Alberta interior building firm founder leaving puts shares in tatters

Just three months ago Bizworld reviewed DIRTT Environmental Solutions Ltd. — DIRTT stands for Do It Right This Time — as a potential winner.

Around the same time, DIRTT was trying to hide a degrading split from the public. The Calgary-based prefab manufacturer of building interiors saw a change at the top when one of three founders, Mogan Smed, left the company under clouded circumstances.

Smed, aged 71, has a history of building great companies, starting in 1974 with Scandinavian Wood Industries, and later Smed International, sold for $300 million in 2002. The U.S. buyer later shut down Calgary operations.

The company has filed a lawsuit for $17 million damages against Smed, who heads up a new startup Falkbuilt that also does custom interior building. About 40 DIRTT employees left with him.

Smed claims he was ousted. The company claims he took business secrets and confidential information with him. The lawsuit has yet to determine who did what to whom.

Meanwhile shareholders have seen their stock value plummet from $9.23 to $5.90 since the May high — a 36 per cent decline.

A public company that looked like a winner with super-efficient technology and patents, has suddenly turned into a loser. DIRTT employees jokingly call themselves dirtbags. Shareholders may want to call the management/directors by the same name.

DIRTT counts all sorts of commercial and institutional sectors among clients including 188 Fortune 500 companies. Timing is critical. DIRTT sights are set on the $500 billion U.S. non-residential market with a three-year plan to expand. Part of that plan requires broader awareness and shareholder base with a U.S. stock exchange listing as well as the Toronto Stock Exchange. All of that may be history now that the leading founder has left and is embroiled in a lawsuit with the company. Lawsuits of this nature tend to shy investors away, even hurt business.

In early September DIRTT updated the fiscal 2019 outlook.

Part of it reads: “Several factors have impacted revenue outlook for the second half of 2019, including revised timing of various projects from 2019 into 2020 and the loss of certain expected projects. These factors reinforce management’s belief that sales in 2019 have been affected more than previously thought by an immature go-to-market approach and an inadequately supported sales force working on a long sales cycle.”

With revenue expected comparable to 2018, the company believes earnings for 2019 will be lower.

“Adjusted gross profit percentage is expected to be lower than 2018 adjusted gross profit as a combined result of costs associated with the now resolved tile warping issue and labour additions made in the second half of 2018.”

No mention was made of the lawsuit or the break with Smed. Nor was any mention of the split made in January when a series of executive changes were announced. United States law requires mention of lawsuits in financial reports. Maybe we need a similar law in Canada.

CAUTION: Remember when investing, consult your adviser and do your homework before buying any security. Bizworld does not recommend investments.

Ron Walter can be reached at ronjoy@ sasktel.net