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Good day, everyone and welcome to the ParkerVision Inc. Fourth Quarter and Full Year 2017 Conference Call and Webcast. Today’s conference is being recorded. [Operator Instructions] All participant lines have been placed on mute to prevent any background noise from coming through. Later, we will be hosting a question-and-answer session and instructions for how to participate will follow at that time.
As it is now time for opening remarks and introductions, I would now like to turn the call over to Jean Young, Investor Relations from The Piacente Group. Please go ahead.
Thank you, Jimmy. Good afternoon, everyone. Thank you all for joining us today. Before we begin, I’d 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 advances 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 fourth quarter and full year 2017. Following Cindy’s remarks, Jeffrey Parker, Chief Executive Officer, will provide an update on the company’s business.
Thank you again for joining us. And with that, I’d like to turn the call over to Cindy. Please go ahead.
Thank you, Jean and good afternoon to those of you joining us for ParkerVision’s fourth quarter and year end 2017 conference call. We've reported today a net loss of $6.3 million or $0.32 per share for the fourth quarter of 2017, which compares to a net loss of $5.7 million or $0.43 per share for the fourth quarter of 2016. The increase in net loss is a result of our increased costs related to the launch of our Milo product, which began shipping in mid-October of 2017 as well as an increase in litigation expenses for the quarter to support our patent enforcement actions.
For the full year 2017, we reported a net loss of $19.3 million or $1.09 per share compared to a 2016 net loss of $21.5 million or $1.76 per share, representing a $2.2 million decrease in the net loss. We reported fourth quarter product revenue of approximately $100,000 from sales of our Milo product through Amazon and our own e-commerce sites. The Amazon channel has accounted for well over 50% of our revenues to date.
We have qualified for the Amazon’s Prime fulfilled by seller program, which allows us to reach out to the Amazon Prime customers, while still able to keep costs down by fulfilling those orders from our own facilities rather than through an Amazon distribution center. Although the fourth quarter revenues are not material to our overall results, we do anticipate significant increases in revenue in 2018, as we expand the awareness of our brand and to our product line and broaden our sales channels.
The gross margin reported on our Milo product in the fourth quarter of 2017 was approximately 25%. We were pleased with these margins for a new product launch. However, we believe we can significantly improve these margins based on sourcing initiatives, increased purchase volume, product cost reduction measures and increased efficiencies that are already underway. I would expect to see margin improvements in the second half of 2018 after we have successfully moved through our initial on hand inventory.
We did recognize the write-down of inventory of approximately $125,000 in 2017. This was not related to our Milo products, but rather was the result of excess work in process inventory of our legacy IT products from prior years that have experienced minimal sales to date. On a comparative basis, our revenue shows a $4 million decline from 2016 to 2017 as a result of the revenues recognized in 2016 from a patent license and settlement agreement that does not have an ongoing royalty payment. We certainly anticipate additional proceeds from our patent enforcement actions and have a number of meaningful milestones in 2018 that we believe can drive those results in the near term.
Our overall operating expenses for 2017 were less than 2016 operating expenses by approximately $1.2 million or 6%. This is largely a result of decreases in litigation expenses year-over-year, somewhat offset by increased personnel and other expenses related to product development sales and marketing for Milo. We ended the year with approximately 1.4 million in operating and restricted cash, which is similar to our ending cash position at the end of 2016. We funded our operations in 2017 largely from a sale of equity securities under at market issuance sales agreements with FBR Capital.
In addition, BKI, our litigation funding partner, invested an additional $1 million in December of 2017 towards our German enforcement actions, which are expected to have some near term results. We also entered into a common stock purchase agreement with Aspire Capital in October of 2017. Under that agreement, we have the ability to sell to Aspire at our options up to a fixed amount of stock on a daily basis. The agreement covers up to 20 million in sales over a 30-month term.
Unlike the ATM arrangements where FBR acts as an agent and the ability to sell stock is limited based on the market and volume conditions on any given day, under the Aspire arrangement, Aspire has a commitment to purchase stock at our request. We are pursuing longer term financing for the business operations that may include debt, equity or more likely a combination thereof. In the interim, we plan to utilize amounts under both our ATM and our Aspire agreements to fund our short term capital needs.
One last topic I'd like to touch on briefly before I turn the call over to Jeff for his update and with regard to our NASDAQ status. We are currently not compliant with the NASDAQ market value of listed securities or MVLS standards, which requires a market value of listed securities of 35 million. In addition, last week, we received a notice that we are also not compliant with the $1 minimum bid price requirement.
With regard to the bid price, we are provided an automatic six month grace period or until September of 2018 within which to regain compliance. With regard to the MVLS standards, last month, we were notified by NASDAQ that we would be subject to de-listing as a result of our continued non-compliance, unless we timely requested a hearing with a NASDAQ listing panel in a timely manner.
We did request and attend a hearing and currently any de-listing action has been stayed pending the panel's decision with regard to our plan for regaining compliance and our requests for additional time within which to do so. We believe we have a compelling plan that we expect can be executed in the near term and we are optimistic that the panel will provide us additional time to regain compliance.
I'm available for questions at the end of today's call, but for now I'd like to turn things over to Jeff for an update on business.
Thank you, Cindy and good afternoon and thanks to those of you attending today's call. Since we’re going to have another call in just 40 or 45 days from now, I'm going to focus today on the near term opportunities that we believe have the potential for building shareholder value in the short term. We invested heavily in these areas over the past year and they really fall into three areas of focus and bring us to where we are today.
One area that I'll discuss is regarding the licensing of our intellectual property and the related enforcement of our patent. The second area is the products we've recently developed and brought to market. And before I review those two areas, I'd like to start on the third topic which is the work we've been doing to properly fund the company to sustain our licensing aspirations and our development in the sales of products.
As Cindy already mentioned, we're currently pursuing funding opportunities that will address our longer term needs. We have a valuable asset in the deferred tax assets we own that are in the form of accrued net operating losses or known as NOLs. And they’ve resulted from the significant investments in R&D and patent prosecution and our enforcement activities. Those NOLs now are approximately $325 million.
We've been working with our advisors to assist us in structuring financing transactions that will allow us to augment the funding of our litigation and product development and marketing efforts. One of the promising approaches we've been pursuing in earnest is presenting investors with an investment paradigm that gives an investor the upside potential of our two main revenue generating efforts, which is from the patent licensing and the product sales, while at the same time, giving them some downside protection by offering them ways to take a security interest in our deferred tax assets.
This approach lowers the hurdle rate for these investors. It allows for less dilution to existing shareholder bases, while providing us with the additional debt and equity capital that we need. Without going deeper into the details, what I can say is that we have a number of parties interested in and diligently evaluating this type of structured transaction with us and we believe this will enable us to achieve proper funding to support both our short and longer term business objectives.
So let me turn now to the operations. Milo launched as a direct-to-consumer product in October of last year. Our marketing has been limited to Internet advertising as we first wanted to make sure the product was ready for mass adoption and delivered on its promise. And that touches our number of different areas for making sure the product is reliable and a wide number of home environments coast to coast, to the customer support that's critical for new entrants to gain the trust of consumers and a host of other details that have to be done just right.
By early this year, Milo was up and running in over 1000 sites all over North America. In Milo's first three months on the market, we learned a lot. We learned where Milo is doing a great job for consumers and fortunately that's been with the great majority and we learned where Milo needed to be tuned a bit to deliver on how some customers want to use the Milo. We actively continue to improve and update the Milo mobile app, which is used on a smartphone and which in my opinion our first app started out as maybe a four or five out of the ten ranking and now three iterations later, I think it's moved up to a 7 or 8 and another iteration, which will release in April, will move up to a 8 or a 9.
And the same is true for the Milo itself. We continue to improve and upgrade the software and firmware that makes Milo Milo. Those improvements continue to refine and make better Milo's performance. We add features that address some of the ways consumers have told us they want to use this product. So overall in just five months, I'm pleased with where we've come with Milo. But I'm even more excited about where we're going.
We are now geared up and taking Milo to the next steps, some of which you will see happening in the coming weeks and others over just a few months. So I'd like to discuss what some of those next steps are. First off, we have an in-house sales staff, executing a direct sales campaign targeted at Internet service providers to enable ISPs to provide a solution that improves coverage to their subscriber customers. We believe we're very close to closing our first ISP success. This is an ISP who informed us recently that we are their first choice and now we are working through the details to show them how their own customer service group can support Milo, so that they are comfortable launching this product offering directly to their customers.
Secondly, with regard to direct consumer channels. Late last year, we were approached by a firm that’s known for taking new and often unknown products to Direct TV sales and providing a large audience an immediate revenue generation. This firm tested Milo, made sure it meets their quality assurance standards and has now stocked Milo in their distributors’ warehouse as they prepare to take Milo on air. I believe they will have a very significant impact on growing Milo revenue in the short term and of course we're hoping for a long relationship.
And in addition, we're actively pursuing another channel partner who has recently made the offer to take Milo on a comprehensive direct national TV, radio, newspaper and PR campaign. This is a firm that has decades of experience in taking consumer products right to market in very successful campaigns. I asked the CEO of this firm what I might share with investors regarding his proposed program. And he told me to represent the following. That he and his team have vetted, through their own analysis, the Milo product that they use an extensive checklist to predict the likelihood of success for a product in a direct consumer campaign and that Milo came out with the highest levels for what they look for.
This CEO has installed Milo in his own home, loves the way it works, how it has delivered on the promise of resolving the WiFi problems he's been experiencing. As a result, this firm has offered to us that they will invest to bring Milo to a national TV, radio, newspaper and PR campaign. Their campaign will include the airing of thousands of TV commercials on national cable and network television, thousands of magazine and newspaper ads that will run concurrently with the TV ads and Milo will also run in TV and radio news and talk show programs nationally.
Lastly, the CEO gave me permission to convey that he believes this is exactly the kind of product that from their own experience will be profitable from this type of sales approach and that's why they're willing to take and make a real investment to bring Milo into their own program. This firm creates the TV, radio and newspaper ads, runs the placements, tracks the progress, tweaks the program as they learn. In essence, this firm has decades of experience in taking programs using their own words from scripts to screen and generating real sales growth. Our goal is to launch on air with them in late spring to early summer this year, which I think is a terrific complement to the previous program I just described and this proposal is from -- this firm is very attractive from a cost versus benefits perspective to ParkerVision.
So turning now to the investment we've continued to make in enforcing our patents and our licensing program. The next two nearest term activities related to our case in Munich, Germany against Apple iPhones using Intel chips, which infringe our receiver patent. And the district court case in Jacksonville against Qualcomm and Apple, using Qualcomm chips which infringe our receiver patent. In the Munich case, we expect the judge will review information showing detail of how the infringing receiver operates by using our patented technology as described by the claims of the patent. And if he concludes that we've provided sufficient detail, then we expect he will come to a favorable conclusion to ParkerVision.
One of the reasons we believe the judge will come to a favorable conclusion is based on the history of the briefs that were filed and the subsequent arguments in the court room hearing we had last November. While ParkerVision has been consistent with our explanation of how the infringing receiver operates, the defendant has not. There were contradictions and inconsistencies that the judge identified during the November hearing and the illustrated changing positions on fundamental operation of how the accused infringing product works.
Additionally, there have been numerous admissions that we agree with the defendant and how their product works that further bolsters our infringement proof. So we believe the judge will conclude that the receiver in the Intel chip is infringing our patent claims and that will be the catalyst for a favorable ruling. I've asked counsel what he believes the next steps will be and while nobody can predict for certain what the judge will do, it is counsel’s belief that the most likely next action from the court will be a final hearing on this matter of infringement in the second quarter of 2018.
On the matter of validity of the patent in this case, we believe that it will not be sent to the federal patent court for a review as was our transmitter patent in the other German cases we have ongoing. The reason we have this belief is that the defendant has only shown prior art, which has already been contemplated by the patent court before the patent was issued. The prior are clearly teaches the opposite of what our patent claim defines. As example, the prior art covers radio frequency down converters made from sample and hold circuits, which clearly state that they operate to replicate the sample voltage of an RF signal as accurately as possible.
While one of our claims actually states that the patented RF energy transfer sampling which we own operates so that an accurate reproduction of the RF signal is exactly the opposite of the prior art side. So for these reasons, we believe the regional court Munich will make an affirmative ruling without waiting a decision from the federal patent court. As a result, we believe we have a great chance to achieve an enforceable injunction in this case in the near term unless the parties can resolve differences and agreement is reached.
On the matter of the district court case in Jacksonville, we are pleased that the judge ruled to keep the case in its proper venue in Florida. We’re prepared for our Markman hearing and believe we have a very strong set of arguments to support our definitions of the disputed claim terms. The most important terms in dispute, Qualcomm initially agreed with our position and then later reversed direction and decided to disagree, offering up definitions that we don't believe any reasonable person would agree with. So we're enthusiastic to get on with this part of our case as soon as possible.
And the last item I'd like to mention relating to patents intellectual property is with regards to two bills that are now before Congress, one in the Senate and a parallel bill in the House. These are known as the stronger patent act and they have bipartisan support. The stronger patent act recognizes that over the past decade, our patent enforcement system has been eroded to the point that it is no longer effective, it is no longer timely, it has resulted in the US Commerce Department reporting that we have now dropped to number 12 in the world in our patent ranking.
In 2016, we were ranked in number 10 for the first time ever behind Italy and Singapore. Then in 2017, we dropped further two more places. The theme of stopping patent trolls over the past decade combined with certain Supreme Court rulings have resulted in a real threat to the future of our innovation economy. It depends on strong, predictable and rapid patent enforcement and patent rights. If you send emails or messages to your US senator or congressman, please send a message supporting this bill. It is vital to our country's future competitiveness and standard of living and the environment now seems to be right for this as the lively discussion about restoring and strengthening American leadership no matter what side of the aisle you're on.
For ParkerVision, we've been laboring to enforce our patents now going into our eighth year. Infringers are fully comfortable taking all they can because they know the system is slow and full of loopholes, why pay today when you can kick that can down the road a decade. This lack of respect for patent rights has destroyed companies, has prevented startups from getting funded and it's eroding shareholder value. The stronger patent act can help in no small way to get that pendulum swinging in the right direction and it is a very encouraging sign now that there are proposed bills in both the House and the Senate.
So on that, I'd like to open up the call for your questions.
[Operator Instructions] Our first question comes from Jon Hickman from Ladenburg.
Hello. I have a number of questions. Cindy, can you explain to me? You said that gross margins were 25% on the Milo product.
Yes.
How do I see that on the P&L? It looks to me like the gross margins were the same as revenues? I mean the cost of goods was the same as revenues.
Yeah. What you're seeing on the P&L is you're seeing unfortunately a result of a typo actually, we’re just seeing on there, you’re seeing a negative margin of 100. There's actually a typo on our release, Jon that I just saw, but you had a 125,000 write down of IC inventory that I mentioned and 75,000 of cost of sales against the 100,000 of revenue.
Okay. So the real cost of goods is 75,000, not 100?
Yeah.
Okay. Thank you. So Jeff, you mentioned what you're doing with Milo from kind of a marketing standpoint. What are you doing to improve it technologically? You said -- you talked about tweaks, but you didn't say what they were?
Sure. Well, there's a lot of little things, Jon that actually all add up to a meaningful thing. So one of the features of Milo that we've learned, a lot of the users didn't understand at the beginning, is that you can install Milo so the base is wired into your modem or you can install it still with wireless to your existing WiFi system. And if someone calls me on guidance for that, 99 times out of 100, I’m going to say use the wireless link to your WiFi. But at the beginning, we weren't always clear that that was the right way to go and so some people were wiring it when they should have been wireless.
So we've enhanced our app so that it guides people through that much clearer and pushes them in that direction and we even have a new quick start guide that's going to be going out that will help people as well. We’ve changed some of the way the radios in there are programmed, so you get a little bit more distance, you get a little bit more sensitivity, you get a little bit more transmit power. We've been able to do enhancement of the way the system senses the other competing signals in the air and gets through the resolution more quickly to decide what channels to use and how to dynamically allocate those.
There's just -- there's a lot of things like that that have just made it so it operates a little bit better distance -- a little bit better in crowded environments, a little easier to install and those things just keep making it better. We have some enhancements that we’re working on right now that will actually increase the data speed and will allow it to operate with certain kinds of devices where the Milo network has to coordinate how the device information gets back to the router in your home, in your modem. In a way that it doesn't make any difference where the device is connected to your WiFi network. So there's a lot of little things like that. Right now, I'd say, we're probably good for 80% of what people want to do with it, maybe 85 and it’s that next 15%, 20% that we're [indiscernible], I wouldn’t say weekly but maybe monthly.
Okay. So are these changes coming out like in batches or can you just put them in as you get them fixed?
Both. So what happens is we put them in and then we’ll typically accrue them for a batch and then we send them out. So as an example, if it's a fix or an improvement to the Milo unit themselves, those go out through the cloud, which our Milo has looked up to and they automatically update. If the fix is in the mobile app, that shows up in a new version that you have to download. So right now, we're on version app 1.4 I believe. So we've had the original version and three more and there is a fourth update coming out in April. And the April update has got some really cool new things you can do with your Milo.
So, we don't put them out in real time because it takes a lot of diligence to vet the update, make sure you haven't fixed one thing and broken something else. So you want to kind of do them in groups. And then you update it at that point. So, you know, we do an update on the Milo unit themselves every one or two months and on the mobile app, I think we'll probably see it 9 to 12 times a year, something like that. By the way if you look at four and five star apps, generally speaking, they’re updated more than six times and maybe up to 12 times a year. So that's kind of the cadence we’re on right now.
So, the chip that it sells, hardware fixes, have you had to do any of those?
No. We have had no hardware fixes. Thank goodness. Everything has been firmware and software. Yeah. And that's why at the beginning of the update, we were focusing saying, we really want to get those first 1000 systems up and going to make sure that we're ready for prime time. And so from a hardware standpoint, we’ve certainly passed through that point and I feel like we've passed through that point now also from a firmware software point.
Okay. Then it looks to me like the German court is now going to -- from what you said in your press release, the validity guys are going to hear your case in October of this year? Is that what the press release says?
Yes. That’s right. That's on the first two cases that got sent to the federal patent court using the same patent. And what’s interesting about that is we learned from our litigator that at that type of a hearing, they make a ruling right on the spot. So from the same day, we have – yes.
So is that a three judge panel? Is that one judge? What is that? Do you have to go present, like?
There is a hearing. There is a hearing. There is a presentation, but you've asked me a question that I don’t have an answer to. I don't know if it's the single or triple panel Judge. I will try to find that out and let you know. I think in Germany, it’s generally three judge panel, but I’ll find out. Good question.
So kind of before you were, I mean, the feeling or the sentiment was that these guys would get to this, they were backed up, they would get to the validity hearing when they got to it. Now, you actually have a date with change.
They finally got to it. They finally got to it. I know there's probably a lot of people in Germany who've been counting on their system to move expeditiously who have probably been a little noisy about that. So maybe, they've added staff. I don't really know, but they finally got to it and we have a date certain and the attorneys for all parties have been scheduled for that day.
[Operator Instructions] And I'm showing no questions in the queue at this time. I'd like to turn the call back over for any closing remarks.
Well, folks, thanks again for taking the time. I hope that in the very near future, you're going to get to see Milo commercials on your local TV and that you'll like them. And I hope you have a nice three-day weekend if you're taking tomorrow off and we will be chatting with you again in about 40 to 45 days. Thank you very much. Have a good weekend. Bye-bye.
Ladies and gentlemen, this does conclude your program and you may all disconnect. Everyone, have a great day.