Q2 2014 Earnings Call
August 11, 2014 4:30 pm ET
Don Markley -
Cynthia L. Poehlman - Chief Financial Officer, Principal Accounting Officer and Corporate Secretary
Jeffrey L. Parker - Chairman and Chief Executive Officer
Good day, ladies and gentlemen, and welcome to the ParkerVision Second Quarter 2014 Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded. I would like to introduce your host for today's conference, Mr. Don Markley, Investor Relations. Sir, you may begin.
Good afternoon, everyone. Thank you 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 of the 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 second quarter and first half 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'd like to turn the call over to Cindy. Go ahead, please.
Cynthia L. Poehlman
Thanks, Don, and good afternoon to those of you joining us for ParkerVision's second quarter 2014 conference call.
Today, we reported a net loss of $5.8 million or $0.06 per share for the second quarter of 2014, as compared to a net loss of $7.1 million or $0.08 per share for the second quarter of 2013.
On a year-to-date basis, for the first half of 2014, we reported a net loss of $11.6 million or $0.12 per share, compared to $13.6 million or $0.16 per share for the first half of 2013. The decrease in the net loss for both the quarter and the year-to-date is largely a result of the significant decrease in litigation fees and related expenses following the conclusion of our jury trial in the Qualcomm infringement case in October of last year.
We ended the second quarter of 2014 with approximately $21.8 million in cash and securities, which represents the net use of approximately $3.5 million for the quarter.
During the second quarter, we used approximately $4 million in cash for operations and approximately $250,000 for the prosecution of new patents. This usage was offset by approximately $700,000 in proceeds from the exercise of outstanding options and warrants during the second quarter.
Our cash position is more than sufficient to carry us through this year, and well into 2015. One area that we continue to explore is that of nondilutive financing alternatives, particularly with regard to our litigation activities. Our goal is to have those arrangements in place prior to any significant escalation in litigation-related cost.
I will be available for questions at the end of today's call. But for now, let me turn things over to Jeff Parker for an update on business activities. Jeff?
Jeffrey L. Parker
Thank you, Cindy, and thanks to our attendees for joining us today for our second quarter conference call.
We held an investor meeting in New York not quite 4 weeks ago, and provided a relatively thorough company update. At that meeting, we heard from a couple of members of our management team, as well as several of our outside professionals, including our lead patent litigator, Doug Cawley, from McKool Smith; our lead counselor for patent prosecution, Rob Sterne from Sterne Kessler; and our lead for licensing and IP business development activities, Kevin Rivette, from 3LP Advisors. If you haven't yet listened to that presentation, I would encourage you to do so. It's available on our website, along with the related PowerPoint presentation.
Today, I'm going to recap a few of the highlights from that July meeting, along with some other relevant events that have occurred over the last quarter. I'll begin with intellectual property enforcement.
Most notable this quarter, we received the final district court ruling on our Qualcomm patent infringement case. Much to our surprise, the court overturned the jury's decision with regard to infringement. ParkerVision immediately appealed that decision to the Federal Circuit. Doug Cawley spent some time during the July investor meeting explaining why we respectfully believe Judge Dalton got this ruling wrong. However, it was always our belief that whether the district court upheld or overturned the jury's infringement decision, one of the parties would appeal and that the ultimate decision would be made at the appellate level or the Court of Appeals for the Federal Circuit, also known as the CAFC. Because of that belief, we'd already assembled the team that would handle the appeal, which includes not only the McKool litigation team, but also the esteemed Don Dunner of the firm Finnegan, Henderson, Farabow, Garrett & Dunner, which is undoubtedly one of the top appellate counsels in the Federal Circuit, where all patent appeals are heard. We've been working closely with Don, Doug and their teams as we prepare our appellate brief, which is due to be filed with the Appellate Court by September 19. This will be followed by response and reply briefs. Given the facts in our case, we are optimistic that the Appellate Court will support the jury verdict of infringement. The Appellate Court decision is made by a panel of 3 judges who will review the district court transcripts and evidence, as well as the party's appellate court briefs. Prior to a decision, a short hearing will be held in front of this panel. While we do not yet have a date for this hearing, our best estimate is it will likely be sometime early next year.
In mid-June, 3 petitions for Inter Partes review, or IPRs, were filed against 3 of the 4 patents asserted in the Qualcomm case. Now Qualcomm could not file these petitions itself because of Rule 315b, which required it to file an IPR within 1 year of the service of our first complaint in the underlying infringement suit. A fourth petition was filed in early July for the fourth patent asserted in the Qualcomm suit that falls under the same rule. These IPR petitions were instead filed by RPX Corporation and Mike Farmwald, a long time short seller and antagonist of the company. Robert Sterne and his firm, Sterne Kessler, is leading the defense of these ParkerVision patents in the IPR process, along with the Finnegan firm and with input from our team at McKool Smith. Rob is not only intimately familiar with these patents, as Sterne Kessler was the original prosecution firm who assisted us in securing them, but he and his firm are also one of the top counselors in the country in handling these new IPR processes, which have only been around since September of 2012 with the advent of the America Invents Act, also known as the AIA.
Sterne Kessler and the Finnegan firm are currently ranked #2 and #3 in the country in the number of IPRs they are handling under the AIA. We find it highly suspicious that RTX and Farmwald instituted these IPR petitions, given that neither were at risk of infringement actions against them and given that each one of the 11 claims in the Qualcomm case are challenged by the IPR petitions. It's also highly suspicious that one of the legal counselors that filed these IPRs is James Bailey, the very same person who is listed as a named legal counselor representing Qualcomm in our first patent litigation and who is a counselor of record throughout that case and even on the latest documents. The law states that one cannot be a real party in interest or a privy of Qualcomm to file these IPRs.
Our view is that this is somewhat reminiscent of the litigation tactics Qualcomm employed in our first case, where counterclaims were filed against us and our patent counsel, which were inappropriate and groundless and later dismissed or withdrawn.
While I'm not at liberty to discuss our strategy with regard to the IPR petitions, I can assure you that our council is taking a fully appropriate and aggressive stance in these IPRs.
In terms of the timeline, ParkerVision has the right to file a patent owner preliminary response, also known as the POPR, within 90 days of the filing date of the IPR petition. We intend to file POPRs in all 4 cases, as well as challenge whether Farmwald and RPX had the right to file these IPRs in the first place.
The POPRs for the first 3 IPRs will be filed in September, and the fourth will be filed in October. The Patent Trial and Appeal Board of the U.S. Patent and Trademark Office then has 90 days to determine whether to institute trial on one or more of the claims challenged in the IPR petitions. The IPR trial decision is claim by claim specific. So the Patent Trial and Appeal Board could decide to review some, all or none of the claims challenged in the petition. If they decide to institute a trial for one or more claims, they must issue a final written decision within 1 year from their institution decision date.
So to recap. Our POPR responses to the IPR petitions will be filed in September and October. A decision whether or not to institute review will be forthcoming from the Patent Trial and Appeal Board in December or January, depending on the petition. And if a trial is instituted on one or more claims, a final written decision from the Patent Trial and Appeal Board will be issued 1 year later, either December of 2015 or January of 2016, depending on the petition.
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 7 patents relating to different technologies, and the down-conversion patents that were the subject of our first infringement case. The patents in this complaint relate to RF up-conversion or transmitters, multi-mode multi-band control systems, baseband control and system calibration technologies, as well as wireless protocol conversion and control. In other words, these patents relate to RF transmitters and a number of broadband technologies that are included in Qualcomm's chipsets. Service of the complaints is pending in this case, and we expect to bring you more on that particular matter soon. As court documents are filed, we will provide updates through our website, as we have done in our original infringement case.
We continue to actively evaluate the best ways in which to support the funding for this case. We believe that we have multiple funding choices available to us, including an option that would alleviate our cost for this litigation altogether in exchange for sharing a larger portion of any settlement or award related to this case than we are required to share in our current partial contingency arrangement. We expect to make that decision with regard to funding in the near term and certainly prior to any substantial escalation of litigation costs.
The last litigation-related topic that I'd like to discuss is a case that's been pending in district court since late 2011, and that is the shareholder action brought against ParkerVision, myself and another Director. Since the initiation of this case, we have held firm in our belief that this case is without merit. The complaint was almost entirely based on unsupported accusations made by a short seller, the same short seller that has now taken it upon himself to file IPR petitions against the company. As we announced this morning, the case has been resolved and no financial impact to ParkerVision. This resolution came following substantial discovery and a demonstration of our d2p technology, whose efficacy was at the heart of this case. Ultimately, as I'm sure you've seen in this morning's news release, the plaintiffs agreed and acknowledged that their allegations regarding the efficacy of the d2p technology are without merit. And furthermore, that all statements in their complaints attributed to or based upon the pvnotes.com website, Michael Farmwald and related parties with regard to the efficacy of the company's d2p technology are without merit.
Regardless of the merits of the case, a substantial commitment of time and resources is required in order to properly prepare a case for trial. And for that reason, we're pleased to have this matter behind us.
So next, I'd like to update you regarding our work with 3LP Advisors. As Kevin Rivette of 3LP stated a few weeks ago, the District Court ruling in the Qualcomm case certainly caused some short-term setbacks with regard to some of the business opportunities that 3LP had in the near-term pipeline. Having said that, I've spent a substantial amount of time working with the team at 3LP over the past few weeks, and despite these short-term setbacks, I believe there are still tremendous opportunities in front of us. Both ParkerVision and 3LP are staying the course on our pursuit of licensing opportunities, as well as other business arrangements that we've been working on together. Although the decision to overturn the jury's verdict of infringement on 4 patents was unfortunate, and as I've already stated, we are optimistic that this will be reversed by the appellate court, it's important to put in context that our patented innovations are far broader in scope and coverage than the 4 patents in the first lawsuit. Our innovations have become, we believe, critical to many of today's wireless devices, as well as what's forecast for the foreseeable future. Our innovations address a number of important areas, such as: number one, the use of chips that are being built from ever smaller semiconductor geometries, which continues to drive the available circuit voltages lower. We have technologies to enable even sub-volt operation while preserving and in some cases, even improving performance; number 2, our technologies cover the performance required to operate reliably in an environment with ever increasing numbers of wireless devices, even with those wireless devices all operating in close proximity; number 3, our innovations cover the ability to increase data rates and user capacity, while simultaneously increasing reliability; and number 4, our innovations allow reduction of power consumption, which extends battery life, reducing unwanted heat and increasing product reliability.
ParkerVision's R&D team has created wireless innovations far beyond the technology covered in the first Qualcomm lawsuit. And that is one of the key reasons the 3LP Advisors changed its business model, to lead our licensing and related business development programs. They believe, along with us, that we will secure our first customers in the near term, as there are a significant number of companies looking to secure a competitive position in the burgeoning Internet of Things marketplace, where there is a growing scramble among companies looking to carve out a meaningful place in this important market niche. This is a market where the chip suppliers are fragmented, and there is no single dominant supplier, which both we and 3LP find an encouraging and attractive situation, as we progress towards finding partners for our technologies in this large market opportunity.
We also heard in our July meeting from John Stuckey, our Executive Vice President and the team member who is heading our Component Product Sales initiative. John reported that our efforts in building a sales rep network in North America have begun to bear fruit in product opportunities, and that based on positive reception, we've started to expand to an international network. We currently believe the initial revenue numbers for our first products in this market segment will be in the $1 million to $2.5 million range based on the current identified customer opportunities, which were generated from our limited initial campaign and product offering. The product performance of our demodulator products matches or exceeds the best-in-class of any competing products that we are aware of, and yet does so at a fraction of the power consumption, all based on our patented technology. We see the potential to carve out a niche in the industrial and infrastructure markets where we are not aware of any infringers of our technology, and where we believe there is a potential for revenue growth that could support our product organization. I look forward to bringing you future updates on this area, which I believe represents a nice growth opportunity based on the expansion of our geographic sales coverage, as well as additional products that will come to market.
The last topic I'd like to discuss is that of our financial position. As Cindy reported, we ended the quarter with nearly $22 million in cash and securities. While that puts us in a solid financial position for the near term, we continue to explore nondilutive financing opportunities that will enable us to continue to support our business on all fronts, including patent protection, intellectual property defense and the expansion of our product and licensing opportunities. Our intellectual property portfolio, which now includes over 250 issued patents over a number of different patent families and 18 different worldwide jurisdictions, is the core to the growth of our business. It is our goal to position ourselves in such a way that we can be commercially successful within multiple opportunities in parallel rather than in series. ParkerVision has never had a more talented and diverse team of highly experienced professionals, who are capable of executing on our business plan, to enable us to take advantage of all the opportunities that we see available.
So in summary, the milestones our shareholders should look for in the near term are: the filing of the appellate court briefs, our reply to the Patent Trial and Appeal Board on the IPR petitions, service of our second Qualcomm lawsuit, as well as our decision on the funding of that action; and updates on component product sales and licensing opportunity, as well as other business opportunities being cultivated by 3LP.
So with that update, operator, I'd like to open this call for questions, please.
[Operator Instructions] Our first question comes from the line of Michael Coleman from MDC Financial.
Jeff, holding back service of serving a complaint seems like a little bit of an unusual circumstance. I was wondering if you could explain the motivation behind it. Is part of it because we have -- or you have not yet decided on the funding for the legal team of that litigation?
Jeffrey L. Parker
Michael, no, the reason we've waited for service is to determine the final defendant that will be included in that case.
Okay. So it's possible there may be defendants beyond the initial filing of the complaint?
Jeffrey L. Parker
[Operator Instructions] Our next question comes from the line of Paul Rosenbaum of SWR Corporation.
You mentioned that the first contract, if you get one, is in the range of $1 million to $2 million. Is that the first one or is that the type of contracts you expect in the future? Or whatever you can give us an indication of the scope of the marketplace would be helpful or at least to me.
Jeffrey L. Parker
Okay. Sure, Paul. So when I was mentioning those numbers, what I was referring to was the component sales right now that in the component sales, which we're working on and you can look back at our investor presentation from the July 15 meeting, we have a number of companies who we've been sampling our products to and who've given us an indication of kind of the range of numbers of units they would use and approximately when they would need those for designing into their products. And it's that pipeline that I was referring to is on the low end, about $1 million, and could be as much as $2.5 million, which I'm encouraged by because it's based on what I think is a relatively modest initial campaign, which is now starting to expand, and the geographic coverage is beginning to expand as well. I think your question is directed toward the 3LP activities, Paul. Am I thinking about that correct?
Jeffrey L. Parker
Yes, so 3LP has a number of dialogues that are ongoing right now. I'm hesitant to give you any specific numbers, because I don't think that's appropriate. But from my view on what they're working on, it'll be meaningful. I think it will be very encouraging to our shareholder base. And I think any of the companies that we're currently in discussion with, the 3LP has been working on, would be considered a very significant step forward for the company, and I don't think anybody will be disappointed with any of the kinds of business arrangements that 3LP has been working on, should they bring one of those, or hopefully, more than one of those to a conclusion in the near term, Paul.
And at this time, I'm not showing any further questions in queue. I would like to turn the call back over to Mr. Jeffrey Parker for closing remarks.
Jeffrey L. Parker
Okay. Well, listen, folks. Doesn't completely surprise me there aren't a lot of questions today. I know many of you attended the Investor Day conference a month ago. So you've been pretty fully updated. And we certainly appreciate your joining in for this call, as well for an additional incremental update. And hope you have a good balance of your summer, and that you found this update useful. So have a great rest of your week, and we look forward to bringing you more positive news in the near future. Bye-bye. Thanks.
Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect.
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