Prepared remarks
Good afternoon, everyone, and thank you for joining Worksport's First Quarter 2026 Earnings Call. I'm Steven Rossi, Chief Executive Officer of Worksport Limited. With me today is our Chief Financial Officer, Jennifer Kartychak, who many of you will be meeting on earnings calls for the first time. Jennifer officially joined Worksport in January 2026 as our VP of Finance and has recently been promoted to CFO. Jennifer first began providing advisory services for Worksport in August 2023. Her short-term focus is to help strengthen our financial discipline, reporting processes and our internal control environments as we scale towards profitable operations. We will be reviewing the financial results for the quarterly period ending March 31, 2026. These results were just filed today at 4:00 p.m. Eastern Time in our Form 10-Q 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. Our remarks will follow a slide presentation. After our prepared remarks, we will open the line for questions. On that, let's begin. First, safe harbor statements. During this call, we will make forward-looking statements, including statements regarding our financial outlook for the full year 2026, our expectations regarding financial and business trends, impacts from the macroeconomic environment and our market position, opportunities, go-to-market initiatives, growth strategy 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 financial results, which we discuss in detail in our filings with the SEC, including our annual report on Form 10-K and quarterly reports on Form 10-Qs and other SEC filings. The forward-looking statements made in this earnings call are only made as of today's date. Worksport assumes no obligation to update any forward-looking statements we may make on today's webinar. So with that, we have our agenda. On today's call, we'll be covering the following: First, key highlights from our Q1 2026 that we just filed; number two, liquidity position and capital strategy; number three, financial review; number four, update on Worksport operations; number five, an update on Terravis Energy and AetherLux, the exciting product; and number six, the 2026 outlook in general. With that, let's jump to key highlights, and let's dive into it. Q1 2026 was the investment and launch readiness quarter, and we executed it with that objective in mind. In January, the SOLIS and COR started commercial shipping. In March, we unveiled NEXUS to industry buyers at the Keystone BIG Show and initiated pre-order activity on this product offering. In April 2026, NEXUS launched commercially, COR received the applicable UL and CSA certification package needed to support broader North American retail and commercial distribution, and we secured distribution with Tri-State Enterprises, including their placement of an initial purchase order. Revenue grew approximately 48% year-over-year to $3.3 million, and gross profit more than doubled, increasing approximately 116% to $854,000. Gross margin was approximately 26% in Q1 2026, compared with approximately 18% in Q1 2025. These are meaningful year-over-year improvements. Since Q1 2026 was a launch-readiness quarter, our current product portfolio has yet to meaningfully contribute to our results, including gross margin contribution. We are at the eve of our broadest product revenue opportunity to date for our tonneau cover business. During Q1 2026, we funded inventory, conducted multiple product launches, refined our marketing strategy, and allocated resources to bolster our distribution network. We can now focus on converting our working capital investments for the balance of the year. We enter Q2 with a stronger product portfolio, continued growth with our distribution relationships, and a deeper sales channel opportunity than any prior period in Worksport's history. Our cash position reflects the cost of operational and strategic growth efforts, and we will address that directly. But the key investor highlight for Q1 2026 is this. We built product availability, funded launch activity, and expanded our commercial platform. Q2 2026 and the second half are about conversion. Shipments, sales channel activation, margin efficiency improvement, and lower operational cash burn. We are projecting strong growth in both B2C and B2B sales channels as well as a focus on meaningful efforts towards profitability from operations in the second half of 2026 and beyond, but more on that soon. First, and before we move deeper into the financial review, let's step back for a second and review what Worksport actually is. At its core, Worksport as a business consists of two key elements. First, we are an innovation-focused U.S. manufacturer. Second, we are building a clean energy solution or multiple solutions. These two areas are not separate. They move together. Our manufacturing platform gives us the ability to design, build and scale physical products. Our clean energy focus gives our products a larger strategic purpose. These are the two core capabilities we believe can drive the company towards profitability within the near term. We are a U.S.-based manufacturer, with approximately $11.6 million in inventory, $13.3 million in net property and equipment, including approximately $8.3 million of building and land net value and $6.6 million of manufacturing equipment net value. We have more than 500 dealer locations and target more than 1,500 dealer locations by the end of this year. Our global intellectual property portfolio alone includes approximately 26 issued and 57 patent pending utility patents, 51 issued and 25 pending design patents and registrations and 44 registered and 15 pending trademarks. We're also in the process of preparing filings on several other key utility and design patent applications across various countries and jurisdictions. We started production of our tonneau covers in late 2023. Based on internal sales data, we have sold approximately 26,000 tonneau covers through worksport.com and related direct online channels from 2024 through Q1 of 2026, including approximately 8,000 covers in 2024, 16,000 covers in 2025 and 2,000 covers alone just in Q1 of 2026. In 2025 alone across both B2B and B2C channels, Worksport sold approximately 25,000 tonneau covers and generated $16.1 million in net sales. We're quite proud of these statistics. Worksport started on the foundation of roughly 61 million pickup trucks in the U.S. on U.S. roads alone, and pickup trucks remain among the top-selling vehicles in the U.S. every single year. People buy pickup trucks regardless of broader economic conditions. We started by making high-quality tonneau covers at prices that compete with and in many cases outperform competitors that primarily source raw material and components from foreign markets. We believe we can continue to capture market share in the estimated $4 billion-plus tonneau cover market in 2026 and build the tonneau cover core business into a nine-figure profitable middle-market company over time. Said plainly, we believe Worksport has the potential to become a $100 million-plus middle-market revenue company profitably from tonneau cover sales alone, and that's just our foundation. That's our core of this business. Our vision does not stop at tonneau covers. We imagine a future where pickup trucks evolve from power-consuming utility vehicles into mobile power platforms and nano-grids that support owners at the campsite, work site, emergency site and on fleet levels. That is where our newly launched SOLIS and COR product offerings enter the picture. The tonneau cover is the physical platform. SOLIS adds solar generation and COR adds portable energy storage and usable power wherever you go. Together, SOLIS and COR allow Worksport to move from aftermarket automotive accessories into the anticipated $13 billion-plus portable power market. Importantly, COR is not limited to truck owners. COR is a modular portable power system that can function as a standalone product for job-site, off-grid, emergency, recreational, and general portable-power use cases, for anybody anywhere globally. We are actively targeting OEMs, fleet, dealer direct, distributor, and direct consumer relationships, while continuing to build brand and consumer awareness around this new line of product offerings. Our next steps could be to look at integrating our COR battery backup technology for residential and commercial power; a possible first-of-its-kind modular battery system for emergency power, or key energy savings and off-peak cost savings for businesses, with strong apparent opportunities in industrial applications. Now our subsidiary Terravis Energy is at the forefront of developing energy saving HVAC technologies. The AetherLux ZeroFrost heat pump has all the elements to become a significant breakthrough energy-saving product solution. It is expected to be the only heat pump platform capable of operating without traditional defrost cycles, and it has been tested to operate smoothly in extreme temperatures rarely seen by conventional systems. In fact, I'll say, not seen by conventional systems. AetherLux can provide heating and cooling highly efficiently, and we have a keen focus on home heating. We are also currently evaluating efficiencies within data center cooling technologies. The breakthrough AetherLux heat pump is expected to advance toward certification in 2026 and address a $150 billion-plus HVACR market. We have received a strong level of interest through initial inbound inquiries, achieved support through the U.S. Department of Energy, including their National Renewable Energy Laboratory, and are engaged in active government-related and strategic conversations. AetherLux sits on top of the core Worksport product platform as an important additional opportunity. In short, Worksport has three related but distinct layers: first, the core tonneau cover business, what I call our foundational business; second, the SOLIS and COR power ecosystem; and third, the longer-term highly efficient AetherLux HVAC opportunity through Terravis Energy. We will provide more detail on Terravis later in the call. Let's talk about liquidity. I will now address our liquidity position directly. Our fiscal 2025 Form 10-K included a going concern explanatory disclosure. That disclosure is important, and we are addressing it through a clear operating plan: convert inventory into revenue, grow gross margins in each of our sales channels and reduce operating cash consumption as our product launch spending normalizes and maintain a disciplined approach to working capital and capital market funding resources as needed. Our ability to continue as a going concern remains dependent on generating future cash flows from operations while maintaining access to debt and equity capital markets. The largest use of cash in Q1 was the capital-intensive launch-related investments. The primary use of cash was working capital to support production of our existing product offerings and the expected growth of additional product offerings launched in 2026, including SOLIS, COR and the new NEXUS. We received approximately $5.1 million of inventory to support the expanded product lineup with approximately $1 million of these raw material purchases remaining in accounts payable as of March 31, 2026. We also used cash to settle prior period working capital obligations. The objective from here is clear: turn that inventory into revenue, continue to improve our gross margin for each sales channel and reduce operating cash used quarter-over-quarter. Our West Seneca facility also remains a substantial meaningful asset on the balance sheet, reflected in our $13.3 million of net property and equipment. We are a manufacturing company with real assets, real inventory and an expanding order and distribution base. The question is execution velocity, and Q2 2026 begins answering that question. Our priority is to reduce our reliance on equity capital and potential additional dilution to existing shareholders as revenue scales and working capital normalizes. Capital strategy. We remain transparent with our use of capital tools. During Q1 of 2026, we raised approximately $2.2 million, including net proceeds through our amended at-the-market offering with H.C. Wainwright. As a result, we issued 1.46 million shares of common stock. We recognize the impact of dilution, and we are mindful of our shareholder responsibilities. Our strategy remains to use the ATM as a tactical tool, subject to applicable Form S-3 public-float limitations and market conditions, not as our primary capital vehicle. Where capital tools are used, we will continue to evaluate them through one lens: whether the operational return justifies the dilution and improves the long-term shareholder value equation. With that, I'll hand the call over to Jennifer to walk through our financial results.
Thank you, Steven. Good afternoon, everyone. It's a pleasure to be speaking with you, and I look forward to continuing these conversations as we progress through fiscal 2026. Net sales for Q1 2026 were $3.3 million, an increase of approximately $1.1 million or 47.9% compared to $2.2 million in Q1 2025. Geographically, the U.S. continues to represent an overwhelming majority of our net sales at 99%, up 48.5% year-over-year. Within our segment, hard tonneau covers generated approximately $3.3 million in net sales, accounting for approximately 99% of total Q1 net sales. Our soft tonneau cover segment contributed approximately $0.04 million. The concentration in net sales in the hard tonneau covers segment reflects our ongoing strategic focus on higher-margin American-made product offerings. From a channel perspective, Q1 also reflects a deliberate transition in how we are building the business. In Q1 2026, B2C or direct-to-consumer online channel contributed approximately $1.8 million in net sales on approximately 1,700 covers, while B2B generated approximately $1.5 million on approximately 2,300 covers. Direct-to-consumer activity remains an important sales channel to develop, but our growth strategy includes an enhanced concentration in the B2B sales channel, including dealers, distributors, fleets and potential OEM partnerships. Moving on to gross margin. Gross margin for Q1 2026 was approximately $0.9 million, more than doubling from approximately $0.4 million in Q1 2025, a 115.5% year-over-year improvement. Our Q1 2026 gross margin was approximately 26% compared to approximately 18% in Q1 2025 and approximately 30% in Q4 2025. The sequential movement from Q4 2025 to Q1 2026 was primarily driven by our sales channel mix. In Q4 2025, our sales mix was weighted more heavily towards the direct-to-consumer sales channel, while in Q1 2026, our mix shifted closer to an even split between B2C and B2B. Importantly, our B2C margin improved sequentially from approximately 30% to approximately 34%, but the higher relative concentration from B2B sales channel, which has a lower margin, impacted that blended gross margin. On to operating expenses. Total operating expenses for Q1 2026 were approximately $6.6 million compared to $4.7 million in Q1 2025, an increase of approximately $1.9 million or 41%. Let me walk you through some of the key line items. Research and development expenses decreased by approximately $0.2 million or 44% between Q1 2025 and Q1 2026. This decrease reflects the natural progression of our product development projects. The AL4 and HD3 moved out of active development and into full production during 2025. Our R&D spend is increasingly directed towards next-generation innovation rather than ongoing refinement of production-ready products. General and administrative expenses increased by approximately $0.8 million or 24% from $3.4 million in Q1 2025 to $4.3 million in Q1 2026. This increase is primarily attributable to the timing of costs incurred to support capital market positioning and promotion of our enterprise value amidst a perceived valuation gap in our market value. We continue to manage this expense caption with strategic discipline. Sales and marketing expenses increased by approximately $1.3 million or 148% from $0.9 million in Q1 2025 to $2.1 million in Q1 2026. The increase resulted from intentional brand awareness and product launch campaigns directly linked to the launch of multiple product offerings in early 2026. We launched three products and initiated large-scale digital marketing campaigns to drive awareness for both the COR and SOLIS as well as to support overall brand validation. We are closely monitoring the ROI on each marketing channel and plan to optimize accordingly. On to cash flows and the balance sheet. Cash and cash equivalents were $566,000, down from approximately $5.9 million at December 31, 2025. As Steven noted, this decline reflects working capital deployed to fund multiple product launches and reduce prior period obligations. Net cash used in operating activities in Q1 2026 was approximately $8.2 million. Let's further discuss the cash used from operations. Our net loss of approximately $5.8 million included approximately $1.1 million of noncash items, primarily stock-based compensation, depreciation and amortization. That implies a cash-based operating loss of approximately $4.7 million. Working capital used an additional approximately $3.5 million, driven primarily by inventory build and the settlement of prior period payable obligations. I would like to reinforce that we do not expect the level of working capital use in Q1 2026 to repeat at the same magnitude as inventory begins converting into revenue and prior period obligations normalize. That normalization, combined with a growing revenue base across multiple sales channels is how we close the gap and achieve cash flow positivity. Inventory increased by $2.1 million to $11.6 million as of March 31, 2026. Of that total, finished goods grew from $3.4 million to $5.3 million, a direct reflection of our investments in COR and SOLIS as well as the NEXUS product readiness. Raw materials of $5.4 million reflects our near-term production pipeline. We are not anticipating a significant use of cash for further material purchases until Q3 2026. Working capital as of March 31, 2026, was approximately $6.6 million compared to $10.1 million at December 31, 2025. This reflects our strategic decision to proactively convert working capital into operational assets to support the launch of multiple product lines in early 2026. Our asset base anchored by approximately $13.3 million of net property and equipment represents our investment in our West Seneca manufacturing facility and continues to provide a strong foundation to support our future production growth. I will now turn the mic back to Steven to review our operational milestones. Steven?
Thanks, Jenn. On January 13, 2026, we announced the commercial launch of our flagship energy product duo: the SOLIS Solar Tonneau Cover and the COR Portable Energy System. This was a defining moment for Worksport: years of R&D, engineering, certification work, and manufacturing preparation culminating in real products shipping to real customers from our facilities. SOLIS is the world's only commercially available solar-integrated hard folding tonneau cover. COR is a modular portable energy system that integrates with SOLIS or functions as a standalone unit for job site, off-grid, and emergency power needs. Together, they represent Worksport's entry into the multi-billion-dollar clean energy and portable power market, and we're very excited about it. With the initial product launches behind us, our 2026 focus is scaling SOLIS and COR revenue. In April 2026, COR received the safety and regulatory certifications needed for North American retail and commercial distribution, including all applicable UL and CSA approvals. That certification package is important because it expands the universe of retailers, distributors, fleets, and commercial customers that can evaluate and carry the product. We also strengthened our commercial sales channel around these products. In February 2026, we announced a strategic partnership with Potomac International Partners to help position the SOLIS and COR ecosystem for federal, fleet, and commercial adoption channels. We do not consider these channels as immediate revenue sources, but it is an important awareness channel for products that can serve worksite, emergency, mobile power, and off-grid applications. SOLIS also carries credibility through our active conversations with OEMs. The point is not that OEM revenue is assumed in our 2026 sales pipeline; the point is that the product platform has strategic relevance beyond direct consumer sales, and we are building the channel architecture to pursue that opportunity responsibly. The question we are focused on answering is how quickly these products scale and through which channels. COR and SOLIS did not represent a meaningful amount of sales in Q1, as emerging products we are developing marketing assets, product awareness, and sales pipeline to target strong sales towards the rest of the year; we're just getting started. With focus on certification, channel onboarding, repeatable fulfillment, and measured customer acquisition economics, the path for market adoption is becoming accessible. We note it took approximately one year for our initial made-in-USA tonneau cover lines to build traction, and we believe we can achieve similar speed, or better, for SOLIS and COR. The third major commercial milestone of the quarter was the unveiling of our NEXUS tonneau cover. On March 19, 2026, we presented NEXUS to industry buyers at the Keystone BIG Show, one of the premier aftermarket distributor events in North America. At the Keystone BIG Show, our NEXUS product generated immediate buyer interest and pre-order activity. Following production and commercial launch in April 2026, early distributor interest remains significant, and this supports management's expectation that NEXUS can contribute meaningful net sales in 2026. NEXUS is a premium tonneau cover featuring a newly engineered operating system designed to improve ease of use, safety, and speed for truck owners. Unlike conventional folding tonneau covers that often require users to walk around both sides of the truck to secure latches or prop rods, NEXUS is designed to allow full operation from a single side of the truck while maintaining full-bed access. This is a practical innovation focused on a clear customer pain point, and early distributor demand supports our view that the product can accelerate adoption across both existing and new sales channels. I encourage everyone to check the product out at www.worksport.com. In April 2026, we announced that we secured Tri-State Enterprises as a new cross-regional distribution partner and our biggest at the time for our full tonneau cover lineup, including NEXUS. Tri-State expands our distribution reach across Arkansas, Missouri, Oklahoma, and Texas. Tri-State operates approximately 1 million square feet of warehouse space, and has already placed initial purchase orders and reorders. Management believes Tri-State can become a seven-figure near-term account with recurring multi-million-dollar potential. Our distribution strategy remains a central pillar of our 2026 growth plan. We entered the year with a dealer network that exceeded 500 locations, a nearly sixfold increase from the start of last year. Our target is to reach 1,500-plus locations by the end of this year through a combination of direct dealer onboarding and new distributor partnerships. Remember, there are 17,000 dealers in America. So we're just getting started. The Tri-State Enterprises partnership announced in April 2026 is our first major distributor relationship and gives us broader penetration into new geographic markets. Importantly, this is not just a logo announcement; Tri-State has already placed initial purchase orders, and truck bed covers are among its top product categories. That alignment matters because it increases the likelihood that distribution reach can translate into real sell-through. We are also in closing discussions with a nationwide dealer network capable of bringing our products to all U.S. continental states. We will update investors as those discussions move from pipeline to signed commercial relationships. Each of these relationships represents a potential step-change in distribution reach, but our standard for reporting progress will remain execution: orders, channel activation, and repeat purchase behavior. We're strictly focused on execution this year. Our U.S. manufacturing and quality credentials also matter to this strategy. The West Seneca facility that we built is an ISO 9001:2015 certified facility, which supports our ability to pursue larger dealer, distributor, fleet, and potential OEM relationships. Quality certification does not create revenue by itself, but it removes friction in conversations with larger counterparties that require formal quality systems. Our B2B go-to-market strategy continues to complement our direct-to-consumer e-commerce sales channel. We believe the combination of strong online presence, an expanding dealer network, and new distributor partnerships is the right model to capture demand across the full $4 billion-plus tonneau cover market. The investor takeaway is straightforward: the channel base is becoming larger, more diversified, and increasingly capable of absorbing a broader product lineup. Let's talk AetherLux. Terravis Energy, our clean energy subsidiary, continued to make progress in the first quarter of this year. In February 2026, we confirmed that a large government entity is actively monitoring upcoming laboratory performance results for the AetherLux heat pump as part of an internal evaluation process. We also announced that the certification work is progressing with AHRI, ENERGY STAR, and other North American certification milestones targeted within 2026. To be clear, no procurement decision has been made, but we are not currently projecting initial AetherLux revenue within this year. However, we anticipate commercial opportunities within 12 months. What we are saying is that a credible government-related evaluation process is underway and that the technology is advancing toward third-party validation, certification, and potential early commercialization in this $150 billion-plus HVACR market. We believe that AetherLux is the only heat pump technology in the world tested to operate at temperatures as low as negative 57 degrees Fahrenheit without the need for energy-intensive defrost cycles. Our proprietary ZeroFrost technology eliminates defrost cycling entirely, opening doors to markets and applications that have historically been difficult for conventional heat pump technologies to serve. AetherLux can be viewed as a strategic upside driver beyond the revenue drivers embedded in our 2026 sales pipeline. The core 2026 revenue is expected to be driven by the tonneau business and early SOLIS/COR contribution. AetherLux is a separate platform advancing through testing, certification, and commercialization work, and we intend to update investors as lab results and certification milestones are achieved. 2026 outlook. This is the strongest commercial position Worksport has occupied at the start of any fiscal year in our history. We provided revenue 2026 guidance of $35 million to $42 million in our 2025 Form 10-K. We believe our revenue will increase substantially from 2025 and will actively target operational cash flow positivity this fiscal year. As part of our recent key leadership transition, we re-evaluated our strategic priorities. We believe it is in the best interest of all shareholders to construct a high-growth and durable business that can compound shareholder value over the long-term. Although it's not going to be a straight line, we are going to get there. We are relatively young, and we are a dynamic business with consistent growth in design, production and distribution of quality and innovative products, which offers us a promising future and opportunities. We believe our approach to support this achievement of our strategic priorities includes a more holistic evaluation of our guidance policies. Accordingly, we plan to provide annual financial guidance early each calendar year. The primary driver for moving away from quarterly guidance updates is to increase our emphasis on allocation of resources on long-term strategy, including a focus on shareholder value. We believe a change in the frequency of providing guidance updates from a quarterly basis to an annual basis allows us to prioritize long-term vision over short-term metrics, which will allow us to focus and align our near-term priorities to meaningfully contribute to the successful execution of our strategic objectives. With countless potential operational variables alongside emerging sales and product channel mixtures, we will hold off on specific guidance updates, but reaffirm our previous broader guidance. Fiscal 2026 is about achieving cash flow positivity from operations and continued upward revenue trajectory. As I said earlier, we are executing and we're going to continue to grow, and we're going to hit cash flow positivity, but it is never a straight line. In closing, to our investors and our analysts, I want to close with this. Three years ago, Worksport was generating under $2 million in annual revenue. Last year, we crossed $16 million. This year, we're on the path to achieving operational cash flow positivity just with our foundational product and significant revenue uptake. This is the company we have all built together. We have done this by manufacturing in America, building products that dealers and consumers want and expanding our distribution with discipline. I also want to note that I recently purchased shares on the open market, reflecting my personal conviction in the company's long-term direction. Our responsibility now is to turn that conviction into measurable execution, and I will purchase shares again if I have to. In Q1 of 2026, it wasn't a perfect quarter from a cash flow perspective. It was a quarter where we did what we said we were going to do: launch SOLIS and launch COR, unveiled NEXUS, added a major distributor, completed the COR certification package, expanded gross margin year-over-year, and improved loss per share, all while it was the slowest quarter of the year. Q1 tends to be the slowest quarter seasonally for tonneau cover sales. Q1 was the investment and launch-readiness quarter. Q2 2026 and the second half are about proving conversion, turning inventory into revenue, dealer growth into orders, NEXUS demand into shipments, and margin expansion into lower cash burn. We are also building strategic vectors around federal channels, OEM targeting for SOLIS and COR, and AetherLux certification progress, none of which are required for making the overall business operationally cash flow positive. We expect the tonneau cover business, our foundational business, to be capable of that on its own and everything else is accretive to that. We are not managing this business for a single quarter. We are building a durable, American-made manufacturing platform with growing channel reach, expanding product breadth, and clean-energy optionality. We intend to earn investor confidence quarter by quarter through results, not promises. Thank you for your continued support of and interest in Worksport.
Thank you, Steve. We have Tate Sullivan here from Maxim.
Questions and answers
Thank you for the comments on inventory. That was one of the first things I saw. With finished goods balance of $5.3 million of the $11.6 million, is most of that NEXUS, I assume, and other tonneau covers or a relatively large amount in SOLIS and COR?
COR takes a chunk of it. It's in the millions for COR since we have to manufacture batches of 1,000 at a time. The rest of the blend includes AL3, HD3, AL4 and NEXUS, which only just started being made at the tail end of the quarter. So Jen may have a bit more back-of-the-napkin insight on that, but it's an even blend in my perspective. Am I right, Jen?
Yes, it's an even blend, but there isn't a concentration in our NEXUS; the concentration really is in our raw materials at this point.
Okay. Understood. And does that imply first sales of SOLIS and COR in Q2 or not necessarily given the timing of the marketing on those products?
Sorry, asked that again, Tate. Do you mean, will the first sales of SOLIS and COR come in Q2 or did we already have some in Q1?
Do you think you'll have first sales, first revenue from SOLIS and COR in the second quarter? Or did you already have some in the first quarter?
We had some. We were building the plane while we were flying it with SOLIS and COR. The final production units of both were concurrent with the initial launch. When we got the first batches of CORs, those very CORs were used to give to influencers and generate media content. It takes about a quarter to produce media content. If you look on our webpage and social media, you're just starting to see that content get out there; then we have to do ad spend on it and invigorate the markets. The process to get it into distribution and dealers is difficult because there's pricing, agreements and negotiations. So, as I said numerous times during the call, it's not a straight line. At the end of the day, the dots connect one higher than the next, and we've delivered that. To answer the question, we did clip sales of COR and SOLIS, but they just weren't that meaningful. For context, our AL3 took a year to build traction in an existing market. When you're forging a new market that never existed, it's to be expected that it will take at least this year to get that product into meaningful revenue territory.
Okay. And last for me, one more, please. You had a slide on the B2C and B2B covers and then the combined price per cover—back of the envelope a little above $800—that's well above the level per tonneau cover last year from the Q information. Is that because of the hard cover mix versus soft cover primarily? And then also the margins with B2B, those are lower than B2C by a meaningful amount. Is that what you said? Sorry, two questions.
Yes. Our average order value has gone up by about 35% or more, so we're selling more expensive items. We also have domestic inflation of our materials—over 90% domestically sourced material—so domestic inflation is real. The price of aluminum has doubled in the past year, which increases cost and erodes margin. But we're also picking up efficiencies in how we make the product. We're improving as fast as domestic inflation might be nibbling away. Aluminum is unlikely to stay at an all-time high, and when it decreases, our margin will improve exponentially if we maintain discipline in manufacturing. Regarding B2B margins, the average selling price is higher but B2B margins are generally lower. However, the cost to service those accounts is often lower—warranty, freight, marketing, customer acquisition costs (CAC). Sometimes the discount to distributors is similar to our CAC on direct-to-consumer channels. Net-net, the economics can be very similar. The upside is economies of scale—distributors like Tri-State provide same-day service in large states, which we cannot provide on our own, so we greatly benefit from their infrastructure and overhead absorption over more units. If aluminum prices normalize, that's when we'll really reap the benefit. Also, Q1 is seasonally slow for tonneau cover sales; Q4 will almost always be higher due to holiday shopping and Black Friday. That seasonal dynamic should be considered when comparing quarters.
Yes. Understood. And you had a 35% gross margin target—how do you get there with more B2B sales, lower aluminum prices, etc. Is that fair?
Yes, with any luck. A few things we're doing: B2B has lower margin on pure unit economics, but lower cost to service the account and lower CAC relative to direct-to-consumer. Distributors provide infrastructure and faster fulfillment, which reduces our servicing costs. Economies of scale and overhead absorption will help margins. If aluminum prices come down, margins will expand materially. We're weathering the same inflationary pressures as the rest of the industry, and we expect to improve manufacturing efficiency and scale to reach that target.
All right, Steve, thanks for those replies. We did want to open the floor and give some commentary to the shareholders attending the call today that going forward, Worksport will be hosting monthly town halls that will speak to commentary on the business, recent press releases and updates to day-to-day developments happening in the business. This is to boost transparency and to show the investors and shareholders the current developments. As part of the town hall sessions, we will open up a Q&A portion to attendees as well as people that submit questions before the call. In this case, we have a host of questions that were submitted over the last 10 days. I will now open the floor with some of those questions. The first question is around our cash position. The question asks how we plan to fund the company with the current cash balance and commentary on any expected dilution.
It's a good question. Investors should understand that I'm a major shareholder—I recently bought shares—and of course I don't want dilution; nobody does. Over the past six months, we've been modest in our at-the-market offerings. The ATM is used sparingly; it saves us from using discounts that hedge funds demand and avoids large banker fees. We fund operations through an operating line and have a significant book value. The book value of the business is close to $30 million, which represents financeable assets we can borrow against. Borrowing money is sometimes cheaper than issuing securities when market cap is low. We may raise some capital this year, but it will be a fraction of prior years; last year we raised significantly more. The minute we're cash flow positive, we'll qualify for senior lines of credit at regional banks, and that's the objective. As we land more distribution, we expect qualifying for larger lines of credit to be achievable. We're being careful with capital markets and trying to minimize dilution while reaching cash flow positivity.
Thanks, Steve. I appreciate that. Now we have a question for the CFO regarding a breakdown of G&A—could you provide more insight for shareholders?
Sure. In terms of our breakdown of G&A, about 66% of our G&A cost is salaries, wages and benefits, inclusive of equity compensation. About 11% is depreciation and amortization. About 10% relates to facility support and the remainder primarily relates to professional fees, which do include noncash expense related to equity compensation. Of that 66% for salaries and wages, about 20% actually gets absorbed into our margin (production labor absorbed into inventory).
Fantastic. Thanks for that insight, Jen. We had a question for Steve regarding the company's view on how AetherLux should be valued or at least looked at at this current time.
If Terravis Energy were private today, I believe it would command a significant valuation. I want to be clear I'm not making a formal representation, but I feel Terravis Energy and the AetherLux technology could be a nine-figure valuation given the interest we've received from large organizations. The technology presents nine- or ten-figure revenue opportunities quickly, and we've shown we know how to get a product to market and sell. I believe AetherLux represents significant value—$50 million to $100 million at minimum if it were private—based on potential and interest. We're focused on advancing certification and commercialization to realize that value.
Thank you, Steve. We have a question regarding the jump in sales and marketing expense in Q1—could you comment on that and what to expect going forward?
Because of inflation and increases in material costs, we've had less ability to discount products. Previously, we relied on discounts to drive sales; with higher average order values, we need to invest more in marketing to acquire customers. Q1 included ramp-up marketing for multiple product launches and brand awareness campaigns. We believe we've gotten it under control; the spend will align with our growth objectives. Marketing spend as a percent of sales may be in the 20% to 30% range as we scale—it's an investment to sell more, and the goal is that it's profitable over time.
We had a question about Tri-State. Could you comment on how big that relationship is and whether it could lead to other distributor partnerships?
Tri-State is a significant regional distributor; they service Texas same day and have 1 million square feet of warehouse space. They sell tens of millions of dollars of tonneau covers a year, and Nexus is a strong product for them. Tri-State could be a seven-figure, maybe even an eight-figure account for Worksport over time. Typically, distributors like Tri-State, Meyer and Keystone respond similarly to product demand—landing one increases confidence in landing others. Myers and Keystone are larger and service all of North America; if we land those, the opportunity becomes exponentially larger. The Tri-State relationship is meaningful and demonstrates distributor-level interest.
Thank you. We have another question regarding the COR certification that passed in Q1. Does that imply commercialization and revenue from that product line soon?
Yes. Certification opens doors for commercial B2B channels—retailers, fleets, OEMs and governments often require UL/CSA approvals. For direct-to-consumer, certification is less of a hurdle, but certification expands the addressable market for us significantly. We have marketing assets live and are rolling them out; we expect COR to be a significant product within about a year from commercialization efforts. There are examples of companies from other regions achieving very large sales quickly when they scaled similar products, so we see the commercial path as achievable now that the product is certified.
Thanks, Steve. We have a question regarding the 2025 revenue guidance. We had guided $20 million and ended the year at $16 million. Can you address why guidance was missed and what that means for future guidance issuance?
Good question. We're a smaller company and making guidance is challenging and sometimes imprecise. We provided guidance to be transparent and to let shareholders participate in our plan, but we're working with many new product launches and evolving channel mixes. Last year was our first full year operating with key product lines; this year we have more products and more variables. We made choices to balance growth and profitability, and sometimes that affects near-term revenue. Going forward we've chosen to shift to annual guidance to emphasize long-term strategy and reduce short-term pressure, while maintaining transparency through other communications.
We have a question about evidence that NEXUS could be a meaningful revenue driver—could you comment on NEXUS and where you think it falls in the 2026 revenue mix?
NEXUS has generated immediate buyer interest at the Keystone BIG Show and early distributor pre-orders. To give context, BAK Industries' founder built a successful business selling tonneau covers historically; their product is considered inferior to NEXUS in our view, yet they reached substantial revenues over time. If an established competitor achieved high revenues with an older design, we believe NEXUS—offering improved usability, durability and no need to drill—can capture significant share and drive meaningful revenues. Based on distributor feedback and our product advantages, we believe NEXUS can be an important revenue contributor in 2026.
Thanks, Steve. We have one more question regarding sales and marketing percentages—I'll direct this to Jen. Could you comment on the variability of sales and marketing spend for B2C across Q4, Q1 and heading into Q2 2026?
Certainly. The variability relates to both investor relations efforts and performance marketing aimed at brand awareness. We completed a multi-month campaign with a vendor to evaluate our brand awareness and found that our performance marketing over the past year has contributed to broader brand recognition. As a result, at the end of Q1 2026 we refined our strategy to focus on awareness that drives efficient acquisition, and we are working to normalize marketing spend to a more sustainable rate while still achieving growth in B2C. We used learnings from AL3 and AL4 campaigns to inform COR and SOLIS marketing approaches, since COR and SOLIS direct-to-consumer marketing requires broader messaging for a larger audience beyond the niche truck-owner market.
Speaking specifically to product marketing cost in B2C, could you give more insight on how that changed in the last few months and expectations going forward?
We've done a lot of work to understand the level of effort necessary for successful campaigns. We've engaged outside consultants to assess and augment our campaigns and produce credible reporting. We're using that information to build better algorithms and achieve our objectives. We've leveraged learnings from AL3 and AL4 to zoom in on efforts that drive revenue and to use that as a springboard for COR and SOLIS. Direct-to-consumer marketing for COR and SOLIS requires different approaches because the target audience is broader. Overall, we aim to refine campaigns to achieve growth without excessive promotions.
I'll add that marketing is very volatile. Some competitors run massive paid traffic—millions of visitors per month—which requires significant spend. The space is highly competitive and costly right now. We're managing our campaigns actively and optimizing spend to balance growth and profitability.
Thanks, Steve. The last question is: if you have final remarks for shareholders listening, what would you want them to know as the key takeaway from this call?
Key takeaway: growth is not a straight line, and it's often messy. We've grown from under $2 million in annual revenue three years ago to $16 million last year, and this year we expect meaningful growth as we scale more products and channels. We're executing—launching SOLIS, COR, NEXUS, expanding distribution and advancing Terravis AetherLux toward certification. We're focused on turning inventory into revenue, improving margins, and achieving operational cash flow positivity. I'm personally invested in the company, and we'll continue to work hard to deliver shareholder value. We'll host monthly town halls to increase transparency and engage with shareholders on progress. This year we have more products and opportunities than ever, and while it's challenging, we're focused and grinding to get there. Thank you for your support.
Thank you very much, Steven, and thank you, Jen, and thank you to everyone attending the call. This does mark the end of the conversation. We encourage you to send any additional questions to investors@worksport.com, and we look forward to the monthly town halls going forward.
Yes. I'll close by saying we will schedule monthly town halls; major press releases will go out as required, and immediately after a material press release we'll schedule a town hall—about a week later—where I'll be live on video answering questions. Shareholders will be able to ask questions live and share video. We'll have open and frank conversations monthly and provide updates on sales, revenues and operations. Thank you again, everyone.
Thank you.