Clearone Inc (CLRO) 2016 Q1 法說會逐字稿

Good morning, everyone, and welcome to the ClearOne First Quarter 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 Jaffie, Investor Relations of ClearOne.

Mr. Jaffie, please go ahead.

Thanks, Terrance. 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 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 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 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 margin 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 top-line 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 and 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 toward paying 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 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 beam informing microphone arrays. In a nutshell, this patent covers the method of first generating a number of fixed beams through beam forming, followed by performing acoustics echo cancellation on each beam. This patent also covers conferencing apparatus that are configured to practice this method.

At the end of Q1, our growing patent portfolio included 70 issue patents and 27 pending patent applications covering new technologies in the field of audio and video processing, audio and video streaming and communication technology. We will remain focused 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 highlights, I'd like to turn the call over to Narsi for a detailed discussion of our first quarter 2016 financial performance. Following Naris' 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. In a conciliation 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 first quarter 2016, please note the following comparison referred to first quarter 2015 versus the same quarter of 2016. Net revenue at $30 million was 4% lower than last year's 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 costs were fully offset by reduction in G&A costs due to reduced legal fees, [audit to] back holding fees, and amortization of acquired intangibles.

Non-GAAP net income increased 5% to $1.8 million at $0.18 per diluted share, some $1.10 million, or $0.18 per diluted share. The net income increased mainly due to slightly reduced tax rate in 2015 Q1, due to additional tax benefit 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 in the [enviable at this time]. Cash, cash equivalent, 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 year-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 2015, $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.

(Operator Instructions) Dennis Van Zelfden from Brazos Research.

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 it, I'd say. That's average; it comes to $10 per share, actually.

I noticed - if I read the form [fours] correctly, that there were some options that did not expire this year, and specifically, some of them didn't expire 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. And the bought-back - about 256,000 options out of more than a million options that were listed. So, it's about roughly a little more than 1/5 that bought back, actually. Options is we offered them for repurchase.

Well, what was the rationale for buying back those options that did not expire any time soon?

Actually, let me explain this. If you are an optionee, you already have an option. You already have an [ultimatum] with ClearOne; they can do what we call a cashless exercise. They can sign up a piece of paper, and they can go to a broker and submit their options and options will be exercised, and the broker will sell the shares in the open market, pay the optionee the profit, and give ClearOne the exercise price, actually.

What we did with this option repurchase program is the doctored of two steps, actually. We had already purchasing in the open market, so what we did was the doctored of the (inaudible), the optionee goes to the broker, and then we buy to the open market, the repurchase, actually. So we designed a plan in transportation with our [CC] attorneys, and then offered a program where the optionee can offer the option directly to ClearOne. And ClearOne will pay them the offer that they would have normally got through selling it in the open market. So it's, like, constructively speaking, it's exercising the options and then repurchasing the shares through them.

And instead of going through two steps, I mean -

The other benefit is that with those options, and some were coming to vest rather closely; you could see them on form force - I know mine were coming up close, and we're always in a blackout period, so we certainly don't want to lose 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're already in a share purchase plan.

It actually leaves more room in the share purchase plan to purchase more shares as well as avoiding dilutions by this option purchase plan. So, it was a win-win. Some employees want to exercise options when they feel they're in the money. Good for them. And others realize that the option period on some large grants are coming to end, and this was 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.

I understand that. I just want to get the rationale for buying so few in the open market.

The open market is basically - the amount of 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 give you more points on that.

First, the program was in place for two weeks, actually. We started March 18 when the program started, so the percent that you are seeing, it's [one day] for two weeks, actually.

And another aspect is what we can buy through; the program is limited by the Safe Harbor provisions that restrict the price that we can pay, the volume that we can buy. So, with these limitations, we are able to buy 34,000 shares in two weeks, actually. I think we see that a good performance, actually.

Well, yes, I totally understand the benefits of buying the shares and buying the options. I guess what struck me as a little odd 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.

Zee exercised 56,000 options she's holding. It's an unqualified 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 (inaudible) for 56,000 options she bought, actually.

I must have missed that. I looked at most of the forms.

(Operator Instructions) Alan Mitrani from Sylvan Lake Asset Management.

A couple 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're doing in terms of why we are carrying so much inventory relative to our sales are and why we're down to one turn of inventory, which is the lowest we've had in years? Are you holding a lot of inventory because you had advantageous prices? Are you gearing up for a sales jump or something? I see long-term inventory also quadrupled from the third quarter to the fourth quarter last year, and it's held there. Can you just talk about that a bit?

There are two things going on here. One, when we had the double-digit growth in 2015, even earlier, like Q1, we had all the forecasts and planning and the orders that we had placed, actually. So we can't quickly undo all of those planning and forecasts that we did. And I have explained before we can undo that if we [eat up] a cost, actually. If you cancel, say, we are no longer going to honor all the forecasts that we did, it comes with a price tag. It affects our gross margins.

We don't do that, because we feel there is no risk in the inventory that we have held. And we can - any time we feel pressure on our cash, any time we feel that it will lead to liquidate of stock, we can do it, we have done it before, we can do it any time, actually. Second thing that's going on is we announced that we moved the factory from a manufacturing facilities from Florida to an overseas contract manufacturing. When we do something like this, we have to hold plenty of inventory to make sure that nothing goes wrong with the [position]. And we also have to [coming to] the production and everything with the new contract manufacturer. So, that is also adding what I would call as a transitional inventory, which will go away next couple of quarters, actually.

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

I don't have the [face] numbers, but as I said, usually expect at least 15% of inventory to come down in the next two quarters because of this move to contract manufacturing.

And then, I guess it's interesting that there's such a big lead time in general, that if you forecast wrong a year ago, you basically have to still keep the inventory carrying. It's just interesting - I guess it really pays to try to be more precise about a forecast.

We did not forecast a year back, actually. We had growth all the way up to 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 the financials, you would see that our peak revenue - the real indications that things are not a blip, it's a real -

It's not a single blip. It does it 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 setting in, actually.

And, again, philosophically, at least from our point of view, we can easily get past excess inventory because what we carry has got a very long lifetime. We're not selling mobile phones that come in and out of 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 lose revenue.

The time to build up, give the forecast, buy the materials, build the products, test, put it on a 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, it's all - I shouldn't say all, there's no such thing - but it's very much favorable stock that we don't anticipate as a problem. It will get consumed.

And then 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. But what licensing fees and the revenue, which started to kick in, I guess - was it last quarter, or a couple quarters ago? Can you tell us roughly how much that is and when the affect is and whether you think that's going to continue over the next couple quarters, or is 65% going to be our high-point for this cycle?

Q3 2015 is when we started getting the licensing fees. Licensing fees will continue for some time; it's not just to one or two more quarters. That stream is pretty certain and concrete. It will continue.

We have disclosed before - for copyright reasons I cannot disclose how much it is taxed. You can make inferences, but 68% is, I would say, probably harder to [policy] exceed this number unless we have some very good supplier-specific incentives or something goes down with our raw material purchases, actually. So this year percent is, I would say, the ongoing standard for our gross margin, actually. It will be between 53% to 65%; that's what we think we should be in the next to few quarters to come, actually.

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

Yes. 63% to 65%. It would be somewhere in there.

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 flat-ish 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 of how the new products are being received, or whether we can actually see top-line growth this year?

Again, we're hoping that the bottom half of the year, it's going to straighten 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 the economy, but we're optimistic.

We've had some nice winds on our new products. We have a brand new platforms that are coming out at [InfoCom] in Las Vegas in the first part of June. We won't see those product introduction till the end of the quarter, but I'm optimistic. We've lived through these economic slowdowns before, as you know, in 2008 and 2009, and this is simply the time to stay focused. And our products are very well received, and I think we're doing significantly better than our peers, quite frankly.

So, that makes me feel optimistic. We, fortunately, we're in a good position with 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're much more valuable today than we were two years ago, or a year ago, for that matter.

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

Our forecast is 35%, and this quarter we got the benefit of all the stock option exercises and repurchases the stock option program that we did. But gave what they call [if the tax holder (inaudible) benefit. It's almost 100K benefit that we got; $93,000 benefit that we got. So, that impacted favorably the bottom-line. Otherwise, we should be at 35%, actually.

Which means 36 basic, or close to it, for each of the next few quarters. On this buyback, I have to ask because I really don't see this. How many of the 226,000 options were in the money?

All of them were in the money, actually. (Inaudible - Microphone Inaccessible) stock option buyback - option buyback, it's basically anybody who otherwise have gone to a broker to sell the stock, pay ClearOne, and take the profit; we simply give them the profit, actually. So, we do not get -

So, let me ask. So, all of them were in the money. How many of them were basically 2016 expirations, such that they were going to be realized into stock or not? What percent of that 226,000? Can you give us any details?

I don't have the number, actually.

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

Out of this 226,000, I think a good portion of it, especially the ones that were offered for repurchase by directors, including Zee, they are all up for 2016 expiration, actually. So, at least -

I'm sorry, hold on - wait, wait, Narsi, hold on - you're saying that some of the options that you bought 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 - I hear what you're saying; you have to give us a lot more clarity. When I saw your press release on March 10, it said: 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 realize 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 them. And 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, it's minimal. So, to have you guys buy back stock that doesn't - remember, if you're 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 receiving dividends if they're not exercised yet? I'm assuming not.

And also, if you think we're holding your company because you say it's a venture-type company, we're not growing the employee-base very much, we're not growing the revenues at this point very much. I realize the values here. We're all in it for you at some point to get to a much bigger company and sell the Company, or to grow into yourselves and be a much bigger company and being valued as such.

Hearing that you're using the shares, I don't care if it benefits your $100,000. Really, to be honest, I'd rather you hold the stock because eventually employees at companies we know end up getting more stock options. So, whereas shares, shareholders like us, no one hands me an 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.

Actually, let me explain. Truthfully, we already have a 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 options for repurchase is their own individual decision; it's not a company saying: you must do it. And we don't offer anything more than what would otherwise get to the market, actually.

ClearOne is not paying anything more than what already is available to them in the market, actually. It's actually a benefit more for ClearOne than for the optionee, actually.

The benefit of ClearOne is we don't have to go to the broker; we already have the Safe Harbor restrictions, so I assure you that the 15 days or 14 days that we had the Safe Harbor, we were able to buy only 34,000, actually. If we had continued to do this, to get this 226,000 options, which would otherwise become shares, it would've taken months, actually.

So, this is a very quick way and safe way for us to do the repurchase. We talked of spending a whole lot of transaction fees on 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 via - what is happening here is instead of following the shareholder, the optionee to be exercised first, giving the money to ClearOne, and ClearOne waiting for the stock to be, again, bought back through repurchase program that Board has already approved; we are just doing it in one, swift action directly do 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, this option repurchase program is actually an extension of the share repurchase program. It will 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 agreed 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 just doing it faster than what we would otherwise take longer time to do it, actually. And -

So I appreciate that, and that is a good explanation. However, Ill throw the other side. First of all, you don't pay dividends to option holders, right?

Actually, we had a small program, what we call the dividend equivalent, that it was for 2015 but stopped it after 2015 in conjunction with all the actions that we initiated 2016 for share repurchase, options repurchase. That program was stopped, actually. We spent close to about $130,000, $140,000. You would see it in our Q1 performance; we put a little bit more color on this. We've spent $140,000 in 2015 on dividend equivalents for options, actually. It's in the proxy report that you will see. You will see it in the proxy report. It's in the (inaudible), actually.

But you said you've stopped that program now?

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

And just to follow-up with what you said, you're saying the 226,000 options that you bought back - so let's assume you paid $10 - roughly $2.25 million, something like that, and the $2-plus million -

So $1.8 million. We paid $1.8 million.

$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 in addition to those 10 million shares?

Yes

And the only offset that I would still say is -

I think I have already answered your question on officers and directors holding stock, actually.

(Inaudible) 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, like, the Google guy says; they all have their [diversification] plans, actually. I have heard $100,000-plus options [with third] for since I came here. I have some debt that I have to pay that I have to exercise, but I'm holding all the other options. And I have also enlisted through employee stock purchase plan what or - I can contribute towards that, actually. So, each one have their individual story. I think the most important message is Zee, every single penny that she could put in, she put into the whole - the 56,000 options that she could, actually. She did not take one single dollar back, actually. It's pretty hard to - because they have the right to do it, each one -

Well, mine were definitely going to expire, a large number, and it was better -

Within the year, it was -

Yes. I had not sold a single share of ClearOne stock since I joined in 2003, so rest assured. In fact, I've bought plenty on the side, but I will say, we don't compensate extraordinarily to the employees, quite frankly, and they've made money, and 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 have that help with the dilution, and so, we took that step, but the details will be in the proxy.

But you believe this is a 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 is up to the Board, actually. It's not a continuous program that put in place, actually. It's a one-time offer that we give if we can come back again, but depending on how the share repurchase program is going. It's mostly, I think, to benefit us, actually, I would like to - when we have the program to buy back, we should like to make it be effective, to make the impact on the diluted, weighted-average shares, actually. That's our goal, actually. But we have to hear from everybody, actually. So, we'll take it back on out of (inaudible).

And I hear, look, in general, you guys aren't heavy users of options. You haven't had huge options out. I understand all that. It's just the one other offset, and I'll finish with this on this is it's possible that the options, which right now look in the money, might end up not being. Right? Isn't it possible that your stock drops to - I don't know, let's say someone has an exercise price of $10, and the stock goes to $9.5. Well, those options expire worthless? Right? That's what happens, that's the bet you take, that's what happens.

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; you don't replace those instantly to the person, so there is an offset, I hear what you're saying, it looks like you paid under $8 million, $8 a share for what you couldn't have in the open market if you're saying it was $1.8 million on 226,000. I'm just telling you that I almost never see this. This is the first time I've ever seen it in 20 years. And I spoke to someone else who has a longer history, but who is invested in your stock, and he had never seen this. So, I don't know. You might just want to just go over it and make sure you try to focus on the things that at least you can 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.

I think I still owe you one explanation. If we did not do it, we would have done it through our share buyback program, so our brokers through B. Riley - you would not have even seen anything; 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. The ones that Zee talked about, absolutely. Not for ones that might have had years to go.

They could have done this - people would have gone to their broker, they would've sold it in the open market and ClearOne would have got the exercise money. We would've used the money again to go back to our broker who's doing the share buyback program and then keep buying, actually.

It's a two separate transactions happening, but both having the same common goal, actually. It's just 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 signed $1,000 (inaudible) will go on trickling slowly, and this is one fast way to get this all done, actually. But the possibility that some of the options may end up not be the money, it's pretty slim because we're 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 it to ClearOne directly or give it to some broker who is going to make transactions fees from both the employee as well as from the Company, actually.

So, this is a great way to cut the transaction cost from both sides, but I hear you, actually. It sounds complex for people to wrap their heads around, so we will consider this and, any way, it's only a one-time thing. It was not meant to be a continuous program or ongoing thing every time they have it. So, there will be more disclosures in our 10Q. So, it will help you to understand where we are coming from. And we will give it a little bit more options.

Dennis Van Zelfden.

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

Yes, we've done a Dutch auction when went public at one time. Of course, we look at all the possibilities and this is the one that we went for that we thought was in 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, if the Board feels they want to change this plan according to the rules of this we can always look at it again, but that was the decision we made at the time.

One other question - I wanted to get your take on the Mitel-Polycom merger - what you think of that? What do you think it does for competition? Makes them tougher or less tough? Just your comments, thoughts.

Well, it's certainly not a surprise that Polycom was out on the auction block. They've struggled since 2010, they had a few, couple blips, but quite frankly, after 2010 when they wanted to be a software company and then they wanted to get in bed with Microsoft, etcetera, I mean it's been topsy-turvy.

And in a nutshell, they really established a vision or a strategy to execute on the future. And you could see that in their stock. We were rather startled to see that this hook-up with Mitel, since Mitel, in its own right, is a big so-called - you see as a service provider doing cloud communications in direct competition with Microsoft, who is one of Polycom's closest partners. So it is a mix of some odd bedfellows 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 if it's going to finish off or the shareholders will vote for it from Mitel's side, etcetera.

So, there's still some work to be done to make sure that the shareholders are convinced that there's a synergy there. I wouldn't know what their roadmap is, but it's not what we would've expected as a likely combination. But surely they went through the shop 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 one of their largest shareholders decided to do this shotgun marriage, or whatever you want to call it, and now we have a common shareholder between Mitel and Polycom that put this together and we'll see where the 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 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, and 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 road maps and where they want to go, but these things are never easy.

And in itself, the market is changing fast enough that it's not so easy. Now for us, we carved off a path for ourselves. We are far ahead in our software-based media collaboration. Our streaming, our one-way communication. We have what 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 it's going to be tough.

On top of all the other challenges, when you have a large merger like that, one is a Canadian company and one is a US 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 the synergies come, but I personally feel that we've gathered some internal strength by seeing what's happening out there, and we look upon this positively.

George Melas from MKH Management.

Narsi, first of all, quick question for you. Can you give us your revenue mix for the quarter by percentage or how much of the revenue was pro-UC and video?

Yes, I will give you. Through was 79%, UC was 13%, and radio was 8%, actually.

And how does that compare with last year?

Q1 of last 2015 growth was 77%, UC was 16%, and video was 7%, actually.

Just as a follow-up to your answers on the Polycom/Mitel merger; where could you benefit - I think all your products tend to be from a distribution perspective than to be exclusive to the distributor and to the [var] that have them. Could you pick up additional distribution? Could you pick up additional [vars]? Or would you see the benefit more for the -

First element we get is time. While, of course, there is a merger going on and road maps being finalized or even discussed, it gives us a long window to get ahead of the curb and work harder and faster in what we, ourselves, are doing independent of whatever they decide is going to be the road map up ahead. So, I would say it gives us, up till the acquisition 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 us an opportunity, while they went in a slightly different direction going towards just cloud UC providers and PDX systems, which is a focus of Mitel; PDX and UC as a service, it gives us our opportunity to fit their strategic direction is going to change. And so they become for us less of a competitive threat, quite frankly. That's a 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. Do they focus on video? Do the focus on audio? Do they focus on UC? Do they focus on IP? Do they do it all? How do 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 conflict in the channel between Microsoft channel and Mitel channel and Sysco channel and Avya channel, etcetera. So while the channel gets reorganized and realigns themselves, and sometimes you have the opportunity to help align it 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 openings, as you correctly pointed out, to maximize our channel opportunities definitely worldwide, and we'll look at that.

So I think overall, I happen to be a person - I like this 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.

And then just a follow-up on that. I think you guys are coming up with a new platform, and then you're going to unveil it at Infocom. Has Polycom also come up with a new platform -

No, actually, Polycom came up with a competitive product called the Sound Structure. That was many, many, many years ago. And we followed shortly thereafter with the converged theories. And they have not come out with a new platform. It seems they have been very much focused on things outside of the professional audio. I don't know that they came out with microphones. Of course, we came out with ceiling microphones. We came out with wireless microphones. We came out with beam forming, which is absolutely the state-of-the-art, greatest thing since sliced bread. And, on the audio side, where we kind of paired back our conference phone business, I think it's an area where they focus. And we don't see them as a factor. In fact, quite frankly, we don't see them quite often on the professional audio side. They're 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 head of an announcement coming, absolutely not.

And then maybe can you give us just a little color on sort of some wins or sales or some pipeline for the new products?

Yes. We were just at Infocom China just about, I guess it was it about three weeks ago or 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 the media and video collaboration. They have a very nice pipeline, a health pipeline. We have some tenders that we're hoping to hear about. These are, again, nine month cycles, but we have a large airline tender. We have lots of sort of governmental and command and 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 addition we're going to be making to the wireless microphone suite in Infocom. And they're also very excited about the new platform that we will slowly roll out after we get compliance for the various markets. In the US, we had some nice winds on the video side, a high-end department store has decided to standardize on ClearOne's network streaming for some of their security and video streaming applications. And we had some wins with accounting firms and banks. Some of our products on video is sold through the channel, so we don't always - especially when they go through distribution - we don't always know who the end customers are.

I think 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 products. We'll do that for the new 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 (inaudible) had a tough time, video is still growing.

(Operator Instructions) Alan Mitrani.

It's been a couple years since you guys made any acquisitions. Can you just give us the environment? What are you seeing in terms of valuations? I'm sure you're looking. What about the properties that are coming across your desk? Are there 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 it's through technology or just through an accretive buy, that it's a cultural fit, the right price, something we can digest, then of course, we're going to jump on it. This is a buyer's market, obviously. This is a good buyer's market. Listings are down and, of course, money is cheap still these days, but the future's not always so bright for these guys, and this is a buyer's market and we get ideas - flow paths at our desks quite occasionally.

But a lot of them are 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 at buying something. You know, we don't have to flash our cash. So we're more inclined to focus on sales and marketing and, if something comes our way, it will. There's always a need, there's always a technology need, but it's got to be the right one. You got to pick the right one, the one.

At this time, if there are no further questions in the queue, I would like to turn the call back to Zee for any closing remarks.

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 our booth and see some of our products and staff and our competitors. That concludes our call for today and 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.