Q4 2014 DIRTT Environmental Solutions Ltd Earnings Call
Mar 05, 2015 AM EST
DRT.TO - DIRTT Environmental Solutions Ltd
Q4 2014 DIRTT Environmental Solutions Ltd Earnings Call
Mar 05, 2015 / 02:00PM GMT
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Corporate Participants
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* Scott Jenkins
DIRTT Environmental Solutions Ltd. - President & Interim CFO
* Mogens Smed
DIRTT Environmental Solutions Ltd. - CEO
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Conference Call Participants
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* Sarah Hughes
Cormark Securities Inc. - Analyst
* Rupert Merer
National Bank Financial - Analyst
* Spencer Churchill
Paradigm Capital Inc. - Analyst
* Michael Glen
Laurentian Bank Securities - Analyst
* David Quezada
Raymond James & Associates - Analyst
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Presentation
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Operator [1]
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Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the DIRTT Environmental Solutions 2014 fourth-quarter results earnings announcement conference call.
(Operator Instructions) I would like to remind everyone that this conference call is being recorded today, Thursday, March 5, 2015 at 9 AM Eastern Time. I would now like to turn the conference over to Mr. Scott Jenkins, President of DIRTT. Mr. Jenkins, please go ahead.
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Scott Jenkins, DIRTT Environmental Solutions Ltd. - President & Interim CFO [2]
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Thank you, operator. Good morning, everyone, and welcome to the DIRTT Environmental Solutions fourth-quarter results conference call. With me today is Mogens Smed, our CEO and co-founder.
Before we begin I will remind you that certain information in today's call, including responses to questions posed, could constitute forward-looking statements that are subject to risks and uncertainties relating to DIRTT's future financial or business performance. Actual results could differ materially from those anticipated in these forward-looking statements. Risk factors that may affect results are detailed under its filings with the Canadian Securities Commission, which can be accessed at SEDAR.com.
Please note that DIRTT is under no obligation to update any forward-looking statements discussed today, except as required by applicable law, and investors are cautioned not to place undue reliance on these statements.
Now, in terms of an agenda for today's call, I am going to turn the call over to Mogens for a brief review of some of our key accomplishments this year as well as some discussion around our broader strategy and some of the macro drivers for our business. And after that I will touch on a couple of the corporate highlights, conduct a brief financial review, and talk a little bit about our near-term outlook before we open the call up to questions.
So, with that I am going to the call over to Mogens.
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Mogens Smed, DIRTT Environmental Solutions Ltd. - CEO [3]
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Thank you, Scott, and good morning, everybody. While it was a good year for revenue, albeit it was actually quite back-end loaded in the last couple of quarters, we showed some real good progress toward real profitability.
Most importantly, we now have a clear confirmation that our vision for the business model works. That the top line grows; we are seeing a leverage effect for our profitability that exceeds well beyond any conventional manufacturing operation. None of this, of course, would be possible without our ICE technology.
It also confirms that we are a top-line driven company that can clearly take advantage of incremental volumes. More impressively, although we did enjoy a few large orders, the vast majority of our business came from thousands of clients across various regions and markets. Again, demonstrating the flexibility and responsiveness of our approach.
During this same time period we completed a total implementation of our Enzo product line, which offers a new and comprehensive approach to enhanced modularity and execution, while being totally retrofitable to our current solutions. Enzo is absolutely vital to our healthcare markets and the very foundation of our residential offerings, which will launch in June in Chicago and in London, England, in our new Green Learning Center.
The Enzo collection is more in the 180 completely new extrusions and all the relevant sheet-metal and plastic componentry with, literally, infinite configuration finish possibilities. In any other manufacturing business this would have been a multibillion-dollar -- multi-million dollar investment and several years to implement in the system. The power of ICE was clearly demonstrated in that entire program and is totally integrated throughout our -- is already totally integrated throughout our sales, marketing, logistical, and distribution partner organization. It was completed within 11 months.
We are really excited about the DIRTT Corning relationship as it could have a very [extraordinary] impact on our business. On a mutually exclusive basis with Corning, we will be delivering a solution to the architectural design and construction world which they have never seen before and has tremendous value and performance and response for every one of our vertical markets.
We have remain committed to expanding vertical markets beyond the commercial world and are starting to see strong results in the healthcare arena, especially in the Middle East where we have in excess of 740 beds under construct -- under contract for the next 18 months, as opposed to 460 for the first 4.5 years. Together with our partner, NMG, we have already established ourselves as the absolute leader in modular interior construction in the Middle East healthcare facilities. The North American healthcare market is also starting to show strong traction as well and we expect to see a sharp increase in revenues over the next 24 months.
DIRTT participated in the Arab Health, world healthcare show, in Dubai where our partner, NMG, invested over $1 million on our behalf. The strong reaction clearly demonstrated DIRTT's leadership in the Middle East healthcare market. NMG invested even more in establishing a DIRTT NMG Green Learning Center in Dubai, which opened for business in the middle of February.
The rest of our partner distribution network continues to invest heavily in their DIRTT effort and the vast majority are extremely optimistic as to the economy and the opportunities for DIRTT in their respective markets. Of course, the two big questions are: how dependent is DIRTT on the energy industry and what is the outlook for 2015?
Energy represented about 20% of our business in 2014 and we are reasonably confident that energy will generate at least 15% of our increased volumes in 2015, given shipments in the first quarter and reasonably solid commitments for the following quarters. Although it is impossible to predict the timing of any construction schedule, given DIRTT's investment in billing all our various markets, the compelling nature of our solutions, the power of ICE, and a very strong team of committed DIRTTbags and DIRTT partners, we should see reasonable growth in revenue and profitability in the coming fiscal year. There could be weak patches along the way, but we are absolutely confident in the direction of our company and the compelling value of our approach.
With that I am going to turn over the call to Scott to talk about a few brief corporate -- a few corporate highlights for the year, as well as take you through a brief financial review before discussing our near-term outlook for the business.
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Scott Jenkins, DIRTT Environmental Solutions Ltd. - President & Interim CFO [4]
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Thanks, Mogens. I want to echo the sentiment that 2014 was a transformational year for DIRTT. And I also want to think our tremendously talented team of DIRTTbags and ICEcubes without whom our success to date and what we expect to come would not be possible.
Before getting to some of the financial details, I want to make the point that we believe DIRTT is at the forefront of the coming tectonic shift in the interior construction market. We continue to invest our proprietary technology and solutions, we continue to build brand awareness, we are moving into new geographic markets and verticals, and we are working with our existing distribution partners to accelerate our growth in existing markets.
On top of this, we continue to see strong macro trends such as strong nonresidential construction spending, strong economic indicators such as the Architecture Billings Index, and tailwinds from a stronger US dollar.
Now turning to the year we just completed. In late 2013 our IPO offered early investors liquidity and gave DIRTT an opportunity to access additional capital to support growth, which I am pleased to say we are putting to very good use. In mid-2014 we offered early significant investors, whose shares were coming off lock up, an opportunity to access their investment through a secondary offering with DIRTT benefiting from the chance to attract new investors committed to the next phase of the Company's growth.
That said, we understand a number of early investors elected to hang onto their shares based on their belief in the longer-term potential of DIRTT, and we appreciate that. We further believe that subsequent to the secondary, a number of the selling shareholders were able to further reduce their positions, which, as anticipated, resulted in minimal market impact when the lock-up provision on the remaining shares expired at the end of November.
The secondary also resulted in a conversion of approximately CAD5.1 million of principal and accrued interest outstanding on the Company's 14% senior subordinated convertible notes. We subsequently converted the remaining $5 million of mezzanine debt to common shares. This eliminated debt that was expensive for us to service while also tidying up the balance sheet further.
On the whole, this both streamlined our capital structure and offered us improved financial flexibility as we head into 2015 and continue to drive growth and our business. This represents a CAD1 million reduction in finance costs for the fourth quarter of 2014 versus the prior year and a CAD3.9 million reduction over the full-year period. Cash finance costs in the fourth quarter were CAD77,000.
We are obviously pleased with the stellar results for both the quarter and the year ended December 31, 2014. Our average sale was approximately CAD81,000 for the fiscal year and, in addition to the group of larger contracts valued at approximately CAD12 million we announced in January, we also signed the largest contract in our Company's history valued at $30 million gross to DIRTT in combination with our distribution partner.
Revenue increased by CAD23.7 million, or 69.4%, for the three months ended December 31, 2014, compared with the same period in 2013. Revenue increased by CAD47.5 million, or 34%, for the 12 months ended December 31, 2014, compared to the same period in 2013. The increase in revenue was mainly due to a general improvement in business levels during 2014 compared with the prior year.
And as at the end of 2013, bucking historical trends seen in prior years, we did not expense a significant seasonal slowdown over the holiday period at the end of 2014. So similar growth we are experiencing in both years and exiting the year.
I want to be clear that while a significant amount of our revenue is generated by the US market and we benefited from a stronger US dollar during the three and 12 months ended December 31, much of the growth in revenue is attributable to organic growth in our core business focused on small and medium enterprise, supported by the larger contracts we announced in the year. The five larger contracts valued at CAD12 million contributed to our improved performance through the first three quarters of the year and in the fourth quarter we began to see a significant contribution from the large previously announced contract in the US, approximately CAD5 million in the fourth quarter was recognized.
Adjusted gross profit as a percentage of revenue increased by 6% from 38.4% to 44.4% in the fourth quarter, compared with the same period in the prior year. Adjusted gross profit as a percentage of revenue for the year increased by 3.4%, from 39.5% to 42.9%. The increases were due to higher revenue in 2014 compared to the same period in 2013, leading to greater efficiencies driven by larger overall volumes in the Company's production facilities.
Higher production volumes enable better absorption of fixed costs included in cost of goods sold, such as facilities costs and indirect labor costs, particularly as the sales and production volumes, with the exception of April, were generally consistent throughout the year. Now the stronger US dollar also contributed to higher adjusted gross profits in the three month and year ended December 31, as the positive impact of the US dollar revenue exceeded the negative impact on US dollar-based production costs. We believe our improvement in gross margin with growing revenue, however, clearly demonstrates the leverage of our business model.
Adjusted SG&A expenses increased by CAD3.5 million, or 27.3%, for the three months ended December 31, compared with the same period in 2013. Adjusted SG&A as a percentage of revenue decreased by 9.4% from 37.9% to 28.5% and below our 30% target in the three months ended December 31, compared with the same period in 2013.
Now the most significant change can be attributed directly to sales-related efforts as salaries and benefits increased by just under CAD1 million and commission expense for our internal sales representatives and industry-specific experts increased by CAD1.2 million. These costs reflect personnel additions focused on generating and supporting higher business volumes as we move forward.
Included in the CAD0.9 million increase in salaries and benefits is CAD0.5 million of accrued bonuses for senior management in accordance with the Board-approved 2014 long-term incentive plan. Higher commission costs are in line with the higher revenue volumes in the current quarter. The stronger US dollar contributed to the overall increase in adjusted SG&A across the organization in the current quarter.
Adjusted SG&A expenses increased by CAD11.2 million, or 22.3%, in the year ended December 31, compared with the prior year. Adjusted SG&A as a percentage of revenue decreased by 3.1% from 35.8% to 32.7% in the year compared with the prior year. The increase on a dollar basis was primarily due to increases in salaries and benefits of CAD4.8 million, commission expense of CAD2.7 million, travel and marketing costs of CAD2.5 million, and included in the CAD4.8 million increase in salaries and benefits is CAD1 million accrued bonuses under the long-term incentive plan -- Board approved plans.
Adjusted EBITDA increased by CAD9.7 million in the fourth quarter, compared with the same quarter in 2013 and by CAD14.4 million in the year ended December 31, compared with the annual results for 2013. The increases were mainly due to higher revenue and the resulting improved adjusted gross profit percentage. These amounts were partially offset by increased adjusted SG&A for the reasons just discussed.
I want to highlight the strength of our balance sheet at year-end as well for everybody on the call this morning. At December 31, DIRTT had CAD39.8 million in cash and cash equivalents compared with CAD34.4 million at December 31, 2013. At December 31, 2014, we also had an undrawn $18 million revolving operating facility, and based on our growing cash position and improving cash flows, we feel that we have the necessary resources in place to continue to fund growth in the near term.
Now before opening the call to questions I will take a few moments to talk a little bit about what we are seeing early in 2015. The American Institute of Architects Architecture Billings Index, which is a leading economic indicator of how non-residential building activity could trend over the next 9 to 12 months, did show a modest decrease in January, but after nine straight months of expansion to finish 2014.
There is a general belief that challenges due to weather in the Northeast US have caused some construction and related project delays. We have seen a little bit of that. During the first quarter we do traditionally see more modest results, but based on a strong start to the year, we do expect to deliver solid year-over-year growth for Q1 2015 while likely not quite delivering the stellar results of the fourth quarter. And obviously the fourth quarter blew the doors off.
Looking further out, we do expect to see a relatively regular contribution to the majority of 2015 from the gross $30 million contract announced in mid-2014 that began delivery late in last year. And we would remind investors that our business is still subject to occasional lumpiness and that a weaker month has the potential to influence our results for a full quarter.
So that concludes our prepared remarks for today. I would like to thank you for your time and attention and remind you that this webcast will be archived under its website at www.dirtt.net.
Operator, we are now ready for questions.
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Questions and Answers
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Operator [1]
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(Operator Instructions) Sarah Hughes, Cormark Securities.
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Sarah Hughes, Cormark Securities Inc. - Analyst [2]
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Congrats on the quarter. So on the strong -- the CAD30 million contract, so do you expect us to go right through to the end of Q4 this year from --?
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Mogens Smed, DIRTT Environmental Solutions Ltd. - CEO [3]
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No. We are actually going to wrap up -- the first half of the contract wraps up here in March. And then we are going to start to receive orders and we're supposed to start to receive orders in May and June, which means we will start to ship in Q3. We will probably ship most of it in Q3.
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Sarah Hughes, Cormark Securities Inc. - Analyst [4]
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And then obviously a very strong end to the year and you did see a good Q3. Just wondering, do you think, in terms of activity levels, there was any kind of pent-up demand as you move through 2014 just because of the impact on the weather in the first half or no?
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Mogens Smed, DIRTT Environmental Solutions Ltd. - CEO [5]
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Not really. It's -- we kind of caught up with that in the third quarter and even towards the end of the second quarter.
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Sarah Hughes, Cormark Securities Inc. - Analyst [6]
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Okay. And then if you can talk a little bit in terms of G&A. Are there any big investment plans that you are expecting on the G&A front in 2015? Other than obviously rise alongside the revenue to some degree.
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Scott Jenkins, DIRTT Environmental Solutions Ltd. - President & Interim CFO [7]
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Well, we definitely we have added to our sales and marketing team and we are opening a Green Learning Center in Toronto, which is effectively soft open right now, and London later this year. But in the big scheme of things you will see some growth, but we still expect to be driving SG&A expenses as a percentage of gross revenue down.
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Sarah Hughes, Cormark Securities Inc. - Analyst [8]
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Okay, okay. And then any big CapEx plans you are expecting in terms of 2015?
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Mogens Smed, DIRTT Environmental Solutions Ltd. - CEO [9]
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Nothing major, just within the guidelines of what we have got there. We have got the carry over for last year. Quite frankly, we didn't manage to get the equipment in. I'm Danish so I can say it: Europeans have a tendency to exaggerate their ability to perform. We've waited -- we are five months late in getting our equipment for our heavy timber equipment coming in. It is coming in now.
So that is all there is. No, we don't expect any real big numbers this year.
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Sarah Hughes, Cormark Securities Inc. - Analyst [10]
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Okay. Then just lastly for me, obviously very strong revenue. If you can look at the industry segments, were there one industry segment that really surprised you or was it kind of right across the board in terms of industry level?
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Mogens Smed, DIRTT Environmental Solutions Ltd. - CEO [11]
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Actually, the energy didn't really surprise us. We kind of knew we had it for a while there, but the one that surprised us to the downside, honestly, was healthcare. And it is coming up now, right.
Our education has been -- segment has been growing real steadily for us. But the -- we really didn't get -- the only surprise we got for the first time probably in five years, the project in Houston was actually ahead of schedule. And we delivered CAD5 million of it in the last quarter that we didn't expect to deliver until this particular quarter.
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Sarah Hughes, Cormark Securities Inc. - Analyst [12]
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Okay, that is it for me. Thank you.
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Operator [13]
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Rupert Merer, National Bank.
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Rupert Merer, National Bank Financial - Analyst [14]
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Congratulations. Can we talk a little more about long-term growth and how you can drive organic growth in North America? How much potential is there to expand sales with your existing distribution partners, and how important is it for you to bring on new ones?
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Mogens Smed, DIRTT Environmental Solutions Ltd. - CEO [15]
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Well, first of all, it's not important for us to bring on new ones. It is to get the existing ones performing to even 50% of their capacity.
The greatest opportunity for organic growth is in healthcare and education here in North America. We have hardly even scratched the surface of it. It is a long, long decision-making cycle and we have secured some business. For instance, we just got a hospital in Cincinnati; it took us three years to get it. We have just been given the letter of intent and we won't be delivering it till the beginning of 2016.
We have similar situations going on in Las Vegas and in New York. So that is why we are very confident in the long-term growth of our business and the incredible potential for it. We got a long ways to go.
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Rupert Merer, National Bank Financial - Analyst [16]
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So you mentioned healthcare was a little weak in Q4. How much did it contribute and where do you think it could go with the progress that you are seeing? Where could it go, say, in 2015 and then beyond?
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Mogens Smed, DIRTT Environmental Solutions Ltd. - CEO [17]
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It was weak in all of last year to be clear, okay? You know what I mean, compared to what we expected. And we absolutely expect to see healthcare -- see its sales at least triple this year for us.
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Rupert Merer, National Bank Financial - Analyst [18]
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And this year was it, say, 10% of revenues, 15% of revenues?
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Mogens Smed, DIRTT Environmental Solutions Ltd. - CEO [19]
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Just a little bit lower than 10%, but we definitely feel -- we feel that it will -- within the next two years it will be 30% or 40% of our business, healthcare alone. And, by the way, it is a much better margin business for us than commercial.
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Rupert Merer, National Bank Financial - Analyst [20]
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Then just to follow up, your distribution partners you said there is a long way to go to get them to 50% of their capacity. Where do you think they are today based on how much you are delivering and what their capacity would be to deliver in the future?
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Mogens Smed, DIRTT Environmental Solutions Ltd. - CEO [21]
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Maybe 20%.
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Scott Jenkins, DIRTT Environmental Solutions Ltd. - President & Interim CFO [22]
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You know, Rupert, we think we've got North America largely covered in terms of a strong partnership network, but the average age of our partners is still five years. And a lot of them -- we are seeing a tremendous investment they are making in their people and Green Learning Centers, but there is still a long ways to go.
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Rupert Merer, National Bank Financial - Analyst [23]
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Great. And then just one final one then. To take that next step, what kind of contribution can we expect from your international markets in the near term and healthcare internationally in particular?
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Mogens Smed, DIRTT Environmental Solutions Ltd. - CEO [24]
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Well, most of it will be healthcare for sure, but we will see real strong growth in our international sales in the next 24 months, no doubt about it. We're just getting our first orders coming in from Kuwait. We have been selling in Saudi Arabia and we are just going to get our first orders in Kuwait. We are getting our first order in Singapore.
So we -- and by the way, in both those places we have extremely strong partners, extremely strong partners. We might even see a little bit of business in India in the next six months here.
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Rupert Merer, National Bank Financial - Analyst [25]
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Could it be more than 10% of your revenues this year?
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Mogens Smed, DIRTT Environmental Solutions Ltd. - CEO [26]
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Sure.
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Scott Jenkins, DIRTT Environmental Solutions Ltd. - President & Interim CFO [27]
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Yes, I think -- you have to remember, we are very confident that we are going to see further growth on last year. So for it to grow in momentum, healthcare is -- especially in the Middle East. We have an opportunity in Singapore, probably that would be more in 2016. But it could be well over CAD20 million, CAD30 million.
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Mogens Smed, DIRTT Environmental Solutions Ltd. - CEO [28]
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Yes.
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Rupert Merer, National Bank Financial - Analyst [29]
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All right, thank you. I will get back in the queue.
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Operator [30]
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Spencer Churchill, Paradigm Capital.
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Spencer Churchill, Paradigm Capital Inc. - Analyst [31]
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I will echo the congrats on the numbers. Just in terms of the quarter, just wondering how revenue flew through the quarter. Was it pretty even and so the gross margin number was kind of what you would expect given an even flow, or how did that play out?
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Scott Jenkins, DIRTT Environmental Solutions Ltd. - President & Interim CFO [32]
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It was; actually that was the nice thing about the quarter. And one thing to remind people is during the quarter and during the year our average sale was CAD81,000 during the quarter. There was a lot of it just those small to medium-size enterprise projects that we keep building on the momentum.
But October, November, December, relatively consistent revenue, that helped with margins a little bit. But just the overall strength.
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Spencer Churchill, Paradigm Capital Inc. - Analyst [33]
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Okay, that's great. Then just if you can -- as you think about capacity, I mean obviously that was a big revenue number for you guys in the quarter. How easily was it -- how easy was it for you guys to deliver that? And given this I don't want to call it run rate, but generally higher level, much higher level than you've seen historically, does this change your thinking on when you might start to look to add new capacity?
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Mogens Smed, DIRTT Environmental Solutions Ltd. - CEO [34]
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We don't need to add new capacity; we got lots of capacity right now. We are real confident that we can take this thing at least to CAD350 million or CAD400 million without adding any manufacturing facilities or anything like that. We got tons of capacity.
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Spencer Churchill, Paradigm Capital Inc. - Analyst [35]
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Okay. So that is a bit -- that number is a bit higher than I think you guys quoted historically. Have you looked at new ways to get that capacity higher in terms of the logistics?
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Mogens Smed, DIRTT Environmental Solutions Ltd. - CEO [36]
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Absolutely. You take a look at this whole Corning Glass thing here, when this Corning thing comes out -- and you really have to see it. We have capacity of about 1,000 pieces of (inaudible) glass a month now. We will easily be able to go up to 5,000 pieces there.
Not to mention what the whole aura of having this Corning relationship, what that can do for our top-line business and how it is absolutely powerful for us in healthcare as it relates to infection control. And it will have a big impact on our residential launch too.
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Spencer Churchill, Paradigm Capital Inc. - Analyst [37]
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Okay. That is great, guys. Thanks.
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Operator [38]
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(Operator Instructions) Michael Glen, Laurentian Bank.
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Michael Glen, Laurentian Bank Securities - Analyst [39]
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Scott, you sort of touched on organic growth. Have you guys done an estimate as to what your US organic growth would have been in the period?
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Scott Jenkins, DIRTT Environmental Solutions Ltd. - President & Interim CFO [40]
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We haven't done specific numbers. If you look at removing the FX component, obviously the US dollar strengthened significantly in January and February versus Q4, but it was largely organic growth. There is the one large project; Mogens mentioned we recognized about CAD5 million in revenue. The rest of that is organic growth.
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Michael Glen, Laurentian Bank Securities - Analyst [41]
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And that number does look to be fairly significant. If you drill into that number a little deeper, what really -- was there a vertical in particular that, excluding the ConocoPhillips, that has really drove that organic growth higher? Or was there a particular market in the US where you saw the growth really accelerate?
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Mogens Smed, DIRTT Environmental Solutions Ltd. - CEO [42]
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Well, we saw it -- we actually -- in Northern California we definitely saw -- in the Silicon Valley there is pretty well -- we are not ubiquitous in that market, that is for sure. But if there is a major account, with the exception of the one that starts with A, you know what I mean. We are dealing with most of them in the business and we have been getting more and more penetration to each and every one of those accounts. For instance, we will be doing the entire Netflix campus in Los Gatos here in the second and third quarter here.
Northern California was very strong for us. We saw a lot of growth in places like Ohio, in our second -- in so-called secondary markets. We did real well in Alabama. It's pretty well over. Where we've weakened, we've weakened significantly in our government sales, the US government, which was a strong part of our business. We just haven't seen as much of that.
But, generally speaking, Boston was extremely strong for us. Large contracts like Blue Cross Blue Shield, Liberty Mutual, those are -- Boston was very strong for us in the year. So it is pretty well across the board.
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Michael Glen, Laurentian Bank Securities - Analyst [43]
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Okay, and those all -- in Northern California I guess it's the IT vertical, but in Ohio and Boston it's sort of various --.
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Mogens Smed, DIRTT Environmental Solutions Ltd. - CEO [44]
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Banks, certainly Ohio State. The (multiple speakers) yes, everybody, everywhere. We did the corporate headquarters in Michigan for La-Z-Boy. Those were the type -- that is the type work that it's --. FedEx in Pittsburgh. Just everywhere different types of business.
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Michael Glen, Laurentian Bank Securities - Analyst [45]
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Okay. And then Houston, outside of ConocoPhillips, how did you see the Houston market grow?
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Mogens Smed, DIRTT Environmental Solutions Ltd. - CEO [46]
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Well, we had -- we delivered over CAD5 million to Shell. We did a whole campus for Shell. We are doing a lot of work for Bechtel down there. We've got -- what was the other one? I'm just trying to think of the other ones that we had.
We had a lot of work in -- get a lot of work starting to get in healthcare right now and different types of accounts. Nothing real major; CAD500,000 orders, CAD1 million orders. They are nice orders in the energy business, just like they are here in Calgary, but I couldn't say one in particular that was really particularly large besides the Conoco.
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Michael Glen, Laurentian Bank Securities - Analyst [47]
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And then just to comment on your energy clients, how in particular is the tone of the conversation changing with them at all?
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Mogens Smed, DIRTT Environmental Solutions Ltd. - CEO [48]
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No, I'm glad you asked that. Our clients -- here in Calgary, for instance, Pembina Pipelines they are growing. Enbridge is growing. We have contracts with them.
We are renovating 32 floors for Husky right now here in Calgary and they are moving ahead. They haven't stopped. There has definitely been jobs that have stopped, but we haven't been affected yet. We haven't had -- we always -- so pardon me, we -- Suncor has definitely slowed down significantly.
But, otherwise, these pipeline companies they are not slowing down. In fact, Pembina is hiring more people right now, and Enbridge we are an ongoing process for the next -- at least the next two years of renovating for them, plus they've got a big job coming up in a new tower in Edmonton.
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Michael Glen, Laurentian Bank Securities - Analyst [49]
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Okay. Then a couple small ones, Saudi -- you gave Middle East revenue in the past. What was Middle East revenue in the quarter?
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Mogens Smed, DIRTT Environmental Solutions Ltd. - CEO [50]
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In the quarter? It was close to nothing.
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Scott Jenkins, DIRTT Environmental Solutions Ltd. - President & Interim CFO [51]
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Yes, Middle East revenue you got to remember can be very lumpy, because they get good projects but timing is a challenge. We are extremely excited about Middle East revenue and in the press release we made note of over 700 bags under contract for the next 18 months. But it wasn't a big contributor to Q4.
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Mogens Smed, DIRTT Environmental Solutions Ltd. - CEO [52]
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The whole year was, what, CAD 5.4 million, is that what you said? CAD5.4 million for the whole year for Saudi. And we expect to triple that this year.
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Michael Glen, Laurentian Bank Securities - Analyst [53]
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Okay. Then just next year the tax rate, where do you -- or gross tax amount.
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Scott Jenkins, DIRTT Environmental Solutions Ltd. - President & Interim CFO [54]
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So, I will take that one. We expect it to be roughly consisted on an absolute dollar value, maybe a little bit higher. Remember, we have significant investments from our early days in tax pools; also in research and development pools.
So the taxes you see right now in our financial statements are franchise taxes, sales taxes, state taxes on top line; everybody wants to get their pound of flesh. But we are -- we expect for 2015 effectively not to pay significant income tax.
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Michael Glen, Laurentian Bank Securities - Analyst [55]
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Got it. Thanks a lot, guys.
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Operator [56]
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David Quezada, Raymond James.
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David Quezada, Raymond James & Associates - Analyst [57]
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Thanks. Morning, guys; congrats on the results.
A lot of questions that have already been asked, but I will ask: when you release your residential product, I believe you said that was going to be in June at NeoCon, what is the process and the timeline going to be as that goes to market? I know it is still kind of a longer-term development, but maybe some color there.
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Mogens Smed, DIRTT Environmental Solutions Ltd. - CEO [58]
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I don't think that we will see any significant results for at least 12 months after that. We are going to be out there. It's a different model to market. It will definitely -- some of it will be coming through our distribution partners, but a lot of it will be going directly to the independent design community and into the -- and into the homebuilders, actually to the homebuilders. So it is going to be a completely different model.
We have to get it into ICE. We will tell you the reason we are opening it in London. There is 10 million -- sorry, there is 10,000 flats being built there right now and we are seeing some of these flats go for GBP10 million pounds for 4,000 square feet.
And we think -- you are in Toronto; go over and take a look at what we have got in our Green Learning Center there. You will get a good indication of the type of approach that we are going to have. And then -- okay, all right. You are in Vancouver, okay.
Anyway, so it will be about a year before we will start to see what I would say are good sales in that market vertical.
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David Quezada, Raymond James & Associates - Analyst [59]
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Okay, great, that is helpful. And then maybe on the Corning Glass partnership, could you maybe give us some examples? Does it expand the nature or the type of projects that you are able to deliver? The benefit I understand is maybe on the embedded technology side, maybe just some more color there.
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Mogens Smed, DIRTT Environmental Solutions Ltd. - CEO [60]
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First of all, it cuts our -- it absolutely cuts our cost of labor by 80%. It cuts our freight by at least 80%. Right now we are having to crate a piece of glass vertically and all that. And, of course, it increases our -- it totally increases our capacity.
We can do 5 times the amount with this system than we could. And we also have an integrated graphics program that we have been having outsourced now that we will be bringing in-house here and bringing in --. By the way, pricing on this product, although it will be substantially better, we got a really neat marketing program to go for it. If you go to the website, go to the Corning website and look at Willow Glass and you will get a real good insight to what we are doing there.
But the prices are going to be as much as 50% less than they were for our existing offering. And they are going to be much, much better and much more profitable for us.
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David Quezada, Raymond James & Associates - Analyst [61]
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That is interesting. I guess my last one and then I will leave it -- I will get back in the queue. On the healthcare side of things, I know that over time you've been able to tackle increasingly more involved areas of a health facility. Have you seen any progress there in terms of different nature of projects or anything like that?
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Mogens Smed, DIRTT Environmental Solutions Ltd. - CEO [62]
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Now we are starting to see -- we're actually getting in the clinical -- for instance, yesterday we had the largest clinical company in the world was here for two days with us. They are going back today. And we are definitely seeing that we are getting into palliative care now that we weren't in before.
We're definitely starting to see us getting more involved in assisted living. One of the big things in residential is going to be aged-in-place. So you know how -- it just becomes broader every day.
Dialysis centers, which DaVita, the company focused on dialysis, we are very, very, very good in that area. And then what we are getting along with that is their offices; is there medical office buildings and their administrative areas.
And now just one other step. This doesn't seem like a big thing, but these clean rooms that we are just getting tested for positive pressure for to get into what is called Class 1 clean rooms, which could bring yet another big component of business then for us.
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David Quezada, Raymond James & Associates - Analyst [63]
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Okay, great. That is very helpful, thank you. That is all I had.
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Operator [64]
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(Operator Instructions) Rupert Merer, National Bank.
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Rupert Merer, National Bank Financial - Analyst [65]
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Just a couple of quick follow-ups. What is the outlook for more large contract awards? Are you seeing many processes today where you might have an opportunity to bid?
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Mogens Smed, DIRTT Environmental Solutions Ltd. - CEO [66]
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Yes. And they are almost exclusively; the real big ones are almost exclusively in healthcare as far as -- where we don't --. We see huge competition in the commercial end of things and we see absolutely no competition on the healthcare side, because we are bringing something there that -- as I said, we are singular.
How do you -- take a look at the logic. How do we end up after 4.5 years end up being the name in healthcare in the Middle East? And it is because we are singular in our approach and when they buy into that approach we have absolutely no competition.
So we see large contracts -- good size contracts coming in healthcare. We have a few commercial opportunities that we think that we have a good chance to get, but we are not going to call them till we get them.
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Rupert Merer, National Bank Financial - Analyst [67]
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On the healthcare side, how large can those projects be? Can they trip your threshold for materiality on press releases, for example?
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Mogens Smed, DIRTT Environmental Solutions Ltd. - CEO [68]
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Yes, absolutely they could. They absolutely could, yes.
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Rupert Merer, National Bank Financial - Analyst [69]
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Great. And then just one final question. Where do you stand today with looking at other value streams for your software? Have you had any evolution in your thinking on what you could do with the software?
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Mogens Smed, DIRTT Environmental Solutions Ltd. - CEO [70]
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Yes, we have. Well, first of all, we were a little distracted. Last year we put an entire line in there that goes far beyond any other offering out there and spent 11 months consuming doing that and running our business at the same time.
We have made -- we have a strategic relationship right now with SAP that we're going to be launching with them in May where we have demonstrated how ICE can work -- flow seamlessly into SAP's back-end systems. And because our job -- we are not a software company. We don't want to sell services; we are busy doing what we are doing.
And what we need to do is get it in the hands of somebody that knows how to implement these type of systems and, quite frankly, has an enormous customer base. That we can sell it to their customer base and not have to do the servicing but have their service providers do the servicing.
But to be clear, just to be very clear, the big focus here we are adamant -- we are still -- we are building a CAD1 billion business here. We're going to show staggering profitability compared to any other business, which will bring strong value to our Company, and we don't want to get just focused on that. We have got every man, woman, and child working on that. We don't want to get just focused on that.
But as far as selling off the business or getting other customers right now, it is not a focus for us.
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Rupert Merer, National Bank Financial - Analyst [71]
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All right, very good. Thank you very much.
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Operator [72]
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There are no further questions at this time. I will turn the call back over to management.
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Scott Jenkins, DIRTT Environmental Solutions Ltd. - President & Interim CFO [73]
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That concludes the call today. Once again, I want to thank everybody for their time and attention, and we look forward to updating you all again next quarter. Take care.
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Mogens Smed, DIRTT Environmental Solutions Ltd. - CEO [74]
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Thanks a lot.
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Operator [75]
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This concludes today's conference call. You may now disconnect.
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