Research Frontiers (REFR) has reported a notable first-quarter performance in 2024, with a 26% increase in royalty revenues compared to the same period last year. This growth is primarily attributed to significant gains in the automotive and aircraft markets.
The company is optimistic about the future, expecting increased royalty income in the upcoming quarters and highlighting the strategic relationship with Gauzy, whose IPO is anticipated to bring additional transparency and resources to the industry.
With a strong financial standing, including being debt-free and having substantial working capital, Research Frontiers is positioned to capitalize on the expanding smart glass market.
Key Takeaways
- Research Frontiers' Q1 2024 royalty revenues rose by 26% year-over-year, driven by the automotive and aircraft sectors.
- The company anticipates higher royalty income in Q2 and Q3 based on booked and expected future revenues.
- CEO Joseph Harary discussed the company's debt-free status, with $2.1 million in cash and equivalents, and $2.7 million in working capital.
- Gauzy, a licensee of Research Frontiers, has filed for an IPO, which is seen as beneficial for the industry and Research Frontiers' shareholders.
- Research Frontiers will increase reporting frequency to quarterly updates, with the next report scheduled for June 13.
- The company maintains a competitive edge in the SPD products market, with decreasing costs and performance improvements.
Company Outlook
- Expectation of continued growth in the smart glass industry, with Research Frontiers leading the charge.
- Anticipation of increased revenues in the automotive and aircraft sectors due to new product introductions and deeper market penetration.
- The retrofit market for buildings is identified as a potential growth area.
Bearish Highlights
- No specific bearish highlights were discussed during the call.
Bullish Highlights
- The company's royalty revenue has surged, indicating strong market adoption of its technology.
- Regulatory support from the Dynamic Glass Act is expected to bolster industry growth.
- The strategic relationship with Gauzy and its IPO is seen as a positive development for the smart glass industry.
Misses
- There were no reported misses in terms of financial targets or expectations.
Q&A Highlights
- Harary addressed shareholder questions about Gauzy's IPO, the competitive landscape, and the company's poison pill strategy.
- Discussion of potential mergers or acquisitions with Gauzy, highlighting synergies and aligned interests.
- Assurance of the progress in developing black SPD particles for smart glass applications.
In conclusion, Research Frontiers stands on solid ground with promising prospects ahead. The company's financial health, strategic partnerships, and industry positioning have it set to benefit from the growing demand for smart glass solutions. With the industry's landscape evolving, Research Frontiers appears poised to continue its trajectory of growth and innovation.
InvestingPro Insights
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InvestingPro Data shows a robust 26.27% quarterly revenue growth in Q1 2024, affirming the company's positive outlook and aligning with the reported increase in royalty revenues. Despite this growth, the company's Gross Profit Margin stands at a challenging -146.74%, reflecting the cost pressures that Research Frontiers faces. Moreover, the company's Price / Book multiple is at an elevated level of 22.93, indicating a high valuation compared to the company's book value.
An InvestingPro Tip highlights that Research Frontiers' stock has experienced a significant return over the last week, with a 19.89% price total return, suggesting strong recent investor confidence. This is complemented by the fact that the stock is trading near its 52-week high, at 94.11% of the peak price, which could indicate a bullish sentiment among investors.
Moreover, Research Frontiers does not pay a dividend to shareholders, a noteworthy point for income-focused investors. For those interested in a deeper analysis, there are more InvestingPro Tips available that can provide a comprehensive view of the company's financial health and market performance.
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Full transcript - Research Frontier (REFR) Q1 2024:
Operator: Good afternoon, ladies and gentlemen. Welcome to Research Frontiers Investor Conference Call to discuss the First Quarter of 2024 Results of Operations and Recent Developments. During today's presentation, all parties will be in a listen-only mode. [Operator Instructions]. This conference is being recorded today. 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. 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 e-mailed to it prior to this conference call either in their presentation or as part of the Q&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. [Operator Instructions]. Also, we ask that you keep your questions brief in the interest of time. I would now like to turn the conference over to Joe Harary, President and Chief Executive Officer of Research Frontiers. Please go ahead, sir.
Joe Harary: Thanks, Morgan, and welcome to the team. And hello, everyone, and welcome to our investor conference call to discuss the first quarter of 2024. Just nine 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 and covering as much ground as possible, I've taken a number of the questions that we've received by e-mail and have incorporated them into my presentation today. We'll start with the numbers. I'm pleased to report that Research Frontiers continued its revenue growth momentum in the first quarter 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 two 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. And this past quarter, we also had increases in the aircraft royalties. The first quarter of 2023 actually marked the beginning of five consecutive quarters so far of revenue growth from the prior quarter -- prior year, rather. Looking ahead, although we're not even halfway through the second quarter, we already expect higher royalty income in the second quarter. In fact, we also expect higher royalties primarily in automotive in the third quarter and beyond. This is based upon revenues already booked and expected revenues yet to be reported. How do we know this? Remember, our main market automotive is more predictable than our other markets. And as a former Fed 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. 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 $2.1 million and working capital of $2.7 million 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 will need to raise additional capital in the foreseeable future unless there's a strategic reason to do so. So let's talk about other exciting things happening this year. 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 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 two of the show. 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. 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 SmartGlass 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. 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 world 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 SmartGlass. This has a dramatic impact on the economics to encourage adoption of SmartGlass in all types of buildings and homes. And we've seen similar benefits from 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. If you read some of the technical analysis of electrochromic companies, they all promised substantial cost reductions 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. Let me highlight how we were able to achieve these things. One 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 inter layers 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. 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. 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 up-tick 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 (NYSE:RACE) also has very, very high take rates. 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 (NYSE:GM). 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. 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 spec-ed in, you're in for years. And of course, that's assuming you have a good product, we do. With the background and 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 vehicles 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.
A - Joe Harary: 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 e-mailed to us. And in some cases, I'm going to be combining several related questions into one. During only the past two months since our last conference call in March, some fairly substantial development in the SmartGlass industry. Our largest competitor View filed for bankruptcy, and they were also de-listed from trading on NASDAQ. 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 prominent -- promises of imminent production has not produced even their first commercial switchable tint product and is resorting to digging ditches and laying cable to pay their bills. These developments and companies are in my opinion insignificant. There is another much more positive development for us in our industry. This is something we got a lot of questions about. Our SPD film producing licensee Gauzy filed for their initial public offering. Many people have carefully reviewed their F1 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 months 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 are a strategic investor in us. First, you should know that an IPO is something that I've been encouraging Gauzy to do since we first met. To do the SmartGlass industry correctly, if you're a manufacturer or a marketer, and Gauzy is both, you 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 million of its personal funds to Gauzy. 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 had 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're 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 two companies cannot arrange an in-person meeting or product demonstration with a customer no matter where that customer is. 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 two 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 two companies in the SmartGlass industry, you would invest in Research Frontiers and 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 SmartGlass industry implements best practices and a focused and sensible business approach. We have had positive gross margins in our industry consistently. Not having this and trying to quote by 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 two public companies focused on SPD and more disclosure of our collective activities. This should give everyone our -- on our call a better insight and more details into your investment in Research Frontiers. 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 road shows relating to it. And I hope after things settle down for them and they're out of their quiet period, we can have Eyal join us on a future call. I received a related shareholder question about the SEC filing process. Since Gauzy had originally filed their F1 registration statements on a confidential basis, these registration statements only became publicly available to all of us in April. After which Jared and other shareholder asked me, are there any non-obvious parts of the F1 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. 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. 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 two types of SmartGlass, PDLC for privacy and SPD for everything else. They even combine the two as well as give the benefits of both to customers. Gauzy also has other business units such as Safety Tech with various driver assistance technologies. Sometimes these are quite separate offerings, but it also only takes a little imagination to figure out that they are synergistic and complementary to each other. For example, the ability to detect things happening outside the vehicle from the Safety Tech division products can be fed to make the glass even smarter inside the vehicle. Also, there are synergistic relationships because the customers for both are often the same. Here are some more questions that were emailed to us. Alan Yubikolf -- Yakobov, 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? With stable to lower expenses and now entering our fifth consecutive quarterly growth on a year-over-year basis, we are 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 REFR royalty contracts? Well, I think Jared is picking up on something in the F1 where they mentioned their SPD black program where they are trying to develop a black or color-neutral particle. And first, understand that both of our companies are working on a black or color-neutral particle. And of course, we are going to share what we develop with Gauzy because we want them to put it into a film. It's not necessary for our success, but it 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 one 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. David asks, 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 2022 until February 11, 2033, 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. 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' SmartGlass projects? Well, thanks, Jay. 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 2015 at the World's Fair? Thanks, Jay. And electronics is 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 one of Israel's leading telecom companies, and Gauzy first started as a company asked to make electronics for the PDLC SmartGlass industry. So their roots are in the electronics. Chuck, I think I've answered your questions, but if not, feel free to e-mail 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, 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 at our annual meetings. Now, we have moved these detailed reports to be more frequent, four times per year instead of just once. Of course, as a long-term shareholder, you're welcome to attend. It will be at 11 a.m. on June 13 here at our corporate headquarters in Woodbury, Long Island. But if last year is any guide, it would be simply administrative, reelection of directors, ratification of accountants, et cetera. John Nelson writes, hope all at Gauzy are well and safe. They are, John, and thanks for asking. Both of our companies 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. There have been companies trying to use either decades-old versions of the technology that are off-patent, and those have high haze 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 Resonac's, formerly Hitachi (OTC:HTHIY) Chemicals, full SPD intellectual property portfolio, and anything related to manufacturing facilities and capacity potential for SPD film production? 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 of 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, 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 have suggested that we also try to keep our conference calls shorter, 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 a call, please feel free to e-mail 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 e-mail. Anyway, let's open up the call for questions.
Operator: Thank you. [Operator Instructions]. Your first question comes from Michael Kay of Kay Associates. Your line is open.
Michael Kay: Hello, Joe, how are you?
Joe Harary: Hi Professor Kay, how are you?
Michael Kay: 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, 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 potential in the future?
Joe Harary: 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 that our fortunes are aligned whether they're an owner or we're an owner. Their success will be our success and vice-versa.
Michael Kay: And also, was it specified when Gauzy will go public or is that still look to be determined?
Joe Harary: So the way the process works is you file a registration statement with the SEC. U.S. companies, it's called an S1. Foreign companies, it's called an F1. And it has very detailed disclosure, very similar to what you've seen in our 10-K over the years and in our registration statements. 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 road shows 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 redline, 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. So I look forward to that happening soon.
Michael Kay: Okay. Thank you very much, Joe.
Joe Harary: Thanks. Appreciate it.
Operator: [Operator Instructions]. Your next question comes from Leonard Leetzow with Wealth Planning and Design. Your line is open.
Leonard Leetzow: Good afternoon, Joe.
Joe Harary: Hey Len, how are you?
Leonard Leetzow: Doing fine, thank you. We have noticed some activity in the stock, finally, in the last few days or weeks.
Joe Harary: Did something happen?
Leonard Leetzow: Yes. Did something happen? A little bit, yes. But it's still way undervalued, so that's good. I just wondered, are you getting any context from institutional buyers?
Joe Harary: Yes. 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. And we're more of a pure asset-light IP play with higher valuations. So if you consider, for example, that a million-dollar increase in revenue for us is a $20 million 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 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 us as well, and people are paying attention. I don't know if people are paying attention also because the other public smart glass companies are no longer available, nicely.
Leonard Leetzow: Yeah.
Joe Harary: 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.
Leonard Leetzow: Yeah, 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?
Joe Harary: Right, right. Yes, I agree. And I don't think anybody on our Board would even remotely consider something at the current valuation, so.
Leonard Leetzow: Happens, okay, good. Thank you.
Joe Harary: Thanks a lot, Leonard.
Operator: Your next question comes from Investor Alan Ginsberg. Your line is open.
Alan Ginsberg: Yes. Hi, Joe, how are you?
Joe Harary: Hi, Alan, how are you?
Alan Ginsberg: 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 have new investors, it would be I think a smart thing to focus on? What do you think?
Joe Harary: Right. 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% and 15% of their revenue. And we get minimum royalties from many of those companies, so they're guaranteed minimums. 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&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. So we're talking about gross margins approaching 100% 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 five 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, and then as I mentioned earlier, migrating from one 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. And thanks for suggesting that, Alan.
Alan Ginsberg: You're welcome. Thank you.
Operator: Your next question comes from Investor Thomas McCarthy. Your line is open.
Thomas McCarthy: Hi there, Joe?
Joe Harary: Hey, Tom.
Thomas McCarthy: I'm a retired financial advisor now, but committed to Research Frontiers even more than before.
Joe Harary: Great.
Thomas McCarthy: Question about Gauzy.
Joe Harary: 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.
Thomas McCarthy: And I believe all my old clients for also adding to their positions. Question about Gauzy, do they plan on being listed in Israeli and European stock exchanges?
Joe Harary: 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.
Thomas McCarthy: Okay. Thanks, Joe.
Joe Harary: But they do have is really -- they do have -- 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.
Thomas McCarthy: Yes, yes, yes. Great. Keep up the good work, Joe.
Joe Harary: Thanks a lot, Tom. Good talking to you.
Operator: At this time, there are no further questions. Well, it looks like we have a question from August Berman. Your line is open.
August Berman: Hello?
Operator: August, your line -- yes.
August Berman: Can you hear me?
Joe Harary: Now we can. How you're doing, Dr. Berman?
August Berman: Good. I'm good. Hey, couple questions for me, and I might've missed the initial comments. You mentioned that we're expecting some increase in revenues in Q2 and Q3?
Joe Harary: Yes, I did. So Q1 was up over Q4. Q4 was -- every quarter so far in the last five 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.
August Berman: Are you able to say if that's from a new OEM or not?
Joe Harary: I'm not about -- 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 get 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.
August Berman: Perfect. Okay. And then just two other real quick…
Joe Harary: And I think, I don't know if 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.
August Berman: That's great news. Okay. And then a while back when the Vision Systems Gauzy merger occurred, there was talk of some sort of implementation with their ADAS -- the ADAS, and our SmartGlass. Is work still being done on that, or is that not a big of a market as we thought?
Joe Harary: 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 SmartGlass as well, so it makes the glass system much more intelligent if you could combine that. 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.
August Berman: Yes. 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.
Joe Harary: Yes.
August Berman: Okay. And then just last thing here, I know we didn't -- we're not talking much about View, but with View's demise to an extent, are we still talking to their customers about potentially taking on their projects or replacing their projects? I know that was something that they had mentioned a while back, that they're talking to you or reaching out to our licenses -- licensees.
Joe Harary: Yes, yes, yes. And also, what it does also is it creates, I think a more rational bidding process for projects because that's subsidizing seven-eighths of the cost of a project. It's very hard to compete against that until they run out of money. Well, they did. So now you're going to get actual economics happening. And at the same time, it's happening when two other very important developments are happening. Number one, 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, 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.
August Berman: All good news, and good to see a little bit of horse sent into our stock as well, so that's exciting. That's all I had, Joe. Thank you.
Joe Harary: Thanks a lot. Good luck, Dr. Berman.
Operator: Your next question comes from Investor Dave Paradiso. Your line is open.
Dave Paradiso: Hi, Joe.
Joe Harary: Hey Dave, how are you?
Dave Paradiso: 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 particles or whatever?
Joe Harary: 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.
Dave Paradiso: Yes, it's so new, but it's pretty good, so.
Joe Harary: Yes, yes, you just have to know how to talk to it. It's prompt engineering.
Dave Paradiso: Well, thank you.
Joe Harary: Thanks a lot.
Operator: Your next question comes from Private Investor, Sam Tinta (phonetic). Your line is open.
Unidentified Analyst: Hello Joe, I think this is the first time I'm calling in on a conference call. I usually e-mail questions.
Joe Harary: I think it is, Sam.
Unidentified Analyst: 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, et cetera, et cetera we're still around the same range. Can you give any color on that?
Joe Harary: Yes. In some cases, it's actually gone up. Because the fact mentioned, Sam, so 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 million to develop SPD technology over the years and we're getting paid back.
Unidentified Analyst: Right, right. And then my second question was about the Asian automaker. You made some comments about it a few minutes ago.
Joe Harary: Yes, yes.
Unidentified Analyst: That development has, is -- we passed through the development. So in a prior call, you mentioned this year. So can you -- do you have any more visibility on that? Could we see that before the fourth quarter or could that be at the end of the year?
Joe Harary: I don't -- the truth of the matter is I don't know if it's going to happen.
Unidentified Analyst: As far as when we can have news on it?
Joe Harary: No, I don't know. It's up to the automaker, but it could be the third quarter. It could be the fourth quarter. It could be the first quarter of next year. I'm probably guessing that they're going to want to say something about it earlier in the process than later, so.
Unidentified Analyst: Right, okay. Well, thank you, those were my two --
Joe Harary: Yes. Everyone will get the confirmation. I think we've all -- are expecting.
Unidentified Analyst: Great, great. Thank you very much.
Joe Harary: Thanks, Sam. And one other thing, we are working on the website.
Unidentified Analyst: 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. So the first thing they're going to go is go to the website. So I appreciate you. Yes.
Joe Harary: It's our director of first impression. I get it.
Unidentified Analyst: Okay. Great. And I'll wait patiently. I'll stop blowing the trumpet on that.
Joe Harary: You could always blow the trumpet at some time. We do listen. We do listen. Okay. Thanks.
Unidentified Analyst: Okay. Great. Thank you.
Operator: At this time, I would like to turn the call back to Mr. Harary for any further remarks.
Joe Harary: 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. 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 2023 where total revenues surged by 109% and royalty income jumped 69% over the prior year. This past quarter marked the fifth consecutive quarter where revenues were higher than the same quarter of the prior year. 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. 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. 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 switched 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. 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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