Research Frontiers Inc Q3 FY2025 Earnings Call

Good afternoon, and welcome to Research Frontiers investor conference call to discuss the third 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 of this 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 those 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. Now I'd like to turn the conference over to Joe Harary, President and Chief Executive Officer of Research Frontiers. Please go ahead, sir.

Thank you, and hello, everyone, and welcome to our third quarter of 2025 investor conference call. Automotive and total royalties were up year-over-year and sequentially when we back out onetime events from 2024. As of the end of the third quarter, we remained debt-free with over $1.1 million in cash and our working capital position remains solid. Our architectural retrofit system debuted this week at GlassBuild 2025 in Orlando. The show ended earlier today, so my voice may be a little hoarse from speaking with customers since Tuesday. We had an outstanding response. John Nelson had asked by e-mail a few questions about the show. What was the response? Were there any orders obtained for either the retrofit or the IGU products? We had a steady stream for all 3 days of interested parties, John, and they were amazed at SPD's performance and the ease of installation and elegance of the design of the system. Full spec sheets for different configurations of SPD windows for architects, designers and facility managers were handed out. John also asked, how are you planning to market these products and to whom were any orders obtained? Initial customers are expected to be the government buildings through AIT Group's status as an approved GSA vendor, embassies across the world and commercial buildings such as high rises and office buildings. Homes are possible as well, and we are working together on some high-end projects there as well. We've also identified and are discussing specs for at least 2 major and highly visible projects. The idea for GlassBuild and all of the shows and conferences we attend is to get the conversation started and for AIT Group, Gauzy and RFI to have real-world demonstrations underway. We and our licensees plan to build on that momentum through major trade shows early this year and even at the GLASSTEC 2026 show in Dusseldorf. That show is only held once every 2 years and is the largest glass industry event in the world. With respect to cars, we will also similarly build on momentum in the automotive market. As I noted on our last conference call, the bankruptcy of the original licensee supplying Ferrari and the shift of that business to another one of our long-standing licensees caused royalty income from strong Ferrari sales to be mostly absorbed by the high minimum annual royalties to be paid by that new supplier at the start of 2025. In real terms, because of the prepaid minimum annual royalties from 2 licensees absorbing the Ferrari sales royalties, and this was something that only first happened this year in our history, the switch from one licensee to another from an accounting standpoint reduced our reported automotive royalties this year by 6 figures. Even so, our royalties in Q3 and for the 9 months after the onetime events are backed out from 2024 are higher than last year. And even with this and the Ferrari business split between 2 licensees for the first half of this year, because of the sales levels achieved in Q3, the MARs for this licensee have now been exceeded in Q3. So some of our royalty income comes from this licensee in the third quarter and all of the royalty income generated by Ferrari in the fourth quarter will now become recordable in full in the fourth quarter. We expect revenue in all market segments to increase further as several new car models and other products using the company's SPD-SmartGlass technology are introduced into the market. Turning to our financial condition and liquidity. We continue to manage our resources effectively. As of September 30, 2025, we held approximately $1.13 million in cash and had working capital of $1.4 million. We remain debt-free. One shareholder, Jared, asked if we plan to raise additional capital. We do not currently plan to raise additional capital, assuming that we don't have a repeat of the Q2 licensee bankruptcies and none are expected, by the way, and we collect what is owed to us. We have had interested investors approach us, so capital is available if we ever need it, but there's no current plans to raise funds. We continue to see progress and significant developments across our markets. Our SPD Smart technology is licensed or used by many major companies in 5 areas: aerospace, architectural, automotive, marine and display products in almost every region of the world. And we have had some very key developments within our industry since the last conference call. I can say we never had a more full pipeline of projects and opportunities. Some are medium term and some are near term with the timing and ability to announce more in our control. A good example is the architectural retrofit system. I was at GlassBuild in Orlando for its launch there this week by AIT. Show was outstanding. AIT Group, Gauzy and RFI received enthusiastic responses to this, and we're working together to announce more details. In the architectural market, we will be following it up with major shows in January, February and perhaps several other shows after that, culminating with the GLASSTEC show in Dusseldorf in October. That show is the world's largest event for the glass industry and is held every 2 years. It gets considerable attention just like GlassBuild in Orlando did. We also expect to have SPD-SmartGlass for the automotive, architectural and aircraft markets in January at CES. And in addition to all this, there is something really exciting later this month. As we announced in yesterday's press release, I am the keynote speaker at the Automotive Glazing Conference in Detroit, November 18 and 19. After being selected to give the keynote on SmartGlass, I am also quite honored to have also been named the Chairman of the conference as well. And I'm looking forward to an illustrious group of automakers, suppliers and colleagues presenting and attending that conference. These include executives and engineers from General Motors, Ford, Volkswagen, Stellantis, Lucid Motors, Jaguar Land Rover, Corning, Kuraray, Carlex Glass, Saint-Gobain Sekurit, NSG Pilkington, Fuyao, Guardian Industries, Renault, Webasto and others, representing the entire automotive glazing value chain from OEMs to Tier 1 suppliers and glass innovators. As I mentioned, we included some questions previously sent in by our shareholders in our presentation today. I'll now answer some additional questions that have been e-mailed to us. Jared emailed in 3 questions. Are there any SPD retro wall installations? Is there a capital raise in the near future? And how does Gauzy's prefab lam stack benefit SPD? Well, I answered Jared's first 2 questions in my presentation earlier. Regarding the Gauzy prelaminated stack, it benefits the SPD industry in multiple ways. It promotes consistency and quality among different manufacturers with different capabilities. It helps the customer be more able to easily interchange suppliers because of the consistency, and it also enhances performance by using a combination of materials in conjunction with the SPD film to create an optimized stack in terms of UV and IR protection and optical clarity. It also speeds up production times by our licensees, minimizes costs from wasted materials and other similar efficiencies of scale. Some other questions from John Nelson that were e-mailed to us prior to the call. Any update on the sun visor, either aftermarket or built in the windshield? Well, John, since our last call, we've had more customer inquiries about this and some OEM activity as well. SPD Black development status. John, I'll be talking about this in my closing remarks later. Is there much interest by automakers in developing SPD for side windows? Yes, John. Apart from Mercedes concept van earlier this year, there is interest. This is one area that can greatly benefit from the black SPD. The Sapphire Blue SPD is perfectly fine for sunroof, but I believe that the automakers want black or a more neutral colored SPD, which is better suited for side windows. Steve asks, it was nice to see some price action in the stock of Reefer a few weeks ago. Are we still lagging the market? And what will we need from REFR to see higher valuation going forward? Well, thanks, Steve. And as a shareholder myself, I too want to see higher stock prices. However, just one of the assumptions you made. When you back out the Magnificent 7 stocks, we're not lagging the small-cap market. Over the past 6 months, as of yesterday, REFR outperformed U.S. micro caps. We were at roughly 68% in the last 6 months versus 38% for the general microcap market. The next question from Steve is, is anyone replacing Michael LaPointe from his recent retirement? We're not replacing Mike. He did a great job for us as VP of Aerospace Products and got many programs underway to the point where our licensees in the aircraft market and their teams of people are now able to carry the ball beautifully. Mike and I have spoken often in the past 2 months, and he's enjoying retirement and keeping busy, but he still keeps a close eye on things at Research Frontiers. I'll now ask our operator to open up the conference to any additional questions people participating today might have that we haven't already covered. We ask that you please keep your questions brief and limited to questions of general interest. If you want to get into more specifics, we can certainly do that by e-mail or by telephone later. I plan to also cover a lot of exciting information and developments in my closing remarks. So I may be addressing your question in more detail actually in my closing remarks, and we'll let you know if that's the case when you ask your questions.

Our first question comes from James Leo of RBC.

So I mean this call is kind of like Groundhog Day. I mean it's the same call over and over again. I look at the 5-year growth rate of the company at minus 3%. And I'm just curious where are all these car sales that you've been saying we're going to be coming?

Okay. Well, I try to go into a little bit of it, James. Ferrari has been doing very, very well for us, increasing.

We know about Ferrari already, right?

Yes. However, the accounting treatment requires that when one licensee goes bankrupt in the second quarter and another takes over, they must fulfill their minimum royalties before any new income can be recorded. I anticipate that I will discuss some exciting developments in the automotive sector during my closing remarks.

I mean, how many quarters ago did you announce that there was going to be a high production car coming out? Was that 2 years ago?

And we'll be talking about that. Things take a while in the automotive industry, and we do it right as I think history has demonstrated. But if you wouldn't mind holding the rest of your question for the closing remarks, and if I haven't answered them, you could always call me. I'm happy to talk to you.

Next, we'll hear from John Nelson, an investor.

Joe, I have a thought. Since the retrofit product is quite revolutionary and you have mentioned it is production ready, would it be worthwhile to explore whether any new shows or podcasts might be interested in featuring your product?

Yes. We currently have a few discussions ongoing regarding that. The best way to experience the retrofit, John, is to see it in action because it’s remarkably simple and elegant. The AIT Group, which owns LTI, our licensee, has worked out many subtle details. For instance, when you install it in a window frame, ensuring a good seal is important. Creating an air space enhances energy efficiency, and it’s crucial to prevent moisture from being trapped inside. Additionally, we are developing various wiring methods, including an exciting and feasible concept of an autonomous window, which means it’s self-powered. You can install it in the window frame without needing an electrician. At the show in Orlando, I received a compact remote control that operates at 10 volts, has no wires, and allowed me to control the SPD windows easily. This was an off-the-shelf controller, which significantly reduces costs by eliminating the need for specialized electronics and simplifies integration into building control systems. Many people already use Lutron systems, so it’s important that it works with low-voltage Lutron products. We aim to make these aspects more visible so that people can truly understand how simple it is to use. The harder we work, the more effortless and elegant it appears, and a great deal of effort has been invested by Gauzy, the AIT Group, and Research Frontiers to achieve this seamless look.

Are AIT Group and/or Gauzy producing a video demonstrating the product's qualities?

Yes, they will be doing that and also appearing on podcasts and industry events. We hope to create some appealing visual assets to help promote our message more effectively. I found the GlassBuild show particularly interesting because it had a strong turnout from the right audience. When it came to the retrofit replacement, there was a large and heavy bullet-resistant glass window that could be easily replaced. I saw someone, who was considerably smaller than me, manage to handle it without any issues. The real advantage is that you can upgrade all the windows on several floors of a building in just a weekend. They completed a project for the White House, and due to the nature of the location, they had to work from 5:00 PM to 2:00 AM with the Secret Service present. Despite the challenges, they successfully upgraded the executive building with this system, demonstrating its ease of use. Regarding distribution, which ties back to your earlier question about our marketing and deployment strategies, the installation can be handled by virtually any installer, as it does not require high skill levels. This means that groups of people across the country can undertake these upgrades. You might think of it as a very elegant storm window.

Next, we'll hear from an investor, Francis Altera.

The installation in the White House, what was the actual product that they installed?

That was an anti-eavesdropping bullet-resistant glass. So bullet-resistant, you understand, and they can now do Level 10, which means they could stop a 50-caliber round. And they had some there. I wouldn't recommend sending near this stuff when it's being shot at. But the anti-eavesdropping, you can shine a laser on a piece of glass. And if you and I were talking in a room, the glass would vibrate and someone from the outside might be able to shine a laser on the outside of the window and turn the vibrations back into sound, which is sometimes what's done in spycraft. So this special film that AIT Group and LTI can put in their windows, and they've done it for the CIA and others. And for Embassies prevents that from happening.

Okay. It's pretty cool. Is that glass capable of having SPD on it?

Yes. So that's a great follow-up question. So the way it would work, let's say, I'm a facility manager or in charge of an Embassy somewhere, the building of an Embassy and we have existing glass, and I want to make it upgraded. What I would do is go on the GSA schedule, which is basically if you're a GSA-approved vendor, the government can buy directly from you. And it's almost like a Chinese menu. So the plan with this is to have AIT Group have a whole different bunch of options for the retrofit. So for example, if I particularly wanted bullet-resistant glass and I wanted bullet resistant up to Level 8 or Level 6 or Level 10, and I wanted it to have the anti-eavesdropping glass and I wanted it to have SPD. I just check a couple of boxes and order it. And that's the idea. It's like a Chinese menu. If I didn't want the anti-eavesdropping, but I want the bullet resistant in the SPD, I would just check those 2 boxes. And obviously, there's different prices for different things. But that's the idea is to make it very easy to deploy across the U.S. government.

How capable is the supply chain setup for the architectural market? And is it right now being focused on the blue tint or the black tint?

Currently, our efforts are concentrated on the existing commercial film, which is the blue, Sapphire Blue. One of the advantages of this retrofit system is that if the black variant is released next year and I choose to upgrade my Embassy or building to the blue, I can easily switch to black later on. If I decide that budget is not a concern and I truly want the black, someone can come in and within a weekend, replace the entire building with the black film. This feature really ensures that the system is future-proof, which is excellent.

How far along is the black?

I'm going to talk about that in my closing remarks, but it's very, very far along.

Okay. Now you mentioned increasing sales with Ferrari. Whatever happened to Hyundai?

I'm going to talk about that also, but it's still moving forward.

Still moving forward. What caused them or whomever it was to totally not follow through with the 2023 projection of us being greatly rewarded? What happened there?

My understanding is it was partly due to the car itself, not the SPD component. I suspect that if you know a black option is coming and you aren't in a rush to include the blue in the car, you might hold off. Some automakers have mentioned this while others have not, which could have unintentionally led to a slowdown in certain areas. However, in general, the sunroofs are performing well with the blue option. In contrast, things like side windows tend to prefer the black option.

Is there any difficulties in producing it? Do you have a good sense.

You mean the black or the retrofit? Or both?

Retrofit.

No. No, no. A matter of fact, AIT Group has an entire building devoted to just the framing system for the retrofit.

What about the supply...

That's building three, and I understand that building four will be ready if they reach capacity in building three. So they also have room for expansion.

Yes, but that's the frame. What about prior to the glass?

Well, they can do glass all the time.

The lamination.

Yes. AIT and LTI operate a significant facility outside of Tampa in Largo, Florida, and they have another even larger facility in Pittsfield, Massachusetts.

Does Gauzy do lamination in-house? The lamination is done in-house with...

Yes, that's their specialty. Laminated Technologies, LTI is the part of AIT Group that does and has done SPD lamination for our licensees for a long time. They have very good experience.

So Gauzy makes the film, ships it to them and they do the rest.

They laminate it. Right.

Right.

And Gauzy was at the show yes, Gauzy was at the show along with AIT and of course, me.

On our last conference call with Gauzy, they never even discussed SPD. Why did they not even address that? I found that to be somewhat odd. Would you have any thoughts?

Yes, I've had this discussion with Gauzy. There's a very sexy high-growth part of their business. That's their switchable film division. And they have a very bread-and-butter part of their business too, things like the Safety Tech division, which does the cameras for trucks and things like that. And as a new public company, I guess they were advised to stick to kind of the more traditional way of presenting your company, which is here are your revenues in each division, here's your EBITDA in each division, and they have about 5 different divisions. So they devote some time to it. From a shareholder value standpoint, I believe they would do much better focusing on the growth areas like SPD. And I've expressed that to them, and I think they're getting that message.

We have no questions at this time. I'll turn it back over to you for any additional or closing comments.

Thank you for your attention. If there are any questions we've not fully addressed, either live or via email, please reach out, and we're here to assist. I'll provide more detailed insights in my closing remarks, which should help clarify many of the inquiries raised. Success is often not straightforward, and your ability to navigate through challenges greatly impacts the results. Some competitors have failed entirely and faced bankruptcy. During our previous calls, I've discussed our retrofit application and how the automotive sector regards SPD as the leading switchable tin technology in terms of performance and reliability. We're now witnessing tangible outcomes from our earlier discussions, even if not always within the expected timeframes, but progress is steady. The architectural retrofit application was showcased recently at a major U.S. Glass conference and will feature at more significant global events. Our retrofit customers range from government to commercial sectors, with government adoption presenting substantial opportunities. The GSA is the largest customer globally and advocates for SPD Smart Glass in the private sector through tax incentives like the Dynamic Glass Act, which offers significant credits. This should hasten adoption, especially given how conveniently existing windows can be upgraded to SPD Smart. The recent announcement concerning the Detroit conference, where I was also selected as keynote speaker and Chairman, underscores our rising credibility in the automotive field. Various markets are now recognizing the advantages of SPD Smart Glass technology. This industry is challenging, as automakers require excellence and are often misled by competitors who overpromise and underdeliver. We counteract this with our worldwide network and superior smart glass technology. Over the past year, two competitors have gone bankrupt, and another underwent a drastic stock split yet continues to trade at minimal values and faced leadership losses. Additionally, another competitor failed to deliver an electrochromic sunroof, which is still experiencing production constraints. When I visited a dealership to inquire about it, the salesperson expressed doubts about its tint-switching abilities due to sluggish performance, mentioning that the option would only be available in a couple of months. Recently, on October 24, 2025, during the third quarter earnings call, the COO and CTO of Gentex Corporation, a respected company, made notable comments about the significant challenges in introducing switchable tin products into the automotive market. The demand for dimmable sunroofs and visors is increasing, and our teams are diligently transitioning this product from single-unit production to scalable manufacturing. This process is highly complex and challenging. Currently, we use partners to manage parts of production while preparing our larger-scale equipment to be operational in-house by late Q1 or early Q2 of 2026. As with any new product launch, there will be obstacles. However, given Gentex's manufacturing capabilities, I am confident that we can introduce this product within the next 18 months. Gentex was asked what remaining steps were needed to achieve commercial viability. They acknowledged the ongoing challenges that include meeting OEM requirements and environmental standards, especially for large glass pieces with dark surfaces, where minor production issues become apparent. Overcoming these hurdles will be critical as we enhance our in-house capabilities to improve process quality. Research Frontiers had resolved similar challenges 15 years ago, successfully bringing SPD-SmartGlass into mass production with four automakers and various models, even expanding our partnerships with brands like Ferrari. This resilience amid two supplier bankruptcies attests to our robust business model, strategic planning, technology, and partnerships. Our goal remains unchanged: we deliver the best-performing smart glass technology through a low-risk, asset-light business model. This strategy ensures predictable expenses, maximizes our growth potential, and fosters global diversification. These accomplishments are gaining public recognition. At the upcoming Detroit Automotive Glass Conference, I plan to present a comparative analysis of major glass technologies and their respective strengths and weaknesses. I will explain why SPD has been validated across numerous applications, including cars, yachts, aircraft, and architectural projects, proving its effectiveness in real-world scenarios. While we provide superior performance against PDLC in privacy applications and outshine electrochromics in large-scale uses—like sunroofs, panoramic roofs, and architectural windows—we maintain faster response times and better durability. Recent comments from Gentex illustrate the ongoing challenges they face with electrochromics and their lengthy road ahead. SPD has consistently positioned itself as the high-performance alternative. History shows that high-performance products yield the most significant profitability and longevity. We have addressed the challenges of performance, durability, mass production, and supply chain. Our ongoing innovations, such as Black SPD, continue to enhance our offerings. As I've mentioned in earlier calls, we remain focused on cost and color improvements, with the Black SPD film entering production soon. We've progressed in new car models across Asia, Europe, and the United States, and since our last update, we've been invited to provide bids for several major car models, meeting aggressive pricing targets based on competitive technologies. This suggests that cost isn't as significant a barrier as previously thought. With our next investor call scheduled for March, I encourage everyone to keep these points in mind and review past conference call transcripts. We anticipate significant developments to share with you before then. As a fellow shareholder, I understand that things can take longer than expected, but we prioritize doing things correctly. I take pride in how we've mitigated risks in the smart glass sector for our investors, licensees, and customers. If you believe the market potential for our architectural and automotive applications is as substantial as we anticipate, then the primary concern lies in the timelines aligning with your individual expectations. For those who believe in the smart glass sector, we represent the most focused opportunity for participation and diversification in major industries. A recent analysis by JPMorgan Chase revealed that 75% of market gains since the rise of AI have originated from AI stocks. While we are not an AI company, this exemplifies how certain sectors can rapidly evolve from obscurity to prominence. Although I won't offer specific investment advice, our company stands as one of the least risky options among small-cap and micro-cap businesses due to our proven technology's performance and reliability, combined with a modest asset-light business model. This creates substantial growth potential for Research Frontiers and our shareholders through royalty revenues on licensed products. Our low operating costs allow us to license our technology to partners who establish production facilities, employ personnel, and broaden distribution without making significant investments. Their success ultimately benefits all of us. Even though they're not on our payroll, their efforts contribute significantly to our goals. The industry is challenging, but as history shows, we possess the resilience to thrive. This determination is paying off, as new products enter the market and gain recognition. While others struggle to deliver basic dimming functions and some have ceased operations, SPD-SmartGlass is already featured in tens of thousands of vehicles from manufacturers such as Mercedes, Ferrari, Cadillac, McLaren, HondaJet, Boeing, and Airbus—and we are steadily expanding. Architects, automakers, and airlines are increasingly reaching out to us because they recognize that SPD uniquely combines reliability, clarity, speed, and durability. Our retrofit solutions offer rapid installation, lower costs, and high performance, a combination of benefits unmatched by competitors. As leaders in the smart glass industry, we are receiving invitations to educate and present at various conferences. With the transition to Ferrari's program complete, our retrofit launch in progress, and numerous upcoming car model introductions, Research Frontiers is poised for significant growth. The outlook for the smart glass industry appears extremely promising, particularly for Research Frontiers and our licensees. We are at the forefront of this industry, driven by our superior technology, increasing demand, regulatory support, continuous innovation, and widespread acknowledgment of our efforts. We look forward to sharing future developments with you, our valued shareholders. We pioneered the smart glass industry, we have influenced its direction, and we will continue to contribute to making the world more energy efficient, safer, and more enjoyable. Thank you all.

That concludes our meeting today. You may now disconnect.