Worksport Ltd. (WKSP) Q4 2024 Earnings Report, Transcript and Summary

Thank you for joining Worksport's Fiscal Year 2024 and Q4 2024 Earnings Call. I'm Steven Rossi, Chief Executive Officer of Worksport. With me is our Chief Financial Officer, Mike Johnston. Today, we will review our 2024 performance, discuss key operational milestones and share an updated outlook for 2025. Fiscal year 2024 was a transformative year for Worksport. We achieved significant revenue growth, expanded our product lineup and strengthened our financial foundation. We will be reviewing the financial results for the quarterly period ending December 31, 2024, and full year '24. These results were filed today at 7:45 a.m. Eastern in our Form 10-K and can be downloaded from the link provided in the chat. At the end of today's call, our prepared remarks and presentation deck will be available for download at www.investors.worksport.com/reports. We'll also share the link in the chat to where you can download those reports and everything available. Our remarks will follow a slide presentation. After our prepared remarks, we will open the line for questions. So on that, let's begin. First, with safe harbor statements. During this call, we will make forward-looking statements, including statements regarding our financial outlook for the full year '25, our expectations regarding financial and business trends, impacts from the macroeconomic environment and market position, opportunities, go-to-market initiatives, growth strategies and business aspirations and product initiatives and the expected benefits of such initiatives. These statements are only predictions that are based on our current beliefs, expectations and assumptions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Actual results or events may differ materially. Therefore, you should not rely on any of these forward-looking statements. These forward-looking statements are subject to risks and other factors that could affect our performance and actual results, which we discuss in details in our filings with the SEC, included in our annual report on our Form 10-K and quarterly reports on Form 10-Q and other SEC filings. The forward-looking statements made in this earnings call today are made only as of today's date. Worksport assumes no obligation to provide update on any forward-looking statements we may make on today's webinar. We'll begin by highlighting Worksport's achievements from fiscal year 2024, celebrating the milestones that propel the impressive growth trajectory. Follow that, we'll dive into our strong financial performance, emphasizing our exceptional revenue growth, significant improvements in profitability metrics and clear strategic roadmap for continued expansion and profitability. We'll then explore our operational successes, showing our growing presence in both consumer direct and reseller markets as well as our success in betting on ourselves shifting towards higher-margin Worksport-only branded product sales. We'll also preview our highly anticipated upcoming product launches, including innovations from Terravis Energy, which we believe has the potential to reshape the industry and its standards and open up new market opportunities for us. To wrap up, we'll share our vision and strategic plans for fiscal year 2025, providing fresh guidance and outlining key financial goals for another year of dynamic growth ahead. 2024 was a breakout year for Worksport. We delivered full year net sales of $8.4 million, up 455% from $1.53 million in 2023. This tremendous growth was driven by successful ramp-up of our American-made hard folding tonneau cover products, and expansion of both of our business-to-consumer and business-to-business sales channels. We effectively bolstered our direct-to-consumer presence. Online sales surged 58% of total revenue in '24 compared to just 7% the year prior. At the same time, we onboarded new distributors and private label partnerships that contributed to our top line results. Importantly, this revenue growth was achieved while laying the groundwork for improved profitability. We strategically shifted towards higher-margin Worksport branded products and began phasing out lower-margin offerings, especially in the latter part of the year. As a result, gross profit from the year improved, and we saw a strong uptick in margins by year-end, which Michael will detail shortly. Overall, fiscal year '24 results underscore that our investments in U.S. manufacturing and product development are translating into accelerating sales and a stronger market position. In the fourth quarter of 2024, we continued to build on our success with our highest quarterly revenue to date. Q4 net sales were approximately $2.93 million, a sharp increase from $839,000 in Q4 the year before. This nearly 250% year-over-year Q4 growth reflects robust demand for both our e-commerce platform and our distribution partners during the holiday season. Our Q4 performance also meant that we exceeded all of our full year '24 revenue guidance, which was previously set to be between $6 million to $8 million. We came in above the high end of that range. In addition to strong top line results, we achieved notable gross margin expansion in Q4. In fact, December 2024 gross margin percentage is nearly 3x that of Q3, higher than 20% gross margin of profit, and that is improving. For the whole quarter, gross margins improved by 30% compared to Q3, thanks to our shift towards higher-value Worksport branded products and a better absorption of products -- production overhead as volumes increased economies of scale as we call it. This is a clear indication that our strategic pivot to prioritize margin by focusing on our own product lines and reducing lower-margin private label sales is paying off. Summing up Q4, we ended the year with excellent sales momentum and a trajectory of improving profitability metrics. Now Michael Johnston, our CFO, will walk you through the financial details of both the quarter and the full year.

Thank you, Steve. Let's review our financial performance in more detail, starting with the income statement. For fiscal 2024, net sales were $8.48 million, up 455% from $1.53 million in 2023. The growth was broad-based, driven by increased sales to private label partners, a surge in online consumer sales and the onboarding of new dealers and distributors during the year. Q4 2024 net sales contributed approximately $2.93 million of that total, which resulted in revenue of approximately $6 million for the second half of the fiscal year. This figure represents 71% of Worksport's annual revenue and illustrates how our revenue acceleration intensified in the back half of the year. Notably, another interesting shift that occurred in the back half of 2024 is the rapid increase of Worksport branded e-commerce sales and the decrease of lower-margin private label sales. Cost of sales for fiscal 2024 was $7.58 million, up from $1.29 million in 2023, largely corresponding to higher sales volume. This represented 89% of net sales in 2024 versus 84% in 2023. The increase in cost of sales as a percentage of revenue is mainly due to strategic discounting initiatives in our direct-to-consumer channel as well as higher overhead allocation on early production ramps and volumes were lower. For the full year 2024, our gross profit reached approximately $910,000, reflecting a gross margin of about 11%. However, as demonstrated by December's strong performance with margins exceeding 20%, we've already begun benefiting from economies of scale. With premium product launches and continued production ramp-up and expanding sales initiatives, we expect fiscal 2025 gross margins to align more closely with those achieved in December 2024, supporting our growth strategy. Our fiscal 2024 operating loss was $16.16 million compared to $14.93 million in 2023. The higher loss reflects the increased operating expenses tied to scaling our business and product development. However, on a per share basis, our loss improved significantly year-over-year from $8.44 in 2023 to $5.84 in 2024, a 31% improvement. While we're not satisfied reporting a loss, we emphasize that these investments were necessary to position Worksport for robust growth and future profitability. We expect net operating losses to further decrease significantly and move towards net income in the near future as our revenue continues to scale and as the cost reductions we've implemented in late 2024 take effect. With the strong margins seen in December 2024, accelerating branded sales and recently announced expanded dealership network, we're well positioned to target breakeven and profitability in the near term. Later in this call, we'll outline key initiatives and projections driving our continued success in the coming year. Turning to the balance sheet. Our financial position at year-end 2024 reflects capital raises and asset growth that occurred during the year, which has strengthened our foundation. Cash and liquidity. As of December 31, 2024, we had $4.88 million in cash and cash equivalents on hand. It was up from $3.37 million at the end of 2023, bolstered by financing activities during the year, including equity issuance and warrant exercises and cash inflows from higher sales. We also maintained $892,000 availability on the revolving credit line for additional liquidity if needed. We believe our cash position and credit availability provides a solid runway to support our growth plans. Also in March 2025, we completed the warrant inducement transaction with a key warrant holder, resulting in net proceeds of $6.3 million. Working capital was $7.3 million at the end of 2024, a substantial improvement from $1.96 million at the end of 2023. The increase in working capital is largely due to the cash increases as a result of the equity capital we raised and a higher inventory balance to support our sales. This improved working capital gives us flexibility to manage our operations and obligations. Our current ratio and overall liquidity have improved accordingly, alleviating some going concern pressures that existed a year ago. We had inventories of $5.19 million as of December 31, 2024, representing roughly 50% of our current assets. We intentionally built up inventory during the year, particularly of raw materials and finished tunnel cover units to ensure we can promptly fulfil customer demand orders as demand grows. This inventory includes components for our AL Series covers and legacy products, and we deem it appropriately balanced. We have process in place to monitor any slow-moving or obsolete stock and we'll adjust production and purchasing accordingly. Notably, our inventory at the end of Q3 was about $6.1 million. So we did utilize some inventory in Q4 to fulfil the surge in sales, which contributed to the revenue increase. We view our inventory level as a healthy support for our 2025 sales target without needing substantial further investment in working capital. We also view this inventory level sufficient to combat short-term tariff-related impacts on our business, while the long-term impacts will be evaluated later this year. We have a relatively clean balance sheet with long-term debt largely related to the refinancing the building mortgage. Our primary liabilities are accounts payable and accrued expenses associated with our operations. In March 2025, subsequent to the 2024 year-end, we took a proactive step to strengthen our capital structure by enacting a 1-for-10 reverse stock split. This corporate action effective March 18, 2025, reduced our number of outstanding common shares and increased our stock price accordingly. The reverse split was intended to help maintain compliance with NASDAQ listing requirements and make our stock more attractive to a broader base of investors. It's important to note that this did not affect our total equity or the ownership percentage of any shareholder, purely a structural change to the share count. Overall, our year-end balance sheet reflects company that has invested in growth but also shore up liquidity. We have the assets needed, mainly cash and inventory to drive our next phase of expansion with a lean liability profile. Now back to Steven for some key insights on the business operations.

Thank you, Mike. Thank you very much. Well, beyond the financial numbers, 2024 was a year of significant operational and strategic progress for Worksport. I'd like to highlight just some of those key milestones we achieved that are setting the stage for our future. In Q4 last year, we began making inroads into government and fleet sectors. On October 3, 2024, we announced an expansion of sales to U.S. federal government agencies. We secured initial orders of government sales from a government agency making Worksport entry into the sector. While revenue from the government sales was modest in 2024, this development is strategically important. It validates the appeal of our Made-in-America tunnel covers for government use and positions us to pursue larger fleet opportunities in 2025, which we're actively pursuing. Furthermore, we're also actively speaking with general fleet-based customers in 2025, especially for the upcoming SOLIS and core products, a lot of exciting developments there to come. A cornerstone achievement in Q4 of last year was the commencement of production of our newest premium tunnel cover, the Worksport AL4. We announced on October 23, 2024, that we would begin the AL4 production as of December 15 of that year, 2024. And I'm pleased to report that the AL4 is now selling in the market under full-scale production. The AL4 is our top-of-the-line hard folding tunnel cover offering full truck bed access and a refined design. We had a successful preorder campaign for the AL4, indicating strong market interest. In anticipation of volume production, we increased our production workforce by over 30% during Q4 of last year, hiring additional assembly technicians and machine operators at our West Seneca facility. Thanks to these efforts, we hit our manufacturing readiness target and began building initial AL4 units by mid-December. While revenue from the AL4 did not contribute materially to Q4 of last year since shipments only began after year-end, we started shipping AL4 orders in early February of this year and listed the AL4 for sale on our e-commerce platform in late February. The AL4 launch is significant for Worksport as it expands our product lineup at the high end and early feedback from customers has been positive on the quality and functionality of this cover and overall success. This cover will be a very big part of our story in 2025. Product pipeline extension, introducing the HD3. In parallel with the AL4, we have been developing another hard-folding cover variant called the HD3. On January 7 of this year, we announced plans to launch the Worksport HD3 in spring of this year. The HD3 is a heavy-duty business-to-business oriented tunnel cover. It builds on our AL3 design, but with enhanced materials and an additional latch mechanism for greater durability. This key strategy with the HD3 is to cater to commercial and fleet customers. For example, business outfitting work truck fleets with a product that can withstand rigorous use. We plan to offer the HD3 at wholesale pricing exclusively to our business-to-business clients, which include dealers, upfitters and fleet operators. By doing so, we protect Worksport B2B partners margins and encourage them to push volume. The HD3 is expected to begin production and sales in the coming months, adding another revenue stream in this year 2025. More importantly, rounding out a full and robust line of quality durable tunnel covers made right here in the U.S.A. Innovation is at the core of Worksport's mission. Last year, we made substantial progress not just in our traditional tunnel cover products, but also in our clean energy accessories, which are poised to unlock new markets for us. Let's start with SOLIS, the solar tunnel cover, redesigned for cost efficiency. Our highly anticipated solar tunnel -- solar integrated tunnel cover advanced through critical development milestones in 2024. On October 31 last year, we announced a strategic redesign of the SOLIS cover, which will save up to several hundred dollars in cost per unit and increase its compatibility with a wider range of portable power systems. Our goal is to officially launch SOLIS in mid-2025, around Q2, Q3 of this year. COR mobile power system, progress towards launch alongside SOLIS, our portable COR battery system, which can integrate with the SOLIS cover or operate independently made significant progress last year. The COR underwent Alpha testing as we refined our battery management software and safety systems. Our first-generation COR is scheduled for release in mid-2025. Additionally, we partnered with KULR Technology Group, a leader in battery safety and thermal management to enhance COR's battery pack design. This collaboration announced in February of this year centers on advanced thermal runway protection and AI-integrated battery management. Our ongoing research and development efforts with strategic partners like KULR aim to enhance the performance, aesthetics, and cost efficiency of future generations of COR products. Very exciting, Terravis Energy, AetherLux heat pump breakthrough. Beyond our vehicle-focused products, our subsidiary, Terravis Energy achieved remarkable R&D breakthroughs in 2024 that have implications for the broader clean tech markets. On February 11 of this year, we announced that Terravis has developed a cold climate heat pump system named AetherLux, with two major innovations. First, the elimination of deep frost cycles. The AetherLux heat pump can operate without the need for traditional defrost cycles. Deepfrost cycles are a common drawback in heat pumps, where the system periodically stops heating to melt ice buildup in the unit itself. Eliminating this requirement means continuous efficient heating even in freezing and extremely cold conditions, ultra-low temperature operation. The system can function in ambient temperatures as low as negative 57 degrees Fahrenheit, far below the operating range of typical commercial heat pumps. This is a groundbreaking capability, making the AetherLux potentially viable in extreme Arctic environments for applications that were previously impossible to service by heat pumps. These advancements collectively branded ZeroFrost trademark technology, have attracted significant global commercial interest. We believe Terravis Energy's innovations hold the potential to revolutionize heating solutions across multiple sectors, from residential and commercial HVAC to electric vehicle applications, especially in cold climates. Though still at the prototype stage, we're actively exploring opportunities to monetize the intellectual property through strategic partnerships, possible licensing agreements, and manufacturing collaborations. Following our recent announcement, hundreds of companies, including several multibillion-dollar corporations have expressed interest in ZeroFrost, underscoring a strong market demand. We firmly believe that the value of this transformative technology is not yet reflected in Worksport's current stock valuation. A little bit about intellectual property. In tandem with our product innovation, we have always been very active in protecting our inventions. As of the end of last year, Worksport's patent portfolio expanded by 25% year-over-year. We now hold numerous utility and design patents across the U.S. and international jurisdictions, covering our tunnel cover technologies, solar technologies, and energy storage solutions as well as the AetherLux products. Worksport holds a robust and growing global portfolio of over 170 approved, registered, and pending patents and trademarks. In January of this year, we joined the LOT Network, a global consortium aimed at safeguarding innovation against patent trolls. This move helps us protect intellectual property and gives us access to a broad community of tech companies committed to cross-licensing for defensive purposes. For our investors, our growing patent portfolio and participation in organizations like LOT Network underscore that Worksport is building significant proprietary technology and taking steps to secure them. This intangible asset base is an important part of our company's value. Let's speak a little bit about market expansion, and strengthening sales channels. We dramatically expanded our sales and distribution networks through 2025, and we added new dealers and wholesalers across the U.S. and Canada and deepened our relationships with major online marketplaces. As noted, online retailers, including our own e-commerce site and platforms like Amazon, Walmart, and eBay accounted for 58% of our sales in 2024, up from just 7% the year before in 2023. This is a testament to our effective digital marketing and fulfillment capabilities. We are also in active discussions with multiple large distributors and a network of nationwide dealers in the U.S. to carry our products. We expect to share more information on these discussions throughout the year. Notably, the company's dealer network has expanded by 30% in just the first two months of this year alone, following an ongoing production ramp-up driven by strong early feedback and demand for the AL4 premium panel cover. This dealer network expansion is expected to continue through 2025 and beyond and contribute to significant revenue increases. I'm going to pass it back to Michael Johnston, our CFO, with our fiscal year 2025 outlook and guidance.

Thanks, Steve. As we look ahead, we're very optimistic about Worksport's trajectory in 2025. We expect to carry forward the momentum from Q4 2024 to sustain growth and improve financial performance. Let me share our outlook and guidance for the year. For revenue growth, we're forecasting another year of significant revenue expansion in 2025, driven by both our core to cover business and new product introductions. Based on our current visibility, we're targeting full-year 2025 revenues in the range of $20 million to $34.5 million. Hitting the midpoint of that range would represent roughly a tripling of our 2024 revenue. This guidance is supported by our current order pipeline, anticipated uptake of the AL4 and HD3 covers, and the expected market launch of SOLIS and COR in the second half of the year. We have a line of sight on continued strength in our B2C e-commerce channel and growing contributions from B2B sales, including distributors, private labels, and fleet customers. Of course, as a growth company, our guidance range is broad and there's execution work ahead to achieve these numbers, but we want to provide the market with baseline expectations given the opportunities we see, and also margin improvement. Cash flow positivity is our next major goal post. We're encouraged by the margin improvement seen in the latter parts of Q4 2024, and we expect gross margin to continue to increase in 2025 as our product mix shifts further towards higher-margin items and as we benefit from economies of scale. By phasing out our lower-margin private label offerings and focusing on our own branded products, we anticipate gross margin will step up each quarter. Currently, the forecast gross margin reach in the 25% to 30% range or higher by late 2025. The range especially added in consideration the SOLIS and COR, which are expected to carry healthy margins come online. While we continue to invest in R&D and sales to support growth, we expect a more moderate increase in operating expenses relative to revenue growth in 2025, which should drive improved EBITDA results. Our overarching financial objective for 2025 is to move significantly closer to cash flow breakeven and ultimately to achieve cash flow positivity by late 2025, or early 2026. With the revenue growth and margin gains I just described, we believe Worksport can reach cash flow breakeven. This is an ambitious goal, but one we are committed to. Achieving it will likely require hitting the higher end of our revenue guidance and maintaining cost discipline. We intend to manage operating expenses carefully, balancing growth investments with efficiency. Should we outperform on sales and margins, we will pull ahead of the timing of reaching breakeven. Importantly, even as we strive for profitability, we maintain sufficient cash reserves and access to capital to fund our growth initiatives. So we're not pursuing growth at the expense of liquidity. With respect to capital expenditures, we anticipate capital expenditure needs in 2025 to remain relatively low. Most of our required production equipment for tunnel recovery is already in place. We'll invest in some additional tooling for production ramp-up and possibly automation enhancements to improve throughput, but these are not expected to be material. The launch of SOLIS and COR may require some investment in production setup. But again, we expect to manage this within our operating cash flow as the year progresses. We do not foresee adding new facilities or major machinery purchases in 2025. Our existing infrastructure can handle the increased volume. In summary, our 2025 outlook is one of robust growth with improving financial performance. We have set clear targets, aggressively grow, expand margins, and achieve a sustainable financial model by years out. We will report our progress each quarter and are confident in our direction. Now back to Steve with our concluding remarks.

Thank you, Mike. To achieve the financial targets Michael outlined, we have focused on strategic plans for 2025 centered on product execution, market expansion, and operational excellence. I want to reiterate how far Worksport has come in the past year and where we're headed. Last year was a record year for us by every measure, record revenue, expanded production and multiple new products in the pipeline. We transformed from a pre-revenue developmental company into a growing manufacturing and product company with over $8 million in sales and a presence on major channels. We also made critical investments in innovation that set us apart from the competition while improving our balance sheet and liquidity. As we move through 2025, we are laser-focused on execution. Delivering our products to more customers, launching our new offerings successfully and moving the company towards profitability. The goals we've laid out on revenue, margins and cash flow are a large leap, but our team firmly believes them to be achievable, and we are motivated and prepared to achieve them. We believe that the combination of our Made in America tunnel covers and upcoming clean energy solutions create a new unique value proposition. There's a significant market opportunity at the nexus of automotive accessories and renewable energy, and Worksport is positioned to be a leader in this space. I'm equally excited about the future of our subsidiary, Terravis Energy. The AetherLux product line holds tremendous potential, and I firmly believe it will deliver significant value to Worksport shareholders. I want to thank our entire Worksport team for their hard work and dedication in last year and in this year so far. What we've accomplished was truly a team effort from engineering to production to sales to back-office support. I also want to thank our Board and our shareholders for their continued support and trust. As a shareholder myself, I'm excited about what the future holds for Worksport. We enter 2025 with confidence, a strong product lineup and a growing brand reputation. To our investors and analysts listening, thank you for your time here today and for your interest in Worksport. We are committed to transparent communications and delivering on our promises. We look forward to updating you on our progress in the quarters ahead as we work to create sustainable long-term value. I'd like to thank everyone for attending. This concludes our prepared remarks. And operator, please open the line for questions.

Thank you. Tate Sullivan, I see you have your hand up. You may go ahead.

Thank you. Steven, thanks for the comments. Can you first on online sales, I mean, based on my calc, about 82% of revenue in the fourth quarter. And then a lot from third party. I mean, with your margin guidance for second half of '25 or nearing the end of the year, are you implying that most of those sales will come from your own platform or platforms such as eBay, Amazon, Walmart, et cetera, please?

Our hope, our push is that Worksport will see 50-50, 50% sales of product through its online platform and then 50% of its sales or close to where it is right now of sales through dealer and business-to-business units. Personally, I'm personally not a massive fan of marketplaces. They're expensive and there were inferior products typically survive and thrive like Amazon and some of eBay. So we're going to keenly focus on driving revenue and sales and traffic to our website, so we could retarget these customers and build relationships with them. And then we're going to keenly focus on marketing spend to drive attention and demand through our dealers. So in essence, visit our site, buy it on our site or buy it through a dealer, and that's further bolstered by offering dealer-only and online exclusive products. So we're going to offer different products on our website as dealers so that we keep things competitive within the two differ markets.

If you can, can you give us an overview of the online buyers through your platform? Are they buying multiple snow covers? Are they repeat buyers? Or are they spread across the country? Can you give any sort of general overview?

Sure. To the best of my ability, there's a stronger concentration in the Southern Midwest like states like Texas and Florida and along the East corridor. California is also a very strong state geographically speaking. Our customers are individual buyers, retail consumers, DIY, buy it and install it themselves. And then we have oftentimes, we see like businesses purchasing online, like fleets, landscaping companies, you name it, the gamut of businesses will buy multiple to outfit their fleet, soft covers, hard covers on our website. And then we're seeing a lot of referrals. Family and friends are showing the product saying, I got this and they're encouraging people to buy trucks and buy covers. So it seems to be a great ecosystem, but it's mostly individual retail consumers spread amongst the coastal U.S.A. and then a little bit of concentration in the Midwest.

One more for me. With the solar cover and the redesign, are you planning to launch it with the COR in the middle of '25 or to be determined?

So we're going to offer three different paths. Path 1 is solar cover alone so that you can kind of BYOD, bring your own device like your own battery generator. Then we think that the most popular product offering will be the middle, which will be the bundle. We call it like internally, we call it the Go kit or the go bundle, which will be the solar tunnel cover, our mounting hardware, which is proprietary and very exciting and our COR battery system. So you turn your truck into a microgrid. And then alternatively, also a very large addressable market is COR only. The core only, as we always say, no truck necessary. So the core could be for anybody anywhere. It doesn't matter if they have a driver's license, age is not important. It's just for anyone that needs power on the go. So those three offerings will be available, but we're going to focus, Tate, on the larger power units as opposed to being a small power unit like the charge your cell phone. The core is not really meant for that. The core is meant to power the job site, the camp site, the house, natural disasters, first responders, bigger power for bigger events.

Thank you.

Welcome.

Thank you, Tate. Scott, I see you have your hand up. Do you still have the question?

Yes, guys. Thanks for the time. Stephen, how should we think about the difference in the high end versus the low end of the guided revenue range for '25? To meet that high end, is it distribution? Is it something in the macro? What needs to go right, I guess, to be kind of 30-plus of revenue this year?

Good question. So we believe that our trajectory on the low end is tunnel cover alone, which is building us to about 20% to 30% of what we feel is a good first goal for Worksport's. So let me say it differently. We think that we can build the business to about $100 million tunnel cover sales alone before having to reach deeper into the markets like OEMs and these types of things. So we think that we can grow tunnel cover only sales like AL3, AL4, HD3 or soft cover lineups. We feel that, those product lines alone could carry us to that $20 million mark roughly, right? The delta between $20 million and $35 million roughly is going to be the uptake of our SOLIS and COR products. And with geopolitical issues right now, there's just a lot of moving parts around semiconductors, batteries and solar panels, new energy products and where these products ultimately come from like wafers for solar, batteries for ourselves, for our packs. They ultimately come from Asia regions. So it's just going to be if things are going to slow, if inflation is going to hit, if there's going to be tariffs or stop ships, these types of things. But for all intents and purposes, we don't see major roadblocks, and we're pretty good at problem solving. So to answer the question, the low end is tunnel covers only. The top end is a strong start to our battery systems and solar launch and that's why we're pretty optimistic. We think both are reasonable.

Great. That's helpful. And with the new product launches, should we expect an uptick in sales and marketing expense around those?

Yes. We have the person actually to -- when you're staring at the screen, the person to my right to left where the most is. That's our -- Chris Bernardo, our Chief Marketing CMO, and he's involved in marketing. And we're really, really keen on growing paid advertising and then user-generated content and all the different things. So we're going to ramp up significantly, but we have to ramp slowly because otherwise, our consumer acquisition cost goes very high for a few months, and it doesn't look so good on the balance sheet. So we're pretty good at being able to feather for lack of a better word, into growing our marketplace and courting consumers. And we find that as we grow our marketing and we shift from trying to sell a product to branding our product, that's when it's a tide that floats many other ships where we start getting more inbound interest from businesses, from government entities, from OEMs, et cetera, et cetera.

Great. That's helpful. And the expectation for breakeven by year-end '25 is great. Strategically moving forward, how should we think about the company balancing improving profitability versus reinvesting in the business and driving top line?

So we're going to -- so as products become legacy, like AL3 becomes stable and steadfast in the market, we'll hand it off to our group of engineers, a division of our group of engineers in Missouri, where it will be in the CI program, the continual improvement program, which basically means we're going to make it better, smarter, faster and ultimately, hopefully, less expensive. Now that doesn't -- continual improvement tends to mean try to reduce material, make the aluminum thinner, make the plastic lighter. That's not what we're going to do. We're actually going to find ways to make it more robust, but use clever engineering to be able to save costs and of course, to economies of scale. So we're going to improve margins of profits through engineering, brain power as opposed to lightening or shaving material, which makes an inferior product, which is what our competitors have been doing recently.

And then last question for me, Steve. The increase in demand in '24 and what you expect in '25, just remind us where you stand on the manufacturing capacity level? And at what production level do you actually need to put some additional CapEx investments into the business?

That's a good question. So right now, we have two lines capable of producing -- we've been able to do more with what we have than we thought. So it's difficult. There's a lot of correlated or peripheral assumptions I have to make. But in broad strokes, one of our production lines is capable of making 100 covers per shift. We now have two production lines and the opportunity for three shifts, which would represent all of what we believed we would be able to get from our entire 160,000 square foot facility in New York with six or nine months. So in essence, we're far more efficient than we thought we would be and that's, again, because of we have the brightest minds in engineering. So we don't think that we're going to have to invest. We initially thought that we would have to invest millions of dollars in expanding the building. But with vendor-managed inventory and our efficiencies, we feel that all we may have to do is invest in more machinery, which is easily financed or leased or et cetera, as opposed to cash outlay. So we think that it would dramatically reduce our CapEx on expansion. So basically, the building expansion would have been tens of millions, but now we're talking hundreds of thousands and some new machinery to get there.

Great. Well, I appreciate the added color guys and congrats on the progress.

Thank you, Scott.

Thank you, Scott. We see a hand up from Poe Fratt as well.

Yes. hi, good morning. Can you just frame for us the range on the revenue forecast or guidance? I think historically, you said that to hit $20 million, you could do $20 million just from the tunnel covers alone. So can you -- starting with that starting point, can you frame how you get to $34.5 million? What is included in that? In other words, how much of the incremental revenue add potentially would come from SOLIS and COR? And is there anything from the Paris fees sub in your revenue potential guidance?

Yes. Good question, Poe. I touched on it a little bit, but to make it a little bit clearer, the $20 million, the low end of our forecast is from our standard product offerings, tunnel covers only, which would basically be on the trajectory that we're already on with the growth in absorption through dealers and online expansion. The AL4 is a higher dollar figure per sale as well as a higher margin of profit per sale. So we believe that the low end of the spectrum encompasses exclusively selling only tunnel covers, assuming everything else goes wrong for the SOLIS and COR. With the SOLIS and the COR being in like -- in the latest stages of development, UL testing and these types of things, we've anticipated about 5,000 units of SOLIS and COR sold at about an average price of $3,000 per kit to encompass the other $15 million in sales. So a very modest number in terms of 5,000 units when you -- if we were to think about six months, if we were to launch it in the second half of the year, that would only be 833 units a month or like 27 units a day or kits, which is relatively modest. And the core, again, being roughly a $1,500 price tag could sell in multiples. So we think that we're going to sell more COR units to consumers that don't have driver licenses at all or don't drive or the larger demographic globally. So we think that for every SOLIS we'll sell, we'll sell a multiple of the COR units because it's for a broader consumer market.

Just to clarify, so if the base revenue for tunnel covers versus 20 and that's the low end of the guidance. What are the tunnel covers in the upper end of the guidance, the $34.5 million? Is it $25 million and then the incremental $10 million would come from SOLIS and COR? And I think sort of if you would confirm that there's no expected revenues from the Terravis, that's a '26 event at the earliest?

I'll let Farhan speak after I'm done in one second because Farhan may have some remarks there. But Poe to answer your question, we're not forecasting any sales of Terravis AetherLux products, not because we don't intend them, but because we're being highly conservative where the product is still in research and development. So to that extent, we are moving ahead, and we think that there's going to be some very expedient milestones and catalysts there on that line, but we don't want to reach too far into the future where there's so many things that have to go right with that business. So let me summarize that in a statement. We believe Terravis will show up on the balance sheet as a source of revenue, but we don't want to forecast that this early on in the year. So it's a moving target, and we'd rather overdeliver than overpromise. Secondarily, with the balance of tunnel covers and COR and SOLIS, I think that it's -- and I'll let Farhan speak, but I think it's easy to just assume the $20 million range would be tunnel covers only, around $20 million, $21 million, $19 million, $22 million, something like that. And then all the delta would be the difference between the $20 million and $35 million top end forecast would be mostly SOLIS and COR sales with Cor leading. But I'll turn it to Faran to add a little bit more color and correction if he sees things differently.

That's fairly spot on, Steve, especially with the [indiscernible] deluxe commentary. While we do think we can achieve some levels of revenues from that business unit, we don't want to forecast it as it's still in late-stage commercial development, and we'll be providing updates as well as exciting milestones as they build. Regarding the tenant revenue, $20 million is a pretty baseline estimate, and it can push upwards to the upper end being up to 22, 25. And the remaining delta, as Steve said, would be the Solos and core, what's launched in late Q2, Q3. Do you have any other questions, Poe?

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

Well, our Q4 late in Q4 December, our gross margins were about 21%. So as you - and that's some of the older products. That doesn't include the AL4, which is a premium product. So as 2025 focuses sales more on AL4 and the higher products we've dropped, there's a lot of dealer incentives that were issued in 2024. We've significantly scaled back the private labels. So if we can take that 21% that we've earned on AL3 and some of our lower-margin products that we're looking to push out and focus on AL4 and HD3 in 2025, that should get us to that targeted gross margin. I don't know, Steve, if you want to add anything on to that as well.

No, you hit it on the head. Poe, yes, in essence, last year's gross margin, if you look at it yearly, it was diluted heavily by a very inefficient production we just started. So the engines are always least efficient when they first start, metaphorically speaking. And then also, we were selling the AL3, which is more geared towards direct-to-consumer sales as opposed to discounted B2B or private label sales. So you could see once we blended, we got into Q4, we had already improved margins to 21% and that's before we really recognize the AL4, which really takes things into a much deeper stride in the margin. So we think that as we blend in our improved efficiencies and economies of scale, our balanced lines and operational efficiencies and higher-margin sales, i.e., Worksport, branded, no more private label and AO4 higher margin, I think that a good baseline would be the 20% margin. And then I think the 30% is highly achievable as a gross margin. And we're keenly focused on EBITDA this year, but that's something we're going to sink our teeth more into as the year plays out a bit deeper.

Okay. So mid-20s as far as the full year gross margin, would you argue against that? Or do you think that's a reasonable target for forecasting out?

A reasonable target, a reasonable target in terms of gross margin and then keeping operational efficiencies lean - sorry, keeping operational overhead lean as we have, you could see that the increase year-over-year was not linear to the increase in sales. So we're going to try to, yes, make be as profitable as we can be the 25% is a good baseline. And then we're going to try to keep lean. So we see the cash flow positivity in between.

Okay. And then you expensed R&D of about $2.3 million in 2024. Can you highlight the projects that drove that increase in R&D? And then also, can you highlight for us potentially a targeted range for R&D in 2025?

Those are good questions. I'm not sure I've seen the specific elements that comprise - like I haven't committed to memory or have them in front of me. Maybe Fran or Mike may know, but I could speak on broad strokes, Poe, that last year in research and development was a considerable amount of investments in the prototyping of the COR. So the COR was extremely expensive in terms of getting our initial battery packs and initial PCB. So the power electronics department probably consumed a huge amount of that, but those are onetime nonreoccurring and they're nonexistent now because it's in polishing as opposed to building mode. So outside of that, I think that there were prototype tooling sets that were made and these onetime tooling costs, as you know, for like either metal tools or metal production or plastic production can be tens, if not hundreds of thousands of dollars, and it's just the cost of doing business. But I'm not sure, Mike, if you know the specificity there, but I know that this year's R&D expenses are going to be significantly lower because we've done all the heavy lifting last year. We spent all of the machinery production money in '23 and a very little bit in '24, and we spent all the R&D money in '24. And I think that now it's time to reap from the seeds that we've shown.

Yes, that's basically it. Yes.

So Stephen, the heat pump R&D is not - the development of the heat pump is not R&D intensive. Can you just frame that for me?

Sure. Yes. Sorry, it sounded like I was interrupting. Lorenzo Rossi, who will start joining us on the earnings call as the CEO of that company is extremely formidable in his abilities to get things done on a shoestring far more than I was able to as I work develop Worksport. So to that extent, it's a very modest R&D budget, and they're doing everything like a very much so Skunkworks. So Lorenzo is working with a local team to him that I've known for over a decade, and I've worked with this group for a very long time, and they're very Skunkworks. And by definition of Skunkworks is they get things done themselves as opposed to subelt prototyping and these types of things. It could save significant costs. So the team is lean. The team is small, and they've partnered with supply chain manufacturers that they found all around the world that are able to get things done in their investment in our research and development. So to define what that means is we have a coil supplier that's making our prototype coils in essence for free for in order to get the larger business when we go into production. So we're leveraging our relationships as well and our good character of the business.

Okay. And if I could just ask one last question on the capital raising side. You did the warrant inducement transaction at the end of February. Can you just explain to me what the timing of that warrant inducement transaction was? And then more importantly, we're fully pretty much through the quarter. Can you give me what I should expect for first quarter cash as far as cash on the balance sheet, where do you stand right now as far as cash?

I don't have an accurate cash picture committed to memory. I usually see those every Monday, but I think our cash stands somewhere in the $6 million of holdings and then probably closer to $2 million on our credit line. So we have a considerable amount of cash. The warrant inducement, as you know, Paul, and most investors think that it's very easy running a public company, but the markets for microcaps has been terrible, and I think you see this and any analyst on this call can see this, has been very terrible since probably the frothy markets of 2021 or the conclusion of 2021. So it's kind of a take what you can get while you build matter and financings from a friendly investor that's finance works for without any additional new terms or anything like that. The warrant inducement was, I think, the best opportunity we had to be able to put away capital to grow, the warrants overhung us anyway. So they were already there, they are 5-year warrants. So to induce and yes, exchange for new warrants, but at a higher price, we feel at least checked a little bit of a box and moved the goalpost further ahead in terms of, a, putting cash in the business; but B, also moving our overhang of warrants to a higher price per share around the $7 mark or high 6s. So to that extent, you've seen companies probably through and through that have had very difficult times raising meaningful capital and a $6.7 million offering from an investor we're familiar with that's been a good investor. We thought at that point, we might as well take that offering opportunity. As we look ahead in this year, we are considering a Regulation A offering, crowdfunding offering for a preferred share structure to be determined, but for an interesting structure that won't result in common share dilution, but more interest-bearing or like a debt offering to begin with. So we're being a little bit more clever in how we structure the company moving forward and offer and raise capital through dividend yields and these types of things as opposed to straight common share transactions.

Okay. If I could just squeeze one last one in. When you look at your cash burn- does that- Stephen, if your cash currently is $6 million and you raised $6.3 million, does that imply that you actually burned about $5 million in the first quarter?

I don't think so, but I do know that we've been focused heavily on- we saw geopolitical issues, the push not to open up a start peeling layers of an onion, but we foreshadowed tariff issues that we're writing was on the wall. Tariff issues tend to - when you tax imported goods, you would expect that the domestic production of those goods would be heroes and be at a more enviable price. Well, that never happened. So domestic aluminum took profits and increased their price of domestic American aluminum by the exact same amount that the tariffs took effect for foreign aluminum coming in from Canada and Asia or Middle Eastern countries. So we pre-bought millions of pounds of aluminum or hundreds of thousands of pounds of aluminum in advance. And what we've seen is a 30% increase in price. So we've deployed capital for inventory. We've deployed capital in cleaning up liabilities, debts and payables. And at this point, we're pretty much caught up and have a good amount of cash, a good amount of inventory, and a very small amount of debt. And in fact, presently speaking, I think that our- what we owe on the building, for example, our $10 million, $11 million asset building in New York is less than - is like somewhere less than 20% of the value of the building itself. So we have a pretty healthy balance sheet and assets.

Thank you, Steve. It looks like we just touched on time here. Tate, I see you had your hand up, but I...

Understood. That's fine.

Thank you. And to all investors that are watching and have questions, we encourage you to e-mail your questions to investors@wksport.com. And just to add to Bill's comment there regarding cash output in Q1. Our line of credit was paid off. So we have much more on the line available. So that some of the cash outflow was related to paying off the line and cash availability on that front. Thank you so much for everyone attending, and have a great day.