Research Frontiers Incorporated

Good afternoon, ladies and gentlemen. Welcome to the Research Frontiers Investor Conference Call to discuss the second quarter of 2024 results of operations and recent developments. During today's presentation, all parties will be in a listen-only mode, and following the presentation, the conference will be opened for questions by pressing star 1. This conference is being recorded today. A replay of this conference call will be available starting later today in the Investors section of Research Frontier's 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 answering many of the questions that were emailed 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 email 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 star 2. Also, we ask that you keep your question brief in the interest of time. I would now like to turn the conference over to Joe Harari, President and Chief Executive Officer of Research Frontiers. Please go ahead, sir.

Thank you, Paul, and hello, everyone, and welcome to our investor conference call to discuss the second quarter of 2024. On our last conference call, we anticipated higher royalty income for the second quarter based on leading indicators. Indeed, compared to the same quarter last year, our royalty income increased by 165%. The first quarter of 2024 was dynamic, and the second quarter saw royalty income rise by over 56% from those elevated levels. For the first half of this year, royalty income surged by over 85% compared to the same period last year, driven by substantial growth in our two largest markets, automotive and aircraft. This impressive revenue growth builds on the strong performance from 2023, where fee income increased by 69% over 2022, and overall revenue was up by 109% from the prior year. The second quarter of 2024 marked our sixth consecutive quarter of revenue growth compared to the prior year. Looking ahead to the second half of this year, we expect Q3 and Q4 royalty income to surpass last year's levels, further solidifying our growth trajectory. We expect our growth this year will come from growth in our existing markets and from new product introductions. Expenses this quarter were about $105,000 lower, bringing our net loss for the second quarter to just $94,000, or zero cents per share. Our average cash burn rate has been steadily decreasing. Based on projected revenue growth, I do not anticipate the need to raise additional capital in the foreseeable future unless a strategic reason arises. We continue to be free of debt and are in strong financial shape. And as of June 30, 2024, the company had over $1.9 million in cash and cash equivalents, and our working capital was $2.8 million. We currently expect to have sufficient working capital for more than the next five years of operations. Now let's together look underneath these numbers so we can all better understand where we are and what we can expect. Sales of cars using our SPD smart glass technology at Ferrari and McLaren increased remain quite strong. Ferrari has stated that in order to maintain the exclusivity of the Piro Sangre, which uses our SPD Smart Glass, they will voluntarily limit production to 20% of their total unit production for all Ferrari cars. Based on these numbers, an extremely high percentage of Ferrari customers are opting for the SPD Smart Glass roof option. Ferrari just reported an excellent second quarter in terms of sales. Additionally, third quarter production at Ferrari is typically their highest, so if these trends continue with the Piro Sangre, we can expect higher royalties from it next quarter as well. Remarkably, even though we're only halfway through the current 2024 year, these roofs have almost equaled the total number of roofs from all of last year. The popularity and high take rates of the McLaren models using SPD smart glass are also evident. Even though we're only halfway through 2024, the total number of routes on just one model of McLaren puts us on track to triple the number of SPD routes this year as compared to last year. I also want to take this opportunity to congratulate our licensee, Issa Klima, on the introduction of SPD Smart Glass on the panoramic roof of the Gemera by Koenigsegg Automotive, the beautiful car made even more beautiful and comfortable by SPD Smart Glass. Isoclima announced this new program in June. In our last conference call, we noted with anticipation the IPO of our licensee, Gauzy, and the introduction of a retrofit application by our licensee, LTI, at the AIA show in Washington, D.C. Both took place in early June. We also highlighted the successful development of an SPD smart glass sunroof for a flagship, relatively lower-priced, mid-sized model, from an Asian auto manufacturer. This program is still on track for introduction, and we, along with GALSI, are eagerly awaiting the OEM's launch announcement to share more details. There is a meeting about the launch of this car scheduled for later this month. What's particularly exciting is that the manufacturing cost of products using our technology has decreased significantly, making it feasible for use for the first time in moderately priced vehicles, like the one I just mentioned. This creates opportunities for higher volumes of SPD smart technology in middle market cars worldwide. Moving to our second largest royalty generating market aircraft, we also once again had higher revenues there in the second quarter. And there's been a fundamental improvement in that market for us as well. This stems from the way that decisions are made. For general aviation aircraft, private jets mostly, We are on the HondaJet and the King Air and a number of other models. In those and other cases, the OEM made the decision about putting our high-performing SPD technology on their aircraft. The significant shift is that in larger aircraft made by Boeing and Airbus, now it's the customer that decides. This has been tremendously enabling for our licensees selling SPD electronically dimmable windows, or EDWs, because the performance in terms of switching speed, being instantaneous, and the wide change in tint, also being uniform, has made it an easier choice by the customer to pick SPD. And apart from the obvious benefits of improving the passenger experience by giving them more control over their environment and reducing noise in the aircraft cabin, there are temperature benefits as well. Half of heat comes from infrared and the other half from solar heat gain from visible light. IR has always been relatively easy to block. It is the visible light where the other half of heat comes from that historically has been challenging. We block 99.5% of that visible light. Heat inside the cabin has always been a known issue, and until takeoff, aircraft had to hook up expensive terminal or auxiliary power electricity or run their engines and waste fuel to generate power while on the tarmac. I'll give you one example of what's been observed. Our licensee in SPECTEC had done a SPD-EDW installation on a Learjet. One day there were two Lears parked next to each other on the ramp, so they were in the same environmental conditions. Both Lears were being worked on that day for maintenance. One of them had in SPECTEC's SPD-EDW and the other didn't. The maintenance crew said the cabin in the Lear with SPD was 26 degrees Fahrenheit cooler than the one right next to it. Now remember, in cars, Mercedes tests show that there's an 18 degree Fahrenheit reduction in temperature. And once we had a NASA scientist at our offices at Research Frontiers, and I asked him why it would be higher in an aircraft. And he went to the whiteboard and seven different equations and three diagrams of the fuselage. And later he stopped talking and said, and that's why. And I told him, that I simply was glad it worked well. The first line of defense against heat right now while aircraft is sitting on the ground is trying to prevent the cabin from becoming excessively hot to begin with, according to Charles Horning, who's a professor of aviation maintenance science at Embry-Riddle Aeronautics University. He says, many of us have been on flights where the flight attendants have all asked passengers to close the sliding windows before they got off the aircraft. That's probably the best thing that could be done to try to keep the cabin from heating up. But here's the problem with that approach. It's been historically difficult to get passengers to close shades, and the flight attendant unions have balked at directing their passengers to do that. And rather than simply closing the shades, SPD EDWs have proven to be more effective at blocking light than closed shades are. And I think it's noteworthy that other technologies, such as electrochromic technology, can actually create unwanted heat. They can actually generate heat, and this sometimes has been shown in videos to cause the window to crack in mid-flight because they operate a lot like your cell phone battery. So electrochromic EDWs automatically switch to their maximum heat-transmitting state when a plane is at the gate. And notably, SPD EDWs automatically switch to their maximum heat-blocking state when at the gate. So it's a much more preferable approach. environment and effect. It was recently reported about cabins being so hot sitting on the tarmac that passengers were taken off the plane and some passengers were hospitalized. This has caused some to call for more stringent government and FAA regulations about heat in the cabin, and we are in an excellent solution there. And the customers themselves are now picking SPD for the larger aircraft. Comlux and Airbus just delivered another ACJ-220 in late June and have another one expected to be delivered later this year. And next year they're targeting four to six of these large aircraft with SPD EDWs. Even bigger is the international airline referred to in Gauzy's IPO registration statement. In this case, it's for part of their Boeing fleet. So we have Boeing and Airbus.

Now let's discuss the architectural glass market.