Good morning, everyone, and welcome to the ClearOne’s Fourth Quarter 2015 and Full Year Earnings Results Conference Call. This call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Mr. Roger Pondel. Mr. Pondel, please go ahead.

Thank you, Michele, good morning. Welcome everyone and thank you for joining us today to discuss ClearOne’s 2015 fourth quarter and full year financial results. On today’s call are Zee Hakimoglu, President and CEO, and Narsi Narayanan, Senior Vice President of Finance. First some housekeeping measures before we start. Please be advised that this call is being broadcast live on the Internet at www.clearone.com. Playback of the call will be available for at least three months and may be accessed on the Internet at ClearOne’s website. Before we begin, I’d like to make a cautionary statement and remind everyone that all of the information discussed on the call today is covered under the Safe Harbor provisions of the Litigation Reform Act. The company’s discussion today will include forward-looking information regarding management’s current forecast of certain aspects of the company’s future, and actual results could differ materially from those stated or implied. With that said, I’ll now turn the call over to Zee. Zee?

Thank you, Roger and good morning everyone. Today, I’d like to discuss our fourth quarter and full year 2015 results. Our revenue decreased 7% to $14.3 million from $15.4 million in 2014 Q4. Our top line was impacted by economic headwinds in certain key markets. Overshadowing continued growth in our Middle East and India markets. Weak economies in Australia, China, Japan, South Korea, and parts of Europe contributed significantly to the shortfall in revenue. Fourth quarter non-GAAP operating income decreased 4% to $3.7 million from $3.8 million in 2014 Q4. Non-GAAP fourth quarter net income decreased 27% to $2.3 million or $0.24 per diluted share from $3.2 million or $0.33 per diluted share. The net income decreased mainly due to an increased tax rate when compared to the 2014 Q4 tax rate. The effective tax rate for this quarter is 38% compared to only 18% in 2014 Q4. Non-GAAP operating expense for the fourth quarter was $5.4 million down from $6.1 million last year. We continue our quarterly dividend program and in March 2016 we declared a $0.05 per share cash dividend. This morning we announced that our Board of Directors had authorized the repurchase of up to $10 million of the company’s outstanding shares of common stock. This repurchase program demonstrates our confidence in ClearOne’s business and prospects as well as our commitment to deliver shareholder value. For the full 2015 profitability was significantly up on stable revenue compared with prior year. Gross profit was $36.7 million or 64% of revenue compared with $35.3 million or 61% of revenue for 2014. This significant increase in margin was achieved mainly through a favorable product mix and also due to contributions from licensing fee through the revenue mix. For the full year, non-GAAP operating income increased 29% in 2015 to $13.3…

Thank you, Zee, and good morning everyone. Before I begin, I would like to point out two things. First, I will be discussing certain non-GAAP financial measures, a reconciliation of this non-GAAP measures to reported GAAP measures is included in the earnings release that went out this morning. Now, turning to our financial results for the fourth quarter of 2015, please note the following comparisons refer to fourth quarter of 2015 versus the same quarter of 2014. Net revenue at $14.3 million, was 7% lower than last year Q4 revenue of $15.4 million. Gross profit was $9.1 million, or 64% of revenue, compared with $9.9 million, or 65% of revenue, gross profit declined by 8%. Gross profit margins for this quarter has been in line with our recent gross profit margin history. Gross profit in Q4 2014 was higher among other things due to the benefit of inventory overhead adjustments in the quarter. Non-GAAP operating expenses for the fourth quarter was $5.4 million down from $6.1 million from last year. Non-GAAP operating income decreased by 4% to $3.7 million from $3.8 million in 2014 Q4. Non-GAAP net income decreased 27% to $2.3 million, or $0.24 per diluted share, from $3.2 million, or $0.33 per diluted share. The net income decreased mainly due to increased tax rate when compared to 2014 tax rate. The effective tax rate for this quarter is 38% compared to 18% in 2014 Q4. Non-GAAP adjusted EBITDA was down by 4% from $4.1 million to $3.9 million. Now turning to our financial results for the twelve month ended December 31, 2015. Please note the following comparisons refer to full year 2015 versus the full year 2014. Net revenue essentially remained unchanged, going from $57.9 million to $57.8 million. Gross profit was $36.7 million or 54% of revenue, compared with $35.3 million or 61% of revenue. This significant increase in margin was achieved mainly through favorable product mix and due to contribution of licensing fees to the revenue mix. Total non-GAAP operating expenses decreased by 6% from $25 million in 2014 to $23.5 million in 2015. Non-GAAP operating income increased 29% in 2015 to $13.3 million from $10.3 million in 2014. Non-GAAP net income increased 21% in 2015 to $8.7 million or $0.91 per diluted share from $7.2 million or $0.75 per diluted share in 2014. Non-GAAP adjusted EBITDA increased 27% in 2015 to $14.4 million or $1.50 per diluted share from $11.3 million or $1.18 per diluted share in 2014. Turning briefly into the balance sheet, our balance sheet remains strong. Cash, cash equivalents and investments were $39.8 million at December 31, 2015, up from $33.6 million at December 31, 2014. The $6.2 million increase comes after the company paid dividends totaling $1.4 million in 2015. We continued distributing quarterly dividends. Our quarterly dividend declared for Q4 was $0.05 a share, up from $0.035 a share declared for Q3. I will now like to turn the call back to Zee. Thank you.

Thank you, Narsi. We will now take questions. Operator?

[Operator Instructions] Our first question comes from Ian Corydon of B. Riley & Company. Your line is open.

Thank you. Zee, could you talk about what you’re seeing in the competitive environment and professional audio, both in the U.S. and internationally?

Well, that’s a broad question. In terms - if you can just be just a bit more specific so that I could address it. You’re talking about general economic state for all of our competitors. Can you clarify please?

Yeah. I’m just trying to understand if there has been any change in the competitive environment in Q4 in professional audio specifically.

Okay. I would not say that there has been a change that is recognizable in the competitive environment. I think that we haven’t run into anything new. Most of the announcements that come and go of course we always track. I think all our prospects remain the same. We’re comfortable with our products. We’re comfortable with our channel. We’re comfortable with our strategy going forward. We haven’t seen anything that concerns us or makes us believe that we need to make adjustments in our strategy or in our executing on our plan.

Great. That’s helpful. Zee, I guess also, what needs to happen for the company to get back to revenue growth? Are there things you can do that are in your control or is that largely a function of some weakness in geographies that’s out of your control?

Okay. I think really to certain extent, it’s really out of our control at this time. Assuming that we want to preserve our profitability and execute on our strategic plan, we don’t buy revenue, we don’t grow the top line forfeiting our profitability, because that is a never-ending cycle. Number two is in these economic times, uncertain economies create delays. Our clients, those who use our equipment and our solutions, make large investments in project planning. Project planning on the part of our ultimate end-users takes time and money. So during these uncertain economic times, these projects are not necessarily cancelled, but they’re put on hold. We saw that in 2009 coming out like gangbusters. So I think the key is ClearOne certainly has tremendous resiliency. We have a plan that we’ve executed on. We plan to live through and in fact do as well as we can through this business cycle and in fact take advantage of the business cycle. Our solutions are actually quite economically competitive. The market for software based and network based solutions are increasing. And I think that we have the right products at the right time, with the right features at the right price. And we’re going to continue to drive those, and just go ahead and live through this business cycle that we’re in. It’s not unfamiliar to us.

Got it. And, Narsi, if you could provide the revenue breakdown for - if you could for both Q3 and Q4 for professional UC and video that would be helpful.

Okay. Q3, professional share was 70 - no, 84%. Let me first finish Q3 and then I’ll go to Q4, okay. Pro it was 84%. UC it was above 12%. Balance was video. In Q4, Pro was about 79%. UC was about 12%. The balance was video actually. Okay.

Got it. Thank you.

Our next question comes from Dennis Van Zelfden of Brazos Research. Your line is open.

Hello, Zee and Narsi.

Good morning, Dennis.

Hello.

Zee, we all believe that the video market holds significant growth opportunity. And it sounds like you have a decent start in that market with the prospects that you talked about. Just one quick clarification before I ask my questions. Have you actually made any sales yet, are those - or that which you talked about, are they prospects?

No. Those were actual sale. The way the market sometimes goes - those were actual sales. We’re new to video-conferencing. So we have to establish a reputation that our products are great at we believe them to be. And so, often times for many of these prospects that we have actually sold they will take demo equipment, they will kick the tires. If they like the equipment and they like the price, then they will buy a small or a reasonable number of units and take it. These are great beginnings to adoption, as I mentioned, to our new video products.

Actually, let me add quickly. Even in this quarter Q4, our video revenue grew by 8% actually. And overall in 2015, we grew by 11% actually. I think in a tough year, it shows the resilience of our video products and things turn around. We feel video will be a bigger player in our overall performance actually.

Okay. Well, yeah, I just want to continue on with that. I mean, given the size of your competitors like Blue Jeans and Acano and things like that, and given what you just said that you are the new player and they want to try it out, does that mean that this video ramp so to speak. The revenue from these new video products will be a long cycle, it will take a long time to generate significance?

Nothing great happened overnight. We know that, but we certainly put the time, the money, the attention and the resources to get this going. And we’re committed and we see good progress. You mentioned some of our competitors are very large. Certainly we have some very large competitors there is no doubt about that. But when you mention companies like Blue Jeans, Blue Jeans is basically in many ways a marketing machine, and a great marketing machine, who is interested in selling their products in a different kind of environment than we do. They go directly to the end-customers. They sell a lot of products online. And as far as profitability or an ultimate business model for Blue Jeans’ survival, that’s very different than what ClearOne offers. ClearOne sells into the channel. We sell to distributors, integrators. We convince consultants that our products are best. We also sell it, these video products in terms of conferencing and even network streaming, in complementary form to our audio. There is really only one other large competitor, as we all know who they are, who sells video and audio. But even our audio is fully complementary across the suite of our video, what we call media collaboration products. We have audio that complements at the desktop, in the huddle room, in the larger board room and bigger rooms beyond. We make the cameras. We have the complete solution. We have the cloud and we have the endpoint, the low cost codec endpoint that many larger businesses need to see. Cloud is a wonderful strategy for video and we have adopted that. But unlike Blue Jeans that sells their cloud and does not offer an audio component nor did they offer a low-cost appliance component, we put the cloud inside our low cost appliance component for free for the first year and get our customers to take and try it. If our customers want simply a cloud component, we have that as well through a subscription model. So while we are not a marketing machine, we’re kind of like the turtle and the hare. But we have absolute confidence that our products as I said are the right products at the right time with the right features. And we’re going to put some more attention and money into marketing these things as we go along and we’ve done that this quarter.

Well, given the advantages that you just laid out and given that video in general is a relatively new category for you i.e. comparing to no sales last year, do you think that the revenue from this segment can offset the poor economies that you talked about earlier or are they also going to be not immune to those poor economies?

Well, I mean, I think across-the-board people just don’t buy up. This is not what you call a sudden consumer interest buy. We sell to businesses, enterprises, non-profits, government organizations et cetera. These things - sales are a result of investments in project planning, as I mentioned. The companies that we deal with and the channels that we work with have made investments in projects to plan it, to decide what they want to do. So when economic times are unknown, projects are often put on hold. They’re put on delays. They may buy fewer than what they thought. They may have slower rollout. All of our products are subject to the economic business cycle. I couldn’t say that one will make up for the other. We push them all. We hope to see more growth or faster growth in the video products, because they are new naturally. But one is not necessarily more subject to others, even cloud solutions. A large enterprise that makes an investment in a cloud solution, that’s a major investment, that’s not a today decision. That’s something that they planned for some time ago, are looking at, and they will deploy on a scale that reflects the investment that it is. Hope, I answered your questions?

You did. Thank you for the clarification and good luck.

Thank you, Dennis.

[Operator Instructions] Our next question comes from George Melas of MKH Management. Your line is open.

Good morning, Zee and Narsi.

Good morning, George.

Hi, George.

Quick question on the margin, the margin that you produced this year are remarkable. Do you feel like you can actually maintain these growth and sort of operating margins in 2016?

Yes. We think we can maintain it actually, yes.

Okay, great. And then, I have a follow-up on the previous question. If we look at some of the growth initiatives, so the product that you have, I think, Zee, you’re saying that those products are - you’ve made a lot of investment in these products and the products are good and you are satisfied with them. And I am talking about the VIEW, the COLLABORATE, the Spontania, and also maybe the Matrix Sound Distribution. What do you think, you will do in 2016 to or - what are your plans in 2016 to try to accelerate the sale of products?

Okay.

What are you sort of maybe doing differently in 2016?

Okay. It’s such a great question. In 2016, we are going to focus our resources on marketing of these products. We are coming up with a brand new website that really, clearly tells the story of ClearOne and our full value proposition from audio to collaboration to network steaming in a coherent clear and compelling way. That’s critical. And we wanted to get to the point before we did that, that our products were ready for prime time. Number two, we started an advertising campaign, modest, but we have been initiated a plan, so that we are talking about our network streaming or media collaboration. Number three, we’ve engaged a PR firm, modest, but we’ve engaged a PR firm to get our name out there, in terms of the publications and some of the venues that talk about technology. We’ve hired another marketing firm, who is focusing on some of our pro audio, by the way, for some of the - with the new platform that we will be coming out with in the near future. And they’re working with our PR firm and our other consultant, marketing consultant that’s working on telling the story of our video. So while, of course, we will continue to improve on our products, the key ingredient to success in the year to come, I think is marketing and that’s our focus. And I think that’s going to make a difference.

Okay, great. And can you talk about maybe related to that, the adoption - I mean, one of your great asset is your channel. Can you talk about the adoption of these products? And maybe you can separate the products with VIEW, COLLABORATE and Spontania also the Sound Distribution. What is the adoption of these products by your channel?

Well, our channel is very interested in these products. In fact, we have in fact been making certain channel adjustment. As it turns out there is some competition among some of our competitors, their business model changes so much, quite frankly. Do they sell to end-customers? Do they sell to channels? Their actual channel model has been so disrupted that partners are actually coming to us and telling us, we are going to slip this job for you. Okay, that’s very important. It’s really important, our channel is so important to our success, because we have shown the channel and with our video conferencing they make money, they know we are reliable partner, we are here for the long haul and they like doing business with us, because we offer a full suite. We are not offering just the cloud. Selling just the cloud to the channel is a formula for failure. They like the cloud. They like the suite from the Versa to the 300, 600, 900. They like the complementary nature of the audio. So our channel has expressed enthusiasm. I was at ISE, it’s Integrated Systems show in Amsterdam. It’s the largest AV show in the world, conference in the world. And we had many new interested prospects that came to us that are learning about our video. And I think we’re making all the right steps. Again, it’s a little bit like the turtle and the hare, and we’re not going to blow the one on stupendous marketing for the next two years. But as we grow our business and increase our profitability then we’re going to make investments in marketing to help our channel partners and help ourselves. Our success in audio took some time and I’m confident our success in video will also happen. It will just take a little bit of time and we’re seeing good progress.

Okay, great. And maybe if you look at the U.S. channel, right, because the majority of U.S. sales, of course, are in the U.S., if you look at the U.S. channel and the adoption of the new products by the U.S. channel, are you in what - sort of how would you characterize that? I don’t know what inning you are or…

Well, I got to say our video products I can’t say are now in the majority of the U.S. channel. Because we’re growing the business, we have nice jobs as we mentioned in the Middle East, in China, some in the U.S., some in Europe. I wouldn’t weight the amount of business for our video products according to the same proportion whether to the other products that we have by region.

Okay, okay. Okay, thank you, Zee. And a quick question - Narsi, just a quick question on the balance sheet, the long-term inventory popped up in the quarter. Is there sort of an explanation for that?

Yes. We had a pretty flat year, especially Q3 and Q4 did not do well actually. We, originally, when we were planning for our procurement and also when we placed the orders and everything, we were planning for updates, increase in activity in Q3 and Q4, which always used to be our big quarters actually. Since it didn’t happen that way, we ended up with more inventory than necessary, but it’s not a concern. I had to do it for FCC reporting purpose on GAAP since the inventory is higher on our hand. And we can reduce the inflow of inventory into our procurement process. And within next couple of quarters you would see its back to our normal levels actually. And the overall inventory is also slightly on the higher side, because we are in the process of moving our production facilities from Florida to a contract manufacturer in Asia.

To be clear, we were manufacturing the wireless mics ourselves at the location of that acquisition.

Yes, we are…

That’s Sabine mic, yeah.

Yes.

Yeah, Sabine mic. So we are building enough inventory. You know you always have to plan for it when you are transitioning. So that adds a little bit more inventory, but once the production is transitioned and we see clear demand for the upcoming quarters. We would be able to bring it back under control. In fact, a good measure that you may notice when you see our 10-K is our inventory absent of its costs have gone down in 2015 when compared to 2014 actually. So we have good control over our inventory actually.

Okay, great. And I just want to congratulate you, commend for the continued incredibly strong profitability and the share buyback. I think it’s…

Good, George. We’re glad. We were thinking that it might please many of our shareholders. Thank you.

Great. Okay. Thank you very much.

Bye-bye, George.

[Operator Instructions] Our next question comes from Alan Mitrani of Sylvan Lake Asset Management. Your line is open.

Thank you. I am one of the shareholders that it will please. So thank you for putting that buyback in. I do appreciate it with your stock trading at trailing sort of five times EBITDA. And you can save yourself at least you’re getting a return of 1.7% from or something like that just from a dividend perspective and your cash probably is not making that much. So it’s not bad move in terms of return on capital right now.

Thank you, Alan. We’re glad to be appreciated, knew you would.

Okay. To follow-up on the question, just that came out with moving the mic business. When do you expect that to be completed?

We expect the factory here in Florida to be shut down at the end of this quarter.

And the margin lift that you can get from moving to a contract manufacturer, can you - for the products, can you give us a sense of how that can benefit us?

I think it’s kind of competitive information. It will be a good bump actually. You won’t see it in the total numbers. It would be like points, you will see in the total numbers. But for the product category, it’s a good bump. It was worth the move actually. And when the product category as a whole goes up in - which is our plan and which we think it will happen. With all the different frequencies that we have introduced, it will be a very good improvement in our gross margins actually.

Okay. So maybe a - let me step back, when you bought Sabine, I think it was around $5 million of revenues, some like that at the beginning of March of 2014. Can you tell us what the revenue is in the mic business was this past year?

Actually, when we bought Sabine it was about $3.65 million, $3.7 million in revenue run rate, that’s what we bought actually.

Okay.

The - actually we have - we don’t break it down, that is growth. But, we don’t break the revenue down to that level actually.

Has the business grown since you’ve owned it, 10%, 20% or what’s normal, yes, okay. And that business, I remember, had a…

We are happy with the way it’s going and we have better plans for it actually.

And that business has higher margins than your overall business?

No. When we bought it, it had lower margins than our combined margins for the Pro products and our all the other products. With this move - with this contract manufacturing move, it will get to slightly above our combined margins actually.

Okay. That’s good. That’s what I was interested in. So if we’re looking at, call it a down year in revenues, flattish to down, maybe certainly the first quarter is always a down quarter sequentially we know and sort of flattish margins, is there room to cut costs in certain areas, besides this move that you’re doing right now.

Alan, we look literally on a daily basis. We look as far as we can. And we’ve proven it before. But we always look at cutting costs. We run lean anyway. We run lean anyway.

Yes, you do.

We [indiscernible] overhead. And we don’t want to - you can cut yourself to success. But we look at our investments in R&D, or G&A, or marketing. Across the board, we look at every single cent that we spend. Believe me, our employees can attest to that unfortunately. And we look to cut costs, whether we’re in this business cycle that’s an economic slowdown or not. It really doesn’t matter. We thrive on profitability. It’s our golden rule. And whenever we can cut cost, we cut cost. We don’t let cost build up because we are in a boom year.

I think that’s fair. I’ve seen you long enough to know that clearly the way you guys do the business is good. So let me take the other step. You wanted to get much bigger. You’ve made a number of acquisitions. You’re going into different areas. The question is can you use this downturn to buy some weaker competitors, put some of that cash to work besides buying back your stock and be able to jump to the next level? Is there someone out there that’s bigger than a $2 million, $3 million, $4 million deal, that you think, that you’ve been watching for a while, that you think would make sense?

We would always be interested. You hit it very well. We are definitely interested. If we could identify a match that would technically - strategically fit us, culturally work for us, that we could culturally adopt them, strategically adopt them that would be highly complementary to what we have, and fairly priced. We will not overpay. And generally, this is a good market, if you well identify to be able to find such an opportunity and not overpay. And if we found such an opportunity, you can be sure we will jump on it. And we are always on the hunt and opportunities do come our way and have come our way. Literally, they come our way every now and then. Quite frankly, a couple times a quarter we may see an opportunity, but the issue is they’re either so highly flawed that at this point we’re better off to focus on the acquisitions we made, the marketing we need to do and grow what we have. But absolutely if an opportunity becomes our way which is large, we’re not afraid of it. We’re not afraid of it at all. It’s just a little bit harder to come by. If you have any that you know of, you could pass them our way.

Actually Zee had mentioned before that we are not even afraid of taking debt if the size…

Yes.

Size doesn’t deter us actually. It’s the fit is what we look for actually.

Okay. Thank you.

Thank you.

Thank you, Alan.

There are no further questions at this time. I like to turn the call back over to Zee for any closing remarks.

Okay. We appreciate our shareholders’ and interested parties’ continued interest in ClearOne and for joining us today for our quarterly and full-year updates. If there is any further questions please contact us, our Investor Relations. And this concludes our call for the day. Thank you for your time.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Everyone have a great day.