Growth and Pipeline
Chief Executive Officer Benjamin Urban said commercial revenue increased approximately 30% year over year and accounted for about 68% of product revenue, up from approximately 60% a year earlier. Government revenue more than doubled, education grew approximately 13%, and revenue in Canada also more than doubled.
Healthcare revenue declined against a strong prior-year quarter, primarily because of the timing of large project shipments. Responding to an analyst’s question, Urban said healthcare projects generally have longer sales cycles and are larger than the average commercial opportunity, contributing to volatility.
DIRTT’s 12-month forward pipeline stood at approximately $290.3 million across 1,662 qualified leads as of Oct. 1, down 13% from both Jan. 1, 2026, and Oct. 1, 2025. Urban said the company has focused on pipeline quality and forecasting reliability, including an emphasis on higher-value, higher-margin opportunities.
Urban did not provide a pipeline conversion rate when asked, but said the number of opportunities being pursued had increased year over year. He said the company is aligning its tracking more closely with construction schedules and project stages to improve visibility into when projects may be ordered.
Construction Services is becoming a more prominent part of DIRTT’s commercial strategy, Urban said. Khan said third-quarter service revenue growth reflected more installation projects through that channel, including two large healthcare projects and one large technology project in progress during the first nine months of 2026.
Outlook, Pricing and Litigation
DIRTT maintained its 2026 forecast for revenue of $175 million to $185 million and adjusted EBITDA of $21 million to $25 million. For the first nine months, revenue rose approximately 8% to $127.5 million, while adjusted EBITDA increased to $12.7 million from $1.3 million.
Urban said the company believes imports of its products into the United States are no longer subject to certain Section 232 steel and aluminum tariffs, based on its review of U.S. tariff revisions announced in April and June. DIRTT continues to apply a 3.5% tariff surcharge and a 1% aluminum price surcharge. After the quarter, it increased its freight surcharge by an additional 2%, following an 8% surcharge introduced earlier in the year.
Urban also said hearing dates in DIRTT’s litigation against Falkbuilt concluded Aug. 7, with final oral argument scheduled for Nov. 18-20. DIRTT is pursuing alleged damages approaching CAD 90 million, including prejudgment interest, plus costs. The outcome remains uncertain, and no recovery has been recognized in the financial statements, he said.
About DIRTT Environmental Solutions (TSE:DRT)
DIRTT 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 interior construction solutions are designed to be highly flexible and adaptable, enabling organizations to easily reconfigure their spaces as their needs evolve.
