Worksport - Q2 2024

Transcript

Steven Rossi (Founder and CEO)

Good afternoon, everyone. Welcome to Worksport's first-ever live earnings call as a Nasdaq-listed corporation. I'm Steven 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. That was just posted at 4:00 P.M. 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 4:00 P.M. 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. During this call, we will make forward-looking statements, including statements regarding our financial outlook for the third quarter 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 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-K, and quarterly report, Form 10-Q.

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 roots. These roots are what will allow us to continue to propel into the future. Three years ago, we uplisted on Nasdaq, 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 million state-of-the-art factory has begun early-stage production ramp-up. Four of our AL3 Hard Folding Tonneau 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. 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 it's positioned within a substantial $3.5 billion 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 160 registered and pending patents and trademarks within its IP portfolio on a global scale. Worksport intends on releasing three new products in the second half of 2024. The highly anticipated first-to-market Worksport SOLIS solar tonneau cover represents a unique opportunity for Worksport to enter the CleanTech market. Starting with our rapidly expanding truck customer base, the patented solar SOLIS cover is designed to offer utility across a wide range of diverse applications.

Worksport's COR modular portable energy system, when paired with the SOLIS tonneau cover, creates a green power Nanogrid. The COR system can store over 1,700 Wh of energy and is fully modular, allowing for the addition of extra batteries. With the portable energy market valued at an astonishing $3.9 billion globally and growing rapidly, Worksport's COR battery features a unique never-ending power hot swap capability. We believe this feature will enable the COR system to penetrate markets far beyond just that of the pickup truck segment. The alpha release of the COR and SOLIS 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-150 pickup truck to key news outlets and stakeholders. 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—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 six 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.

Michael Johnston (CFO)

Thanks, Steven. Hello, everyone. Let's start with some exciting milestones achieved in Q2. Worksport achieved a remarkable growth in revenue, with net sales of $1.92 million for Q2 2024, up 275% from Q1 of 2024. Notably, Worksport's sales in Q2 surpassed the entire year-end revenue of $1.5 million for fiscal 2023. The significant increase is directly related to the company's new factory in Buffalo and recent successful marketing efforts with e-commerce space and dealers. 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 million per month.

The 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 2024, 15.4%. While margins are still low, they have improved by 111% compared with Q1 2024. The company 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. 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. Worksport now has the infrastructure in place and innovative product line to move forward, move towards operational cash flow positivity.

Worksport is well-positioned to use its equipment, facilities, and inventory investments to meet current and anticipated sales growth for the remainder of 2024. No significant equipment investment is expected within the next 12 months. As revenues accelerate, we expect the net loss from operations to decrease, the clear vision to move towards positive operational cash flow within 2025. Since the beginning of the year, the company has strategically invested $3.63 million in inventory, bringing the total balance to $6.39 million. As we continue to expand our monthly recurring revenue, we anticipate an accelerated turnover of this inventory. With the upcoming launch of the SOLIS, COR, and AL4 products, the company plans to make further inventory investments, particularly in SOLIS and COR, in fourth quarter of 2024. To end, a special note on the financial limit impact of Worksport's upcoming CleanTech products.

Worksport notes that the SOLIS and COR products are expected to successfully achieve a market price between $1,200 and $1,700 each, depending on the unit and package selected. The modularity of Worksport's COR system also presents opportunities for customers to become repeat buyers of additional 1,500 Wh batteries, which are expected to command market prices between $700 and $950. This higher price 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 COR during Q3 2024 earnings call. We'll give everyone a moment to read the infographic on your screen. And I'm gonna turn it back to Steve for the business performance and operational highlights.

Steven Rossi (Founder and CEO)

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

Tate Sullivan (Managing Director and Senior Research Analyst)

Oh, 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?

Steven Rossi (Founder and CEO)

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 tonneau cover is produced in North America, with the majority of the components sourced from North America, meaning paint and resins from suppliers 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 tonneau covers that are imported from our contract factory in China. However, we do have all or most necessary.

Let me say better, most necessary equipment to produce soft-folding tonneau covers within North America at that facility, which we intend to explore, or at least finalize, within 2025.

Tate Sullivan (Managing Director and Senior Research Analyst)

Thank you.

Steven Rossi (Founder and CEO)

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. After scale production started in January, we amassed inventory and initiated marketing efforts in March of 2024. In the last three months, Worksport has been aggressively establishing its brand name and 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 $2.8 million over its lifetime.

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 SOLIS solar tonneau cover, and will soon provide an update on the COR's test result ahead of their joint alpha release, expected in September. The SOLIS cover is capable of generating up to 650 W of power, allowing it to fully charge a 1,700 Wh COR system in just a few hours with good weather conditions. This could provide enough power for a campsite, job site, or various recreational activities. The use cases are endless.

With over 2,000 W of maximum power output, the COR system can run a fridge, microwave, various power tools, and charge lots of personal electronic devices, to just name a few. The COR and SOLIS are anticipated to be transformative products that will shape the future of Worksport. We will initially market them to our existing base of pickup truck users, but with their compelling competitive advantage and diverse use cases, the SOLIS and COR system have been targeted to various markets, starting in North America and eventually expanding globally. Given the success of lab testing of our COR, our vision for our COR batteries is for it to become the double A battery of the future. 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 two figures on the right of this slide. Our engineers have begun developing a transferable solution of the Worksport SOLIS and COR system to act as a portable NanoGrid off the truck bed. Opening Worksport to a plethora of new markets and target customers. The possibility and markets are endless and global, which is why we're very excited to announce Worksport's CleanTech business division. With this in mind, Worksport will now begin conceptually referring to its operations in two business divisions: first, Worksport Automotive and second, Worksport CleanTech.

Our tonneau cover business is expected to propel Worksport into a nine-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 ten-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's 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. 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 million 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 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 we're very fond of. Additionally, recognizing the significant market potential within federal and state fleets, we began actively pursuing this sector. Importantly, all Worksport business and government customers are potential future SOLIS and COR customers.

The brand presence we're building daily will be crucial for the successful market launch of the SOLIS and COR system. Worksport recently filed a 1-A offering earlier this month. If utilized, this filing allows Worksport to raise capital at or above market prices while targeting new investors. We are very excited about this opportunity, especially given the success of our last Reg A offering, which was oversubscribed within one month. With the SOLIS and COR 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 accessory segment, and with the market launch of the COR and the SOLIS products, and as they draw nearer, 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, Worksport is committed to pursuing ISO certification at our Western New York factory, and we'll keep shareholders informed of our progress. 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 SOLIS could potentially be utilized as a portable range extender for EV pickup trucks.

We estimate that the cover can provide enough power for 9 or more miles per day, delivering electric cost savings to customers. While OEMs are slowing down EV pickup truck production, we estimate to uptake. More on this in the next slide. From a macro perspective, pickup trucks continue to be the top-selling vehicle in the U.S. 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. Worksport's SOLIS solar tonneau 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 U.S. 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 COR batteries using U.S.-based technology and production. The company will provide an update on its production partner for the COR and SOLIS in the near future. 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 billion 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.

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

For future guidance on Worksport CleanTech, stay tuned for our inside sales look during the Q3 2024 earnings call. Worksport 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.

Michael Johnston (CFO)

Thank you for the call, Steven. Now directing to C.K. Poe Fratt, an analyst from AGP.

C.K. Poe Fratt (Managing Director, Equity Research, and Senior Transportation Analyst)

Yeah. Thanks, Steven. Can you just talk about the second quarter? 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?

Steven Rossi (Founder and CEO)

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 six to eight months old at most, figuratively speaking, the products need continual improvement. The first iteration of our AL3 product was nowhere near as good as it is today. So we've had to rehandle product consistently.

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 cost. I have to be... There's only so much I can divulge, but our cost is a fraction of our retail price. But having to touch that product numerous times is difficult.

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.

Michael Johnston (CFO)

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.

Steven Rossi (Founder and CEO)

We have three production lines at our facility. Each line is capable of producing somewhere in the neighborhood of 50-100 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, you know, we're at a fraction of as we ramp up. We're just starting.

C.K. Poe Fratt (Managing Director, Equity Research, and Senior Transportation Analyst)

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

Steven Rossi (Founder and CEO)

It's difficult to say. You know, the 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 COR 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 billion in sales in the U.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%?

We hope to sell about 1,000 CORunits per month, you know, as we get our stride, at a retail price of somewhere between $1,200-$1,700, depending. But that number begins to add up to the point where we get so far ahead of ourselves that we just don't wanna seem... We wanna 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-$20 million is just AL3, so our more basic hard-folding tonneau cover. We feel that we can get that from about $1 million a month to roughly $1.5 million+ 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 1.5 million a month. We'd probably sell $3 million-$5 million a month. But once again, you start adding all those numbers up, and Worksport would be figuratively releasing guidance of $50 million next year, which just sounds, you know, 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.

C.K. Poe Fratt (Managing Director, Equity Research, and Senior Transportation Analyst)

Great. Thank you, Steven. Thank you, Michael.

Faran Ali (Head of Investor Relations)

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

Steven Rossi (Founder and CEO)

Good question. Yeah. So, we feel that at $1,200, it's a unit that is affordable, with a lowercase a. And what that means is people will be able to afford a $1,200 unit. But, one of our sayings here, internal to the company, is "Appeal to the mass dining class." A lot of individuals, you know, 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 COR as a cash purchase unit with financing options, like Affirm and those that are low cost to the consumers.

However, in the future, and we're hoping within the next year, 2025, we will offer a COR club or subscription service, where you will pay a deposit or upfront fee, let's say $500 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. 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 second-hand or used units to be collected and stored in high-likelihood areas of a 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. Second will be a smaller upfront deposit with a monthly subscription, which gives you benefits and perks like discounts on products, et cetera, et cetera. And then the third would be rental services for short term.

Faran Ali (Head of Investor Relations)

Thank you, Steve. His next question was, "Can you give color on how quiet the COR system is and how hot swap module feature works?

Steven Rossi (Founder and CEO)

All the units that come in from China right now, Anker, Jackery, EcoFlow, 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 unit performs superior in miles to those coming in from imported products. As a result of our unit having nine 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.

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 nine 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 it would make more noise than the competitor's unit, which frankly would make no noise 'cause it would be a brick.

Faran Ali (Head of Investor Relations)

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

Steven Rossi (Founder and CEO)

Yep, absolutely targeting hard the Christmas sales. At the very least, we think that we're gonna 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 gonna offer a pro version and a base version. Base version will have modular batteries. The pro version, for a few hundred dollars 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 unit has an inbuilt uninterrupted power supply. So that's a pro version product that will be available, which will probably be a very popular option for us.

Faran Ali (Head of Investor Relations)

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

Tate Sullivan (Managing Director and Senior Research Analyst)

Yeah, 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?

Steven Rossi (Founder and CEO)

Direct to consumer, we're running anywhere between $20,000 and $30,000 daily, which obviously we aim to multiply in sales, which is paid upfront. And then, dealer, all the dealer sales, there's Tate, 17,000 dealers just in the U.S. alone. And we're, we're literally calling each one of them. 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 to- 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 pre-pay. Distributor sales that are coming on board are gonna 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.

Tate Sullivan (Managing Director and Senior Research Analyst)

Last for me is, are for the SOLIS and COR have separate assembly lines? After you get in the components in West Seneca, New York, or will those products be assembled elsewhere?

Steven Rossi (Founder and CEO)

Sorry, to address the COR, the initial launch of the COR 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 of, we're hesitant, we actually have too many options. If sales and demand are as strong as we think, then 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.

The SOLIS will share about 50% of the production lines at our factory in Buffalo, and then have a final hand assembly station for assemblers that are engineers, engineer assemblers that are skilled to be able to to connect the delicate. You know, well, not delicate, but the electrical devices and whatnot, and route the wiring through our patented wire way 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 gonna have its own separate line within the facility in West Seneca on the SOLIS.

Tate Sullivan (Managing Director and Senior Research Analyst)

Thank you, Steve.

Steven Rossi (Founder and CEO)

Welcome.

Faran Ali (Head of Investor Relations)

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

Steven Rossi (Founder and CEO)

Yeah, lots of questions. ISO is earmarked for this year. We actually just had some milestones on that earlier today that we'll announce to the market later. Not today, but at some point subsequent. We keep on... The 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. So we hope to be ISO this year, which will be a milestone for us as a factory. So the only update I can 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.

We do speak with them often. Our product went from Detroit R&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. But it's an active relationship. But OEMs, Hyundai, and any OEM you could think of, typically work very slow, and a vehicle takes five to six years to hit market after it's conceptualized.

Faran Ali (Head of Investor Relations)

Thank you, Steve. A question from Ihab 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?

Michael Johnston (CFO)

I can handle that one. The estimated full production is about 1,000 covers a day. If we assume 252 production days and say we're producing AL3s, which sell for $709, it's about $179 million of revenue per year, which equates to about 5% of the tonneau cover market, which sits at $3.5 billion. So that revenue figure could fluctuate depending on what's produced, whether that's you know, some of the lower sale point items, if it's more of the premium offerings like SOLIS and AL4. That's kind of a ballpark figure based on AL3s.

Faran Ali (Head of Investor Relations)

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

Steven Rossi (Founder and CEO)

I talk in bronze, silver, gold. Gold medals are, you know, the big three, four Dodge GM, 5.5-foot long bed, 6.5-foot long bed. Actually, 6.5s 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 1988 to 1998 GM pickup trucks. They're my personal favorite truck. But the demand's not quite as high, although there still is a market for them. So the answer is, we plan on developing our product line, out then down, if that makes sense.

So out means AL3, AL4 Solis with the goal, 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, yeah, maybe even vehicles like the 1949 Chevy pickup truck, for example. We could do them. You know, our machinery is all robotic, so it's not hard, it just... We need time. So the answer is yes, but not right now.

Faran Ali (Head of Investor Relations)

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

Steven Rossi (Founder and CEO)

Oh, that's a very difficult question. It's a moving figure. You know, we've earmarked revenues, you know, somewhere between $15 million and $20 million as cash flow positive/profitability. You know, it's a sliding scale, though, because as you ramp up sales and production, you reach continual improvement in operational efficiencies, so you become more profitable. So then the real number becomes $14 million as opposed to $15 million because of continual improvements. So it's a very difficult answer, question to answer. But very simply put, is we anticipate cash flow positivity, and then we anticipate EBITDA earnings, you know, within, I think, next year.

However, the figure moves, although we're still a very lean operation for the size of our operation, 250,000 sq ft factory, +2 R&D facilities in the U.S. and in Canada, we're still lean. But it's a difficult question to answer. We've looked at it but, you know, very basically, you know, 15, 20, 25 million, somewhere around there is, I know it's a big range, is where we start, you know, making a lot of money, but an exact figure, it's a moving target.

Faran Ali (Head of Investor Relations)

Thank you, Steve. "Is the durability of the SOLIS cover the same as the AL3, which you demonstrated on the live call last week?

Steven Rossi (Founder and CEO)

Yeah. So same framework of a tonneau 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-sized hail, difficult inclement weather situations, and then contractors resting metal toolboxes and tools on top of the cover should not reduce its operational efficiency.

Faran Ali (Head of Investor Relations)

A question from Shankar Kumar M: "When are your WKSPW warrants expiring?

Steven Rossi (Founder and CEO)

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 S-1, which were always to expire in three 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. But the WKSPW warrants, anyone that can read an S-1 would easily see from the S-1 filed in 2021, that they were three-year warrants. They expired, I believe they expired August 9th, and they're gone. So, you know, and they were... That was three years in the making, so by no means was there any error or disclosure issues from the company.

It's been in all of our Qs and Ks since 2021.

Faran Ali (Head of Investor Relations)

Thank you, Steve. Another question from Bob T: "Hello, Mr. Rossi and team. 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?

Steven Rossi (Founder and CEO)

So there are benefits available to the COR. 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 gonna be able to track not only our consumption or our use and collection of solar energy, but also all of our customers. So as our fleet expands from 1 to 1,000 to 100,000 SOLIS on the road, you know, in use, we'll be able to track and qualify ourselves for those carbon credits. And then also, anyone that buys over 3 kWh of energy from us qualifies for credits, when used with their home.

So obviously, the COR is meant to be used within the home as a plug away from the wall. So customers get... Ron, you may know, I'm not sure exactly. I think it's like a $600 or $700 credit, you know, on purchase of our COR units when they buy two batteries as opposed to one. So that's a very meaningful credit. So we do have support. There are programs in place, and I think that as we dig deeper, we'll probably find more support available to our CleanTech products.

Faran Ali (Head of Investor Relations)

... Even a question from Eric W: "As the customer base for SOLIS and COR 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 COR battery?

Steven Rossi (Founder and CEO)

Sure, yeah. So as we say, the COR is as much or more power than any wall outlet. So the average wall outlet's connected to a 15-amp circuit, or less in smaller, older homes. Our product produces 2,000 watts of, or powers 2,000 watts nominal, and then peak, probably 3,000 watts. So anything you would plug into a wall could be powered by our COR. So that would be table saws, jobsite, 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 COR. 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. 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, you know, 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... will, you could plug into a COR, and if you want to power it for a long time, buy more batteries from us.

Faran Ali (Head of Investor Relations)

Thank you, Steve. Another question from John S: "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?

Steven Rossi (Founder and CEO)

Good questions. Raising capital, we have a 1-A 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, not 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, and typically, Reg As do very well for companies, especially ones that are as exciting as ours. So I think the Reg A is gonna 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 in an enviable position or position from strength. So the answer is, do we need to raise capital?

Well, of course, it takes money to make money, so we're gonna have to raise—we're gonna 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. 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?

Faran Ali (Head of Investor Relations)

Does the company anticipate contemplating a reverse stock split?

Steven Rossi (Founder and CEO)

Oh, okay.

Faran Ali (Head of Investor Relations)

- regarding the minimum listing requirement?

Steven Rossi (Founder and CEO)

So minimum listing requirement is 180 days from when you fall below $1, 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 the 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. But we're very bullish of the future of Worksport, and we don't think that we'll need to consolidate.

Faran Ali (Head of Investor Relations)

Speaking of the future of Worksport, the next question is regarding dividends from Corey P: "Will you do dividends before 2030?

Steven Rossi (Founder and CEO)

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

Faran Ali (Head of Investor Relations)

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.

Steven Rossi (Founder and CEO)

Thank you, everyone.