ParkerVision, Inc. Q3 2008 Earnings Call Transcript

ParkerVision, Inc. (PRKR)

F3Q08 Earnings Call

November 10, 2008 4:30 pm ET

Executives

Paul G. Henning - Cameron Associates, Vice President

Cynthia L. Poehlman - Chief Financial Officer

Jeffrey L. Parker - Chairman and Chief Executive Officer

Analysts

James Whitten - Laidlaw

Ivan Nathan - Nathan Financial

Philip Anderson - Pinnacle Fund

Charles Bellows - White Pine Capital Inc.

Presentation

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 Paul Henning. Please go ahead sir.

Paul G. 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, Chief Financial Officer, who will review the financial results of the quarter and followed by Jeff Parker, Chief Executive Officer of ParkerVision, who will report on the Company’s business activities.

Cindy, would you like to go ahead please?

Cynthia L. Poehlman

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 this 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 have flows and ebbs and sensitive to the problems in the broader economy, ParkerVision is entering the period of rapid growth and one of our challenges internally is to support that growth as fully and extremely if possible. As part of that progress, the Company awarded restricted share units or RSUs to its employees as long term incentive compensation over the last three months.

Many of these RSUs were issued in connection with executive and senior management employment agreement in June of this year. Those are RSUs best over a three year period and likewise their estimated value will be expense over 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 to the nearly $800,000 increase in operating expenses for the third quarter and a $1.3 million increased for the nine months period ended September 30.

The other increase in operating expenses was due to increase within 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. These 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 the VP of engineering with a solid background in silicon designs, fabrication and testing in high volume mobile handset application.

We also filled other key engineering positions in the second half of last year and increased our years of external design resources in 2008 on a product 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 the equity offerings or exercises of equity award, the Company’s use of cash for operations and investments in intellectual property for 2008 averages approximately $4.6 million per quarter. While we recognized the uncertainty and anxiety current 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 finding 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.

Jeffrey L. Parker

So, thank you Cindy and good after and thank you for joining us.

Today, I am going to provide you an update on ParkerVision’s progress with our existing customers and to our 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 this after 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, Company’s 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 is not 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 of fast growing industry. To remain competitive, handset OEMs continue to introduce next generation handsets and our Company has a very unique in compelling platform solution for products in both three and four G base that provide very efficient, very effective performance, saving Company’s significant costs a strong incentive certainly in these times.

In this challenging environment, we believe our technology is very well positioned, tells us the need the challenge of achieving commercial success, so I am disappointed that we did not achieve our goal of securing our next customer before this call. I have not lost sight of the fact that we have made very good progress with more than customer even in these challenging times. Based on the advance state in some of our discussions and negotiations, I do believe that you will be hearing a little 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 in the - whom they are and where they will be using our technology. All of which will reaffirm the magnitude of the market opportunities for ParkerVision.

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 this first d2p chipset, our relationship is one where we are the licensor and receive a royalty and is our customers that makes there own chipsets under that license. We expect they will be in a position in this quarter to start their own d2p testing qualification that we would expect to be working closely with them to assist in their implementation of our design in the 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 should not 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 is more risk averse to be able to determine the reduction 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 in that we have previously discussed, they have been very active in pursuing additional business opportunities that incorporate d2p 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 we can be one in partnership with them.

Earlier this year, we have set as one of goals, the objective to publish information on our website and with the 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 not only the theory behind our technology but some of the underlying thought process as to how we develop our approach.

As exciting as the theory is that disclosed the presentation even more exciting is the fact that we have working production ready hardware that implements the 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 RF power amplifier [14.52]. They still insist that it requires a power hungry DFT operated. Those two basic misconceptions should tell you that they fundamentally do not understand our technology works either because they are qualified to understand or because they have an agenda and choose to not understand.

Now, I have had a number of new calls and asked me about our financing plans, and first of all I want to make it clear that we do not 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 approached $14 million and we are aligned with all the best interest 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 to maintain the net facility working capital to fulfill our business plan.

I strongly believe that when we close out this year, that ParkerVision will have achieve 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 do not we go ahead and open up this call for our audience questions.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from Jim Whitten – Laidlaw.

James Whitten - Laidlaw

This is the first time in the last two conference calls that I am number one. You 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 have made on the two or three conference calls back where you going to get hopefully shooting at a certain percentage of the market that you will have in place the fenders, fabricators or whatever it need to be done signed up to achieve that goal? That is the first question. Second question is many of us, as you know, I do not have to tell you this, we are getting brutalized by the prices of the stock, and 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 and I understand when somebody new comes in, they are giving up a job and coming on Board. But I noticed lately that lot of the stock options RSUs as go in are going to people that are already have considerable number of shares and if the stock works out obviously, they will be up with the Lehman Brother crowd. So, those are two questions I would like to post and good luck for the balance of the year.

Jeffrey L. Parker

Jim, thank you very much as always for your support and I appreciate that you recognized the mission we have been on have not been an easy one but we are getting to the goal that we have been trying for to achieve the credit 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, which just reflects people’s mind. My guidance has been that I believe we have the ability to achieve about the third of the 3G handsets base to adopt to 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, so you have got the first customer now and I believe you will see additional customers soon and customers beyond that, so obviously that is the important factor because their market share will translate directly into our adoption rate. And in terms of the ability to produce, remember, a world licensors so what we are really going to be doing is helping our customers setup whatever supply chain requirements it takes to get the 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 Domingo Figueredo the VP of engineering that we announced recently.

We have 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 co-structures and all the things that it takes to be a viable vendor in the space. Will all of that be setup, Jim by the end of year? No, 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 toward along with the other customers that we will bring on board.

In terms of the share option question coming up and this would help me that as well but I want to point out that we moved away from share option grant program and to, what is call the restricted share unit which will be probably even better to finding exactly what that is and to give you some guidance on that but I will point out that the number of those that we issue is significant smaller number that we would have issued share options because it is a share of stock, a right to a share of stock and option to proves the stock is [21.26]. And if you look at the volume of those that we issued which steps over three years. I think we will actually find pretty modest compared to the total compensation program potential that we have set forth for our team. I do not, Cindy, you want to comment on this.

Cynthia L. Poehlman

Yes, I want to 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 the chip 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 the 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 is just does not 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 will provide the report in the proxy and in our 10-K every year as they ultimately make the decisions which 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 side on the importance of keeping together that the solid, where we still have a very solid team that we 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 base equity plan of the Company. All employees in our Company enjoy some form of whether it be the stock options or RSUs 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 plan.

Jeffrey L. Parker

The one other thing that I want to add regarding that question is we also look at a large portion of the executive branch these have gone to very long term employees here and people who have been here for 7, 8, 10 years and beyond and some of them who had share options that were frankly way, way out of the money never complained about it. Some of them had 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 to have a long term, we always have a long term outlook for the Company and I 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 that it came to a very balanced and fair conclusion.

Cynthia L. Poehlman

One last quick point on that and then I 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.

Jeffrey L. Parker

So, we take our next call?

Operator

Your next question comes from Ivan Nathan – Nathan Financial.

Ivan Nathan – Nathan Financial

Jeff, a couple of questions. According to what I have heard it seems like your burn rate is about $4.6 million per quarter.

Jeffrey L. Parker

That is right.

Ivan Nathan – Nathan Financial

And with $9.2 million, it seems like you have this quarter and next quarter.

Jeffrey L. Parker

Oh, yes. It is $9.8 million. Right.

Ivan Nathan – Nathan Financial

What?

Jeffrey L. Parker

But $9.8 million, that is right.

Ivan Nathan – Nathan Financial

Well, I am confusing rough figures. And then according to what I have got out of your statements and answer to another question, you no longer are expecting any royalties this quarter.

Jeffrey L. Parker

No. Our goal this year was get the volume ready, turn the production ready 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 as we believe will occur in the first quarter next year and then we’ll sizzle in two.

Ivan Nathan – Nathan Financial

At what point are you now expecting to receive royalties?

Jeffrey L. Parker

I read some of them are a little out of our control because they are quickly they get the production setup but it happens the way I think, it will happen in our customers told that they are highly motivated to get this out there as quickly as possible and to refresh everyone’s memory, this is a design that goes into an existing platform that they sell and it is an upgrade to that platform so they have already got customers using it. They have already got business for it and significant, so they want to upgrade the platform and we want to help them get that as quickly as possible into the market place. I would expect as soon as they get that volume silicon into their systems in the first quarter that will start to see royalties right thereafter.

Ivan Nathan – Nathan Financial

Okay. Thank you.

Jeffrey L. Parker

Thank you.

Operator

Your next question comes from Philip Anderson – Pinnacle Fund.

Philip Anderson – Pinnacle Fund

I just want to follow on in the line of questioning of the first caller, talking about guidance to market share. Looking back at the transcript for previous call, I think you start to figure it tonight that if you have approximately 1/3 of the market share going forward for 3G and 4G handsets that would equate to about $2 to $3 of share in untaxed earnings on a $30 million share basis, is that the correct assumption?

Jeffrey L. Parker

That is right, Philip. So basically on the forecast for the lower handsets base, 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 that to $2 to $3 share pre tax. That is correct.

Philip Anderson – Pinnacle Fund

So, given our current customer and the customer you expect to sign over the next couple of days or 2 or 3 weeks, that is what I am inferring from the statement that you have made in the press release. How much of that 1/3 would these customers likely aggregate to?

Jeffrey L. 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 to that. But I am really would like not to talk specific about that customer until we announce then and I think it will be fully appropriate to go into more detail and the potential for that customer. It is a significant company and they could generate lot of business for ParkerVision and I think ParkerVision provides them a very nice competitive advantage in the marketplace or so. It will be my pleasure to talk about the specifics of that customer or let us just wait till we get to that phone call.

Philip Anderson – Pinnacle Fund

Sure, then 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?

Jeffrey L. Parker

I sure hope so, that has been our objective and at this point I do not see, I do not have any indication that we will not be able to do so but we will know when got both parties’ signatures at the bottom of the agreements. Well, it is my hope that we absolutely will be able to do that.

Philip Anderson – Pinnacle Fund

And will IBM be the FAB for these customers’ chips or will that be done by the customer itself or another FAB is coming?

Jeffrey L. Parker

Let us address that when we have that call. Three questions and I appreciate that. But let us wait for that. Okay, thanks.

Operator

(Operator's instruction) Your next question comes from the line of Charles Bellows – White Pine Capital Inc.

Charles Bellows – White Pine Capital Inc.

Yes, Jeff, couple of things. One, could you talk a little bit about the ITT relationship, where you are? You are still down 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 in the production with the customer, you could still have delays if there is something in there that does not work quite right so even the first quarter may not be realistic. So could you just talk about those two things?

Jeffrey L. Parker

Sure. Let me go in the order yet. So on the ITT; they have mentioned they have an application which they have identified. We have been working with them closely for our technology within that application. It was like giving more visibility into exactly when that will be deployed and honestly that is confidential between us and ITT and I really am not comfortable giving you anything more on that but certainly not without their permission.

I mentioned that they are pursuing additional business opportunities. They have a very strong and respected precedence in their market segment which is government military and there are some programs they are pursuing specifically with ITT that are very large opportunity. Again, I cannot 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 well I know it sounds quite on the ITT front, it is not. I wish that I could share with you guys all of the activities that ITT has put forward in working with our technology and promoting it and looking to incorporate it with some of their customers but I really am not in liberty to get into any more details on that. As you know, the market segment there is already 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 a not-so-distant future but this time, I really cannot tell you anymore other than the opportunities they are working on which in my view are very significant and I believe they will get some of the ones, they are going after, I do not say all of them but they will be good contributors to ParkerVision's revenue strength.

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. It achieves the right yield. They have achieved the performance over temperature and voltage and all the non ideal operating conditions that you have to be in the local handset product. Because we have been working very closely with them, I mean I would be very surprised, it would be something completely out of left field that they would find anything, I mean they have our hardware and we have their hardware and we constantly are keeping things together and working, I mean literally daily, weekly on this. So for us to finally turnover the final finals to them so that we can find something that we have not found, I think would be pretty unlikely. I would not say it is impossible but I would relegate it to the very, very unlikely circumstances. So it is our expectation right now that we will turn it over. We will check off all the boxes. They have got to check to satisfy themselves that that we have all done our job and then they will begin to ramp.

Charles Bellows – White Pine Capital Inc.

And that will be completed, you hope, by the end of this quarter?

Jeffrey L. Parker

Turnover will be by the end of this quarter and they will start setting up for the volume production in the following quarter.

Charles Bellows – White Pine Capital Inc.

And when do you think you might be able to announce who that is or is that going to come from your partner?

Jeffrey L. Parker

I honestly do not know. I really would like to give you that visibility. They have asked for confidentiality. We maintained it. I would hope that they would be interested in promoting the benefits of our technology, before you can pick it up in a handset but certainly if you are going to pick up a handset, I would suspect that you will know who are those because there are people in this industry that go off and do reports on components inside phones and especially things that are different and new and unique. 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, we 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 line.

Operator

You have a follow up question from the line of James Whitten - Laidlaw.

James Whitten - Laidlaw

Just on Phil’s

Jeffrey L. Parker

Excuse me; this is the first and the last question today, okay.

James Whitten - Laidlaw

In reference to [Phil's] questions when we discussed the potential mix client, you said you hope that you could have disclosure, have you discussed possible disclosure with the client?

Jeffrey L. Parker

We have.

James Whitten - Laidlaw

Okay. So, so far there has been favorable response then.

Jeffrey L. Parker

There has and if you hear any caveat to that, it is just that a deal is not a deal until it is released by both parties. That is what we believe that the only caveat.

James Whitten - Laidlaw

So it has been discussed anyway?

Jeffrey L. Parker

Oh yes.

James Whitten - Laidlaw

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?

Jeffrey L. Parker

Well, that is correct. Absolutely, that is on top of that.

James Whitten - Laidlaw

So that will be incremental?

Jeffrey L. Parker

That is correct.

James Whitten - Laidlaw

Okay 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?

Jeffrey L. Parker

We are. Right now, we maybe 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 link it to enjoy that euphoria that for a few minutes before we are asked, when is the next one but that is okay because that might be a few minutes away.

James Whitten - Laidlaw

Did you refer or am I mistaken on one of your previous conference calls that you were actively working on more than two?

Jeffrey L. Parker

Oh, yes. We have several customers we have been working with and frankly, they, even through these difficult times, they stayed in these discussions with us but right now, James, my goal is get and so is the team's goal, get the next one that we see on the horizon coming very close and there is more beyond that so we will talk about that on the next call.

James Whitten - Laidlaw

Okay and my last, fast question here is considering the turbulent times as you referred to specially in all these things, does not our technology bring, if I am not mistaken from what you said previously, brings this cost savings, labor savings, etc, etc?

Jeffrey L. Parker

Absolutely. One of the things I see happening in this industry today and I am glad you stimulated it but I guess you will find one of my discussions but really I think mentioning it, one of the things happening today is companies would need new offerings or frankly getting squeezed out in the business. You will see people extracting themselves from the business just because there is two many offerings of the exact same process. So ParkerVision shows that was something that is truly noble, truly different, truly ramp big benefits that people have in [38.46] were although all the knowledge they expect we can achieve but now you got the task, okay, you do not have 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 will 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, although it is a rough ride right now.

Thank you, folks. Thanks to those of you who continue to support us. We are working a little [pale downs off] to make all of us happy in our ability to build the kind of shareholder value that we still know 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 goals at $2 to $3 a share that we talked about and that further the market and that reset those 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.

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