Roger S. Pondel - Chief Executive Officer and President Zeynep Hakimoglu - Chairman, Chief Executive Officer and President Narsi Narayanan - Vice President of Finance and Corporate Secretary

Les Sulewski - Sidoti & Company, LLC Kara Anderson

Good day, everyone, and welcome to the ClearOne Fourth Quarter and Full Year 2013 Earnings Results Conference Call. This call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to PondelWilkinson's Mr. Roger Pondel. Mr. Pondel, please go ahead, sir. Roger S. Pondel: Thank you so much, and good morning, everyone. Thank you for joining us today to discuss ClearOne's 2013 fourth quarter and year end 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 begin. Please be advised that this call is being broadcast live on the internet, at www.clearone.com. A playback of the call will be available for at least 3 months and may be accessed on the internet at ClearOne's website. Before we begin, I would 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 forecasts of certain aspects of the company's future and actual results could differ materially from those stated or implied. With that said, I will now turn the call over to Zee. Zee?

Thank you, Roger, and good morning, everyone. Thank you for joining us today to discuss our fourth quarter and year end 2013 results. We are pleased to report record revenue for the last quarter of 2013 and our fourth consecutive year of revenue growth, combined with high margins and consistent profitability. Revenue for the fourth quarter reached $14.2 million, representing outstanding 9% year-over-year growth. For the year ended December 31, 2013, revenue increased 7% to $49.6 million. These solid results generate from a ClearOne culture built on a growth from a strategically built portfolio of innovative and profitable products, a relentless focus on operational excellence and sensible use of our hard-earned growth capital. On the audio side of the business, strong demand by our large and well-developed partner ecosystem in North America and EMEA drove our revenue growth performance in the last quarter. Many of our new professional audio products, which we developed over the past several years and shipped in 2013, continued to ramp and we enjoyed double-digit growth in this category. On the video side of the business, in early January, we announced our strategic acquisition of Spontania. Spontania completes our exceptional portfolio of technologies needed for a strong video-solutions model and complements our industry-leading voice solution. Spontania is a carrier-grade, software-based, cloud-collaboration solution, which combines the benefits of videoconferencing and web conferencing into a unique, effective and powerful enterprise solution that can scale to tens of thousands of users. It targets and supports the rapid growth of desktop and mobile video communication. It works on all PC platforms, such as Windows, Linux and Mac, and all mobile platforms, including Android, iOS and tablets. And importantly, Spontania inter-operates with other standards-based video collaboration solutions on the market today, such as Polycom, Cisco, LifeSize, ClearOne COLLABORATE and others. Since 2007, Gartner, the leading IT research and advisory firm, has consistently ranked Spontania in the Magic Quadrant. This is a testimony to its visionary design and performance. Spontania solves the challenges of video collaboration at the most cost-competitive in the market. With this acquisition, ClearOne expands its video collaboration offering to cater to different market needs and leapfrog the competition, offering our customers multiple options to choose from these. These customer choices can include CapEx or OpEx, that is, on premise or in the cloud, or even private cloud or public cloud. As the market transitions to software and services, ClearOne is the only company to offer an entirely software-based and standards-based videoconferencing product line that provides on-premise and cloud-based Software-as-a-Service and Platform-as-a-Service solutions. According to IDC analysts, organizations are opting for lower-cost and software-only solutions. [Audio Gap] Spontania is available and selling now globally and in multiple languages. It is being used by conferencing service providers and across a variety of market verticals, including finance, health and telemedicine, enterprise, defense, education and the government public sector. We look forward to gaining significant market share and establishing ClearOne as a recognized leader for on-premise and cloud-based visual communication solutions in this rapidly growing desktop and mobile visual communications market. While we missed our target to ship the new video products at the end of the fourth quarter, we remain positive on their contribution to our overall performance growth in the quarters ahead. Now I'd like to turn the call over to Narsi for a detailed discussion of our fourth quarter and year end 2014 financial performance. Following Narsi's discussion, we will take questions for the available time. Narsi?

Thank you, Zee, and good morning, everyone. Before I begin, I would like to point out 2 things. First, I will be discussing certain non-GAAP financial measures. A reconciliation of these non-GAAP measures to reported GAAP measures is included in the earnings release. In addition, our financial results for current periods and the comparable periods in last year include favorable litigation-related proceeds. The litigation proceeds amount can be found in the Operating Expense section of our statement of operations and had the positive effect of decreasing total operating expenses and increasing both operating income and net income. Now turning to our financial performance for the fourth quarter of 2013. Please note, the following comparisons refer to fourth quarter of 2013 as against the same quarter of 2012. Net revenue increased to $14.2 million, making this quarter the strongest-ever quarter in terms of revenue. The revenue for the fourth quarter increased by 9% compared to $13 million in 2012 fourth quarter. Gross profit was $8.5 million or 60% of revenue compared with $7.4 million or 57% of revenue. The increase in gross margin was due to favorable product mix and reduction in obsolescence-related charges. Turning to operating expenses. Sales and marketing expense increased by 22% to $2.3 million from $1.9 million. The increase was mainly due to increased commissions to salespersons and independent reps. However, when compared to third quarter 2013, the increase was only 5%. Research and product development expense decreased by about 9% to $2.1 million from $2.3 million in 2012. The decrease was mainly due to reduced employee costs and reduction in R&D assets amortization, which was partially offset by increased R&D project costs. Non-GAAP G&A expense increased to $1.3 million from about $1 million in 2012. This is an increase of about 34%. The increase was mainly due to increased legal fees on account of increased legal and consulting expenses. Total non-GAAP operating expenses, after excluding litigation proceeds, increased by 11% from $5.1 million in 2012 Q4 to $5.7 million in 2013 Q4. Non-GAAP operating income for Q4 increased by 26% to $2.9 million from $23.9 million -- sorry, excuse me, from $2.3 million in 2012 Q4. Non-GAAP net income increased by 49% to $1.8 million or $0.19 per diluted share from $1.2 million or $0.13 per diluted share for the prior year period. Non-GAAP adjusted EBITDA increased by 9% to $3.1 million or $0.33 per common share compared with $2.9 million or $0.31 per common share. Now turning to our financial results for the full year 2013. Please note, the following comparisons refer to full year 2013 versus full year 2012. Net revenue increased by 7% to $49.6 million from $46.4 million in 2012. Gross profit was $29.9 million or 60% of revenue compared with $27.3 million or 59% of revenue. The gross margin as a percentage of revenues increased due to favorable product mix and reduction in obsolescence-related charges. Turning to operating expenses. Sales and marketing expense increased by 10% to $8.9 million compared to $8.1 million in prior period. The increase was mainly due to increased commissions to salespersons and independent reps. Research and product development expense decreased by about 8% to $7.6 million from $8.3 million. The decrease was mainly due to reduced employee costs and a reduction in R&D assets amortization, which are partially offset by increased project expenses. Non-GAAP G&A expense increased by 20% from $4.3 million to $5.1 million. The increase was caused by increased legal expenses, auditing and accounting charges and recruitment expenses. Total non-GAAP operating expenses increased by 4% to $21.5 million from $20.5 million. Non-GAAP operating income increased by 24% to $8.4 million from $6.8 million. Non-GAAP net income increased by 44% to $5.7 million or $0.69 per diluted share from $4 million or $0.43 per diluted share for the prior year period. Non-GAAP adjusted EBITDA increased by 16% to $9.3 million or $0.99 per common share compared with $8 million or $0.87 per common share. Turning briefly to the balance sheet. Our balance sheet remains strong. We remain debt-free. On September -- on December 31, 2013, our cash and investments balance was $42.7 million. I would now like to turn the call back to Zee for concluding remarks.

Thank you, Narsi. Again, our results this quarter are especially encouraging when you compare ClearOne to our industry peers. During the fourth quarter, while our peers continued to see declines, flat results or minimal growth, ClearOne posted record performance. We are looking forward to a bright 2014 for our partners, our employees and shareholders of ClearOne. With that and the time available, we would now like to address any questions you may have. Operator?

[Operator Instructions] Our first question comes from Les Sulewski of Sidoti & Company. Les Sulewski - Sidoti & Company, LLC: So could you talk a little bit more, give a little bit more reason on the reason for the video shipment target miss in the fourth quarter? Was it pushed to the right? And how can we look at that?

We were disappointed that we didn't ship at the end of the fourth quarter as promised. I can't say that there is any one particular issue that kept us other than getting our products into production. We got caught in the middle of Chinese New Year. Quite frankly, that's not a significant reason, but once China closes for 3 weeks, it puts us somewhat behind and we do redo our schedules. We are optimistic that we're going to get those products in the following quarter, this quarter sometime, a little bit -- perhaps debut product at the beginning of the next quarter and are optimistic that those, too, will contribute to our growth going forward. The good message is there's continuing upside on our video. We will see it. Les Sulewski - Sidoti & Company, LLC: Okay. You -- and maybe briefly, if you could kind of give a geographical activity? What kind of things are you seeing in the U.S., in Europe and in Asia?

Yes. Let me give you first by Q4, and then I'll give you the entire year, okay? Les Sulewski - Sidoti & Company, LLC: Great, great.

Americas, we grew by 14%; EMEA, we grew by 24%; and APAC, the demand fell by 19%, okay? For the entire year, Americas grew by 10%, EMEA grew by 3.4%, and APAC was flat, actually. Les Sulewski - Sidoti & Company, LLC: Okay. Any kind of -- what was the reason for the flat on APAC?

Did you say APAC, Les? Les Sulewski - Sidoti & Company, LLC: Yes. Well, I mean, what's -- you had flat sales. So can you explain that a little bit further?

Yes. Well, as you may know, APAC, especially China, where we get the -- our significant revenue, is going through a lot of political and, I would say, internal changes. The new government has stopped a lot of the large projects in China and that has certainly contributed to some slow in growth. In India, the currency devaluation also has put pressure on U.S.-made products and has also continued to apply some headwinds on maintaining growth. Les Sulewski - Sidoti & Company, LLC: And with having Spontania now operational within ClearOne for, I guess, it's a little bit over a month now, what kind of order activity are you seeing from this acquisition?

Yes. I would just say we have not fully closed on the acquisition. As we announced, we're going through regulatory approval. We're expecting in the next, I would say, 2 weeks or so that we hope that it will be fully closed. But Narsi might be able to add a little more to that.

Yes. Once we close, we can start counting revenue. Until that time, Spontania is not part of our financials or part of our business, actually. Les Sulewski - Sidoti & Company, LLC: Okay, I see. And then perhaps maybe looking out at 2014. In terms of additional acquisitions, any kind of a budget or any number you have set or any other additional alignments that -- how do you look at acquisitions for this year?

Well, I mean, I would say that we have cash. That's one of our strategies, of course, to continue to add to the portfolio. The growth right now we're seeing is obviously new products, new technologies that we're introducing. And we haven't closed our checkbook. We're just very particular to make sure that any acquisition is highly complementary to what we already do, is highly complementary to the channel that we sell in and is something that we can digest so that we don't hurt our overall strong bottom line performance.

[Operator Instructions] Our next question comes from Ian Corydon of B. Riley & Co.

It's actually Kara Anderson, chiming in here for Ian. If you could break out by segment the revenue for the quarter and the year, preferably the year-over-year growth rates and actual dollar amounts?

Actually, I gave year-over-year growth rates. The total revenue, you can do the math. It's going to be precise. Let me first start with just Q4. Pro products contributed 21% growth, UC was down by 7%, and video was down by more than 38% [ph], actually. Okay? For the entire year, Pro was up by 15%, UC was down by about 10%, and video was flat, actually.

At this time, I'd like to turn the call back over to management for any closing remarks.

Okay. Thank you, again. We appreciate your continued interest in ClearOne and joining us today for our quarterly and annual update. If there's any other further questions, please contact ClearOne Investor Relations or ClearOne here. That concludes our call for the day and we thank you for your attention.

Thank you. Thank you, ladies and gentlemen, for your participation. That does conclude your program. You may disconnect your lines at this time. Have a great day.