Research Frontiers Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 9, 2024

Key Takeaways

  • Research Frontiers reported 26% year-over-year royalty revenue growth in Q1 2024 to $313,378, driven by double-digit gains in its two largest markets, automotive and aircraft, and anticipates higher royalties in Q2 and Q3 based on booked orders and SPD film sales.
  • The company remains debt-free with $2.1 million in cash, $2.7 million in working capital and a quarterly cash burn of $200–250 thousand, and does not foresee needing to raise additional capital absent a strategic reason.
  • Substantial cost reductions in SPD film manufacturing have made smart glass viable for inclusion in moderately priced vehicles worldwide, and new use cases showcased at CES—such as augmented reality windshields and dynamic heads-up displays—are expanding market opportunities.
  • In the architectural segment, the upcoming retrofit solution, federal GSA energy mandates and the Dynamic Glass Act’s 30%–50% tax credits are expected to drive strong adoption of SPD SmartGlass in both public and private buildings.
  • The strategic partnership with licensee Gauzy—now pursuing an IPO—will provide greater industry transparency and resources, while Research Frontiers’ asset-light licensing model delivers near-100% gross margins through 10%–15% royalties on licensee revenues.
AI Generated. May Contain Errors.
Earnings Conference Call
Research Frontiers Q1 2024
00:00 / 00:00

There are 8 speakers on the call.

Operator

Good afternoon, ladies and gentlemen. Welcome to Research Frontiers Investor Conference Call to discuss the Q1 of 2024 results of operations and recent developments. During today's presentation, all parties will be in a listen only mode. And following the presentation, the conference will be open for questions by pressing star, then the number 1. This conference is being recorded today.

Operator

A replay of this conference call will be available starting later today in the Investors section of Research Frontiers' website at www.smartglass.com and will be available for replay for the next 90 days. Please note that some of the comments made today may contain forward looking information. The words expect, anticipate, plans, forecasts and similar expressions are intended to identify forward looking statements. Statements that are not historical facts are forward looking statements that are made pursuant to the Safe Harbor provisions that are part of the Securities Litigation Reform Act of 1995. These statements reflect the company's current beliefs and a number of important factors could cause actual results for future periods to differ materially from those expressed.

Operator

Significant factors that could cause results to differ from those anticipated are described in our filings with the SEC. Research Frontiers undertakes no obligation to update or revise these forward looking statements to reflect new events or uncertainties. The company will be answering many of the questions that were emailed to it prior to this conference call either in their presentation or as part of the Q and A session at the end. In some cases, the company has responded directly to e mail questions prior to this call or will do so afterwards in order to answer more questions of general interest to shareholders on this call. If you find that your question has been substantially answered as a courtesy and to allow time for other shareholders to ask their questions, I would now like to turn the conference over to Joe Harari, President and Chief Executive Officer of Research Frontiers.

Operator

Please go ahead, sir.

Speaker 1

Thanks, Morgan, and welcome to the team. And hello, everyone, and welcome to our investor conference call to discuss the Q1 of 2024. Just 9 weeks since our last call, we've already witnessed significant developments in progress, which I'm eager to share with you today. And in the interest of time in covering as much ground as possible, I've taken a number of the questions that we've received by email and have incorporated them into my presentation today. We'll start with the numbers.

Speaker 1

I'm pleased to report that Research Frontiers continued its revenue growth momentum in the Q1 of 2024. Our royalty revenues in Q1 2024 were up over 26% from the same quarter last year to $313,378 driven by robust double digit percentage gains in our 2 largest markets, automotive and aircraft. This revenue growth is on top of strong revenue growth from 2023. Fee income during 2023 increased by 69% over 2022 and overall revenue last year was up 109% from the prior year. All of these increases in fee income were primarily the result of higher royalties from the automotive market.

Speaker 1

And this past quarter, we also had increases in the aircraft royalties. The Q1 of 2023 actually marked the beginning of 5 consecutive quarters so far of revenue growth from the prior quarter prior year rather. Looking ahead, although we're not even halfway through the Q2, we already expect higher royalty income in the Q2. In fact, we also expect higher royalties primarily in automotive in the Q3 and beyond. This is based upon revenues already booked and expected revenues yet to be reported.

Speaker 1

How do we know this? Remember, our main market automotive is more predictable than our other markets. And as a former Federal Reserve economist, I always look for leading indicators of future activity. Our best leading indicator of our future royalty revenues is our present SPD film sales. We expect our growth this year will come from growth in our existing markets and from new product introductions.

Speaker 1

We continue to be debt free and are in strong financial shape. As of March 31, 2024, the company had cash and cash equivalents of approximately $2,100,000 and working capital of 2,700,000 dollars and no debt. Our cash burn rate is approximately $200,000 to $250,000 per quarter. However, based upon projected revenue growth, I still do not think we'll need to raise additional capital in the foreseeable future unless there is a strategic reason to do so. So let's talk about other exciting things happening this year.

Speaker 1

At CES this past January, in addition to the automotive sunroofs, side windows, sun visors built into the front windshield and other SPD SmartGlass products, there was a potentially high unit volume specialty vehicle for the construction industry. It had an augmented reality windshield that was made possible because of the combination of SPD film from Gauzy and the transparent OLED technology by LG Group. It was extremely well done. You could see the vibrancy that happened with the augmented reality display by using SPD film in the windshield. This product got a lot of attention in general and it even made the show newsletter as the What's Hot at CES product on day 2 of the show.

Speaker 1

New uses for SPD SmartGlass such as this and dynamic headlights and heads up displays are quite exciting. Growth in the traditional areas such as sunroofs and windows is also exciting and to some extent much more predictable. We are also very excited about the successful movement forward through the development process of another car in Asia. That project is very much on track and as I noted in our last conference call, was going through its final development stages prior to launch. What's particularly exciting for all of us and also for the automotive industry in general is that the cost to manufacture of our technology has come down so much as to make it feasible for inclusion in a relatively moderately priced vehicle.

Speaker 1

And that of course bodes well for the SPD Smart technology being incorporated in much higher volumes across middle market cars throughout the world. Let's now talk about the architectural smart glass market. One thing that we're all looking forward to is the launch of the retrofit application that I had discussed in some detail on our last conference call in March. Gauzy and another licensee of ours are each exhibiting at the AIA Architectural Glass Conference in Washington, D. C.

Speaker 1

In early June. This conference is important in the architectural world because it is sponsored by the AIA, the American Institute of Architects, and it's also being held in the heart of the federal government in Washington, D. C. The federal GSA is the largest customer in the for many things, including energy efficient glass, and recent mandates and programs to upgrade government buildings for energy efficiency and security are very positive drivers for our business. Apart from the public sector, the Dynamic Glass Act gives substantial 30% to 50% tax credits to private individuals and businesses for adopting smart glass.

Speaker 1

This has a dramatic impact on the economics to encourage adoption of smart glass in all types of buildings and homes. And we've seen similar benefits from the regulation caused the robust adoption of energy efficient glass, starting with low e glass in the 1970s, which had some initial trouble getting off the ground until government regulation made it a no brainer. Now a substantial part of all new glass installation is Low E Glass. It's pretty much a cost effective and standard feature in all new construction or window replacement. The volumes that can occur from this typically have been have the effect of driving down the price of new technologies, assuming that inherent in those technologies are cost reductions with volume.

Speaker 1

If you read some of the if only. If only they could have a bigger factory, if only they could have a bigger factory, if only they could have a bigger if only. If only they could have a bigger factory, if only they could invest in new equipment, if only, if only, if only. All of these companies over the many decades that have tried have not begun to see these economies of scale and production efficiencies. We have.

Speaker 1

Let me highlight how we were able to achieve these things. 1 of the strategies early on at Research Frontiers was to focus on businesses with predictable volumes that could support substantial usage of SPD film. Everything else in our supply chain is basically already mass produced, whether it be the glass or the interlayers or the edge seals or the aluminum framing or the electronics. So the missing element in cost reduction, could we get the cost down for the SPD film? We did.

Speaker 1

This came focusing on markets such as automotive with very predictable volumes and large usage in terms of surface area of SPD film that allowed all of our licensees to plan, to build and to supply their customers. Over time, as you would imagine, they got better and better at this and the customers became more and more comfortable. Another early strategy was to focus on our launch customer Mercedes. Their reputation for quality assurance and innovation and reliability was respected and followed quickly, not only in the automotive industry, but also in the aircraft industry, the design industry and many other places. Our job was to make Mercedes happy and we did.

Speaker 1

There still has not been one reported problem with our SPD SmartGlass since its introduction by Mercedes in 2011 in the first SLK Roadster. Since then, tens of thousands of cars are on the road with our glass, some for over a dozen years. Once introduction by Mercedes was announced, we saw an uptick in aircraft industry interest, which is part of the follow on strategy and also automakers following Mercedes lead and also adopting SPD SmartGlass. McLaren has very, very high take rates. Ferrari also has very, very high take rates.

Speaker 1

We saw McLaren migrate from one initial relatively low volume model to many more models. There is talk of the same thing happening at Ferrari. We also have Cadillac with their Celestiq flagship, which is just starting production now. I look forward to SPD SmartGlass following a similar migration pattern within General Motors. And of course, we have other carmakers that have not yet announced that should have the same results, that is where it starts in one car model and quickly migrates to other models within that automaker.

Speaker 1

Another nice thing about our business in automotive is that they tend to be very long term contracts, the same in aircraft. Once you're specked in, you're in for years. And of course, that's assuming you have a good product. We do. With the background in context of Gauzy's pending IPO, growing revenues in the automotive and aircraft industry this past quarter and with the new markets such as augmented reality windshields and other displays, as well as non traditional uses besides sunroofs and homes and in retail environments and other buildings and the introduction of retrofit solutions, I'd like to now open the conference call up to questions.

Speaker 1

First, I'll read and answer some of the questions we received by e mail, and I encourage people to e mail in their questions before each conference call so we can tailor our presentation to cover the most ground for the benefit of all shareholders. Here are some of the additional questions that were emailed to us. And in some cases, I'm going to be combining several related questions into 1. During only the past 2 months since our last conference call in March, we have some fairly substantial developments in the smart glass industry. Our largest competitor, VUE, filed for bankruptcy and they were also delisted from trading on NASDAQ.

Speaker 1

I will hardly spend any time on them. This was probably not a surprise to anyone who has listened to our calls over the last couple of years as they have had substantial cash burn problems and limited access to new capital. Another public competitor after years of promises of imminent production, has not produced even their first commercial switchable tin product and is resorting to digging ditches and laying cable to pay their bills. These developments in companies are, in my opinion, insignificant. There is another much more positive development for us in our industry.

Speaker 1

This is something we've got a lot of questions about. Our SPD film producing licensee, Gauzy, filed for their initial public offering. Many people have carefully reviewed their F-one registration statement, which gives a lot more detail to many of the things we've been talking about on these conference calls over the past 18 to 24 months. To answer another shareholder question that I received, we believe that Gauzy's IPO filing will greatly benefit our SPD SmartGlass industry and RFI and our shareholders. And our shareholders incidentally includes Gauzy as they're a strategic investor in us.

Speaker 1

First, you should know that an IPO is something that I've been encouraging Gauzy to do since we first met. To do the smart glass industry correctly, if you're a manufacturer or a marketer, and Gauzy is both, we need production capacity, factories, people and a diverse geographic footprint to cover the world and the industries that SPD SmartGlass serves. They do a great job with this. This takes financial resources and they also have great access to capital. I'm told that one of their directors, a good and successful businessman who I've had lunch with, recently committed $60,000,000 of his personal funds to Gauzy.

Speaker 1

A strong Gauzy is good for our industry and it is good for Research Frontiers. You could see that Gauzy has deployed their resources to substantially grow their businesses around SPD, have hired people around the world to manage and implement the various projects they have for SPD, have built factories, have expanded production capacity and have large marketing and business development teams throughout the world. There is also a unique openness and candor in our relationship that allows us to collaborate well in all of these areas. You are seeing a company that has grown from 55 people when Eyal Peso and I first met to more than 600 people worldwide, and they are growing in all areas. I have not encountered after this growth an area of the world where our 2 companies cannot arrange an in person meeting or product demonstration with a customer, no matter where that customer is.

Speaker 1

Having a diversified and local presence is a key to winning the business because it allows for a much more thorough education of the customer as to the benefits of SPD SmartGlass. Matter of fact, in about 2 hours, we're having a meeting with a customer in Southeast Asia. And with the data and education, there's just no comparison in terms of performance, proven reliability, and now we're also beginning to see price. And if you want to invest in the top 2 companies in the smart glass industry, you would invest in Research Frontiers you'd invest in Gauzy. Also, I think for the first time actually, you're beginning to see how a vertically integrated company in the smart glass industry implements best practices and a focused and sensible business approach.

Speaker 1

We have had positive gross margins in our industry consistently. Not having this and trying to quote buy market share has really hurt our competitors. View and now we see the end results with the bankruptcy is but one example. Gauzy's IPO also creates better transparency in the industry because now there are 2 public companies focused on SPD and more disclosure of our collective activities. This should give everyone on our call a better insight and more details into your investment in Research Frontiers.

Speaker 1

We also believe that the market valuation that Gauzy is expected to go public at, along with the fact that they are a sensibly and well run company and they strategically deploy their resources to achieve results, will better demonstrate the value of SPD SmartGlass in the world economy. So that answers the comments I've had about asking me to reflect on Gauzy's IPO. And Eyal Peso and his entire team are working quite hard on the IPO and roadshows relating to it. And I hope after things settle down for them and they're out of their quiet period, we can have Yael join us on a future call. I received a related shareholder question about the SEC filing process.

Speaker 1

Since Gauzy had originally filed their F-one registration statements on a confidential basis, these registration statements only became publicly available to all of us in April. After which, Jared, another shareholder asked me, are there any non obvious parts of the F-one that you would like to point REFR shareholders' attention to? Well, these are great questions all around. And with Gauzy's initial public offering in the process, you can go back and see how the registration statement has evolved over time. And many of the things you see reflected in the registration statement are things we've touched upon in past conference calls.

Speaker 1

And if you think about it, it's obvious there is such a very strong correlation between their business activities and ours. Their business is basically built on ours. This is not a surprise to us because we work very closely with them on a daily or weekly basis on various projects throughout the world. Sharing information and ideas and business development opportunities makes both of our companies much stronger. Also, please keep in mind that as a public company, most of the detailed communications with shareholders occurs in our quarterly reports and our quarterly conference calls.

Speaker 1

You're now going to see the same thing happen with Gauzy as they emerge as a public company. There will be a lot more good and meaningful information to digest, and I believe you'll really like what you see from both of our companies. Gauzy and Research Frontiers are both well diversified and well managed companies. Gauzy is diversified across 2 types of smart glass, PDLC for privacy and SPD for everything else. They even combine the 2 as well as give the benefits of both to customers.

Speaker 1

Gauzy also has other business units such as SafetyTek with various driver assistance technologies. And sometimes these are quite separate offerings, but also only takes a little imagination to figure out that they're synergistic and complementary to each other. For example, the ability to detect things happening outside the vehicle from the SafetyTek division products can be fed and to make the glass even smarter inside the vehicle. Also, there's synergistic relationships because the customers for both are often the same. Here are some more questions that were emailed to us.

Speaker 1

Alan Yacobov, sorry. At which revenue run rate would the company be EPS profitable and what would be your best guess estimate when that could be achieved? Well, with stable to lower expenses and now entering our 5th consecutive quarterly growth on a year over year basis, we're well on our way and can be quite close to becoming cash flow positive and profitable. Jared Albert, how concerned should Research Frontiers shareholders be that Gauzy's SPD Black development leads to a product not subject to REFRA royalty contracts. Well, I think Jared is picking up on something in the F-one where they mentioned their SPD Black program, where they're trying to develop a black or color neutral particle.

Speaker 1

And first, understand that both of our companies are working on a black or color neutral particle. And of course, we're going to share what we develop with Gauzy because we want them to put it in a film. It's not necessary for our success, but would, in my opinion, greatly expand the potential for some markets outside of sunroofs. Now to directly answer your question about whether we should be concerned, our license agreements, including the loan with Gauzy, are set up to prevent workarounds of our IP without us getting paid. Also, as the Florida Federal Court in the GGT litigation confirmed, we also actually get the IP of our licensees if their license agreements expire or terminate.

Speaker 1

David asked, would you provide an update during Thursday's call on the current status of REFR's poison pill? David is referring to the rights plan, which was readopted and extended in December 'twenty two until February 11, 2030 3. So we have plenty of time on that. And it's triggered if any unwanted hostile takeover is started by someone acquiring 15% or more of our stock. Everyone should understand though that under Delaware law, our directors have a fiduciary duty to redeem the poison pill if our shareholders are offered fair value for their shares.

Speaker 1

So it is meant to prevent abusive tactics and takeovers that are often used to pressure shareholders, but it's not designed to totally prevent a takeover. Jay Moskowitz asks, RFI's competitors have all focused on the architectural market. Architectural Glass is perhaps 70% of the market, whereas automotive glass is around 30%. What are the major licensees doing to have a showcased architectural project to show against all of the existing competitors' smart glass projects. Well, thanks Jay.

Speaker 1

They're working on commercial and government projects in this area. And we touched on some of this earlier today and on prior conference calls. I think the main difference between what we are doing, we and our licensees are doing and is that all the projects that we're working on have positive gross margins. We're all in business to make money and not just buy market share. Jay's other question, does Gauzy have a control system that is capable of operating a large commercial building or a skyscraper of SPD windows or are they thinking of employing a Lutron or GE lighting control system to operate such buildings as was done in Milan, Italy in the 2015 at the World's Fair.

Speaker 1

Thanks, Jay. And electronics is something you know something quite a bit about. Yes, all of our licensees have access to the extensive IP in this area. Also, I point out that Gauzy itself not only makes smart film, but also the electronics to control it. In fact, the founders of Gauzy came out of 1 of Israel's leading telecom companies and Gauzy's first Gauzy first started as a company asked to make electronics for the PDLC smart glass industry.

Speaker 1

So their roots are in the electronics. Chuck, I think I've answered your questions, but if not, feel free to email me, especially if you need more detail. I answered Steve's question about do we expect Gauzy going public to be beneficial to REFR? And if so, what are the positives? Steve's other question, also the Annual Shareholders Meeting in June, will this be an attending event?

Speaker 1

And if not, why? Well, shareholders are welcome to attend. These meetings are now mostly administrative corporate housekeeping. In the past, we used to have one big report on operations or annual meetings. Now we have moved these detailed reports to be more frequent, 4 times per year instead of just once.

Speaker 1

Of course, as a long term shareholder, you're welcome to attend. It will be at 11 am on June 13 here corporate headquarters in Woodbury, Long Island. But if last year is any guide, it would be simply administrative, reelection of directors, ratification of accountants, etcetera. John Nelson writes, Hope all at Gauzy are well and safe. They are, John, and thanks for asking both of our companies.

Speaker 1

Really appreciate the question. His next question, any significant changes in the competitive landscape for SPD products? Well, yes, we are stronger and stronger and stronger as we move forward. Costs are coming down, performance is getting moving up and new uses are being developed for our technology. On the competition side, there continues to be a lot of wannabes as SPD has really become a badge of honor.

Speaker 1

There have been companies trying to use either decades old versions of the technology that are off patent and those have high HAVES levels and limited ranges of light transmission variability. And some are even calling things SPD that are not SPD. I don't worry about these wannabes because the customer usually will discover the difference. Some even put SPD on their website with no ability to sell it just to attract customers or give them the impression about having cutting edge technology. John's other question, what are the implications of Gauzy buying Resinax, formerly Hitachi Chemicals, full SPD intellectual property portfolio and anything related to manufacturing facilities and capacity potential for SPD film production.

Speaker 1

Without going into the details, John, these are somewhat related questions. And this was a substantial multimillion dollar investment by Gauzy, which we encouraged for the good of the we encouraged them really for the good of the industry and our licensees and their customers to make that investment. It is up to Gauzy to discuss and disclose more details to their deal, but it is mentioned in their F1 registration statement. John's other question, any progress on Black SPD program that you can discuss? Well, RFI has made tremendous progress here and is a sustained and focused development effort.

Speaker 1

And this has been the Holy Grail for decades in our industry, and I think we're going to achieve it. Okay. Well, we've discussed a lot of exciting topics so far today. And I'll now ask our operator, Morgan, to open up the conference to additional questions people participating today might have that we've not already covered. Our largest shareholders, though, several of them suggested that we also try to keep our conference call shorter.

Speaker 1

So I ask your assistance with this. If your question was substantially answered on this call or can be answered by direct e mail or call, please feel free to email or call us. And many of you have done this in the past and we've had a very productive conversation as a result. And remember, please keep your questions short and focused and try to limit them to matters of general shareholder interest. Specific questions such as, is SPD SmartGlass available in Cleveland, Ohio, you could do that by email.

Speaker 1

Anyway, let's open up the call for questions.

Operator

Thank you. Your first question comes from Michael Kaye of Kaye Associates. Your line is open.

Speaker 2

Hello, Joe. How are you?

Speaker 1

Hi, Professor Gaye. How are you?

Speaker 2

Okay. I was just wondering, given the synergies and excellent relationship you have with Gauzy, has it ever crossed your mind? Probably it has some type of merger or acquisition by Gauzy and Research Frontiers that could be beneficial to the Research Frontiers shareholders since as you know many of them have been holding the stock for over 20, 25 years and they purchased it, their average price is much higher. So do you think that would be beneficial or is a thought of potential in the future?

Speaker 1

We've discussed it and I'm not sure who would be acquiring who or what the transaction would look like specifically. But there are synergies clearly between our companies and we could benefit. But we're also benefiting because in essence, our minds are merged together. We have the same view of the smart glass industry and how to do smart glass correctly. And I think that our fortunes are aligned whether they're an owner or we're an owner, their success will be our success and vice versa.

Speaker 2

And also, was it specified when Gauzy will go public or does that still look to be determined?

Speaker 1

So the way the process works is you file a registration statement with the SEC. In a U. S. Companies, it's called an S-one, Foreign companies, it's called an F-one. And it has very detailed disclosure, very similar what you've seen in our 10 ks over the years and in our registration statements.

Speaker 1

The SEC comments on that, and you respond to those comments. And when you've adequately responded to those comments, you can ask the SEC to what's called accelerate the effectiveness of your registration statement, which means you could go public, start roadshows and start talking and taking orders for the stock. So that process has been going on. If you go on the SEC's EDGAR website and did a red line, you could see maybe some of the changes that were requested by the SEC. I must say they were relatively modest changes requested because Gauzy is a company that has good accounting systems and is in good shape and they're ready to go.

Speaker 1

So I look forward to that happening soon.

Speaker 2

Okay. Thank you very much, Joe.

Speaker 1

Thanks. Appreciate

Operator

it. Your next question comes from Leonard Liptow with Wealth Planning and Design. Your line is open.

Speaker 3

Good afternoon, Joe.

Speaker 1

Good afternoon, how are you?

Speaker 3

Doing fine. Thank you. We have noticed some activity in the stock finally in the last few days or week. Did something happen? Yes, it did something happen, a little bit.

Speaker 3

But it's still way undervalued. So that's good. I just wondered, are you getting any context from institutional buyers?

Speaker 1

Yes. And I think that's kind of a natural result. If you consider the much larger market valuation that Gauzy is probably going to get in their IPO and their underwriters are some of the finest in the world and I've spoken to them directly. That kind of attention is also going to attract attention to Research Frontiers by those same institutional owners because to some extent, an investment in Gauzy is an investment in a diversified business. And in some respects, an investment in Research Frontiers is also an investment in a diversified business because of the many industries that we cover.

Speaker 1

And we're more of a pure asset light IP play with higher valuations. So if you consider, for example, that $1,000,000 increase in revenue for us is a $20,000,000 increase in revenue for Gauzy and you're traded on a multiple of revenue growth and earnings growth, the leverage could be much higher with Research Frontiers. But you also have a different diversified business with very stable and predictable earnings within Gauzy. So they're both great companies to invest in. And I think what you're going to see is what we've been seeing, which is the work that Gauzy is doing in connection with their IPO is having a favorable effect on ours as well and people are paying attention.

Speaker 1

I don't know if people are paying attention also because the others public smart glass companies are no longer available nicely. But I think that it's really more of the former. It's the attention that Gauzy is bringing to the smart glass industry is favorable because they have a lot of good things that are underneath the hood there?

Speaker 3

Yes, sort of in response to that previous question of yours, I think it's premature to do something with REFR. We're just getting to the point where the royalty income will start to get better. And as that happens, dividends will be paid and why give all of that up at the beginning of the explosion.

Speaker 1

Right. Right. Yes, I agree. And I don't think anybody on our Board would even remotely consider something at the current valuation. So Okay, good.

Speaker 3

Thank you.

Speaker 1

Thanks a lot, Len.

Operator

Your next question comes from investor Allen Ginsberg. Your line is open.

Speaker 4

Yes. Hi, Joe. How are you?

Speaker 1

Hi, Allen. How are you?

Speaker 4

Okay. Thank you. Well, just kind of a follow-up to some of the other things that were being talked about with Gauzy. Now that hopefully they're going to become public and it's going to be more visibility for Research Frontiers and maybe hopefully new investors joining some of us that have been in the stock for a long, long time. Do you think it would be a good thing to go over the benefits of the royalty agreements that Research Frontiers is able to get from their intellectual property as you have in the past, but now you're going to have new investors, it would be, I think, a smart thing to focus on.

Speaker 1

Right. Well, thanks. And well, thank you. And if there are new investors on the call, we license our hundreds of patents to licensees in different industries and we get a royalty of between 10% 15% of their revenue. And we get minimum royalties from many of those companies, so they're guaranteed minimums.

Speaker 1

As companies get established, those minimums become irrelevant because the earned royalties are quickly surpassing them. And because of that, we don't have to build factories. We could focus on what we do best, the R and D, the development, the improvement, the care and feeding of the industry and things like that. And basically, our expenses are essentially fixed for all practical purposes. So it becomes all profit.

Speaker 1

So we're talking about gross margins approaching 100% in the in our business. So it's a very good business once it gets started. And I think if you look at the last year, you're starting to see it really get started with 5 consecutive quarters of growth over the prior quarter prior years. So, we keep plugging away and as new products come out, as existing customers expand their use of SPD, like you're seeing, for example, within Ferrari, where they've had very nice growth quarter over quarter in terms of the number of units using our technology, it's a very popular item in the car. You start to see that happen.

Speaker 1

And then as I mentioned earlier, migrating from 1 car within an automaker to more than one car, like what happened with Mercedes and then what happened with McLaren. So being a licensing company and not having to change your cost structure, but having your revenue change is very, very significant, I think. Thanks for suggesting that, Alan. You're welcome. Thank you.

Operator

Your next question comes from investor, Thomas McCarthy.

Speaker 1

Hey, Tom.

Speaker 5

I'm a retired financial advisor now, but committed to Research Frontiers even more than before. Question about gas.

Speaker 1

By the way, we're noticing that many of our long time shareholders have substantially increased their positions over time and it must be that we're doing a better job than we have in the past of communicating some of the successes and the growth and where it's coming from. So thank you for the increased participation there. And

Speaker 5

I believe all my old clients are also adding to their positions. Question about Gazi, do they plan on being listed in Israeli and European Stock Exchanges?

Speaker 1

I don't know the details of that. Right now, our discussions have really focused on the U. S. And they were considering the NASDAQ and the New York Stock Exchange and I think they're focusing on NASDAQ like most tech companies and material science companies should. Okay.

Speaker 1

Thank you. So they do have it really they do have it yes, and they do have investors throughout the world. So I wouldn't be surprised if they had co listings on some of the other exchanges as well. Yes.

Speaker 5

Great. Keep up the good work, Joe.

Speaker 1

Thanks a lot, Tom. Good talking to you.

Operator

At this time, there are no further questions. It looks like we have

Speaker 1

a question

Operator

from August Vermont. Your line is open.

Speaker 2

Hello?

Operator

August, your line

Speaker 1

Hi. Can you hear me? Now we can. How are you doing, Doctor. Berman?

Speaker 1

Good. I'm good.

Speaker 6

Good. Hey, couple of questions for me, and I might have missed the initial comments. Did you mention that we're expecting some increase in revenues in Q2 and Q3?

Speaker 1

Yes, I did. So, Q1 was up over Q4. Q4 was every quarter so far in the last 5 quarters have been up compared to the prior quarter, the same quarter of the prior year. And what I did say is, even though we're not even halfway through the first, the second quarter, we already know that royalty income and automotive income is going to be higher.

Speaker 6

Are you able to see if that's from a new OEM or not?

Speaker 1

I'm not allowed to say where it's coming from. One of the things is that we the automotive industry is somewhat predictable. We got production call outs and things like that. So we know what is going to happen. But also the leading indicator usually is film sales and we've seen some dramatic increases in film purchases by our licensees and they don't do that to keep it in the garage or the basement.

Speaker 6

Perfect. Okay. And then just 2 others real quick. And I think I don't know if

Speaker 1

you're on the I'm sorry, maybe to indirectly answer your question, I did mention that with the Asian automaker, we've successfully passed through the product development process with them. So we expect good things to start happening there, Yes.

Speaker 6

Great news. Okay. And then a while back, back when the Vision Systems Gauzy merger occurred, there was talk of some sort of implementation with their ADAS, the ADAS and our smart glass. Is work still being done on that or is that not as big of a market as we thought? Sure.

Speaker 1

Yes, sure. Sure. I mean one of the things I said earlier, which maybe was an indirect way of answering the question was that some people think of these as distinct markets, cameras, for example, on the outside of vehicles. But they're providing data for the smart glass as well. So it makes the glass system much more intelligent if you could combine that.

Speaker 1

And also it's just a great way to hone your skills in the electronics and controller area. So there is a synergy there. And then usually, the companies that are doing very high end ADAS systems and things like that are also the prime candidates for energy efficient switchable glass like ours. That's the good stuff, not the light stuff.

Speaker 6

And it sounds like they have a pretty large installed base too, just looking at all the buses they've been installed on. So that's really exciting to see.

Speaker 1

Yes.

Speaker 6

Okay. And then just last thing here. I know we didn't we're not talking much about Vue, but with Vue's demise to an extent, are we still talking to their customers about potentially kicking on their projects or replacing their products. I know that was something that they had mentioned a while back that they were talking to you or reaching out to our licenses.

Speaker 1

Yes. Yes. And also what it does also is it creates, I think, a more rational bidding process for projects because that's subsidizing 7 eighths of the cost of a project. It's very hard to compete against that until they run out of money. Well, they did.

Speaker 1

So, now you're going to get actual economics happening. And at the same time, it's happening at a when 2 other very important developments are happening. Number 1, the cost of the SPD technology is coming down considerably, as you can see from the fact that we're working with a mid level car on this. But also you have the economic drivers of the Dynamic Glass Act, which gives a 30% to 50% tax credit. So you have costs coming down in general.

Speaker 1

You have tax credits coming up to subsidize it. And then you have also the cost of installation and the ancillary costs plummeting because of the retrofitability. So a lot of good things are converging at the same time this year.

Speaker 6

All good news and good to see a little bit of horse sense into our stock as well. So that's exciting. That's all I had, Joe. Thank you.

Speaker 1

Thanks a lot. Be well, Doctor. Berman.

Operator

Your next question comes from investor Dave Paradiso. Your line is open.

Speaker 1

Hi, Joe. Hey, Dave. How are you?

Speaker 3

I'm doing good. I have a question. Have you ever considered using artificial intelligence to see if you can better maximize the SPD technology like for particle

Speaker 1

or for Lambert? Yes. We use AI in different aspects of our business, both internally and also how we interact with the glass. So, yes, it's something that works. Yes.

Speaker 1

It's so new, but it's pretty good. Yes. Yes. You just have to know how to talk to it. Prompt engineering.

Speaker 7

Thank you.

Speaker 1

Thanks a lot.

Operator

Your next question comes from private investor, Sam Finta. Your line is open.

Speaker 7

Hello, Joe. I think that's the first time I'm calling in on a conference call. I usually email twice.

Speaker 1

I think it is, Sam.

Speaker 7

I have two questions. In the past, you mentioned a range of what we collect per vehicle as far as royalty. So with the costs coming down, has that range been lowered or because of increased glass use for the larger roofs, etcetera, etcetera, we're still around the same range. Can you give any color on that? Yes.

Speaker 1

In some cases, it's actually gone up because the fact that we're using larger areas of glass has increased obviously the selling price per vehicle, the unit price and the movement towards panoramic roofs or these all glass roofs that you see now like on the Ferrari, they're very large pieces of glass. And there are also a lot of functionality added to that glass as well. So we get paid a nice royalty on that. We've invested $125,000,000 to develop SPD technology over the years and we're getting paid back.

Speaker 7

Right. And then my second question was about the Asian automaker. You made some comments about it a few minutes ago that development has is we passed through the development. So in the prior call, you mentioned this year. So can you do you have any more visibility on that?

Speaker 7

Could we see that before the Q4 or could that be at the end of the year?

Speaker 1

I don't the truth of the matter is I don't know what we can have. As far

Speaker 7

as when we get news on it.

Speaker 1

No, I don't know. It's up to the automaker, but it could be the Q3, it could be the Q4, it could be the Q1 of next year. I'm probably guessing that they're going to want to say something about it earlier in the process than later.

Speaker 7

Right. Okay. Well, thank you, Doug. Thank you, Doug. Yes.

Speaker 1

Everyone will get the confirmation I think we've all are expecting.

Speaker 7

Great, great. Thank you very much.

Speaker 1

Thanks, Sam. Oh, and one other thing, we are working on the website.

Speaker 7

Yes. Great, great. Because, yes, I see it as especially as we saw today, the stock sets a new 52 week high. So there were 56 stocks on the NASDAQ today setting a 52 week high. That brings attention to the company and they don't even know what this is.

Speaker 7

So the first thing they're going to go is go to the website. So I appreciate you.

Speaker 1

It's our director of first impression. I get it.

Speaker 7

Okay, great. And I'll wait patiently. I'll stop blowing the trumpet on that.

Speaker 1

You could always blow the trumpet. Sometimes We do listen. We do listen. Okay. Thanks.

Speaker 7

Okay, great. Thank you.

Operator

At this time, I would like to turn the call back to Mr. Harari for any further remarks.

Speaker 1

Okay, thanks. I'm going to make a few closing remarks. The outlook for the smart glass industry remains extremely positive, bolstered by growing revenues in automotive and aircraft and increasing regulatory support like the Dynamic Glass Act providing substantial tax credits for adoption. The foundations are firmly in place for Research Frontiers to capitalize on the multibillion dollar smart glass opportunity emerging globally. We are the proven leader with an innovative, high performing and reliable solution and are seeing increasing demand from respected iconic brands worldwide.

Speaker 1

Our close strategic relationship with Gauzy continues to create opportunities in multiple sectors as we work together on business development and product innovation. Gauzy's upcoming IPO will bring greater transparency and resources to the industry, and their marketing will further highlight the immense potential of SPD technology. In Q1 2024, we continued our strong growth trajectory, increasing royalty revenues by 26% over Q1 2023, driven by significant gains in the automotive and aircraft sectors. This builds on a robust performance for full year 3, where total revenues surged by 109% and royalty income jumped 69% over the prior year. This past quarter marked the 5th consecutive quarter where revenues were higher than the same quarter of the prior year.

Speaker 1

Looking ahead, we expect automotive and aircraft revenues to continue rising in the coming quarters, driven by new product introductions, the introduction of new automakers offering SPD SmartGlass on their new car models and increasing penetration at existing customers. The retrofit market for buildings also represents a significant new growth catalyst as we work to enable smarter, more sustainable infrastructure worldwide. This coming year, we expect you to see even better results. I think in the coming year, you'll also begin to see more and more details becoming public about what is happening in our industry. These are achievements that we are quite proud of.

Speaker 1

We're happy to share them with you and as always appreciate your trust and support. As we look ahead, Research Frontiers stands at the forefront leading the smart glass industry, driven by a great and reliable technology, regulatory support and innovative breakthroughs. We and our licensees take immense pride in our achievements thus far and remain steadfast in our commitment to driving innovation and growth within the smart glass industry. We're grateful for your unwavering trust and support, and we look forward to sharing our continued success as we usher in a new era of intelligent glass solutions. As I walk through my office here at Research Frontiers, a motion detector automatically switched my window from energy saving dark to clear, as if to read my mind that as I approached the window that I wanted to look at the view outside.

Speaker 1

A key fob on my desk allowed me to instantly turn the bank of windows in my office into a wall for privacy. And just outside my office, I spoke to Alexa and asked it to turn on another large window. Curved glass sunroofs and aircraft and yacht windows instantly switch from dark to clear. But none of this technology is only available just to me. Anyone on this call can have it and no other smart glass company in the world other than our licensees can provide it.

Speaker 1

We are not just anticipating the future, we have created it. And thank you all for being part of this.

Operator

This concludes today's Research Frontiers investment call. Thank you for attending. Have a wonderful rest of your day.

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