Research Frontiers Inc Q2 FY2025 Earnings Call

Good afternoon and welcome to Research Frontiers' Investor Conference Call to discuss the Second Quarter 2025 Results of Operations and Recent Developments. 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 the call. Some statements today may contain forward-looking information identified by words such as expect, anticipate, and forecast. These reflect current beliefs and actual results may differ materially from those expressed due to various risk factors, including detailed in our SEC filings. Research Frontiers assumes no obligation to update or revise these statements. The call is being recorded and will be available for replay on Research Frontiers' website at smartglass.com for the next 90 days. I will now turn the conference over to Joe Harary, President and Chief Executive Officer of Research Frontiers. Please go ahead, sir.

Thank you, Erica. Hello, everyone, and welcome to our second-quarter 2025 investor conference call. From an accounting perspective, the second-quarter 2025 results look disappointing, but much of this relates to one-time noncash charges and expenses that we elected to take in the second quarter. I'll go into this in more detail. From an operational perspective, things were actually much better with higher economic activity and sales of SPD SmartGlass during the second half of this year and lower cash expenses. But when you back out one-time accounting charges from the bankruptcy and the replacement of one of our licensees supplying Ferrari and noncash accounting charges from options issued last year that were approved for issuance by our shareholders this year, expenses would be essentially the same or lower than last year and royalties would be up compared to last year. Deliveries of the Cadillac CELESTIQ to GM customers have started. Sales of SPD SmartGlass sunroofs to Cadillac in Q2 2025 were substantial multiples higher than Q4 2024 and Q1 2025 combined. Ferrari roof sales were strong in the first quarter of 2025. However, because of the bankruptcy filing of the European licensee that was supplying Ferrari, due to the loss from this licensee and from other customers not Ferrari, this licensee shut down operations in Q2 2025, so we did not book any royalty income from them for Q2 and wrote off some amounts. This is why royalty income was down this quarter. Also, this bankruptcy filing was anticipated by Ferrari, Gauzy, and Research Frontiers and another existing licensee of ours in Europe was successfully transitioned to supply Ferrari and additional production for Ferrari has already started by this licensee. Now we get into a little bit of the accounting. Because we don't book additional royalty income until a licensee meets its minimum annual royalties, we have not yet seen additional royalty income from this additional supplier to Ferrari yet. So we booked nothing for the second quarter from the licensee that went bankrupt and we weren't able to include any royalty income from the replacement licensee. Based upon the way our royalties under our license agreement were accounted for and the ramp-up of sales to Ferrari, we expect to see additional income from this licensee recorded in the third and fourth quarters of 2025 relating to the Ferrari business. We also expect additional royalty income from other automotive projects starting in Q3 2025. Continued sales of SPD SmartGlass roofs for Mercedes and McLaren also occurred in the first half of 2025. Additionally, I noted that we elected to make certain accounting charges and treatments in the second quarter relating to the bankruptcy filing by one of our licensees. Backing out these charges, royalty income would be up compared to last year. I also note this comes off of a very strong first quarter of 2025 with 79% revenue growth from Q1 over the prior year and 214% from the prior quarter. This growth and momentum for Research Frontiers were driven by increased demand for SPD SmartGlass, particularly in the automotive sector as well as in the aircraft sector with growing interest in new projects in the architectural market. We continue to expect revenue in all market segments to increase further as new car models and other products using the company's SPD SmartGlass technology are introduced into the market. Apart from these accounting issues, our net loss would have been lower this quarter, and we are moving forward towards being cash flow positive. Turning to our financial condition and liquidity, we continue to manage our resources effectively. As of June 30, 2025, our cash and cash equivalents stood at approximately $1.3 million, which is $100,000 less than last quarter, and our working capital was approximately $1.7 million. We remain debt-free. We continue to also see progress in significant developments across our markets. Our SPD Smart technology is currently licensed or used by many major companies serving five major application areas: aerospace, architectural, automotive, marine, and display products in almost every country in the world. As I mentioned earlier, we included some questions previously sent in by our shareholders in our presentation today. I'll now answer some questions that have been e-mailed to us. So the first question comes from John Nelson. There are a number of questions here. SPD Black development update? I'm happy to report, John, that Gauzy may go into more detail on this on their call next week on August 13. But everything is going well and faster than I anticipated. I was recently in Israel visiting their factory and saw the latest SPD film, and it looks really great. It looks far better than what I saw in January at CES. And I think even more important than what I think, the key OEMs really like it as well. You asked me about how the architectural window project is going and if it has officially launched? Well, it's launched on the development side. We've submitted samples for testing for energy efficiency. We've worked out all of the details in terms of wiring and installation and production and things like that. And you asked if I can identify the licensee for us? Yes, it's LTI Smart Glass, which is in Massachusetts, and AIT, which is their affiliate in Largo, Florida. And you asked about some of the projects. They're definitely in the works. And you asked the last question, any effects on your business from ongoing U.S. trade and tariff policy? No effect that we could see. Basically, the general automotive industry, for example, was shaken up quite a bit by tariffs, but they seem to have settled in now and stabilized. The areas that we're in weren't affected at all, but the general market in automotive was affected. Next question is from Steve A. With world opinion turning against Israel, how is Gauzy managing this situation, and are they losing business opportunities from this situation? Is it affecting REFR? First of all, Steve, I disagree that world opinion has turned against Israel and neither we nor they have seen any business loss from this. So thankfully, everything is in good shape there. And now that the markets that we're in are starting to stabilize as people get used to things like the tariff regime and the negotiations are pretty much done in most major markets. I think everything is approaching back to normal again. They weren't affected directly because they have worldwide operations. Your second question, Steve, was with the stock market broadening out, including small caps, you have a great opportunity to present good news to get the stock price moving and much higher. This opportunity should not be lost. We have been stuck in this pattern for so many years. We need to get out of this present cycle. First of all, let me say amen to that. I'm not sure that I would say that the stock market is broadening out to include small caps. If you look at, for example, a comparison of the Russell 2000 relative to the NASDAQ 100, that relationship hit an all-time low last week. So small caps still continue to lag behind the Magnificent 7 in participating. So small caps haven't really rebounded yet from that. And as far as being stuck in this pattern for so many years, I looked at that same chart and this decline in the Russell 2000 compared to the Russell 100 really has been in a downturn for the past five years. Hopefully, that will turn itself around. However, in our case, our plan is to become so big that they can't ignore us no matter where we are in that market. Rick Cyrils inquired whether the Chevrolet Corvette is utilizing SPD in its tinted roof system and also asked about the architectural retrofit market, which I have already addressed. Regarding the Corvette, there seems to be some uncertainty. I've received mixed feedback from the industry on whether it will feature SPD. I have not found any information in our licensee royalty reports indicating that we are supplying that market. I can’t provide much more information at this time, but regardless of what they decide to use, we may have additional business with GM beyond the Cadillac line that I am aware of, though I cannot discuss that further during this call. I hope to share more details later. Carrie Christie inquired about the VW i7, which has seen another PDLC roof win for a major competitor, not REFR. She wondered why SPD is utilized in various prototypes while production is assigned to another competitor. SPD is marketed as a superior product at a competitive price. To address part of that, our prices have significantly decreased due to increased volumes and could drop even more with upcoming projects. Currently, PDLC is much cheaper than SPD, so if it’s chosen for a vehicle, it’s likely due to a misinterpretation of their respective performances. The VW i7 was discussed several years ago, but this does not alter my point that VW has consistently opted for PDLC across its range, even influencing Rivian since VW invested approximately $10 billion in the company, likely leading them to use similar platforms and products. This may evolve. I recently experienced a Rivian, which was aesthetically impressive, but the roof underperformed. It allowed substantial light penetration, making objects like light bulbs in the showroom ceiling visible, which undermines its effectiveness in blocking heat, light, and glare— the primary reasons for its inclusion. Shifting to future projects for SPD, we are observing an increasing number coming to fruition. Although some initiatives may tilt towards PDLC due to the automaker's momentum, many firms are realizing that SPD outperforms PDLC. They are even telling us directly that they recognize SPD’s better performance. This reaffirms that our pricing remains competitive, and it’s possible that some are being subsidized to capture market share. However, such subsidization is only effective to a limited degree, and ultimately, economic pricing will be essential. Another question from Elliott. How should we think about royalties for the retrofit windows? On the sunroof, you had mentioned royalties of about $100 per sunroof depending on size. What do you hope to collect on architectural window replacements? Our licensee in this area is projecting sales in the first year in the high tens of millions of dollars. If we have a 10% or 15%, right now it's a 15% royalty; but I imagine in high volume, they're going to ask me to reduce the royalty to 10% and depending on the volumes, I certainly would consider it. You're talking about royalty levels that can make us clearly profitable even in the first year of the retrofit being on the market. After that, we expect multiples of that. When I say we, the licensee that is producing and marketing this. And if you want their marketing materials, you can see it on the LTI AIT website. We answered the e-mail questions. Now I'd like to open up the questions-and-answer session to additional questions people may have that haven't been answered already, and we ask that you keep your questions limited to questions of general interest. If there's something specific that you want to talk about, a project for your home, let's talk offline. But if it's of general interest to shareholders, please ask. And we can certainly answer any questions by e-mail or calls afterward.

Our first question comes from Bill Denny.

I think you may have answered it a little bit ago. I recently drove the new Audi S5, and they have the tinting technology in their sunroof. I assume that is not from REFR.

No. Since Audi is part of VW, they tend to consistently try to introduce PDLC. It's not getting a very good reaction, but I think that will change over time.

I was not impressed with it, and I kind of figured it wasn't from your company. So I really appreciate you clearing that up.

Our next question comes from Bruce Danny.

Joe, on a recent conference call, you said that we have a future project that will dwarf all our previous revenues. And I was wondering if you could at least give us what category it's in, architectural or whatever?

Domestic and automotive.

Our next question comes from John Nelson.

Joe, my question is a replay of prior quarters. The auto sun visor update built in and aftermarket?

Sure. I sent you an e-mail about this last night, which you might have missed. But basically, the licensee in that has been somewhat distracted by other events in the automotive industry, including general tariffs and moving their factories from overseas to North America. So I don't have much to report on that yet, but there's a little more detail on what I had sent to you last night.

Our next question comes from Chuck Michael.

Two questions really. One was the architectural office windows, you haven't mentioned anything about that today and I thought we were going to make some progress due to domestic as the law was passed on that. And so I haven't heard anything. So if you could comment on that first of all.

Okay. I just wanted to understand about the architectural. I spoke a bit about it in terms of the retrofit being moved forward, and that's being spearheaded by LTI AIT, our licensee in Massachusetts and Florida.

That's for the architectural. Okay.

Right. That's the architectural, yes. And just for everyone's benefit, we think the reason that the retrofit application is going to be a game changer. First of all, no one else could do it. It's been one of the holy grails. The other being the Black SPD, which we talked about also, is being close to fruition here. But the retrofit, we believe, will substantially change the way people introduce smart glass into their homes and offices. What we mean by that is you can actually install an SPD window from the inside of a building. So you don't have to put up scaffolding, you don't have to get landlord approval. It's a lot more like a window shade, but it's not a window shade. It's a sturdy piece of glass that actually adds an extra layer of insulation to the building. And not having to do that means that you can measure and produce windows for any building or home and come in over the weekend so you're not disrupting tenants and installing these in the building. And that's in the private sector and that's somewhat driven by the Dynamic Glass Act because you also get a tax credit. In the government market, it's even bigger because the GSA has a mandate to upgrade the energy efficiency of their windows. Right now, most government buildings have monolithic glass, not insulated glass, and this is a great way to upgrade that to be much more energy efficient. We've actually done types of retrofits in government buildings in the past and they liked it. So it kind of proved out that this is not a disruptive process.

Okay. And the second one, I think it's different from what you've described before today. But in several conference calls recently, you've mentioned or hinted that I guess you can't say too much, but about a new manufacturer coming out with a vehicle soon. And do you have an update on that?

We have a number. So the Asian automaker is still on track to come out. The car hasn't come out, so that really is related to when the car comes out, but it's very much on track and there's activity between us and them and Gauzy as well. So that's moving. I mentioned some new other projects in Europe and North America, and those also are moving forward. We continue to move forward on all fronts with everything. Sometimes the customer gets delayed for other reasons, including moving factories or adjusting to the reality of constantly shifting tariffs that now have settled in. So I think things are stabilizing there, and we'll start to see things start to move.

Our next question comes from Art Brady.

Joe, Art Brady here. I know in the past you used to do a lot of work with Lincoln, and as a matter of fact, you used to have a Lincoln car where we had the annual meetings and now we hear zilch from them. What's happening with Lincoln?

Well, I don't know if you remember, but even the CEO of Ford got on CNBC and said that the SPD SmartGlass roof was definitely going to be in the Continental, and then it wasn't. So I don't want to go into too much detail, but it didn't have anything to do with us or the supply chain. I think it had more to do with the car itself, and you don't see the Continental on the road anymore. But we do have relationships with Ford. There are some projects going on there. And also, I may say that Gauzy has publicly stated that they have good relations with Ford and projects going on. So I think it's just these things have to percolate into cars on the road.

You think that will happen in the next 12 to 18 months?

I don't want to specify a time frame. It could happen sooner or take longer. I expected that when the CEO announced our involvement with the car, it would occur within a week, but that wasn't the case, and that was the CEO's decision, not mine.

Can you also talk a little bit about the whole concept of when you have direct sunlight and you don't have SCD, you really can't use it when there's like sunlight, very strong glare, and 6 feet away you cannot read the time.

I think we'll talk about that offline, Art. It sounds like a very specific idea or application you have, and I'm happy to talk to you about it offline. But yes, controlling heat, light, and glare is what we do best. So I'm sure that we can be a benefit to what you're thinking about. I think we got a break for more questions. Art, I'm sorry. Why don't we continue our discussion at another time?

Our next question comes from Leonard Letzso.

I was just looking at the last conference call, you said you had a couple of new things coming out this year, new OEMs and several right behind it for next year.

We're still moving forward. I think that since that call, we've had other models introduced as well to the mix. So it's something that we and Gauzy aggressively have been pursuing as the automotive market together.

Well, I'm sure you're pursuing it, yes. Do you think we'll see that in the next 6 to 9 months?

I'm hopeful, yes.

Our next question comes from Francis Coterra.

The Asian car that hasn't been released yet, was that the reason why the prediction for 2023 was going to be good for your shareholders collapsed and we didn't see that come forward?

Yes. We expected the car to come out. We were told, Gauzy was told, the R&D people within the Asian carmaker were told, and it just didn't happen. No, I think it had something to do with other things in the car.

Are they going with a different technology or that still?

No. We're having active discussions about not only our current SPD but the new SPD as well.

Okay. In the architectural market, what's going to be the main driving force for someone to install it, savings, energy savings?

One thing I must say, our website has now become really effective at bringing in large projects. I notice the new updated website has attracted very, very large companies and projects, and things like that, and on those, it's energy efficiency. On the smaller ones, high-end homes, and things like that; a lot of times, it's view preservation, heat management, privacy. There's a lot of different things that are driving why people have been asking us to retrofit their windows with SPD.

For a large application?

Large and small. But for the large ones, it's mostly crunching the numbers; nuts and bolts, energy efficiency, ease of facility management. There's a lot of different things that have gone into the decision-making on that. If you don't have to, for example, put window shades in a building or if you can replace motorized window shades, which are prone to jamming and error with something that's very reliable like SPD and give centralized control to the facility manager, these buildings become much easier to optimize for energy efficiency. If you look at some of the studies that were done, there was a Saudi Arabian study that talked about the optimal place and tint for SPD windows in different types of buildings, and there's other studies as well. You're starting to see architects really drill down into the nuts and bolts of why you would use it, and that's good because the data is very favorable to us.

Are there reductions in temperatures?

Yes. Some of the studies that have been done show a 20% reduction in electrical usage in zones that use SPD. In cars, we can reduce the temperature by 18 degrees Fahrenheit. So instead of getting in a car and it being 90 degrees, it's 72 degrees, and you haven't used your air conditioning. Each application kind of has its own footprint, if you will, and benefit. It also depends on where the building is and what it's used for.

And being that there are no competitors in that market, price really might not be that much of an issue?

Well, everything competes with everything. I mean we may not have smart glass competitors in the architectural market with View and Halio going bankrupt. But we still compete with window shades and vertical blinds and curtains and the more traditional ways of controlling light and shading. So everything has a competitor. We can't go crazy. But on the other hand, there's really demonstrable benefits to use this.

What type of voltage is needed for your switch?

In the architectural applications we're using, it maximizes transparency at around 80 volts AC, and then what you're doing is using milliamps per square foot. So the power draw is negligible even at 80 or 90 volts from a home application. In cars, we're running off the 12-volt battery.

Which probably goes to a converter to AC.

Exactly.

Our next question comes from Jared Sherman.

Who is the licensee that went bankrupt?

We're not naming the name, but it was a European licensee that was supplying Ferrari.

What's the secret? Like why is it so top secret? I don't understand.

Well, I think if you do a search, you'll see which glass companies have gone bankrupt. I just don't feel comfortable revealing private information that I've been given. To the extent it's been public, you'll find it. It doesn't really matter though because we've moved that over to another European licensee as I said earlier on. So it's not...

But how do you guys have a licensee go bankrupt? You don't vet them? Like you don't think it's a big deal, but now we're out a quarter and we made $100,000 deal. It's a disaster, an absolute disaster.

All right. Well, excuse me, okay. I understand your frustration, and I'm as frustrated as you because on June 30 when they filed their bankruptcy, that's when we had to take the accounting action we did. We did get paid, by the way. Now we do vet them. They're a well-established company, and unfortunately, they overextended themselves with other customers. The Ferrari business was a good business. The rest of the business they had wasn't so good, and the customers left them. If you know what's happening in the automotive industry, there's always changes in suppliers. This was something that with their overextension, they weren't able to handle. It has nothing to do with SPD. The SPD business was probably the crown jewel of what they had. But given the size of the company and the weight of these other customers, they weren't able to sustain it.

It's not a good look. It's just one more thing that goes wrong with you guys over 30 years of the same thing.

Sure. And let me ask you if you have a well-established company that's been in the glass business for decades that goes bankrupt, what do you expect?

Well, they're not that established then. How well established are they if they went bankrupt? They're not that established. What happens to Gauzy? How's Gauzy? What happens if Gauzy goes belly up? What do we do then?

You could start chasing shadows, but you should understand that one of the benefits of our business model is when somebody goes bankrupt, we were able to move the business seamlessly to another supplier. We didn't lose the Ferrari business and that's I think the important thing, okay? One licensee because of activities unrelated to SPD went bankrupt. I don't run their business.

I get it. I get you don't run their business, but it just seems like we can't move forward at all. We're making no progress. I mean it sounds like you always say we have something next quarter, we're doing well. But there's never any revenue that associates with it, Joe. It's ridiculous.

Okay. Look, if you're not happy with the state of affairs, then nobody is forcing you to be a shareholder. But I'm telling you that we got paid in full. We got paid in full for what we were owed, okay? They went bankrupt and we weren't able to book additional revenue for the second quarter. The way that our accounting systems are set up under ASC 606 is that the new licensee that took over that business in the second quarter didn't exceed their minimum royalties because of the timing. So we didn't book additional revenue from them, and we lost revenue from one. It's just an accounting issue, okay? From a cash flow standpoint, we're basically whole.

So can we expect any guidance for the third quarter that you're going to show that you're going to have a bump in guidance from the original third quarter?

Well, I can't tell you until I get the royalty reports what it is. But I think, yes, we're definitely going to be up from the second quarter.

Yes. I would hope so.

No, no. Look, I share your frustration. Nobody likes to pick up an e-mail and see that this happened. But fortunately, we're able to plan for it.

Our next question comes from Alan Ginsberg.

On the same topic that the previous caller just talked to you about.

Yes, about the bankruptcy.

Well, not really. It's more like multiple suppliers. For example in this promising area in architectural where you have retrofits, do you just have one supplier? I mean what would happen if they had a problem? Why wouldn't you have multiple suppliers?

We do and that's exactly why we were able to transition the business with Ferrari seamlessly because of that. I think one of the things that we were very successfully able to do is minimize risk to investors in our company, okay? If this happened to one of our competitors, View or Sage or Halio, where they lost a major, major either source of supply or customer; that's it. It's game over, nothing happens, they go bankrupt. And they did, last year two of them went bankrupt, okay?

That doesn't have anything to do with Research Frontiers. You always bring that up.

Alan, but our business model and the fact that we do have a diversified group of licensees allows us to adjust to these things that would kill other companies. We were able to shift this over so that there was no supply disruptions. It may have an accounting blip and not a cash flow blip for us, but we were able to do it. I think that's one of the hallmarks of our technology and our company is that it's a low-risk way of investing in the smart glass market. If you look at the history, look at the last 30, 40 years, all of these companies that have tried to do what View and Sage and Halio did are roadkill on the side of the road. They don't have the same risk management approach that we do. We're very good at this.

But you only have one supplier of film, Gauzy. Why wouldn't you get another one to mitigate what you're talking about in that area?

If I thought there was a need for it just like when I thought there was a need to find a replacement for the licensee that went bankrupt, we would act on it.

Our next question comes from Bruce Danny.

Saudi Arabia, as you probably know, has a gigantic project called the 1,000 Mile City.

I would love to get into that, and we've tried and we are trying. It's a cool project. It would be very interesting to see that. I think it's going to be one of the seven wonders of the world at some point.

Well, they're saying they want it done by 2030.

If you throw enough money at it, you can do that, and if we have a retrofit, you can make it smart. Absolutely, and the top floor. We have a presence in Saudi Arabia.

Our next question comes from Neal Goldman.

A couple of questions, Joe. First of all, will the third quarter have a bump up because of the new licensee since you didn't lose any sales, but they didn't meet the minimum number?

Yes, if they surpass their minimum annual requirement for the year, which is quite high. I'm uncertain about how much of an increase we would see since they still need to exceed it. However, if they do, it will certainly elevate the figures. Additionally, we have other projects that have already been reported by some licensees, and we anticipate Q3 revenue coming from the automotive sector as well.

Okay. And in terms of the architecture, when you're dealing with large commercial buildings and you don't have to use the scaffolding, is there a major cost savings separate from the heat issue?

Sure, yes. So anybody that's lived in a major city is alluding to the scaffolding that you have to put up anytime you work above the sidewalk so that windows, bricks, and other things and tools don't fall on pedestrians. It's expensive to put that up. First of all, there's materials and there's labor unions and there's disruption to the business. If you're a retail outlet on the ground floor of one of these buildings, your business suffers. The only people that like the scaffolding are me when it's raining because I can take my dog outside and he doesn't get wet. But other than that, we haven't figured out any benefit to it, and it's very disruptive. Being able to avoid it by being able to put the smart glass from the inside is a huge, huge benefit.

In the past, you've indicated that the second half you'll start seeing revenues from architectural.

Right. From the retrofit specifically, yes.

Yes. And you're starting to see that?

Yes. What we're seeing, Neal, is that there just like investors have different entry points into anything, architects and designers and facility managers also have different entry points. Some are going to want full energy data and things like that, and some are saying intuitively I think this is going to make a big difference, and I'm going to put it in now without that. You'll start to see those are the early adopters. I think the government will also see it as an early adoption thing, and that could be a huge customer. I mean the GSA is, I think, the largest customer in the world.

What's the capacity of your supplier of that in dollars?

They can generate a significant sales figure in the high tens of millions in the first year, and they have the potential for further growth if necessary. The profit margin is substantial enough for them to easily duplicate their current operations.

Okay. So you're saying that it's starting now. You're getting some orders and this is the first year. So let's say, the second half of '25 is the first half of the first year. So you're saying tens of millions between now and June of '26 and then it ramps from there significantly?

Yes. While I wouldn't consider this the official start, as we still have a range of adopters who will be laying down energy data, which takes several months to gather, we will likely see early adopters begin to come in around now. However, when we discuss the projected high tens of millions in sales from the licensee, they are referring to when everything is fully established. There will be some revenue this year, but the significant revenues will emerge once we have everything finalized, which may take several months to commence.

Okay. I assume you'll announce the first meaningful architectural wins using the retrofit.

Yes. Unlike automotive where they're very secretive, I think in architectural they'd be very proud to talk about smart windows because it becomes a building feature that helps them sell or rent space.

Our next question comes from Bill Denny.

Joe, it's my second question today. I'm a shareholder. I did hold shares about 26 years ago for some time. So I'm back. My quick question is regarding the automotive industry. I hear a lot about the sunroofs. Is the SPD technology also being used in like windows and the doors and around the car?

Yes. So that's a great question, Bill. The primary market up until now has been sunroofs because you have a demonstrable benefit, an 18-degree difference in temperature just by putting it in the sunroof and getting a couple of extra inches of headroom by avoiding the pull-across shade and all these other things that increase the comfort, stability, and energy efficiency of the car because of just the sunroof. Now Mercedes this past quarter introduced a combination SPD-PDLC in their luxury van and some of the things that we have in development at other automakers are in different areas of the car than even that. It will be interesting. I've made the analogy in the past, but it's maybe becoming a little bit more close to reality that I view what we have almost as like having 250 patents on stainless steel. We haven't figured out all the things that stainless steel is going to be used in, but having the patents on the material is a very valuable asset to have as a company.

Okay. And one quick follow-up. The residential market, I'm a real estate agent. What's the growth like on residential homes across the country?

We are receiving inquiries from some very high-end homes, as well as smaller projects. In terms of our approach to residential homes, we'll likely prioritize the larger ones before moving on to others. It's not about costs; it's more about focus. When it comes to office buildings with one decision-maker but many windows, we will target those opportunities first. Similarly, for large homes that showcase our technology due to their quality, we will focus on them to a degree and then transition into the mainstream market.

Jared Albert has a couple of quick questions. I don't want to go on and on. The first quarter of '25 showed a nice increase, the fourth quarter of '24 was quite poor, and this quarter clearly relates to the EGP bankruptcy at least in part. How much of the first quarter was stockpiling by Ferrari in anticipation of this bankruptcy?

I think they started long before that. We've been talking to them for quite a while about what the contingency plans would be if something like that happened. We keep our ears to the ground with everybody that's important to try to make sure that there aren't disruptions. I think up until a week before the bankruptcy, they thought they were going to reorganize and sell the company. So just with the customers pulling out, it became something that wasn't practical for them.

So with the current automotive mix kind of ceteris paribus in terms of architecture, somewhere between 4Q and 1Q is kind of the steady state run rate for fee income. That's kind of where we're at now?

I don't know if you could say there's a steady state. Fourth quarter is always low for automotive because you're trying to clear things out of the showroom. I don't think Ferrari had that problem, by the way. I think they sold anything that they put out there, and it wasn't an issue. Some carmakers, I don't think Ferrari had to do this, but some carmakers stopped production. Jaguar for example wasn't selling into the U.S. for a while until the tariff situation stabilized, but it didn't affect us. But Ferrari, they were merrily selling this roof and making a good profit on it.

Okay. In terms of the Corvette, I was glad you mentioned it. It has an intermediate state. I noticed that the Toyota Crown now has an intermediate PDLC state, but it looks like it just varies behaves. It sounds from what you're saying that you're guiding against the Corvette even though it's a General Motors product. Is that the takeaway that we should not expect the Corvette to be using SPD?

Like I said, it's a mystery. I'm hearing different things out in the industry about it. The GM Authority had an article where they said it's a technology similar to what's in the Cadillac, which can mean it's the same thing, or it can mean it's a different one, but sort of looks like it. It's like the difference between Kosher and Kocher Style. And then I guess the other part of it is probably I would have seen in our royalty reports some mention of this unless it's such a small amount that it didn't hit the reporting thresholds. But I don't think it's us. I think that will be in other cars outside of Cadillac within GM, but I don't think that's us. And as far as the intermediate states, yes, just to go back to the other question, you can do intermediate states with PDLC too. It doesn't look good at all because what you're doing with PDLC is increasing the haze levels and the light scatter. So an intermediate state would look like a dirty window. You know what I mean.

Yes, I understand. Moving on to LTI AIT retro. Should I be concerned that their website is still down in terms of putting in orders for this stuff, or am I wrong? The link in the PR is dead, and the link from the LTI site doesn't really go anywhere.

Yes. I don't think you should read anything into that. I don't know. But I think that the initial projects are going to be direct sales from people they know like the government. They already supply the U.S. government. So I think that when they have everything ready with the data and everything is tied up in a bow, they probably will reactivate that.

Okay. Last question, Joe, very last question. Like the other Jared, we’re all disappointed if you called in. But my question is at this point not your insight from being the CEO, but your personal opinion. My personal opinion is that SPD is not yet good enough. PDLC is good enough to get into these models. But we have...

That's not my personal opinion.

That's my personal opinion. Okay. Let me finish, and I will get off the phone to let the big guys have their time. My basic point is that with the sole supplier, you talked about themselves as a sole supplier, and they have to protect their margins. But you look at a project like the CLA Shooting Brake and you think there's probably a good, better, best upsell, downsell kind of model internal to them. And so...

Yes. I'm glad you brought this up because I think it relates to your question. If not, I apologize for providing extra information, but I believe more information is beneficial. Regarding the CLA Shooting Brake, we have had direct discussions with Mercedes. They aimed to achieve a specific price point, which was not feasible with SPD. The vehicle needed to meet a certain pricing criteria due to its competition. This was also strategically vital since the high-end electric vehicles from Mercedes, specifically the EQS, which is the electric replacement for the S-Class, have not performed well, and they have acknowledged this. Mercedes indicated that Joe will be disappointed. We recognize that SPD has superior technology and performance, meeting our required standards. However, the pricing will not align with our strategic goals for the Shooting Brake. I was informed that the price for PDLC, potentially at a subsidized rate to secure volume business or simply to gain entry with Mercedes, was 75% lower than that of SPD. So, regarding your inquiry about whether this price gap is sustainable, it will be challenging for someone to incorporate SPD without certainty about PDLC’s general performance since the reasons for choosing PDLC in these vehicles are often unclear. For instance, Rivian's use of it did not impress, as noted by Denny, who found the PDLC in an Audi lacking, and my experience with the ID.4 and ID.7 was similarly disappointing.

I've been in an IX and I've been in an S-Class. So I understand that. But my point is, and I know I said last question, but I'm going to leave you with this thought because the issue is not price. The issue is the Venn diagram that leads to value. At this point, SPD is too expensive. It doesn't offer enough performance advantage over PDLC, or it's just too difficult to source for a variety of reasons to that equation.

Not difficult to source, and the price I think is the issue here.

Gauzy has introduced a new stack that likely addresses some of the challenges related to refraction and reduces costs. As you continue to tackle these various issues, there's a possibility for progress. This was the main focus of my inquiry. Essentially, the response is that there are incremental improvements needed to lower the price to a level where this technology can be included in products.

I don't think it's very rational. Every time you succeed with the high-end car, you lower your costs on the low-end cars. We are getting closer to a point where the performance difference between SPD and PDLC becomes significantly more important, which favors SPD as we reduce the price. This is something we are all focused on.

Well, I mean we're the same stable of cars all these years.

Our next question comes from John Nelson.

Joe, I might have missed this, but is the retrofit expected to launch in the third quarter or the second half of this year?

Second half. When I say launch, you'll probably have a soft launch with some key customers and then a bigger launch when you have the data all tied up in a bow.

At this time, we have no further questions. I'll turn it back over to our host for some closing remarks.

Okay. Thanks, and thanks, Erica. If we haven't fully answered any questions that were either e-mailed to us or in our presentation or in the Q&A, just call or e-mail us, we're happy to talk to you. I'm going to make a few closing remarks. I think it's pretty clear not only from us, but from the history of what's happened to our competitors, we're in a tough industry, but also as history has shown, we're tougher. We know that there's never a straight line to success, and because of this, we built our business model to reduce risk to our shareholders as new projects for our technology come online and generate more revenue. We have the staying power. We buttressed this by investing and having a robust and high-performing technology that controls light and that has been proven itself in tens of thousands of cars, aircraft, boats, and buildings. We face competition from the Chinese market mostly from PDLC, which has inferior performance characteristics when used for anything other than privacy or projection applications. We face competition from electrochromics in small surface application areas such as rearview mirrors and to some extent aircraft windows although we’re in Boeing and Airbus now. So I think we're starting to do very well there. But we also have superior performance head-to-head in every high-volume area such as sunroofs, panoramic glass roofs, windows for homes, offices, apartment buildings, yachts, cruise ships, and museums; high volume, high surface area where electrochromics are just going to get too slow to work and work well. We're not the low-cost alternative to these other technologies. We're the high-performance alternative. We don't have to be the low-cost alternative, although lower the cost, the better for everybody. If you look at many technology-based products, there are low-performance, low-cost alternatives that exist. I'll give you some examples near and dear to my heart. The automotive industry; take tires, brakes, headlights, infotainment systems, or in consumer electronics; smartphones. History in all these categories shows that the high-end is the most profitable and also the most enduring because high-performance products are more likely to withstand inevitable competition from new entrants. We also have efficiently managed our capital expenditure requirements by keeping operational expenses low and licensing our SPD SmartGlass technology to larger companies who make these capital expenditures and build factories, establish sales networks, employ people, and cast a wide footprint worldwide. Through their efforts, we benefit from these activities. And this quarter showed the importance of diversification. We have a number of licensees. Sometimes they overextend themselves. Sometimes the industries they serve go through ups and downs that they cannot weather, and sometimes they lose key customers. When this has happened to our competitors such as View and Halio, they went bankrupt. When this happens to one of our licensees such as the one in Europe supplying Ferrari, we simply diverted this business to another one of our many fine licensees, and production continued. With a 10% to 15% royalty based on revenues from SPD SmartGlass products by our licensees in diverse industries, we're able to capture profitable business and weather the cyclical nature of the industries we're in. Research Frontiers created the smart glass industry, and our leadership role has helped shape it, and we will continue to do so. We appreciate everyone's support as we move forward and continue to expand the use of products using our SPD light control technology to make the world better, more energy-efficient, safer, and enjoyable. Thank you all very much.

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