Roger Pondel - IR Zee Hakimoglu - President and CEO Narsi Narayanan - SVP, Finance.

Ian Corydon - B. Riley & Company Dennis Zelfden - Brazos Research Alan Mitrani - Sylvan Lake Asset Management George Melas - MKH Management.

Good morning, everyone, and welcome to the ClearOne's Third Quarter 2015 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..

Thanks so Michele, and good morning, everyone. Welcome and thanks for joining us today to discuss ClearOne's 2015 third quarter results. On the call today are Zee Hakimoglu, President and CEO, and Narsi Narayanan, Senior Vice President of Finance. First some housekeeping 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.

Company's discussion today will include forward-looking information reflecting 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, let me now turn the call over to Zee.

Zee?.

Thank you, Roger and good morning everyone. Thank you for joining us today to discuss our third quarter 2015 preliminary results.

On October 14 2015, we had reported the appointment of Tanner LLC as our independent public accounting firm to re-audit ClearOne's 2014 financial results following the resignation of McGladrey LLP, the company's prior independent public accounting firm.

The change was not due to any reason related to the ClearOne's financial reporting or accounting operation, policies or practices. For those who wish to review further, please refer to our Form 8-K filed on October 14 2015 for more details on this subject.

The company currently expects Tanner to complete its review and report its full financial results for Q3 2015 by mid-January 2016. For Q3 this year, we reported our highest ever quarterly revenue and highest non-GAAP quarterly net income in ClearOne history. Our Q3 reported revenue of $15.9 million was 1% above our 2014 Q3 revenue of $15.7 million.

Despite continuing weakness in certain international markets including Australia, Russia and Southern Europe as well as relatively flat market condition in the U.S and China, we generated record revenue and profit. This is even more impressive when you compare our results to industry peers.

Our strong quarterly performance was also due in part to the benefit of a new licensing agreement. Our non-GAAP operating income increased by 20%. Gross profit margin increased from 61% to 64% and our non-GAAP EPS increased 58% from $0.19 to $0.30 per share.

Our substantial gross profit margin increase was due to a favorable product mix and the revenue from licensing agreement. We expect gross margin levels to be around 63% in the near future. Non-GAAP operating expenses for the third quarter was $6 million down from $6.2 million of last year.

We recently announced this month, an increase in the quarterly dividend from $03.5 per share to $0.05 per share, payable to shareholders of record as of December 4, 2015. This is the second dividend increase in less than one year.

Our strong financial position allows us to continue to invest in organic growth and to pursue potential acquisitions while also returning a portion of our free cash flow to our shareholders. We believe these actions reflect our confidence in the long term value of ClearOne's market position and its financial performance.

We have continued to experience a challenging environment in certain international markets due to the strong dollar and a somewhat sluggish global economy including reduced spending by the Chinese government on infrastructure projects.

In October, new research from Frost & Sullivan, titled Analysis of the Global Audio Conferencing Endpoints Market found that ClearOne's comprehensive portfolio, excellent product quality, dedication to technology innovation, and strong partner network have enabled ClearOne to strengthen its revenue lead in the installed audio conferencing market to an impressive 51.5% market share.

This highly regarded report acknowledged that ClearOne has entered the video conferencing market to meet the continually evolving needs of all types of customer organizations and is positioned as a one-stop-shop provider for customer audio and video collaboration needs.

Frost & Sullivan noted in an associated press release of the report that ClearOne stands out among its competitors due to the variety of factors, its ability to properly address constantly changing customer needs. They said, we had a well rounded audio conference solutions portfolio. We had cutting edge functionality and we have competitive pricing.

The Frost & Sullivan press release further noted that these capabilities have secured ClearOne its leading position in the global installed Audio Conferencing Endpoints Market. We will try to extend this leadership in the professional audio conferencing market to media collaboration and network media streaming market.

During the quarter, TMC, a global, integrated media company awarded ClearOne's network media VIEW, the Pro Economical Decoder, a 2015 Communications Solutions Product of the Year Award. The award-winning VIEW Pro Economical video Decoder enabled high-quality, ultra low-latency media streaming over existing IP networks.

This network device is the ideal solution for deployments such as digital signage applications where common content is repeated over multiple displays and may not need pro-audio amplification, or third-party equipment control. Such applications include displays at airports and transportation hubs, hotels, casinos and shopping malls.

In the Pro AV Streaming Market, ClearOne continues to be truly differentiated by offering complete AV streaming and distribution system that can scale to fulfill projects of any size and complexity from like commercial to the very largest environment.

ClearOne's unique network media streaming solutions deliver agility, flexibility and scalability for any involved network media content, video, audio or data. In September, the U.S. Patent and Trade Office issued a new patent related to our audio streaming over IP network application used in network media streaming platform.

To-date, ClearOne has been awarded 64 patents and has additional 36 patent applications covering innovation in five strategic categories. These include, Audio Signal Processing, Video Conferencing, Multimedia Network Streaming, Wireless, and Industrial Design.

In November, ClearOne announced the opening of an office in the Dubai region of the United Arab Emirates to provide enhanced sales and marketing support for its Middle East business.

The Gulf co-operation council countries including Bahrain, Emirates, Kuwait, Oman, Qatar and Saudi Arabia comprise a key growth market for ClearOne, as the region continues to benefit from large investments in education, professional services, hospitality and infrastructure. These countries offer a promising long-term outlook for us.

The Dubai office will help ClearOne further penetrate the market and leverage our established partner and customer relationship with a local capability. The Dubai office will deepen our understanding of this market distinctive characteristics and needs.

And as a result, we will be able to explore opportunities for customizing products in respond to the regions specific requirement.

Finally, in November ClearOne released PANORAMA, it is an industry first low cost downloadable software module which enables flexible video wall display and composition layout eliminating the need to purchase additional expensive video wall processor equipment.

This new software license builds upon ClearOne's ground breaking and unique strategy for adding affordable, new functionality and capabilities to the company's Network Media Streaming Platform, without requiring any hardware changes or additions to its Video VIEW Pro systems.

This third in series software license as to previous VIEW Pro license releases earlier this year. This discrete software modules, all of them provide Pro AV consultant and integrator, new product sales as well as up-sell opportunities.

With this wrap up of our recent highlights, I'd like to turn the call over to Narsi for a detail discussion of our third quarter 2015 financial performance. Following Narsi's discussion we can take questions for the remainder of the available time.

Narsi?.

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 preliminary financial measures, reconciliation of this non-GAAP preliminary financial measures to reported preliminary GAAP measures is included in the earnings release that went out this morning.

Now turning to our preliminary financial results for the third quarter of 2015. Please note the following comparisons refer to third quarter of 2015 versus the same quarter of 2014. Net revenue, at $15.9 million, was 1% higher than last year Q3 revenue of $15.7 million.

Gross profit was $10.2 million, or 64% of revenue, compared with $9.6 million, or61% of revenue. Gross profit increased by 6%. This is our highest ever recorded gross profit. As Zee already remarked, gross profit margin increased due to better product mix and contribution of licensing income to our revenue.

Non-GAAP operating expense for the third quarter was $6 million, down from $6.2 million last year. Non-GAAP operating income increased to $4.2 million from $3.5 million, an increase of 20%.

Non-GAAP net income increased by 59% to $2.8 million, or $0.30 per diluted share from $1.8 million or $0.19 per diluted share for the prior year period, non-GAAP adjusted EBITDA increased by 18% from $3.8 million to $4.4 million. Now turning to our preliminary financial result for the nine months ended September 30, 2015.

Please note the following comparisons refer to the first three quarters of 2015 against the first three quarters of 2014. Net revenue increased to $43.5 million from $42.6 million, an increase of 2%. Gross profit was 27.6 million or 64% of revenue compared with 25.4 million or 60% of revenue.

Total non-GAAP operating expenses decreased by 3% from $20.6 million in the first three quarters of 2014 to $19.9 million in the first three quarters of 2015 actually, non-GAAP operating income increased to $9.6 million from $6.5 million, an increase of 48%.

Non-GAAP net income increased by 61% to $6.4 million or $0.67 per diluted share from $4 million or $0.41 per diluted share for the prior year period. Non-GAAP adjusted EBITDA increased by 44% from $7.2 million to $10.5 million. Turning briefly into the balance sheet, our balance sheet continues to remain strong.

At September 30, our cash and investment balance was $39.5 million, up from $33.6 million at the end of last year. We continued distributing quarterly dividends. Our quarterly dividend declared for Q3 of $0.035 a share which will increase to 0.05 a share for Q4. Let me turn the call back to Zee. Thank you..

Okay. Thank you, Narsi. We will now take questions.

Operator?.

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

Thank you.

In terms of gross margin, I wasn't clear on – was there one new license agreement that helped or was it multiple new license agreement that helped gross margin?.

It's one agreement actually..

Okay.

And can you talk it all about when that was signed and what products or what licenses that it encompasses?.

Actually the licenses relate to our professional products. So the revenue is categorized there. But its – we can't reveal more at this time. It has comparative implications actually..

Okay. And in terms of the guidance for 63% gross margin versus 64% that you did in second and third quarter.

Is that just expectation that mix normalizes?.

I've already been giving this guidance around 62%, 63%. We are sticking to that guidance actually. Nothing has changed actually. We expect the mix to remain the same and we'll be able to get to 63% actually..

Okay.

Then Narsi, could you provide revenue by segment in geography?.

One second. For Q3 Americas was about 68%, APAC was about 21%, EMEA was 11%. And the Product Pro was about 84%, UC was 12% and Video was about 5%..

So, you said UC was 12%?.

Yes..

Okay. That's all I have. Thank you..

Thank you. And our next question comes from the line of Dennis Zelfden with Brazos Research. Your line is open. Please go ahead..

Good morning Zee and Narsi..

Good morning, Dennis..

First housekeeping question here.

Were there any extra audit fees in the quarter related to the changeover in accountants?.

Not for this quarter. Q3 was not when the auditors change. It all happened at the beginning of Q4, so there is no audit fee implication for Q3 actually..

Do you think there will be in the fourth quarter?.

I think it’s a little too early to talk about those things. We have to negotiate with auditors and we to talk about how much it's been spent all those things for Q4 actually. Yes, it's hard to say right now actually..

Okay. I was also just kind of wondering since it was your prior accounting firm issue. It's you’re their conflict and not yours.

Are they – would you have them pay for some this or trying to get them pay for some of this?.

As Narsi mentioned that's a subject for negotiation which we'll cross that bridge when we get there..

Okay. Fair enough.

You'll have often stated that it takes two to three quarters for new products to gain traction, so I'm just wondering, have the new product that you announced or say six to nine months ago actually started generating revenue yet, any meaningful revenue I guess I should say?.

I would say that we’ve made good traction on the VIEW Pro side. We’ve won a few jobs and projects in China. We had some very large projects that are pending, we have one recently that are not expressed in Q3. We have a very healthy pipeline of projects and of course on the VIEW Pro side this is infrastructure.

And because its infrastructure there is long periods of bid, long periods of the tender and then stepwise installations which don’t happen in weeks sometimes they happen in months. So we’re actually satisfied with the progress we’re making on the VIEW Pro side.

On the media collaboration side, I think we’ve been happy with the reception that we have received from these products which I think now we announced it at InfoComm. We have many of our partners very excited about the products. We’ve won some projects and I think that we are going to continue to see good progress.

We are focusing our sales team quite frankly on the media collaboration now that we feel that we have our products peak just right for prime time and we’ll be building up our organization on marketing to make sure that that happened.

I will tell you I remain extremely still optimistic on these video products, one being infrastructure having a much longer pipeline, the other media collaboration.

We just had our EMEA partner conference, I should have mentioned in the quarter in Q3 and we got a very positive reception and I think that our media collaboration products hit the right prize target at the right time and will be an important revenue contributor to ClearOne as we go..

What do you think all of these new products which seem very promising can swim against the tide and generate some revenue growth not withstanding a strong dollar or is it just going to be [tough sliding] [ph] over the near because of the dollar?.

Okay. Our media collaboration products are intended often times for small and median businesses. I think at the price points that we offer these, the dollar is not a factor, there is significant really lower than what traditional video conferencing systems with heavy infrastructure MCUs are.

We have products that range from you know 3,000 all the way to 11,000 which have [MSRP ][ph] which the highest end has high-end audio associated with it. So, I don’t think from the media collaboration side, this strong dollar hasn’t much an impact.

It has more to do with the higher end large scale installations for big jobs in critical territories where for example parts of Southern Europe, you know north even areas of Australia, parts of Northern Europe say that are affected by our strong dollar.

When you add a recession such as in what is it, Japan there again it doesn’t help us but we are all swimming against the tide. It is what it is, but I think again compared to our peers we are doing quite well..

Yes, I would agree with that. Okay, thanks a lot..

Thank you, Dennis..

Thank you. [Operator Instructions] Our next question comes from the line of Alan Mitrani with Sylvan Lake Asset Management. Your line is open, please go ahead..

Good morning, Alan..

Hi, good morning. Thank you, I guess that’s close enough. It’s not Steven Lake, Slyvan Lake. Thank you for the good numbers by the way. I think these are pretty good.

Can you -- I realize you haven’t given us full P&Ls and no cash flow or balance sheets but you might have a couple numbers handy that I realize are fully unaudited, but can you give us what the total inventory was the short term and long term together?.

This has not been reviewed this is preliminary. Our inventory went down by a couple of hundred thousand dollars from last quarter..

Okay, because I was wondering how you generated five and 10 [ph] million of cash sequentially. It had to be off the balance sheet somewhere in terms of working capital coming down.

Can you just help me bridge where you actual financial, you know your operating, your net income number was or adding back depreciation or whatever noncash charges, how you generated so much cash sequentially?.

Actually there are two issues. One you can see from our EBITDA that we are generating healthy millions of dollars on EBITDA, so cash is happening. It’s not just out of balance sheet.

Second thing is it also taxes, when you make this much money and we also owe big amount of cash or taxes like [34%] [ph] tax that plays a significant role when you just look at the quarter and cash balance actually, it’s a -- that’s what we report that’s people care about it.

If we pay taxes say coming quarter you may see $3 million, $4 million going out in one shot actually. That creates some volatility with the cash actually. EBITDA is a good number for you to look at how will we generate the cash actually..

Right. No I appreciate that and I do, I just -- I saw you had I guess, I guess that’s fine. Okay, that’s helpful, it’s good to know.

Can you talk more about what you are seeing in terms of the more like, can you quantify how much currency actually hits you this quarter or it's hard to do?.

You’re talking about currency. We trend that in…..

You sell in dollars, right?.

Yes, well we don’t sell -- yeah we sell in U.S. dollars for the most part, so we are not affected by currency….

Translation..

Currency fluctuations and that sort of things..

Currency plays more into the….

Trends in the dollar..

The economy itself and how competitive we are because we don’t change our pricing everyday actually. We have -- we do adjust for local currency things but it’s not as often as it is. And it ties to the country -- each countries own economy. The dollar strength is reflection of the other side’s economies also, right.

Especially for example, Southern EMEA actually it’s pretty hard. It was a really hard quarter for them actually; it’s very hard to tease out the economy part and the dollar part actually..

Okay, so what point, so is there a point that you might change some of your pricing to be more competitive to be able to drive some sales there if the dollar continues to stay strong and strengthen how would you deal with that?.

Well we work dependant on the project and the opportunity and the competitor we certainly stay on top of winning jobs.

So, and that’s you could see it that while others are not growing revenue -- revenue in fact had significant revenue declines, we certainly fight fiercely for every opportunity, so we do that but to generally lower your pricing it’s a strategy of no point of return.

We strive on the ClearOne’s product quality, the support that they get and the customers are willing to buy it, and we are highly sensitive to pricing competition and we need and beat what we do, but it’s not a strategy for a long term success..

I agree. Thank you.

Another question, your fourth quarter is normally your strongest as you get you know sort of a budget flush on small businesses or customer shopping whatever it is everybody little bit or moved your sales people are pushing a little harder, but given where the currency is and some of the economies that are tougher, do you expect sales to rise in the fourth quarter this year, I realize maybe year-over-year you might, but I’m talking more sequentially?.

Sequentially, yeah okay..

Will the fourth quarter be your highest sales quarter as it normally is, and last year it was as it normally is?.

Alan that had always been the case except for last year. Last year was the first time we had Q4 slightly below Q3 actually. So we are keeping our fingers crossed actually especially with the U.S. economy being a little bit flat, it’s not something like how EMEA was behaving, it’s still flat actually.

So it’s something that we are watching out, it’s still early actually. We are only -- we are still halfway 50% of the quarter still out there so we can do a lot of things actually..

Okay.

And then something that’s a little off the beat in past, but you guys filed a consulting agreement in your proxy related that you entered into in June with your largest shareholders to look into strategic decisions, planning, including M&A discussions, private equity, a whole host of different things, it’s been about six months, can you tell us what’s going on with that?.

As you know, we had a prior agreement with Mr. Bagley seven years ago. And we engaged in an agreement with him and we think is to the benefit for ClearOne, I think it’s to the benefit of any shareholder. Mr. Bagley and family holds a large portion of our ClearOne stock.

We think it’s in the best interest to work in a positive way with our largest shareholders so we consider ourselves in a very good position. So, that’s strategically we are all aligned for the best interest of our shareholders.

I can’t say its specifically about any specific activity that we have engaged but it think - I could gladly say that we all appear to be aligned and trying to maximize the value of the ClearOne stock and that’s what we’re working for..

Great. Thank you so much..

Thank you, Alan..

Thank you. And our next question comes from the line of George Melas with MKH Management. Your line is open. Please go ahead..

Hi, good morning Zee and Narsi..

Good morning, George..

Hi, George..

Proceed like Alan, I think this is very good results. Can you help us understand the little bit more the growth in the pro segment.

I think that grew roughly 9% year-over-year is the view products included in that segment and what is driving the growth there?.

Okay. By the way the view is not included in that segment that’s video.

And what drives that is a combination of things, of course the legacy product is a very solid product, it’s been adapted tgat people continue to adopt it, we have great wins consistently quarter-after-quarter but we've enhanced that with microphone which I think are critical to the growth of that product line. We introduced the wireless mic.

We have optimized the wireless mic to an acquisition as you know and those go hand-in-hand as I said many times, the microphones are like the tires on the car. The legacy audio mixer is the car and the microphones are the tires and you sell them together.

We also have a very innovated, the world’s only beamforming steering microphone which is the most advanced single processing audio I would say piece of equipment in the world, it goes hand-in-hand with our converged legacy products or mixer and all of those combined drags the growth and as more and more companies feel they need the best in audio, they switch often times from competitors to ClearOne because that’s the only way they’re going to get that combined value proposition of the best in microphones along with the best in mixers..

Okay, great. Okay that’s very helpful. Have you been able to leverage the distribution that you have for the legacy product for the media collaboration and the media streaming products..

Actually we have leverage it with the new products we introduced in, in InfoComm, our media collaboration products are now skewed inside our distribution or traditional distribution partners.

Also interestingly, our view which is in infrastructure products that one we focus the distribution to a primary distributor, its infrastructure to simplify the stocking et cetera, we simplify it and put it into a very large and very important distributor partners of ours and they have been very helpful in marketing the product along with us.

So and the media collaboration products I should also say have had great adoption and entry into the IT channel, the non-traditional Pro AV channel, the IT channel with some of our big partners.

So again it takes a little bit more marketing and time to get these products out and get full demand but we see that the distributors are good help with that..

Okay.

And if you look at, I think three products that about a year ago you saw has really sort of potentially driving growth which was VIEW and COLLABORATE and also MATRIX to some extent, can you maybe say a few word about MATRIX and then help us understand if these products the VIEW - I mean I think you’ve made a lot of announcement on a lot of product enhancements, are they sort of ready to - are they sort of ready for Primetime or is there still a fair amount of work that needs to be done to based on feedback from the marketplace that you need to make some changes?.

Okay. That’s a great question. On this media collaboration and on VIEW Pro product, we feel that they are absolutely ready for Primetime perhaps in the next quarter, we’ll be able to talk to you about some of these wins but they’re definitely making their way to the channel.

It took us longer than we hoped as it always sometimes does the pie tech to get the product both technically right, meet our cost objectives and get it perfected for what the market need.

And the COLLABORATE, the media collaboration I have to say it was a little bit more of a challenge but we believe when we launched it in InfoComm, we had great, great interest in it and it’s just a matter of building up our team which we are building up a little bit more marketing and for demand and I’m remained - I remained very optimistic on our MATRIX and our media collaboration.

With the emphasis of those products, we have kind of put less emphasis on the converged MATRIX due to variety of reasons because we still have additional components that we want to add to that to enhance this system and we just prioritized again in terms of R&D, in terms of our sales focus, in terms of our channel and in terms of our marketing the media collaboration along with the view that the network streaming..

Okay, great.

So maybe we actually - maybe we coming to sort of an inflection point for COLLABORATE and VIEW hopefully or at least there is a possibility that there would be an inflection point?.

I believe that there will be. I can’t predict the time but from what I can see I do believe there will be, it will happen. It’s just the timing isn’t always what we hope it to be..

Okay, okay.

And then just a quick final question on the distribution sort of channels both in China and in the Gulf, are you building those or do you feel like you have the right distribution right now in these growth areas?.

Yes on China as we mentioned on a few earlier calls that we believe we have a fabulous partner, a very strong partner that has offices throughout the entire Mainland, China. So we’re very satisfied with our distribution partners, we have another partner that’s very big in the IT channel as well and they remain as well.

On the device, we have established some very close and very strategic partners in any case maybe Narsi can talk more about that but I think it’s more about working more closely with them so that we could further stay on top of the very large projects that are available to us in the Middle East..

Okay.

The nature of these large projects in the Middle East is it mostly on the VIEW side or is it across the board?.

It really is across the board.

It’s actually across the board, the projects are so extensive is we mentioned in our press release there is audio projects, there is media collaboration, there is cloud, video conferencing projects for the cloud, there is projects for streaming, probably there are fewer projects for UC products that I could say but all the large infrastructure products, the microphone products, there is definitely opportunity for us..

Okay. Great, thank you very much and great results. Thank you..

Thank you, George..

Thank you..

Thank you. And I’m showing no further questions at this time. And I would like to turn the conference back over to Zee Hakimoglu for any closing remarks..

I have no further more remarks other than to thank you this morning for your interest in ClearOne and spending little time with us. If there is any further questions please contact us or Investor Relations and we look forward to speaking to you again. Thank you..

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..