Research Frontiers Incorporated
Q3 2019 Earnings Call Transcript

Published: 10 Nov 2019

[Operator:]

Good afternoon, ladies and gentlemen. Welcome to Research Frontiers’ Investor Conference Call to Discuss the Third Quarter of 2019 Results 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 Investor section of Research Frontiers’ websites at www.smartglass.com and will be available 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. 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 Security 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.If you find that your question has been substantially answered, as a courtesy and to allow time for other shareholders to ask their questions, please remove yourself from the queue by pressing pound one. Also, we ask that you keep your questions brief in the interest of time.I would now like to hand the conference over to Joe Harary, President and Chief Executive Officer of Research Frontiers. Please go ahead, sir.

[Joe Harary:]

Thank you, Erica [ph], and good afternoon, everyone, and thanks for being here. Joining me today is Seth Van Voorhees, our CFO.To summarize our third quarter 2019 results, fee income was up 29% from the third quarter of last year. When we compare the operations in our top two major markets, the fee income in automotive was up 49% in the third quarter of this year, as compared to last year. In aircraft, fee income was up 28%, as compared to last year.Moving to sequential quarterly revenue growth, if we compare the third quarter of this year to the previous second quarter of this year, the revenue growth is even larger. Overall, fee income in the third quarter of 2019 was up 54% from the second quarter of this year. Fee income from automotive was up 73% in the third quarter, compared to the previous quarter. All of this came from increases from both Mercedes and McLaren. Fee income from aircraft was up 27% in the third quarter.We judge our performance in three main areas

[Operator:]

[Operator Instructions] Our first question comes from Michael Kay. Please state your question.

[Michael Kay:]

Hello, Joe, congratulations on some very decent numbers. May they continue and ever upward. My question is

[Joe Harary:]

Yes. So, to answer your first question, Vision Systems is still working on the sun visor project. They’re still targeting it for trucks, for aircraft and for trains. And what's interesting in the commercial market for aircraft, there's a big problem inside the cockpit. So, there has been a number of those projects as well. And just about two weeks ago, I referred one of those over to them because of their expertise in that area.Your second question was

[Michael Kay:]

Thank you very much.

[Operator:]

Our next question comes from Art Brady. Please state your question.

[Unidentified Analyst:]

Hi, Joe. I'm wondering if you're receiving any revenues at this point in time from Panasonic? And then number two is, where does Continental and their controller come into play? Has there been any sales as a result of Continental putting their controller factory?

[Joe Harary:]

Yes, okay. So, let me answer that one, Art. First – the first part of your question was, are we getting revenues from Panasonic? Not directly, we get it from the licensee that supplies them with the SPD glass laminated together and we are getting revenues there. And we expect based on – and you can see this on the Internet. There has been really glowing recommendations about how good this is, because the challenge has always been how do you get the black blacks in an OLED that doesn't have a back plane that's, opaque. And what we do is, we provide an opaque on-demand back plane.So, when you're not a piece of glass, you're a high definition TV. And what's interesting also is in that market, it's not just Panasonic now, it’s other consumer electronic manufacturers in that space that have also become much more active in this. So, they're all beginning to realize that the solution to getting a dark back plane in a high vibrant video is to use SPD.And as far as Continental, I can't comment on specifics of their sales, because we don't get a royalty from them. So, I don't have direct knowledge of what their sales are. They don't have to report that. We get the royalty reports from Daimler, when they incorporate the electronics into a car and we get the reports from Pilkington or Asahi, when they apply the glass. And that's where we have the direct knowledge. But I'm happy that we have someone like Continental and their videos that they've been using to promote this are quite remarkable.

[Operator:]

Our next question comes from Francis Scott Weber. Please state your question.

[Unidentified Analyst:]

Oh, yes, Joe, how you doing?

[Joe Harary:]

Good. How are you?

[Unidentified Analyst:]

Pretty good. Several years ago, at a shareholders meeting, you had mentioned that there were signed contracts by airlines. Can you give an update on that?

[Joe Harary:]

I don't think I've ever said there was signed contracts by airlines. The licensees have contracts with suppliers to the airlines, for example, one of the Airbus A380 in the lavoratories and that's not directly between Inspectech and Airbus, it's indirectly through the cabin integrators and things like that. But that's what goes on in that market.

[Unidentified Analyst:]

So, you never said [Multiple Speakers] ….

[Joe Harary:]

And we do have – and they do have direct contact with general aviation, because they're the – supply chain is a little more direct to the manufacturer. So, for example, Inspectech directly to Textron and Vision System sells directly to HondaJet, and those are actual direct contracts. But in the airline market, it tends to go through the Tier 1 system integrators

[Unidentified Analyst:]

Thank you, Joe.

[Joe Harary:]

Thanks.

[Operator:]

Our next question comes from Len Lenzow]. So, please state your question.

[Unidentified Analyst:]

Hey, Joe, it’s Lane [indiscernible].

[Joe Harary:]

Hi.

[Unidentified Analyst:]

Just quick question. I was on another call when you started. I didn't hear what the revenues were for the quarter. If you can repeat that, I'd appreciate it? And then the other question I have is, then we're getting royalty of 15% on the architectural side, is that correct?

[Joe Harary:]

That's correct. That's correct. We talked about our revenue increases, basically, overall revenue was up 29% in the third quarter. Fee income, I guess, in the interest of time, I don't want to really repeat, but if you just go to the press release Lenthat was issued, it'll give you the breakdown, but…

[Unidentified Analyst:]

Okay.

[Joe Harary:]

To summarize, it was up fairly substantially, both between this quarter, the third quarter of this year and the third quarter of last year, and also between the third quarter of this year and the second quarter this year. And I think the biggest and dramatic increase came from automotive and aircraft. So, all good news, but take a look at that.

[Unidentified Analyst:]

Okay.

[Operator:]

Our next question comes from Alan Ginsberg. Please state your question.

[Unidentified Analyst:]

Yes. Hi, Joe.

[Joe Harary:]

Hi, Alan.

[Unidentified Analyst:]

Hi. In the last conference call, you mentioned, I believe at the annual meeting, you mentioned there was three automakers that would comprise, I think, you said 30 times what was done in the whole industry and you haven’t mentioned that today. So, I was curious whether you can give me an update on that?

[Joe Harary:]

Nothing has changed. That statement is still true that I made in the last conference call. I've been asked to say less and less about specifics by the automakers themselves. So, I'm being a little bit more cautious on this call than I was on others. And – but yes, the projections we've been getting from the automakers for use of our glass just taking three of them, yes, could be 30 times what the whole industry did last year.

[Unidentified Analyst:]

Okay, thank you.

[Joe Harary:]

Thank you.

[Operator:]

[Operator Instructions] At this time, we have no further questions.

[Joe Harary:]

I'd like to now make some closing remarks, which hopefully will be helpful in putting the last couple of years in context, but also give you an indication of where we're going.For those of you who have listened to our conference calls over the past several years, we identified what we needed to do.We needed to have multiple producers of SPD film-this has been done.We needed to have wider SPD film so we can pursue the architectural glass market-this has been done.We needed to have SPD technology available at lower cost to the customer-this has been done.We needed greater awareness in the various industries as to what SPD-Smart technology could do for them--This has been done and indeed, customers with new uses for our technology, as well as the traditional ones, are all coming to us and our licensees.We needed a stronger balance sheet-this has been done. We have over three years’ worth of cash and remain debt free. We wanted to reduce internal expenses. This has been done in each of the past four years and for the first three quarters of this year. Ultimately, we want to be cash flow positive and profitable. This has almost been done. This past quarter our net loss was 1 penny per share.Royalty income was up this quarter vs the same quarter last year, and even more substantially between the second quarter and the third quarter.Costs have come down, both internally as we approach break even, and externally in terms of the cost of our technology to the customer. And simply put, lower costs lead to expanded market applications.Awareness continues to spread, and articles in major automotive, tech and general publications have helped.Our pipeline in automotive is now covering more automakers and just this week, yet another car model joined the fold and several more last month.New applications for SPD are springing up that should make it into many homes. We have become a useful, reliable and versatile smart material for uses beyond just our core markets of automotive, aircraft, trains and architectural.In the early years, we had the freedom to speak about more things such as new licensees, appearances of our technology at trade shows, and participation at industry conferences. Now that the product is becoming more widespread and commercial, paradoxically, we can say even less than before because of the nature of the industries we're in and the multiple players competing with each other in those industries.Today you got a glimpse of what ultimately will be the best indicators of our success

[Operator:]

This concludes today's conference call. Thank you for attending.[Author ID1