Robert Jaffe - Investor Relations Zee Hakimoglu - President and CEO Narsi Narayanan - Senior Vice President of Finance.

Dennis Van Zelfden - Brazos Research Alan Mitrani - Sylvan Lake Asset Management George Melas - MKH Management Company.

Good morning, everyone, and welcome to the ClearOne’s First Quarter 2016 Earnings Results Conference Call. This call is being recorded. At this time, for opening remarks and introductions, I would now like to turn the call over to Mr. Robert Jaffe, Investor Relations of ClearOne. Mr. Jaffe, please go ahead..

Thanks, Stent [ph]. Welcome everyone and thank you for joining us today to discuss ClearOne’s 2016 first quarter financial results. On the call today 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 conference call is being broadcast live on the Internet at www.clearone.com. A playback of this 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 reflecting management’s current forecast of certain aspects of the company’s future, and our actual results could differ materially from those stated or implied. With that said, let me now turn the call over to Zee.

Zee?.

Thank you, Robert and good morning everyone. Thank you for joining us today to discuss our first quarter 2016 results. Our first quarter revenue was down. Our revenue decreased 4% to $13 million from $13.6 million in 2015 Q1.

I should remind our investors here that our Q1 revenue in 2015 a year ago was in fact a record, a best first quarter revenue ever and a comparison worth noting. Our gross profit margins sharply increased from 62% in 2015 first quarter to 65% in the first quarter of 2016. Non-GAAP operating income was almost the same from 2015 Q1 at $2.5 million.

Non-GAAP net income however increased by 5% from $1.7 million in 2015 to $1.8 million in 2016. We view these results positively in light of continuing global economic headwinds and the performance of our peers. Our topline continues to be negatively impacted by all around weakness in the global economy.

And especially due to weakness in Japan, China, Australia, Canada, South Africa in Southern and Central Europe. We continue our quarterly dividend program and in March 2016 we declared a $0.05 per share cash dividend.

During the quarter we acquired approximately 34,000 shares of our common stock under the $10 million stock repurchase program that we announced in the later part of March 2016. We continue to repurchase our stock under the program in the open market subject to price, volume and other safe harbor restrictions.

To further enhance shareholder value, we recently completed a program for the repurchase of approximately 226,000 stock options which reduced our outstanding diluted shares. In total, we spent about $2.6 million for repaying dividends on our common stock, paying for the stock repurchase program and paying for the options repurchase program.

Not withstanding the significant cash outflows our cash and cash equivalent and marketable investments increased from $39.8 million as of December 31, 2015 to $40.2 million in March 31, 2016. During the first quarter, gross margin increased due in part to our continuous efforts to enhance productivity and operational efficiencies.

We recently completed a major move to outsource manufacturing and assembly of our wireless microphone product line from our facility in Florida to a professional outsourcing manufacturing company. This action improves our competitive position by providing additional product pricing flexibility on this line.

On the business front in February 2016, ClearOne was granted a patent for its technology related to echo cancellation with beamforming microphone arrays. In a nutshell this patent covers the message of first generating a number of fixed beams through beamforming, followed by performing acoustic echo cancellation on each beam.

This patent also covers conferencing apparatuses that are configured to practice this method. At the end of Q1, our growing patent portfolio included 70 issued patents and 27 tending patent applications covering new technologies in the fields of audio and video processing, audio and video streaming and communication technologies.

We will remain focussed on anticipating and intercepting market needs to develop the products our customers demand. Our financial strength allows us to continue to prudently invest in R&D and on sales and marketing initiatives to grow awareness and demand for ClearOne solutions while also enabling us to provide a return of capital to shareholders.

With this wrap-up of our recent Q1 highlight, I’d like to turn the call over to Narsi for a detailed discussion of our first quarter 2016 financial performance. Following Narsi’s discussion we will take questions for the remainder of the available time. Narsi? Following Narsi’s discussion we will 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 financial measures; a reconciliation of this non-GAAP measure to reported GAAP measures is included in the earnings release that went out this morning.

Now, turning to our financial results for the first quarter of 2016, please note the following comparisons refer to first quarter of 2016 versus the same quarter of 2015. Net revenue at $13 million, was 4% lower than last year Q1 revenue of $13.6 million. As Zee noted, 2015 Q1 revenue was our best ever first quarter revenue.

Gross profit amount of $8.5 million essentially remained unchanged between 2015 first quarter and 2016 first quarter. However, gross margin went up from 62% in 2015 to 65% in 2016. Increase in gross profit margin was due to the increased share of higher margin products in our revenue mix and contribution of licensing fees to our revenue.

Non-GAAP operating expenses and non-GAAP operating income also remained essentially unchanged at $5.9 million and $2.5 million respectively, increase in R&D expenses due to product cost were fully offset by reduction in G&A cost due to reduced legal fees, audit and accounting fees and amortization of acquired intangibles.

Non-GAAP net income increased 5% to $1.8 million, or $0.18 per diluted share, from $1.7 million, or $0.18 per diluted share. The net income decreased mainly due to slightly reduced tax rate in 2015 Q1 due to additional tax benefits obtained on stock option exercises and repurchases.

Non-GAAP adjusted EBITDA was slightly down by 2% from $2.83 million to $2.77 million. Turning briefly to the balance sheet. Our balance sheet continues to be enviably strong. Cash, cash equivalents and marketable investments were $40.2 million at March 31, 2016 up from $39.8 million at December 31, 2015.

The balance went up not withstanding a total of $2.6 million spent on dividend payments, stock repurchases and stock option repurchases. Our quarterly dividend program continued in 2016 Q1. During Q1, 2016 $0.05 a share was declared and paid. I would now like to turn the call back to Zee. Thank you..

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

Thank you. [Operator Instructions] Our first question comes from Dennis Van Zelfden from Brazos Research. Your line is open..

Good morning, Zee and Narsi..

Good morning, Dennis..

Since you guys seem to be doing a great job managing the business in a tough environment, I’m going to focus my questions on the stock and option repurchases.

What price did you pay for the 34,000 shares acquired in the open market?.

We paid roughly $400,000 for tax..

No he was asking the price..

That’s average. If it comes to $10 plus actually..

Okay. I noticed if I read the Form 4s correctly, there were some options that did not expire this year and specifically some of them didn’t expire until 2022.

How many of those options that you bought did not expire in 2016?.

I don’t have that kind of analysis handy. This was a program that was offered to every single optionee so and we brought back about 226,000 options out of more than million options that were wasted. So it's about roughly a little more than one fifth were brought back actually. Actually these were offered them for repurchase so some of them….

What was the rationale for buying back those options that did not expire anytime soon?.

Actually to me it’s just -- let me explain this. If you are an optionee you already have an option, you already have an alternative with ClearOne. They can do what we call a cashless exercise.

They can sign up a piece of paper and they can go to the broker and submit their options and options will be exercised and the broker will fill the shares in the open market, pay the optionee the profit and give ClearOne the exercise price actually. And what we did with this option repurchase program is we got rid of two steps actually.

We already purchasing in the open market, so what we did was we got rid of the step where the optionee goes to the broker and then we buy through the open market the repurchase actually.

So we designed a plan in consultation with our SEC attorney and then offered a program where the optionee can offer the options directly to ClearOne and ClearOne will pay them the profit that they would have normally got through filling it in the open market.

So it’s like a constructively speaking, it’s a exercising the options and then repurchasing the shares through this. And instead of going through two steps we just did it one step actually..

The other benefit is that – with those options and some work coming to that rather closely you could see them on the Form 4s I don’t mind coming up close and we’re all reaching a blackout period so we certainly don’t want to loose those options, but it prevents a bit of a competitive situation when you take your options and convert them into shares and then have to sell them in the open market when we are already in a share purchase plan, it actually leaves more room in the share purchase plant to purchase more shares as well as to avoiding dilution by this option purchase plan.

So it was a win-win, some employees want to exercise options when they feel wherein the money’s good for them and others realize is the option period on some large grants coming to end and this is a good opportunity to do that and avoid a blackout situation going forward. So we thought it was a win-win for everybody mostly the company..

Right. I understand that. I’m just -- I guess -- I just want to get the rational for buying so few in the open market..

The open market is basically -- the amounted shares, the price we pay etcetera is dictated by certain Safe Harbor rules that our investment bank who does that is limited to we don’t maybe Narsi can speak to give more points on that..

First the program was in place only for two weeks actually. We started March 18th when the program started. So the result that you are seeing is only for two week actually.

And another aspect is what we can buy through that program is limited by the Safe Harbor provisions that restrict the -- but the price that we can pay, the volume that we can buy and so with these limitations we are able to buy 3400 shares in two weeks actually. I think we see it as a good performance actually..

Oh yes, I totally understand that, the benefits of buying the shares and buying the options I guess. What struck me is a little odd [ph] is that you initiate the program and then you buy all these options so it benefits management.

I guess I’m wondering why management did not exercise some of the options at least those that were about to expire and hold the stock to show the shareholders how much management believes in the company..

Yes, we exercise 5,600 options she is holding. It’s a non-qualified option she has to pay the taxes out of 150,000 options; she exercised exactly how much she needed to pay for the taxes and she used the money to buy remaining options. You could have seen in the Form 4 5,600 options she bought actually..

Yes..

Okay, I must have missed that. I looked at most of the reforms. Okay, I’ll let somebody also ask. Thank you very much. Appreciate it..

Yep..

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

Hi, thank you. A couple of operational questions and then I want to follow up on the stock option repurchase as well.

It seems like your inventory has slowed to a crawl, can you explain what you are doing in terms of why we are carrying so much inventory relative to our sales or and why we are down to one turn of inventory which is the lowest we’ve had in years.

Are you gearing up, are you holding a lot of inventory because you had advantageous prices, are you gearing up for the sales, jump or something I see long term inventory also quadrupled from the third quarter to the fourth quarter last year and is held there.

Can you just talk about that a bit?.

Okay, there are two things going on here. One, when we had double-digit growth in 2015 even earlier like until Q1. We had all the forecast and planning and the orders that we had placed actually. So, it’s not – we can’t quickly undo all of those planning and forecast that we did. And I have explained before we can undo that. It has a cost actually.

If you cancel our fee we are no longer going to honor all the forecast that we did, it comes with a price tag, it affects our gross margins.

So we don’t do that, because we feel there is no risk in the inventory that we have held and we can anytime we feel pressure on our cash or anytime we feel there is a need to liquidate the stock we can do it, we have done it before, we can do it anytime actually.

Second thing that’s going on is we announced that we moved the factory from a manufacturing facility from Florida to northeast contract manufacturing.

When we do something like this, we have to hold plenty of inventory to make sure that nothing goes wrong with the transition, and we also have to commit to the production and everything with the new contract manufacturer, so that also added what I would call as a transitional inventory which will go away next couple of quarters actually..

That’s a great explanation and I had forgotten about the move to the contract manufacturer.

How much of that is in the inventory, how much extra inventory you are carrying because of it?.

I don’t have precise numbers. But as I said you should expect at least 15% of the inventory to come down in the next two quarters because of this move to contract direct..

Okay, no problem great. And then I guess it’s interesting that such a big lead time that in general that if you forecast wrong a year ago, you basically have to still keep the inventory carrying, it’s just interesting, I wasn’t.

I guess it really plays to try to be more precise about the forecast?.

Alan, it’s -- we did not forecast a year back actually. We had growth all the way upto Q1 of last year and then it started slowing down actually. In fact our Q3, 2015 was our peak revenue actually. If you look at our financials, you would see that was our peak revenue. The real indications that things are not blip it’s a real….

It’s not a single blip, it’s you know the next quarter and the following quarter..

Q4 was a real indicator to us that we need to change our forecast and direction as it became really clear that it was sitting and actually indicating..

And again philosophically, at least from our point of view, we can easily get past access inventory because what we carry has got a very long life time; we’re not selling mobile phones that come in at a fashion every six months.

And we would rather air on the side of having enough inventory, we would never want to be in a position where the economy picked up. We got a large job, something changed and not being able to ship to our partners because then you would definitely loose revenue.

The time to build up – give the forecast five materials, build the products, test, put it on ship on the water, of course we don’t fly out our products over the air it would kill us. That cycle is very long, so you cannot respond to an uptick of demand in a month. It’s literally a six month program minimally.

So it’s a very slow boat to turn one way or another, but the good news is its’ all consumer, I shouldn’t all, there's no such things, but it’s very much favourable stock that we don’t anticipate is the problem. It will all be….

Okay. And then could you talk a bit, you talked about the gross margins are obviously very high. How much of that was the benefit of what you said, I missed the beginning of your presentation, Zee.

I got on after a bit, but licensing fees and the revenue which started to kick in, I guess was it last quarter or a couple of quarters ago, can you tell you roughly how much of that is when the effect is and whether you think that’s going to continue over the next couple of quarters or is 65 going to be our high point for this cycle?.

Q3, 2015 is when we started getting the licensing fee. The licensing fees will continue for some more time, it’s not just one or two more quarters. That stream is pretty certain and concrete, it will continue.

We have disclosed before for co-operative reasons, I cannot disclose how much it affects, you can make inference, but the 68% is I would say probably harder to for us to exceed this number, unless we have some very good supplier specific incentives or something goes down with our raw material purchase actually so, 68% is I would say the ongoing standard for our gross margin actually.

It would be between 63% to 65%, that’s what we think we should be in the next few quarters to come actually..

So for the year you are roughly -- I mean you’ve been on a good gross margin trajectory with the acquisitions, with the new products, you went from high 50s to low 60s, now you are going to 63 to -- you know 63 is up so maybe 64, so for the year something closer to 64 is probably better assuming decline from this level?.

Yes, 53 to 65 be somewhere in that..

Right, and then for the year, and then Zee maybe just in general the tone of business since I missed the beginning, can you just repeat where you see you know you had last year was sort of a bit of a down flattish revenue this year, are we looking for the same thing this full year, do you think you see a bit of a turn at all, what’s your take on some how of the new products are being received or whether we can actually see topline growth this year?.

Again we are hoping that the – we're hoping that the bottom half of the year is going to strengthen itself out. But again, let me put it this way. We unfortunately we are still a victim of currency of oil, of all these elements that just basically are slowing down the economy. But we are optimistic. We’ve had some nice wins on our view products.

We had a brand new platforms that are coming out at InfoCommm in Las Vegas in the first part of June, we wont’ see those products introduction till the end of the quarter.

But I’m optimistic, I – we’ve lived through these economic slowdowns before as you know in 2008, 2009 and this is simply the time to stay focussed and our products are very well received and I think we are doing significantly better than our peers quite frankly, so that makes me feel optimistic.

Fortunately we are in a good position but solid cash and good products, good future. I remain optimistic. Company is certainly much more valuable today, it may not show it in the shares but certainly as a whole we are much more valuable today than we were two years ago, or a year ago for that matter..

Maybe someone will recognize that at some point we see.

Can you talk about the tax rate for the year? It obviously helped this quarter, are you still expecting 38% for the year, 36% what should we be using Narsi?.

Our forecast is 35% and this quarter we got the benefit of all the stock option exercises and repurchased stock option program that we did, that give what they call of a tax holder discrete benefit. It’s about a 100K benefit that we got, $93,000 benefit that we got. So that impacted favourably the bottom line. Otherwise we should be at 35% actually..

Got it, so which means 36% or close to it for each of the next few quarters, okay.

On this buyback I have to ask as I really don’t see this, how many of the 226,000 options were in the money?.

All of them, they are in the money actually. The stock options buyback, option buyback it’s basically anybody who would otherwise have gone to the broker to sell the stock, pay ClearOne and take the profit. We simply them the profit actually, so we did not get the….

Okay..

Yes, go ahead..

So let me ask, so all of the more and the money, how many of them were basically a 2016 expirations such that they were going to be realized into stock [ph] or not, what percent of that 226, can you give any detail?.

I don’t have that number actually, I can….

But is the majority of it in -- of this year options or did you buy back as the last caller had asked options that weren’t due for six years?.

I think out of this 226, I think a good portion of it especially the ones that were offered for repurchase by directors including Zee, they all offer 2016 expiration actually. So at least 100….

So hold on Narsi, hold on.

You are saying that some of the options that you brought back were director shares?.

Director options of directors, yes..

The reason why we're asking and I’m sure other people will ask is, I have never seen this in my career, never. I think most people, here what you are saying you have to give us a lot more clarity. When I saw your presentation on March 10th, sorry your press release is that ClearOne announces 10 million stock repurchase program.

I didn’t see anywhere in there. It says specifically that you would buy up to 10 million of the Company’s outstanding shares of common stock. It's very -- so we would think I realized your stock doesn’t trade much. I realize you have windows, but most of us hold your stock, we believe in the company.

We understand that you guys compensate yourselves with options as well as salary, but we do expect you to hold some of these shares and exercise, when I know Zee you said you did. But importantly, if I look at the holdings of where the top management is outside of you Zee, and even the directors its minimal.

So, have you guy’s buyback stock, that doesn’t – remember if you are paying a dividend one of the benefits of buying back outstanding shares is that you then don’t have to pay a dividend on that. Do the options normally receive dividends and if they are not exercised yet. I’m assuming not.

And also, if you think we are holding your company because you say it’s a venture type company, well we are not growing the employee base very much, we're not growing the revenues at this point very much.

I realize the values here, we are all in it for you at some point to get to be a much bigger company and sell the company, or to grow into yourselves and be a much bigger company and being value to such.

Hearing that you are using the shares, I don’t care if it benefits you a $100,000, really to be honest, I’d rather you hold this stock, because eventually employees at companies we know and to getting more stock options. So where our shares -- shareholders like us no one hands me in extra stock dividend to go through.

So, this really, I think maybe either give some more clarity on it, or stop buying back people’s options that are years away from being exercised?.

Okay. It’s actually – and let me explain. Look we already have stock repurchase program. This is additional money that ClearOne spent outside of the program actually. This is not part of the $10 million that board approved. Board approved additional funds for this program, one.

Second, the decision by people to offer option for repurchase is the own individual decision, it’s not company is saying you must do it or we don’t offer anything more than what they would otherwise get in the market actually. ClearOne is not paying anything more than what other is available to them in the market actually.

It's actually a benefit more for ClearOne than for the optionee actually. The benefit to ClearOne is we don’t have to go to the broker, we already have the Safe Harbor restrictions, so I showed you that the 15 days or 14 days that we had is Safe Harbour. We were able to buy only 34,000 shares actually.

If we had continued to do this, to get these 226,000 options which would otherwise become share, it would have taken months actually. So this is a very quick way and safe way for us to do the repurchase without spending whole lot of transfer action fees and repurchase. We are able to hit the volume.

We are able to bring down the outstanding diluted stock much faster actually. We can go through it, it’s a – what is happening here is instead of allowing the shareholder, the optionee to exercise first, giving the money to ClearOne and ClearOne waiting for the stock to be again bought back to repurchase program that board has already approved.

We are just going at one swift action directly to the optionee. You are anyway going to sell it in the market, why don’t you sell it to ClearOne actually, that’s the message actually. So that this option repurchase program is actually an extension of the share repurchase program.

It would not make sense to do this if we did not have a share repurchase program or the rationale for doing the share repurchase program.

Once we agree that share repurchase program is good for the company, then it follows that option repurchase program is even better for the company, because we are saving transaction money and we are doing it faster than what we would otherwise take longer time to do it actually, okay. And I’m….

Yes, I’m sorry, you finish it….

Okay, I can answer you actually. I can keep on talking..

Okay. So I appreciate that.

And that is a good explanation, however just you know for the other side, first of all you don’t pay dividends to option holders, right?.

Actually, we had a small program what we call as dividend equivalent where it was for 2015. Board stopped it after 2015 in conjunction that all the actions that we initiate in 2016 for share repurchase, options repurchase, we – that program was stopped actually. We spent close to about $130,000 to $140,000. You would see it in our Q1 results.

We are putting a little bit more color on this. We’ve spent $140,000 in 2015 on dividend equivalent for options actually. It’s in the proxy report that you will see, you will see it in the proxy report. It fits in the – we spent about that much actually here..

But you said, you had stopped that program now?.

Yes, 2015 that -- since we are doing repurchase and all those things we did not see it as a good way to continue that program. So that was stopped actually..

Okay. And just on follow-up with what you've said. You're saying that 226,000 options that you bought back, so let's assume you paid 10 -- versus roughly $2.25 million, $2.5 million, something like that in the two plus millions dollar range..

That was $1.8 million. We paid $1.8 million..

$1.8 million. Okay, great.

$1.8 million, you're saying that those $1.8 million options that you bought were outside of the 10 million of shares that you're planning on buying?.

Yes..

So this is an addition to those 10 million shares..

Yes..

Okay.

And the only offset that will still see is…?.

I still not answered your question, officers and directors holding stock actually..

Okay. So many I know you….

We still see some of our directors like, Brad, he has been here for 20 plus years, and he has been holding more than 100,000 plus stock for a long, long time actually. So they all have the -- like the Google guy sales [ph] they all have the diversification plans actually. I have had 100,000 plus options wasted for since I came here.

I have some debt that I have that. I had to excess volume. But I'm holding all the other options and I have also invested through employee stock purchase plan whatever I can contribute towards that actually. So, each one have their individual story.

I think the post important message is to Zee, every single penny that she could put in, she put into the hold 56,000 options that she could actually. She did not take one single dollar back actually. So it's pretty hard to – because they have the right to do. Each one….

Mine were definitely expire -- going to expire a large number and it was better..

It was 10 years, it was….

Yes. I have not sold the single share of ClearOne's stock since I joined in 2003, so rest assured, in fact I bought plenty on the side. But I will say we don't compensate extraordinary, extraordinarily to the employees and quite frankly. And they make money and it's good for them, that's the idea and we will continue to give options.

This was a one-time event actually to benefit the company. There was certainly benefit to the company to get that back and that help with the dilution and so we took that step, but the details will be in proxy..

But you believe this is one-time step.

We're not going to see this continually over the next year or two as you finish up the share buyback?.

Options buyback, it's up to the board actually. We don't have –it's not our continuous program that's put in place actually. It’s a one-time offer that we give. We can come back again depending on how the share repurchase program itself is doing. It's mostly thing to benefit to us actually.

I would like to – when we have the program to buyback we should be – we would like to make it effective to make the impact on the diluted weighted average shares actually. That's our goal actually. But we have to – we hear from everybody actually, so we will take into account all those things actually..

Right. And I hear, look, in general you guys own heavy users of options, you haven't had huge options out, I understand all that. It's just -- you know the one other cost set and I'll finish with this on this.

Is it possible that the options which right now look in the money might end up not be, right? Isn't it possible that your stock drops, I don't know let's say someone has an exercise price of 10 and stock goes to 9.5, all those options expire worthless, right. That's what happens, that's the bet you take, that's what happened.

And so whereas right now it looks like you're helping the share base, the share count, there is also the potential for the stock to drop and these options expire worthless and it doesn't happen. And you don't replace those instantly into the process. So, there is offset. I hear what you're saying.

It looks like you paid under $8 a share for which you couldn't have in the open market if your saying it was $1.8 million on 226,000. I'm just telling you that I almost never see this. This is the first I've ever seen it in 20 years. And I spoke to someone else who has a longer history and -- but he invested in your stock and he had never seen this.

So, I don't know if you might want to just go over it, make sure you try to focus on the things that at least you can do to build value and here this is a small amount of money but it certainly is taking a lot of time on your call and I guarantee your shareholders are looking at it?.

I think I still owe you one explanation. If we did not do it, we would have done it through our share buyback program through our broker, through B. Riley, you would not even seen anything. It’s our effort to do it faster and we were using a creative way to do it..

But those are only the shares that were going to be exercised that were expiring.

Ones Zee talked about absolutely, not for ones that might have years to go?.

I think they could have gone if people would have gone to the broker. They would have sold it in the open market and ClearOne would have got to exercise money. We would have use the money again to go back to our broker who is doing the share buyback program and then keep buying actually.

So its two separate transactions happening but both having the same common goal actual instead of merging those two we will be doing two separate way actually. They would be selling to one broker and we will be buying from another broker, that's what would have happened actually. And it would have taken longer actually.

In fact you'd be seeing $500,000 one month another $500,000 another month, will go on trickling slowly.

And this one fast way to get this all done actually, but the possibility that some of the options may end up not bringing the money, its pretty slim, because we are already in the money, people are going to exercise and they are going to do it actually.

So it’s a question of whether they want to give to ClearOne directly or give to some broker who is going to make transaction fees from both the employee as well as from the company actually, so this is great way to cut the transaction cost from both sides.

But I hear you actually, it sounds complex where people to wrap their head around, so we will consider this and anyway it's only one-time thing. It doesn't meant to be continuous program to ongoing thing every time they have it, so there will more disclosures in our 10-Q, so it will help you to understand where we are coming from.

And we will give little bit more options. Okay..

Thank you very much..

Thank you, Alan..

And we have a follow-up question from Dennis Van Zelfden. Your line is open..

Thank you.

Given of the how little bit stock trade, did you all consider doing some sort of Dutch auction for the shares?.

Yes. We've done a Dutch auction when we went public at one time. Of course, we look at all the possibilities. We look at all the possibilities and this is one that we went for that we thought within our best interest at the time. It doesn't mean that we won't do it again or won't do a Dutch auction.

And of course of the board feels that they want to change this plan according to the rules of this, we can always look at it again, but that was decision we made at the time..

Okay. We'll get off that subject. One other question, I want to get your take on the Mitel and Polycom merger.

What you think of that? Would you think it does for competition? Makes it – makes them tougher or less tough, just your comments and thoughts?.

Well, it's certainly not a surprise that Polycom was up out on the option block. They struggled since 2010.

They had a few couple of blitz, but quite frankly after 2010 when they wanted to be software company and then they wanted to bet with Microsoft, et cetera, I mean its been topsy-turvy and in a nutshell they really never established a vision or a strategy to execute on the future, and you could see that in their stock.

We were rather start off to see that this hook up with Mitel, since Mitel in own right is a big, so called UC as a service provider doing cloud communication indirect competition with Microsoft who is one of Polycom's closest partner, so did mix some odd bed towels [ph] there and we'll see how it goes. And certainly we'll see how that closure goes.

Quite frankly in my mind it's not fully clear. This is going to finish off or the shareholders would vote for it from Mitel side, et cetera. So there is still some work to be done to make sure that the shareholders are convinced that there is a synergy there.

I would know what their roadmap is, but it's not what we would have expected as a likely combination, but surely they went to the short period and this was the best that they could find obviously. Now, something had to be done.

It was up to Polycom to find their own way or their – one of their largest shareholders decided to do this Shotgun marriage or whatever you want to call it. And now we have common shareholders between Mitel and Polycom that's put this together and we'll see where these synergies go.

Although from a ClearOne’s perspective certainly it’s a marriage that I think will ultimately benefit ClearOne, because A, acquisitions mergers are by their very nature are extremely distracting, can be extremely demoralizing for parties especially when a smaller company buys a larger company that's even more distracting quite frankly I would say.

So, while they get their house in order, if this thing finalizes in over the next several months there's going to be -- no one can deny there's going to be a huge distraction, I'm sure they talked about roadmaps and where they want to go, but these things are never easy and in itself the market is changing fast enough that its not so easy.

It's not so easy. Now, for us we carved off a path for ourselves. We are far heading our software-based media collaboration or streaming or one-way communication. We have want we think is a full and complete portfolio that Mitel and Polycom in conjunction are very far away from approaching where we're going.

So, whether Polycom hooks up with Mitel or Polycom hooks up with someone else, we have to remain focused on what we do and it was quite frankly a pleasant surprise to see that hook up because I think its going to be tough on top of all the others challenges when you have a large merger like that, one is Canadian company and one is U.S.

company, in itself having participated with some Canadian companies. The culture is sufficiently different and they will have their work cut out for them. We'll see where these synergies come, but I personally feel that we gathered some internal strength by seeing what's happening out there and we will look upon this positively for ClearOne at least..

Okay, great. Appreciate your comments on that..

Our next question comes from George Melas of MKH Management Company.

Thank you. Narsi, first of all, quick question for you.

Can you give us the revenue mix for the quarter by percentage? Or how much of the revenue was Pro, UC and Video?.

Yes. I will give you. Pro was 79%, UC was 13% and video was 8% actually..

And how does that compare with last year?.

Compare to last year?.

Yes..

Q1 of last year 2015 Pro was 77%,.

Okay..

UC was 16% and Video was 7% actually..

Okay. And then to Narsi, just as a follow-up to your answers on the Polycom, Mitel merger. Where could you benefit.

Do you – I think your audio products tend to be from a distribution perspective tend to be exclusive to the distributor and to the VARs that have them? Could you pickup additional distribution? Could you pickup additional VARs or would you see the benefit more the -- product?.

Well, that's an excellent question -- that's an excellent question George. First element we get is time, while of course there is a merger going on, roadmaps being finalized or even discussed.

It is a long window to get ahead of the curve and work harder and faster and what we ourselves are doing independent of whatever they decide is going to be the roadmap ahead.

So, I would say, it gives us -- up till the acquisitions and trust me at least nine months – at least nine months before the house is put in order, so it gives us time, and time in this kind of a market is a very important element.

Number two, it gives us a strategic edge because it gives an opportunity, while they went in a slightly different direction going towards just cloud UC providers and PBX systems which a focus of Mitel, PBX and UC as a service it gives us opportunity to their strategic direction is going to change, and so they become for us less of competitive threat quite frankly, that's rather bold thing to say I'm always an optimist but that's the way I see it today, you could ask me a year from now.

But I feel that it gives us the ability to focus and sharpen and execute on their strategy while they still figure out what their best strategy is, did they focus on video, did they focus on audio, did they focus on UC, did they focus on IP, did they do it all, have they all connect, so strategically we have an advantage.

From a channel perspective we also have a – I think a nice advantage, because there's a lot of players in the UC market and there's a lot of complex in the channel between Microsoft channel and Mitel channel and Cisco channel and Avaya channel et cetera, so while the channel gets reorganized and realigned themselves and sometimes you have the opportunity to help align it as during the merger folks other times the channel will just decide, wait a minute, I'm already selling this and I don't want to sell that.

It gives us opening as you've correctly pointed out to maximize our channel opportunity, definitely worldwide and we'll look at that.

So, I think overall I happen to be a person, I like to Mitel, Polycom acquisition because I think it opens up many fronts for us, and opens up many opportunities for us that I think will soften or change for the merged companies..

Okay, great. And then just a follow-up on that, I think if you guys are coming up with the new platform and then you're going unveil it at InfoComm.

Has Polycom also within platform…?.

Well, quite – go ahead, sorry to interrupt..

No, go ahead you please..

No. Actually, Polycom came up with the competitive product called the SoundStructure. That was many, many, many years ago. And we followed shortly thereafter with the CONVERGE series and they have not, they have not come out with the new platform. It seems they have been very much focused on things outside as the professional audio.

I don't know that they came out with Microphones, of course we came out with ceiling microphones, we came out wireless microphones. We came with beamforming which absolute the state-of-the-art and greatest things in sliced bread. And on the audio side, where we kind of paired back our conference owned [ph] business.

I think it's an area where they focus and we don't see them as a faster. In fact quite frankly we don't see them quite often on the professional audio side. They are probably mixing that with their high-end video side and selling those as bundles and doing the best they can that way, but I think this is going to be good for us.

I have not seen a platform or heard of an announcement coming, absolutely not..

Okay, great, great.

And then maybe can you give us just a little color on the – so to some wins or sales or some pipeline for the new products?.

Yes. We were just at InfoComm, China, some just about, I guess it was about a month, three weeks ago, something like that, I guess about slightly less than a month ago. And our biggest partner there did nothing, but show our streaming solutions, network streaming solutions and our COLLABORATE solutions which are media and video collaboration.

They have very nice pipeline, a healthy pipeline. We have some tenders that we are hoping to hear about, these are again nine months cycles, but we have a large airline's tender. We have – well, lots of sort of governmental and command the control center tenders that they are working on, so the outlook in China is very good.

I was in Korea and Japan and folks are very excited about the newest editions we're going to be making to the wireless microphone, three in InfoComm. And they are also very excited about the new platform that we will slowly rollout after we get compliance for the various markets. In the U.S.

we had some nice wins on the video side, a high-end departments store has decided to standardize on ClearOne's network streaming for some of those security and video streaming application and we had some wins with accounting firms and banks.

Some of our products on video are sold through the channel so we don't always -- especially when they go to distribution we don't always know who the end customers got, but I think we had – we saw some growth in this quarter on the video, so we were happy to see that. And we're focusing our sales and marketing on the video product.

We'll do that for the platform as well. And that's really our focus to get the brand awareness piece by piece out there, and we're seeing good acceptance..

Video by the way grew 5% this quarter, even though other products had tough time. Video is still growing actually..

Okay. Thanks very much..

Thank you, George..

[Operator Instructions] And we have a follow question from Alan Mitrani. Your line is open..

Hi, its been a couple of years since you guys made an acquisitions, can you just give us the environment, what do you seeing in terms of valuation.

I'm sure you're looking what about the properties that are coming across your desk? Are there's certain gaps you need to fill from a product perspective and do you think 2016 will have any acquisitions in it?.

Well, it's hard to know, but let's put it this way. If something that is strategic to the business whether through technology or just through an accretive buy, that is a cultural fit, the right price, something we can digest then of course we're going to jump on it. This is a buyers market obviously. This is a good buyers market.

The things are down and of course money is [Indiscernible] but you know the future is not only so bright for these guys.

And this is a buyer’s market and we get ideas before it passes our desk quite occasionally, but a lot of them either too flawed or just not going to work for us and we're not going to take the chance and ruin what we have today just to prove that we're looking and buying something, we don't have to flash our cash.

But, so we're more incline to focus on sales and marketing and if something comes their way, there's always a need, there's always a technology need, but its got to be right, its got to be – you got to pick the right now, the one..

Okay. Thank you..

All right..

At this time, I'm showing further questions in the queue. I would like to turn the call back to Zee for any closing remarks..

Okay. We appreciate your interest and thank you for joining us today. For those who will be in Las Vegas we look forward to seeing you there see your booth [ph] and see some of our products and staff and our competitors. That concludes our call for the day. We thank you for your time..

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect. Everyone have a great day..