Q4 2019 Earnings Call
Welcome to broad data conferencing, please wait for the next available operator.
Yeah.
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[laughter].
Welcome to the conference number correct spelling of your first last night was.
David Brown need a we and Brown article W and.
Thank you and your company.
Hi, A.I.E. on ebay.
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Thank you for clarifying I'll go in place your line into the conference I believe we're just getting started you have a good day.
Thank you.
Your line is muted our conference calls the main want to highlight the business growth.
[noise] expanding our business.
And where SPD technology is being used is very important.
Our largest market currently its automotive revenues from this market were up in 29 team compared to 2018.
Revenues from our second largest current market aircraft was down slightly by a few percent and 2019 compared to 2018, primarily as a result of inventory management by the aircraft man of manufactures using our technology in the fourth quarter.
We expect revenues from aircraft to be up in 2020.
The architectural market uses twice as much of the world's glasses, the automotive market it is potentially or largest market.
With the opening of galaxies Stuttgart factory in the fourth quarter of 2019, and its ability to make SPD film 1.8 meters wide. This allowed us for the first time to practically address the large architectural market.
Since the ceremony to commemorate the opening of their factory in December Ghazi made further improvements in the efficiency of that line and their new improved SPD film is being shipped to key customers. This week.
Royalty income from the architectural market was up substantially in the fourth quarter of 2019.
When we combined the automotive in architectural markets royalty income was up over 40% in 2019 compared to 2018.
I'd also note that we added licensees in each of these product areas and 29 team with the addition of SCR glass in Brazil for automotive applications and Gladdock for architectural applications in South Korea.
The display market was down in 2019 compared to 2018. This was because we discontinued our variguard business unit in the first quarter of 2019, and instead license it out.
But the other main component of the display market as the business that our licensee Nippon sheet glass has for next generation televisions and other information displays that use our technology to improve picture quality.
This business was up in 2019 compared to 2018, and we expect an even stronger 2020 as products for this consumer and commercial display markets come out this summer.
What about the future last year and this year, so far we buxom pretty strong macroeconomic headwinds that have affected other companies.
I noted that it is usually in the automotive market to see revenues go down as caused <unk> approach to the end of their model Lifecycles. This is quite normal since fewer cars in total of a particular car model are made each year and the normal seven to eight year product lifecycle cycle.
It has noted it is notable that our revenue from automotive was actually up in 2019 compared to the previous year.
I was also asked by a shareholder if the Corona virus has impacted our business.
Well it has clearly impacted the automotive business and almost every major carmaker has announced earnings warnings.
However.
We have not seen any decrease in economic activity in the first two and a half months of the first quarter of 2020.
We get sales reports every week or so from dimer selling the number of cars coming off their production line using our SPD smart glass.
Royalty income remains firm and strong.
As a former economist always look for leading indicators of future performance.
One of the best leading indicators that I know is to look at SPD film sales. Since it is this film that gets put into the end products that we receive a royalty from.
At our last conference call in November I noted that sales of SPD film through the end of the third quarter already exceeded all of the film sales for the entire prior year.
Film sales in the fourth quarter, even exceeded our elevated expectations just with Hitachi chemical film sales alone the amount of SPD film sold in 2019 exceeded the annual amount sold in all prior years since the beginning of its production. This.
As a 12 year record.
As you might expect most of this increase came from increases by film purchased by our licensees for automotive applications.
Notably film used by licensees, making consumer and commercial electronic applications were also up substantially in 2019 compared to 2018.
Next let's discuss financial stability.
As of the end of 2019, we had $6.6 million in cash and no debt.
We have very steady low and predictable expenses and our cash burn is about 450 to $500000 per quarter.
That means we have plenty of cash that will last us at least for the next three years.
It is important to for us to make sure that we were operating as efficiently as possible to make being cash flow positive easier to obtain.
And our expenses have continuously come down.
Total operating in R&D expenses in 2019 were nominally up by about $857000 compared to last year, but when we examine this further expenses were actually down in 2019.
The company's net loss increased by 1 million $122852.
To 3.8 million for about 13 cents per common share for the year ended.
December 31st 2019, as compared to $2.7 million or 10 cents per share for the year ending 2018.
However over 1.7 million of our net loss. This year, we're noncash accounting expenses relating to the issuance of options and warrants and other onetime charges.
Without these items the company's net loss for 2019 would have been $2.1 million or seven cents per common share. So in actuality our real net loss. This year went down by a over $187000 or two cents per share for about 8%.
The takeaway here is that relevant expenses were down in 2019 compared to 2018, and we expect further reductions in these expenses in 2020.
These cost reductions are important steps, we took to bring us closer towards being cash flow positive and profitable.
The other key initiatives, we're making SPD technology more affordable to the customer.
I was in Belgium in February to visit the new factory that AGP built there for smart glass fabrication.
It is large immaculate and almost entirely automated.
This resulted in higher production yields consistent quality and lower costs from labor from what and from waste.
Similar investments in automated processes have been made by vision systems and other licensees.
Both of our active SPD filmmakers and now aggressively working to make one of the largest cost components in SPD smart glass more affordable.
And my visits to age you see in vision systems about a week ago show the large resources going to developing the markets for SPD smart glass and expansion of production capacity through investments by our licensees in property plant and equipment.
These efforts have resulted in lower costs to customers because of supply chain efficiencies.
A stronger more efficient supply chain and lower production product costs and higher production capacity all make it easier for companies to use our technology.
We've had good results in our core markets and new automotive projects virtually or virtually being started every month now.
The industry as a better understanding of the benefits of using our SPD Smartglass technology and we're also opening up new markets. This year in a bigger way, notably architectural.
And with consumer electronics scheduled to come online in the second half of this year.
We received by email before this call questions from investors and we address many of the general topics in our presentation. Today. So far there are some additional questions that were emailed to us.
Mr. Ringwald asks could you. Please address several questions regarding gals. These plans for producing SPD film is galaxy producing SPD film at the plant in Israel will only be emulsions.
They are producing the emulsions or the chemistry, if you will in Israel and decoding as they all being done in Germany.
The next question. He asks is the first production line at the German plus producing only SPD film, Yes, it's only a producing SPD film that's what it was designed to do and that's what is dedicated to.
Galaxies President has stated that they put on opening a second line at its German facility by year end well. This second production line produce SPD film or PD, L.C. film or a combination of the too.
We've only been talking about Stuttgart, producing SPD.
So.
[noise] deals without question about guys you. There's another question about Galaxy a this is from Mr. Michaels.
Galv you said, they're working on 10 automobile Oems I know you said previously that already fr is under consideration for about 11 vehicles has that figure increased.
In both the number of Oems that Gausia is talking to and that we're talking to yes. They have increased and as I noted earlier.
Virtually every month in putting this week new projects have come onboard for us.
[noise] Mr. King asks the status of getting Orefice sunroofs into autos other than Mercedes and is there any consideration of expanding automobile offerings to front side and or real windows.
And actually the answer to both those questions is yes.
There is been great progress and getting us into other vehicles and also these vehicles are considering.
All of the above front side, we are and even the windshield.
Mr. Harvey's question I already answered about the effect of the Toronto virus or not affecting us as far as we can tell.
This is a real interesting questions I got from Mr. Albert.
Basically is asking after three years of reduced pricing there are fewer real world models using SPD them before the price reduction initiated store initiative started.
Since lower price hasn't spurred demand is the reason to think that galaxies lower prices will do any better and I think in the question, there's a something that I need to clarify.
Our cost reductions.
Our being applied to future models. The car models that are out there were negotiated at inception of each program by the glass licensee and the automaker. So those those prices are set any cost reductions, though or basically set for future models of of differ.
In cars and.
We are beginning to see that because of that initiative that we started three years ago.
The pipeline of future models is just growing tremendously in the amount of.
A number of cars in the amount of glass per car has also grown so the price reduction initiatives.
Haven't affected current production, but there certainly positively affecting future prospects, but I think that was a great question and an important one to clarify.
I was asked by Mr. 11 to please comment on the electric Ford Mustang, they're supposed to begin begin sales later this year the spec show that the roof is electric traumatic.
Okay. If that is correct will the rupee SPD and is it an option or standard.
Well.
What I believe Mr. 11 is referring to was nothing in the official specs by Ford. This was some speculation or some discussion going on on the the forward Mustang blog and basically.
Customers have talked about the fact that the new Ford Mustang does not have a pull across shade and they were speculating whether they're just using tinted glasses and then some of the customers and then others chimed in.
Started asking if they wouldn't be better afford put in electrochromic roof.
Electric dramatic.
Similar to Mercedes, which is our technology I must say that I'm happy that customers are publicly asking for them that they know that this type of product exists and we are getting a good response from various automakers. So well Ford may or may not do this in the future. It's nice to see the speculation on me.
Mustang blog that they should be doing it in the future.
Mr. Nelson asks.
Gentex at a recent slide show that indicated that quote large area dimmable devices for automotive was one target for future growth.
And.
I must say, we have not really run across gentex.
At all in the automotive market neither of our licensees you know I also note that about 15 years ago neighborhood targeted architectural glass.
As one of their their main targets for future growth and they still haven't sold anything in that market. So it's nice to have aspirationally targets one of the issues. They face and this is not their fault, it's really inherent in the electrochromic technology that they in view and say Jews Israeli.
As to surface area increases the switching speed gets progressively slower and non uniform so because of that it becomes very very difficult to put in electric promuc roof.
In a car because of the car may arrive at the destination or.
Long before the roof switches and it may take as much as 40 minutes for let's say in architectural size window to to switch and it would switching to non uniform way and some of the.
Recent projects that we've been talking to a pointed out that you know that's not acceptable to them either the switching speed or the non uniformity and.
And then the last email question, we got a was from Dr. paran.
What do you think is the explanation for the recent increase in the volatility of the stock price well, if we're talking very recently, it's clearly the corona virus and just to kind of give you some relative numbers.
Even with our stock being down today, a 4.4% the Dow had the largest single point drop since 1987 of 10%.
NASDAQ and the S&P were down 9.5%. The Russell 2000 was down tenant half percent and the Russell 3000 was down eight NAV per cent today, So just kinda cumulatively.
Year to date, the data was down 27.5% the S&P down 24, little more than 24.5% the nasdaq's down about 21% the Russell 2000 down 35% and the Russell 3000 is down 20.
4%.
Were down 13% for the year were also up.
23%.
Since this time last year every other indices is down between the.
Two and a half and 19% so I guess, what that says is that the corona viruses, maybe disproportionately affected the general market.
And research Frontiers was a good a place to put your money for the last year.
So we discussed a lot of the exciting topics today and I'll now ask our operator Ross to open up the conference to any additional questions people participating today might have that we've not already covered.
If you like to ask the question. Please press star one on your telephone keypad now and you will be placed in the queue in the order received please be prepared.
Ask your question when prompted once again, if you would like to ask your question. Please press star one on your phone now.
First question comes from Alan Ginsberg. Please go ahead Alan.
Yeah, Hi.
My condolences to hi, my condolences to Steve's Slovaks family.
And the question question has to do a debt how.
How are you going to replace him he's seem to be a key member up your research teams.
She was a good friend and certainly a key member of our research frontiers team.
I can't say I've met a better problem solver for talented scientists.
With the exception perhaps of Bob Saxe they both.
We are tremendous a scientist that really brought research frontiers from the lab to the real world.
We have a different skill set that we need now now that the technology is in the marketplace.
And a lot of the things that we work on his technical support for our licensees in areas like lamination, and durability and testing and other areas like that.
We would probably need someone with a different skill set then Steve.
But that's not to minimize the.
Tremendous tremendous work that he's done for us and he is a as I mentioned earlier.
The inventor and in many cases, the lead inventor on a lot of our key patents.
So are you looking for other people to replace him or do you have enough stay of yeah.
Okay, well, we have enough staff, but we're looking to expand the services that we can provide our licensees to make sure that.
They have no issues. So part of my recent tour of Europe, especially was to solicit.
Comments from our T. licensees as to what type of R&D and tech support they would need so.
Thank you.
To.
Question comes from Mike Forrester. Please go ahead Mike.
Hi, Thanks.
A couple of questions. You mentioned are commented about Jim in check.
I didn't say get a.
Contracts from Boeing in regard to a windows are continuing to provide windows to that Boeing airplanes.
So you can you give this 787 in their an option on the seven triple seven.
Well in that regard can you kind of line and I understood also that they had a very reduced transition speed from start to light can you comment on that Dan How research frontiers.
Was unsuccessfully persuading Boeing to go with SPD product.
Yeah, good I could touch on that briefly a lot of this work was actually very detailed and focused work done by our licensees, but when you say substantially reduce switching speed its still over a minute to switch I. Just was on one of the dreamliners that had that technology coming back from Europe and it's.
Still slow and it's still dis uniform and you get the well be called the donut hole effect.
The only thing I could say is that in less gentex.
Highly subsidized the window as an incentive.
Only thing I could say is that there were there was negative inertia in switching.
Because apparently when Boeing had.
Had a certified with the effect of the original electrochromic windows for the Dreamliner a they went through a tremendously difficult process. We haven't had the same difficulties, but I think they're a little gun shy on trying to go through anything again, a with that technology. So there was a little bit of inertia.
In that case.
In regard to you were commenting about the costs and I think it was 1.7 billion or one time costs.
Do you anticipate any I guess a.
New funding or.
You know noncash expenses are occurring in the next couple of years.
Yeah. My goes were mostly non cash costs. So it didn't really affect our our requirement for funding and a lot of them how to deal with you know some fairly esoteric accounting treatment on.
How a prior stock offering was was handled.
And structured and quite frankly, I think it was news to everyone, including our audit team that the accounting treatment would be that way, but it doesn't matter because we closed it out so we don't have to.
Huh worry about market fluctuations, causing noncash charges as a result of that.
So you're not intend and the other thing and then be other component.
Yeah, and then the other component, which may or may not repeat is gonna be dependent on the amount of stock options granted in the future. Because that's also a noncash charge, but you know if I remember correctly. You know you know a large chunk of that was based on a very esoteric accounting treatment for a stock offering we.
Good.
Alright, thank you.
You're welcome.
Our next just to reiterate it just to reiterate it didn't it didn't really have any cash impact on us at all.
Our next question comes from Leonard leaks out. Please go ahead Leonard.
Hi, Good afternoon, how you doing Joe.
Hey land how are you.
Great a couple of questions is there any way you couldn't quantify.
The volume of business it will come in this year from these different sources it sounds fairly substantial.
And when it come increasing quarter to quarter or how do you how do you see there.
[noise] well.
The answer is no I can't quantify it without.
Knowing exactly the production call out in the take rates.
For the glass.
I will say some recent conversations I've had the Oems I have said that they targeted certain take rates and they're getting multiples of that and they want to even get.
More vehicles with is because the customers are loving the technology. So you know anecdotally I expect that in many cases, you know we're going to continue the bucked the trend of.
Smaller number of vehicles being produced every year by you know for each car model.
With increased adoption and expansions other models and that's about the most I could say about that without going into some details that our OEM customers wouldn't want me to to say.
Okay and you already set architectural is already part of this years.
Yes, Yeah that was one of your questions.
That I I wanted to answer in the presentation, because a lot of people have been wondering about architectural and yeah. It was nice to see that up.
Okay.
Yeah.
In the past you had a poison pill out there for.
For the stock holders, so that somebody couldn't come in and.
Make an offer and taking away from us is that still active.
I got the poison pill is still operative just to clarify you know I know that you're a market professionals are you probably more used to poison pills, but it would never prevent.
And offer for fair value from.
Being consummated what a poison pill typically is meant to is designed to do is to make sure that the offers we receive from outside parties are fair and our board of directors under Delaware lives. The fiduciary obligation to redeem the poison pill once were offered what's considered fair value.
With that wouldn't be one of the thing he would encourage I assume.
Not at our current market valuation, but you know at 10 or 20 times our market valuation you know we have a horse race starting at least.
Yeah Okay.
Our next question comes from Todd Brady. Please go ahead Todd.
Hi, Joe I'm wondering if you could comment on a same domain and their right to <unk> technology, which is premised on a SPD.
[noise] I can't comment more specifically that I'm happy to see that companies like San go bad and others are active licensees.
And a lot of that is driven by the.
The automotive and train customers.
Another question as I have is <unk>.
<unk> GDP.
Has any revenues started to flow from the factory the new factories that was established.
The answer is I can disclose any particular licensees.
Financials.
And in the case of AGP some of the projects that they're currently working on in the automotive market.
They view is highly secret of so I have to be especially careful a in their case because there's some you know fairly large things that they're working on that we would like to make sure across the finish line.
Yes, it took with the real question. There is has any revenues started flowing from them as yet.
We've got we have royalty income from them yes.
Okay. Thank you.
Welcome.
Our next question comes from Michael Kaye. Please go ahead Michael.
Hello.
Yeah, I was very Michael said I, just starting today I guess was.
This year, how does that.
That said Variguard operations was suspended.
Right right waning.
So I'm <unk> and.
I haven't seen shareholders Minto that a this development had occurred it was launched it was a great deal of Fandstan.
We actually we actually announced as Michael a year ago I.
And there was a press release about it Ah you might have missed it but that was something that was was disclosed and the thinking behind it is that as a division. It has cost in it as revenues and as a licensee what it generates is basically going more towards the bottom line. So we felt it was in shareholders.
Best interest to spend that off as a licensee.
So it's like a separate entity and just.
The company wouldn't be generating income royalty and it's just it's just like any other licensee now, let's just like agency or AGP.
Okay. Thank you.
Right, Thanks, which is why which is why also you saw that revenue from the display market was down in 2019 versus 2018, because all of that when basically into the licensee.
Bucket as opposed to the it as opposed to a direct business unit.
Net income for Jared Albert Please go ahead Jarrett.
Hi, Joe.
Hi, Jarrett.
Oh do you expect to she's chess apologies.
20 to 40.
I'm not going to predict.
Financial results until they happen.
I apologize, but we came down close in the third quarter of 2019 were.
[laughter], a penny a share loss so it's certainly possible.
Probably I don't think just to answer but do you expect to two to three jeez. If you do you expect them to continue that program.
As I mentioned I'm, not going you know to directly I'm not going to discuss.
In any car models that haven't been officially announced by the Oems we've been asked specifically not to do that.
Okay. Thanks you.
Thanks.
Our next question comes from John Nelson. Please go ahead John.
Hi, Joe.
Yeah, John could you discuss [noise].
In brief whether any key patents expire anytime soon and whether any significant enhancements to the patent portfolio have been.
Achieved recently.
We have some fairly important inventions that have come up into our company in the last two years and apart from that if we just look at what patents have been filed already the keypads don't start expiring until 2032 I think are 20.
Three.
[noise] wonderful [laughter]. Thank you [laughter] you're welcome.
Yeah.
And at this time there are no further questions I would like to turn the call back to Joe for closing remarks.
Okay. Thanks, a lot.
In past conference calls I outlined our initiatives for research frontiers.
These all centered around our growth strategy.
You began to see the results of this and 29 team and we're working hard and 2022 also achieve our growth and profitability targets.
First reducing the cost of our SPD smartglass technology to the customer simply put lower cost of our technology opens up wider market penetration.
It also allows our technology to be used to new markets. For example, Panasonic and others have shown what the next generation televisions will look like as well as display advertising, we're very much part of that.
[noise] SPD film sales are one of the best near term, leading indicators of future revenues for us.
Since this film gets put into products in subsequent quarters that generate royalty income for us in terms of the amount of SPD film sold 2019 was a record year since inception 12 years ago of commercial SPD film production.
We expect the main part of our business growth to come from core businesses, primarily automotive and architectural.
As noted earlier fee income from automotive and the actor architectural markets were up over 40% this year compared to last year.
We spoke about the drivers in these two markets before in automotive we may cause more efficient.
Energy efficient reduce C O two emissions by four grams per kilometer an increase to driving range of electric vehicles by up to 5.5%.
We also make people more comfortable unsafe there and protect the interiors of cars.
The auto industry is certainly hearing our message.
In architectural applications, we make buildings more comfortable energy efficient and functional.
And more pleasant to work and we're living.
We saw expansion and growth in the architectural market in 29 team and we're looking forward to continued growth from 2020.
With a growing movement as a result of the recent events, including the Corona virus. Another aspect of our technology the ability for smart glass to be more easily clean been shades or blinds can be important.
We have seen from the hospital market, even before the Corona virus that current shades can collect allergens dust and germs.
I also think that in some way the general aviation market May gained some strength as commercial aviation has become more disrupted of late.
As you know one of our strong goals in the aircraft industry is in general aviation and the ability for our SPD technology to be retrofitted onto existing planes is a key advantage.
Just this morning, I read an article that one private jets fleet operators, so I, 27% increase in its business this year, which it attributes to the Corona virus.
Of course like you I don't wish for these events to be present, but they do add additional reasons why people and companies should use our smart glass.
For those of you have listened to our conference calls over the past several years, we identified what we needed to do.
This year you. So all of these things accomplished.
We needed to have multiple producers of SPD film.
This has been done.
We needed to have wider SPD film, so we could pursue the architectural glass market.
This too it's been done.
We needed to have SPD technology available at lower cost to the customer.
It's also has been done.
We needed greater awareness in the various industries as to what SPD smart technology could do for them.
We expanded our public relations efforts and spoke at various industry conferences.
This increased awareness has also been done.
It's been quite effective.
Customers with new uses for our technology as well as traditional ones are all coming to us and our licensees.
We needed a stronger balance sheet.
It's too it's 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 five years, and we expect cost reductions to continue in the coming year.
And our last conference all you got a glimpse and today you see in more detail, what ultimately will be the best indicators of our success.
Revenue growth, new products and applications and more widespread use of our SPD like control technology.
The main ingredients that to date have contributed to our success, our world class high performing and reliable technology.
Part unfocused worked by us and our licensees and their customers and determination.
I must say this year, a substantially increased investment by.
Very key players in the industry.
These main ingredients to our successful continue.
And as the markets for smart glass grows we will undoubtedly face cheaper or subsidize imitators and competition.
But the core strength that I point out to any company wanting to incorporate a variable Ted window, where sunroof, where skylite to their product into their product line.
Is that.
Your customers want the best.
We have the best performing most reliable smart glass in the world.
It is the only one prudent since 2001 in the aircraft industry and since 2011 in the automotive industry.
Tens of thousands of cars aircraft boats and home and office Windows using our technology show this performance and reliability.
And with cost coming down, we're becoming affordable and more and more products and markets.
We said, what we needed to do and we did it.
We will continue to work hard.
Thank you all for your support while we focused on this.
This concludes todays conference call. Thank you for attending.
[music].
Oh stands ended this call goodbye.