Worksport, Ltd. Common Stock 2026 Q2 Earnings Call

I was appointed CFO. Effectively start with some safe harbor statements. During this call, we will make forward-looking statements, including statements regarding our expectations for financial and business trends, our market position, our go-to-market growth initiatives, and our product programs and their expected benefits. These statements are predictions based on current beliefs, expectations, and assumptions. Because they relate to the future, they are inherently subject to uncertainties, risks, and change in circumstances that are difficult to predict and many of which are outside of our control. Actual results may differ materially, and you should not place undue reliance on them. These statements are subject to risks discussed in our SEC filings, included in our annual report Form 10-K and our quarterly report 10-Qs. They speak only as of today's date. We assume no obligation to update them, except as required by law.

Any supplemental operating metrics discussed today should be considered together with, and not as substitute for, the underlying GAAP results. With that, let's kick off the agenda. Today we are going to review our 2026 scorecard in this quarter, Q2 or last quarter, the Worksport platform, liquidity and capital resources, financial review, inventory strategy, commercial execution, and 2026 outlook and cash flow framework. A lot to go through. Stay buckled in. We are going to go quick, and we are going to take questions at the end. We are entering a phase where scale efficiencies are becoming evident. In Q2 2026, quarter to date revenue grew sequentially by 58%, while total operating expenses declined by 17%, and cash used in operations also declined by 58%. Our results reflected improved operating leverage and a more efficient cost structure.

We are beginning to generate revenue more efficiently and with a greater proportion of sales converting our operating cash flow. The following Q2 2026 results support our positive scaling dynamics. Point number one, net sales were approximately $5.2 million for the quarter. This is the strongest quarterly result we have had in Worksport history, up 27% year-over-year and 58% sequentially. Gross profit was approximately $1.6 million, up approximately 52% year-over-year, and 93% sequentially, with gross margins expanding to approximately 32% from approximately 26% in Q1 of this year. Operating expenses were approximately $5.5 million, down approximately 17% from Q1 2026. Operating expenses as a percentage of net sales declined from 128% to just 68% during the same time period. Net cash used in operating activities was approximately $3.4 million, an improvement of 58% from $8.2 million in Q1 of this year.

The quarter also strengthened as it progressed. June was our strongest revenue month on record at approximately $2.1 million in sales, with monthly gross profit rising during the quarter to 35% in June alone. We believe June is a strong indicator of our ability to scale the business as it continues to expand both in the consumer direct and commercial reseller sales channels. This quarter, we focused on improving our operating cash burn, and we made good traction. Jennifer will provide more insights on factors contributing to our improvements. We will also speak to how do we intend to convert our strong operational progress into sustainable operating cash flow breakeven. What Q2 2026 established is that the cost base and the revenue line can move in opposite directions in the same quarter. Moving forward, we intend to continue targeting increased revenue with efficient cost basis.

We continue to evolve into a diversified platform with multiple products serving multiple channels and generating multiple revenue streams. As we scale, we are mindful of prioritizing our organizational strengths. Our core economic engine is the hard-folding tonneau covers we proudly make in our ISO 9001:2015 certified facility in West Seneca, New York. We launched our newest tonneau cover, NEXUS, in the last quarter, Q2 of 2026. Our near-term growth levers include distribution onboarding, distribution reorders, expanding e-commerce, and conversion of inventory into working capital. We will continue making new product innovations for our products, and we are going to continue to pursue larger partnerships in our energy products. Our SOLIS solar tonneau cover COR portable energy system are an emerging commercial option that extends the truck bed from a covered platform into a mobile power system.

And really excitingly, our AetherLux heat pump system, through our subsidiary, Terravis Energy, is a very exciting strategic opportunity that is expected to be certified within the second half of this year. We prioritize and emphasize operational excellence ahead of additional growth vectors. Our core business strategy must be executed with discipline, and our results in Q2 2026 support our commitment to the success of our platform. I will address liquidity directly, and then I will go through our recent business updates. At June 30, 2026, we held approximately $1.2 million in cash and cash equivalents. Separately, we had about $820,000 of remaining availability on a revolving line of credit, which is borrowing capacity, not cash. We reported an inventory balance of $12 million, which we expect to be a strong source for additional liquidity, and we will discuss this further below.

Our Q2 Form 10-Q continues to disclose substantial doubt about our ability to continue as a going concern. While this disclosure reflects uncertainties associated with our current liquidity and capital resources, management has implemented a clear plan forward on revenue growth, margin expansion, disciplined cost management, and active analysis of additional financing opportunities. We remain focused on executing our strategy and strengthening our financial position. Our plan for closing the gap in the same period we are executing operational. Convert inventory into sales and cash, grow gross profit faster than reoccurring costs, cash costs, and improve marketing productivity. Our objective during the first half of this year was to strategically support growth initiatives that we believe will create value over time.

Our strategy included funding working capital and operations to support scaling, and we are now well-positioned to convert inventory into working capital efficiently in the second half of this year. We continue to prioritize a reduction in our reliance on dilutive capital as our gross profit expands and operating cash flow improves. Our greatest source of liquidity inventory is being managed during the balance of this year. We are strategically producing our products to function in a just-in-time environment such that we maximize our use of raw materials while minimizing our concentration risk of inventory buildup. More on the subject to come. To align my incentives further with the stock, I elected to receive previously accrued and unpaid bonus compensation of $125,000 in stock at the market's closing prices.

I continue to believe in the future of the company that reflects a strong value as we continue to actively target cash flow positivity. With that, I will hand the call to Jennifer.

Thank you, Steven. Good afternoon, everyone. Net sales for Q2 2026 was $5.2 million compared to $4.1 million in Q2 2025 and $3.3 million in Q1 2026. Growth of approximately 27% year-over-year and 58% sequentially. First half net sales were $8.5 million or about 11,574 units. The shape of the most recently completed quarter matters as much as the total. Monthly net sales during Q2 2026 were approximately $1.4 million in April, $1.7 million in May, and $2.1 million in June, each month larger than the one before it. June 2026 was the strongest revenue month in our company's history. That progression reflected stronger production output, broader product availability, and channel execution rather than any single order. We sold 7,010 units, 2,957 through B2B and 4,053 units through B2C, generating approximately $2.3 million and $2.9 million of net sales respectively.

Our mix between sales channels was consistent between Q1 and Q2 2026. The mix matters because B2B carries a lower gross margin but a materially lower marketing cost per unit, and the balance between the two is what determines both blended margin and cost efficiency. Having both channels gives us a direct customer insight and wholesale reach at the same time. Gross profit was $1.6 million, compared with $1.1 million in Q2 2025 and approximately $850,000 in Q1 2026, an increase of approximately 52% year-over-year and approximately 93% sequentially. Gross margin was approximately 32%, compared with 26% in Q2 2025 and approximately 26% in Q1 2026. Gross profit rose from approximately 26% in March 2026 to 35% in June 2026. The improvement was driven by higher sales volume, efficiencies in overhead absorption, and product mix. These gains offset higher input in landed costs, including tariff pressure.

That is worth emphasizing. We expanded margin more than five percentage points against a rising cost base. Sustaining gross margin at its current run rate as volume increases and sales mix shifts is a principal objective for the back half of 2026. On to operating expenses and our net loss. Total operating expenses were about $5.5 million, up approximately 16% year-over-year. However, operating expense as a percentage of sales decreased nine percentage points year-over-year. In addition, operating expense decreased approximately $1.1 million or 17% from Q1 2026. Research and development expense was $214,000. AL4 and NEXUS have moved out of development and into production, which is why this expense caption fell $91,000, or approximately 30% year-over-year. Spend converted into product we are now selling. General and administrative expense was about $3.5 million, up approximately 15% year-over-year.

As a percentage of net sales, G&A decreased by approximately 7 percentage points year-over-year. Further, this expense caption declined by approximately $690,000 or 16% from Q1 2026. Sales and marketing expense was $1.7 million, up approximately 31% year-over-year. However, sales and marketing expense as a percentage of net sales only increased 1% compared with net sales increase of 27%. Further, this expense caption decreased approximately $449,000 or 21% from Q1 of 2026, the first evidence of a marketing discipline we committed to during our Q1 2026 earnings call. Net loss was $3.97 million compared with $3.73 million in Q2 2025 and $5.83 million in Q1 2026. That is a 32% sequential improvement and a 6% reduction in net loss year-over-year. Loss per share improved from $0.33 from $0.71 for the prior year quarter.

This year-over-year comparison is the one that keeps our attention. Revenue growth alone has not yet outrun our recurring cost base. The sequential comparison is the one that shows the mechanism working. Our objective for the second half is straightforward, focus on gross margin expanding at a faster rate than operating cash requirements, creating a path to positive operating cash flow. Speaking of cash flow, net cash used in operating activities in Q2 2026 was $3.4 million compared with $8.2 million in Q1 of 2026 and approximately $3.1 million in Q2 2025, a 58% sequential reduction. For the first half of 2026, operating cash use was $11.7 million compared with $6.9 million in the prior year period, an increase of approximately 68%. The Q2 2026 bridge is straightforward. We begin with a net loss of $3.97 million.