Robert Jaffe – Investor Relations Zee Hakimoglu – President, Chief Executive Officer and Chairman Narsi Narayanan – Senior Vice President of Finance and Corporate Secretary.

Chip Saye – AWH Capital Lisa Springer – Singular Research George Melas – MKH Management.

Good morning, everyone, and welcome to the ClearOne’s 2016 Second Quarter Financial 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 Company’s Investor Relations representative, Mr. Robert Jaffe of Robert Jaffe Co. Mr. Jaffe, please go ahead..

Thanks Nancy. Welcome everyone and thank you for joining us today to discuss ClearOne’s 2016 second quarter financial results. On the call today are Zee Hakimoglu, President and CEO and Narsi Narayanan Senior Vice President of Finance. Please be advised that this 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 turn the call over to Zee Hakimoglu.

Zee?.

Thank you Robert and good morning everyone. Thanks for joining us today to discuss our second quarter 2016 results. In Q2 our revenue decreased 15% to $12 million from $14 million in 2015 Q2. Our growth profit margin, however, remained strong and unchanged at 64%, when compared to the second quarter of 2015.

Our financial results were negatively impacted by continuing global economic headwinds. Our topline was impacted by all around weakness in the global economy, including the U.S. and especially due to weakness in Canada, China, Japan, and Korea and parts of Europe and Africa.

Despite lower overall demand, sales of our video products grew more than 50%, when compared to Q2 of last year. During Q2, ClearOne paid a cash dividend of $0.05 per share as per our quarterly dividend program. And yesterday we declared $0.05 per share cash dividend for Q3.

We acquired approximately 332,000 shares of our common stock during Q2 under the $10 million stock repurchase program that we announced in March 2016. As of June 30 this year, we acquired approximately 365,000 shares amounting to $4.1 million under the stock repurchase program.

In addition to the stock repurchase program we spent $1.8 million on the repurchase of approximately 226,000 stock options in the first quarter of 2016, which also reduced diluted shares outstanding. We will continue to repurchase our stock under the program in the open market, subject to price, volume and other Safe Harbor restrictions.

In total, during the first six months of 2016, we spent $6.8 million towards the payment of dividend on our common stock, payment for the stock repurchase program and payment for the option repurchase. In June, InfoComm 2016, we launched a number of new and very strategic products.

Most importantly, we introduced our next generation professional audio conferencing platform. This new immensely powerful and competitive platform generated phenomenal excitement from our channel partners and our end-users.

Named CONVERGE® Pro 2 this fourth-generation platform will reinforce our dominant leadership position in the installed audio conferencing market. The platform delivers stunningly clear audio, thanks to the world’s most advanced audio signal processing.

It is scalable, reliable and competitively priced and will outperform any competitive product in any size room, any audio environment and any application. Its versatility is second to none. We also announced other new products at InfoComm which I will talk about briefly.

We introduced the new Beamforming Microphone Array 2 which is optimized to complement and operate with ClearOne's next generation CONVERGE® Pro 2 audio platform. As you may know, ClearOne’s original Beamforming Microphone Array was with the AV industry’s first professional grade microphone array with Beamforming and adaptive steering.

The Beamforming Microphone Array 2 affirms ClearOne’s industry leadership by delivering significantly enhanced echo cancellation for the most demanding acoustic environment. Faster convergence and more advanced adaptation to changes in room acoustics. It provides dramatically better mic pickup, sharpening the capability to detect softer voices.

And it provides natural and clearly intelligible audio, even when two people speak at the same time and importantly for the AV integrator it both zero consumption of analog mic input when connect to the CONVERGE Pro 2, making it extraordinarily efficient, for the integrators.

Next I’ll talk about our Wireless Microphone System the new DIALOG 20 that we introduced. DIALOG 20 is a compact two-channel system packed with innovative features that increases the breadth of ClearOne's wireless microphone product line.

The new wireless microphone sytem targets uses in which only a few wireless mics are required, such as in, classrooms, presentation and training venues, huddle rooms and other smaller spaces. On the video side we introduced a new video encoder, a new video decoder to complement our existing network media streaming solution VIEW.

This new encoder is a single-channel alternative to the popular dual-channel encoder and provides the lowest cost encoder for customers preferring a single-channel option. The new decoder enables basic display of a single image video application, while delivering superb price-to-performance value.

All these new offerings launched at InfoComm 2016 are expected to ship [ph] before the end of the year. During Q2, we were awarded three more patents to our portfolio of intellectual property. The first patent, enables a beamformer to have better low-frequency response, fewer microphones in the array and less associated computational complexity.

This second patent is related to a networked speaker that can synchronize audio output in multi-speaker sessions for the best possible sound reproduction. The third patent pertains to a scalable conferencing system designed to support multi-party calls that can decrease the cost of multi-party conferencing.

Despite our disappointing second quarter revenue performance, we are confident that ClearOne is solidly positioned to financially benefit from any improvements to the economic macro environment. With this wrap up of our Q2 highlights, I’ll turn the call over to Narsi.

Following Narsi’s discussion we’ll 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 these 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 second quarter of 2016, please note the following comparisons refer to second quarter of 2016, versus the same quarter of 2015. Net revenue at $12 million, was 15% lower than last year Q2 revenue of $14 million. Gross profit amount of $7.6 million was 15% lower than last year Q2 gross profit of $9 million.

However, gross margin remained the same at 64% for both 2016 and 2015 Q2. The decline in gross profit was due to the drop in revenue. Non-GAAP operating expenses reduced by 6% mainly due to reduction in G&A expenses by 27%.

G&A expenses declined mainly due to decreases in legal expenses, audit and accounting fees and employee-related costs, partially offset by an increase in recruitment classes. Non-GAAP operating income decreased 33% to $1.9 million from $2.9 million in Q2 2015. Most of the decline in operating income was due to decline in revenues.

Some of this decline was offset by savings in operating expenses. Non-GAAP net income decreased 26% to $1.4 million or $0.15 per diluted share from $1.9 million or $0.20 per diluted share. The decline was primarily due to reduced revenue and associated gross profit.

However, net income was benefited by reduced operating expenses and better tax rate for 20116 second quarter. Non-GAAP adjusted EBITDA was down by 31% from $2.2 million to $3.2 million. Now, turning to our financial results for the sex months ended June 30, 2016.

Please note the following comparisons refer to first half of 2016 versus the first half of 2015. Net revenue decreased to $25 million, from $27.6 million decline of 9%. Gross profit was $16.1 million or 65% of revenue, compared with $17.5 million or 63% of revenue.

The increase in gross profit margin was primarily due to an increase in sales of higher margin products in the revenue mix and the contribution of licensing fees to revenue. Turning to operating expenses, sales and marketing expense decreased slightly by 1% to $5.3 million from $5.4 million.

Non-GAAP R&D expense increased by about 9% to four point $4.4 from $4 million. This is primarily due to increase in R&D product related expenses. Non-GAAP G&A expense, decreased by 26% to $2.1 million from $2.8 million. Total non-GAAP operating expenses decreased to by 3% from $12 million in the first half of 2015 to $11.7 million in 2016 first half.

G&A expense decreased due to decreases in legal expenses and audit and accounting fees. These decreases were partially offset by an increase recruitment costs. Non-GAAP operating income decreased to $4.5 million from $5.4 million an increase – decrease of 18%.

Non-GAAP net income decreased by 11% to $3.2 million or $0.33 per diluted share from $3.6 million dollars or $0.37 per diluted share for the prior period. Non-GAAP adjusted EBITDA decreased by 17% from $6 million to $5 million. Turning briefly to the balance sheet. Our balance sheet continues to be enviably strong.

Cash, cash equivalents and investments were $34 million at June 30, 2016, down from $39.8 million at December 31, 2015. The balance went down primarily due to $6.8 million spent on dividend payments, stock repurchases and stock option repurchases during the six months ended June 30, 2016. Our quarterly dividend program continued in 2016 Q2.

During Q2, 2016 $0.05 a share was declared and paid. I will now like to turn the call back to Zee. Thank you..

Thank you Narsi. We’ll now take some questions.

Operator?.

Thank you. [Operator Instructions] Our first question will come from the line of Ian Corydon from B Riley. Your line is open..

Hi this is sorry Keith [ph] actually calling in for Ian.

How is it going?.

Pretty good Ian..

It’s not Ian, can we get your name again?.

Yes this is sorry Keith [ph] calling in for Ian. I work with Ian..

Got it Keith [ph], thank you..

Yes.

So first can you maybe give us a breakdown of segment revenues for the quarter, please?.

By the way we don't call them as segments we just characterize the products for the benefit of investors. We considered ourselves having only one segment for the entire company. This is important for GAAP disclosures, so I'm letting you know that. Let me give you the breakdown.

For region wise, Americas, it was 71.5%, APAC was 17 point – okay let me give just the Q2 numbers. Americas was 71% APAC was about 18.5%, EMEA was about 11% actually..

Okay then which….

And on the product….

Yes go ahead..

On the product side, Pro was 76% of the revenue, UC was about 14% and Video was 11% actually..

Okay great thanks for that.

And then can you may be give us some outlook or commentary looking at the different product segments here going forward?.

So Keith we don’t give outlook, we obviously we saw good growth in our in our video products and we have introduced a most important platform which is strategic to our business and we’re optimistic from the feedback that we’ve gotten from our partners and our end users that it's going to be a great success..

Okay, I guess maybe looking at the back half of last year, at a pretty good revenue run rate there. Any indication as to kind of look into the back half of this year, I know you mentioned the economic headwinds that you're seeing, although you do have the nice new products here.

Any indications whether that kind of revenue metric would be on a similar run rate?.

Okay, actually we – I can give you a little bit information o what we are going on with each. We already reported video has been doing pretty good. It has been now pretty consistent. We have three successive quartets of good growth and this quarter – it grew by about 50% plus. And UC has been declining so that’s not our focus in a big way.

With the Pro products all this new products will address competitive issues and also reinforce our strength after leader in the market. We still have 50% plus market share it will address it. And on the revenue side the macro economic factors are an important function in the reduction of revenues.

But we also feel since we introduced such an important platform, some of the budget that goes to our product might have been delayed. We introduced a product in June, it happens all the time.

This is not the first time we have seen whenever we introduce a successor to an existing product, there will be some demand that will be withheld, a demand that meant for ClearOne CONVERGE® Pro product. We feel that might have been another factor that caused this drop in the revenues in Q2.

Usually it takes about two to three quarters after we introduce the product and ship the product for those products to show real increase in revenue. For the CONVERGE® Pro 2, it may have happen a little bit sooner, but still we may see this issue in the next quarter or two actually..

I believe one other thing I wanted to mention about the platform we talked about the flexibility of the platform. The platforms – one of the more important features outside of the audio, of course which is number one is its scaleability.

Of course you've heard of things such as huddle rooms, the market is moving, you hear our competition talking about one 100 million huddle rooms that are available for audio, whether that number, the 100 million, we hear 50 million, take a large number of rooms where the trend is to use very good audio in these smaller rooms, which is the trend in enterprise.

So our platform is extremely flexible kind of like a transformer it can handle both the emerging market for huddle rooms, as well as very large scale rooms and environments, which makes it quite flexible and opens up a nice opportunities for us with this platform..

Great thanks. That’s it from me..

Thank you..

The next question will come from the line of Lisa Springer from Singular Research. Your line is open..

Good morning Ian. Thank you for taking my question.

I was wondering if you could give us a little more color around the 50% uptick in video sales, was that one large order was in a particular geography?.

Well actually – it’s a good question and thank you Lisa. The nice news on the video is it was not one large order and it was not in any particular geography.

We had, I would say very balanced sale across different regions and it included different venues, we had media collaboration sale at large athletic store retailer, we had it for hospitals, we had it for universities, we had it for casinos, we had it for colleges, ministries, we had a very nice mix of wind for our video which is always a good indicator that the product is the right product, at the right price, at the right time.

So we were happy with our results in that respect..

Okay thank you..

Thank you Lisa..

Thank you. Our next question will come from the line of Chip Saye from AWH Capital. Your line is open..

Hello Zee, hello Narsi, how are you doing?.

I'm doing good..

Very good Chip..

Good, I have a question to follow-up on the previous caller. That is a very nice ramp in the video products business. And I was at InfoComm for a day, and there seem to be a lot of interest in VIEW Pro and there were some competitive products there.

But can you talk about the advantages that VIEW Pro has like 4:4:4, true-color, the ability to work on multiple operating systems that other competitors may not have? And second part of that question, is I heard that Netflix is a customer of yours for the VIEW Pro, and can you tell me what they're using the product for? Thanks..

one, is that it runs on standard TCP IP basically standard Ethernet networks in other words you don't have to re-cable your systems, you don't have to lay wire, you don't have to go through complex modulation schemes, you could run our system on your existing Ethernet network end of story. So if you want to deploy it, you just deploy it.

Number two, we have something that’s unique and no one else offered. With our system since the core engine is software based for the encoders and decoders, the video encoders and decoders, we have the capability by just doing software upgrade module, basically these are licenses.

We can do things and add features that others need extensive hardware upgrades for. I’ll give you one example digital wall [ph] or composition. If you want to create a digital wall and put a few displays, perhaps you have one location with one display. We're just doing it here in the office I just wanted to add a digital wall to a display that we had.

You simply add the displays how many you need and with a software license upgrade that ClearOne will provide for an added fee, one time fee now you could do a digital wall [ph] without the addition of network switches, and scalars and other hardware components that will need a truck roll, need to be mounted, take power, take footprint.

Number three, is that we have the absolute supreme video quality. We do 444 video. What does that mean? That means that we have on your palette the true color that you need, not just for artistic reasons, but if you have large information walls such as at the airport or a command and control center.

When you put up a task, such as Excels, Spreadsheets, or find text, you actually need the 444 color for the absolute best quality of reading that text on large wall. The final thing I will say is that we have a solution for everything.

We don't flood the network like some of the low-cost solutions where they basically last blast the data to every node and we have solutions for single displays, single encoders all the way up to multiple displays, multiple decoders with our last introduction. So we're very positive about our solution.

And when we do introduce it, we find the customers really, really like it. And so we’re optimistic, we'll continue to add features to differentiate the product through software licenses and other features..

Okay, I really appreciate that’s a lot of detail there. Thanks for giving that. My second question would be around CONVERGE® Pro 2.

Can you talk about the improvements in this version versus the prior version? I think it’s even positioned as an even better value but can you just explain why?.

Okay, first of all, we – any person who installs any end customer that wants audio installed means he’s going for the most important aspect. They want the best possible audio on their critical call or their critical video environment.

So the ClearOne CONVERGE®, what we have done is we have completely improved and redesigned many of the very core algorithms for echo cancellation, noise reduction and other things. So our audio we challenge anybody is second to none in terms of audio superiority. Number two we have made the platform in an extremely flexible architecture.

So we can go from the huddle room all the way up to very large venues simply by mixing and matching the new SQUES that we have developed. We have integrated some of the boxes such as voice and USB and some of the other components that were prior to split and we have integrated them optimally inside the single SQUE.

We have adopted an integrated Dante, Dante is a very powerful audio protocol on the network which the AV industry is going and we are offering Dante SQUES for those that want to embody [ph] Dante. And we've separated for those that don't want to embody [ph] Dante we have non- Dante SQUES.

So it really gives the integrator great options to get price to performance features.

Another large change that we made is that we added a software interface that we call flow view, which is very easy for this new generation of 80 integrators that want to program these devices, it’s very easy, it's very pleasant, it’s – you don't need a lot of training, it's a very visual software interface.

And finally, of course, we have the Beamforming Microphone Array 2, which works with our CONVERGE® Pro platform, that offers all the usual benefits that beam steering microphone add. We took a long time to architect this solution may be longer than we should ever, but we took the time to do it right.

And I think it's going to be a very exciting product based on the feedback we got..

Once again thank you for that detail. And my last question is for Narsi. Narsi you gave some commentary to a prior caller about how when you introduce a product suite like you did at InfoComm, that it sometimes you've noticed a pattern of buying where the channel may hold off until they see the new products.

And then a couple quarters out you may see the channel starting to embrace those new products.

Is that what I heard right, because I just want to – I want you to explain that and go into a little more detail there?.

Yes actually it’s not the question of embracing the new product when they see a new product which is better than the existing product, some of the budget allocations that were made to buy the existing CONVERGE® Pro, will be withheld actually.

They would want to – if they have the time and they're flexible to read for the new product to be shipped, they will read actually. Not everybody has the time kind of patience. And CONVERGE® Pro works actually, it's not like we are introducing something to fix a broken system.

It’s a fantastically working thing and we think there will be demand for even the first – the current CONVERGE® Pro for next couple of years, because it goes with the existing projects. So it has all those benefits actually.

But people who have the flexibility to deliver [ph] their projects to go for the best that’s available, they may withhold the post strings actually, that's what we are looking at actually. And the next point I talked about was the success of the new product actually. That’s the couple of quarters delay in actually wrapping up thing.

So they are two different things I talked about..

Okay where I was going as you talked some of that may have hit in the second quarter is that correct?.

Yes I think we introduced in June typically June is a very active month, people coming back from InfoComm, they place large orders and we kind of take it for granted that we should see a spike in June, by the time. We did see a good June, but it was not anywhere close to our expectations or anywhere close to our usual standards actually.

And we attribute most of this due to global economic thing, but some of this is due to introducing CONVERGE® Pro 2 actually..

Okay thank you for the color..

Thank you. Our next question will come from like of George Melas from MKH Management. Your line is open..

Hi guys..

Hello George..

Hi George..

Hi, follow-up on some of the previous questions.

On the video where we need a [indiscernible] 50% was that mostly driven by VIEW, or was it a meaningful contribution from other products?.

Actually [indiscernible] was kind of flat, Magic Bugs is not a big factor. So it’s actually its combination of both streaming and or COLLABORATE….

Yes..

Both together contributed to it. It’s not either one of them it’s both of them did well actually..

So both COLLABORATE and VIEW contributed..

Yes it was a nice mix..

Okay..

Of course the – let's put – I want to let you know, on the VIEW it is a bit more project-oriented and spiky, because those are – very projects. On the VIEW what we're trying to establish and what we're seeing is more of a run rate business, because it doesn't involve as many complex projects.

VIEW is an infrastructure project, media collaboration is more a project-oriented. Of course there are projects, but less planning, consulting, et cetera..

If I may add, we have a good success with our cameras actually. Cameras are contributing to our success..

Okay. And the camera really sort of an additive – they are for the video conferencing..

Yes..

What would it take – this business has sort of grown modestly, now it’s used to be growing at a faster pace.

What would it take to try to get to a quarterly revenue of $2 million, as opposed to $1 million or just little bit over $1 million that we have now?.

Well we're doing everything we can to do that to the extent that we're not busting the bank obviously. We're hiring staffs that are familiar with media collaboration and video, okay. We brought on good staff. We're doing some more advertising. Our team is getting more familiar, the channel is getting more familiar.

We brought on partners that have are familiar more or less with media collaboration. So it takes work and we're continuing to do that. Of course if we had more – if we made a decision to spend more on marketing, I think that could help. But again the marketing pipeline takes time. A single advertising doesn't move the needle, it's a long process.

And but we're looking in that direction. I think that's a very important part of the solution. And as customers in any research realize, they don't have to spend a lot to get a great system.

As you may know our media collaboration, for example, include wireless sharing so that you don't need these competitive systems, if I may say such as one famous one, Barco to do presentation. It's already built in. We've included our cloud into our room system.

Our advantage in media collaboration is we have great appliances great, cloud solutions, but most importantly, the differentiating factor for ClearOne among all the others is we have audio complimentary to it, which is very important. We don't have to refer our customer to another vendor if they want an audio component..

Okay, great. Okay thank you for that. And then I was like to be at InfoComm and I can wholeheartedly support your statement that distributors were very excited about your CONVERGE® Pro 2.

When do think they will be able to create some initial orders for the product?.

Yes, we said George that we’ll be shipping before the end of the year. I could say that we're actually looking at quoting today the CONVERGE® Pro 2 for large projects that as Narsi mentioned, have the time to wait for the product itself.

So we already have interest and we already are quoting CONVERGE® Pro 2 for those that have the longer timeline, slightly longer, yes..

So that means that your distributors are already sort of really educating their customers in the marketplace about CONVERGE® Pro 2?.

Yes, what you saw at InfoComm and we were very happy to see you at Infocom, and we’re happy to see all our investors at InfoComm because you don't hear it from us, you hear it from our partners, they're already looking at quoting these systems. They're very, very anxious to get it shipped, very anxious..

Okay, great.

And then just one final question, [indiscernible] and where will the weakness in the revenue on the Pro side in the quarter? Last year you talked a little bit about June being usually a strong month it was a good month, but not what you expected? Can you may be give a little bit more color in terms of linearity or geographic mix and also product? Were the microphones very strong, but it was really sort of the install audio that didn’t do as well, if they're way to parse things a little bit?.

Okay microphone phone is a part of our pro numbers that I reported. As I had informed before, microphones do better than other products in that category basically mixers, controllers all those things. Microphones always do better. And it continues to be so actually. So that – in terms of regional thing, we had weaknesses across the world.

Some of the brightest spots are still places like India. India has been seeing a steady growth. Middle East, it was a good quarter, even though we say Blueboard our huge order the same quarter last year. We talked about in our previous press release. You may remember. So Middle East is doing well. In terms of other regions, the U.S. is our key market.

It still has 60% plus market share. So it went down this quarter. So it contributed to this decline in a big way, but it’s not like the 2009, 2008 times where we had to be alarmed. I think it has – there is a weakness it's not. And then China continues to suffer. We have been seeing weakness of the last two quarters and….

Okay, thank you very much..

Thank you George..

Thank you at this time I’m showing no further questions. I would like to turn the call back to management for any closing remarks..

Thank you Nancy [ph]. And thank you for your interest in ClearOne. We appreciate those investors that did come to InfoComm and saw it for themselves, status of ClearOne at least at the end of June. And if there are any further questions please don’t hesitate to contact us. This concludes our call for today and we thank you for your time..

Ladies and gentlemen you may now disconnect..