ParkerVision Q2 2005 Earnings Conference Call
August 8, 2005
John Bucher of Harris Nesbitt
Donald Slowinski of Winslow Asset Group
Jean: Good evening, ladies and
gentlemen, and welcome to the Q2 2005 Parker Vision, Inc., results conference
call. At this time particularly, we'll be taking questions portion of the
conference call. Before we get started, I want to remind listeners that this
conference call will contain four booking statements.
This involves known and unknown risk, uncertainties about our business and the economy, and other factors that may cause actual results to differ materially ‑ different from our expected achievements and anticipated results. Included in these risks are factors such as the ability to maintain technological advances in the marketplace, ability to sufficiently increase manufacturing capacity to meet demand, achieving tally market introduction, and acceptance of our production ‑ 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 four booking statements contained in this conference call. Additional information concerning these and other risks can be found in our filing to the SEC. I will now turn the call over to Miss Cindy Poehlman, Chief Financial Officer. Please proceed.
Cindy Poehlman: Thank you. And thank you all
for joining us this afternoon. I trust that all of you have seen our second
quarter results and our queue that was released earlier this afternoon. I would
like to spend just a few minutes highlighting a few items in our quarterly
results, and then I'll turn the call over to our CEO Jeff Parker. The financial
results for 2005 reflect approximately 4.7 million in one time charges related
to our decision to exit retail activities.
$2.2 million of these charges are reflected in cost of sales as the reduction of inventories to estimated net realizable value. The remaining two and a half million is reflected in operating expenses for the quarter. As you may recall, when we announced our retail exit decision in late June, we estimated charges of 4.5 to 5.7 million in the second quarter. Our actual results ended up in the lower end of that range.
At this time our exit activities are well under way. We completed a work force reduction of approximately 44 employees. These employees were predominantly employed in manufacturing, retail product engineering and retail sales and marketing. We are in the process of working with our channel partners and others to sell our remaining WiFi finished goods and component inventories. In the second quarter, we reduced the carrying value of our inventories as well as certain manufacturing facility assets and other intangible and licensed assets reflect their estimated net realizable value.
We anticipate completion of our retail exit activities by the end of the third quarter. Although the charges related to the exit from retail were certainly significant, it is important to note that approximately 85% of these charges were non‑cash. More importantly, the cash savings as a result of the reduced personnel and resale promotional cost will reduce our rate of cash usage going forward. That leads to another important item to highlight in this quarter's financial statement, which is our rate of past usage. We used 3.1 million for operating activities in the second quarter of 2005.
This compares to 4.8 million in the first quarter and 6.5 million in the second quarter of '04. Although the upcoming third quarter of '05 will reflect some cash impact from the retail exit, primarily payment of employee termination benefits, we do anticipate that a rate of past usage will continue at lower than historical rates as the result of the exit from retail. We ended the quarter with approximately 19 million in cash and short‑term investments, which we feel is sufficient to fund our first OEM design win. And on that note, I will turn the call over to our CEO Jeff Parker to provide an update on our OEM business activities.
Jeff Parker: Thank you, Cindy, and thank
you to our participants for taking the time to join our Q two conference call
update. Six weeks ago, in our last conference call, we announced that Parker
Vision was narrowing its focus exclusively to those activities that are
designed to secure OEM design wins for our wireless technology.
We reported to you that we were finding very positive reception by multiple OEM to the concepts of our direct to RF power or VDP technology which we had announced earlier this year, and that we would focus all of our human and capital resources on working with OEM to secure design wins as early as possible for our wireless technology and product. I stated then that I believe that taking this action now would in no small measure increase our chances for success with OEMs, and the resulting activities that we've been focused on the past six weeks have only increased this belief.
As I stated previously one of my own personal goals is to close our first design win this year. Based on our latest progress I continue to be very optimistic about achieving this goal. Since our conference call update, we have made a number of visits both in the
In other words, the OEMs have seen enough of our technology from the latest demonstrations to begin exploring the details, not only of how our technology could be incorporated into some of their products but also how a business relationship might be formed between the companies. Therefore, it is from these conversations that I believe will come our most likely first design win. Because of the nature of how our dialogue has advanced beyond the conceptual and into the specific product applications and business discussions, this has also influenced our VDP chip development program.
Earlier in the year, we believed that it would be necessary to show fairly generic VDP samples before OEMs would engage us in specific applications. However, based on our early conversations and the advancing business discussions we've been engaged in, we've evolved our chip development program to target both the applications and features that OEMs are looking for in their products. To that end, our current progress has us providing these more targeted VDP samples to OEMs throughout the balance of this year.
Going forward, this will be an ongoing process where we will be providing a stream of samples that evolves with the needs of OEMs and certain relationships that we believe will emerge. In summary, I believe that our sharpened concentration on OEM customers will accelerate our drive toward establishing a significant revenue stream and profitability for Parker Vision.
Based on the progress of these past six weeks, I couldn't be more enthused about our future prospects. And so now I'd like to open up this call for your questions. So, Jean, could we see what questions might be out there.
Jean: Thank you, sir. Ladies and gentlemen, if you'd like to field a question please key star one on a touch tone phone. If you would like to withdraw your question, simply key star two. We will take our first question from John Bucher of Harris Nesbitt. Please go ahead.
John Bucher: I'm John Bucher with Harris Nesbitt Jeffrey, question for you on the samples you indicated with the hardware samples that will probably be going out later this year. Do you have the relationships in place to get those out or are those relationships just now coming together? Could you just talk a little about that?
Jeff Parker: Sure. No, we have the relationships in place now. You know, in previous announcements and dialogues we announced that our VDP chips, at least the initial ones, would be run on the IBM fab, on the IBM fabrication plan. That's where those first samples will come from. Although even on our existing prototypes, we have some of our unique, semi‑integrated silicon that came from our previous runs on Texas Instruments fab. So, John, it's kind of a combination today of custom silicon we did at TI and some other supporting discreet hardware around that and tomorrow from the IBM fab.
John Bucher: Great, that was really the question. You were able to leverage the ongoing relationships that you've already got there.
Jeff Parker: Absolutely.
John Bucher: And then, can you talk a little bit about the applications? You indicated that there are some specific, targeted applications. Can you say specifically which radio technologies? And then also, to the extent you can, the types of devices that you think the initial wins might be in?
Jeff Parker: Yeah, I wish I could share
more with you. It's a great question, but these OEMs are providing a lot of
information to us in confidence, and have specifically asked us not to share
outside of our conversations where they're intending to use these first components.
So, at this time, I'm going to say that I wish I could tell you more other than I can tell you that, the OEMs we are talking to are tier one companies. And as such, maybe that gives you some indication of the type of applications they might be thinking about.
John Bucher: Let me try a different approach here, perhaps.
Jeff Parker: OK.
John Bucher: Would it be reasonable to assume that one of the areas that they're seeking to get better performance in possibly with your solution is better battery budget and battery power? And might we see that those types of applications would be just a high level target candidate there?
Jeff Parker: That would be a reasonable assumption, yes.
John Bucher: So, might DCNA devices having slightly lower talk time than other areas that might be an area where this would be progressively applied?
Jeff Parker: That could be one. And there are several where OEMs are seeking to deliver better feature sets for consumers, but are looking to do so while not robbing the devices they want to put this in of other performance metrics.
John Bucher: Thank you very much.
Jeff Parker: You bet, thank you.
Jean: ...if you have further
questions please dial one. Again, that's one on your touch tone phone.
Jean: Thank you for standing by as
your questions are collected.
Jeff Parker: So, Jean, let me say to our audience then, we appreciate your joining in...
Jean: We do have a question from Devon Waite. Please go ahead.
Our retailer activities, in part, were stimulated to help prove to OEMs, and answer some questions that they had had, about could the company actually deliver chips that had the level of integration we had suggested a few years ago. Could we put products together out of that technology that actually delivered the metrics that we had forecasted would be achieved?
So, the kind of‑‑the fork in the road that we arrived at in our thinking a couple of months ago is, as we started to see a pretty strong and serious interest in our latest technology advancements spin up, we knew that there was an opportunity to grab that moment. And that the best way to grab that was to narrow our focus.
That particular area that we had focused on, the WiFi area, we have had some conversations with OEMs, there are still some conversations ongoing with OEMs, but I would suggest to you that there are actually other areas which, frankly, are more exciting to us for growth and margin opportunities that OEMs have actually been even more responsive and more interested in using the technology for.
So I guess that's my long‑winded way of saying to you that, yes there are some activities to explore, how our technology in the WiFi space can be embraced but there are other areas that seem to be more enthusiastic to embrace our technology. Frankly it is much larger business opportunities than what we believe, have much larger margin dollar opportunities associated with that. So those are the ones that we are more focused on than anything else at this time. Thank you.
Jeff Parker: Well, folks, listen, we appreciate your joining in. I know it's been six weeks since our last call, so that we are having an enormous number of questions, but I hope there are more questions.
Jean: We have few more questions
lined up at this time.
May I take your question? Kent William, please go ahead.
Kent William: Good afternoon, Jeff.
Jeff Parker: Hi,
Kent William: If wanted to ask you obviously moving on multiple fronts and I would assume talking to the multiple OEMs. Is the possibility of exclusive or nonexclusive or how are you approaching this and if you do enter into a design win will you... it will be announced beforehand?
Jeff Parker: Yes, we believe that design win for our company at this time would be material and the quote would be announce‑able.
Kent William: Would you talk about the cash burns now that you have exited that the area, what kind of cash do you have, what kind of potential cash flow if you did a design win‑win with a she‑pod in the market or revenue is coming back to the company?
Jeff Parker: Well, OK. Let me address that
a couple of ways. As we mentioned in our queue that we released today, because
of the way we sharpened our focus, we have enough cash with our reduced cash
usage to go at least through the first half of next year. How far beyond that
is a measure of how much cash, how tightly we manage that and some of that will
be impacted by what kind of OEM design wins we get, what kind of activity with
the OEMs, etc.
My focus right now is on seeing that the company gets the design wins early enough that we have plenty of cash still to work with and that we have a variety of funding or financing opportunities on board at that point. I believe that once this company has proven that importance, tier one or high tiered two OEMs have decided to start incorporating our technology in products, that there will be a variety of ways to fund the company going forward, including the possibility of help from some of those OEMs themselves.
One of your questions I think was: are we seeing the request for exclusivity or how would we deal with that? Currently the OEMs that we are speaking to are looking for ‑‑ I mean, conceptually what they talk about is being the first mover, getting some first mover advantage. But I think by and large OEMs today recognize that it's not really in, necessarily, their best interest to try to lock you down in a way that you can't create a healthy growing company.
I really am not concerned right now at all about striking the balance between helping an OEM find an attractiveness in being a first mover, working with us early, taking a little risk in helping us finish off specifications, interfaces, etc. And not being locked down so tightly that we can't work with multiple OEM sites. I think we'll be able to strike that balance very nicely.
Kent William: Could you also talk about the science and the physics? Obviously as you demonstrate this to OEMs? How quickly do they get it? Is there doubt? And do they look at the patent position? Can you talk about that?
Jeff Parker: Sure. OEMs, on the D2P, get
it very quickly. We've conducted now many, many demonstrations all over the
world. One of my greatest pleasures has been that every demonstration has gone
flawlessly. The technology comes up. It runs as it should. It demonstrates from
time to time exactly the same.
We have had OEMs who have actually asked us to modify our demonstration in the middle of while we are giving it, to try to cleverly break the technology. What they find out is that it is very robust. So it is pretty short order ‑ I think I predicted it in earlier conversations that just a few hours after they see it they pretty much get on the page that this is what we've described it to be. Then we're moving into the dialog about, 'I want to use it here, ' 'I want to use it there, ' or multiple places.
They're always interested in knowing if the technology is protected. We always point to our historical investment on patents and explain that yes, we have not changed the discipline within the company at all. We file patents often and early.
We believe that the D‑to‑P was just a sort of follow on or an extension of the art and science of the D‑to‑D technology will be well protected in a myriad of ways and claims. Beyond that, they're pretty quick studies on the benefits. It's thus far been a very pleasant and exciting experience.
Kent William: One other question: Have they
had engineers come and visit you in
Jeff Parker: We've had visitors, both to
I guess the other comment I'll make on that is there really isn't an OEM that we are speaking to at this time, that when we discussed these design, are really talking about a one‑off deal. What I mean by that is, we're discussing their first use in a specific product, in a specific way. But there are, with all the OEMs we are talking to, multiple product opportunities.
We've disciplined ourselves to say, let's get the first one defined and the agreement between us defined, so that we have a template to work with. But I fully expect that once we do that with a particular OEM that there will be other design‑ins that will come fairly rapidly behind that. So I think that we are starting to fill up a pipeline. I think that that pipeline will build. It will have a ramp of design‑ins.
Kent William: Are you doing it at the very highest product design level? Or, I mean, the decision‑making level of the organization?
Jeff Parker: We have very good access and are dealing at the utmost senior level in these organizations.
Kent William: Congratulations.
Jeff Parker: Thank you. We are pleased.
Jean: OK, for questions, please go ahead.
Kent William: Hi, Jeff. Some of my questions were answered but can you tell me geographically where some of this interest is coming from?
Jeff Parker: Well, again, in the interest of respecting the wishes of these OEMs, which is that they'd like for us to consummate whatever we are going to do with them before we start talking about it, I'd rather not. I can tell you that OEMs abroad seem to be moving more quickly than certain OEM's at home. And that's about as far as I'd like to go in today's world which is getting ever smaller and quicker to access geographic locations. That's a little bit of a travel inconvenience but it doesn't slow us down.
Kent William: How long will it take to get sample chips that have some of these new applications that they're working for, or different applications there?
Jeff Parker: It'll really be clipped
throughout the year. What happened is a number of OEM's have seen enough on our
demonstration hardware to start moving to these next stages. Then with that
conversation has come the visibility to know exactly how they want to use it
and with interfaces and a lot of very valuable information.
So that allows us now to deliver the balance of this year and even there are plans even throughout the first quarter of next year. Various implementations of this that will not only help them verify how this fits into their system, but will be a long way down the path of actually being usable as manufacturability chips. So this is a really very helpful evolution as these conversations have advanced.
Kent William: Thank you.
Jeff Parker: Thank you.
Jean: We'll take our next question from Donald Slowinski of Winslow Asset Group.
Donald Slowinski: Hi, Jeff. How are you doing?
Jeff Parker: Don, fine, thank you.
Donald Slowinski: Thought you were going to get off the hook with one question.
Jeff Parker: Yeah, so did I.
Donald Slowinski: The queue is taking a little while here.
Jeff Parker: Yeah, I made the mistake of not thanking everybody and getting off quicker.
Donald Slowinski: I'm going to try to keep it
brief. Just a little follow up on
Jeff Parker: Yes. Cellular is, in our opinion, probably the best and highest use of the technology at this time.
Donald Slowinski: OK. Were you aware that Clark
Howard who is a television and radio personality here in the
Jeff Parker: No, I didn't know that.
Donald Slowinski: He's a very well respected consumer advocate and he had a lot of good things to say about the product.
Jeff Parker: That's terrific.
Donald Slowinski: Well, maybe you'll get some call ins. Some of these manufacturers will knock on your door.
Jeff Parker: I will tell I have had numerous, extremely nice feedback. We've sent a number of these OEM's routers and cards to try and oftentimes they'll land in their own residences or offices and it's definitely been helpful because they do use them and they like them a lot. That's been very helpful.
Donald Slowinski: He's like the Good‑housekeeping seal of approval. If he says something's good...
Jeff Parker: Great.
Donald Slowinski: Second question is, IBM last week announced the availability of the new fourth generation of Ziggy process.
Jeff Parker: Yes.
Donald Slowinski: They claim it provides twice the performance of the previous generation. In regards to your D2P design, performance wise, does this help you or is it neutral?
Jeff Parker: I'll be frank with you. I've heard that announcement and I know that we have a team of people here that work with IBM on a regular basis, I mean literally.
Donald Slowinski: But it's possible from what you've shown osier to what you've shown just in the recent samples, it's possible that this new process could actually enhance your...
Jeff Parker: Oh, yeah.
Donald Slowinski: ... performance even more?
Jeff Parker: Oh, yeah.
Donald Slowinski: So the potential is there?
Jeff Parker: Oh, yeah, the potential is there. Frankly, as we evolve the implementation of the technology there is advancements to all of our performance metrics just because every step of the way you learn more about your assumptions so far what we've learned is there is a lot of legs to this technology to grow in a whole range of ways, in terms of performance, dash, pollard size, better efficiency, all sorts of ways.
Donald Slowinski: Fantastic. Well, good job and I'll look forward to talking to you soon.
Jeff Parker: Thank you.
Well, I think with that we will thank all of our participants in joining into our conference call and I look forward to our next one and hope that we'll have exciting news to deliver to you as the year continues on. So thank you very much. Have a good evening. Bye‑bye.
Jean: Ladies and gentlemen, thank
you for joining us on the call. You may now disconnect.