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Edited Transcript of PRKR earnings conference call or presentation 14-Nov-16 9:30pm GMT

Q3 2016 ParkerVision Inc Earnings Call

Jacksonville Nov 6, 2019 (Thomson StreetEvents) -- Edited Transcript of ParkerVision Inc earnings conference call or presentation Monday, November 14, 2016 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Cynthia L. Poehlman

ParkerVision, Inc. - CFO & Corporate Secretary

* Jeffrey L. Parker

ParkerVision, Inc. - Chairman & CEO

* Matt Steinberg;Investor Relations

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Conference Call Participants

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* Robert B. Brown

Brill Securities, Inc. - CEO

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Presentation

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Operator [1]

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Good day, everyone, and welcome to the ParkerVision Inc. Third Quarter 2016 Conference Call and Webcast. Today's conference is being recorded. (Operator Instructions) As it is now time for opening remarks and introductions, I would like to turn the conference over to Matt Steinberg, Investor Relations. Please go ahead, sir.

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Matt Steinberg;Investor Relations, [2]

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Thank you. 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'll provide a review of the company's financial results for the third quarter of 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.

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Cynthia L. Poehlman, ParkerVision, Inc. - CFO & Corporate Secretary [3]

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Thank you, Matt, and good afternoon to those of you joining us for ParkerVision's Third Quarter 2016 Conference Call. My remarks this afternoon will focus on our financial results for the third quarter and the first 9 months of 2016, after which I'll turn the call over to Jeff for a general business update.

We reported today a net loss of $2.3 million or $0.18 per share for the third quarter of 2016. This reflects a 26% improvement over the same period a year ago and a 73% improvement over the previous quarter's results. In order to better understand the trends in our operating results, we also reported non-GAAP net loss and non-GAAP net loss per share. These non-GAAP measures include 2 specific items: share-based compensation expense and changes in fair value of our contingent payment obligations.

I'd like to discuss each of these excluded components and why we believe this supplemental measure is helpful in understanding our operating results. Share-based compensation expense is a noncash measure of the value of equity awards under GAAP. This expense is fixed, based on the price of our stock on the date the award is granted, and does not correlate with the actual value ultimately realized by the recipients of these awards as they vest.

The change in fair value of our contingent payment obligation is the second factor excluded in our non-GAAP measure of net loss. This change in fair value is the reflection of the cost of financing rather than a cost of operations, and it is also subject to significant estimates and assumptions that can cause the fair value to fluctuate significantly from period to period. You can almost think of it as accruing in advance of all the interests that could be paid in the future on our contingent repayment obligations.

On a non-GAAP basis, excluding the 2 factors I just discussed, our net loss for the third quarter of 2016 was approximately $200,000 or $0.01 per common share, which reflects a $2.8 million or 94% improvement over the non-GAAP net loss for the third quarter of 2015. These positive trends for the third quarter are primarily a result of revenue recognized from our intellectual property licensing and enforcement program and the July 2016 agreement with Samsung.

For the 9 months ended September 30, 2016, our net loss was $15.8 million or $1.33 per share compared to $13.8 million or $1.40 per share for the same period of 2015. On a non-GAAP basis, our net loss for the 9 months ended September 30, 2016 was $11.3 million or $0.95 per common share compared to $12.7 million or $1.29 per share for the same period in 2015.

The results for the 3- and 9-month period on both a GAAP and a non-GAAP basis include the costs of litigation and related expenses. Although our overall litigation fees and expenses increased in 2016 when compared to the previous year, our use of operating cash to fund these expenses has decreased dramatically as nearly all of the 2016 litigation fees and expenses were funded from our use of restricted funds received under our agreement with Brickell Key Investments or BKI.

We ended the quarter with approximately $2.7 million in restricted cash and approximately $1.1 million in operating cash after a $3.3 million repayment of our contingent payment obligation. The remaining contingent payment obligation is carried on our balance sheet at an estimated fair value of $12.4 million as of September 30, 2016. Keep in mind this repayment obligation is contingent on the receipt of additional funds from patent licenses, litigation settlement or other patent-related matters.

There are just a couple of additional items I'd like to mention before turning the call over to Jeff for his update. Just this afternoon, ParkerVision filed 2 registration statements with the Securities and Exchange Commission. The first is simply a registration statement covering our amendment to our incentive equity plan that was approved by shareholders at our Annual Meeting in August. The shares covered by this registration statement are available for grant under our equity plan. However, there are no current plans for any additional awards to be granted.

The second filing is a $15 million self-registration statement. This registration statement preregisters, if you will, a dollar value of a variety of potential equity instruments that may be utilized in the future for various business purposes. I think it's important to note that at any point in time, the company is subject to limitations in its ability to issue shares under this shelf. These limitations are based on the number of shares we have outstanding as well as our market capitalization.

The last shelf registration that ParkerVision had in place expired in 2012. Our board felt it was prudent to put a new shelf in place to enable the improved liquidity that registered shares provide over unregistered shares. The shelf, once it becomes effective, is valid for a period of 3 years.

I'm available for questions at the end of the call today, but for now, I'll turn things over to Jeff for a few comments and a business update.

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Jeffrey L. Parker, ParkerVision, Inc. - Chairman & CEO [4]

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Okay. Thank you, Cindy, and good afternoon to those of you attending our third quarter conference call. Today, I'd like to begin with an update on our international licensing program and the enforcement action supporting that program, and then I'll provide an update on our current and ongoing product development plans for bringing additional products to market in the near term.

So in July, we announced that ParkerVision entered into a patent license and settlement agreement with Samsung. Our agreement provides Samsung a worldwide license to our current patent portfolio with certain exclusions and thus, dismisses Samsung from all current litigation against them, both in the District Court and at the International Trade Commission. Although the specific terms of our agreement with Samsung have to remain confidential, our financial statements show a $4 million increase in revenue this past quarter, with margins you'd expect to see from a licensing program. Of course, we're thrilled that Samsung is the first licensee in our program, and we were willing to allow a more favorable deal for Samsung as a first mover into this program than we expect to extend to the next parties in our program. And there may be additional future amounts collected by us related to this agreement, and these amounts are not reflected in our current financial statements.

I think it's important to note that nothing exists in any current license or license currently under negotiation that would reduce the effect of royalty rate that we are due from Qualcomm's own rampant infringement of our intellectual property. I think it's an important takeaway from the revenue recognized this quarter that it does not take a large amount of revenue, especially compared with the license revenue potential that exists, to enable this company to become profitable, growing and a sustainable enterprise. We stated last quarter that we believe the agreement with Samsung came to fruition ultimately as a result of the company's proceeding at the International Trade Commission. Our hearing was originally scheduled for August of this year. It was pushed back as a result of a medical issue at the court to March of 2017. The final required settlement conference between the remaining parties in this action was likewise postponed to February 24, which is now about 3 months away. So while we were disappointed with the delay at the ITC, this unexpected result clearly points to why an international and multipronged licensing and enforcement effort is crucial to our success.

We filed our first international enforcement action against LG in Munich, Germany in June of this year. Six months later, just last week, in fact, we attended the hearing on that case. One of the reasons we chose to enforce our international patent rights in Germany is the speed and efficiency of the German court system. In addition, the German system is set up to help patent holders enforce their rights through a process that enables the patent holders to strengthen and validate the quality of their patent claims in a short time frame. Not only was our hearing held promptly 6 months from the date of filing, but the court has already communicated its findings to us. As expected, the ruling confirms the court's earlier opinion that certain LG products using Qualcomm RF chipsets, in fact, infringed one of ParkerVision's transmitter patents. As we've previously disclosed, there is a concurrent nullity or invalidity action ongoing in the Munich Federal Patent Court, and upon the successful completion of that nullity action, the regional court will enforce an injunction against the LG products in Germany. We are very confident in our ability to prevail in the nullity action. Not only do we believe that we can demonstrate the prior art is not relevant to our claim, but even if the court were to take a broad interpretation of the prior art, as a patent holder, we have the option to modify and narrow our patent claim in such a way that the relevancy of the prior art becomes even more remote without losing any of the elements of infringement. If this was an analogy to a piece of real property, say a plot of land in a subdivision, and the court views that we're trying to claim ownership of the entire subdivision, we have the opportunity to show the court we're only looking for the 4 corners of our property to be the lot in that subdivision that we own and that any squatters on that lot should be removed. We are not looking for anything more than that, and we believe we'll be very straightforward in showing the patent court that fact in short order.

It's also important to note that we filed last month an infringement case against Apple in Munich, citing the same patent as in the LG case, and we've just recently learned that the hearing for that case has been set for May 4, 2017, less than 6 months from now.

We're encouraged by the progress of enforcement of our patent in the United States and abroad, and we believe there's a growing catalyst from which a meaningful and high-margin licensing business will grow and one that will not require the same level of litigation enforcement or funding to achieve for future licensees.

So to summarize the latest milestones for our enforcement actions underway, the final settlement conference for our ITC actions will occur in about 3 months' time. Assuming settlements haven't been achieved, the ITC trial will begin about 4 months from now. Our hearing against Apple in Germany will be held approximately 1.5 months following the ITC trial and the successful completion of the validity verification in Germany that will result in the enforcement of an injunction against LG, which, we believe, will not follow long after the Apple hearing in Germany. So in essence, we believe we have very significant momentum underway, and this momentum will produce additional positive results in the near term.

So turning now to product development and continued technology innovation. This is an investment that we believe will lead to product revenue growth in the coming quarters. Despite the tightening of our resources over the last 1.5 years, we have still made great progress this year on the development of next-generation chips as well as an advanced end-user WiFi product line that will incorporate our patented RF technologies. We expect to complete before the end of this year the design for our [PV6870] WiFi 802.11ac chip that incorporates our proprietary RF technology. This chip is currently scheduled to be fabbed in a small-geometry CMOS process in January of 2017, and we will have a myriad of potential customer applications for this, starting with ParkerVision's own internal use of that chip to expand and improve our own end-user products. The WiFi chip market is forecast to ship around 3 billion units this year at a revenue of approximately $9 billion and continuing to grow to around 3.5 billion units shipped per year by 2018, generating around $10.5 billion in chip revenue.

As I've mentioned in prior updates, there are market areas for WiFi that we believe are underserved and where ParkerVision can bring real value. One area is we have a team that's been focused on our project to bring end-user products to market that will greatly improve the WiFi connectivity experience in homes and small office. We've conducted successful field testing for our first product in this lineup, and we are now focused on getting this product ready for market introduction ASAP. Our field testing has shown that we can eliminate most any dead zone in a consumer's WiFi environment and do so at a cost that we believe will be very attractive to the mass consumer marketplace and yet with attractive profit margins for ParkerVision. To give you an idea on the opportunity here in North America for this type of product, there were approximately 85 million households in North America in 2015 with WiFi. That number is expected to grow to 112 million households with WiFi over the next few years. We believe many of these households have at least one, and often multiple areas, where they cannot get WiFi or they want to extend WiFi or where the WiFi speeds are woefully slow and where our products can cure that problem easily and very cost-effectively. Our goal is to have a small number of these units available for purchase before the end of this year. We're hopeful that many shareholders we've encountered who are experiencing connectivity issues will be some of our first customers so that you can experience firsthand the market appeal for this product that we believe, along with additional follow-on WiFi products, will provide a real revenue growth opportunity in 2017 and beyond.

In addition to chips and products based on existing patented technologies, we also continue to expand our intellectual properties portfolio, as you can see from patents that keep being issued to us. And we expect to see the issuance covering this new body of technology in the wireless area continue in the coming months. We have been exploring opportunities to work with interested third parties to fund the development efforts of chip or products centered around this new body of [ours].

One last point I'd like to touch on is with regard to the shelf registration filing that Cindy mentioned in her remarks. We made a commitment a number of quarters ago to significantly tighten our operating expenses yet to still achieve a successful licensing program from the rampant use of our technologies and, furthermore, to continue developing products that would provide real revenue growth opportunities in and of themselves. I'm very pleased in this update to share with you that what we believe is but a very small step in our overall licensing opportunities significantly moves the P&L of our company towards profitability; that our use of cash for operations this past 9 months, excluding the funded litigation expenses, has been constrained to $3.5 million; that we have continued to achieve product development for both chips and end-user products, which, I believe, you will soon see will have a very broad appeal and begin to generate revenue.

I want to assure you that our shelf registration is not for the purpose of ParkerVision preparing to do a large offering. To the contrary, we will continue to run a very tight ship as we've been doing. However, having the quality of the shelf provides a number of meaningful benefits and flexibility. We have told the International Trade Commission that we intend to be in business, to grow our business and that we expect the same protection at the International Trade Commission as any American company should expect who has and continues to invest significant dollars and resources.

We have prepared an end-user WiFi product that I am confident will be a hit with a sizeable audience of consumers who will want WiFi at an affordable cost everywhere they want to use it. And we have worked very hard to put the multiple components in place for an international licensing program. In essence, the groundwork has been solidly set for a very successful near-term future growth and one that could produce numerous milestones of achievement in the first half of 2017.

The shelf registration will provide some flexibility to ensure that we can fuel this growth, but I assure you we will use it just as sparingly as we've tightened the operating expenses to trim all but the necessary to achieve our goals of near-term growth and profitability.

I guess on closing, I'd like to say that while our mission has certainly taken longer than any of us, myself included, would have hoped for, I have never been more confident that we are very well positioned to enjoy great success from our unyielding efforts and in the near future. I am even further hopeful that with the new administration coming in, whose fundamental theme is making America great again with job growth and prosperity that, I believe, while you haven't heard about it yet, that protecting innovators and their patents will become an agenda of the new administration, who will realize that the kind of GDP growth and high-paying jobs that they want cannot be achieved without strong and effective patent protection, which has been greatly eroded but, I believe, can be turned back around in favor of the innovator in the short term.

So with that, thank you for listening to our update today, and I'd like to open the call for your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from Robert Brown of Brill Securities.

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Robert B. Brown, Brill Securities, Inc. - CEO [2]

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Jeff, could you tell what the date of the Federal Patent Court hearing is?

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Jeffrey L. Parker, ParkerVision, Inc. - Chairman & CEO [3]

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Oh, you mean in Germany, Bob?

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Robert B. Brown, Brill Securities, Inc. - CEO [4]

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In Germany, yes.

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Jeffrey L. Parker, ParkerVision, Inc. - Chairman & CEO [5]

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It's a process, and candidly, I'm not exactly certain, other than the counsel we have in Germany tells me that this can be moved along with a pretty quick speed, months. And the thing that I find extremely encouraging about Germany is their whole theme there is to help its patent holders make better patents, unlike, I think, what we've devolved to here, which is to kill patents. So the proof of that is you are allowed to amend your patent claim as long as the disclosure supports it, and we have never been thin on disclosure in our patents. So if there is a question about what our claim that we asserted is supposed to cover, I think it will be quite easy to bolster that with disclosure that will support slight refinement of the claim and will beat out any unintended prior art. So I've got to tell you, I'm very impressed with the system there, and I am impressed with the speed at which it moves and the fairness which it provides the innovator. So I can tell you this. I'll give you one more observation. It's one thing to go through the process and the time and money and the effort and to get a result and then to find out down the road that, that result didn't really mean anything because it's reversed, okay? We've all been -- anybody who's been with ParkerVision knows what that feels like. What I am encouraged by here is that this system is set up not only to get to that result, and I think we'll be there in a month, that, that result won't be reversed. And so an injunction that is not reversible, I think, will have the kind of teeth that is required to get that kind of behavior that we've all been wanting from people who've been using our technology and don't have any respect for our right.

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Robert B. Brown, Brill Securities, Inc. - CEO [6]

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Well, at the same time, are you still planning a meeting with the defendant here? Or is that going to wait for the court hearing?

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Jeffrey L. Parker, ParkerVision, Inc. - Chairman & CEO [7]

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Well, we have a meeting that has to occur for the ITC, in and of itself, by the end of February. That doesn't mean that we have to wait until February 20-X to meet. We could meet any time before that. It has to be done before that. It would not be surprising to me if we have a meet well before that, and I'd really rather not comment on when that could be, but it would not surprise me if that occurs.

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Operator [8]

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Our next question is from [Lou Tiersen], a private investor.

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Unidentified Participant, [9]

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Jeff, I think you've already answered the question. I was actually just wondering about what was happening in Munich, and you explained it, so I have no more questions.

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Jeffrey L. Parker, ParkerVision, Inc. - Chairman & CEO [10]

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Okay. Well, I'm going to expound on my answer a little bit more since that was your question, Lou. The other thing I want to point out is there are different courts in Germany. There's Munich. There's Düsseldorf. There's Mannheim. Our counsel advised us to go to the Munich court, and the reason we went to the Munich court is the hearing, like we just had, occurs quickly, so our hearing was in 6 months. I've been told that if the technology is even simpler, sometimes, they'll do it in 4 months, which is just amazing. Other courts, like Mannheim, are typically more in that 15- to 18-month time frame. And so the one thing that we've learned is that while your hearing occurs very quickly, it can focus mostly on infringement within the validity following to make sure that the -- look, the judge doesn't want to issue an injunction that gets reversed any more than we do. So it moves fast, but it's not going to move recklessly. And I think that's a good thing, and I think that the infringing community will also find that to be a clear message that they'll have to respond to because it was a thoughtful process to get you to a result that has a certainty to it.

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Operator [11]

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(Operator Instructions) Our next question is from [Martin Smith], private investor.

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Unidentified Participant, [12]

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Jeff, it's [Buzzy]. Congratulations, and most importantly, I'm thrilled about the injunction. I think that was crucial, as a lawyer, and I'm assuming that the injunction will be enforced, and that, of course, really changes the landscape on the litigation, all the litigation that's pending against everybody. So I congratulate you and your counsel on the -- not just the infringement aspect, but more significantly, the injunction that was rendered.

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Jeffrey L. Parker, ParkerVision, Inc. - Chairman & CEO [13]

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Well, [Buzzy], thank you very much. But to be clear, I do want everybody to realize, that injunction, which is part of the ruling, won't be enforced until we have gone through the validity read. But I do believe we will be very successful at getting that validity stamp of approval, which will not only give the injunction, as I've mentioned, its enforcement but will make it -- it won't be reversible.

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Operator [14]

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At this time, there's no other questions in queue. I'll turn it back to management for any closing remarks.

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Jeffrey L. Parker, ParkerVision, Inc. - Chairman & CEO [15]

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Well, folks, thank you very much for tuning in today, and we look forward to bringing you additional updates. Many things are chewed up, and we believe we'll continue to move our program forward. Have a great week. Thank you very much.

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Operator [16]

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That does conclude today's conference. If you wish to access the archived audiocast replay of this call, you may do so by visiting the company's website at www.parkervision.com. Thank you.