Clearone Inc (CLRO) 2011 Q4 法說會逐字稿

Good morning, and welcome to the ClearOne Communications fourth-quarter and full-year 2011 results conference call. All participants will be in listen-only mode. (Operator Instructions). Please note, this event is being recorded. I would now like to turn the conference over to Robert Jaffe, Investor Relations for ClearOne Communications. Please go ahead.

Thanks, Valerie. Welcome everyone, and thank you for joining us today to discuss ClearOne's 2011 fourth-quarter and full-year financial results. On the call today are Zee Hakimoglu, President and CEO, and Narsi Narayanan, Vice President of Finance. First, some housekeeping before we start. Please be advised 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 the 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.

Thank you, Robert and good morning, everyone. I'm pleased all of you could join us today to discuss our 2011 fourth-quarter and full-year financial results. ClearOne had a strong quarter and finished with a strong year. 2011 quarter four was our second-best quarter in terms of revenue, and for the year, 2011 finished with our highest revenue achievement. It should be noted that our 2011 revenue growth of 12% followed a record 31% revenue growth in 2010.

I would also like to touch upon certain non-financial ClearOne corporate highlights. First, we have been successful in acquiring strategic and synergistic core technologies to launch a high-growth business strategy. Second, we expanded our sales channel with the addition of two new IT distribution partners, who are among the largest technology sales, marketing and logistics distributors in the IT industry worldwide. Finally, we concluded certain legacy material litigation matters, allowing the Company and management to fully devote its attention and resources towards the business. With this brief introduction, I would like to turn the call over to Narsi for a more detailed discussion of our financial performance.

Thank you, Zee, and good morning, everyone. Before I get into the financial results, I would like to point out that I'll be discussing certain non-GAAP financial measures. Reconciliation of these non-GAAP measures to reported GAAP measures are included in the earnings release.

For the 2011 fourth quarter, revenue decreased 5% to $12 million from $12.6 million in the 2010 fourth quarter. This decrease was primarily due to the reduced demand for our products in North America and EMEA, partially offset by increases in revenue from Asia Pacific. Gross profit margin was slightly lower in the fourth quarter, at 59.4% compared to 59.6% in the same quarter last year. However, due to a reduction in revenues, gross profit also reduced by 5% from $7.5 million in the 2010 fourth quarter to $7.1 million in the 2011 fourth quarter.

Non-GAAP operating expenses, after excluding legacy litigation-related expenses, decreased to $4.8 million in 2011 Q4 from $4.9 million in 2010 Q4. As a percent of revenue, total non-GAAP operating expenses increased to 40% from 39%. Non-GAAP operating expenses for 2011 Q4 are also included $134,000 of acquisition-related expenses and if these expenses are disregarded, non-GAAP operating expenses as a percent of revenue for 2011 Q4 dropped to 39%, which is comparable to 2010 Q4 percentage. Non-GAAP net income decreased to $1.5 million, or $0.17 per diluted share, from $2.3 million or $0.26 per diluted share for our Q4 2010. The difference is mainly due to the effective tax rate of 35% on income in Q4 2011, compared to about 11% in Q4, 2010.

I will now share with you the results of full-year 2011. For the full-year 2011, revenues increased 12% to $46.1 million from $41.3 million in 2010. Gross profit climbed 12% to $27.5 million, from $24.6 million in 2010. Gross profit margins remained at 60% for both periods. Total non-GAAP operating expenses, after excluding litigation-related expenses and collections, increased to $19.4 million from $18.9 million in 2010. Non-GAAP operating expenses in 2011 also included $167,000 of acquisition-related expenses. If acquisition-related expenses are disregarded, non-GAAP operating expenses as a percent of revenue dropped significantly to 42% in 2011 from 46% in 2010. Non-GAAP operating income, after excluding the credit $3.7 million of judgment award and legacy litigation-related expenses improved sharply in 2011 to $8.2 million from $5.8 million in 2010. This is an increase of about 41% Non-GAAP net income increased slightly to $5.3 million from $5.1 million in 2010. However, non-GAAP net income per diluted share remained flat at $0.57 per share. Despite the 41% increase in non-GAAP operating income, non-GAAP net income increased only by 5% due to higher effective tax rate of 35% in 2011 compared to only 11% effective tax rate in 2010. Non-GAAP adjusted EBITDA in 2011 increased by 37% from $6.6 million in 2010 to $9 million in 2011.

Let me turn my attention briefly to the balance sheet. Our balance sheet continues to remain strong, with a cash balance of $16.7 million as of December 31, 2011. This was before the $4.6 million for the acquisition of VCON in February 2012. Our working capital as of December 31, 2011, grew to $32.7 million from $22.8 million at the end of 2010. I would now like to turn the call back over to Zee. Thank you.

Thank you, Narsi. I would like to address our recent acquisitions and strategy for growth. We have been successful, and have enjoyed financial and market growth in the installed audio conferencing endpoint market. We have also introduced new unified communication endpoint products in this market, as well as in the IT channel to supplement this growth.

According to Frost & Sullivan's forecast, the installed audio conferencing endpoints market is expected to be $66 million in 2012. At present, ClearOne commands nearly a 50% global market share of this product, and gets 60% of its revenue from these products. Obviously, continuing as a pure audio conferencing endpoint player is not a satisfactory strategy for high growth. We have identified three strategic core technologies that complement our own technologies and current products for synergy in the commercial vertical markets that we serve.

Enterprise audio-visual streaming, otherwise known as AV distribution, is forecasted to be a $680 million market in 2012. Our NetStreams acquisition will help us address this market opportunity. We are transitioning from Net Stream's original residential focus to enter enterprise products and markets. Digital signage is an emerging application for the enterprise, as well as other commercial market verticals. The total available market for ClearOne is estimated to be around $500 million.

Our recent MagicBox acquisition provides us with the required insight and expertise to target this market. Finally, with the acquisition of VCON, we have the opportunity to intercept the fast, emerging, software-based video conferencing market. VCON solutions address desktop, room, and infrastructure for video conferencing. The worldwide market for single-CODEC room solutions alone, excluding desktop and infrastructure is expected to be just under $2 billion in 2012.

ClearOne has an existing global, well developed and loyal sales channel to fulfill audio-visual needs for the commercial vertical market. This established channel, along with our highly-regarded and well-established ClearOne brand, can be fully leveraged to introduce and deliver not only our current audio products but also those related complementary integrated solutions. In this process, we not only reap sales channel synergies, but also deliver full one-stop solutions to our global customer base.

In addition to these strategic technology and intellectual properties, these acquisitions have brought ClearOne a wealth of knowledge and experience by retaining the management teams. In 2011, NetStreams contributed about $2 million of revenue. MagicBox brought in about $350,000 in 2011, and during 2011, prior to ClearOne's acquisition, VCON revenue was at about $2 million. We expect these revenues to contribute slightly over 10% of our revenues in 2012. However, in the next few years, the bulk of our growth will be generated by the successful execution of our corporate strategy, tied to these important synergistic acquisitions.

With that, and for the time available, we would now like to address any questions you may have. Operator?

(Operator Instructions). Our first question comes from Chris Armbruster of B. Riley & Company.

Congratulations on a solid quarter. Could you maybe give me a breakdown of the revenue contribution by segment, and the growth rates that you're seeing amongst the different business lines?

Let me first give you the share of each of the product group for 2011 as a whole, and if you have any more questions I'll continue, okay?

Great.

For 2011, our Pro products contributed 60%, Personal 13%, Premium 12%, Tabletop 9%, Net Streams about 4%, other products about 3%.

Okay, and can you give me the year-over-year growth rates for each of those segments?

Sure, for Pro it was 10%, Personal brought 19%, Premium it got 35%, Tabletop it was negative 9%, NetStreams was flat and others are not significant.

Okay. I also noticed a noticeable decline in the G&A and S&M for the fourth quarter. Is there anything that specifically contributed to that change?

The decline in G&A and S&M?

In sales and marketing, yes.

Yes, sales and marketing, the decline was due to the reduction in commissions, and also a reduction in marketing expenses, specifically in advertising and publications-related expenses. Commissions are tied to expected sales rather than a percentage of flat sales, and I expect that sales do not match the action, then commissions go down.

Okay, have you seen any pick-up in the residential business for NetStreams as real estate has shown some signs of re-accelerating?

Quite frankly, we have not, but nevertheless, our focus is not on residential. We turned our efforts and our attention and our resources towards the development of NetStreams' technology to commercial applications and with that, the residential becomes less and less a component in our forward activities, including revenue.

Okay. And then I noticed in the K, you guys were talking a little bit about Europe. Can you give me maybe a little bit more color on what you're seeing over there, and maybe what the year-over-year growth rates were, that you were experiencing in Europe?

Okay, we started the year, 2011, with a pretty good quarter from EMEA. We had over 28% growth, but subsequently, it has been a roller coaster ride. Q2 dropped by 5%, Q3 dropped by 22%, and then it stabilized in Q4 at about a 5% drop, and we still are not seeing the bounce back in EMEA. But we don't expect to see the Q3 level drop. I don't think we will see a double-digit dip in subsequent quarters. We don't see any signs of that kind of a drop, actually. It may still be going five years actually.

Okay, and I just have one more. Can you maybe give us an update on the digital signage efforts, and how MagicBox has resonated with your customers?

We purchased -- MagicBox continues and maybe selling as they have, but the purpose of that acquisition was to take again some core technology, and develop it for the next-generation system which will work for enterprise, and we're in the process of doing that and defining that, and making the decisions on the products, so that we can introduce it. We didn't necessarily purchase MagicBox, of course we care about their current customer base and maintaining their current revenue, but we are really focused again on integrating some of that technology in higher-value platforms for the enterprise market.

Okay, great. Thanks guys.

The next question comes from Laura Engel of Stonegate Securities.

I wondered if, as far as on the VCON acquisition, I think you mentioned $2 million in historical revenues, if I'm correct. How much of that do you expect to see this year, and then how much of that can you increase as far as integrating the acquisition? How quickly that's going, if you can give us some color on, I guess how the acquisition integration is going and then as far as capturing those revenues, and perhaps even, I don't know if you'll lose some, or if you're going to be able to build on that $2 million number for this year.

Okay. First, with respect to expectations, we are not going to see any significant revenue in Q1, because we are still integrating, and we are -- they already developed a new product, they have transitioned to a new product and we are making ever faster strides in integrating our operations to introduce those new products in Q2. But we expect, as a whole, to meet in the field on [break] for the remainder of the year, we said $2 million for 2010, and we expect in the next three quarters, the meeting of this break, probably $1.5 million for 2012 actually. But after the integration is over, and our channels are able to start picking up VCON products, (inaudible) in the old channel versus new channel, we expect the growth to be pretty healthy.

And that's one of the reasons why Zee indicated the overall market available for VCON products, it's a $2 billion market currently, and of course, they also play in the solutions, market desktop and infrastructure, we should be able to capitalize on that. While we don't give guidance on what our growth rate is going to be, it should be pretty healthy. It should not be difficult for our channel to absorb the VCON products because they are similar with the [Mediacom] products, and they are in need of software-based video products and we will be able to do a good job of it. Okay?

And then as far as this year's results, and I was taking some notes, but I might have missed it, what, as far as growth, how much of the increase this year, do you have a ballpark or can you give us an insight on how much of that growth came from organic versus growth from acquisitions?

Okay. Our acquisitions included, in 2011 results, NetStreams and MagicBox, and MagicBox was flat -- I'm sorry, NetStreams was flat between 2010 and 2011, and that's where the growth came from acquisitions. MagicBox accounted for $350,000 and it's a very, very tiny fraction of the, -- MagicBox contributed $350,000 for one quarter and most of the growth came from our own organic growth, rather than through acquisitions. Of course in 2012, you'll see one full year of MagicBox, you'll see VCON adding, and hopefully NetStreams would be, will have a firm support in the commercial enterprise market and they will see more growth there.

Okay, and then I know, I guess you mentioned that you don't give specific guidance, but as far as anything else in the pipeline or acquisition activity that we might expect to see this year, can you comment on any potential there? Perhaps the timing, and maybe any other thoughts as far as how this upcoming year could compare historically to other years that you could offer for us?

In terms of additional acquisitions, these three elements, video conferencing which brings conferencing video, digital signage and enterprise streaming, are the core elements that we intend to integrate in our current platform for commercial markets, focusing on the enterprise. And so quite frankly, we don't anticipate anything at this time. And our goal right now is to integrate all three components, which were a necessary element of our strategy going forward. If something should come along that was just something that we felt would add other value, we would of course look at it, but I think with these three, we are at a position where we can now really tie the pieces together, to achieve the growth that we had been aiming for.

Okay, great. Well thank you for your time, and again, good looking quarter, thank you.

(Operator Instructions). At this time, I'm showing no further questions, and I would like to turn the conference back over to the management for any closing remarks.

Thank you for your time today. We appreciate your continued interest in ClearOne. If there's any further questions, please contact Investor Relations at ClearOne. So this concludes our call today, and we thank you for your attention.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.