ParkerVision Q3 2004 Earnings Call

 

November 11, 2004

 

Jeffrey L. Parker, Chairman and Chief Executive Officer

Will Lewis with Bay Star Capital

John Stanley with Stanley Partners

Bob Mlnarik with Arbor Capital Management

Michael Brown with Wells Fargo

 

Operator: Good day ladies and gentlemen and welcome to the Q3 2004 ParkerVision earnings conference call. My name is Carlo and I’ll be your coordinator for today’s presentation. Before we get started I want to remind listeners that this conference call will contain forward-looking statements, which involve known and unknown risks, uncertainties about our business and the economy and other factors that may cause actual results to be materially different from our expected achievements and anticipated results. Included in these risk factors are factors such as the ability to maintain technological advantage in the marketplace; ability to sufficiently increase manufacturing capacity to meet demand; achieving timely market introductions and acceptance of our products; maintaining our patent protection; and the availability of capital among others. Given these uncertainties and other various factors about our business listeners are cautioned not to place undue reliance on any forward-looking statements contained in this conference call.

 

Additional information concerning these risks and other risks can be found in our filings with the SEC. With that, I would now like to turn this presentation over to your host for today’s call, Mr. Jeffrey Parker, Chairman and Chief Executive Officer. Please proceed, sir.

 

Jeffry Parker: Well thank you very much and good afternoon to all of you and thank you for joining us for our third quarter earnings conference call. I’m not going to repeat our third quarter release from yesterday as hopefully you’ve already seen this and you have an idea of where we’re at. What I want to primarily focus on today is to provide you an update of where we are with some of our important milestones and perhaps how some of those milestones reference with some of the highlights from our release. First from a strategic view, I believe we have reached an inflection point from transitioning the firm from being almost 100% research centric with a limited retail product launch through our own website and with the retailer…or e-tailer, Tiger Direct, to that of a marketing driven technology company bringing the best of high performance consumer wireless products to broader distribution.

 

Now that we’re a pure play in wireless communications and semiconductors, our financials look a lot like a late stage startup. This quarter’s revenue was just under $100,000 with our deferred revenues growing from $58,000 the prior quarter to $540,000 this quarter. We recognize revenue upon sell through as it moves through the channel. This quarter’s revenue, you should be aware, is not reflective of any sales through the newest retail channels that we set up late in the third quarter. More on that in a minute.

 

We used approximately $5 million in cash this quarter as we continued to build inventory in anticipation of supporting our growing retail distribution and we ended up the quarter with approximately $20 million in working capital, of which approximately $15 million is in cash and short-term investments, and the company continues to have no long-term debt. This past quarter we made very good end roads with some exciting notable retailers for our consumer WiFi products. Our products are now available on the shelf and storefronts nationally at CompUSA and Micro Center, 2 very highly respected retailers of personal computers and peripherals. We were very happy also to recently add J&R, the well-respected New York City electronics retailer, to our retail distribution. I think maybe one of the best experiences for me as the CEO recently has been getting the feedback and testimonials that we’ve been getting from senior management at the retailers themselves. At CompUSA the CEO, Larry Mondry, was very

 

generous in going on a videotape that was sent to all of the CompUSA stores recently to assist us in training their sales organization about ParkerVision, who we are and about our products. In the tape Mr. Mondry explains the shortcomings he’s had to live with in his own home, where connecting the PC in his own office was easy because that’s where the wireless access point was; however, for the other 5 PC’s that his wife and children use that the experience was less than satisfactory to say the least. Mr. Mondry had tried many other wireless networking products including the recent offerings of boosters, repeaters, and high gain antennas but to no avail. Installing a single ParkerVision D2D based signalMax router has complete changed the wireless connectivity experience for his family and in his own words “stopped the whining”. He basically closes his comments with,” this has been a terrific experience.”

 

A similar experience was had by one of the merchandise managers at J&R who took our product home where he was having coverage and distance issues with his wireless network and his comment was “Wow, ParkerVision goes where no router has ever gone before.” I don’t know if he’s a Star Trekkie, but we sure appreciated his feedback.

 

Obviously from this we’re very encouraged and let me share some more light with you on the marketing activities that we’re launching to support this broader channel distribution. We have just recently installed 10 ParkerVision brand ambassadors in the top 10 markets. These are individuals who are going from store to store training the sales organizations, conducting really amazing demos of our products and actually assisting with sales on the showroom floor. They will soon be joined by an additional team we’ve engaged who will be focused on the Tier 2 and Tier 3 markets where we will also be conducting training and other very active marketing activities. Our goal is to significantly increase the awareness in the channel about the advantages of ParkerVision wireless networking products and we view this as an ongoing, continuous process.

 

We are also in an ongoing dialogue with more retailers and I expect that you will see additional storefront announcements as well as detailed retail announcements throughout the balance of this year and beyond.

 

Next on our list in terms of product rollout is our consumer cordless phones. As excited as we are about WiFi, the cordless phone we believe will take us to an even broader audience. The ownership of WiFi is growing significantly year-over-year and we certainly expect to be a part of that; however, cordless phones are used by everyone with many users reporting a very high level of dissatisfaction. Although the cordless phone is viewed as an old market, I believe that ParkerVision has an excellent opportunity to capture a significant market share as we redefine the consumers’ expectation of the voice clarity as well as reliability and distance coverage from this staple mainstream product category.

 

Beyond our branded products we see OEM business opportunities to be very strong match to our offerings in technology. Our branded product offerings has done exactly what we had hoped it would do, which is to further stimulate interest at the OEM level n our offerings as well. OEMs have a myriad of commoditized offerings to select from, and what ParkerVision is building is a brand that will become synonymous with high performance and quality differentiated offerings.

 

We are soliciting interest all along the food chain from re-branding our finished goods to incorporating our modules and chips. Looking forward from here we are also making excellent progress on advancing our technology and products. We expect to be in the market with our own high performance 802.11g products in the first half of next year. I believe that the coverage and data rate over the distance will be unmatched in the industry and it will set the bar for what 802.11g products should do. We are also working with our base span partner to bring a very high performance 802.11n product to market as quickly as possible after our “g” products, and I would expect to bring you more guidance on that early next year.

 

What is encouraging about the investment we’ve made in our D2D based transceiver technology is that the transceivers which we will field in our .11g products are already .11n ready to go. The difference for those of you who might be wondering, by the way, between .11g and .11n is that “g” is a 54 megabit per second link and “n” is a 108 megabit per second link, although this is still not a standard that has been ratified with the IEEE committee that sets the standards for these types of things, and it’s not expected to be ratified until the end of  2005.

 

One of the questions that I’m frequently asked is what are ParkerVision’s plans to make the application of our leading edge technology match up to the introduction of products so that our products not only feature the latest and best of our radio technology, but also are at the leading edge of the latest in product features and standards. As we are rapidly transforming the company to be a marketing driven firm while still sponsoring the foundation of ongoing advancements in our research labs, you will see acceleration in our product offerings that are cutting edge on all fronts. To this end, we have added important management team additions this past quarter, including highly experienced professionals in the areas of Vice President of Strategic Planning and Business Development, Vice President of Engineering, and Director of Retail Sales.

 

As many of you know, we presented at this year’s AeA conference; the first time for us to participate in that event in Monterey this week. An audio broadcast of our presentation is available on our website, which I encourage you to listen to. One of the messages that we shared with the attendees at the conference was a high level perspective about where we’re at with our D2D technology and a fundamental view of what D2D represents. D2D, from a high level view, is very exciting to us because it really represents ParkerVision’s success at replacing the old legacy analog mixer circuits that are used in all of today’s wireless consumer products with a high performance digital circuit architecture, which, as we’ve, those of you who have followed us, we’ve trade named D2D. This fundamentally though has 2 farther reaching implications to ParkerVision’s future. First, D2D is applicable to virtually any wireless radio transceiver application. The technology is generic to frequency and modulation so whether it’s applied to the cell phone, cordless phone, wireless network or tomorrow’s challenging multimedia products, anywhere people seek high performance, wireless D2D is an extraordinarily...an extraordinary product foundation.

 

But longer term what I am very excited about is strategically not only is D2D capable for such a wide range of opportunities, but one of the expertises that ParkerVision has developed is the ability to look at legacy analog circuits, especially those in the radio frequency domain, and to apply those skills and philosophies to other important and exciting building blocks. I basically am just asking you to stay tuned for more on this exciting front of ParkerVision’s technology evolution.

 

So those are the key milestones from this past quarter and I think what I’d like to do with the time that we have together this afternoon is open up our call for questions and see if I can help provide guidance on areas of interest that you may have.

 

Operator: Sir, we have a question from the line of Will Lewis with Bay Star Capital.

 

Jeff Parker: Okay. Great.

 

William Lewis: Hi, Jeff. It’s Will Lewis here over at Bay Star. Congratulations on a…on a quarter of some great progress. Two questions for you. Do you have any guidance on revenues or margins that you’re going to provide at this time? And secondly, what’s the sort of target storefront count you’re pursuing at this point?

 

Jeff Parker: Okay. Great. Good afternoon. A couple of good questions. We really haven’t offered up any guidance on the revenue going forward. I think it’s a little early to do that yet. You know, I think we’re making obviously good progress on getting on the storefront shelves. Now the next, of course, task at hand is to expand those…that count, as well as to…to get the sell through moving, you know, moving it off the shelf. So I think, you know, toward the end of this year or early next year we’ll have a little bit more experience in that and we’ll be able to see some of the marketing activities, how they’ve impacted that. I’m very bullish on some of the progress that we’re seeing week over week in terms of sell through, but it’s a little early to really take that and turn that into a forecast.

 

One of the things that we did share with the attendees at the AeA conference was they asked us can you give us some sense of what’s the size of the market opportunity. And so if you look at that metric in the North American market the forecast for next year is that in the niche, the network cards and USB products, the client products basically for WiFi and the infrastructure products, the access points and the wireless routers, are about a $2.3 billion North American market to the manufacturers. That translates to about $30 million cards or clients and access points, and if you look at our revenue right now it’s a blend between wireless routers and client products. Right now we run about 50/50 in terms of the client sales for the wireless router sales which translates to about $150 average retail sale for ParkerVision. And if you look at what we take out of that from the retail channel every market percent that ParkerVision’s able to build a share of market is 30 million approximate revenue generation to the company.

 

In terms of margins, again don’t really have specific guidance other than to say that we are seeing some very nice progress in, you know, moving from a low volume, you know, the startup costs putting low volume products in the market moving to metrics of better pricing from our suppliers; and it looks like first quarter next year we’ll probably start to transition our margins from those startup costs to more traditional margins we would expect to see. And I would suggest to you that we will see margins that are at least as good as our competitors if you were to look at their margin generation. We will do I believe at least in that area and because of our proprietary technology advantage maybe a little bit better, although as I said maybe a little offset because of some of our ramp in the volume.

 

On the storefront count, my goal is to see us in 500 storefronts, or the equivalent depending upon who the e-tailers were, by the end of this year. We’re not quite there but we’re getting there. We’re probably now in around 300 and there are a couple of more announcements that I would hope we’ll be able to make this year as we close deals for some more retailer and e-tail accounts. You know, we’re getting a little late in the year. People are getting, you know, kind of busy for the Christmas holiday season, although what’s going in our favor is it turns out that the best month for WiFi sales is actually January. Not exactly sure what that’s a function of. My best guess would be that people buy computers in December for the holidays and then they go out and buy the peripherals to accessorize those the month after that. But in any event some of the retailers we’re talking to are…are anxious to get us on their shelf so that is a nice metric to be at…to be working with. So I think…I think we still have a shot at the 500 or the equivalent depending upon who some of the etailers are. There are a couple of e-tailers we’re in dialogue with who I would put at the equivalent of maybe 50 or 100 storefronts. They move a lot…a lot of WiFi products. But even without them there are a couple of significant retailers who have nice storefront counts and have good reputations that I still expect we’ll end up in this year. Can I take another question?

 

Operator: We have a question from the line of John Stanley with Stanley Partners.

 

John Stanley: Good afternoon, Jeff.

 

Jeff Parker: Hi, John. How are you?

 

John Stanley: Fine, thank you. A couple of questions if I may, please. How far behind the WiFi ramp would the cordless phone ramp start?

 

Jeff Parker: Well our goal has been to start sampling these units to buyers. We generated a lot of interest in that product at the Retail Vision conference and trade show that we were at earlier this year, and have had a number of buyers with really significant retail presence asking us, you know, when they can test this phone. So our target right now is to get that in those… their hands before the end of the year so they can work with this and experience it over the holidays, you know, when people kind of shut down for the end of the year and have time to spend at home. This would be a great opportunity for us to have them spend some real time with that phone because I think they’re going to love it. Then we are anticipating starting the initial production ramp of that right after the first of the year - January, early February. And when we purchased that, the phone assets from a private company called Consumerware, we got with that a manufacturing relationship with a firm over in China. So they’re still working with us. It was a good…they did a good job for Consumerware. They produce a nice product. And we’re also talking with additional OEM’s to extend our manufacturing capacity on that phone. So our goal is to start ramping that early in the first quarter and I would hope that we could start showing up on store shelves late in the first quarter and, you know, really start getting some traction in the second quarter. And I think, you know, when we looked at revenue ramp and the guidance we gave at the AeA conference attendees was that the WiFi products are shipping now. They’re in storefronts. They’ll have more storefronts that will be coming on board balance the year in through next, and I think that the cordless phone we’ll get some revenue from in the first half of the year, but I think that’s more of a second half revenue ramp story.

 

John Stanley: Okay. Do you see better embedded possibilities and opportunities with the cordless phone versus the WiFi?

 

Jeff Parker: You know it’s interesting. There’s no…I mean yes and no. On the WiFi side, you know, although OEMs are I think very impressed with our distance performance, our coverage, our reliability, how quickly we reconnect to a network once you’ve gone out of range and come back close to the coverage area, you know, they’re…they’re very focused on also making sure that they’re up to date with the standards of  .11g. So I think that’s been a little bit of a hurdle for us to get through, although of recent we started to get some more traction of interest with OEMs. One of the anecdotes that I shared at the conference was about a…an OEM who sent us one of their laptops and have an embedded solution in it that’s the latest and greatest solution, and they basically said, you know, someone in their company had bought our product, tested it, liked it a lot and said gee, I wonder if ParkerVision is doing anything on the embedded side, and contacted us. And we said yes we have a Mini PCI product now that could replace what you’re currently using and so they asked us to benchmark ours against theirs. And this was a few weeks ago, and we actually showed the chart of that benchmark and it was very interesting because over distance what you saw was that their solution they’re shipping today was really only good in an open field to about 800 feet and that was, by the way, talking to our own ParkerVision wireless router which, in my opinion, we gave them another few hundred feet that they normally wouldn’t get with connection to other people’s routers. But that said, when we put the Mini PCI into that laptop using the same antennas, the same power supply, I mean the only thing we changed was the radio modem, we were out at 3,000 feet still doing 4 ½ to 5 megabits per second, and frankly we ran out of…we ran out of open field, and, but from that we could predict that it would easily make the mile that we had claimed, and using the antennas that they already had in their lid and sent them that information.

 

So we’re getting more recognition from I think some of the OEMs and I think that’s going to be helpful to us. That said, I also explained to the conference attendees that I think that the sales cycle on the OEM market is more of a 12 month, maybe 18 month sales cycle, depending upon who you’re talking to and what they’re going to do with the product.

 

Now your question on, you know, so how does that stack up to the phone? Where I think we may get some quicker traction on the phone is that phone was already a product that Consumerware was selling through Verizon and they had already started a relationship with a couple of the other telecos. So sure enough you look on our website and see the form factor you can look around and see that same looking phone was being sold through Verizon. And so we’re in dialogue with those folks and some other telecos now and they’re like the buyers of the retail stores. They’re a little bit from Missouri. They’re like well this all sounds great, but they put a phone in our hands and if it sounds crisp and clear and gets the kind of range you’re saying, then sure we’re very interested. And I do think just re-branding a phone like that for a company is probably a faster time to market than somebody who’s going to embed our technology within a bigger system. So that’s…that’s probably not a…an incorrect assumption.

 

John Stanley: Okay. All right. Thanks, Jeff. Good luck.

 

Jeff Parker: Thank you.

 

Operator: Sir, our next question is from the line of Bob Mlnarik with Arbor Capital Management.

 

Robert Mlnarik: Hey. Good afternoon, Jeff.

 

Jeff Parker: Hi, Bob.

 

Robert Mlnarik: Good seeing you this week.

 

Jeff Parker: Nice seeing you also. You got home safely?

 

Robert Mlnarik: Yes, and you’re not home yet, I partake.

 

Jeff Parker: No, and I won’t be home for a while.

 

Robert Mlnarik: Quick question. Piggybacking off of Will’s earlier model question, it may be difficult at this time to give any sense of revenue growth, but maybe more on the operating expense side of the house as you transition to more marketing efforts over the next 12 months, how do you view your operational expense run rate increasing from here? You did about I guess $5 million in operating expense.

 

Jeff Parker: We used…yeah, we used about $5 million in the last quarter, but we also took our inventory from about 2 million up to 4, so we’re running a…operationally in the 3 to 4 million range

 

Robert Mlnarik: Okay.

 

Jeff Parker: I…there’s a number of things, Bob, that we’re still analyzing, including how our vendors who supply us components and possibly contract manufacturers, can play a significant role in helping us build our business and reduce the use of cash to do that. We’re actually getting very good response. Nothing that I’m ready to quite report in concrete, but very good response from both OEMs and component suppliers who are very receptive to offering the company significant terms on…payment terms, 90 to 120, even some talking 180 days. You know, one of our goals being that we can get this product built, shipped, sold through the channel possibly before we even have to pay for it.

 

Robert Mlnarik: Well that would make the working capital requirement a little easier.

 

Jeff Parker: It would make it a lot easier and we’ve actually run some…run some what ifs and shared those with, you know, our folks who are working in the supply chain and, you know, you…you run these models and you say well if you have to pay for it in 30 days and it takes you, you know, X days to collect, that’s a much different model than, “oh by the way you don’t have to pay for it for 120 days” and perhaps you factor your receivables. I mean it’s a very significant difference.

 

So our people know…they know what the target is now and I’m pretty confident, you know, when our folks know what the goal is we tend to go get it and we’re hot on that right now. We had an extremely encouraging conversation with one of our component suppliers who’s in the top three suppliers in the world of components as a distributor and they had actually gone out and bought our product and tested it and fell in love with it and it really changed the dialogue to, “How can we help you build your business?” And we said, “Give us terms.” And they’re saying, “Okay.” So we’re negotiating that right now.

 

Robert Mlnarik: Okay. So to assume that maybe you are successful in terms and reducing the working capital burdens, if I just look at your operating expense run rate then of  $3 - $4 million a quarter and looking at your remaining cash balances, are you envisioning that you need to go to the markets to replenish?

 

Jeffrey Parker: We’re studying that now. We actually are in dialogue internally both with management and with our Board about that. Bob, my goal before we can come to a complete conclusion on what to do there and what was the right thing to do and when to do that was to, number one, understand how much would our suppliers help us because that makes a big difference and also understand how that impacts our cost of goods. Because to the extent it impacts us favorably, it also gives us the opportunity to - one of the activities of company this quarter is we’re studying where the price sensitivity is for various audiences for this product. And while we want to be a premium-priced product because we want to be synonymous with quality and consumers tend to equate the two, we are trying to understand more clearly and more scientifically what is the right premium that gets us the fastest traction and the greatest margin dollars and the fastest ramp. How we hit those different metrics and their sweet spots simultaneously; and we’ll know that answer here very shortly. And I think the answer to those questions helps us understand what’s our ramp likely to look like; how much capital do we need to fund that; and what our suppliers do play a role in that and I think that then drives us to a metric of what does the company actually need going forward.

 

I’m encouraged because what the answer’s looking like to me at this time is that if these metrics come together the way they’re looking like, the company may need some cash but it is not significant and that’s very encouraging.

 

Robert Mlnarik: All right. Well, thank you very much.

 

Jeff Parker: Thank you.

 

Robert Mlnarik: And we wish you well.

 

Jeff Parker: Thank you. Thank you for your support.

 

Operator: Sir, our next question is from the line of Michael Brown with Wells Fargo.

 

Michael Brown: Hi, Jeff. I’m sorry I missed you in town.

 

Jeff Parker: Yeah. Hi, Mike. How are you?

 

Michael Brown: I’m fine. My questions were answered, but I did have a - are you planning to take the phone to the Consumer Electrics Show this year?

 

Jeff Parker: We are.

 

Michael Brown: Yeah.

 

Jeff Parker: We will be there. We are - it is unclear whether we will actually be on the show floor. We were a little late to get the space in the show floor that we might have looked for although, even if we could have gotten it, I’m becoming a much bigger fan of smart use of dollars at these trade shows. One of the traps that you can easily fall into as a manufacturer is to get kind of addicted to these big glitzy booths that you spend a lot of money on and you kind of walk away scratching your head asking, “Could you have done just as well with a more modest investment?” and the answer probably is, “Oh, yes.”

 

Michael Brown: Yeah.

 

Jeff Parker: So one of the things that we will do is we will have a suite at a hotel that is adjacent to the CES, to the Las Vegas Convention Center. It’s a new hotel called The Renaissance. It’s literally at the other end of the Las Vegas Convention Center parking lot, so you can walk to it. And our intent is to set up our products and to showcase how well they work through various environments, and I think it will be very effective. And our presence at the show is not really intended to display and demonstrate to everybody, but to really target the kind of retail buyers, OEMs that we really want to try to target doing business with. And I think it will be a very effective venue to do that.

 

Michael Brown: And the other afterthought that I had was at what point in time does the feedback from the retailers does that start to give you a sense for market share?

 

Jeff Parker: It’s already starting.

 

Michael Brown: Okay.

 

Jeff Parker: And I believe that we’ll have more science and less opinion in that at the end of this year.

 

Michael Brown: Okay.

 

Jeff Parker: And that’ll be a function of the retailers’ feedback, our own sell-through numbers, and some science that we’re putting to understanding price sensitivity to adoption by consumers.

 

Michael Brown: Okay, great. Congratulations.

 

Jeff Parker: Thank you very much. Thanks again for your support also. Any other questions?

 

Operator: Sir, we have a follow-up from Bob Mlnarik with Arbor Capital Management.

 

Robert Mlnarik: Jeff, regarding the brand manager teams that you’re sending out to CompUSA stores, do you have a timeframe at which you think they will get through those top 10 markets and get into the tier two and three stores because we’re finding from our surveys that there’s quite a variance in product knowledge on the store floors.

 

Jeff Parker: Yes. Yes, a big one. Bob, if I can get back to you on that? I don’t know the exact date on that, but we have an individual in the company who’s handling all that. But the top ten markets with these individuals, they’re not leaving those markets. They’ll be there all the way through the balance of this year and we’ve already got them scheduled even into the first quarter.

 

With the cordless phone coming out, my view is those individuals will probably be extremely useful and effective for the company probably for the balance of next year. But what we’re adding to that is a marketing organization who actually has staff that can go out to the second and third tier markets and they go to the stores an hour at a time or something like that and they do training sessions and they make sure that your product is displayed where it’s supposed to and get feedback to you on, “Oh, my gosh. You’re out of inventory here and you’re a little heavy there,” and things like that. Bob, I don’t have an answer right now.

 

Robert Mlnarik: Okay.

 

Jeff Parker: But I’m thinking it’s going to be at this quarter, but I can’t give you an exact date but I’ll get back to you on that.

 

Robert Mlnarik: All right. Thanks very much.

 

Jeff Parker: You bet.

 

Operator: And, Mr. Parker, we have no further questions at this time. Back to you for any closing remarks.

 

Jeffrey L. Parker, Chairman and Chief Executive Officer

 

Jeff Parker: Well, my only closing remarks are I appreciate all of your continued support. We are having a lot of fun at ParkerVision transforming this company to be more marketing driven and taking advantage of the years we’ve put behind developing this technology into a science, and I hope to give you guys some more significant milestone updates in the next quarter conference call as well as lots of announcements between now and end of this year, early next year about what’s going on with the company and our products as well as our retail channel expansion. So thank you and, if we don’t speak before, I hope you all have nice holidays. Bye-bye.

 

Operator: Ladies and gentlemen, we thank you for participation in today’s conference. This concludes your presentation and you may now disconnect.