PRKR 2009 Q1 Conference Call
May 11, 2009
Phil Anderson with Pinnacle Fund
Scott Shawaker with Inflection Fund
Operator: Good day everyone and welcome to the Parker Vision first quarter 2009 conference call. Today's conference is being recorded. As it is time for opening remarks and introductions, I would like to turn the conference over to Mr. Paul Henning. Please go ahead sir.
Paul Henning: Thank you. Before we get started, I want to remind listeners 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 factors is such as the ability to maintain technological advantages in the marketplace, the ability to increase manufacturing capacity to meet demands, achieving timely market introduction and acceptance of product, maintaining our patent protection and the availability of capital among others.
Given these uncertainties and other factors for our business, listeners are cautioned not to place undue reliance on any forward looking statement contained within this conference call.
Additional materials concerning these and other risks can be found with our filing with the SEC.
On today's phone we'll hear first from Cindy Pullman, CFO of Parker Vision and then Jeff Parker, CEO will provide and update of the business of the company. Let's turn it first over to Cindy.
Cindy would you like to begin?
Cindy Poehlman: Sure, Thank you Paul and thank you to those of you joining us today for our 2009 first quarter conference call. Today we reported a 5.1 million or 18 cent per share net loss for the first quarter of 2009. This compares to a 4.9 million or 19 cent per share net loss for the first quarter of 2008 and a 5.7 million or 22 cent per share net loss for the preceding quarter which would be the fourth quarter of 2008.
As we pointed out in our press release earlier today, there was a $200,000.00 increase in our net loss from the first quarter in 2008 to the first quarter of '09. This was caused by an $800,000.00 increase in non‑cash share based compensation expense and a net decrease of about $600,000.00 in other operating expenses; primarily product development and personnel related costs.
As we have discussed for the past several quarters, share based or equity based compensation expense, while not impacting our working capital, does have a significant impact on our financial results.
Our stock based compensation expense increased from approximately $600,000.00 in the first quarter of '08 to approximately $1.4 million in the first quarter of '09, representing 27% of our total operating expense in the first quarter.
The increase in share based compensation expense is not a result of any new equity rewards in 2009 but rather, a result of the expense recognized on long‑term equity awards made in mid‑2008. Our first quarter 2009 share based compensation expense is exactly in line with the expense recognized in the third and fourth quarters of 2008 from these same awards which have a three year life.
As I mentioned, other operating expenses and aggregate, decreased by approximately $600, 000.00 from the comparable quarter in 2008 with the most significant decreases being attributable to product development and personnel expenses. As we discussed previously, we engage a number of outside firms to supplement our in‑house engineering resources on a project by project basis.
And as we discussed in our last conference call, this was an area where we anticipated that we would see a reduction in expenditures in 2009. We do expect to continue to utilize outside firms to supplement our in‑house resources. However, we still anticipate that our overall 2009 expenditures in this area will be lower than those incurred in 2008.
I also mentioned personnel and related costs as one of the areas where our operating expenses decreased this quarter. In achieving these cost savings we did not implement any staff layoffs. However, we did freeze additional hiring and eliminate both pay increases and cash funds program.
These steps have had a favorable impact on our overall personnel cost. In our year‑end conference call, we indicated that we expected our cash needs to decrease to approximately three to 3.5 million on average per quarter for 2009. In the first quarter of '09 our cash usage for operating and investing activities was $3.4 million. This compares to $3.9 million used during the first quarter in 2008.
As you know, we have also received net proceeds of approximately $9.5 million in the first quarter from offerings under our shelf registration. We sold an aggregate of approximately six million shares and 430,000 more bringing our current outstanding common stock to approximately 33 million shares.
We ended the firs quarter of 2009 with working capital of approximately $10 million which included $10.8 million in cash. We also received additional net proceeds of just under $400,000.00 in April as a result of the exercise of the underwriters over allotment from the first quarter offerings.
Management is committed to maintaining the necessary liquidity levels to support our business goals for 2009 and beyond. And we, like you, eagerly anticipate additional revenues making their contributions to those liquidity levels in the near term.
I will be available to address any questions you may have at the end of today's call but for now, I am going to turn the call over to our CEO, Jeff Parker who will provide an update on our business development. Jeff.
Jeff Parker: Thank you Cindy and good afternoon everyone. And thank you for joining us for our first quarter, 2009 conference call. As I mentioned in prior conversations, 2009 marks a new phase in Parker Vision's growth. It is the year of focus on execution to assist our customers in the completion of their product offerings which incorporate our technology and to support them in any and every way we can to help them speed their products to market.
Our success in supporting each customer will lead to revenue generation for Parker Vision and to the achievement of the financial goals that I set forth in our last conference call. Equally important, successful execution with our existing customers will set in motion a natural escalation of new customers and opportunities.
It will also expand our knowledge, increase our efficiency in the future projects and provide growth momentum for Parker Vision going forward. We firmly believe that successful completion of these final steps towards high volume product production will drive future business.
So today, I'd like to provide you some visibility into what I mean by execution with our existing customers. Many of you have shown an interest in understanding these steps in more detail so you can better follow our progress.
Just as importantly, this information provides additional insight and understanding into why this focus is the most direct path for us to achieve our financial goals and to build shareholder value.
I'd like to begin by discussing our progress with our first commercial chipset customer. As you know, we delivered silicon to this customer at the end of last year. Some of you have asked, "What else is there to do before we see revenue generation and mobile hand‑sets in the market in volume with Parker Vision technology inside?"
In the final analysis, the speed and timing of the process is under our customer's control. We are committed to providing the highest level of customer support to assist them in any way we can to accelerate their time to market. And they want to get this product into the market as quickly as possible. In the case of our chipset customer this means that current focus for us on two important areas, both of which are relevant activities for our other customers as well.
The first area is packaging; the manner in which the silicon we've developed is packaged for volume production in mobile handsets. The second important area is the testing of components. Specifically how the testing process can be set up, can not only meet the traditional needs of volume production but to improve upon the speed of the legacy testing process as well.
While there is a great detailed work and attention that goes into both of these tasks, they are relatively straightforward and predictable with the end results enabling a revenue ramp supported by high volume production.
In both packaging and testing we are finding that our technology has some very important benefits over the traditional components that we replaced. In the packaging area our customer chipset, will represent the highest integrated 3G RF solution in the market. As our technology enables he receive, transmit and amplification functions to all be integrated into a single small package.
This level of integration would not be practical using traditional components because of the accepted heat that they generate. In fact, D2P eliminates the need for separate power amplifiers in the related heat that they create. Traditional amplification solutions run at about 160 degrees Fahrenheit when the phone is used at room temperature. Our amplification solution runs at under 100 degrees. With this heat reduction, designers are able to incorporate more features in the same form faster and because heat is represented as wasted energy, less heat equals greater power efficiency. The end result is a smaller package which enables greater battery life.
With regard to testing, our technology brings significant value and is set up for volume production. Today, many of the RF components are manufactured by different companies and when they are all married together in a phone there are typically varying percentages of components that don't work well together.
Subsequently, yields for the finished phone product decline because the percentage or assembled phones fail to meet specifications. These yield problems are the result of the inability of the overall system to compensate for these component variations.
Our technology has the inherent ability through the normal test process to compensate for variations that may occur during production. And so we enable an advantage in yield through the manufacturing test process.
I might point out that the improved yield is yet another compelling advantage and benefit for chipset suppliers. So to summarize, we've already delivered and verified the reference designs. We're currently assisting our customer achieving the industries most efficient packaging solution and enhancing their test process to achieve overall higher yield.
Realize that these steps are not unique to Parker Vision. However, what is unique is that our technology enables additional competitive advantages. Furthermore, by working closely with our customers, we gain a better understanding of how these additional competitive advantages that our technology enables to the arch design and production process will ultimately benefit both current and future customers to the company.
So as to timing; we are supporting our first customer in the goal of having initial D2P handsets that they can sample this quarter and we anticipate that the ramp up and production will begin shortly thereafter. As you may have noticed in our contract with this customer there is an undisclosed prepaid royalty that is payable to us following the shipment of a fairly modest quantity of units.
The receipt of this prepayment is a milestone that you certainly look for in the coming months. This customer concentrates on selling products into the rapidly growing, lower end of the 3G marketplace both in developing countries and even in the more mature market such as the United States.
Their business continues to grow and their market opportunities continue to expand despite these challenging economic times. They view the adoption of our technology as an additional opportunity to continue in that direction.
And so now let's turn to discuss our progress with our other mobile phone customer, LGIT. Our engineering team continues to work actively to complete and deliver the silicon that they will build into their own head module. This module will represent a very highly integrated RF solution that includes the assumptions of 2G, GSM, two-and-one-half G edge, 3G YSMA and 3.9 GHSPA.
All of the invested in packaging, tested and development that we are involved in with our chipset customer, our first commercial chipset customer is relevant to our work with LGIT and will help them get to market more quickly as we leverage our prior investments in this area.
We anticipate that they will be in position to sample their first head solution to their customers during the second half of this year with sales and revenues to Parker Vision beginning the first half of 2010. LG is looking to grow its position as a leading technology provider for major hand‑set manufacturers. They understand the enormous potential developing a head module that could easily incorporate multi note functionality and increase an important objective in current and future markets.
Our unique platform technology enables them to develop solutions that will build a leading market share within the broad market based service. And I might add they have a sales force with the size and experience to reach those markets.
Our team is already begun working closely with LG in the sales and marketing of this solution to various handset OEMs and have already made solid progress in gaining the interest of significant hand set OEMs in the LGIT head solution.
Another area of continued process or progress is in our work with ITT. During the first quarter ITT announced that they had demonstrated our technology at tradeshow conferences and that they had been working close with us for some time to incorporate our technology in a number of anticipated programs.
ITT describes Parker Vision D2P as "Breakthrough technology" and in the words of Ken Peterman who is the president and GM of the ITT communications systems division, "Our technology is an important tool in their product planning strategy."
ITT's customer needs reflect many of the same themes that we here in the mobile hand set space. Namely, the desire to increase operational time per battery charge, to decrease the size of cost, and the need to deploy more complex radio communications, yet, employ simplified approach to doing it.
ITT is a company with a heritage and a solid reputation for developing and introducing reliable products within the markets they serve. They continue to enjoy growth in their sector of Arnold Communications and we look forward to supporting them in their markets in a number of targeted applications.
Our relationship with ITT should begin contributing revenue to Parker Vision in the second half of this year. And I look forward to sharing greater detail with you on our progress with this important customer very soon.
So to summarize; Parker Vision has built solid foundation and now stands on the cusp of introduction or our technology in commercial products. We are very fortunate because all three of our customers continue to enjoy solid growth and very positive about what the incorporation of our technology into their products means for continuing that growth going forward. We believe that entering the 3G mobile hand set market at both the lower end and higher end is an effective strategy. And one that is particularly effective in difficult economic times where me‑too products tend to lose ground.
Keep in mind that the crown jewel of ParkerVision, our strong patent portfolio, continues to grow and strengthen. It is the foundation on which our company was built. It will provide significant market protection and, we believe, a solid competitive advantage for some time to come. The strength of that IP, combined with the keys to deploying this technology and high volume production, is the core from which we believe will come significant growth and shareholder value.
While we are laser‑focused on customer support and execution, we also continue to manage our costs to reduce our overhead. Achieving a cash flow positive position within the next three to five quarters continues to be our goal. Earlier in this presentation, I noted that our focus on assisting our customers to deploy product that is incorporating our technology. It is also the fastest way for us to build shareholder value.
Their timely and seamless adoption of our technology into increasing volumes of products will deliver on the promise of the technology. We strongly believe that these customers alone will move us a long way toward achieving meaningful market share within the mobile phone marketplace.
Over the past few years, I've mentioned that it takes time for a disruptive technology to be tested, accepted and adopted. In navigating our course, we've certainly seen our share of bumpy roads as well as course adjustments. But as we approach the months ahead, we've never been more encouraged by our progress. We've never been more confident in our future as we are right now, today. We believe our time is now. So thank you, all of you, for your continued support. Operator, I would now like to open up this call for questions, please.
Operator: Thank you. The question and answer session will be conducted electronically. If anyone would like to ask a question, you may do so by pressing star one on your touchtone telephone. If you're on a speakerphone, please make sure your mute function has been turned off to allow your signal to reach our equipment. Again, please press star one if you have a question. We'll pause for a moment to assemble a queue. [pause]
Operator: Again, please press star one on your touch tone telephone at this time if you have a question. [pause]
Operator: Our first question comes from Philip Anderson with Pinnacle Fund.
Philip Anderson: Good afternoon, Jeff.
Jeff Parker: Hello, Phil.
Philip Anderson: Jeff, when will investors be able to see a working version of our phones?
Jeff Parker: We are tracking along to have sample phones by the end of this quarter, so in the first half of this year.
Philip Anderson: And a sample phone, what does sample phone mean?
Jeff Parker: A sample phone means that there is actually a particular handset model that our chipset customer has targeted to design the first chips that will incorporate our technology. Those phones are going to be sampled by our customer, of course, to their customers. But we'll also have some of those as well, and we'll be able to show our technology working in actual handsets on an actual telephone network. We'll be able to show you tests of longer battery life and some of the other benefits of our technology: reduced heat, some of the higher levels of integration that we've enabled, and things like that. That's what I mean by a sample phone.
Philip Anderson: How much functionality will this kind of a phone have? For example, I have an iPhone. It obviously has a big screen and a lot of functionality. How fully‑fleshed out of a product would we be seeing when you show this to investors?
Jeff Parker: This phone would be very representative of what you'd see in more of the entry level 3G handsets. So, it's more of a basic phone. It doesn't have all of the bells and whistles of an iPhone, but it has a nice display. It has the typical text messaging, and what a couple of years ago would have been considered, you know, the latest, greatest state‑of‑the‑art everything. It has the basic functionality of the 3G cell phone in terms of basic data services and things like that. It's a very nice phone. It's a phone ‑ form factored, by the way ‑ that's shipping in high volumes; I believe in the millions.
Philip Anderson: Who would have made this phone?
Jeff Parker: That's a sale that our chipset customer makes to OEMs and ODMs. I'm not exactly sure who owned this particular phone form factor, other than it's been selected because, as I say, it's a high‑volume phone.
Philip Anderson: Right. So our first customer has had these phones made for sampling purposes? Is that a fair way to put it?
Jeff Parker: No. This phone is actually produced today in volume, shipping on carrier networks. They thought this was a very good representative phone for their first samples with our technology. They believe, and we hope, will lead to a relatively fast ramp of the technology, because it will be easy to test the technology in that type of a form factor.
Philip Anderson: So this is a phone which is already out there and really has been upgraded by having our technology in it, rather than whatever is currently in there.
Jeff Parker: That's true. That's right.
Philip Anderson: Is this a phone that can purchased in this country, or is this more of an international model?
Jeff Parker: Phil, it's more of an international model, but there may also be these phones in this country. I don't know. The way they build these phones is they can put different cases and different looks and feels around them. So I can't say that I've gone around and opened up other phones to say, "Hey, is this that particular phone or not?" What was most encouraging to us, as I say, is that it's a phone that's shipping in volumes today, and they believe will continue to ship in volumes. It is a good start for how to showcase our technology in this entry‑level cell market.
Philip Anderson: So, given that this phone will be available to you and to our customer by the end of the quarter, which is in four to six weeks, I'm going to guess that the performance of the phone at this point has pretty much been proven out to your customer's satisfaction?
Jeff Parker: That's right.
Philip Anderson: This is not your customer's first phone; they've been around for a long time. Can you give us a sense as to how long the sampling process typically takes?
Jeff Parker: You know, they told us that it really depends on their customer who is testing this. They have certain customers who will test and be satisfied with testing literally in just a matter of weeks. They have other customers who will take more like months. I think it will be kind of the spectrum of test times. Our hope and expectation is that they'll get enough feedback quickly enough to want to start going into a ramp relatively shortly after they sample the phones. Then it will just be a continuum, as more and more customers report in their desire to start incorporating the technology into their own handsets.
Philip Anderson: Is the performance in line with what we have been waiting for, which is talk time of 75 to 100 percent of the incumbent's talk time when using 3G functionality?
Jeff Parker: The talk time is definitely significantly increased from what they're currently getting. The heat is significantly reduced. It will be the first phone that I'm aware of anywhere that's incorporated the RF amplification and the RF transmit in the same package. Today those are typically done in two different packages because the amplifiers get quite warm, even hot. Ours still runs cool. That's really going to enable some other things, even down the road, to be done in terms of further levels of packaging integration.
Phillip: OK, well it all sounds great and look forward to encourage you to, when you have a moment, to spend some time going around the country and then meeting the owners of the business and the shareholders and so on, and showing them the phone has been a long time coming. I'm sure, like myself, many people are excited to try it out.
Jeff Parker: Phil, it will be my pleasure to showcase the first phones with RF technology inside. I will not be a stranger, believe me.
Phillip: Well, I'm going to hold you to it, Jeff. Thanks very much.
Jeff Parker: Good. Thank you. Next question, operator?
Operator: Once again for our phone audience, please press star one now if you have a question. We'll hear next from Joe Graves, who is a private investor.
Joe Graves: Hey Jeff, my question surrounds ‑ you know, you spoke to the fact that you're going to have the amplification and transmit technology in one package. Is that our transmit technology as well? You can kind of speak about from the moment you signed this deal to present. I mean, can you speak a little bit about the timeline, the things that you've accomplished with this first customer? And what do you think it's going to do to the timelines with new, well with LGI, you can start with that, and potential new customers?
Jeff Parker: Sure. So Joe you have the entire transmit function is all of ours, from the beginning to the end. The timeline on this has been, we signed that deal in December of '07 ‑ gosh I've got to think back here ‑ and it's taken us, I think it will have taken us about a year and a half from the time we signed that until the time we actually are prepared to help them ramp into volume. Keep in mind that what we did during that time frame then was to take what was really a good technology idea, which had some support in hardware and some silicon developed for it, and then work with them closely to productize this so this could be produced in high volume with the size and the cost and all the things that have to converge for a mobile handset, including putting the interface in the product that works with the [26:10 inaudible] processor. There's a whole spectrum of development activities that had to occur.
In this case, that silicon is leverageable for other applications. As an example, our work with LGIT is getting the benefit of taking many of the things we develop for this particular application and leveraging that into hedge module for LGIT. So while we signed our deal with our first chipset customer in December and 18 months later we end up starting to ramp a production with them, with LGIT we signed last November and in less than a year, they'll be putting together a module that's for actually a much more complicated phone application because it does all these different modes of 2, two 1/2, 3, and 3.9 G.
As we get these types of hardware developed, and the test processes set in place, and the manufacturing ramped up, all of those intellectual properties ‑ which we think of intellectual properties in Parker Vision as patents. But there's other intellectual property that deals with the know how to produce things in volume around this technology, which I think is going to be very valuable.
All that leverages up into a faster time to market for each customer. Now, when it deals with mobile, portable applications, especially in the marketplace for mobile handsets, I think Parker Vision is extremely well positioned to continue to iterate and evolve the silicon and the technology for almost any mobile handset application. Certainly if we were going after a whole new market segment, day‑stations or something like that, you'd kind of be starting again from more of a development stage type with the technology that you'd have some time to develop.
This is why I think it's very important that we stay very focused on this mobile handset area, make sure these customers are very happy with the technology, that they're very successful in the deployment. Because all the successes that we have here will, in my opinion, breed additional successes, I think, relatively quickly. Seeing a mobile handset and proving that there is absolutely no issues in deployment technology and volume, I think will take us to another level of opportunity in this industry once again.
What I hope you heard in our presentation today is that our focus is really on our execution with these first three customers. One of the ways that we can by the way explore ‑ because I get asked this question all the time. Hey, have you explored new opportunities with other customers? The answer is yes, I think we can, but I think one of the ways we can do that ‑ and we're starting to see some of this now ‑ is by taking some of these new opportunities to our existing customers and bringing them even more business, which keeps our infrastructure from ballooning, helps us move to that goal of that cash flow positive in three to five quarters. Getting profitable, I think, is a really big win‑win for all parties.
Working with these customers closely, bringing them more business and making sure that they're successful, I think is a really winning combination.
Joe: Understood. Thank you.
Jeff Parker: Thank you, Joe. Any other questions?
Operator: We'll move to our next question from Scott Shawaker with Inflection Fund.
Scott Shawaker: Hi Jeff. You had a confidentiality agreement in place with that first commercial client. Should we assume that when you reach that milestone payment in the coming months, you'll be able to do a press release that mentions the company name and provides some detail around their plans for the chip?
Jeff Parker: Scott, I don't know that we'll be able to provide the company name, because that will still be under confidentiality, but we will look forward to saying we got the payments and that we've reached that milestone. So I'd say yes to half of your question, which is yes, we'll be able to speak to the accomplishment of reaching the milestone and what that milestone meant. But I don't know that we'll be able to expose the confidentiality of that customer.
Jeff Parker: OK. Next question, operator.
Operator: We have no further questions in the queue at this time. [inaudible 30:20] back to our speakers for additional or closing remarks.
Jeff Parker: I think, just in closing folks, I'd like to say that it's very gratifying that we're getting so close to realizing our dream of having developed the technology that's deployed in the high volume, very important mobile handset space. I believe that the investor partners who have been with us for so long understand the value that can be created from success in this huge product area. We certainly thank you for your continued support and your patience. Maintaining this crisp focus on insuring success with our existing customers, I really believe, will pay the dividends for product deployment in the near term, revenue generation in the near term, and will grow our business opportunities both near term and also longer term. I tell you, I'm really looking forward to bringing you updates on the first handset samples, and yes Phil and others, I promise I will bring those handsets around for you to physically see and touch and see yourself.
These three customers will bring us the fastest initial and growing revenue and the production ramp that we're talking about will be here in short order as this year is flying by us quickly. Thank you all for listening to our update and I hope you have a good evening. Bye bye.
Operator: That does include today's conference. We appreciate your participation.
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