Worksport Ltd. Q2 FY2026 earnings call

• Overall Financial and Operational Progress

  • Q2 2026 was the strongest quarterly revenue result in Worksport history, with net sales up 27% year-over-year and 58% sequentially quarter-over-quarter.
  • Gross profit hit $1.6 million, up 52% year-over-year and 93% sequentially, with gross margins expanding to 32% from 26% in both Q2 2025 and Q1 2026, reaching 35% in June alone.
  • Total operating expenses fell 17% sequentially to $5.5 million, with operating expenses as a percentage of revenue dropping from 128% in Q1 2026 to 68% in Q2 2026.
  • Net cash used in operating activities fell 58% sequentially to $3.4 million, demonstrating improving scale efficiencies and operating leverage.
  • Revenue grew sequentially month-over-month throughout Q2: $1.4 million in April, $1.7 million in May, $2.1 million in June (the strongest single month in company history).

• New Product Updates

  • Nexus tonneau cover launched into commercial production in mid-April 2026, delivering a differentiated premium single-sided operation feature, and hit its $1 million cumulative sales milestone in just 10 weeks, with healthier margins than the older AL4 product.
  • SOLUS solar tonneau and Core portable energy system completed all required UL and CSA certifications in Q2, removing key commercialization barriers, with ongoing progress on OEM and federal fleet opportunities.
  • TerraVis Energy's Atherlux heat pump received a new U.S. patent for its zero-frost architecture, with third-party certification ongoing and expected to complete in H2 2026; capital allocation is tied to measurable milestones only.

• Commercial Distribution Updates

  • Added two new distribution partners in Q2 2026: Meyer Distributing, the company's first multinational distribution partner, expanding wholesale access across North America, and Tri-State Enterprises, expanding regional coverage across four U.S. states.
  • The company is in active discussions with three additional major distributors to further expand its national dealer network.

• Inventory Strategy

  • Ending inventory totaled $12.1 million at June 30, 2026, consisting of $6.6 million in raw materials, $4.6 million in finished goods, and $845,000 in work in progress. Converting existing inventory to cash is the company's primary near-term source of internal working capital.
  • The company has shifted to just-in-time production aligned with actual sell-through and reorder rates, targeting selling more units than produced each month; July 2026 hit this target with 30% more units sold than produced.

Worksport reports net sales split across two sales channels for Q2 2026: total net sales of $5.2 million, with 4,053 units sold through B2C generating $2.9 million in net sales (55.8% of total revenue) and 2,957 units sold through B2B generating $2.3 million in net sales (44.2% of total revenue). By product segment: The core tonneau cover segment (including AL3, AL4, and newly launched Nexus) generated all material revenue for the quarter, with Nexus hitting $1 million in cumulative sales in its first 10 weeks on the market, and growing Nexus order volume reaching $1.5 million by the end of July. The emerging energy product segment (SOLUS solar tonneau cover, Core portable energy system, and Atherlux heat pump via subsidiary TerraVis Energy) had no material revenue contribution in Q2 2026, with Atherlux remaining pre-commercial.

• Management maintained its target of achieving sustained operating cash flow breakeven in full-year 2026, and noted that temporary operating cash flow positivity is possible in Q3 2026, but did not commit to a firm specific timeline for sustained positivity, prioritizing disciplined cash generation over hitting a calendar target.
• The company expects to meaningfully reduce raw material and finished goods inventory balances during Q3 2026 as it converts existing stock to working capital.
• The gap between gross profit and recurring operating costs continues to narrow; management provided sensitivity analysis noting that if gross margins expand 300 basis points and quarterly net sales reach $9.3 million, the company would be able to cover all recurring operating costs with neutral working capital.
• Atherlux heat pump certification is expected to conclude in Q4 2026, with product available 45 to 60 days after certification is completed.
• Management is targeting flat sales and marketing spend as sales grow, leveraging improved marketing efficiency and broader brand recognition, but will increase investment if it accelerates revenue growth and progress to cash flow breakeven.

• The company's Q2 2026 Form 10-Q discloses substantial doubt about Worksport's ability to continue as a going concern, due to current limited liquidity: the company held $1.2 million in cash and cash equivalents at June 30, 2026, with $820,000 in additional remaining revolving credit capacity.
• Higher aluminum prices driven by tariffs have compressed product margins below originally targeted levels for AL4 and Nexus, limiting the company's ability to offer deeper discounts and incentives to distribution partners, and has made AL4 less attractive for distribution channel sales.
• While the company has strong sequential improvement, revenue growth has not yet outpaced the company's recurring cost base, and there is execution risk in converting inventory to sales, expanding distribution, and maintaining gross margins to support operating costs.
• Any potential tariff refunds for previously paid import tariffs are not expected to be realized in 2026, and the process for obtaining refunds remains unclear, with the majority of the company's material cost pressure coming from broad aluminum price inflation rather than direct tariff payments.

Q: With 6,800 finished tonneau covers in inventory, how will pricing work to sell through this inventory, and could pricing improve quarter-over-quarter by channel? / A: Most of the finished inventory consists of older AL3 and AL4 models. The company ran a successful small promotional trial for AL3 on the direct-to-consumer channel in June that liquidated a significant amount of inventory. Going forward, it will run targeted incentives in both reseller and direct-to-consumer channels to move existing stock. After inventory is reduced, the company will shift fully to just-in-time production to avoid future excess inventory buildup.

Q: Will sales and marketing spending change for energy products, or decline now that the company has added new distributor partners? / A: Management aims to keep sales and marketing spending mostly flat as sales grow, leveraging improved marketing efficiency and growing brand recognition to keep spend as a percentage of revenue declining. If material revenue growth opportunities require additional investment, the company will increase spend to reach cash flow breakeven faster. The majority of current spend is concentrated on the Meta and Google platforms, which have volatile pricing.

Q: Why did the company add an advisory proposal to the AGM requesting the board consider special dividends from any future business unit or asset sales? / A: As Worksport has grown quickly, there may be future opportunities to divest non-core business units, such as TerraVis Energy. If a significant divestiture occurs, the company wants the ability to return proceeds to shareholders via a special dividend. There are no current divestiture plans, but the proposal allows management to be prepared if attractive opportunities arise.

Q: Is there any plan to accelerate Atherlux market entry, and do you have a manufacturing partner to speed production after certification? / A: Worksport already has a partnership with a large heat pump manufacturer that can deliver finished Atherlux units within 45-60 days of certification completion. Certification is expected to conclude in October 2026, with product potentially available by Q4 2026. The company is already working on initial orders from both public and private sector customers, and management confirms it has a consistent track record of executing product launches on timeline.