ParkerVision Q3 2006 Earnings Call
November 02, 2006
Paul Henning, IR
Cynthia Poehlman, Chief Financial Officer
Jeffrey L. Parker, Chief Executive Officer
Philip Anderson from Pinnacle Funds
Michael Donahue from Emerging Growth Equities
Jim Litchen from Latela ?
Daniel Lewis from Gem Partners
Ira Nathan from Nathan Financial
Erick Peterson from ECT Research
George Healy, Shareholder
Operator: Good day, everyone and welcome to the ParkerVision Incorporated Third Quarter 2006 Financial Results Conference Call. Today’s call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Investor Relations Consultant, Mr. Paul Henning. Please go ahead sir.
Paul Henning: Thank you. Before we get started, I want to remind that this conference call will contain forward-looking statements which involve known and unknown risks and uncertainties about our business and the economy and other factors that may cause actual results to differ materially from our expected achievements and anticipated results. Included in these risks are factors such as the ability to maintain technological advantages in the marketplace, to achieve timely market introduction and acceptance of our products, maintain product 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 and other risks can be found in our filings with the Securities and Exchange Commission.
We will begin today with Cindy Poehlman, CFO who will review the quarter’s financials and she will be followed by Jeff Parker, the CEO of ParkerVision who will report on the company’s business activities. Cindy?
Cynthia Poehlman: Thank you Paul and welcome to the ParkerVision third quarter conference call. I would like to briefly review a few financial highlights and then I will turn the call over to Jeff Parker for an update on business development.
ParkerVision reported today a net loss for the third quarter of 3.8 million or $0.16 per share, which compares to a net loss of 3.9 million or $0.19 per share in the third quarter last year. On a year-todate basis, the net loss dropped from 19.6 million or $0.97 per share in 2005 to 12.5 million or $0.54 per share for 2006. The year-to-date decrease in the net loss, as we discussed last quarter results, primarily from our decision in June 2005 to streamline our operations and focus on OEM opportunities for our wireless technology. Since our exit from retail, our operating expenses have consistently averaged around 4 million per quarter. For the first three quarters of 2006, this amount includes on average of 600,000 per quarter of non-cash stock compensation expense.
As we noted in our last conference call, our cash usage has gone down significantly over the past year. Cash used for combined operating and investing activities has averaged slightly over 3 million per quarter this year. We do expect our cash usage to be up about 30% in the fourth quarter, as we pay accrued employee year-end bonuses and prepaid certain annual insurance premium before the end of the year. We ended the third quarter with 17.3 million in cash. Based on our current rate of cash usage, we estimate that we have approximately five quarters of cash remaining without accounting for any incoming payments from anticipated business relationship.
As we’ve stated in our quarterly report that was filed this morning, we do anticipate that our initial relationships will include a front payment for technology access fees and non-recurring engineering design fees. Although we don’t expect these fees alone to bring the company to a cash flow positive position on a continuing basis, they will reduce the net cash outflow and help bridge the gap until we realized revenue and cash from royalty payments.
At this time, I would like to turn the call over to our CEO, Jeff Parker for an update on business development activities. I will be available at the end of the call to address any questions you might have regarding the financials.
Jeff Parker: Thank you, Cindy and welcome to our third quarter update. This past quarter has continued to reflect for us an accelerated phase towards a very important milestone for this company, namely our first technology design relationship. As we get further down this path, it becomes increasingly difficult to convey to you the progress we are making without violating any of the confidentiality and non-disclosure agreements that we are operating under.
Believe me, nothing would make me happier than to be able to provide all of our supporters the details of where we are at in our OEM relationship. In the absence of specifics, I think it’s maybe helpful to review with you the progression we’ve gone through over the last year or so with our target customers and where that brought us to. When I look back at the progression of our sales effort, I can categorically classify the steps in the process into five distinct categories. The first step being when we’ve introduced our new GDP architecture, and allow the customer time to digest our claims. The next step, step two, I would call high-level technical due diligence, kind of a kick the tires if you will in an attempt to flush out any obvious problems with the technology for our related clients. The third step, I would call detailed level technical due diligence. This is the phase in the process where the customer is evaluating our technology against other technologies that they have evaluated in the past that have fallen short. This is a very important step in order for them to satisfy themselves that there are no gaps that we haven’t contemplated and this is obviously a critical step before they are willing to invest the time and to move into a more meaningful discussion. The fourth step I would quantify is product design evaluation. And at this point, the customer has for the most part completed enough technical due diligence to believe that you brought something of real tangible value. But they now need to study that against their specific product road map and their portfolio needs to determine what it means to them, which can mean dozens of things. Things like how will they design us into their product, where will it be manufactured, how does this impact their supply chain, what is this due for their future benefit and cost goals and on and on. This is where customers start to require us to complete their confidentiality and non-disclosure agreement as they are now sharing their sensitive information with us. And step five or the last step I would call the business arrangement. This is a combination obviously of all the preceding steps and in and of itself represents a cadence of dialogue, discussion and ultimately negotiation. This step represents that all levels of the company that need to buy in have done so.
As we’ve indicated in previous calls, we are at different stages in this process with different customers. And the steps are not always sequential meaning that, for example, you could be going through steps four and five with the company in parallel. To answer the unasked question, yes, we have reached step five with certain targets.
In our opinion, the announcement of our first deal is simply a win, not an if question. We are extremely confident because the more time we spend in this industry talking with the executives of companies that are clearly the market leaders. The more we come to understand how our technology provides them with a compelling solution to problems they are facing today and even more importantly problems they see looming in the not too distant future.
Problems that their other suppliers simply do not have a solution for us. We stated in our 10-Q that was filed earlier today that we expect our first relationship to be consummated in the next few months. Some of you maybe wondering does this mean that we’ve taken our eye of the end of the year goal? The answer to that question is absolutely not.
We did want to convey the message, and while we are working feverishly towards this goal by the end of the year, whether an announcement is made this month, next month, or even the following months, this shouldn’t be a factor engaging the significance of this important milestone or the shareholder value that can be built from the technology we’ve developed. In fact, as a company, we have more visibility today than ever before to understand the significance and the depth of the value proposition our technology brings to both wireless OEMs and to the network carriers.
As many of you are aware, our CFO and I will be attending AeA’s
Operator: The first question is from Philip Anderson from Pinnacle Funds. Please proceed with your question.
Philip Anderson: Hey, Jeff. How are you?
Jeff Parker: Phil.
Philip Anderson: I’ve been on a sabbatical for a little bit. Could you just elaborate and help refresh my mind about the current problems that your chip would solve for your potential customers, and then are these elaborating with those future problems that you foresee and that they now foresee that your technology can in effect cure before the problem becomes reality?
Jeff Parker: Today, the third-generation cell phone standards, which are represented by wideband CDMA and CDMA are very inefficient in terms of the power consumption required to transmit those signals from a mobile device, like a handset. And so, battery life today is falling short of what consumers would like to see, certainly short of what the carriers who are trying to sell the consumer lots of talk time would like to see. In addition to that, the spectrum, the frequencies that these carriers are operating over have continued to grow broader over more frequencies, and so, what’s happening is, you have very inefficient transmitters that drain the batteries too quickly and the hardware that it takes to support all these different frequencies is duplicated at various frequency stands, hence we end up with lots and lots of duplicate-type hardware to make a phone that will work over the various networks and the various geographies that these providers want to offer.
So you end up with transmitters that are expensive, they’re big relative to what the OEMs what to see, and they are very inefficient. So, the first thing our technology does is, it helps them collapse the redundant chains into a much more elegant solution, it helps significantly reduce the cost to the goals and objectives that many of them have told us that they are trying to achieve and we’ve proven to them that we can get there, and it is much more efficient, if you
took an advanced CDMA network, a typical suburban network. You would find that today’s transmitters are only about 8 or 9% efficient, so that means over all of the operating time, for every lot, let’s say a power that it is consuming, it’s only putting out 8 or 9% of that at the antenna. By comparison, we are 20, 22% efficient, so that’s an increase of about 300% or so, which is a huge increase. I mean typically when they see a new technology, they are seeing 5% increases, 10% increases not hundreds of percent. So, those are the three key benefits that we bring right away. So, the future, all of the service carriers and many of the OEMs have already announced that they are going to be adding broadband data features to their networks and phones. Some of them are going to be using WiMAX, some of them are going to be using WiBRO, some of them are going to be using other kinds of standard generally - are left to the end base. And those particular standards are even more inefficient than Wideband CDMA. I mean you drop from 8 or 9% efficiency down into the low single-digits, and we have already shown them that we can again meet their cost goals, meet their size goals, and bring them hundreds of percent of increase in efficiency to where OFDM broadband services and mobile devices becomes practical.
Today, truthfully, we all announced enough they are going to do it, they are all scratching their head, what do we are going to put into these phones, that will make practical. You wouldn’t stand for a handset, if that is going to operate for 15 or 20 or 30 minutes of battery life if you are using the broadband services. So, they know they have got a big gap between what they would like to deploy and what’s available and we show them how they can close that gap with something practical.
Philip Anderson: And with the same chip or chipset solve both the current problem in this feature, problem coming down their order, or would that be an additional product?
Jeff Parker: That’s really up to the OEM. We have shown them how a single IC implementation can do everything I just described or a subset of that, and I think in some of these OEMs, there would be parallel programs running along that will bring the technology to market faster for certain things they want to do. They are out in the market today and take longer to add some of the features for the future products if they want to apply this to. So, I expect it will be multiple programs, it will bring it to market for different needs in different times.
Philip Anderson: And will you, does the company have at present or a product or a marketable product that you will be upgrading to demonstrate in the power some other going to manifestation as a non-engineer to the absorb and what you are talking about?
Jeff Parker: We won’t do that because frankly the demonstration is like, when you have a laboratory and it’s very involved and frankly with the 30, 40 minutes we get to have a presentation discussion with the group - you wouldn’t - it wouldn’t be a practical thing, but we will bring with us many of the technical documents that we - I will bring some snippets out of that to show some of the things that OEMs are seeing on the equipment that can bring into their facilities or they come to our facilities and see.
Philip Anderson: Okay, thanks very much sir.
Jeff Parker: Thanks, Phil.
Operator: Thank you very much. Once again for those parties who have a question, please press star one on your touch-tone phone. The next question is from Michael Donahue from Emerging Growth Equities, please proceed with your question.
Michael Donahue: Hi guys.
Jeff Parker: Michael.
Michael Donahue: Would it be fair to say that you guys are in the final stages of negotiations with as many as - or is up to three major cell phone OEMs?
Jeff Parker: It would be fair to say we are in the - we believe to be in the final stages of negotiations with several - I don’t want to really go into the specific number, but certainly more than one. And cell phone OEMs are part of the mix of OEMs we are talking to, but as you know, there is actually other types of OEMs as well that we are in dialog with, some are chip providers of various nature.
Michael Donahue: Right. How about - would it be fair to say that you’ve reached some sort of deal at least in principle up to a handshake, let’s say and what is left to do with paper work and legal issues?
Jeff Parker: Michael, I really would - I would love to give you an answer, believe me, but I just can’t go into that level of detail.
Michael Donahue: Okay. All right. Thanks, guys. Jeff Parker: Thank you.
Operator: Thank you very much. The next question is from Jim Litchen from Latela. Please proceed with your question.
Jim Litchen: Hi, Jeff.
Jeff Parker: HI, Jim.
Jim Litchen: Two questions, first question is, it sometimes rolls over, it has been rolling over for years. Is there any competition lurking in the space that could challenge us? Number one. And number two, what is starting up, as you’ve said at the annual meeting like to have this to be the standard at sometime, and we hope will be standard, what kind of numbers are we talking about as far as future usage here in the next two years?
Jeff Parker: So, competition, we have to yet to see anything either that the OEMs have kind of pulled up and said, how do you guys compare to this, that is the [indiscernible] over technology attempts that have failed, just to make sure that we are going down the same path, but there is nothing that they have shown us, or that we have found on our own that does anything close to what we do. We continue to see more of the same in terms of incremental improvement taking traditional, analog linear power amplifiers and reaching out a couple of percent here and a couple of percent there, but nothing that is a truly new approach to doing the RF transport.
In terms of - and by the way, it is really hard to do, which I think is maybe why we haven’t seen anything. It takes a real commitment and investment as we have shown. In terms of volume opportunities, this year appears to be the first year that the handset industry will ship over a billion handsets. And if you turn the clock up to 2009, 2010 time frame, it appears that about half of those will be 3G-type handsets. So, really people find us to bring really nice solutions to problems they’ve got, with 3G and beyond although some may incorporate it into some of the other 2.5 and 2G phones, but if you are limit it to 3G, that is about a 0.5 billion unit per year market and that kind of a time frame. And then if you turn the clock forward a couple of more years, that goes by the year 2011 or so, the forecasts are in the 1.5 billions unit per year. Area, was again 50% or greater than being 3G and beyond. So it is a very large market, one that we will be thrilled to be a participant and eventually will be a leader in.
Jim Litchen: And are we at the same time working on a receiver?
Jeff Parker: We have nice receiver technology as for those of you who followed us for a while, you know D2D. Several of the OEMs have solicited us for more information about D2D, they are seeing that it also has the potential to solve some interesting challenges they’ve got, and we have to an OEM ask that we not get into a detailed discussion about that until we have completed the deal because, as you, we also want our first deal done sooner than later and we would rather grow foundation of a relationship and try to make the relationship ever more complex with even more due diligence. So, and they have all agreed to that. So, I think we will see our receiver technology emerge, but it will come after we have our relationships and after we get into a working cadence with these OEMs. There is plenty to do to get the D2D into their product, so I don’t want to derail that or defuse any of that, I want to make sure that we are absolutely successful of adding growth from that base.
Jim Litchen: Thank you.
Jeff Parker: Thank you.
Operator: Thank you very much. Our next question is from Daniel Lewis from Gem Partners. Please proceed with your question.
Daniel Lewis: Hi, Jeff.
Jeff Parker: Hi, Dan.
Daniel Lewis: In terms of your cash requirements, you have indicated that you wouldn’t - that you have five quarters less of cash. That implies that by the end of the year, you will have four quarters of cash and you would be okay going throughout ‘07, correct?
Jeff Parker: Yes, that is correct.
Daniel Lewis: So, there wouldn’t be any issue of a letter from auditors like you had pressure last year, correct?
Cynthia Poehlman: First, let me jump in and answer that one Dan. This is Cindy. I think the right answer to that is obviously at the point in time that the auditors were in - they were doing their year-end fieldwork, they will assess all the circumstances at that point in time. They will look at our projections going forward in terms of cash usage. They will look at our historical usage. They will look at what deals we have on the table and what cash will be coming in from that in order to make their assessments. So, I mean, your statement is correct, we feel comfortable that we get through the end of ‘07, and the auditors will make that assessment at that point in time, but it is not something that we or the company are concerned about.
Daniel Lewis: To what degree would you anticipate that - the up-front payments and the NREs and the access keys would be meaningful relative to your current cash balance?
Jeff Parker: Dan, I am sorry, maybe elaborate just a little bit, if you could, on that question.
Daniel Lewis: I mean would it be enough - would you expect that your cash consumption would go up as you sign the first OEM deal, what would your needs be once you did sign the deal?
Jeff Parker: Yes, okay. Now I understand. So, you may handle it.
Cynthia Poehlman: Let me start and you jump in if you would like to - I think the answer to that question is Dan, certainly there is a lot of the answer is going to be - it depends on what that first deal looks like and how it is structured. Our expectations are that certainly there maybe some additional resource requirements, so we would certainly hope that our plan for non-recurring engineering fees or other access fees incoming that would offset or more than offset any additional requirements we have for resources. Is that the answer what you are asking?
Daniel Lewis: Yes. Would you also dramatically increase your infrastructure or, I mean, you probably have a sense of what the first OEM deal is going to look like?
Jeff Parker: Yes, Dan. I don’t see us dramatically increase our infrastructure. Some of that will be dependant on how much of the heavy lifting on circuit design some of the these OEMs wanted to do if they want us to do a lot of heavy lifting, they are going to expect to pay for it. So, I am frankly, I think that problem is kind of a non-issue. And they are certainly used to that type of arrangement and the cost for NREs in this industry and this particular space are pretty well understood. So, I am really comfortable either way though that they want to have us do a lot of the heavy lifting, we can do that if they want us to do. Some of the heavy lifting, which is by the way what I think is going to happen that is fine also.
Cynthia Poehlman: Yes. And I think the answer to that is our expectation is that those first deals are going to help our cash flow position, not hurt it.
Daniel Lewis: And what kind of lag would you expect there to be between the time when you sign your first OEM deal and when you start to generate royalties from those - from that deal?
Cynthia Poehlman: As we said in our quarterly report earlier this morning, that lag is probably at 12 to 24 months timeframe. It depends on the breadth of the product that we are going to put it in that tank, how quick they are willing to move. As Jeff as said earlier, are they going to want to eke out every penny out of it before they put it out or they are going to want to go to markets faster with certain product lines. So, our best guess at this point is there is probably a 12 to 24-month period of time before you see the royalties stream coming in.
Daniel Lewis: And is there a sense of how eager they are to put this into all their 3G handsets or some of it?
Daniel Lewis: And the ones - the ones we are the furthest along with seem to indicate that this is a platform decision, meaning that when they have dropped it, it will be across their product lines as a platform. They tend to not design handset-by-handset, but they tend to pickup a technology platform that then becomes the basis for many handsets and maybe they have a couple of platforms, but they don’t have dozens of platforms. So, you know, my opinion at this point is that we would be either in all of the 3G or certainly in a vast majority of those.
Daniel Lewis: Well, that would be exciting.
Jeff Parker: That would be exciting. We are certainly getting excited about the prospects of that happening in the near future.
Daniel Lewis: Good luck.
Jeff Parker: Thank you.
Operator: Thank you very much. The next question is from Ira Nathan from Nathan Financial. Please proceed with your question.
Ira Nathan: Yes Jeff. I was just curious if this is a question you can answer. Have you signed any confidentiality agreements bilaterally with any OEMs at this point?
Jeff Parker: Yes, we’ve signed several of them.
Ira Nathan: Okay and one other question, which has nothing to do with the operation of the business truly. Is - you studied the short interest figures which seems to be far out way the float of the stock, isn’t there certain requirements that they cover those shares?
Jeff Parker: Cynthia, you may know more about those regulations and ideas. Anything you want to comment on?
Cynthia Poehlman: No, really I mean, honestly our focus is on the business and I am furthering the business and although certainly we are seeing the same report you are and to a certain degree scratching our heads about how these numbers have gotten so high. We really I don’t think have any more insight into it than you do.
Ira Nathan: Okay. Thank you.
Operator: Thank you very much. The next question is from Erik Peterson from ECT Research. Please proceed with your question.
Erik Peterson: Hi, if you are going to deal with XYZ Company and in the future, the engineers of that company make further IP enhancements on your basic technology for the deal that you cover with then, are you trying to work out some provisions that you somehow share on these advancements or how would something like that work?
Jeff Parker: Yes, I don’t really want to go into the specifics other than to tell you that there are a couple of different ways to handle that issue that we have seen both industry, kind of industry wide that are pretty well accepted and even within some of the specific companies we’re talking to from other technologies that have been licensed by them. But they tend to contemplate fairness to both parties and how the parties can share in the benefits of those improvements and that’s not a showstopper by any means at all.
Erik Peterson: Okay.
Operator: Thank you very much. Our next question is from George Healy from Shareholder. Please proceed with your question.
George Healy: That’s A shareholder.
Jeff Parker: Oh, George Healy.
George Healy: Just a little further on the questions [indiscernible] what are the current numbers for both the shortage risk most recent and total shares issued outstanding, same year, look up on it?
Cynthia Poehlman: The shortage risk position, I believe that I don’t have the exact numbers in front of me but I believe that it’s just over 5m. And our total shares outstanding are around 23 million.
George Healy: Okay, thank you.
Cynthia Poehlman: You are welcome.
Operator: At this time, I have no questions. Mr. Parker, I will turn the call back over you.
Jeff Parker: Thank you for participating in our call today and we look forward to the next time we have an opportunity to communicate with you and have a great balance of your week, and thank you again for your continued support, bye, bye.
Operator: Thank you very much for the joining the ParkerVision Incorporated third quarter 2006 financial results conference call. Today’s call has concluded. You may now disconnect.