PRKR 2008 Q3 Conference Call
November 10, 2008
Jim Whitten with Laidlaw
Ira Nathan, Nathan Financials
Phil Anderson with Pinnacle Fund
Charles Bellows, White Pine Capital
Operator: Good day everyone and welcome to the ParkerVision Third Quarter 2008 Earning Results Conference. As a reminder, today's call is being recorded. At this time, I would like to turn the conference over to Mr. Paul Henning. Please go ahead sir.
Paul Henning: Thank you very much. Before we get started, I want to remind the listeners that this conference call will have certain forward‑looking statements which involve known and unknown risks and uncertainties of our business or our businesses and the economy and other factors that may cause actual results to differ materially from our expected achievements and anticipated results. Included in this respect are the visibility to maintain technology advantages in the marketplace to achieve timely market introduction and acceptance of our products, maintain product company protection, and the availability of capital among others.
Given these uncertainties and other factors about our business, listeners are cautioned not to place undue reliance on any forward‑looking statements contained within 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's call with Cindy Poehlman, CFO, who will review the financial results of the quarter and followed by Jeff Parker, CEO of ParkerVision, who will report on the company's business activities.
Cindy, would you like to go ahead please?
Cindy Poehlman: [1:22] Yes, thank you Paul and thank you to those of you joining us on the quarterly update call this afternoon. We reported today a $0.25 per share net loss for the third quarter of 2008 compared to a $0.19 per share loss for the same period in 2007. Year‑to‑date, our net loss was $0.66 per share compared to $0.55 per share for the same period last year. The increase in net loss for both the quarter and the nine months period is a result of an increase in product development expenses and an increase in non‑cash stock based compensation expense. While we are cognizant of and sensitive to the problems in the broader economy, ParkerVision is entering a period of rapid growth and one of our challenges internally is to support that growth as fully and as prudently as possible.
As part of that process, the company awarded restricted share units or RSUs to its employees as long‑term incentive compensation over the last few months. Many of these RSUs were issued in connection with executive and senior management employment agreements in June of this year. Those RSUs vest over a three‑year period and likewise their estimated value will be expensed over a three‑year period.
The value of these RSUs is calculated based on the market price of the stock on the issue date, not the current market value of the stock. This non‑cash expense resulted a nearly $800,000 increase in operating expenses for the third quarter and $1.3 million increased for the nine‑month period ended September 30th.
The other increase in operating expenses was due to increases in our research and product development expenses. Excluding the impact of the non‑cash equity award, our research and product development expenses increased by nearly $1 million for the third quarter and $2.2 million for the nine‑month period. Those increases were to support our internal growth as we move towards our product launches and our for support high volume IC production.
These increases included the hiring of a VP of engineering with a solid background in silicon design, fabrication and testing in high volume mobile handset applications. We also filled other key engineering positions in the second half of last year and increased our use of external design resources in 2008 on a project by project basis to facilitate some of the non‑proprietary work required in our product development effort.
We ended the quarter with $9.8 million in cash and cash equivalents representing a $5 million use of cash for the quarter. Excluding the proceeds from any equity offerings or exercises of equity awards, the company's use of cash for operations and investments in intellectual property for 2008 averages approximately $4.6 million per quarter.
While we recognize the uncertainty and anxiety currently prevailing in the capital market, we remain confident in our ability to fund the company in a proper and prudent manner as we move from research and development into the support of high volume IC circuit production by our customers. When considering possible liquidity needs, a number of factors must be considered, not the least of which is the timing and rate of royalty revenues expected to be received in 2009.
Another important factor is the anticipated impact of signing new customers, which we believe will increase our flexibility when considering different financial alternatives, which include possible strategic investments, equity financing, operating lines of credit or some combination thereof.
I am happy to address any specific questions you have on the financial results at the end of today's call, but for now I will turn things over to Jeff Parker for an update on business development.
Jeff Parker: [5:03] So, thank you Cindy and good afternoon and thank you for joining us. Today, I am going to provide you with an update on ParkerVision's progress with our existing customers and toward contracts with new customers. I will also speak briefly about some of the elements of our technology and expand on some of Cindy's remarks as well. Given the events of the late summer and the fall of 2008, you can certainly say that we live in interesting times. In our industry, since our last call, we have seen some consolidations, some mergers, companies closing divisions and others seeking buyers for certain divisions.
In the last few months, companies in our industry have certainly been distracted as they view the changing financial landscape and have tried to determine how it could affect their strategic and operational plans for the coming years. So in some ways business as usual isn't being conducted exactly as business as usual, but there are many other positive aspects to consider.
ParkerVision is focused on the fastest growing segment in what is still a fast growing industry. To remain competitive, handset OEMs continue to introduce next generation handsets and our company has a very unique and compelling platform solution for products in both the three and 4G space that provide very efficient, very effective performance, saving companies significant cost, a strong incentive certainly in these times.
In this challenging environment, we believe our technology is very well positioned to help us meet the challenge of achieving commercial success. So while I am disappointed that we didn't achieve our goal of securing our next customer before this call, I haven't lost sight of the fact that we have made very good progress with more than one customer, even in these challenging times.
Based on the advanced state of some of our discussions and negotiations, I do believe that you will be hearing of its success in the very near future, days not months from now. And then of course we will have more casual progress to talk about.
I am very excited about all the customers that we are working with as they are leaders in our field. And I believe we will be able to share with you more details as to who they are and where they will be using our technology, all of which will reaffirm the magnitude of the market opportunities for ParkerVision.
[7:40] On the topic of delivering production‑ready silicon chips for our first commercial customer, we remain right on track to deliver in this current quarter. This customer and our engineering staff are working very closely together and have recently reached technical milestones that continue to verify the fit between their own system chips and the chips that we have designed for them.
Remember, although we are designing these first d2p chipsets, our relationship is one where we are the licensor and receive a royalty and it is our customers who makes their own chipsets under that license. We expect they will be in a position in this quarter to start their own d2p test and qualification and we would expect to be working closely with them to assist in their implementation of our designs into volume production chipsets in the first quarter of '09.
One additional comment that I want to make regarding delivery of our chips is to point out that this reaffirms that there are no unforeseen issues that we have encountered, which shouldn't be taken for granted, as the development of silicon chips for RF applications, especially ones that are based upon a completely new technology is a very big milestone.
This should pave the way for others in our industry as well, who are more risk averse to be able to determine the adoption of our technology is predictable and practical for their applications.
I would like to also talk about our other current customer: ITT. In addition to the initial d2p application that they have identified and that we have previously discussed, they have been very active in pursuing additional business opportunities that incorporate d2p into products for their customers.
We are excited about the potential of the wins that they are working on that includes d2p. We believe that ITT will prove to be an important long‑term customer and we have seen many opportunities that can be won in partnership with them.
Earlier this year, we set as one of goals, the objective to publish information on our website that would help investors and others better quantify our technology and to speak at an industry conference and to publish a technical paper on the d2p technology.
We recently presented at the European Microwave Conference and we published the technical paper, which provides a very good overview of not only the theory behind our technology, but some of the underlying thought process as to how we developed our approach.
As exciting as the theory is that is disclosed in the presentation, even more exciting is the fact that we have working production‑ready hardware that implements this theory, and customers who are just as enthusiastic to implement the hardware into their products. I also want to mention to you that there are some in the industry who even after reviewing our recent presentation still analyze it as an RF power amplifier.
They still insist that it requires a power hungry DFP to operate it. Those two basic misconceptions should tell you that they fundamentally do not understand how our technology works, either because they aren't qualified to understand or because they have an agenda and choose to not understand.
Now, I have had a number of you call and ask me about our financing plans, and first of all I want to make it clear that we don't have to do anything today. I want to remind you that my family and I personally have made and continue to make significant investments in ParkerVision, investments that approach $14 million and we are aligned with all the best interests of the shareholders and we intend to remain so. We are well on our way to achieving further commercial success, which we believe will put us in a position of greater flexibility with regard to our financing options.
I am very confident in our ability to maintain the necessary working capital to fulfill our business plan. I strongly believe that when we close out this year, that ParkerVision will have achieved all of the goals that we have set for ourselves in 2008 and we will have a very exciting set of goals ahead of us for 2009 and beyond. And so really enough of my presentation, Sarah why don't we go ahead and open up this call for our audience questions.
Operator: To signal for a question please press "*" then "1" on your telephone keypad. Again, "*1" to signal for a question. A reminder, if you are using a speaker phone, please make sure your mute function is turned off to allow your signal to reach our equipment and we will pause for just a moment to assemble the roster. And we will take our first question today from Jim Whitten, Laidlaw.
Jim Whitten: Hi
Jeff Parker: Hi Jim.
Jim Whitten: [12:50] This is the first time since the last two conference calls I am number one. I don't know what that means, but I would like to thank you, after being in this company for so many years, I still have confidence in you and I hope that you succeed. And after having said that, do you believe that by the end of this year, the projections that you made two or three conference calls back, where you are going to get, hopefully, shooting at a certain percentage of the market, that you will have in place the fenders, fabricators or whatever needs to be done, signed up to achieve that goal? That is the first question.
Second question is many of us, as you know, I don't have to tell you this, are getting brutalized by the price of stock, not much you can do about it, but I am starting to get a little concerned about all these stock options that are being handed out.
I understand when somebody new comes in, they are giving up a job and coming on board, but I noticed lately that a lot of these stock options, RSUs, are going to people that already have considerable number of shares. And if the stock works out, obviously they'd be up with the Lehman Brothers crowd. So, those are two questions I would like to pose and good luck for the balance of the year.
Jeff Parker: [14:10] Jim, thank you very much as always for your support and I appreciate that you recognize that the mission we have been on has not been an easy one, but we are getting to the goal that we have been striving for to achieve the kind of commercial success that we have all dreamed of for this company. In terms of where we are and our ability to set up the mechanisms to achieve the kind of market share penetration that I have discussed in the last couple of calls, but to just refresh people's minds, my guidance has been that I believe we have the ability to achieve about a third of the 3G handset space to adopt our technology over the next couple of years to three years.
And to do that you will see that we have customer base to do that, we have got the first customer now and I believe you will see additional customers soon and customers beyond that. So obviously that's an important factor because their market share will translate directly into our adoption rate.
And in terms of the ability to produce, remember, we are a licensor, so what we are really going to be doing is helping our customers setup whatever supply chain requirements it takes to get them to volume production.
Our first customer is an experienced chipset manufacturing company. So what we will be doing is supporting their internal teams, who do these kinds of chipset supply chain management setup as a matter of course today, and I also point that we have brought on board a VP of engineering that we announced recently, who has a lot of experience in the exact same area, which is setting up the supply chain to make sure that you can get the volume production in a timely fashion, achieve the right yield, the right cost structures, and all the things that it takes to be a viable vendor in this space.
Will all of that be setup, Jim, by the end of year? No, and that is what I believe will happen as we start in the fourth quarter setting some of that up with our customer as well as in the first quarter of next year. And that will enable up to achieve that kind of shared market goal that we have set forth along with the other customers that we will bring on board.
In terms of the share option question, I am going to have Cindy to help me with that as well, but I want to point out that we moved away from a pure share option grant program into what's called a restricted share unit, which Cindy is probably even better than I am at defining exactly what that is and give you some guidance on that, but I will point out that the number of those that we issue is significantly smaller number than we would have issued share options, because it is a share of stock, a right to a share of stock not just an option to purchase a stock at a certain price.
And if you look at the volume of those that we issued, which vests over three years, I think you will actually find it's pretty modest compared to the total compensation program potential that we have set forth for our team. I don't know, Cindy you want to talk to this.
Cindy: [17:43] Yeah, I will maybe just add a couple of points on top of that. Jim, obviously a lot of companies are trending more towards the blend of restricted stock or restricted share units either as a balance to or completely towards restricted stock as opposed to stock options. And a lot of that is due to just some simple changes in the accounting rules that makes the accounting for the two of those things very similar. As long as market volatility conditions that result in stock options, that although they result in a tremendous amount of compensation on your financial statements in terms of tangible, realistic compensation with volatility, it just doesn't exist.
So that is the transit that we too have moved towards and I do not want to speak for our compensation committee and certainly they provide the report in the proxy and in our 10‑K every year, as they ultimately make the decisions with regard to the executives and senior management, which is what you are referring to I think.
But they make those decisions based on consultation with outside independent compensation consultants looking at trends in the industry. And as I mentioned earlier with their sight on the importance of keeping together what we feel is a very solid team that we have built here at ParkerVision as we enter into a time that we believe will be very rapid growth.
And we do have a very broad base. We always have a very broad based equity plan at the company. All employees in our company enjoy some form of, whether it be stock options or RSUs, it is not just at the executive or senior management level. And when we have a company the size of ParkerVision, every single person counts, so we try to convey that through our equity plans.
Jeff Parker: [19:36] One other thing I want to add and then we will move on to the next question is if you also look at a large portion of the executive grants that occurred, these have gone to very long‑term employees here, I mean people who have been here for 7, 8, 10 years and beyond. And some of them who have had share options that were frankly way‑way out of the money, never complained about it and some of them have expired, and it is just the way it goes. And I feel very blessed that we have a group of people here who are very balanced in their view of ParkerVision's potential, have always had a long‑term outlook for the company and have always tried to balance that long‑term outlook with making investment in ParkerVision for their career. So, I am actually very pleased with the research the compensation committee did and I think they came to a very balanced and fair conclusion.
Cindy: One last quick point on that and then I will let the operator go to the next question and that is at our annual meeting in August, the shareholders approved a new equity plan. And I just want to point out that that new equity plan specifically excludes executive officers from being able to receive awards under that plan.
Jeff Parker: Shall we take our next call?
Operator: Next we will hear from Ira Nathan, Nathan Financials.
Ira Nathan: [21:08] Ah yes Jeff, a couple of questions. According to what I have heard, it seems like your burn rate is about $4.6 million per quarter.
Jeff Parker: That is right.
Ira Nathan: And with $9.2 million, it seems like you have this quarter and next quarter.
Jeff Parker: Actually $9.8 million, but yeah, right.
Ira Nathan: Pardon?
Jeff Parker: That's $9.8 million, that is right.
Ira Nathan: Well, I am just using rough figures. And then according to what I got out of your statements in answer to another question, you no longer are expecting any royalties this quarter?
Jeff Parker: No. Our goal this year was to get the volume ready and also production readied silicon to the customer before the end of the year in the fourth quarter, which we are right on track for and to help them get their systems setup, so they can ramp into production as quickly as possible which we believe will occur in the first quarter next year and then royalties will ensure.
Ira Nathan: At what point are you now expecting to receive royalties?
Jeff Parker: Ira, some of that is a little out of our control, because of how quickly they get the production setup, but if it happens the way I think it will happen and our customers told that they are highly motivated to get this out there as quickly as possible. You know to refresh everyone's memory, this is a design that goes into an existing platform that they sell and is an upgrade to that platform. So they have already got customers using it, they have already got business for it and it is significant. So they want to upgrade the platform and we want to help them get that as quickly as possible into the marketplace. I would expect as soon as they get that volume silicon into their systems in the first quarter that we will start to see royalties right thereafter.
Ira Nathan: OK. Thank you.
Jeff Parker: Thank you.
Operator: [23:17] Next we will hear from Philip Anderson, Pinnacle Fund.
Philip Anderson: Yes, I wanted to follow along on the lines of questioning of the first caller, talking about guidance to market share. Looking back at a transcript from the previous call, I think you start this again tonight, that if you have approximately one‑third of the market share going forward for 3G and 4G handsets, that would equate to about $2 to $3 a share in untaxed earnings on $30 million share basis, is that the correct assumption?
Jeff Parker: That is right, Phil. So basically on the forecast for the mobile handset space, if you look at achieving a third of that market and based on the kind of range of royalties we expect to receive from our existing contract and others that we are working on, we would expect that on $30 million share outstanding basis that we would generate a $2 to $3 share pretax earnings, that is correct.
Philip Anderson: So, given our current customer and the customer you expect to sign over the next couple of days or two or three weeks, is what I am inferring from the statement that you made in the press release, how much of that one‑third would these customers likely aggregate to?
Jeff Parker: I think I mentioned in the last call or the last couple of calls that our first customer I thought could get us in the mid, maybe better than that single digit market share. I think the next customer that we will be talking about, you will see can do even frankly more than that. But I really would like not to talk specifics about that customer until we announce it, then I think it will be wholly appropriate to go into more detail and the potential with that customer. It is a significant company and they could generate lot of business for ParkerVision and I think ParkerVision can also provide them a very nice competitive advantage in the marketplace themselves. It will be my pleasure to talk about the specifics of that customer, but let's wait till we get to that phone call.
Philip Anderson: Sure. Then just one more question about specifics, Jeff. At this point in time, do you expect that you will be able to share the name of the customer when the contract is announced?
Jeff Parker: I sure hope so, that has been our objective and at this point, I don't see ‑‑ I don't have an indication that we won't be able to do so, but we will know when we have got both parties' signature at the bottom of the agreements. But it is my hope that we absolutely will be able to do that, yes.
Philip Anderson: And will IBM be the fab for these customer's chips or will that be done by the customer itself or will another fab come in?
Jeff Parker: Let's address that when we have that call.
Philip Anderson: OK, got it.
Jeff Parker: It is a good question, I appreciate it, but let's wait for that.
Philip Anderson: OK, fair enough. Thanks.
Jeff Parker: OK, thanks. Next caller?
Operator: And once again, to signal for a question "*1" on your telephone keypad. Next we will hear from Charles Bellows, White Pine Capital.
Charles Bellows: [26:21] Yeah, Jeff, couple of things. One, could you talk a little bit about the ITT relationship, where you are? You are still in the period that you are recognizing any revenue from that contract. And the other part is, explain for me the production‑ready volume. And I take it from your comments that until it is accepted and starts into production with the customer, you could still have delays if there is something in there that doesn't work quite right, so even the first quarter may not be realistic. So could you just talk about those two things?
Jeff Parker: [27:08] Sure. Let me go in the order. So on the ITT, they as I mentioned have an application which they have identified. We have been working with them closely for our technology within that application. We will try to give more visibility into exactly when that will be deployed but honestly that is confidential between us and ITT, and I really am not comfortable giving you anything more on that, certainly not without their permission. I mentioned that they are pursuing additional business opportunities. They have a very strong and respected presence in their market segment, which is government and military, and there are some programs they are pursuing specifically with d2p that are very large opportunities. Again, I can't tell you exactly the nature of the programs because of the confidentiality, but I can tell you that we would be very happy to be included in any of these opportunities that they are pursuing with the technology.
So while I know it sounds quiet on the ITT front, it is not. I wish that I could share with you guys all of the activities that ITT has put forth in working with our technology and promoting it and looking to incorporate it with some of their customers, but I'm really not at liberty to go into any more details on that. As you know, the market segment they are in is already a very confidential area because of their customers, on top of the fact that we have confidentiality with them in general.
So I believe we will be able to talk more about ITT in the not‑too‑distant future, but at this time, I really can't tell you anymore other than the opportunities they are working on, from my view, are very significant. And I believe they will get some of the ones they are going after, I don't say get all of them, but they will be good contributors to ParkerVision's revenue stream.
On the question about the acceptance by the customer and what do we mean by production ready. So production ready means that it has been tested and proven to be worthy of volume and it achieves the right yield, that it achieves the performance over temperature and voltage and all the non‑ideal operating conditions that you have to meet in the mobile handset product.
Because we have been working very closely with them, I mean I would be very surprised, it would be something completely on the left field that they would find anything.
I mean they have our hardware and we have their hardware and we constantly are testing things together and working I mean literally daily, weekly on this. So for us to finally turnover the final to them and for them to find something that we haven't found, I think would be pretty unlikely. I wouldn't say it is impossible, but I'd relegate it to the very‑very unlikeliest circumstances.
So it is our expectation right now that we will turn it over. They will check off all the boxes. They have got to check to satisfy themselves that that we have all done our job and then nobody then they will begin to ramp.
Charles Bellows: [30:18] And that will be completed, you hope, by the end of this quarter?
Jeff Parker: Turnover to them will be by the end of this quarter and they will start setting up for the volume production in the following quarter.
Charles Bellows: And when do you think you might be able to announce who that is or is that going to come from your partner?
Jeff Parker: You know, I honestly don't know. I really would like to give you that visibility. They have asked for confidentiality. We've maintained it. I would hope that they would be interested in promoting the benefits of our technology, before you can go out and pick it up in a handset. But certainly if you could pick it up in a handset, I expect that you will know who it is because there are people in this industry who go off and do reports on components inside phones and especially things that are different and new and unique.
And so once that happens, the word will be out, but I would hope that they will be interested in coming out and talking about this. Before then and perhaps maybe some of the next customer or two, will further encourage them to kind of become part of the group that is out there promoting the benefits of this technology and all that it can hopefully do for their customers and their product lines.
Charles Bellows: Thanks.
Jeff Parker: Thank you.
Operator: And we have time for one more question and that will come from Jim Whitten, Laidlaw as a follow‑up.
Jim Whitten: On Phil...
Jeff Parker: Yours is the first and the last question today, OK.
Jim Whitten: [32:00] All right. In reference to Phil's questions, when we discussed the potential next client, you said you hoped that you would have disclosure. Have you discussed possible disclosure with the client?
Jeff Parker: We have.
Jim Whitten: OK. So, so far, it has been favorable response then?
Jeff Parker: There has and if you hear any caveat to that, it is just that a deal is not a deal until it is signed by both parties. That is the only caveat.
Jim Whitten: So it has been discussed anyway?
Jeff Parker: Oh yes.
Jim Whitten: Secondly, in reference to Phil's reference to my projection when you said $2 to $3, you are talking about the handsets. That does not, from what I understand, include any potential profit or revenue streams from ITT, is that correct?
Jeff Parker: No, that is correct. Yes absolutely, that is on top of that.
Jim Whitten: So that would be incremental?
Jeff Parker: That is correct.
Jim Whitten: OK. And you also inferred in this conference call that you are working on potentially two customers to hopefully consummate by the end of the year, is that correct?
Jeff Parker: We are. Right now, we only want to get the next one announced and then we will worry about the one after that. Once we get the next one announced tonight, I am sure that we will only get to enjoy the euphoria of that for a few minutes before we are asked, "When is the next one?" "But that is OK, give be my few minutes at least."
Jim Whitten: Did you refer or made a mistaken in one of the previous conference calls that you were actively working on more than two?
Jeff Parker: Oh, yeah. We have several customers we have been working with and frankly they even through these difficult times, stayed in these discussions with us, but right now, Jim, my goal is and so is the team's goal, get the next one in that we see on the horizon coming very close. And there is more beyond that, we will talk about that in the next call.
Jim Whitten: OK. And my last question here is considering the turbulent times as you referred to, especially in all these things, doesn't our technology bring, if I am not mistaken from what you said previously, bring us cost savings, labor savings, et cetera, et cetera?
Jeff Parker: Absolutely. Look one of the things that I see happening in this industry today and I am quite glad you stimulated it because it didn't find its way in my discussion that is worthy I think of mentioning it. What I am saying happening today is companies would with "me‑too" offerings are frankly getting squeezed out of the business. You see people extracting themselves from the business just because there is too many offerings of the exact same process. So your ParkerVision shows up with something that is truly novel, truly different, truly brings big benefits, the people have been hearing for, although I will knowledge they have been skeptical we can achieve, but now you have got the products, OK. You are not to be skeptical anymore and if that function of being different, differentiated products that I believe is what is going to win the day.
And if, those companies who have the leadership and the guts frankly and the vision to adopt something different, who are going to be the guys that survive? And all these other guys who are out there saying, "Oh, I will just keep doing the same thing I have been doing forever." "Well, guess what? Those times are going away." So I think this is setting up very nicely for ParkerVision, albeit it is a rough ride right now.
Jim Whitten: Thank you.
Jeff Parker: Thank you, folks. Thanks to those of you who continue to support us. We are working our little tailbones off to make all of us happy in our ability to build the kind of shareholder value that we still know that can be built. We are not going to let these rocky turbulent times get us down. We are going to stay the course and we are going to get to our goals. And our goal is commercial success, our goal is at $2 to $3 a share that we talked about and that's a third of the market. And that de facto standard option and we will get there and with your support, we will be up there as well. So thank you. Have a good evening and I look forward to speaking with many, maybe all of you sooner or later. Bye‑bye.
Operator: That does conclude today's conference. We thank you all for joining us.