November 10, 2011

ClearOne Reports 2011 Third Quarter Financial Results

Strong Revenue, Earnings Momentum Continues

SALT LAKE CITY, Nov. 10, 2011 /PRNewswire/ -- ClearOne (NASDAQ: CLRO) today reported its financial results for the third quarter and nine months ended September 30, 2011.

For the third quarter ended September 30, 2011, revenue increased 11% to $11.5 million from $10.4 million for the 2010 third quarter.  Gross profit rose 12% to $7.0 million, or 61% of revenue, from $6.3 million, or 60% of revenue, for the 2010 third quarter.  Operating income climbed to $5.4 million from $781,000 for the prior year period.  Net income increased to $3.4 million, or $0.36 per diluted share, from $987,000, or $0.11 per diluted share, for the 2010 third quarter.  Financial results for the 2011 third quarter included a favorable judgment award of $3.7 million related to litigation against Biamp Systems Corp. for theft of ClearOne trade secrets.  Non-GAAP operating income, which excludes the $3.7 million judgment, share based compensation, amortization of purchased intangibles, and certain legal expenses, was $1.8 million, an increase of 93% over non-GAAP operating income of $0.9 million for the same quarter last year.  A reconciliation between GAAP and non-GAAP amounts can be found in the financial tables attached to this release.

"Our excellent operating performance continued into our 2011 third quarter, independent of the judgment award," said Zee Hakimoglu, President, Chief Executive Officer and Chairman of ClearOne.  "The strong financial results were primarily driven by increased demand for our portfolio of products in North America and Asia-Pacific.  Looking ahead, we have recently taken steps to further penetrate the markets we serve and add complementary products.  During the quarter, we formed a strategic alliance to promote our full line of Professional AV and network-based StreamNet™ technology products to professional consultants involved in the design and installation of major audio-visual projects.  In addition, we acquired MagicBox to form the only complete end-to-end digital signage content management, IP streaming and control solution."

For the first nine months of 2011, revenue increased 19% to $34.1 million from $28.7 million for the same period of 2009.  Gross profit increased 19% to $20.4 million, or 60% of revenue, from $17.1 million, or 60% of revenue, for the comparable prior year period.  Operating income rose to $8.4 million from $1.8 million during the same nine months of 2010.  Non-GAAP operating income more than doubled to $5.8 million from $2.6 million for the comparable period last year.  Net income grew to $5.5 million, or $0.59 per diluted share, compared with net income of $1.6 million, or $0.17 per diluted share, for the comparable prior-year period.  

At September 30, 2011, the company had cash and cash equivalents of $13.1 million, and no debt. The cash position as of September 30, 2011 reflects the payment of $750,000 for the MagicBox acquisition.

Recent Highlights

ClearOne announced several significant developments during the quarter.

  • In September, the company acquired MagicBox, Inc., a developer and marketer of a variety of hardware and software solutions to deliver digital content and information to digital displays.  The acquisition is a part of the company's broader strategy to capitalize on emerging market opportunities as audio video, information technology, unified communications and traditional digital signage converge to meet enterprise and commercial multimedia needs.
  • In August, the United States Court of Appeals for the Tenth Circuit issued an opinion, affirming a November 2008 jury verdict issued by a federal district court in favor of ClearOne against Biamp Systems Corp. for theft of ClearOne's trade secrets, including the federal district court's award of exemplary damages based upon the finding that Biamp's misappropriation was willful and malicious.  The company is in the process of collecting its $3.7 million judgment against Biamp.
  • Also in August, the company announced a strategic relationship with The Eig Group to implement a comprehensive national program promoting ClearOne's full line of Professional AV and network-based StreamNet™ technology products to professional consultants involved in the design and installation of major audio-visual projects.

Non-GAAP Financial Measures

ClearOne provides non-GAAP financial information to investors to supplement GAAP financial information.  ClearOne believes that excluding certain items from GAAP results allows ClearOne's management to better understand ClearOne's consolidated financial performance from period to period as management does not believe that the excluded items are reflective of underlying operating performance.  Non-GAAP operating income, net income and EPS exclude certain items, costs and expenses, the details of which are provided in the tables below containing the reconciliation between GAAP and Non-GAAP amounts.  The exclusion of these items in the non-GAAP presentation should not be interpreted as implying that these items are non-recurring, infrequent, or unusual.  ClearOne believes non-GAAP financial measures will provide investors with useful information to help them evaluate ClearOne's operating results and projections.  This non-GAAP financial information is not meant to be considered in isolation or as a substitute for operating income, net income or other financial measures prepared in accordance with GAAP.  There are limitations to the use of non-GAAP financial measures.  Other companies, including companies in ClearOne's industry, may calculate non-GAAP financial measures differently than ClearOne does, limiting the usefulness of those measures for comparative purposes.

A detailed reconciliation of non-GAAP net income to GAAP net income is included with this news release.

About ClearOne

ClearOne is a global communications company that develops and sells audio and video solutions for conferencing, collaboration and multimedia streaming. The reliability, flexibility and performance of our advanced comprehensive solutions enhance the quality of life through better communication, education, and entertainment.

We develop, manufacture, market, and service a comprehensive line of high-quality audio conferencing products under personal, tabletop, premium and professional categories. We occupy the number one position in the global professional audio conferencing market with nearly 50% of the global market share. Our conferencing solutions save organizations time and money by creating a natural environment for collaboration.

NetStreams, a ClearOne brand of residential products, delivers the ultimate IP A/V experience by distributing high definition audio and video over TCP/IP networks. NetStreams' products, designed for commercial and residential use, offer unprecedented levels of performance, functionality, simplicity, reliability, and expandability. By combining audio/video content, meta-data and control signals into one stream and incorporating industry standards, NetStreams' newly patented StreamNet® solutions are a smart investment, enabling the Power of AV over IP™ – today.

NetStreams' StreamNet technology provides elegant solutions for streaming media & control applications such as digital signage, distribution of HD video and audio, LAN Cloud Matrix Switching™, and audio paging over data networks.

This release contains "forward-looking" statements that are based on present circumstances and on ClearOne's predictions with respect to events that have not occurred, that may not occur, or that may occur with different consequences and timing than those now assumed or anticipated.  Such forward-looking statements, including statements regarding the successful commercialization of products through a strategic relationship and growth from the acquisition of MagicBox, and any statements of the plans and objectives of management for future operations, are not guarantees of future performance or results and involve risks and uncertainties that could cause actual events or results to differ materially from the events or results described in the forward-looking statements.  Such forward-looking statements are made only as of the date of this release and ClearOne assumes no obligation to update forward-looking statements to reflect subsequent events or circumstances.  Readers should not place undue reliance on these forward-looking statements.

Contact:

Jeff LeFevre
Investor Relations
801-303-3438
jeff.lefevre@clearone.com


CLEARONE COMMUNICATIONS, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands of dollars, except per share amounts)








Quarter ended


Nine months ended


Sep 30, 2011

Sep 30, 2010


Sep 30, 2011

Sep 30, 2010

Revenue

$11,511

$10,359


$34,102

$28,652

Cost of goods sold

4,534

4,105


13,666

11,542

Gross profit

6,977

6,254


20,436

17,110







Operating expenses:






Sales and marketing

2,184

2,243


6,274

6,328

Research and product development

1,796

2,124


5,249

5,772

General and administrative

1,333

1,106


4,166

3,252

Proceeds from litigation

(3,702)

-


(3,702)

-

Total operating expenses

1,611

5,473


11,987

15,352







Operating income

5,366

781


8,449

1,758







Other income (expense), net

(4)

12


15

(120)







Income before income taxes

5,362

793


8,464

1,638

Provision for income taxes

(1,987)

194


(2,956)

(81)

Net income

$3,375

$987


$5,508

$1,557







Basic earnings per common share

$0.37

$0.11


$0.61

$0.17

Diluted earnings per common share

$0.36

$0.11


$0.59

$0.17







Basic weighted average shares outstanding

9,089,919

8,929,342


9,005,221

8,929,266

Diluted weighted average shares outstanding

9,358,292

9,108,102


9,276,619

9,095,879





CLEARONE COMMUNICATIONS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands of dollars, except per share amounts)





Unaudited

Audited


As of
Sep 30, 2011

As of
Dec 31, 2010

ASSETS



Current assets:



Cash and cash equivalents

$13,138

$11,431

Receivables, net of allowance for doubtful accounts of $124 and $206, respectively

12,174

9,951

Inventories

11,912

8,780

Deferred income taxes

2,962

3,389

Prepaid expenses and other assets

729

446

Total current assets

40,915

33,997




Long-term inventories, net

1,596

2,617

Property and equipment, net

2,521

2,965

Intangibles, net

3,247

2,745

Goodwill

726

726

Deferred income taxes

-

913

Other assets

28

18

Total assets

$49,033

$43,981




LIABILITIES AND SHAREHOLDERS' EQUITY



Current liabilities:



Accounts payable

2,357

2,362

Accrued liabilities

3,774

4,573

Deferred product revenue

3,704

4,306

Total current liabilities

9,835

11,241




Deferred rent

506

584

Other long-term liabilities

587

421

Total liabilities

10,928

12,246




Shareholders' equity:



Common stock, par value $0.001, 50,000,000 shares authorized, 9,092,925  and 8,929,439 shares issued and outstanding, respectively

9

9

Additional paid-in capital

39,935

39,073

Accumulated deficit

(1,839)

(7,347)

Total shareholders' equity

38,105

31,735

Total liabilities and shareholders' equity

$49,033

$43,981





CLEARONE COMMUNICATIONS, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP TO NON-GAAP NET INCOME

(in thousands of dollars, except per share amounts)










Quarter ended September 30, 2011


Quarter ended September 30, 2010


GAAP

Adjustments

Non-GAAP


GAAP

Adjustments

Non-GAAP

Revenue

$11,511

$-

$11,511


$10,359

$-

$10,359

Cost of goods sold

$4,534

-

4,534


4,105

-

4,105

Gross profit

6,977

-

6,977


6,254

-

6,254









Operating expenses:








Sales and marketing

2,184

(4)

2,180


2,243

(7)

2,236

Research and product development

1,796

(4)

1,792


2,124

(8)

2,116

General and administrative

1,333

(128)

1,205


1,106

(135)

971

Proceeds from litigation

(3,702)

3,702

-


-

-

-

Total operating expenses

1,611

3,566

5,177


5,473

(150)

5,323









Operating income

5,366

(3,566)

1,800


781

150

931









Other income (expense), net

(4)

-

(4)


12


12









Income before income taxes

5,362

(3,566)

1,796


793

150

943

Provision for income taxes

(1,987)

1,237

(750)


194

(73)

121

Net income

$3,375

$(2,329)

$1,046


$987

$77

$1,064









Basic earnings per common share

$0.37


$0.12


$0.11


$0.12

Diluted earnings per common share

$0.36


$0.11


$0.11


$0.12









Basic weighted average shares outstanding

9,089,919


9,089,919


8,929,342


8,929,342

Diluted weighted average shares outstanding

9,358,292


9,358,292


9,108,102


9,108,102

















The adjustments consist of the following:








Proceeds from litigation related to theft of ClearOne's intellectual property

$(3,702)




$-


Share-based compensation

48




62


Amortization of purchased intangibles

88




88


Total of adjustments before taxes

(3,566)




150


Provision for income taxes affected by the above adjustments

1,237




(73)




$(2,329)




$77






CLEARONE COMMUNICATIONS, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP TO NON-GAAP NET INCOME

(in thousands of dollars, except per share amounts)










Nine months ended Sep 30, 2011


Nine months ended Sep 30, 2010


GAAP

Adjustments

Non-GAAP


GAAP

Adjustments

Non-GAAP

Revenue

$34,102

$-

$34,102


$28,652

$-

$28,652

Cost of goods sold

$13,666

-

13,666


11,542

-

11,542

Gross profit

20,436

-

20,436


17,110

-

17,110









Operating expenses:








Sales and marketing

6,274

(14)

6,260


6,328

(31)

6,297

Research and product development

5,249

(12)

5,237


5,772

(22)

5,750

General and administrative

4,166

(1,070)

3,096


3,252

(828)

2,424

Proceeds from litigation

(3,702)

3,702

-


-

-

-

Total operating expenses

11,987

2,606

14,593


15,352

(881)

14,471









Operating income

8,449

(2,606)

5,843


1,758

881

2,639









Other income (expense), net

15

-

15


(120)

51

(69)









Income before income taxes

8,464

(2,606)

5,858


1,638

932

2,570

Provision for income taxes

(2,956)

943

(2,013)


(81)

(286)

(367)

Net income

$5,508

$(1,663)

$3,845


$1,557

$646

$2,203









Basic earnings per common share

$0.61


$0.43


$0.17


$0.25

Diluted earnings per common share

$0.59


$0.41


$0.17


$0.24









Basic weighted average shares outstanding

9,005,221


9,005,221


8,929,266


8,929,266

Diluted weighted average shares outstanding

9,276,619


9,276,619


9,095,879


9,095,879

















The adjustments consist of the following:








Proceeds from litigation related to  theft of ClearOne's intellectual property

$(3,702)




$-


Share-based compensation

131




222


Amortization of purchased intangibles

263




263


Legal expenses for litigation relating to indemnification of former officers, intellectual property claims and our claim for damages

702




396


Interest expense on debt assumed in acquisition of NetStreams

-




51


Total of adjustments before taxes

(2,606)




932


Provision for income taxes affected by the above adjustments

943




(286)




$(1,663)




$646





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