Worksport Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 13, 2024

There are 5 speakers on the call.

Operator

Good afternoon, everyone. Welcome to Worksport's 1st ever live earnings call as a NASDAQ listed corporation. I'm Stephen Rossi, the Founder and CEO of Worksport, and I'm joined today by our CFO, Michael Johnston. We'd like to thank everyone for joining us today as well as all of our special guests listening in today, those working within the capital markets and various research analysts. On today's call, we have exciting updates and commentary to complement our Q2 earnings reported.

Operator

That was just posted at 4 pm today, August 13th, just about 30 minutes ago. We will be reviewing the financial results for the quarterly period ending June 30, 2024. These results were issued at 4 pm today as I said above, 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 invest. Worksport.com.

Operator

During this call, we will make forward looking statements, including statements regarding our financial outlook for the Q3 and full year 2024. Our expectations regarding financial and business trends, impacts from the micro and macroeconomic environment, our market position opportunities, go to market initiatives, growth strategy 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. Actual results may differ materially. These forward looking statements these forward looking statements are subject to risks and other factors that could affect our performance and financial results, which we discuss in detail in our filings with the SEC included in our annual report, form 10 ks and quarterly report, form 10q.

Operator

Worksport assumes no obligation to update any forward looking statements we may make on today's webinar. And with that, let's begin. Worksport is a company with strong routes. These routes are what will allow us to continue to propel into the future. 3 years ago, we uplisted on NASDAQ.

Operator

And since then, we've been diligently laying the foundation for Worksport. Today, we're thrilled to share our most recent developments. As of January 2024, our $10,000,000 state of the art factory has begun early stage production ramp up, 4 of our AL-three hard folding tunnel cover proudly manufactured in America. In March 2024, we launched our online marketing campaigns targeting direct to consumer sales. And by May 2024, the company reported its best sales month yet.

Operator

Today, we're excited to announce that this past quarter has been the best sales quarter in the company's history. Our American made Tonneau Cover business is leading these sales and is positioned within a substantial $3,500,000,000 truck bed market, which we are aggressively targeting. The early traction we've received has been remarkable, and we're eager to continue rapidly expanding this business segment. This is just the beginning. To protect our innovations and secure our future growth, Worksport has approximately 100 and 60 registered and pending patents and trademarks within its IP portfolio on a global scale.

Operator

Worksport intends on releasing 3 new products in the second half of twenty twenty four. The highly anticipated first to market Worksport SOLUS Solar Tonneau Cover represents a unique opportunity for Worksport to enter the clean tech market. Starting with our rapidly expanding truck customer base, the patented solar sorry, Solus covers designed to offer utility across a wide range of diverse applications. Worksport's core modular portable energy system, when paired with the Solus tunnel cover, creates a green power nano grid. The core system can store over 1700 watt hours of energy and is fully modular, allowing for the addition of extra batteries.

Operator

With the portable energy market valued at a astonishing $3,900,000,000 globally and growing rapidly, Worksport's core battery features a unique never ending power hot swap capability. We believe this feature will enable the core system to penetrate markets far beyond just that of the pickup truck segment. The alpha release of the core and Solus will be available in mid September for select customers. We are currently hard at work producing 100 of each of these units to test and share with key customers and influencers as we prepare for full market launch. We are also planning to conduct a roadshow in Q3 exhibiting this unique system installed in a Ford F-one hundred and fifty pickup truck to key news outlets and stakeholders.

Operator

Also, we will be launching an all new hard folding Tonneau Cover model that will address a larger and growing market segment within the higher anticipate with much higher anticipated market demand. More information on this new product will be available as early as later this quarter. The product is expected to launch in Q4 of this year. We are very excited about the next 6 months, and we'll share more details later in the presentation. For now, I'll hand it over to Mike to discuss our Q2 results.

Speaker 1

Thanks, Steve, and hello, everyone. Let's start with some exciting milestones achieved in Q2. So Worksport achieved a remarkable growth in revenue with net sales of 1,920,000 for Q2 2024, up 275 percent from Q1 of 2024. Notably, Worksport's sales in Q2 surpassed the entire year end revenue of 1,500,000 for fiscal 2023. This significant increase is directly related to the company's new factory in Buffalo and recent successful marketing efforts with e commerce space and dealers.

Speaker 1

The company has experienced excellent sales traction from its quickly expanding sales channels and expects this rapid growth to continue. By the end of Q2, WorkSport was on track to achieve a monthly recurring revenue of approximately $1,000,000 per month. Company believes this number will continue to grow in 2024 with the ongoing ramp up of the AL3 line and the introduction of the premium AL3 or sorry, AL4 product line in Q4 of 2024. Gross profit margins year to date for Q2, twenty twenty four, 15.4 percent. While margins are still low, they have improved by 111% compared with Q1 of 2024.

Speaker 1

Coming notes here that historical production in 2024 has been less efficient than the baseline efficiency of the plant. This was in relation to production and product improvements in the early part of 2024. We're excited to say that baseline efficiency is expected to be better reflected in the latter half of this year and is expected to enhance future margins. In addition to this expected improvement, the company anticipates a notable rise in margins from substantial cost savings achieved through ongoing scaling efforts and the upcoming launch of premium product lines. These improvements will more clearly be reflected in the second half of the year and into the 2025 fiscal year.

Speaker 1

Worksport notes that the product margin for the upcoming AL4 premium price tonneau cover is expected to be higher both in percentage and dollar value. The company also forecasts the AL4 to become the more popular tonneau cover among consumers. Worksport heavily invested in infrastructure and product development initiatives to build a strong foundation for sustained operational growth. Wurksport now has the infrastructure in place and innovative product line to move forward move towards operational cash flow positivity. Wurksport is well positioned to use its equipment, facilities and inventory investments to meet current and anticipated sales growth for the remainder of 2024.

Speaker 1

No significant equipment investment is expected within the next 12 months. As revenues accelerate, we expect the net loss from operations to decrease with a clear vision to move towards positive operational cash flow in 2025. Since the beginning of the year, the company has strategically invested $3,630,000 in inventory, bringing the total balance of $6,390,000 As we continue to expand our monthly recurring revenue, we anticipate an accelerated turnover to this inventory. With the upcoming launch of the Solis, Core and AL4 products, the company plans to make further inventory investments, particularly in Solis and Core in Q4 of 2024. To end, a special note on the financial impact of Worksport's upcoming clean tech products.

Speaker 1

Worksport notes that the Solis and Core products are expected to successfully achieve a market price between $1200 $1700 each, depending on the unit and package selected. The modularity of Worksport's Core system also presents opportunities for customers to become repeat buyers of additional 1500 watt hour batteries, which are expected to command market prices between $700 $9.50 This higher priced segment presents a significant opportunity to accelerate revenue growth and expand into new customer markets. With the alpha launch expected to occur in September, Worksport will provide an update on the sales outlook for Solis and Core during the q3 2024 earnings call. We'll give everyone a moment to read the infographic on your screen. And I'm going to turn it back to Steve for the business performance and operational highlights.

Operator

Excellent. Thanks. We have actually a question before I continue on from Tate Sullivan, research analyst covering Worksport. Go ahead, Tate.

Speaker 2

Thanks, Steve. Happy to save it to the end if you want to, but can you cover your manufacturing capability in New York? What are you manufacturing currently versus what are you importing from other countries?

Operator

Sure, yeah. So the manufacturing line is set up to produce 1,000 tonneau covers per day without additional expansion to which we can expand the footprint of the building by approximately almost 40%. The AL3 tunnel cover is produced in North America with the majority of the components sourced from North America, meaning paint and resins from soil within the lower 48 states. So it's a gold standard of made by definition in America. The products that are presently being imported from overseas remain our soft folding tunnel covers that are imported from our contract factory in China.

Operator

However, we do have all or most necessary let me say better, most necessary equipment to produce soft folding tunnel covers within North America at that facility, which we intend to explore or at least finalize within 2025.

Speaker 2

Thank you.

Operator

Welcome. Okay. I'll carry on. This quarter was highly dynamic marked by numerous milestones, technical achievements and our significant process laying the groundwork for future initiatives. Most of all, the beginning of our strong growth in revenues with a keen focus on growing our bottom line through continual improvement and economies of scale.

Operator

After scale production started in January, we amassed inventory and initiated marketing efforts in March of 2024. In the last few months, Worksport has been aggressively establishing its brand name in the market presence. Our e commerce strategy continues to grow. We have initiated dealer and distributor sales outreach with this, which is expected to fuel revenue growth for Q3 and onwards. In May, Worksport was honored to be recognized by the State of New York with a grant valued at approximately $2,800,000 over its lifetime.

Operator

The grant is based on our projected employee growth and will become redeemable starting in 2025. The Governor's office has taken note of our operation in Western New York and is actively supporting our business. Recently, we announced excellent test results for the SOLUS solar tonneau cover and will soon provide an update on the Kors test result ahead of their joint alpha release expected in September. The SOLACE cover is capable of generating up to 6 50 watts of power, allowing it to fully charge a 1700 watt hour core system in just a few hours with good weather conditions. This could provide enough power for a campsite, job site, or various recreational activities.

Operator

The use cases are endless. With over 2,000 watts of maximum power output, the Core system can run a fridge, microwave, various power tools, and charge lots of personal electronic devices to just name a few. The Core and Solus are anticipated to be transformative products that will shape the future of WorkSpore. We will initially market them to our existing base of pickup truck users, but with their compelling competitive advantage and diverse use cases, the Solus and Core system have been targeted to various markets starting in North America and eventually expanding globally. Given the success of lab testing of our core, our vision for our core batteries is for it to become the AA battery of the future.

Operator

The market opportunity is tremendous with existing companies coming out of China growing at 300% per year in this space. We couldn't be more excited about our unique launch. I note 2 figures on the right of this slide. Our engineers have begun developing a transferable solution of the Worksport, SOLUS and core system to act as a portable nano grid off the truck bed, opening the Worksport opening Worksport to a plethora of new markets and target customers. The possibility end markets are endless and global, which is why we're very excited to announce Worksport's CleanTech Business Division.

Operator

With this in mind, Worksport will now begin conceptually referring to its operations in 2 business divisions: 1st, Worksports Automotive and 2nd, Worksport CleanTech. Our tonneau cover business is expected to propel Worksport into a 9 figure middle market company in the mid to short term or short to mid term rather, while the CleanTech division opens us up to a 10 figure plus opportunity that we believe is achievable. Altogether, our aspirations in terms of revenue stretch beyond that of upper middle market. In April 2024, the company issued a press release stating that we believe Worksport stock was undervalued. Today, given this quarter's result, the shared remarks on our path to cash flow positivity and the upcoming update on guidance, we reaffirm that statement, confident that the revenue growth we're seeing this quarter is just the beginning of a prosperous climb ahead.

Operator

Worksport will continue to ramp up AL3 sales, expanding its presence across the United States and Canada. With a domestic market size of over 7,000,000 tonneau covers sold annually, we're only just scratching the surface. Our covers have received excellent reception so far and the highly anticipated AL4 cover forthcoming in Q4 is eagerly awaited, particularly by our business to business customers. The AL4 short the AL4 shares key features with the AL3, allowing the company to strategically optimize production as needed. This quarter, we launched a dedicated website for our dealers and resellers and initiated a live online sales program, both of which have established a strong foundation for expanding our brand presence and supporting our dealer network, to whom which we're very fond of.

Operator

Additionally, recognizing the significant market potential within federal and state fleets, we began actively pursuing this sector. Importantly, all works for business and government customers are potential future solace and core customers. The brand presence we're building daily will be crucial for the successful market launch of the Solus and Core system. Worksport recently filed a 1 offering earlier this month, if utilized. This filing allows Worksport to raise capital at or above market prices while targeting new investors.

Operator

We are very excited about this opportunity, especially given the success of our last Reg A offering, which was oversubscribed within 1 month. With the Solas and core products representing significant revenue potential and a vast market opportunity for the company, the Reg A offering is intended to provide investors with a chance to participate in a direct ROI opportunity, with proceeds primarily funding the market release of these products. Additionally, this offering will enable us to attract new investors and expand our retail shareholder base. As the company continues to grow its automotive accessories segment and with the market launch of the Core and the Solus products, and as they draw near, this filing represents an exciting opportunity to be part of the significant growth we anticipate in the near future, and potentially increase the upside for our active and existing investors. Furthermore, Worksford is committed to pursuing ISO certification in our Western New York factory and will keep shareholders informed of our progress.

Operator

Achieving ISO certification is a near term goal for the company and will play a crucial role in strengthening our business to business and future OEM relationships. We are committed to pursuing OEM relationships with EV truck manufacturers in the mid to long term, and our relationship with Hyundai remains active. The Solas could potentially be utilized as a portable range extender for EV pickup trucks. We estimate that the cover could provide enough power for 9 or more miles per day, delivering delivering electric cost savings to customers. While OEMs are slowing down EV pickup truck production, we estimate, to uptake.

Operator

More on this in the next slide. From a macro perspective, pickup trucks continue to be the top selling vehicle on the U. S. In the U. S.

Operator

And on U. S. Roads. The EV pickup truck market has experienced delays and waning sales interest. We believe that the improved infrastructure and technology, EV adoption will extend to pickup trucks as well.

Operator

Worksport's solar solar tunnel cover is designed for use with both current internal combustion engine vehicles and with future EVs, allowing us to navigate without adverse effects by these market shifts. Additionally, we've observed the US government's push for increased tariffs on imports from China, particularly batteries, by 2026, and we're positioning ourselves to leverage this chance, this change as a strategic advantage. We've already begun developing next generation core batteries using U. S.-based technology in production. The company will provide an update on its production partner for the core and Solus in the near future.

Operator

The portable energy market is growing rapidly with further development expected. As mentioned earlier, Chinese competitors, despite offering perceived inferior products, are achieving over $1,000,000,000 in annual sales from the U. S. Market with a year over year growth rate of over 300%. Being first to market with our solar cover and belief, the belief that we offer a stronger product at an attractive price, we aim to capture both new market share and a portion of their existing market share.

Operator

Regarding future guidance, at the current Q2 gross revenue rates, we are on track to meet or exceed our previously issued revenue guidance of $6,000,000 to $8,000,000 by the end of the year 2024. Importantly, please be aware this guidance does not account for potential revenues from AL4, Solus and Core, so it's highly conservative, and the launch of those products within this year and is based solely on our AL3 and softcover product segments. Worksport believes that its tonneau cover business alone will represent $15,000,000 to $20,000,000 in revenues for next year 2025. We're excited to initiate the alpha release of our core and SOLUS this September. The conceptual business division of the company is the foundation for a future push to become a middle market middle large market company.

Operator

For future guidance on Worksport CleanTech, stay tuned for inside sales look during the Q3 2024 earnings call. Works Board is now opening the floor for questions and answers. We have a list of previously submitted questions that we will address either during this call or via a press release at a later time. We now welcome live questions from the analysts attending the call, followed by those from general investors and listeners.

Speaker 3

Thank you for the call, Stephen. Now directing to ckapo Fratt, an analyst from AGP.

Speaker 4

Yes. Thanks, Stephen. Can you just talk about the Q2? It sounded like your production efficiency wasn't as high as you expected, but yet you got margins into the 15% range. How much did production inefficiency cost you in the quarter?

Operator

So it's continual improvement. So we don't I mean, Mike may be able to answer on a numbers side. However, speaking to product efficiencies, because it's a new product relative to it only having launched at the beginning of this year, and therefore a child that's 6 to 8 months old at most, figuratively speaking, the products need a continual improvement. The first iteration of our AL3 product was nowhere near as good as it is today. So we've had to re handle product consistently.

Operator

So we've made a product and then we've realized that there was, you know, something that needed improvement, so we had to reopen that product and make an improvement and improve on tooling and components to make our product more durable, more manufacturable, more weather resistant to rain and car washes, which customers and users want. So the efficiency of our production line is a fraction of what it can be. Dollars adding to cents, the products make a multiple of their costs. I have to be there's only so much I can divulge, but our cost is a fraction of our retail price. But the having to touch that product numerous times is difficult.

Operator

So we anticipate margin to continue to climb into very healthy margins, 30%, potentially even higher than that as time goes. If you wanted a more imperial answer, like dollars, Mike may be able to put something together with something in the quarter, but I'm not quite sure we have that data.

Speaker 1

Yeah, I don't have the data at hand, but essentially, there's almost a fixed pool of manufacturing overhead that's just being divided across a smaller number of units at this point. So, as we increase efficiency, that same pool of costs isn't going to increase by the same amount. So, you would expect those costs to be spread out over more units, which would increase the gross profit of each unit.

Operator

We have 3 production lines, Poe, at our facility. Each line is capable of producing somewhere in the neighborhood of 50 to 100 covers per day. So with not that much additional cost, we could be at about a third of our peak production output, which right now we're at a fraction of as we ramp up, we're just starting.

Speaker 4

Great. And yes, you sort of answered the question of target market or targeted margins in the 30% range plus or minus probably 5%. When you look at your guidance on just the cover business for 2025, dollars 15,000,000 to $20,000,000 that doesn't seem to incorporate much ramping up production if I'm looking at it correctly, if June was over a 1,000,000 bucks as far as revenue. Is there something beyond that $15,000,000 to $20,000,000 that we could sort of look at for the cover business? And I guess that it's a long winded way of saying, what do you think the cleantech business potential is for 2025?

Operator

It's difficult to say. You know, it's based on literal, you know, estimations because it's a new product that we haven't sold. All I can say is that we know import products. So products, so on the cleantech, the core competitor for that is a Chinese owned, Chinese operated business. So we have, you know, for lack of a better phrase, home turf advantage, they were about $1,000,000,000 in sales in the U.

Operator

S. Economy last year. So, you know, I know that the market is a 10 figure market with just one of our competitors, just within the 48, you know, so to speak. So we could, you know, we can only estimate can we take 1%, can we take 5% of that market share? Can we take 10%?

Operator

We hope to sell about 1,000 core units per month, you know, as we get our stride at a retail price of somewhere between $12 to $1700 depending. But that number begins to add up to the point where we get so far ahead of ourselves that we just don't want to seem we want to be very, very cautious because things obviously take longer than we would hope at times. There's always delays with producing such complex items. So the forecast of $15,000,000 to $20,000,000 is just AL3. So our more basic hard folding tonneau cover.

Operator

We feel that we can get, that from about $1,000,000 a month to roughly 1,000,000 and a half plus per month, which is a very modest or conservative estimation. AL4, we believe can sell multiples of that. So we think that the demand is heavily leaning towards a product of that style. And we think that it wouldn't be twice the sales. So we don't think we'd sell $1,500,000 a month.

Operator

We'd probably sell $3,000,000 to $5,000,000 a month. But once again, you start adding all those numbers up and Worksport would be figuratively releasing guidance of $50,000,000 next year, which just sounds crazy. So we remain very bullish. We remain very optimistic, but it's very difficult for us to be able to make estimations that don't just seem too far to reach.

Speaker 4

Great. Thank you, Stephen. Thank you, Michael.

Speaker 3

Stephen, our next question is from Tim Moore, analyst at ClearStreet. His first question is for your core portable energy storage, can you elaborate more offering it both as a direct purchase or a subscription service?

Operator

Good question. Yeah. So, we feel that at $1200 it's a unit that is affordable with a lowercase a. And what that means is people will be able to afford a $1200 unit. But one of our sayings here internal to the company's appeal to the mass dining class.

Operator

A lot of individuals are budget conscious on a monthly basis and can afford monthly fees. That's why Netflix and these monthly subscriptions are so popular. So we intend to first launch The Core as a cash purchase unit with financing options, like a firm and those that are low cost to the consumers. However, in the future, and we're hoping within, the next, within next year 2025, we will offer a core club or subscription service where you will pay a deposit or upfront fee, let's say $5 or $600 which most or many more can afford and then a monthly fee. As you pay the bill, the Bluetooth app, similar to Tesla, would unlock the device, failure to pay the bill would brick the device and have us know its coordinates for collection.

Operator

So there's security as well that we don't lose valuable assets. We also are contemplating rental services and we're also contemplating at least refurbished units or secondhand or used units to be collected and stored in high likelihood, high areas of natural disaster for disaster relief efforts. So if there's, God forbid, an earthquake or some natural disaster, we would have a marked amount of units available for rent or deployment to government agencies as they need, you know, on a pay service. So we have a few different options. Buy it upfront, which is our first go to market option, which is still a very large market.

Operator

2nd will be a smaller upfront deposit with a monthly subscription, which gives you benefits and perks like discounts on products, etcetera, etcetera. And then 3rd would be rental services for short term.

Speaker 3

Thanks, Steve. His next question was, can you give color on how quiet the core system is and how hot swap module feature works?

Operator

All the units that come in from China right now, Anchor, Jack, Re, Echo Flow, they some have no fans, some have 1, maybe 2 fans, ours have 9. These units have been tested. We can't tell you the test results, but our units performed superior in miles to those coming in from imported products. As a result of our unit having 9 fans, it performs in hotter climates, which is a more addressable concern, and it also performs much better in colder climates. So where other units simply shut off, die, and also may have risk of thermal runaway or explosion, which is a big problem for battery technology, we, our unit will survive.

Operator

It'll work in the heat of Arizona or desert as well as the cold of various mountains in northern states and places. However, with 9 fans blaring to keep it cold, it could be noisy. We haven't had a decibel measurement yet formally, but it would be, you'd be able to speak and understand, you know, no more than whisper, but still would make more noise than the competitors' unit, which frankly would make no noise because it would be a brick.

Speaker 3

And the last question, Steve, is will it be available for retail purchase online a few weeks before Christmas regarding the core again?

Operator

Yep, absolutely. Targeting hard the Christmas sales. At the very least we think that we're going to launch pre sales before then and hope to fill those orders to get them under Christmas trees, a big market for us. Also to talk about hot swap, we're going to offer a pro version and a base version. Base version will have modular batteries, The pro version for a few $100 more will have hot swap, which means that as you have delicate medical devices, like let's say a respirator or blood transfusion machine or just music playing at a beach party, while you change batteries, the music, the unit has an inbuilt uninterrupted power supply.

Operator

So that's a pro version product that will be available, which will probably be a very popular option for us.

Speaker 3

Thank you, Steve. And Tate, I see you still have your hand up. Do you have any further questions live on the call?

Speaker 2

Yes. Thank you. It seems like you have good cash conversion cycle in the quarter. And then can you talk about your sales channel for the tonneau covers? Is it selling to distributors and they pay you right immediately for a batch of tonneau covers or multiple sales channels, please?

Operator

Direct to consumer, we're running anywhere between $20,000 to $30,000 daily, which obviously we aim to multiply in $20,000 to $30,000 daily, which obviously we aim to multiply in sales, which is paid upfront. And then dealer, all the dealer sales, there's 17,000 dealers just in the U. S. Alone. And we're literally calling each one of them.

Operator

Like, I mean, we have a sales team engaging each single one of them, not one left behind. So those are all COD sales, which is wonderful. The value proposition is so strong that we offer great, we prefer and support dealer network. We covet our dealer base, but the only stipulation is you have, we don't finance dealer sales, banks do. So use, you know, give us a credit card and we'll charge the sale, and if you need 1 or 3 or 5 or 10, we'll ship them to you and just prepay.

Operator

Distributor sales that are, that are coming on board are going to be net 30. However, there are financing solutions for those as well in AR financing that are relatively low cost should we need. So we're covered, but the majority of our sales are paid in enviable terms.

Speaker 2

And then, Jonathan, last for me is, are you for the SOLACE and the core have separate assembly lines, getting after you get in the components in Seneca, New York or will those products be assembled elsewhere?

Operator

The SOLACE, sorry, to address the core, the initial launch of the core will be assembled here in Toronto's facility where I speak from here today. Future assembly of beta and subsequent launches, we're not sure of yet. Not to say we're not sure if we're hesitant, we actually have too many options. If sales and demand are as strong as we think that we may need some heavy lifting, either domestic or abroad, so we may look at assembly within USA or maybe even in parts of Asia, peripheral to China, for assembly services. That's later down the road.

Operator

The SOLUS will share about 50% of the production lines at our factory in Buffalo and then have a final hand assembly station for for assemblers that are engineers, engineer assemblers that are skilled to be able to connect the delicate, you know, well, not delicate, but the electrical devices and whatnot and route the wiring through our patented wire away management system. So 50% of it goes right down the line as normal and then it branches off to its own hand built line for now. Once volumes ramp up, then we're going to have its own separate line within the facility in West Seneca on the Solis.

Speaker 2

Thank you, Steve.

Operator

Welcome.

Speaker 3

Steve, a question from Kamran Zedd. Could you please talk about ISO certification and the deal with Hyundai as well as the potential revenue on it? When will that happen?

Operator

Yeah, lots of questions. ISO is earmarked for this year. We actually just had some milestones on that earlier today that we'll announce the market later, not today, but at some point subsequent. We keep on ISO, you have to organize your business internally for it and then apply for it. And then it's either a yes or a no or and if it's a no, it's you have to improve to get there.

Operator

So we hope to be ISO this year, which will be a milestone for us as a factory. So the only update I could say is that every day we're working towards it. We have a team at our West Seneca facility that are very, very skilled in this, experts in the field. Hyundai. Hyundai is an active relationship.

Operator

We do speak with them often. Our product went from Detroit R and D to their U. S. Corporate offices in California, past that, and now it went to ownership and leadership in Korea directly, and it's they're working on their EV truck, so the product is ahead of its time for Hyundai. They don't have an EV truck that we're aware of yet or that anyone's aware of yet, so we continue to, you know, work with them and on their schedule of releasing a vehicle that's an electric truck that could use our cover.

Operator

But it's an active relationship. But OEMs, Hyundai and any OEM you could think of, typically work very slow, and a vehicle takes 5 to 6 years to hit market after it's conceptualized.

Speaker 3

Thank you, Steve. A question from Ehab Z. What would your annual revenues be if you're working today at full production capacity? In this case, what would your market share at full capacity? Let's answer the first question, which is what would your annual revenues be if you're working today at your full production capacity?

Speaker 1

I can handle that one. Estimated full production is about 1,000 covers a day. If we assume 252 production days and say we're producing AL threes, which sell for $709 it's about $179,000,000 of revenue per year, which equates to about 5% of the tonneau cover market, which sits at 3,500,000,000. So that revenue figure could fluctuate depending on what's produced, whether that's, you know, some of the lower sales point items, if it's more of the premium offerings like Solus and AL4. So that's kind of a ballpark figure based on AL3s.

Speaker 3

Thank you, Mike. A question from John C. Are there any plans to expand tonneau cover lineups to cover older models of pickups?

Operator

So I talk in bronze, silver, gold. Gold medals are, you know, the big 3, 4 Dodge, GM, 5.5 foot long bed, 6.5 foot long bed, actually 6 and a half's are more silver. And then bronze would be, you know, older or more obscure models, which we still love. I mean, I'm a huge fan of 'eighty eight to 'ninety eight GM pickup trucks, my personally, my favorite truck. But the demand is not quite as high, although there still is a market for them.

Operator

So the answer is we plan on developing our product line out than down, if that makes sense. So out means AL3, AL4, Solis with the gold, you know, the more popular models. And then down as in reaching deeper within generations of vehicles and starting to get into classic vehicles and maybe even vehicles like the 49 Chevy pickup truck, for example. We could do them. Our machinery is all robotic, so it's not hard.

Operator

It's just we need time. So the answer is yes, but not right now.

Speaker 3

Steve, a question from Randolph B. Based on fixed costs and variable cost structure, what revenue number is needed to breakeven? Is management willing to publicly say when that will happen? Lastly, when will it happen?

Operator

That's a very difficult question. It's a moving figure. We've earmarked revenues somewhere between $15,000,000 to $20,000,000 as cash flow positiveprofitability. You know, as we it's a sliding scale though, because as you ramp up sales and production, you reach continual improvement and operational efficiencies, so you become more profitable. So then the real number becomes $14,000,000 as opposed to $15,000,000 because of continual improvements.

Operator

So it's a very difficult answer question to answer. But I very simply put is we anticipate cash flow positivity and then we anticipate EBITDA earnings within, I think next year. However, the figure moves, although we're still a very lean operation for the size of our operation, quarter 1000000 Square Foot Factory plus 2 R and D facilities in the US and in Canada, we're still lean. But it's a difficult question to answer. We've looked at it, but very basically, you know, dollars 15,000,000, dollars 20, dollars 25,000,000 somewhere around there.

Operator

I know it's a big range is where we start making a lot of money, but an exact figure, it's a moving target.

Speaker 3

Thank you, Steve. Is the durability of the Solus cover the same as the L3, which you demonstrated on the live call last week?

Operator

Yeah. So same framework of a tunnel cover, same thick aluminum panels, same aluminum extrusions. It's just as durable. And the solar panels themselves have been hammered, have been stepped on, have been folded and still maintain most of their efficiency. So in general, the product is meant to be, it shouldn't be hatcheted, of course, but it could withstand golf ball size hail, difficult inclement weather situations, and then contractors resting metal toolboxes and tools on top of the cover should not reduce its operational efficiency.

Speaker 3

A question from Shankh Thakumar M, when are your WKSBW warrants expiring?

Operator

Yeah, good question. Obviously something that's been talked about for a while. So the worksport warrants were registered warrants and then a tradable warrant in our 2021 S1, which were always to expire in 3 years. We understand various brokerage made mistakes on when they expired. The brokerages have nothing to do with us, Where they picked up the expiration, the incorrect expiration date, we don't know.

Operator

But the WKSPW warrants, anyone that can read an S-one would easily see from the S-one filed in 2021 that there are 3 year warrants. They expired, I believe they expired August 9th, and they're gone. So, you know, and there were that was 3 years in the making. So by no means was there any error disclosure issues from the Company. It's been in all of our Qs and Ks since

Speaker 3

2021. Thank you, Steve. Another question from Bob T. Hello, Mr. Rossi and team.

Speaker 3

I'd love to know if Worksport is set to benefit from the IRA in any way. And if not, are there plans to bring a new product to market to enter a sector that would result in IRA benefits?

Operator

So there are benefits available to the core. Corporate speaking, there's our carbon credits tracking the energy compiled and then the deployment of that energy. So getting clean energy and then using that clean energy is what qualifies someone for carbon credit through our MPPT charge controller. We're going to be able to track not only our consumption or our use in collection of solar energy, but also all of our customers. So as our fleet expands from 1,000 to 1,000 to 100,000 solace on the road in use, we'll be able to track and qualify ourselves for those carbon credits.

Operator

And then also anyone that buys over 3 kilowatt hours of energy from us qualifies for credits when used with their home. So obviously the core is meant to be used within home as a plug away from the wall. So customers get, Fran, you may know, I'm not sure exactly, I think it's like a $600 or $700 credit, you know, on purchase of our core units when they buy 2 batteries as opposed to 1. So that's a very meaningful credit. So we do have support.

Operator

There are programs in place. And I think that as we dig deeper, we'll probably find more, more supports and available to our group CleanTech products.

Speaker 3

We've got a question from Eric W. As the customer base for Solis and Co. May see a heavy leaning towards blue collar workers, he says, I think the big question on their mind will be, will I be able to put my power tools for long enough to complete the work I have? Is the investment worth it? Will there be an estimated runtime for items such as compressors, portable table saws, circular saws and other appliances that are hooked up to the core battery?

Operator

Sure. Yeah. So as we say, the core is as much or more power than any wall outlet. So the average wall outlet is connected to a 15 amp circuit or less in smaller or older homes. Our product produces 2,000 watts of or powers 2,000 watts nominal and then peak probably 3,000 watts.

Operator

So anything you would plug into a wall could be powered by our core. So that would be table saws, drop site, campsite, medical, military, first responders, most things except for home air conditioning units, but even smaller room air conditioning units can be run, hot plates can be run, all of these things that you would plug into a wall, anything you would plug into a normal wall socket will be powered by our core. How long that will run will depend on the amount of power. So we have some ideas that a fridge could be run for, you know, a weekend. Our data is difficult because refrigerators, as you know, don't run all the time.

Operator

They run for a minute of every 15 to keep it cold and then they shut off. So if it ran steady, it would only run power for about a couple hours, but for a weekend, if it's an efficient fridge or a new one. So we have an idea of what will run for how long. But the answer to the question is anything you could plug into a wall will be, well, you could plug into a core. And if you want to power it for a long time, buy more batteries from us.

Speaker 3

Thank you, Steve. Another question from John asks, how soon will the company need to raise additional capital regarding the company's minimum bid price notification and the minimum listing requirements? Is the company contemplating a reverse stock split at all?

Operator

Good questions. Raising capital, we have a 1A offering that we may use or utilize, but it's a retail at the market offering, which means that we'd have to raise capital at or above market for retail shareholders, non institutional typically, although institutions may participate. So it's a very retail facing long term shareholder type of product. And if those that know the company during the last Reg A offering, that is when the company performed the best in terms of its market capitalization and appreciation of that, as well as its ability to raise capital. So it was a very good experience.

Operator

And typically Reg A's do very well for companies, especially ones that are as exciting as ours. So I think the Reg A is going to be a high tide that sails all ships, including shareholders of Worksport. So will we need to raise capital? We have the Reg A, but as revenues increase, we also have access to traditional bank financing like loans and lines of credit and revolvers, so that if the markets don't cooperate, we don't need to use the capital markets, we could use debt markets. And then when there's a very good or enviable position for capital markets, we could raise it in enviable in an enviable position or position from strength.

Operator

So the answer is, do we need to raise capital? Of course, it takes money to make money. So we're going to have to raise we're going to have to fund operations and growth to continue to ramp up and grow. But we have many more options available to us that are much more friendly than other options and other issuers in our cohort, you know, have struggled a lot. I think there's a record number of NASDAQ Shell Companies right now that have all failed.

Operator

So in our cohort 2021, you know, I think we're doing very well compared to most. In terms of what was the second question, Faran, the second part of that?

Speaker 3

Does the company anticipate contemplating a reverse stock split regarding the minimum listing requirement?

Operator

So minimum lister requirement is 180 days from when you fall below a dollar and then after 180 days, you get another 180 day extension. So it's about a year. We think that within a year, with all these things that are going on, we still maintain that we're dramatically undervalued. But for when the market finally catches up to that, which should be sooner than later, we think that we'll cure this without having to consolidate. So we have no plans for consolidation, but obviously we'll see what happens in the future.

Operator

But we're very bullish of the future of Worksport, and we don't think that we'll need to consolidate.

Speaker 3

Speaking of the future of Worksport, the next question is regarding dividends from Core EP. Will you do dividends before 2,030?

Operator

If we could do dividends next year, we will. So I mean, it's not a commitment. I'm speaking figuratively, but what I will say is our goal is set on the business by basic definition is an entity that exchanges a product or service for money. A lot of issuers don't meet that basic requirement. We do.

Operator

And now it's rinse and repeat. We are going to scale up revenues. We are heading for cash flow positivity. We're heading for earnings. And then as a result for earnings, as far as we can grow that, as we said earlier, you know, we're eyeballing beyond upper middle market and revenues.

Operator

Obviously, shareholder rewards such as dividends and these types of instruments are very much so viable opportunity for all of us.

Speaker 3

Thank you, Steve. With that, we'd like to end the call for this evening. All questions that have been remained unanswered will be answered via a press release later this month. The prepared remarks from this call as well as the slide deck will be available on our website and we will share a press release giving the highlights of the quarter and this earning call tomorrow morning. Thank you so much for everyone joining and we wish you have a great evening.

Operator

Thank you, everyone.

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Earnings Conference Call
Worksport Q2 2024
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