Earnings call transcript: Worksport Q4 2024 sees stock dip despite sales surge

Worksport Ltd (WKSP) reported its fourth-quarter 2024 earnings, showcasing a substantial increase in net sales but failing to meet market expectations on earnings per share (EPS). The company’s stock reacted negatively, dropping 9.84% during open market trading. Despite a 455% increase in annual sales, the EPS of -$0.13 fell short of forecasts, reflecting ongoing operational challenges. According to InvestingPro data, the stock’s beta of 2.11 indicates significantly higher volatility than the broader market, while current analysis suggests the stock may be undervalued relative to its Fair Value.

Key Takeaways

• Worksport’s Q4 2024 net sales rose 250% year-over-year.
• The company reported an operating loss of $16.16 million.
• Stock price decreased by 9.84% following the earnings release.
• The company aims for $20-$34.5 million in revenue for 2025.
• Worksport expanded its patent portfolio by 25%.

Company Performance

Worksport demonstrated significant sales growth in FY 2024, with net sales reaching $8.4 million, a 455% increase from 2023. InvestingPro data reveals an impressive revenue growth of 776.97% in the last twelve months, driven by strong online sales and an expanded dealer network. The company continues to face challenges, with an operating loss of $16.16 million, highlighting the need to manage costs effectively. A current ratio of 2.96 indicates strong short-term liquidity, though profitability remains a concern.

Financial Highlights

• Revenue: $2.93 million in Q4 2024, up 250% year-over-year.
• Gross Margin: 21% in December 2024.
• Cash and Equivalents: $4.88 million, up from $3.37 million in 2023.
• Working Capital: $7.3 million, an increase from $1.96 million in 2023.

Earnings vs. Forecast

Worksport missed its EPS forecast of -$0.13, reflecting a challenging quarter despite impressive sales growth. The revenue forecast was $2.92 million, which the company slightly exceeded with actual sales of $2.93 million. This mixed performance highlights the complexity of balancing rapid growth with profitability.

Market Reaction

Following the earnings release, Worksport’s stock fell by 9.84%, closing at $3.39. This decline reflects investor concerns about the company’s ability to achieve profitability despite robust sales growth. InvestingPro analysis indicates the stock is in oversold territory based on RSI readings, with 12 additional ProTips available to subscribers. The stock remains near its 52-week low of $3.15, indicating a cautious market sentiment. For detailed insights into undervalued opportunities like WKSP, investors can access comprehensive Pro Research Reports covering 1,400+ US equities.

Outlook & Guidance

Looking ahead, Worksport targets $20-$34.5 million in revenue for 2025, with a gross margin goal of 25-30% by year-end. The company is optimistic about achieving cash flow breakeven by late 2025 or early 2026, supported by a low capital expenditure strategy and continued product innovation.

Executive Commentary

CEO Steve emphasized the company’s unique value proposition, stating, "We believe that the combination of our made in America tunnel covers and upcoming clean energy solutions create a new unique value proposition." CFO Mike Johnson added, "Our overarching financial objective for 2025 is to move significantly closer to cash flow breakeven."

Risks and Challenges

• Profitability: Ongoing operating losses may challenge financial stability.
• Market Competition: Increasing competition in the tunnel cover market.
• Product Development: Delays in launching new products could impact growth.
• Economic Conditions: Macroeconomic factors may affect consumer spending.
• Supply Chain: Potential disruptions could impact production and delivery.

Q&A

During the earnings call, analysts focused on the balance between online and dealer sales, with the company aiming for a 50/50 split. Discussions also highlighted the anticipated configurations of the Solus/Core products and a significant reduction in R&D expenses for 2025.

Full transcript - Worksport Ltd (WKSP) Q4 2024:

Steve, CEO/Founder, Worksport: for 2025. Fiscal year 2024 was a transformative year for Worksport. We achieved significant revenue growth, expanded our product lineup and strengthened our financial foundation. We will be reviewing the financial results for the quarterly period ending 12/31/2024 and full year 2024. These results were filed today at 07:45AM Eastern in our form 10 ks and can be downloaded from the link provided in the chat.

At the end of today’s call, our prepared remarks and presentation deck will be available for download at www.investors.worksport.com/reports. We’ll also share the link in the chat to where you can download those reports and everything available. Our remarks will follow a slide presentation. After our prepared remarks, we will open the line for questions. So on that, let’s begin.

First, with Safe Harbor statements. During this call, we make we may will make forward looking statements, including statements regarding our financial outlook for the full year ’twenty five, our expectations regarding financial and business trends, impacts from the macroeconomic environment and market position, opportunities, go to market initiatives, growth strategies and business aspirations, and product initiatives and the expected benefit of such initiatives. These statements are only predictions that are based on our current beliefs, expectations and assumptions. Because forward looking statements relate to future the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Actual results or events may differ materially.

Therefore, you should not rely on any of these forward looking statements. These forward looking statements are subject to risk and other factors that could affect our performance and actual results, which we discuss in details in our filings with the SEC included in our annual report on our Form 10 ks and quarterly reports on Form 10 q and other SEC filings. The forward looking statements made in this earnings call today are made only as of today’s date. Worksport assumes no obligation to provide update on any forward looking statements we may make on today’s webinar. We’ll begin by highlighting Worksport’s achievements from fiscal year twenty twenty four, celebrating the milestones that propelled the impressive growth trajectory.

Follow that, we’ll dive into our strong financial performance, emphasizing our exceptional revenue growth, significant improvements in profitability metrics and clear strategic roadmap for continued expansion and profitability. We’ll then explore our operational successes, showing our growing presence in both consumer direct and reseller markets, as well as our success embedding on ourselves, shifting towards higher margin Worksport only branded product sales. We’ll also preview our highly anticipated upcoming product launches, including innovations from Teravis Energy, which we believe has the potential to reshape the industry and its standards and open up new market opportunities for us. To wrap up, we’ll share our vision and strategic plans for fiscal year twenty twenty five, providing fresh guidance and outlining key financial goals for another year of dynamic growth ahead. 2024 was a breakout year for Workspor.

We delivered full year net sales of $8,400,000 up 455% from $1,530,000 in 2023. This tremendous growth was driven by successful ramp up of our American made hard folding tunnel cover products, an expansion of both of our business to consumer and business to business sales channels. We effectively bolstered our direct to consumer presence. Online sales surged 58% of total revenue in 24% compared to just seven percent the year prior. At the same time, we onboarded new distributors and private label partnerships that contributed to our top line results.

Importantly, this revenue growth was achieved while laying the groundwork for improved profitability. We strategically shifted towards higher margin Worksport branded products and began phasing out lower margin offerings, especially in the latter part of the year. As a result, gross profit from the year improved and we saw strong uptick in margins by year end, which Michael will detail shortly. Overall, fiscal year twenty twenty four results underscore that our investments in U. S.

Manufacturing and product development are translating into accelerating sales and a stronger market position. In the fourth quarter of twenty twenty four, we continue to build on our success with our highest quarterly revenue to date. Q4 net sales were approximately $2,930,000 a sharp increase from $839,000 in Q4 the year before. This nearly 250% year over year Q4 growth reflects robust demand for both of our e commerce platform and our distribution partners during the holiday season. Our Q4 performance also meant that we exceeded all of our full year 2024 revenue guidance, which was previously set to be between $6,000,000 to $8,000,000 We came in above the high end of that range.

In addition to strong top line results, we achieved notable gross margin expansion in Q4. In fact, December 2024 gross margin percentage is nearly three times that of Q3, higher than 20% gross margin of profit. And that is improving. For the whole quarter, gross margins improved by 30% compared to Q3, thanks to our shift towards higher value Wurf Spore branded products and a better absorption of products production overhead as volumes increased economies of scale as we call it. This is a clear indication that our strategic pivot to prioritize margin by focusing on our own product lines and reducing lower margin private label sales is paying off.

Summing up Q4, we ended the year with excellent sales momentum and a trajectory of improving profitability metrics. Now, Michael Johnson, our CFO will walk you through the financial details of both the quarter and the full year.

Mike Johnson, CFO, Worksport: Thank you, Steve. Let’s review our financial performance in more detail starting with the income statement. For fiscal twenty twenty four, net sales were $8,480,000 up 455% from $1,530,000 in 2023. The growth was broad based driven by increased sales to private label partners, surge in online consumer sales and the onboarding of new dealers and distributors during the year. Q4 twenty twenty four net sales contributed approximately $2,930,000 of that total, which resulted in revenue of approximately $6,000,000 for the second half of the fiscal year.

This figure represents 71% of Worksports annual revenue and illustrates how our revenue acceleration intensified in the back half of the year. Notably, another interesting shift that occurred in the back half of 2024 was a rapid increase of works for branded e commerce sales and the decrease of lower margin private label sales. Cost of sales for fiscal twenty twenty four was $7,580,000 up from $1,290,000 in 2023 largely corresponding to the higher sales volume. This represented 89% of net sales in 2024 versus 84% in 2023. The increase in cost of sales as a percentage of revenue is mainly due to strategic discounting initiatives in our direct to consumer channel as well as higher overhead allocation on early production rents when volumes were lower.

For the full year 2024, our gross profit reached approximately $910,000 reflecting a gross margin of about 11%. However, as demonstrated by December’s strong performance with margins exceeding 20%, we’ve already begun benefiting from economies of scale. With premium product launches and continued production ramp up and expanding sales initiatives, we expect fiscal twenty twenty five gross margin to align more closely with those achieved in December 2024, supporting our growth strategy. Our fiscal twenty twenty four operating loss was $16,160,000 compared to $14,930,000 in 2023. The higher loss reflects the increased operating expenses tied to scaling our business and product development.

However, on a per share basis, our loss improved significantly year over year from $8.44 in 2023 to $5.84 in 2024, a 31% improvement. While we’re not satisfied reporting a loss, we emphasize that these investments were necessary to position Worksport for robust growth and future profitability. We expect net operating losses to further decrease significantly and move towards net income in the near future as our revenue continues to scale and as the cost reductions we’ve implemented in late twenty twenty four take effect. With the strong margin seen in December 2024, accelerating branded sales and recently announced expanded dealership network, we’re well positioned to target breakeven and profitability in the near term. Later in this call, we’ll outline key initiatives and projections driving our continued success in the coming year.

Turning to the balance sheet, our financial position at year end 2024 reflects capital raises and asset growth that occurred during the year, which has strengthened our foundation. Cash and liquidity as of 12/31/2024, we have $4,880,000 in cash and cash equivalents on hand. This is up from $3,370,000 at the end of twenty twenty three, bolstered by financing activities during the year, including equity insurance and warrant exercises and cash inflows from higher sales. We also maintained $892,000 availability on the revolving credit line for additional liquidity if needed. We believe our cash position and credit availability provide a solid runway to support our growth plans.

Also, in March 2025, we completed the warrant inducement transaction with a key warrant holder resulting in net proceeds of $6,300,000 Working capital was $7,300,000 at the end of twenty twenty four, a substantial improvement from $1,960,000 at the end of twenty twenty three. The increase in working capital is largely due to the cash increases as a result of the equity capital we raised and the higher inventory balance to support our sales. This improved working capital gives us flexibility to manage our operations and obligations. Our current ratio and overall liquidity have improved accordingly, leaving some going concern pressures that existed a year ago. We had inventories of $5,190,000 as of 12/31/2024, representing roughly 50% of our current assets.

We intentionally built up inventory during the year, particularly of raw materials and finished tonneau cover units to ensure we can promptly fulfill customer orders as demand grows. This inventory includes components for our AL series covers and legacy products that we deem it appropriately balanced. We process and place them on for any slow moving or obsolete stock and will adjust production and purchasing accordingly. Notably, our inventory at the end of Q3 was about $6,100,000 So we did utilize some inventory in Q4 and fulfill the surge in sales, which contributed to the revenue increase. We view our inventory level as a healthy support for our 2025 sales targets without needing substantial further investment in working capital.

We also view this inventory level sufficient to combat short term tariff related impacts on our business, while the long term impacts will be evaluated later this year. We have a relatively clean balance sheet with long term debt largely related to the refinancing or refinancing the building mortgage. Our primary liabilities are accounts payable and some accrued expenses associated with our operations. In March 2025, subsequent to the 2024 year end, we took a proactive step to strengthen our capital structure by enacting a one for 10 reverse stock split. This corporate action effective 03/18/2025 reduced our number of outstanding common shares and increased our stock price accordingly.

Reverse split was intended to help maintain compliance with NASDAQ listing requirements and make our stock more attractive to a broader base of investors. It’s important to note that this did not affect our total equity or the ownership percentage of any shareholder, purely a structural change to the share count. Overall, our year end balance sheet reflects coming that is invested in growth, but also showed up liquidity. We have the assets needed, mainly cash and inventory to drive our next phase of expansion with a lien liability profile. Now back to Stephen for some key insights on the business operations.

Steve, CEO/Founder, Worksport: Thank you, Mike. Thank you very much. Well, beyond the financial numbers, 2024 was a year of significant operational and strategic progress for Worksport. I’d like to highlight just some of those key milestones we achieved that we’re setting this that are setting the stage for our future. In Q4 last year, we began making inroads into government and fleet sectors.

On 10/03/2024, we announced an expansion of sales to U. S. Federal government agencies. We secured initial orders to of government sales from a government agency making Worksports entry into the sector. While revenue from the government sales was modest in 2024, this development is strategically important.

It validates the appeal of our made in America tunnel covers for government use and positions us to pursue larger fleet opportunities in 2025, which we’re actively pursuing. Furthermore, we’re also actively speaking with general fleet based customers in 2025, especially for the upcoming Solus and core products. A lot of exciting developments there to come. A cornerstone achievement in Q4 of last year was the commencement of production of our newest premium tunnel cover, the Worksport AL4. We announced on 10/23/2024 that we would begin the AL4 production as of December 15 of that year, ’20 ’20 ’4.

And I’m pleased to report that the AL4 is now selling in the market under full scale production. The AL4 is our top of the line hard folding tunnel cover offering full truck bed access and a refined design. We had a successful pre order campaign for the AL4 indicating strong market interest. In anticipation of volume production, we increased our production workforce by over 30% during Q4 of last year, hiring additional assembly technicians and machine operators at our West Seneca facility. Thanks to these efforts, we hit our manufacturing readiness target and began building initial AL4 units by mid December.

While revenue from the AL4 did not contribute materially to Q4 of last year since shipments only began after year end, we started shipping AL4 orders in early February of this year and listed the AL4 for sale on our e commerce platform in late February. The AL4 launch is significant for Worksport as it expands our product lineup at the high end and early feedback from customers has been positive on the quality and functionality of this cover and overall success. This cover will be a very big part of our story in 2025. Product pipeline extension, introducing the HD3. In parallel with the HD AL four, we have been developing another hard folding cover variant called the HD three.

On January seventh of this year, we announced plans to launch the Worksport HD three in spring of this year. The HD three is a heavy duty, business to business oriented tunnel cover. It builds on our AL3 design, but with enhanced materials and an additional latch mechanism for greater durability. This key strategy with the HD3 is to cater to commercial and fleet customers. For example, business outfittings, work truck fleets, with a product that can withstand rigorous use.

We plan to offer the HD3 at wholesale pricing exclusively to our business to business clients, which include dealers, upfitters and fleet operators. By doing so, we protect works for B2B partners margins and encourage them to push volume. The HD3 is expected to begin production and sales in the coming months, adding another revenue stream in this year 2025. More importantly, rounding out a full and robust line of quality durable tonneau covers made right here in The USA. Innovation is at the core of Worksport’s mission.

Last year, we made substantial progress not just in our traditional tunnel cover products, but also in our clean energy accessories, which are poised to unlock new markets for us. Let’s start with Solis, the solar tunnel cover. We redesigned for cost efficiency. Our highly anticipated Solis solar tunnel solar integrated tunnel cover advanced through critical development milestones in 2024. On October, we announced a strategic redesign of the Solis cover, which will save up to several hundred dollars in cost per unit and increase its compatibility with a wider range of portable power systems.

Our goal is to officially launch Solus in mid-twenty twenty five around Q2, Q3 of this year. Core mobile power system progress towards launch. Alongside Solus, our portable core battery system which can integrate with the Solus cover or operate independently, made significant progress last year. The core underwent alpha testing as we refined our battery management software and safety systems. Our first generation core is scheduled for release in mid-twenty twenty five.

Additionally, we’ve partnered with Cooler Technology Group, a leader in battery safety and thermal management to enhance core’s battery pack design. This collaboration announced in February of this year centers on advanced thermal runaway protection and AI integrated battery management. Our ongoing research and development efforts with strategic partners like Cooler aim to enhance the performance, aesthetics and cost efficiency of future generations of Core products. Very exciting, TerraViz Energy, Ather Luxe Heat Pump Breakthrough. Beyond our vehicle focused products, our subsidiary, TerraViz Energy achieved remarkable R and D breakthroughs pump system named Ather Luxe with two major innovations.

First, elimination of defrost cycles. The Ather Luxe heat pump can operate without the need for traditional defrost cycles. Defrost cycles are a common drawback in heat pumps, where the system periodically stops heating to melt ice buildup in the unit itself. Eliminating this requirement means continuous efficient heating even in freezing and extremely cold conditions. Ultra low temperature operation.

The system can function in ambient temperatures as low as negative 57 degrees Fahrenheit, far below the operation operating range of typical commercial heat pumps. This is a groundbreaking capability, making the Ather Lux potentially viable in extreme arctic environments or applications that were previously impossible to be serviced by heat pumps. These advancements collectively branded Zero Frost trademark technology have attracted significant global commercial interest. We believe TerraViz Energy’s innovations hold the potential to revolutionize heating solutions across multiple sectors from residential and commercial HVAC to electric vehicle applications, especially in cold climates. Those still at the prototype stage, we’re actively exploring opportunities to monetize the intellectual property through strategic partnerships, possible licensing agreements and manufacturing collaborations.

Following our recent announcement, hundreds of companies including several multi billion dollar corporations have expressed interest in ZeroFrost, underscoring a strong market demand. We firmly believe that the value of this transformative technology is not yet reflected in Worksports’ current stock valuation. A little bit about intellectual property. In tandem with our product innovation, we have always been very active in protecting our inventions. As of the end of last year, Worksport’s patent portfolio expanded by 25% year over year.

We now hold numerous utility and design patents across The U. S. And international jurisdictions, covering our tunnel cover technologies, solar technologies, and energy storage solutions, as well as the ETHERLux products. WorkSpoda holds a robust and growing global portfolio of over 170 approved, registered and pending patents and trademarks. In January of this year, we joined the LOT Network, a global consortium aimed at safeguarding innovation against patent trolls.

This move helps us protect intellectual property and gives us access to a broad community of tech companies committed to cross licensing for defensive purposes. For our investors, our growing patent portfolio and participation in organizations like Law Network underscore that Worksport is building significant proprietary technologies and taking steps to secure them. This intangible asset base is an important part of our company’s value. Let’s speak a little bit about market expansion. Strengthening sales channels.

We dramatically expanded our sales and distribution networks through 2025. And we added new dealers and wholesalers across The U. S. And Canada and deepened our relationships with major online marketplaces. As noted, online retailers, including our own e commerce site and platforms like Amazon, Walmart, and eBay accounted for 58% of our sales in 2024, up from just 7% the year before in 2023.

This is a testament to our effective digital marketing and fulfillment capabilities. We’re also in active discussions with multiple large distributors and a network of nationwide dealers in The U. S. To carry our products. We expect to share more information on these discussions throughout the year.

Notably, the company’s dealer network has expanded by 30% in just the first two months of this year alone, following an ongoing production ramp up driven by strong early feedback in demand for the AL4 premium tunnel cover. This dealer network expansion is expected to continue through 2025 and beyond and contribute to significant revenue increases. I’m going to pass it back to Mike Johnson, our CFO with our fiscal year twenty twenty five outlook and guidance.

Mike Johnson, CFO, Worksport: Thanks, Steve. As we look ahead, we’re very optimistic about WorkSpore’s trajectory in 2025. We expect to carry forward the momentum from Q4 twenty twenty four into sustained growth and improved financial performance. Let Let me share our outlook and guidance for the year. For revenue growth, we’re forecasting another year of significant revenue expansion in 2025, driven by both our core tonneau cover business and new product introductions.

Based on our current visibility, we’re targeting full year 2025 revenues in the range of $20,000,000 to $34,500,000 Hitting the midpoint of that range would represent roughly a tripling of our 2024 revenue. This guidance is supported by our current order pipelines, anticipated uptake of the AL4 and HD3 covers and expected market launch of sole leasing core in the second half of the year. We have aligned the site on continued strength in our B2C e commerce channel and growing contributions from sales, including distributors, private labels and fleet customers. Of course, as a growth company, our guidance range is broad and there’s execution work ahead to achieve these numbers, but we want to provide the market with our baseline expectations given the opportunities we see. And also margin improvement.

Cash flow positivity is our next major goalpost. We’re encouraged by the margin improvement seen in the latter parts of Q4 twenty twenty four and we expect gross margin to continue to increase in 2025 as our product mix shifts further towards higher margin items and as we benefit from economies of scale. By phasing out our lower margin private label offerings and focusing on our own branded products, we anticipate gross margin will step up each quarter. Currently forecast gross margin reaching the 25% to 30 range or higher by late twenty twenty ’5 percent. The variance is especially added in consideration in the sole lease and core, which are expected to carry healthy margins come online.

While we continue to invest in R and D and sales to support growth, we expect a more moderate increase in operating expenses relative to revenue growth in 2025, which should drive improved EBITDA results. Our overarching financial objective for 2025 is to move significantly closer to cash flow breakeven and ultimately to achieve cash flow positivity by late twenty twenty five, early ’20 ’20 ’6. With the revenue growth and margin gains I just described, we believe Worksport can reach cash flow breakeven. This is an ambitious goal, but one we are committed to. Achieving it will likely require hitting the higher end of our revenue guidance and maintaining cost discipline.

We intend to manage operating expenses carefully, balancing growth investments with efficiency. Should we outperform on sales or margins, we will pull ahead of timing of reaching breakeven. Importantly, even as we strive for profitability, we maintain sufficient cash reserves and access to capital to fund our growth initiatives. So we’re not pursuing growth at the expense of liquidity. With respect to capital expenditures, we anticipate capital expenditure needs in 2025 to remain relatively low.

Most of our required production equipment for tunnel covers is already in place. We’ll invest in some additional tooling for production ramp up and possibly automation enhancements to improve throughput, but these are not expected to be material. The launch of SOLUS and CORA may require some investment in production setup, but again, we expect to manage this within our operating cash flow as the year progresses. We do not foresee adding new facilities or major machinery purchases in 2025. Our existing infrastructure can handle the increased volume.

In summary, our 2025 outlook is one of robust growth with improving financial performance. We’ve set clear targets, aggressively grow, expand margins and achieve a sustainable financial model by years out. We report our progress each quarter and we’re confident in our direction. Now back to Steve with our concluding remarks.

Steve, CEO/Founder, Worksport: Thank you, Mike. To achieve the financial targets Michael outlined, we have focused on strategic plans for 2025 centered on product execution, market expansion and operational excellence. I want to reiterate how far Worksport has come in the past year and where we’re headed. Last year was a record year for us by every measure record revenue, expanded production and multiple new products in the pipeline. We transformed from a pre revenue developmental company into a growing manufacturing and product company with over $8,000,000 in sales and a presence on major channels.

We also made critical investments in innovation that set us apart from the competition, while improving our balance sheet and liquidity. As we move through 2025, we are laser focused on execution, delivering our products to more customers, launching our new offering successfully and moving the company towards profitability. The goals we’ve laid out on revenue, margins and cash flow are a large leap, but our team firmly believes them to be achievable. And we are motivated and prepared to achieve them. We believe that the combination of our made in America tunnel covers and upcoming clean energy solutions create a new unique value proposition.

There’s a significant market opportunity at the nexus of automotive accessories and renewable energy. And Worksport is positioned to be a leader in this space. I’m equally excited about the future of our subsidiary, TerraVise Energy. The Ather Luxe product line holds tremendous potential and I firmly believe it will deliver significant value to Worksport shareholders. I want to thank our entire Worksport team for their hard work and dedication in last year and in this year so far.

We will accomplish what we’ve accomplished was truly a team effort from engineering to production to sales to back office support. I also want to thank our board and our shareholders for their continued support and trust. As a shareholder myself, I’m excited about what the value or what the future holds for Worksport. We enter 2025 with confidence, a strong product lineup and a growing brand reputation. To our investors and analysts listening, thank you for your time here today and for your interest in Worksport.

We are committed to transparent communications and delivering on our promises. We look forward to updating you on our progress in the quarters ahead as we work to create sustainable long term value.

Mike Johnson, CFO, Worksport: We’d like to thank everyone for attending. This concludes our prepared remarks. And operator, please open the line for questions.

Moderator/Operator: Thank you. Tate Sullivan, I see you have your hands up. You may go ahead.

Tate Sullivan, Analyst: Thank you. Hi, Steven. Thanks for the comments. And can you first on online sales? I mean, about based on my account, about 82% of revenue in in the fourth quarter.

What’s and then a lot from third party. I mean, with your margin guidance for second half of twenty five or nearing the end of the year, is it are you implying that most of those sales will come from your own platform or platforms such as eBay, Amazon, Walmart, etcetera, please?

Steve, CEO/Founder, Worksport: I I believe our our our hope, our push is that Worksport will see fifty fifty. 50% sales, of of product through its online platform. And then 50% of its sales are close to where it is right now of sales through dealer and business to business units. Personally, I’m personally not a massive fan of marketplaces. They’re expensive and there were inferior products typically survive and thrive, like Amazon and some of eBay.

So we’re going to keenly focus on driving revenue and sales and traffic to our website so we could retarget these customers and build relationships with them. And then we’re going to keenly focus on marketing spend to drive attention and demand through our dealers. So in essence, visit our site, buy it on our site or buy it through a dealer. And that’s further bolstered by offering dealer only and online exclusive products. So we’re going to offer different products on our website as dealers so that we keep things competitive within the two different markets.

Tate Sullivan, Analyst: If you can, can you give us an overview of the online buyers through your platform? Are they buying multiple snow covers? Are they repeat by or are they spread across the country? Can you give any sort of general overview of the natural farmer?

Steve, CEO/Founder, Worksport: Sure. To the best of my abilities, there’s a stronger concentration in the in the South Southern Midwest, like states like Texas and Florida and along the Eastern Corridor. California is also a very strong state geographically speaking. Our customers are individual buyers, retail consumers DIY, buy it and install it themselves. And then we have, oftentimes we see like, businesses purchasing online, like fleets, landscaping companies, you name it.

The gamut of businesses will buy multiple to outfit their fleets, softcovers, hardcovers on our website. And then we’re seeing a lot of referrals, family and friends are showing the product saying I got this and encouraging people to buy trucks and buy covers. So it seems to be a great ecosystem, but it’s mostly individual retail consumers spread amongst the coastal USA and then a little bit of concentration in the Midwest.

Tate Sullivan, Analyst: Thank you. One more for me. With the solar cover, are you planning and the redesign, Are you planning to launch it with the core in the middle of twenty five or or to be determined?

Steve, CEO/Founder, Worksport: So we’re we’re gonna offer three, three different, paths. Path one is solar cover alone, so that you can kind of BYOD, bring your own device, like your own battery generator. Then we think that the most popular product offering will be the middle, which will be the bundle. We call it like internally, we call it the GoKit or the Go Bundle, which will be the solar tunnel cover, our mounting hardware, which is proprietary and very exciting, and our core battery system. So you turn your truck into a micro grid.

And then alternatively, also a very large addressable market is core only. The core only as we always say, no truck necessary. So the core could be for anybody anywhere, doesn’t matter if they have a driver’s license. Age is not important. It’s just for anyone that’s needs, you know, power on the go.

So those three offerings will be available, but we’re going to focus, Tate, on the larger power units as opposed to being a small power unit, like to power like to charge your cell phone. The core is not really meant for that. The core is meant to power the job site, the campsite, the house, natural disasters, first responders, bigger power for bigger events.

Tate Sullivan, Analyst: Thank you.

Steve, CEO/Founder, Worksport: Welcome.

Moderator/Operator: Kite. Scott Buck, I see you had your hand up. Do you still have the question?

Scott Buck, Analyst: Yes, guys. Thanks for the time. Steven, how should we think about the difference in the high end versus the low end of the guided revenue range for ’25? You know, to meet that high end, is it distribution? Is it something in the macro?

What what needs to go right, I guess, to to be kind of 30 plus of revenue this year?

Steve, CEO/Founder, Worksport: Good good question. So we we believe that our trajectory, on the low end is tunnel cover alone, which is building us to about 20 to 30% of what we feel is, is is our is, is a good first, goal for Worksport. So let me say it differently. We think that we could build the business to about a hundred million dollars tunnel cover sales alone, before having to reach deeper into the markets, like OEMs and these types of things. So we think that we can grow tunnel cover only sales like AL three, AL four, HD three or soft cover lineups.

We feel that that product, those product lines alone could carry us to that $20,000,000 mark roughly. Right? The delta between 20 and 35 roughly is gonna be the uptake of our Solace and core products. And there’s with geopolitical issues right now, there’s just a lot of moving parts around semiconductors, batteries and solar panels, new energy products. And where these products ultimately come from like wafers for solar, batteries for ourselves, as for our packs, they ultimately come from Asia regions.

So it’s just gonna be if things are gonna slow, if inflation is gonna hit, if there’s gonna be tariffs or stop ships, these types of things. But for all intents and purposes, we don’t see major roadblocks and we’re pretty good at problem solving. So to answer the question, the low end is tunnel covers only. The top end is a strong start to our battery systems and solar launch. And that’s why we’re we’re pretty optimistic.

We think both are reasonable.

Scott Buck, Analyst: Great. That’s helpful. And with the new product launches, should we expect an uptick in sales and marketing expense around those

Steve, CEO/Founder, Worksport: Yeah. Events? Yeah. We we have, the person actually to to, when you’re staring at the screen, the person to my right, so left, where the most is, that’s our Chris Bernardo, our chief marketing CMO. And, and he’s he’s involved in marketing.

And we’re really, really keen on growing, you know, paid advertising, and then user generated content and all the different things. So we’re gonna ramp up significantly, but we have to ramp slowly because otherwise our consumer acquisition cost goes, you know, very high for a few months and it doesn’t look so good on the balance sheet. So we’re pretty good at being able to feather for lack of a better word, into growing our marketplace and courting consumers. And we find that as we grow our marketing and we shift from trying to sell a product to branding our product, that’s when it’s a tide that floats many other ships where we start getting more inbound interest from businesses, from government entities, from OEMs, etcetera, etcetera.

Scott Buck, Analyst: Great. That’s helpful. And now the expectation for breakeven by year end twenty five is is great. Strategically moving forward, how should we think about the company balancing, improving profitability versus reinvesting in the business and and driving top line?

Steve, CEO/Founder, Worksport: So we’re gonna so as products become, legacy, like AL three becomes stable and steadfast in the in the market, we’ll we’ll hand it off to our group of engineers, division of our group of engineers in Missouri where it’ll be in the CI program, the continual improvement program, which basically means we’re gonna make it better, smarter, faster, and ultimately, hopefully, less expensive. Now that doesn’t continual improvement tends to mean try to reduce material, make the aluminum thinner, make the plastic lighter. That’s not what we’re gonna do. We’re actually gonna find ways to make it more robust, but use clever engineering to be able to save costs and of course, through economies of scale. So we’re going to improve we’re gonna improve margins of profits through engineering, brainpower, as opposed to lightening or shaving material, which makes an inferior product, which is what our competitors have been doing recently.

Scott Buck, Analyst: Right. And then last question for me, Steve. The increase in demand in ’twenty four and and what you expect in ’twenty five, just remind us where you stand on a manufacturing capacity level, and at at what production level do you actually need to, you know, put some additional CapEx investments into the business?

Steve, CEO/Founder, Worksport: That’s a that’s a good question. So right now, we have two lines capable of producing we’ve we’ve been able to do more with what we have than we thought. So it’s difficult. There’s a lot of core correlated or peripheral assumptions I have to make. But in broad strokes, one of our production lines is capable of making 100 covers per shift.

We now have two production lines and the opportunity for three shifts, which would represent all of what we believed we would be able to get from our entire 160,000 square foot facility in New York, with, you know, six or nine lines. So in essence, we’re we’re far more efficient than we thought we would be. And that’s, again, because of we have the brightest minds in engineering. So we don’t think that we’re gonna have to invest. We initially thought that we would have to invest millions of dollars in expanding the building.

But with vendor managed inventory, and our efficiencies, we feel that all we may have to do is invest in more machinery, which is easily financed or least for etcetera as opposed to cash outlay. So we think that it would dramatically reduce our CapEx on expansion. So basically, the building expansion would have been tens of millions, but now we’re talking hundreds of thousands in some new machinery to get

Scott Buck, Analyst: there. Great. Well, I appreciate the added color, guys, and congrats on the progress.

Steve, CEO/Founder, Worksport: Thank you, Scott.

Moderator/Operator: Scott, we see a hand up from Poe Frat as well.

Poe Frat, Analyst: Yeah. Hi. Good morning. Can you just frame for us the range on the revenue forecast or guidance? I think historically, you said that to hit 20,000,000, you could do 20,000,000 just from the tone on covers alone.

Mike Johnson, CFO, Worksport: Mhmm.

Poe Frat, Analyst: So can you starting with that, you know, starting point, can you frame how you get to 34,500,000.0? What is included in that? In other words, how much of the incremental revenue add potentially would come from Solus and Core? And is there anything from the tariffs fees, you know, sub in your revenue potential guidance?

Steve, CEO/Founder, Worksport: Yeah. Good question, Paul. I touched on it a little bit, but to make it a little bit clearer, you know, the the the 20,000,000, the low end of our forecast is is from our our standard product offerings tunnel covers only, which would basically be on the trajectory that we’re already on, with the growth and absorption through dealers and online expansion. The AL4 is a higher dollar figure per sale as well as a higher margin of profit per sale. So we believe that the low end of the spectrum encompasses exclusively selling only tonneau covers, assuming everything else goes wrong for the SOLACE and the core.

With the SOLACE and the core being in the latest stages of development, you know, UL testing and these types of things, we’ve anticipated, about 5,000 units of Solus and core sold at about an average price of $3,000 per kit to encompass the other $15,000,000 in sales. So a very modest number in terms of 5,000 units, if we were to think about six months, if we were to launch it in the second half of the year, that would only be eight thirty three units a month, or like 27 units a day or kits, which is relatively modest. And the core again being roughly a $1,500 price tag, could sell in multiples. So we think that we’re going to sell more core units to consumers that don’t have driver’s licenses at all or don’t drive or the larger demographic globally. So we think that for every Solis will sell will sell a multiple of the core units because it’s it’s for a broader consumer market.

Moderator/Operator: Just to clarify Could you just add, go ahead, Poe.

Poe Frat, Analyst: Just to clarify, so if the base revenue for tonneau covers is 20 and the and that’s the low end of the guidance, what are the tonneau covers in the upper end of the guidance, the 34,500,000.0? Is it 25,000,000? And then the incremental 10 would come from Solus and Core. And I think I think it’s sort of if you would confirm that there’s no expected revenues from, you know, the tariff fees, that’s a ’26 event at the earliest?

Steve, CEO/Founder, Worksport: I’ll let Faran speak after I’m done in one second because Faran might have had some remarks there. But, Poe, to answer your question, the we’re not forecasting any sales of Taraviz Ather Luxe products, not because we don’t intend them, but because we’re being highly conservative where the product is still in research and development. So to that extent, we are moving ahead and we think that there’s gonna be some very expedient milestones and catalysts there on that product on that line, but we don’t want to reach too far into the future where there’s so many things that have to go right with that business. So let me summarize that in a statement. We believe TerraViz will show up on the balance sheet as a source of revenue, but we don’t want to forecast that this early on in the year.

So it’s a moving target and we’d rather over deliver than over promise. Secondarily, with the balance of tunnel covers and core and Solis, I think that it’s and I’ll let Faran speak, but I think it’s easy to just assume the $20,000,000 range would be tunnel covers only around 2021, ’19, ’20 ’2, something like that. And then all the delta would be the, you know, the difference between the 20 and 35,000,000 top end forecast would be, mostly Solace in core sales with core leading. But I’ll turn it to Ferran to add a little bit more color and correction if he sees things differently.

Moderator/Operator: That’s fairly spot on, Steve, especially with the Aether Luxe commentary. While we do think we we can achieve some levels of revenues, from that business unit, we don’t wanna forecast it as as it’s still in in late stage commercial development, and we’ll be providing updates as well as exciting milestones as they, as they build. Regarding the tonic cover revenues, 20,000,000 is a pretty baseline estimate, and it can push upwards, though, the upper end being up to 22, 20 5, and and the remaining delta, as Steve said, would be the Solace and core, once launched in in late q two, q ’3. Do you have any other questions, Poe? I do.

Poe Frat, Analyst: Mike, your guidance also just talks about potentially hitting gross margins by the fourth quarter and then what you say 25% to 30% range. Can you give us a starting point? In other words, you know, where are you currently on your gross margins? So what’s the low end if you had a range for the gross margin for the year, what would it be?

Mike Johnson, CFO, Worksport: Our our q four late in q four December, gross margins were about 21%. So as we start and that’s, you know, some of the older products that doesn’t include the AL four, which is a premium product. So as 2025 focuses sales more on AL4 and the higher products we’ve dropped, there’s a lot of dealer incentives that were issued in Q4 or sorry, in 2024. We’ve significantly scaled back the private labels. So if we can take that 21% that we’ve, you know, earned on AL three and some of our lower margin products that we’re looking to push out and focus on AL4 and HD3 in 2025, that should get us to that targeted gross margin.

Steve, if you want to add anything onto that as well?

Steve, CEO/Founder, Worksport: No, you hit it on the head, Paul. Yeah, in essence, last year’s gross margin, if you look at it yearly, it was diluted heavily by a very inefficient, production as we just started. So the engines are always least efficient when they first start, metaphorically speaking. And then also we were selling the AL three, which is more geared towards direct to consumer sales as opposed to discounted B2B or private label sales. So once we you could see once we blended, we got into Q4, our we had already improved margins to 21%.

And that’s before we really recognized the AL4, which really takes things into a much deeper stride into margin. So we think that as we blend in our improved efficiencies and economies of scales, our balanced lines and operational efficiencies and higher margin sales, I. E. Worksport branded no more private label and AL4 higher margin, I think that a good baseline would be the 20% margin. And then I think the 30% is highly achievable as a gross margin.

And we’re keenly focused on EBITDA this year, but that’s something we’re going to sink our teeth more into as the year plays out a bit deeper.

Poe Frat, Analyst: Okay. So, mid twenties as far as the full year gross margin, wouldn’t would you argue argue against that? Or do you think that’s a reasonable target for, you know, forecasting out?

Steve, CEO/Founder, Worksport: A a, a a reasonable target. A reasonable target in terms of gross margin, and then, and then keeping operational efficiencies lean, sorry, keeping operational overhead lean as we have, you could see that the increase year over year was not linear to the increase in sales. So we’re gonna try to basically, yeah, make be as profitable as we can be the 25% a good baseline. And then we’re gonna try to, you know, keep up, keep lean, so that we we see we see the the cash flow positivity in in between.

Poe Frat, Analyst: Okay. And then on the you you expensed R and D, of about 2,300,000.0

Steve, CEO/Founder, Worksport: Mhmm.

Poe Frat, Analyst: In 2024. Can you highlight the projects that, you know, drove that that increase in r and d? And then also, can you highlight for us potentially a targeted range for r and d in 02/2025?

Steve, CEO/Founder, Worksport: Those are good questions. You know, I’m not sure I’ve seen the specific elements that that comprise, like, I haven’t committed to memory or have them in front of me. Maybe Faran or Mike may know, but I could speak on broad strokes, Poe, that last year in research and development, was a considerable amount of investments in the prototyping of the core. So the core, you know, was extremely expensive in terms of getting our initial battery packs and initial PCBs. So the power electronics department probably consumed a huge amount of that, but those are one time non reoccurring and they’re non existent now because it’s in late it’s in polishing as opposed to building mode.

So outside of that, I think that there were prototype tooling sets that were made, and these one time tooling costs as you know, for like either metal tools or for metal production or plastic production can be tens, if not hundreds of thousands of dollars, and it’s just the cost of doing business. But if I’m I’m not sure Mike, if you know the specificities there, but I know that this year’s R and D expenses are going to be significantly lower because we’ve done all the heavy lifting last year. We spent all of the machinery production money in twenty three and a very little bit in ’twenty four. We spent all the R and D money in ’twenty four. And I think that now it’s time to to reap from the seeds that we’ve sown.

Mike Johnson, CFO, Worksport: Yeah. You got it, Steve. That’s basically it. Yep.

Poe Frat, Analyst: So, Steven, the the heat pump r and d is not r d you know, the development of the heat pump is not r d, you know, r d intensive. Right. Or can you just, you know, just frame that for me?

Steve, CEO/Founder, Worksport: Sure. Yeah. I I, and not sorry. It’s if I sounded like I was interrupting. Lorenzo Rossi, who will start joining us on the earning calls, the CEO of of of that company, is extremely formidable in his abilities to get things done on a shoestring.

Far more than I was able to as I work for develop Worksport. So to that extent, you know, the the it’s a very modest R and D budget, and they’re doing everything like a very much so skunk works. So Lorenzo’s working with a local team to him that I’ve known for over a decade and I’ve worked with for this group for a very long time and they’re very skunk works. And by definition of skunk works is they get things done themselves as opposed to, as opposed to, you know, sub L prototyping and these types of things. It can cost it could save significant costs.

So, the team is lean, the team is small, and they’ve partnered with, supply chain manufacturers that they found all around the world that are able to get things done, in their investment in our research and development. So to define what that means is, you know, we have a coil supplier that’s making our prototype coils in essence for free in order for the in order to get the larger business when we go into production. So we’re leveraging our relationships, you know, as well in our good in our good our good character as a business.

Poe Frat, Analyst: Okay. And if I could just ask one last question on the capital raising side. You did the warrant inducement transaction at the February. Can you just explain to me why what the timing of that warrant Dussement transaction was? And then more importantly, can you we’re fully pretty much through the quarter.

Can you give me what I should expect for first quarter cash as far as cash on the balance sheet? Where do you stand right now as far as, you know, cash?

Steve, CEO/Founder, Worksport: I don’t have an accurate cash picture committed to memory. I usually see those every Monday, but I think our cash stands somewhere in the $6,000,000 of holdings and then probably closer to $2,000,000 on our credit line. So we have a considerable amount of cash. The warrant inducement, as you know, Poe, and and most investors think that it’s it’s very easy, running a public company, but the markets for micro caps has been terrible. And I think you see this, and any analyst on this call can say see this, has been very terrible for, since probably the frothy markets of 2021 or the conclusion of 2021.

So, you know, it it’s kind of a take what you can get, you know, while you build, matter and financings from a friendly investor that finance works for without any additional new terms or anything like that. The warrant inducement was, I think the best opportunity we had to be able to put away capital to grow, and the warrants overhung us anyway. So, they were already there, their five year warrants. So to induce and, yes, exchange for new warrants, but at a higher price, we feel at least checked a little bit of a box and moved the goalpost further ahead in terms of A, putting cash in the business, but B, also moving our overhang of warrants to a higher price per share around the $7 mark or high sixes. So to that extent, you’ve seen companies probably through and through that have had very difficult times raising meaningful capital and a $6,700,000 offering from an investor we’re familiar with that’s been a good investor.

We thought at that point, you know, we might as well put that, you know, we might as well take that offering opportunity. As we look ahead in this year, we are considering a Regulation A offering, crowdfunding offering for a preferred share, structured to be determined, but for an interesting structure that won’t result in common share dilution, but more interest bearing or like a debt offering to begin with. So we’re being a little bit more clever in how we structure the company moving forward and offer and raise capital through dividend yields and these types of things as opposed to straight common share transactions.

Poe Frat, Analyst: Okay. If I could just squeeze one last one in. When you look at your cash burn, does that, Steven, if your cash currently is $6,000,000 and you raised $6,300,000 does that imply that you actually burned about $5,000,000 in the first quarter?

Steve, CEO/Founder, Worksport: I don’t think so, but I do know that we’ve been focused heavily on where we saw geopolitical issues that the push, you know, not to open up a start peeling layers of an onion, but we foreshadowed, tariff issues that we’re writing was on the wall. Tariff issues tend to when you tax imported goods, you would expect that the domestic production of those goods would would, you know, be heroes and and and and be at a at a more enviable price. Well, that never happens. So domestic aluminum took profits and increased their price of domestic American aluminum by the exact same amount that the tariffs took effect for foreign aluminum coming in from Canada and Asia or Middle Eastern countries. So we pre bought millions of pounds of aluminum or hundreds of thousands of pounds of aluminum in advance.

And what we’ve seen is a 30% increase in price. So we’ve we’ve deployed capital for inventory. We’ve deployed capital in cleaning up liabilities, debts and payables. And at this point, we’re pretty much caught up and have a good amount of cash, a good amount of inventory and a very small amount of debt. And in fact, presently speaking, I think that what we owe on the building for example, our $10.11000000 asset building in New York is less than is like somewhere less than 20 of the value of the building itself.

So very we have a pretty healthy balance sheet and assets.

Moderator/Operator: You see if it looks like we just touched on time here, Tate. I see you had your hand up, but I’d

Mike Johnson, CFO, Worksport: That’s fine. Yep.

Moderator/Operator: Thank thank you. And, to all investors that are watching and have questions, we encourage you to email your questions to investors@worksport.com. And, just to add to to post comment there regarding cash output in q one, our line of credit was paid off, so we have much more on the line available so that some of the cash outflow was was related to paying off the line and cash availability on that front. Thank you so much for everyone attending, and have a great day.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.