Research Frontiers Incorporated
Q1 2020 Earnings Call Transcript

Published:

  • Operator:
    Good afternoon, ladies and gentlemen. Welcome to Research Frontiers' Investor Conference Call to discuss the first quarter of 2020 results and recent development. [Operator Instructions] This conference is being recorded today. A replay of this 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, forecast 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 entering many of the questions that were e-mailed to it prior to this conference call, either in the 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 the 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'll now turn the call over to Joe Harary, President and Chief Executive Officer of Research Frontiers. Please go ahead, sir.
  • Joe Harary:
    Thank you, Erica, and good afternoon, everyone, and thanks for being here. Joining me today is Seth Van Voorhees, our CFO.In our last investor conference call, we discussed our results of operations and developments for the last fiscal year. We will leave that conference call available for a while on our website, so you can refer to it. You will see that last year, we had many accomplishments that position Research Frontiers for strong growth. Based upon the questions we received from investors prior to this call, the main 2 areas that I will be discussing today is
  • Operator:
    [Operator Instructions] Our first question comes from Art Brady [ph].
  • Unidentified Analyst:
    Joe, I'm just wondering, can you elucidate a little bit more what's happening in Brazil?
  • Joe Harary:
    Well, I had the pleasure of visiting SER. They have a very aggressive operation, and they're one of the two market leaders, AGP, our other licensee being the other one. They've a really good business in terms of aftermarket. They work with the blindado doors, which are the companies that will take a car in the aftermarket and update it with armored steel. In this case, a catalog type material that's actually lighter, it's stronger than Kevlar for the door panels and other nontransparent areas and in the transparent area, using SPD. And it adds some real benefits because, first of all, it's an aftermarket product in general.So, they have an infrastructure in place in Brazil to have many shops actually do these kind of upgrades, which is very good for our business because I think it's -- because of the security situation over there, a more developed market. It's about 3x larger. It's about 1,500 cars per month in Brazil in the armored glass market compared to about 500 cars per month in Mexico, which is the second-largest market. And as I alluded to earlier, you'll probably see some extremely high-profile and highly visible uses of our technology in the not-too-distant future, even here in the United States?
  • Unidentified Analyst:
    Joe, can you also comment on Isoclima? We haven't heard about their participation in quite a while.
  • Joe Harary:
    Art, they are very active. They're working on many different industries, but primarily automotive and aircraft, and they're working with major players in those areas. So they are a good company that has done a great job. And when it comes to understanding glass and glass structure, they're probably the best in the world. So we're really honored to have people like Dr. McCulley, who probably knows more about Gorilla Glass and Corning even though. I hope [indiscernible].
  • Unidentified Analyst:
    Any new products that they are actually putting into production at this point?
  • Joe Harary:
    Sure. Like I mentioned, the aircraft and automotive primarily, including some from Mercedes.
  • Operator:
    Our next question comes from Thomas McCarthy [ph].
  • Unidentified Analyst:
    You mentioned that Hitachi can, in 1 shift, make 400, did you say square feet or square meters?
  • Joe Harary:
    No, it's 400,000 square meters per year per shift. So that's their annual production per shift.
  • Unidentified Analyst:
    400,000 square meters annually?
  • Joe Harary:
    Annually. So that's about 1.3 million. I'm sorry, we did 3 shifts?
  • Unidentified Analyst:
    Yes. 1.2. Right. Okay. And Gauzy?
  • Joe Harary:
    500 meters -- square feet, sorry. I -- sometimes I switch between the two. And you are saying Gauzy?
  • Unidentified Analyst:
    No, let's go back to Hitachi. I want to make sure I understand. They can produce in 1 shift, 400,000 square feet annually.
  • Joe Harary:
    No, meters. 400,000 square meters per year per shift.
  • Unidentified Analyst:
    Okay. And what did you just say about feet?
  • Joe Harary:
    That's about each 400,000 square meters is about 1.3 million square feet per shift.
  • Unidentified Analyst:
    Well, I was thinking you were multiplying it by 3 shifts. I'm sorry.
  • Joe Harary:
    No.
  • Unidentified Analyst:
    Okay. Now in terms of Gauzy, you said 1 million. And is that 400,000 square meters per year?
  • Joe Harary:
    Square meters per year, right.
  • Unidentified Analyst:
    And that's just one shift.
  • Joe Harary:
    It's the blend of what they expect their production requirements to be. I'm not allowed to go into more detail than that.
  • Unidentified Analyst:
    All right, fine. Now question is all this film that's being produced, are there ready customers for it or is it being stockpiled?
  • Joe Harary:
    Nobody in the industry, including Hitachi, stockpiles to film. When they make it, it's usually for a customer order, they'll have some in inventory, but not much. That's just a kind of deal with inventory management and there's a need for workshop.
  • Unidentified Analyst:
    Okay. Got you. So the figures you gave me are production capacity. Are...
  • Joe Harary:
    Not production.
  • Unidentified Analyst:
    Sorry?
  • Joe Harary:
    No. Yes. It's not production itself. It's production capacity.
  • Unidentified Analyst:
    Okay. Are you able to say anything about what the production figures are?
  • Joe Harary:
    No, they won't let me.
  • Unidentified Analyst:
    Okay. Are they working? Are they...
  • Joe Harary:
    Oh yes, both Gauzy and Hitachi are working,
  • Unidentified Analyst:
    And they're running a shift each?
  • Joe Harary:
    They're running film, yes.
  • Operator:
    Our next question comes from Allen Ginsberg [ph].
  • Unidentified Analyst:
    I have two things. In January, there was a lot of excitement at Consumer Electronics Show when a Chinese smartphone manufacturer used in a smartphone with McLaren, what seemed like it might be SPD, but there was no press release, whether it was SPD or something else. I wanted you to comment on that, if you will, and then I have one more.
  • Joe Harary:
    Sure. So that was concept one. That was a concept phone. It wasn't a production phone, although, they do hope it will go into production. And like many manufacturers, they don't like to tell what's technology they're using in their products because it kicks off their competitors. We have actually seen, though, in other markets, too, especially with things like cellphones and other Amazon devices being able to be hacked so that you could take control of the camera on your laptop or your phone or something like that, and increased interest in the privacy covers for the phone video. And also the laptop and...
  • Unidentified Analyst:
    But is this -- can you comment on whether this is SPD that they were using in this phone or not?
  • Joe Harary:
    Not unless they do it. Not unless they commented.
  • Unidentified Analyst:
    All right. Because the way it was described, it seemed like it had to be SPD, but we'll have to wait on that, I guess. The other thing is you had said that you had hired a public relations firm, but I don't know the name of that firm, and there's been very few press releases for a long time. Could you comment on that?
  • Joe Harary:
    Well, first of all, Alan, we released press releases when there's information. A few weeks ago, we released a press release about Hyundai, so I can't imagine it yes. And I believe you've actually spoken to the Investor Relations person because he's [indiscernible].
  • Unidentified Analyst:
    But occasionally, I've tried to call him and I haven't been able to get through, his mailbox is full. So you might want to check in to that, all right?
  • Joe Harary:
    Okay. Yes, I will.
  • Operator:
    [Operator Instructions] Our next question comes from Basilo [ph].
  • Operator:
    Joe, condolences for your father-in-law, sorry to hear that.
  • Joe Harary:
    Thank you.
  • Unidentified Analyst:
    I just wanted to see if you could give us some color about pricing, especially for the architectural market. It's a very competitive place. So anything you could share that would be appreciated.
  • Joe Harary:
    I usually get in trouble when I share publicly pricing information. We had one case a couple of years ago where a reporter had quoted an estimate I had given on the per square foot price for SPD-SmartGlass and the licensee called me out saying, I was just quoting a 50% more than that to a customer, and now I have to do some explaining. So I should be very careful. But let me maybe back into the question. We have done an analysis of the architectural market, which is, to a large extent, a very competitive market, you're correct. And we've actually spoken to some of the largest building facade manufacturers in the world. And they are probably the experts on what they need to charge for a window and a window shading system.And based on the numbers that Gauzy gave them and I was in that meeting in Europe, we can meet the current price that they need the window and the shade to be because remember, you don't need both now and you don't need the ancillary motors and rollers and things like that with SPD-Smart glass. So our system could actually be cost competitive and high-volume to an ordinary window with an ordinary window shape based on the projected pricing that Gauzy gave them.
  • Operator:
    Our next question comes from Ted Eddies [ph].
  • Unidentified Analyst:
    As the production or the demand starts increasing, are there any other production facilities in the works to produce more sale?
  • Joe Harary:
    Yes. Gauzy has talked about a third production facility. So they have one for PDLC in Israel in Tel Aviv. They have an SPD only 1 in Sigurd, and they're talking about a third one. And I'm not sure I could tell you where it's going to be, but it will be either in North America or in Asia, most likely.
  • Operator:
    [Operator Instructions] Our next question comes from Alan Denver [ph].
  • Unidentified Analyst:
    I had tough times this -- earlier this year also.
  • Joe Harary:
    I'm sorry to hear that.
  • Unidentified Analyst:
    COVID problems, yes. Long Island hasn't been any good either, I know. So my question is the very simple one. Has anyone come to the company or to you and asked about being acquired that they could acquire Research Frontiers?
  • Joe Harary:
    No.
  • Operator:
    At this time, we have no further phone questions.
  • Joe Harary:
    Okay. In that case, if we haven't fully answered any questions that were e-mailed to us or in the presentation today or the live Q&A, feel free to email us. And I'd like to now make some closing remarks.Last year was spent building and strengthening Research Frontiers. We needed to have multiple producers of SPD film. This has been done. We needed to have wider SPD films so that we can pursue the architectural glass market. This, too, has been done. We need to have SPD technology available at lower cost to the customer. This has been done. We needed a stronger balance sheet. This too has been on. We wanted to reduce internal expenses, this has been done, not only last year, but in each of the past five years, and we expect cost reductions to continue in the coming year. We needed greater awareness in the various industries as to what SPD-Smart technology could do for customers. We expanded our public relations effort and spoke at various industry conferences. Let's never decide about why customers use our SPD-SmartGlass technology.In automotive, we may cause more energy efficient, reduce CO2 emissions by 4 grams per kilometer and increase the driving range of electric vehicles by up to 5.5%. We also make people more comfortable and safer and protect the interiors of cars. In architectural applications, we make buildings more comfortable, energy-efficient and functional. We preserve nice views. We have seen from the hospital market that curtains and chains can collect allergens, dust and germs. With the growing movement as a result of recent events, including the coronavirus, another aspect of our technology, the ability for SmartGlass to be more easily clean than shades or blinds can be important. This worldwide promotion of the benefits of SPD has been quite effective.Customers with new uses for our technology as well as traditional ones are all coming to us and our licensees. You saw Hyundai so far this year come on board. And we are well positioned for the future, even in the realities of a post-COVID-19 world. We have enough cash for the next 3 years, a very modest quarterly burn rate, and we expect to continue to be debt-free and our expenses have continuously come down. These cost reductions were important steps we took to bring us closer towards being cash flow positive and profitable. They yielded additional benefits during the current COVID-19 pandemic.The other key initiatives, we're making SPD technology more affordable to the customer. We and our licensees have made investments in these areas and great progress. Having Hyundai makes such a visible move in the world of SPD-SmartGlass, probably is one of the best things that I could point to in order to illustrate the cost reductions, performance, reliability and feasibility of SPD. McLaren and others using SPD in areas other than the roof is another benefit in this area.A stronger, more efficient supply chain and lower product costs and higher production capacity, all make it easier for companies to use our technology. We have had good results in our car markets and new projects in all industries. These industries have a better understanding and the benefits of using our SPD-SmartGlass technology. We and our licensees are opening up new markets, such as the large architectural SmartGlass market. Our licensees are pushing hard in this market and we could also benefit from the more than 50 certified laminators that Gauzy already has in this market as well as our own licensees in the architectural market.As I mentioned, one area of particular interest is use of SmartGlass in hospitals and another in homes for making -- working remotely and more productive and pleasant. And one of our best leading indicators of future economic activity is SPD film sales, since it is this film that gets put into the end products that we receive a royalty from. Just with Hitachi Chemical sales alone, the amount of SPD film sold in 2019 exceeded the annual amounts sold in all prior years since the beginning of its production, that was a 12-year record.At Research Frontiers, we're tough, we're scrappy, and we have weathered past economic prices. While no one could have predicted it, we were prepared for the current pandemic. I think that a large part of this survival and even the ability to thrive even in difficult times, comes from some of our core principles that we -- that have helped us lead the growing SmartGlass industry. We noted some of these core principles today. Building a strong and enduring companies through focus, hard work and determination. Raising money on favorable terms when we do not need it so it's available what we do, a constant focus on maintaining a lean operation with minimal capital expenditure requirements. A strategic focus on key markets and industries and building a business that is well diversified across industries and within industries. Particularly, good examples of this are positions in key segments of the automotive and aircraft industry that we spoke about earlier.Another key point is that we are well diversified across geographic reasons. While part regions, while parts of the world have been shutting down or slowing, other parts of the world at the same time are restarting. We did this while at the same time building a world-class and reliable light control technology that has brought benefits to so many people and companies around the world. And I want to thank you, our strong and loyal investors for your support while we built these qualities into our business.And I particularly want to express my wish to each of you, please stay safe and healthy as we move through the current pandemic together.
  • Operator:
    This concludes today's conference call. Thank you for attending.

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