CLEARONE INC

Previous wording

This report on Form 10-Q includes “forward-looking statements” within the meaning of Section 27 A of the Securities Act of 1933, as amended, and Section 21 E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements in this report, other than statements of historical fact, are forward-looking statements for purposes of these provisions, including any projections of earnings, revenues or other financial items, any statements of the plans and objectives of management for future operations, any statements concerning proposed new products or services, any statements regarding future economic conditions or performance, and any statements of assumptions underlying any of the foregoing. All forward-looking statements included in this report are made as of the date hereof and are based on information available to us as of such date. We assume no obligation to update any forward-looking statement. In some cases, forward-looking statements can be identified by the use of terminology such as “may,” “will,” “expects,” “plans,” “anticipates,” “intends,” “believes,” “estimates,” “potential,” or “continue,” or the negative thereof or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements contained herein are based upon reasonable assumptions at the time made, there can be no assurance that any such expectations or any forward-looking statement will prove to be correct. Our actual results will vary, and may vary materially, from those projected or assumed in the forward-looking statements. Future financial condition and results of operations, as well as any forward-looking statements, are subject to inherent risks and uncertainties, many of which we cannot predict with accuracy and some of which we might not anticipate, including, without limitation, product recalls and product liability claims; infringement of our technology or assertion that our technology infringes the rights of other parties; termination of supplier relationships, or failure of suppliers to perform; our expectations regarding the ongoing transition of manufacturing of our products from China to Singapore by our electronics manufacturing services provider; inability to successfully manage growth; delays in obtaining regulatory approvals or the failure to maintain such approvals; concentration of our revenue among a few customers, products or procedures; development of new products and technology that could render our products obsolete; market acceptance of new products; introduction of products in a timely fashion; price and product competition, availability of labor and materials, cost increases, and fluctuations in and obsolescence of inventory; volatility of the market price of our common stock; foreign currency fluctuations; changes in key personnel; work stoppage or transportation risks; integration of business acquisitions; and other factors referred to in our reports filed with the SEC, including…

Excerpt shortened here; the source contains the full paragraph.

Current wording

This report on Form 10-Q includes “forward-looking statements” within the meaning of Section 27 A of the Securities Act of 1933, as amended, and Section 21 E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements in this report, other than statements of historical fact, are forward-looking statements for purposes of these provisions, including any projections of earnings, revenues or other financial items, any statements of the plans and objectives of management for future operations, any statements concerning proposed new products or services, any statements regarding future economic conditions or performance, and any statements of assumptions underlying any of the foregoing. All forward-looking statements included in this report are made as of the date hereof and are based on information available to us as of such date. We assume no obligation to update any forward-looking statement. In some cases, forward-looking statements can be identified by the use of terminology such as “may,” “will,” “expects,” “plans,” “anticipates,” “intends,” “believes,” “estimates,” “potential,” or “continue,” or the negative thereof or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements contained herein are based upon reasonable assumptions at the time made, there can be no assurance that any such expectations or any forward-looking statement will prove to be correct. Our actual results will vary, and may vary materially, from those projected or assumed in the forward-looking statements. Future financial condition and results of operations, as well as any forward-looking statements, are subject to inherent risks and uncertainties, many of which we cannot predict with accuracy and some of which we might not anticipate, including, without limitation, product recalls and product liability claims; infringement of our technology or assertion that our technology infringes the rights of other parties; termination of supplier relationships, or failure of suppliers to perform; our expectations regarding the ongoing transition of manufacturing of our products from China to Singapore by our electronics manufacturing services provider; inability to successfully manage growth; delays in obtaining regulatory approvals or the failure to maintain such approvals; concentration of our revenue among a few customers, products or procedures; development of new products and technology that could render our products obsolete; market acceptance of new products; introduction of products in a timely fashion; price and product competition, availability of labor and materials, cost increases, and fluctuations in and obsolescence of inventory; volatility of the market price of our common stock; foreign currency fluctuations; changes in key personnel; work stoppage or transportation risks; integration of business acquisitions; and other factors referred to in our reports filed with the SEC, including…

Excerpt shortened here; the source contains the full paragraph.

Previous wording

On March 11, 2024, we announced a one-time special cash dividend of $0.50 per share of ClearOne common stock, payable on April 10, 2024 to shareholders of record on April 2, 2024.

Current wording

On March 11, 2024, we announced aone-time special cash dividend of $0.50 per share of ClearOne common stock, paid on April 10, 2024 to shareholders of record on April 2, 2024.

Previous wording

Overall revenue decreased by 13% in thefirst quarter of 2024 when compared to thefirst quarter of 2023, primarily due to a significant decrease in revenues from the audio conferencing category. The revenue decline was also caused by significantly reduced demand for our products in many regions including USA, Europe and China when compared to 2023-Q1 revenues. We believe this revenue decline was primarily due to the cumulative impact of past production shortages. We believe that lack of product availability has caused some of our channel partners to purchase and install competing brands. Historically, we have seen a lag of several months between the time that our professional conferencing products are specified for installation and the date when those products are installed. Since our product availability was constrained through a significant part of Q4 2023, we believe our revenue could be impacted negatively by these market dynamics through much of Q2 2024. We have also faced sales headwinds from our products’ lack of Microsoft Teams certification, despite their longtime functional compatibility with this platform. Our work through early 2024 has focused on mitigating these impacts through maintaining consistent dialogues, product demonstrations, and feedback cycles with end users and channel partners, along with improving our visibility at key industry events. We believe our revenue performance in 2024-Q1 also was to a small extent impacted negatively due to increased costs associated with electronic raw materials that have affected the global manufacturing of high tech products. We expect these increased costs in various degrees to continue through 2024 and 2025.

Current wording

Overall revenue decreased by 58% in thesecond quarter of 2024 when compared to thesecond quarter of 2023, primarily due to a significant decrease in revenues from the audio conferencing category. The revenue decline was also caused by significantly reduced demand for our products in many regions including USA, Europe and China when compared to 2023-Q2 revenues. We believe this revenue decline was primarily due to the cumulative impact of past production shortages. We believe that lack of product availability has caused some of our channel partners to purchase and install competing brands. Historically, we have seen a lag of several months between the time that our professional conferencing products are specified for installation and the date when those products are installed. Since our product availability was constrained through a significant part of Q 4 2023, we believe our revenue was impacted negatively by these market dynamics through much of Q 2 2024. We have also faced sales headwinds from our products’ lack of Microsoft Teams certification, despite their longtime functional compatibility with this platform. Our work through the first half of 2024 has focused on mitigating these impacts through maintaining consistent dialogues, product demonstrations, and feedback cycles with end users and channel partners, along with improving our visibility at key industry events. In addition, we saw a reduction in sales in the Middle East region, where we had previously experienced consistent sales growth, as we transitioned to a new distributor for the Middle East region. We believe our revenue performance in 2024-Q2 also was to a small extent impacted negatively due to increased costs associated with electronic raw materials that have affected the global manufacturing of high tech products. We expect these increased costs in various degrees to continue through 2024 and 2025.

Previous wording

The audio-visual products market is characterized by intense competition and rapidly evolving technology. Our competitors vary within each product category. Our installed professional audio conferencing products, which is our flagship product category, continue to be ahead of the competition despite the reduction in revenues. Our strength in this space is largely due to our fully integrated suite of products consisting of DSP mixers, wide range of professional microphone products and video collaboration products. Despite our strong leadership position in the installed professional audio conferencing market, we face challenges to revenue growth due to the limited size of the market, pricing pressures from new competitors attracted to the commercial market due to higher margins, and the lack of certifications from Microsoft. Notably, the Microsoft Teams device certification program is closed to new meeting room devices and solutions. Although we have requested admission into this certification program on multiple occasions ClearOne has been denied admission by Microsoft so far.

Current wording

The audio-visual products market is characterized by intense competition and rapidly evolving technology. Our competitors vary within each product category. Our installed professional audio conferencing products, which is our flagship product category, continue to be ahead of the competition despite the reduction in revenues. Our strength in this space is largely due to our fully integrated suite of products consisting of DSP wide range of professional microphone products and video collaboration products. Despite our strong leadership position in the installed professional audio conferencing market, we face challenges to revenue growth due to the lack of component availability to build our products in 2023 driving growth to competitors, pricing pressures from new competitors attracted to the commercial market due to higher margins, and the lack of certifications from Microsoft. Notably, the Microsoft Teams device certification program is closed to new meeting room devices and solutions. Although we have requested admission into this certification program on multiple occasions ClearOne has been denied admission by Microsoft so far.

Previous wording

We derive a significant portion of our revenue (approximately 70% in the first three months of 2024) from international operations and expect this trend to continue in the future. Most of our revenue from outside the U.S. is billed in U.S. dollars and is not exposed to any significant currency risk. However, we are exposed to foreign exchange risk if the U.S. dollar is strong against other currencies as it will make U.S. Dollar denominated prices of our products less competitive.

Current wording

We derive a significant portion of our revenue (approximately 61% in the first six months of 2024) from operations outside North and South America and expect this trend to continue in the future. Most of our revenue from outside the U.S. is billed in U.S. dollars and is not exposed to any significant currency risk. However, we are exposed to foreign exchange risk if the U.S. dollar is strong against other currencies as it will make U.S. Dollar denominated prices of our products less competitive.

Previous wording

Deferred product revenue decreased to $26 thousand on March 31, 2024 compared to $30 thousand on December 31, 2023.

Current wording

Deferred product revenue decreased to $23 thousand on June 30, 2024 compared to $30 thousand on December 31, 2023.

Previous wording

Results of Operations for the three months ended March 31, 2024

Current wording

Results of Operations for the three and six months ended June 30, 2024

Previous wording

The following table sets forth certain items from our unaudited condensed consolidated statements of operations for thethree months ended March 31, 2024 (“2024-Q1”) and 2023 ("2023-Q1"), respectively, together with the percentage of total revenue which each such item represents:

Current wording

The following table sets forth certain items from our unaudited condensed consolidated statements of operations for thethree and six months ended June 30, 2024 (“2024-Q2”)("2024-H1") and 2023 ("2023-Q2")("2023-H1"), respectively, together with the percentage of total revenue which each such item represents:

Previous wording

Our revenue decreased to $3.6 million in 2024-Q1 compared to $4.2 million in 2023-Q1 due toa 35%decline in audio conferencing and a 19% decline in video products, offset bya 31% increase in microphones. Except for BMAall other product categories suffered revenue declines year over year. Our traditional ceiling mics, personal audio conferencing products, and video cameras suffered revenue declines due tolack of demand. During the first quarter of 2024, revenues from Asia including India and the Middle East as a whole increased by 18% while all other regions suffered revenue loss. During 2024-Q1 revenues from Americas declined by 30% and from Europe and Africa declined significantly by 42%.

Current wording

Our revenue decreased to $2.3 million in 2024-Q2 compared to $5.5 million in 2023-Q2 due toa 60.5%decline in audio conferencing, a 30%decline in video products, anda 61% decrease in microphones. Our traditional ceiling mics, personal audio conferencing products, and video cameras suffered revenue declines due tolack of demand. When comparing 2024-Q2 to 2023-Q2, all sales regions suffered revenue loss. Revenues from Americas declined by 64%,from Europe and Africa by 41%, and from Asia Pacific (including Middle East, India and Australia) by 50%.

Previous wording

Our profitability in the near-term continues to depend significantly on our revenues from professional installed audio-conferencing products. We hold long-term inventory and if we are unable to sell our long-term inventory, our profitability might be affected by inventory write-offs and price mark-downs. Our long-term inventory includes approximately $0.2 million of Converge Pro and Beamforming microphone array products,$1.0 million of cameras, and $1.6 million of raw materials that will be used primarily for manufacturing professional audio conferencing products and BMA microphones. Any business changes that are adverse to these product lines could potentially impact our ability to sell our long-term inventory in addition to our current inventory.

Current wording

Our profitability in the near-term continues to depend significantly on our revenues from professional installed audio-conferencing products. We hold long-term inventory and if we are unable to sell our long-term inventory, our profitability might be affected by inventory write-offs and price mark-downs. Our long-term inventory includes approximately $0.1 million of Converge Pro and Beamforming microphone array products,$0.4 million of cameras, and $0.9 million of raw materials that will be used primarily for manufacturing professional audio conferencing products and BMA microphones. Any business changes that are adverse to these product lines could potentially impact our ability to sell our long-term inventory in addition to our current inventory.

Previous wording

Operating expenses include sales and marketing (“S&M”) expenses, research and product development (“R&D”) expenses and general and administrative (“G&A”) expenses. Total operating expenses in 2024-Q1 was $3.2 million compared to $3.5 million in 2023-Q1. The following contains a more detailed discussion of expenses related to sales and marketing, research and product development, general and administrative, and other items.

Current wording

Operating expenses include sales and marketing (“S&M”) expenses, research and product development (“R&D”) expenses and general and administrative (“G&A”) expenses. Total operating expenses in 2024-Q2 was $2.9 million compared to $3.2 million in 2023-Q2. Total operating expenses were $6.1 million for 2024-H 1 compared to $6.7 million for 2023-H 1. The following contains a more detailed discussion of expenses related to sales and marketing, research and product development, general and administrative, and other items.

Previous wording

G&A expenses decreased to $1.0 million in 2024-Q1 compared to $1.3 million in 2023-Q1. The reduction was primarily due to (a) a decrease in legal expenses, (b) and a decrease in insurance expenses, (c) and a reduction in employee related expenses.

Current wording

G&A expenses decreased to $1.9 million in 2024-H1 compared to $2.3 million in 2023-H1. The reduction was primarily due to (a) a decrease in legal expenses, (b) and a decrease in insurance expenses, (c) reduction in employee related expenses.(d) and a reduction inamortization expense.

Previous wording

Interest expense decreased to $0.0 million in 2024-Q1 compared to $0.3 million in 2023-Q1. The interest expense declined due to repayment of all the debts in full in 2023.

Current wording

Interest expense was $0 in 2024-Q2 compared to $0.1 million in 2023-Q2. Interest expense decreased to $0.0 million in 2024-H1 compared to $0.4 million in 2023-H1 The interest expense was NIL due to repayment of all the debts in full in 2023.

Previous wording

Other income (expense), net includes interest income, foreign currency changes and gain or loss on disposal of assets. Other income for 2024-Q1 included $0.2 million of interest income received on marketable securities. Other income in 2023-Q1 included a receipt of $1.35 million from a one-time legal settlement of a contract dispute.

Current wording

Other income (expense), net includes interest income, foreign currency changes and gain or loss on disposal of assets. Other income for 2024-Q2 included $0.3 million of interest income received on marketable securities compared to $0.5 million in 2023-Q2

Previous wording

During each ofthe three months ended March 31, 2024 and 2023, we did not recognize any benefit from the losses incurred due to setting up a full valuation allowance.

Current wording

During each ofthe six months ended June 30, 2024 and 2023, we did not recognize any benefit from the losses incurred due to setting up a full valuation allowance.

Previous wording

As of March 31, 2024, our cash and cash equivalents were approximately $18.5 million compared to $17.8 million as of December 31, 2023. Our working capital was $21.4 million and $39.1 million as of March 31, 2024 and December 31, 2023, respectively.

Current wording

As of June 30, 2024, our cash and cash equivalents were approximately $2.5 million compared to $17.8 million as of December 31, 2023. Our working capital was $21.7 million and $39.1 million as of June 30, 2024 and December 31, 2023, respectively.

Previous wording

Net cash provided by investing activities in thethree months ended March 31, 2024 was $0.3 million compared to $0.1 million of net cash used in investing activities in thethree months ended March 31, 2023. The increase in cash provided by investing activities was primarily due to an increase in sale of marketable securities (net of purchases) by $0.3 million and an increase in purchase of property and equipment by $0.06 million. These increases were partially offset by the elimination of capitalized legal expenses of $0.03 million.

Current wording

Cash provided by investing activities in thesix months ended June 30, 2024 was $1.8 million compared to $7.4 million of cash used in investing activities in thesix months ended June 30, 2023. The increase in cash provided by investing activities was primarily due to proceeds from sale of marketable securities of $5.4 million offset by purchases of marketable securities of $3.4 million in the six months ended June 30,2024 compared to $2.3 million and $9.3 million respectively compared to the six months ended June 30,2023.

Previous wording

As of March 31, 2024, our cash and cash equivalents were approximately $18.5 million compared to $17.8 million as of December 31, 2023. Our working capital was $21.4 million as of March 31, 2024. The Company believes, although there can be no assurance, that the current cash position and effective management of working capital, will provide the liquidity needed to meet our operating needs through at least May 17, 2025. The Company also believes that its strong portfolio of intellectual property and its solid brand equity in the market will enable it to raise additional capital if and when needed to meet its short and long-term financing needs; however, there can be no assurance that, if needed, the Company will be successful in obtaining the necessary funds through equity or debt financing on favorable terms or at all. If the Company needs additional capital and is unable to secure financing, it may be required to further reduce expenses, or delay product development and enhancement.

Current wording

The Company believes, although there can be no assurance, that the current cash position and effective management of working capital, will provide the liquidity needed to meet our operating needs through at least August 14, 2025. The Company also believes that its strong portfolio of intellectual property and its solid brand equity in the market will enable it to raise additional capital if and when needed to meet its short and long-term financing needs; however, there can be no assurance that, if needed, the Company will be successful in obtaining the necessary funds through equity or debt financing on favorable terms or at all. If the Company needs additional capital and is unable to secure financing, it may be required to further reduce expenses, or delay product development and enhancement.

Previous wording

As of March 31, 2024, we had open purchase orders of approximately $4.5 million mostly for the purchase of inventory.

Current wording

As of June 30, 2024, we had open purchase orders of approximately $3.02 million mostly for the purchase of inventory.

Previous wording

As of March 31, 2024, we had inventory totaling $15.6 million, of which non-current inventory accounted for $4.2 million. This compares to total inventories of $13.8 million, which includes non-current inventory of $3.1 million as of December 31, 2023.

Current wording

As of June 30, 2024, we had inventory totaling $16.4 million, of which non-current inventory accounted for $1.8 million. This compares to total inventories of $13.8 million, which includes non-current inventory of $3.1 million as of December 31, 2023.