ParkerVision's (PRKR) CEO Jeff Parker on Q1 2014 Results - Earnings Call Transcript

May.12.14 | About: ParkerVision, Inc. (PRKR)

ParkerVision, Inc. (NASDAQ:PRKR)

Q1 2014 Results Earnings Conference Call

May 12, 2014, 02:00 AM ET

Executives

Don Markley - Investor Relations

Cynthia L. Poehlman - Chief Financial Officer, Principal Accounting Officer and Corporate Secretary

Jeffrey Parker - Chairman and Chief Executive Officer

Analysts

Don Engle - Private Investor

Elliott Smith - Private Investor

Operator

Good day, ladies and gentlemen. Thank you for standing by, and welcome to the ParkerVision First Quarter 2014 Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the conference to our host, Mr. Don Markley. Sir, you may begin.

Don Markley

Good afternoon, everyone. Thank you all for joining us today. Before we begin, I would like to remind you that this conference call will contain forward-looking statements, which involve known and unknown risks and uncertainties about our business and the economy, as well as other factors that may cause our actual results to differ materially from expected achievements and anticipated results.

Included in these risks are the company's ability to maintain technological advantages in the marketplace, the ability to secure new customers for our products and technologies, maintaining our patent protection and the outcome of litigation among others. Given these uncertainties, as well as other factors related to our business, we caution you not to place undue reliance on any forward-looking statements contained on this conference call. Additional information concerning these and other risks can be found in our periodic filings with the U.S. Securities and Exchange Commission.

On today's call, we will hear from Cindy Poehlman, Chief Financial Officer, who will provide a review of the company's financial results for the first quarter of 2014. Following Cindy's remarks, Jeffrey Parker, Chief Executive Officer, will provide an update on the company's business.

Thank you, again. And with that I would like to now to turn the call over to Cindy. Please go ahead.

Cindy Poehlman

Thanks, Don, and good afternoon, to those of you joining us for ParkerVision's first quarter 2014 conference call. Today, we reported a net loss of $5.8 million or $0.06 per share for the first quarter of 2014 compared to a net loss of $6.5 million or $0.08 per share for the first quarter of 2013. This decrease of $700,000 or $0.02 per share is largely the result of the decrease and litigation related expenses of $900,000, partially offset by increases in sales and marketing expenses, including expenses related to licensing operations and component product sales.

While the decrease in net loss from the first quarter of last year to the first quarter of this year is notable, I believe it’s more telling to compare the decrease in net loss over consecutive quarters. Our net loss from the fourth quarter of 2013 to the first quarter of 2014 decreased approximately $2.1 million or over 25%.

This was primarily the result of $1.8 million decrease in litigation expenses as our jury trial in the Qualcomm case came to a close. In fact, our first quarter 2014 litigation related expenses were in line with the first quarter of 2012 levels of less than $350,000 for the quarter.

We ended this quarter with $25.3 million in cash and available for sale securities. This includes $11.9 million in net proceeds from the private placement of 2.7 million shares of our common stock in March. I’d like to spend just a moment discussing our cash usage in the first quarter, as well as our expected cash needs on a going forward basis.

In the first quarter of 2014 we used approximately $4.5 million in cash for operations. This included nearly $900,000 used to pay year-end account payables that were higher than average due to cost associated with the Qualcomm trial in the fourth quarter.

For the balance of this year, without consideration of any liquidity generated from collection of licensing or product revenue, we anticipate using approximately $4 million to $4.5 million per quarter in cash from operations.

This includes estimates of cost we would anticipate incurring for the wrap-up of our first patent infringement case including any appeal, as well as the initial cost we anticipate incurring in the new complaint filed in district court earlier this month.

With regards to our recently filed patent infringement litigation against Qualcomm and HTC, we have a partial contingency arrangement in place with McKool Smith to co-fund the litigation on the similar basis to our arrangement in the first Qualcomm infringement suit.

We also believe we have the opportunity to fund our portion of the litigation cost in this second case through third parties in exchange for additional contingencies if we so desire. We intend to carefully weight the value of litigation financing against the additional contingencies we potentially will pay.

For the balance of this year, I expect that we will use our available working capital to fund the relatively small start-up cost of this case. Based on our experience over the past three years with the initial Qualcomm litigation, our portion of the cost of litigation in the first year or so is in the $1 million to $1.5 million range.

We believe it is best to incur this initial cost rather than committing to an additional contingent fee at this time. We expect to begin generating revenue from our licensing and product operations over the next 12 months, which can possibly negate any need to obtain third-party funding for litigation activities.

To summarize, we have $25 million in cash at the end of the first quarter, and we expect our cash expenses to be $12 million to $13 million for the balance of the year before consideration of any offsetting revenues. Therefore, we are comfortable that our working capital is sufficient to support our business objectives going forward.

I’m available for questions at the end of the call this afternoon; but for now, let me turn things over to Jeff Parker for an update on business activity.

Jeff Parker

Thank you, Cindy, and thanks to our attendees for joining us today for our first quarter conference call. Although it’s only been about eight weeks since our year-end update, we have no shortage of information to share with you as it’s been a busy and productive quarter. I’m going to provide today the update by reviewing the different areas of our business model, which include product operations, licensing operations and intellectual property enforcement.

I’ll begin with intellectual property enforcement as we’ve had some recent developments in this area. We attended the court hearing on May 1 in Orlando for patent infringement action against Qualcomm. Both ParkerVision and Qualcomm presented arguments to the judge regarding a number of outstanding motions that were filed following the jury decision last October. These are motions that are decided by the judge rather than the jury.

Qualcomm had filed multiple JMOLs, or judgment as a mater of law motions, asking the judge to reverse the jury’s decision with regard to infringement, validity and damages or to order a new trail. ParkerVision had likewise filed JMOL motion on the matter of willfulness.

In addition, ParkerVision had outstanding motions for pre and post-judgment interest on the jury-awarded damages and an injunction against Qualcomm and/or ongoing enhanced royalties for Qualcomm’s continued use of our technology.

The hearing lasted the entire day with both sides being given time to present and refuse the various outstanding motions. At the end of the hearing, Judge Dalton ruled from the bench on some of the outstanding motions. Specifically, he denied Qualcomm’s motion for JMOL or a new trial on damages, he denied our motion for JMOL or new trial on willfulness.

Essentially Judge Dalton held the jury’s decision with regard to damages and willfulness. The judge also denied ParkerVision’s motion for permanent injunction against Qualcomm. He indicated that he was inclined to grab on the royalties to ParkerVision; however, he differed the decision on the royalty amount. Instead, he ordered the parties to meet and confer to determine whether an agreed-upon royalty rates could be reached.

Our litigator, Doug Cawley, suggested that 30 days would be sufficient for the meet and confer and Judge Dalton agreed with that timeframe and required the parties to report back to him in 30 days. He also asked the parties to discuss a reasonable rate for the calculation of pre and post-judgment interest within the next 30 days indicating that if the parties did not reach an agreement then we would set an appropriate rate. Judge Dalton deferred ruling on the outstanding JMOLs related to invalidity and infringement, so we wait his ruling on those outstanding items.

On May 1 we also filed a second complaint in the middle District of Florida against Qualcomm and Qualcomm’s mobile devices customer HTC. This action is for the infringement of seven patents related to different technologies than the down conversion patents that were the subject of our first infringement case. The patents in this complaint relate to you RF up conversions or transmitters, multimode, multiband control systems, baseband control and system calibration technologies and wireless protocol controls and conversions.

In other words, these patents relate to RF transmitters and baseband technologies that are included in Qualcomm’s chipsets. There are patents in this case that issued as early as 2000 and as late as 2012 with expiration dates ranging from 2018 to 2024. The complaints we filed was over 50 pages long and reflects the significant amount of due diligence that was conducted before we filed.

Although the technologies in this new case were distinctly different from those in our first case, our motivation is to develop these innovations and the drivers behind the adoption of these technologies we believe to be similar, namely, the demand for multimode and multiband mobile devices operating with advanced wireless standards such as 3G and 4G along with wireless connectivity standard such as Bluetooth, Wi-Fi and GPS, delivered in chipset were the semiconductor geometries continue to get progressively smaller and resulting operating voltages are ever lower.

Under these operating parameters we believe our technologies became necessary. At the hearing earlier this month Qualcomm argued that since our RF down conversion technology resided in such a tiny portion of entire chipset that it therefore had an insignificant value.

Ironically, the opposite is true. Our technologies have been designed to accommodate the use of shrinking semiconductor geometries and lower voltages, while providing best-in-class performance, which is precisely what makes our intellectual property so valuable. So, in our view, the value of our technology continues to grow as the size and voltages of the semiconductors continues to shrink, not the other way around.

With regard to possible damages in the second infringement case, any estimates will be premature at this point. The only guidance I can give you at this time is that similar to our first case we believe the infringement of some of our patent dates back to devices that were introduced into the marketplace in 2006.

We further believe that the damages model in this case will include baseband chips and they are accompanying RF transceivers which combined carry a significantly higher average selling price and the standalone transceivers chips that served as the basis for damages in our first case.

As Cindy already commented in her remarks, we’re still evaluating how we want to proceed with this litigation from a funding standpoint. Using our first infringement case against Qualcomm as barometer, during the first 12 months or so of litigation we only incurred about 10% of the overall litigation cost. It isn’t until the midway point in the case that costs begin to escalate.

So it’s important for ParkerVision to carefully weight the trade offs and bringing in third-party funding for our portion of the litigation cost against the amount of any award that we may be sharing in additional continuing fees. The timing of any appeal and the final resolutions in our first case, the success of other business relationships that we’re working on with 3LP and other factors could influence our decisions regarding litigation funding.

With regard to 3LP, they took a more prominent role in our licensing operations earlier this year. This team has a near-term goal to generate 2014 revenues from initial product development ventures and licenses, and to do so in a way that creates the favorable business over the longer term. It’s our view that we’re on-track to achieve those goals.

At this stage, it’s difficult, and in some cases, inappropriate to provide specific guidance with regard to what companies we view as shorter versus longer term prospects, and where exactly we are in the process with some of those companies. I think the milestones investors should focus on are announcement that meaningful revenue generating agreements which we anticipate will be forthcoming during the year.

And now I’ll move to our last topic, which is chipset development and product operations. Our relationship with VIA, Qualcomm continues and we are working together to complete the interface of our RF chipset so their latest CDMA baseband processor which appeals to the broader global market.

We’ve successfully achieved certain milestones in our development agreement with VF and we’re hopeful that the completion of the latest interface will lead to design wins for our RF chipset including our D2P technology into mobile handsets and other devices that are used on CDMA networks.

Last year we began expanding our product offerings beyond chipsets for mobile phones to include certain components that are targeted at applications for less integrated RF receivers and transmitters. This included bringing to market best-in-class IQ RFD modulators based on RF energy transfer sampling technology and modulators that are also based on our unique RF up conversion technologies. We initiated a number of activities to market our component products including beginning to build a network of sales representatives in key geographies in the United States, targeted advertizing and trade show presence.

In fact, as part of those efforts we will be attending the IEEE MTT international microwave symposium in Tampa in early June. We’re now beginning to see results from these activities with a number of potential customers who have evaluated some of these components. Their feedback has been very encouraging, and we believe we’re on-track to securing our first customers for these components.

We’ve also started exploring distribution relationships that will provide us with broader reach into what we believe are lower volume by higher margin customers that make up the industrial and commercial markets where our components naturally fit. The relationships we are developing in this market are promising, and I look forward to bringing your more definitive updates regarding orders for our component products on our next call.

So in summary, the milestones, we believe our shareholders should look for in the near-term are; number one, a final district court decision in our initial Qualcomm infringement case including a decision regarding ongoing royalties; secondly, meaningful progress in our pursuit of product ventures and licensing agreements with 3LP; and third, sales activity with regard to our component products.

And so with that update, I would be glad to open up this call to your questions.

Question-and-Answer Session

Operator

(Operator Instructions) And our first question comes from Don Engle. Please go ahead.

Don Engle - Private Investor

Don Engle. I understand what Cindy said on the funding and the trade off and what you said. But since my background with Michael Milliken, when companies that we financed had such great outlook and excellent products, prospects, we always felt we should overfund. And Mike -- and in case you never know the spend; you don’t know how long this is going to take. And so, my question to you is why haven’t you done that? And the other is the licensing cost that you’re working on now, is that in the course numbers that you presented.

Jeff Parker

Okay. Hi, Don. And let me make sure I’m answering your -- well, I understand your question correctly. Let’s start with the first half. Is the question you’re asking in the first half, why haven’t we already deferred into a fully-funded agreement to handle the second case of litigation, is that what you’re asking?

Don Engle - Private Investor

Yeah. Let me be precise.

Jeff Parker

Okay.

Don Engle - Private Investor

It doesn’t matter if you think what you have about overfunding and dilution. This is meaningless with your great prospects. That’s my question.

Jeff Parker

Okay. Well, thanks. Here’s why we haven’t more forward yet. We’ve got several firms that have approached us who have indicated their willingness and picked up the rest of the funding. What we are trying to negotiate for the shareholders is an arrangement where if the litigation moves forward all the way through to a trial and beyond, that we will have the option of having a third-party fully-funded, if in fact that’s in the best interest of the shareholders. Let me give you an example of where it may not be in the best interest of the shareholders.

If we are successful this year with some of 3LP’s efforts, we believe that can generate meaningful revenue. And if they does, in fact, generate meaningful revenue and we have enough cash to fund this ourselves and not have to share additional contingencies with third parties then we wouldn’t necessarily think it’d be in the best interest to give away significant dollars that would be represented by the second case.

So, we think it’s too early to enter into something like that right now. We are very encouraged by the kinds of firms that have come forward who want to participate in this. And so far they’ve indicated a willingness to be very flexible, which I think speaks to what you said earlier, which is we have a very high-quality situation here.

On your second question, I’m sorry, what was that?

Don Engle - Private Investor

On new licensing agreements with whatever companies is that -- those costs in what you and Cindy presented?

Jeff Parker

Yes, yes. Those are in those -- in those, yes. Our arrangement with 3LP was to fund for the first year a pretty small amount that would kind of help them with the expenses, half of which, by the way, is credited toward coming off of any fees that they get from successes in their bringing in customers. And those are reflected in what Cindy described, and I think its encouraging that 3LP feels enough confidence to operate on that basis.

Don Engle - Private Investor

Thank you for your answers.

Jeff Parker

Thank you.

Operator

(Operator Instructions) And our next question comes from Elliott Smith. Please go ahead.

Elliott Smith - Private Investor

Jeff, good afternoon. We haven’t chatted since we underwrote your stock back in the 1990s.

Jeff Parker

Elliott, it’s been long time. How are you?

Elliott Smith - Private Investor

I’m fine. Thank you.

Jeff Parker

Great.

Elliott Smith - Private Investor

This is a hypothetical, of the 177 million-odd, if the judge rules that’s what you’re going to get for giving ongoing royalties. What percent of that would drop to your bottom line?

Jeff Parker

So are you saying how much do we have to share with litigators in their partial contingency. Is that what you’re…

Elliott Smith - Private Investor

That’s correct.

Jeff Parker

So here’s the guidance. It’s confidential. Here’s the guidance we’ve given up to this point. If you look at full contingency fees for patent litigation tends to run in the 40% range. For partial contingency like what we have with our litigators, let’s just say that you can assume half of that and can scale lower as the settlement numbers go higher. So I think you’re going to see something in the team. So take if you want to see the round numbers 15% of 18%, 17%, something like that if you can assume something like that.

Elliott Smith - Private Investor

Thank you very much.

Jeff Parker

Thank you, Elliott.

Operator

(Operator Instructions) And I’m showing no further questions at this time. I’d like to turn it back to Mr. Jeff Parker for closing remarks.

Jeff Parker

Well, folks, I know it was just a short while ago that we have conference call so I’m not totally surprised, there aren’t too many questions today. I really appreciate you’re continuing to follow the company and your interest in our doing. And we look forward to a very interesting year and look forward to our next conference call. Have a great afternoon. Thank you much.

Operator

Ladies and gentlemen, this does conclude today’s conference. Thank you for your attendance. You may now disconnect. Everyone have a great day.

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