ParkerVision, Inc. (NASDAQ:PRKR) Q4 2016 Earnings Conference Call March 30, 2017 4:30 PM ET
Laurie Little - IR
Jeffrey Parker - CEO
Cindy Poehlman - CFO
Jon Hickman - Ladenburg
Carter Driscoll - FBR
Good day everyone, and welcome to the ParkerVision Inc. Fourth Quarter and Full-Year 2016 Conference Call and Webcast. Today’s conference is being recorded and all listeners are in a listen-only mode. Following the presentation, we will open up the conference call for your questions and answers. The company has requested that the questions and answers be limited to one question and one follow-up per caller.
At this time we’ll now open - for opening remarks and introductions, I'd like to turn the conference over to Laurie Little, Investor Relations. Please go ahead, ma’am.
Thank you, Jonathan. 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 US 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 fourth quarter and the full-year 2016. 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 turn the call over to Cindy. Please go ahead.
Thank you Laurie and good afternoon to those of you joining us for ParkerVision’s fourth quarter and year-end 2016 conference call. We reported today a net loss of $5.7 million or $0.43 per share for the fourth quarter of 2016 which compares to a net loss of $3.3 million or $0.33 per share for 2015. On a non-GAAP basis excluding the effects of share-based compensation and changes in the fair value of our contingent payment obligations, the non-GAAP net loss was $3.1 million or $0.23 per share for the fourth quarter of 2016 compared to $3.2 million or $0.33 per share for the fourth quarter of 2015. The primary difference between GAAP and non-GAAP net loss from 2015 to 2016 is the $1.8 million increase in the estimated fair value of our contingent payment obligations in the fourth quarter. I’ll speak more about that contingent payment obligation in just a moment. For the full-year 2016, we reported a net loss of $21.5 million or a $1.76 per share compared to a 2015 net loss of $17.1 million or $1.74 per share. Our 2016 non-GAAP net loss was $14.4 million or $1.18 per share compared to $15.9 million or $1.62 per share in 2015. Again the difference between our GAAP and non-GAAP net loss for the year consisted of a $1 million increase in our share-based compensation and a $4.9 million increase in the fair value of our contingent payment obligation.
This contingent payment obligation arises from the $13 million in funds received from BKI during 2016 designated primarily for funding of the ICC and related district court action against Qualcomm, Apple and LG, as well as certain international litigation. We are obligated to repay these funds from proceeds received from patent-related actions and this repayment obligation is recorded as a long-term liability on our balance sheet. We elected so account for this long-term liability as it fair value, which is based on projections of future patent related proceeds discounted back to present value. The fair value of this instrument which is estimated to be 14.2 million at December 31, 2016 can and likely will change over time as we modify our future cash outflow projections based on events that occurred during the period and the expected timing and probability of various repayments in areas. We view this change in fair value as a reflection of the cost of financing rather than a cost of operations and because it is subject to significant estimates and assumption the fair value may fluctuate significantly from period of period. As a result, we believe it is helpful to utilize the non-GAAP measures which excluded this factor to better compare results across periods.
Our revenues for 2016 increased from 2015 by approximately 4.1 million largely as a result of revenue from a patent license and settlement agreement recognized in the third quarter of 2016. As we disclosed in our financial statements, we do not recognize revenue for any additional consideration that maybe due upon the occurrence of future events until such time that those future events occur. Our operating expenses for the full-year 2016 were approximately $2.6 million higher than 2015 as a result of a $3.6 million increase in litigation related fees and expenses. However, in 2016 nearly all of our litigation fees and expenses were paid with the funds received from BKI. In fact of the 14.4 million used in cash for operations for the full-year 2016 nearly 60% of that was used for payment of legal fees and expenses from those restricted funds from BKI.
We ended the quarter with approximately 1.1 in operating and restricted cash following a $3.3 million repayment of our contingent payment obligations. In November 2016, we filed a $15 million shelf registration statement in order to provide us with the flexibility for our future capital needs. In December we entered into an At Market Issuance Sales Agreement or ATM agreement with FBR Capital for the sale of up to 10 million of our common stock under this shelf. Between January and March of this year we sold all of the securities available under the ATM for gross proceeds of 10 million at an average stock price of about 2.46 [ph] per share . We intend to use the proceeds from the ATM for continued development, sales and marketing activities and for other working capital particularly with regard to the production ramp of our Wi-Fi product line.
I'll be available for questions at the end of today's call, but for now I will turn things over to Jeff for a few comments.
Thank you Cindy and good afternoon and thanks to those of you who are attending our end-year conference call. Today my comments will be focused on two key topics. First, a recap of 2016 and second, a discussion of our strategy for 2017. Starting with 2016, there were two primary strategies; an international licensing strategy that included enforcement and a developing products strategy. Let's start with the licensing and enforcement program. In 2016, we focused our efforts on the ITC, the International Trade Commission, and related district court actions supported by the funding received from Brickell, a fund under management of Juridica Asset Management. During 2016, we also expanded our enforcement to include international infringement proceedings in Germany and we've been pleased with the speed of that court. In July, we successfully negotiated a patent license and settlement agreement with Samsung for a worldwide license to our current patent portfolio with certain exclusions. As it related to our ITC case and the related District Court proceeding, the law firm of Mintz Levin who represents us spent a great deal of resources in 2016 on gathering the evidence we needed to present our case.
One of the reasons we selected the ITC as a venue is because the process is tightly compacted. We filed our initial complaint in December of 2015 and our hearing was scheduled for August of 2016. Due to an unforeseen illness of the administrative law judge, the hearing was postponed until the March of 2017. We felt confident in our ability to prove infringement and validity of our patent as we headed into the ITC hearing just a couple of weeks ago. It’s customary for a number of motions to be presented to the court prior to the start of the trial. These motions are not meant to be case dispositive. The time for filing case dispositive motions which are called summary judgment motions comes much earlier in the case. Unfortunately in our circumstance, to our surprise and disappointment, the administrative law judge ruled on certain pretrial motions in a manner that is essentially excluded substantial key evidence that we believe would definitively prove our infringement allegations. These rulings came out on the Friday preceding the Monday hearing and without the parties having an opportunity to argue the motions in front of the court.
Now keep in mind that due to confidentially protections in place ParkerVision management was unable to obtain and view the ruling we had to wait for our legal team to digest the information and then we received a briefing on Friday evening regarding this turn of events. After careful deliberation over the weekend, we made a very tough decision to file a motion to terminate our proceedings at the ITC given our inability to present our key evidence. Although the administrative law judge has not yet to my knowledge ruled on the motion, we expect it will be accepted. While certainly not the outcome we were expecting, it’s important to note that the significant resources expended on discovery in this case have tremendous value to us. As I mention, this ITC case has a parallel district court case filed in federal court in Jacksonville Florida. That district court case will stay pending the outcome of the ITC. However, upon terminations of the ITC proceedings, we plan to file a motion to expedite a lift of the stay in district court. We were ready two weeks ago to present a solid infringement and validity case to the ITC and we are still ready to present that case to the district court judge and a jury of our peers ASAP.
We will look to expedite the district court process while damages for infringement of our patents continues to grow. While we were not anticipating the delays created by the terminations of our ITC proceedings, we remain steadfast in our belief that a multi-pronged licensing and enforcement effort is crucial to our success of the licensing program. We have three patent infringement cases ongoing in Germany. The first, filed against LG in June of 2016 resulted in a preliminary infringement decision within a few months, a hearing within six months and a ruling of infringement immediately following the hearing. The German court confirmed this preliminary decision that certain LG products using Qualcomm RF chipsets infringed one of our transmitter pattern. There is a concurrent nullity or what’s known as invalid action ongoing in the Munich Federal Patent Court. An injunction decision against LG has been stayed pending the resolution of this nullity action. We are expecting to receive a preliminary decision for the nullity court shortly, although we do not yet have a date certain. The same path that is the basis for the LG case is also the subject of a corresponding case against Apple and was filed a few months later. The infringement hearing in the Apple case is scheduled for five weeks from now, on March [ph] 4, 2017. I believe this case will benefit from the preceding LG case which is before the same judge.
In addition, early in 2017, we filed an amendment to our Apple complaint which was separated by the judge into a separate case. This amendment asserts a different patent and accused products include the Apple iPhone 7 product line which incorporates an Intel transceiver rather than a Qualcomm transceiver. The infringement hearing in the second Apple case is scheduled approximately one quarter from now in June of this year. So in the current climate that has encouraged efficient infringement, we continue to believe that an enforcement program is imperative to enable the growth of the licensing business and we remain hopeful that other parties like Samsung will eventually demonstrate a willingness to have a fair and balanced agreement over the rights to use our patented technology. So to summarize the milestones to watch for with regard to our enforcement actions underway are, ruling for terminations of the ITC investigation and request to lift of stay to district court in our Qualcomm, Apple, LG proceedings. A hearing against Apple in Germany on May 4, in a very similar case to the LG case, successful completion of the validity verification in Germany that will result in the enforcement of an injunction against LG, a second Apple hearing in Germany in June of this year on the Intel based iPhone 7 product.
And so now I'd like to turn to product strategy which is crucial to our multipronged approach to drive success in our business. We made a great deal of progress in nearly two years ago when we initiated the development of these new products to today where we are on the cusp of a major product launch. At the chip level, we have successfully incorporated the modulator demodulator IP of our PV5870 component into a Wi-Fi system on chip that is now back from the semiconductor fab and is undergoing testing and qualification now. We believe there are a number of customer applications for this chip both here and abroad, not the least of which will be our own internal use of that chip to expand and improve our own branded and user products. The Wi-Fi chip market was forecast to ship around 3 billion units in 2016 at a shipped revenue of $9 billion and continuing to grow to around 3.5 billion units shipped per year by 2018 generating 10.5 billion in shipped revenue. We look forward to bringing you more information on the rollout of this Wi-Fi chip and future updates and our plans to participate in this large and growing market. In the meantime, I'm very excited to bring you an update on our own Wi-Fi end-user product.
Everyone who has experienced our prototype demonstration of this product, bar none, has said, how soon can I get this. This product is a competitively priced consumer product that greatly improves the Wi-Fi connectivity experience in homes and small offices by eliminating dead zones, extending coverage to locations where coverage previously didn't exist and creating a more even distribution of high data rates. While there are a number of competing products that have been introduced into the market over the past year, we believe our product differentiation is mainly a result of our customer oriented design culture. Our design focuses on areas such as ease of installation, day to day reliability of your Wi-Fi network, operations throughout the entire environment and at data speeds, which are more evenly distributed throughout the entire use area, all at a price that we believe hits the sweet spot for what consumers are willing to pay.
From an operations standpoint, we have a flurry of activity going on as we speak. Initial component inventory is arriving in our facility where we will be completing final assembly test and packaging of the product. We've added new members to the ParkerVision team in the areas of product development, customer support activities and production. We plan to ramp up production swiftly in order to meet the demand we believe will be generated by our market launch will be rolled out in the coming weeks. We have an exciting team working with us on the front end branding, direct marketing and messaging as well as on the backend with fulfillment. Our direct to consumer marketing campaign launched is scheduled for this upcoming quarter and I expect we will ship initial products in Q2 with a significant ramp planned for the second half of 2017.
There were approximately 90 million households with Wi-Fi in North America in 2016 and that number is expected to grow to well over 100 million. Our target demographic based on US households that are unhappy with their current Wi-Fi coverage is that nearly half of the total Wi-Fi home market is unhappy based on our survey results. We've further narrowed this target demographic based on price sensitivity in survey data that we conducted. Based on this data, we have conservatively estimated that a 5% share of our narrow down target demographic represents approximately $100 million in gross revenue for ParkerVision.
Lastly, I will say we expect our initial product offering will also generate healthy margins from the company. Before we turn the call to questions, I’d like to conclude by first reinforcing our commitment to our enforcement program, because we firmly believe we will ultimately achieve a favorable outcome, despite the fact that the timing has been unpredictable. In the mean-time, the investments we've made over the past couple of years have now set the stage for an exciting near term product launch that has the potential for generating significant revenue and gross margin in the near term. This opportunity comes from our steadfast belief in the wireless communications space. We are excited to be adding jobs to our local community, to be launching new products into the market that we believe will have a strong consumer adoption and for ParkerVision, to ultimately realize its objective to emerge as a successful innovator of both technology and products.
And I would like to open up this call for your questions.
[Operator Instructions] And our first question comes from the line of Jon Hickman from Ladenburg. Your question please.
Hi. Jeff, could you elaborate on some of the other opportunities for the Wi-Fi chip, besides your own?
Sure, Jon. Thanks. The Wi-Fi chip that we've been developing is very highly integrated in the sense that it has the ability to provide a complete system solution in what today is currently multiple chips that others have to use. So we have the opportunity to help people do system solutions that are smaller, more tightly compacted, more cost effective. Some of those could end up in things like smart routers. They could end up in products that can deal with Internet of Things, connectivity. I mean it's a very powerful system on chip. So it's really oriented towards people who are looking to build product where they're looking to combine Wi-Fi with intelligence and the ability to control the product not just as a non-intelligent, but more of an intelligent type product. Again, I mentioned smart router would be a good example of that.
Okay. Then could you comment, I know Cindy gave us a rundown of your financials, but with the cash on hand and where your product rollout planned, you want to give us an idea of how long that might last?
Sure. Or Cindy, would you like to address that either way?
Sure. I'll be happy to. So Jon, without giving a specific timeframe, what I can say is we certainly have sufficient funds on hand we believe to successfully launch these new products and to ramp our production to meet anticipated demand. As you might imagine, depending on the growth of our product revenue, which by the way could be faster or slower than we’re currently anticipating, that could make different demands on our cash and that's just something we're going to have to assess real time as we get into, I would say, as we get into the third quarter of this year.
Thank you. Our next question comes from the line of Carter Driscoll from FBR. Your question please.
Good afternoon. Yeah. Could you talk, Jeff, about maybe a little more specificity of the go-to-market strategy? I mean you're attempting to lead on price or functionality and then maybe how you envision that being ported to some of the other markets that you elaborated your system solution could address?
Sure. So our strategy is to get to the market. We've talked to a lot of consumers who are unhappy with the Wi-Fi in their home. And what they're really telling us they're looking for is a solution that requires very little to no assistance to install, they don't want to have to have IT help, they want it to be a very easy install. I think we will meet that, we really work hard to make this thing have full-proof installation. And they want it to kind of disappear into the background. They don't want it to be very big, they want it to be kind of just disappear into the background, the best Wi-Fi is something that’s not seen.
And they want to get the data rates that they’re able to get from their service provider as evenly as possible, spread around their environment and so we’ve really focused on meeting the balance of all those objectives in a way that still keeps the price point and I'm not quite ready to announce the price point, I don’t want to preannounce our market launch, but at a price point that from what we've surveyed really hits the sweet spot of what people are looking to pay for.
And so we're excited because I think we're really going to have a very large audience respond to this and so our go to market strategy is going to be direct right now through the Internet. We've got a very sophisticated sales and marketing program in the works that when we launched this should reach people who are having this problem and help them understand why this is the best solution and why it is and for them to identify if it is very cost effective. And I think it's going to feed on itself once the word gets out on this type of a product.
Over the last year, I think I mentioned in my comments, other products have been brought to market and I think what that shows is a growing awareness that there is a problem, but I don't think others have been able to achieve, but we've been in this for a long time to be able to pull this together is to be able to hit that sweet spot, while still maintaining the performance and the ease of installation. All those have to be there simultaneously. In terms of where else can this go, I mean there's a lot of different possibilities.
We've had people look at this and say, would you guys take this version to a commercial offering where it can have a use in other environments and there is maybe, would you take this into places where it can be used in different challenging environments, outdoors as example, perhaps when we say half the people in their homes are unhappy with the Wi-Fi, we also have observed that of the other half who are happy, there's a big percentage of those who don't know what they don't know.
And so when they hear that there's an opportunity to expand Wi-Fi in the places that they don't currently get it, all of a sudden, they open up to ideas about, oh, yeah, I'd like to put a television on my porch and I could do Wi-Fi streaming for watching football games in the fall or whatever. All kinds of opportunities start to open up that people didn't realize. I also think this product is going to find its way into a -- being very helpful for people who want to get more involved in controlling things in their home in this whole Internet of Things space.
And you see that market kind of simmering with people who are controlling lights and controlling wall plugs and controlling other devices, but again I'll put it this way. In my own home, I have a number of wireless thermostats and the challenge I've had and so this product has been it's been difficult to reach all the thermostats on a reliable basis, so they have had kind of limited appeal.
Once you get a reliable Wi-Fi network that’s always running, that’s always consistent, always there, it opens up a lot of opportunities for other ways people want to use wireless in their home environment. So I see this as the beginning of a product line. And I think a lot of potential expansions for us will come with other follow on products.
Thanks for the color. And just if I may, as kind of a follow up, of this version that you've seen introduced in say the last 18 to 24 months, is there anyone that stands out in your mind that would be your number one competitive target?
Not really because they’ve all, I think kind of built the same chipsets that are out there. They’re highly – not highly integrated. There is a lot of parts and pieces in those products. And I personally think that they've driven toward some goals that are maybe not necessarily the most important goals to consumers and so not really, they're all kind of, to me, they kind of are all blurred together.
Thank you. Our next question comes from the line of Louis Tinderton [ph]. He is a private investor. Your question please.
Well, first a comment. Jeff, congratulations also on those IPR wins. That's a rare bird these days and I guess that will, sort of a question, I guess that will help out in your suits down in Jacksonville. Is that correct?
Thank you. Yes. It is helpful and it also helps to I think demonstrate that the path that we have genuinely represent real innovation and that the patents are put together with care and that the team that we have who are defending those patents are also skilled and are experts in in this area because you have to kind of have all those pieces to survive the IPRs today, but thank you for the acknowledgement of that. Yes, we agree that’s a big positive.
Okay. The question is as sort of asking you to opine on something as far as I can tell, you’ve got about eight different things happening, any one of which if it works, will have a terrific impact on the company and yet, your stock is almost at an all-time low and in fact, you were at seven dollars and something cents a share pre your split only a few years ago, which would be equivalent to like $73 right now. You must be talking about this internally, do you have any thoughts about why the stock is where it is and some thoughts about what might happen if some of this stuff is successful?
Well, the answer is, we speculate on why the stock is where it’s at. It’s hard to say, there is people who call me all the time with what they consider to be kind of let’s just say, unusual trading behavior in our stock. But ultimately, here is how I look at it. The company is on a track to perform -- the company is going to be bringing out great products. Ultimately, I think our enforcement program will bear the fruit we're all hoping for if we just stay due course and we just keep our head down, left foot, right foot, left foot, right foot.
The fact of the matter is, we are in a challenging environment today for patent enforcement due to a lot of patent reform that I think was overreaching and doesn't really distinguish between what people are calling patent rolls and the community that we would put ourselves into, which are the innovators who are the original holders of the patent that have spent not millions, not tens of millions, but hundreds of millions of dollars to develop this technology.
Ultimately, I think that's all going to pan out and as it does, I think we'll get the recognition in the stock price that the company and its shareholders deserve but as much as I’d like to speculate on the price, I think it doesn't make any difference. It is where it is and we need to move on and forward and to stay positive and we will win this battle by doing that. And we appreciate your support and others out there and I hope that as the first product is shipped that those of you who have Wi-Fi systems will buy them, will put them in and hopefully we’ll be some of the first people to post good reviews because that will generate additional sales. So it's pretty much my view on the situation. Thank you.
Thank you. And this does conclude the question-and-answer session of today's program. I'd like to hand the program back to Jeff Parker for any further remarks.
Well, folks, thanks for tuning in today's call. We're going to be launching this product campaign soon and I think we're going to have a lot more to talk about in the near future and I'm looking forward to getting your feedback on these products. As I said in my comments earlier, so far everybody who has seen in the prototypes have been just really excited to get this into their own environment on a permanent, not a test basis and we're anxious to put those out there for that very purpose. So have a great afternoon and we look forward to communicating more to you soon. Bye-bye.
Thank you, ladies and gentlemen, for your participation in today’s conference. This does conclude the program. You may now disconnect. Good day.
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