What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-08-10 compared with 2023-05-15 · 95 added, 42 removed, 142 unchanged (49% of the section changed)

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termination of supplier relationships, or failure of suppliers to perform;

our expectations regarding the ongoing transition of manufacturing of our products from China to Singapore by our electronics manufacturing services provider;

inability to successfully manage growth;

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streaming content while simultaneously showing it live where the presentation is occurring.

In May 2023, we launched eight new COLLABORATE® Versa® packaged hardware systems to provide optimized audio and video performance for conference rooms and personal office spaces.

The updated lineup of bundled solutions empowers businesses of all sizes and means to leverage powerful conferencing capabilities that include automatic voice tracking, face tracking and echo cancellation.

The new lineup of COLLABORATE Versa solutions offers an ideal package for every small-to-medium sized conferencing space or personal office, giving business owners and IT staff mission-specific options that ensure maximum value, utility and performance in any room.

The solutions launched were COLLABORATE Versa Room CT 160, COLLABORATE Versa Room CT, COLLABORATE Versa 20, COLLABORATE Versa 20 Plus, COLLABORATE Versa 160, COLLABORATE Versa 60, COLLABORATE Versa Pro 160, and COLLABORATE Versa Pro 60.

In June 2023, we returned to Infocomm for the first time since 2019 with a complete suite of products, programs, and on-site demonstrations designed to help partners grow their business across every vertical market where increased collaboration is a priority.

We exhibited our solutions in Booth #3061 in the Orange County Convention Center from June 14-16, 2023 in Orlando, Florida.

At Infocomm 2023, we unveiled the BMA 360D, the newest member of the world’s most advanced beamforming microphone array ceiling tile family.

The BMA 360D offers unrivaled audio performance and native compatibility with any Dante-enabled DSP mixer.

The new Dante-compatible beamforming microphone array allows integrators and users to leverage ClearOne’s industry-leading microphone innovations in more projects and spaces than ever before.

The BMA 360D takes our groundbreaking product to the next level by leveraging standard IP networking infrastructure in an enterprise, empowering AV and IT practitioners to upgrade existing room solutions to use more powerful microphones and expanding flexibility that enables third-party DSP integrations in new system designs.

The added power and advanced beamforming also enhance the performance of critical modern functions such as voice lift and camera tracking.

Dante integration in the BMA 360D enhances the array’s functionality by delivering unprocessed beam audio on individual Dante transmit channels.

Additionally, a smart-switched output is delivered on a separate Dante channel to provide the optimal mix of active inputs while enabling ClearOne’s full suite of audio enhancements, which include echo cancellation, noise cancellation, and level control.

The BMA 360D incorporates the industry’s only ultra-wideband, frequency-invariant beamforming mic array technology with uniform gain response across all frequency bands.

With proprietary FiBeam™ and DsBeam™ technology, participants experience natural and full-fidelity audio across all beams and within a single beam.

DsBeam delivers superb clarity and intelligibility through unparalleled sidelobe depth below -40 dB, resulting in superior rejection of reverb and noise even in challenging environments.

Integrator setup is simplified by convenient preset beam patterns for common room layouts, while custom beam patterns can be created for unique floor plans.

Combined with adaptive steering that focuses audio pickup on active speakers, the adjustable beam patterns provide impeccable coverage of every meeting or conference participant.

The exceptional accuracy of ClearOne’s beamforming and adaptive steering technologies also enhance the performance of voice lift and camera tracking functions for any attached DSP mixer.

We also introduced at Infocomm, our powerful new DIALOG® UVHF wireless microphone system that combines class-leading flexibility, Power over Ethernet (PoE) simplicity, Dante technology, and up to 350 usable frequencies to offer professional-quality audio conferencing, video collaboration, and sound reinforcement for any size room.

The new DIALOG UVHF system offers businesses and institutions a flexible wireless microphone system that can address varying types of audio pickup needs for rooms of virtually any size.

With up to 350 available frequencies across 160 MHz of RF range, the system also delivers incredibly robust reception.

Now corporate boardrooms, training rooms, college lecture halls, courtrooms and other multi-use venues can ensure excellent audio pickup quality and meet varying pickup needs with the simplicity of PoE that enables installation virtually anywhere through a single CAT6 ethernet cable.

ClearOne’s free support for system design and remote commissioning makes it easier than ever to outfit any presentation space with a professional-quality multi-function audio pickup solution.

The DIALOG UVHF system allows integrators, room designers and meeting hosts to address a wide range of audio pickup needs through five lavalier, lanyard and headset-type body microphones, two handheld microphones, a boundary microphone and three gooseneck microphones for podium use.

Powering the microphones is simple and efficient, as all models use the same 12-hour off-the-shelf Li-ion battery that can be charged via USB-C or an optional eight-bay network-connected charging dock.

Firmware updates can be done over the network, while the transmitters charge.

The Dante-enabled system includes an eight-channel Dante Access Point to ensure optimal signal transmission and system reliability, while an optional DIALOG UVHF Dante interface provides eight Euroblock balanced analog outputs, including mixed output, USB audio output and eight GPIOs.

The lightweight plenum-rated access point provides versatile mounting options for wall, ceiling, tabletop or pole mounting, including VESA mount holes.

The DIALOG UVHF is the only system with a wireless access point that delivers antenna redundancy and diversity, with dual antennas providing spatial and polarization diversity that helps maintain high audio quality in harsh environments.

A wired ethernet connection adds the ability to connect management software to the access point via a web browser.

Secure RF connections are created using full-time standards-based FIPS 197 AES-256 encryption.

ClearOne’s solutions are designed to support all leading collaboration platforms, including Microsoft Teams, Google Meet, GoToMeeting, Zoom and WebEx.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

We continued our programs to cut costs and to speed up product development that we believe will enable us to get back to a growth path.

Overall revenue decreased by 45% in the first quarter of 2023 when compared to the first quarter of 2022, primarily due to a significant decrease in revenues from all product categories, especially microphones.

Overall revenue decreased by 26% in the second quarter of 2023 when compared to the second quarter of 2022, primarily due to a significant decrease in revenues from all product categories, especially microphones.

The revenue decline was primarily due to our continued inability to source adequate inventory to meet the demand for professional audio products and BMA due to the ongoing transition of manufacturing of our products from China to Singapore by our electronics manufacturing services provider and due to the decline in demand for video products.

We expect the challenges with the manufacturing transition from China to Singapore to ease in the second half of 2023.

We expect the challenges with the manufacturing transition from China to Singapore to ease in the second half of 2023 as we have seen improvement in product deliveries in the second quarter of 2023 when compared to the first quarter of 2023.

Our revenue performance in 2023-Q2 was also partially impacted negatively due to increased costs associated with the electronic raw material supply shortages that have affected the global manufacturing of high tech products.

We expect these supply shortages and associated increased costs to continue through at least the end of 2023.

Our gross profit margin decreased to 31.5% during the first quarter of 2023 from 37.3% during the first quarter of 2022.

We expect these supply shortages and associated increased costs in various degrees to continue through at least the end of 2023.

Our gross profit margin decreased to 33.7% during the second quarter of 2023 from 38.1% during the second quarter of 2022.

Our gross profit margin decreased to 32.7% during the first six months of 2023 compared to 37.7% during the first six months of 2022.

Gross Profit margin decreased year over year mainly due to increase in administration and overhead costs as a percentage of revenue and increase in inventory obsolescence costs.

Net loss decreased from $2.0 million in the first quarter of 2022 to $0.8 million in the first quarter of 2023 .

The decrease in net loss was mainly due to a receipt of $1.35 million from a one-time legal settlement of a contract dispute.

This receipt, included in other income was partially offset by an increase in operating losses of $0.3 million.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Net loss increased from $0.3 million in the second quarter of 2022 to $1.0 million in the second quarter of 2023 .

The increase in net loss was mainly due to (a) the recognition in 2022-Q2 of $1.5 million in gain from the forgiveness of CARES Act Paycheck Protection Program Loan in 2022-Q2 , and (b) a decrease in revenues and associated gross margin, partially offset by (c) a decrease in operating expenses and increase in interest income.

Net loss decreased from $2.2 million for the first half of 2022 to $1.9 million for the first half of 2023.

The decrease was mainly due to (a) a recognition of $1.35 million from a one-time legal settlement of a contract dispute, (b) significant reduction in operating expenses, and (c) increase in interest income, partially reduced by (d) reduced revenue and associated gross margin, and (e) recognition of $1.5 million gain from the forgiveness of CARES Act Paycheck Protection Program Loan in 2022-Q2.

Industry conditions

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It has become increasingly important to have higher interoperability with other products in the audio visual market as well as with leading video conferencing service providers like Microsoft and Zoom .

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Economic conditions, challenges and risks

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Deferred Product Revenue

Deferred product revenue increased to $71 thousand on March 31, 2023 compared to $63 thousand on December 31, 2022.

Deferred product revenue decreased to $52 thousand on June 30, 2023 compared to $63 thousand on December 31, 2022.

A detailed discussion of our results of operations follows below.

Results of Operations for the three and six months ended June 30, 2023

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations for the three months ended March 31, 2023

The following table sets forth certain items from our unaudited condensed consolidated statements of operations for the three months ended March 31, 2023 (“ 2023 - Q1 ”) ("2023-YTD") and 2022 (" 2022 - Q1 ") ("2022-YTD") , respectively, together with the percentage of total revenue which each such item represents:

Three months ended March 31,

The following table sets forth certain items from our unaudited condensed consolidated statements of operations for the three and six months ended June 30, 2023 (“ 2023 - Q 2 ”) ("2023-H 1 ") and 2022 (" 2022 - Q 2 ") ("2022-H 1 ") , respectively, together with the percentage of total revenue which each such item represents:

Three months ended June 30,

Six months ended June 30,

(dollars in thousands)

Change Favorable (Adverse) in %

Cost of goods sold

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Our revenue decreased to $5.5 million in 2023-Q2 compared to $7.4 million in 2022-Q2 due to a 14% decline in microphones, a 48% decline in video products, and a 30% decline in audio conferencing.

Except for wireless mics and premium audio conferencing, both of which constitute a small percentage of our revenue all other product categories suffered revenue declines year over year.

Revenues from BMA and professional audio conferencing products were negatively impacted by our inability to source adequate inventory to meet the demand for professional audio products and BMA due to the ongoing transition of manufacturing of our products from China to Singapore by our electronics manufacturing services provider.

Except for premium audio conferencing, which constitutes a small percentage of our revenue all other product categories suffered revenue declines year over year.

Revenues from BMA and professional audio conferencing products were negatively impacted by our inability to source adequate inventory to meet the demand for these products despite a robust backlog of orders, due to the ongoing transition of manufacturing of our products from China to Singapore by our electronics manufacturing services provider.

Our traditional ceiling mics, personal audio conferencing products, video cameras and video conferencing equipment suffered revenue declines due to lack of demand.

During the first quarter of 2023, revenues from Americas declined by 58% primarily due to decreased revenues from all the regions.

During 2023-Q1 revenues from the Asia Pacific, including the Middle East, India and Australia decline by 18% primarily due to declines in revenues from all sub-markets except India and Australia.

Finally, revenues from Europe and Africa decreased significantly by 46% in 2023-Q1 primarily due to decreases across all the sub-markets except Central Europe.

During the second quarter of 2023, revenues from Americas increased by 6% while all other regions suffered revenue loss.

During 2023-Q2 revenues from the Asia Pacific, including the Middle East, India and Australia declined by 32%.

Finally, revenues from Europe and Africa declined significantly by 75% in 2023-Q2.

During the six months ended June 30, 2023 our revenues decreased from $14.9 million to $9.7 million compared to the same period in 2022 due to revenues from microphones decreasing by 36%, video products decreasing by 52% and audio conferencing decreasing by 28%.

We believe, although there can be no assurance, that we can return to generating operating profits through our strategic initiatives namely product innovation and cost reduction.

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Our gross profit margin decreased from 38.1% during 2022-Q2 to 33.7 % during 2023 -Q2 .

The gross profit margin was negatively impacted due to increases in material costs due to mainly due to increase in administration and overhead costs as a percentage of revenue and increase in inventory obsolescence costs .

The gross profit margin was negatively impacted due to increases in material costs mainly due to an increase in administration and overhead costs as a percentage of revenue and increase in inventory obsolescence costs .

Our gross profit margin decreased from 37.7% during 2022 -H1 to 32.7 % during 2023 -H1.

The gross profit margin decreased primarily due to increase in material costs mainly due to an increase in administration and overhead costs as a percentage of revenue and increase in inventory obsolescence costs .

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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Total operating expenses in 2023-Q2 was $3.2 million compared to $4.5 million in 2022-Q2.

Total operating expenses were $6.7 million for 2023-H 1 compared to $9.1 million for 2022-H 1 .

The following contains a more detailed discussion of expenses related to sales and marketing, research and product development, general and administrative, and other items.

Sales and Marketing - S&M expenses include selling, customer service, and marketing expenses such as employee-related costs, allocations of overhead expenses, trade shows, and other advertising and selling expenses.

S&M expenses in 2023-Q2 decreased to $1.3 million from $1.6 million for 2022-Q2.

The decrease was primarily due to decreases in employment expenses and consultant expenses due to a reduction in the headcount and due to decrease in commissions paid to employees and consultants.

The decrease was primarily due to decreases in employment expenses and consultant expenses due to a reduction in headcount and due to a decrease in commissions paid to employees and consultants.

S&M expenses in 2023 -H 1 decreased to $ 2.5 million from $ 3.1 million for 2022 -H 1 .

The decrease was primarily due to decreases in employment expenses and consultant expenses due to a reduction in headcount and due to a decrease in commissions paid to employees and consultants.

Research and Product Development - R&D expenses include research and development, product line management, engineering services, and test and application expenses, including employee-related costs, outside services, expensed materials, depreciation, and an allocation of overhead expenses.

R&D expenses decreased to $0.9 million in 2023-Q2 compared to $1.2 million for 2022-Q2.

The decrease was primarily due to reduction in employment expenses due to reduction in the headcount and a decrease in project-related expenses.

The decrease was primarily due to a reduction in employment expenses due to a reduction in headcount and a decrease in project-related expenses.

R&D expenses decreased to $ 1.9 million in 2023 -H 1 compared to $ 2.5 million for 2022 -H 1 .

The decrease was primarily due to a reduction in employment expenses due to a reduction in the headcount and a decrease in project-related expenses.

General and Administrative - G&A expenses include employee-related costs, professional service fees, allocations of overhead expenses, litigation costs, and corporate administrative costs, including costs related to finance and human resources teams.

G&A expenses decreased to $1.0 million in 2023-Q2 compared to $1.7 million in 2022-Q2.

The reduction was primarily due to (i) a decrease in amortization costs relating to our capitalized patent defense costs, which was fully amortized in 2022-Q4, (ii) a decline in audit fees, (iii) and a decline in employment-related expenses, partially offset by (iv) increase in legal expenses, and (v) insurance expenses .

The reduction was primarily due to (i) a decrease in amortization costs relating to our capitalized patent defense costs, which was fully amortized in 2022-Q4, (ii) a decrease in legal expenses, (iii) and a decrease in employment-related expenses.

G&A expenses decreased to $ 2.3 million in 2023 -H 1 compared to $ 3.5 million in 2022 -H 1 .

The reduction was primarily due to (i) a decrease in amortization costs relating to our capitalized patent defense costs, which was fully amortized in 2022-Q 4 , (ii) a decline in audit fees, (iii) and a decline in employment-related expenses, partially offset by (iv) increase in insurance expenses .

Other income (expense), net

Other income (expense), net includes interest income, foreign currency changes and gain or loss on disposal of assets.

Other income in 2023-Q1 included a receipt of $1.35 million from a one-time legal settlement of a contract dispute.

Other items included in other income remained immaterial during 2023-Q1 and 2022-Q1.

I nterest expense increased to $0.3 million in 2023-Q1 compared to $0.1 million in 2022-Q1.

primarily due to interest associated with the prepayment of the $2 million bridge loan in January 2023.

Provision for income taxes

During each of the three months ended March 31, 2023 and 2022, we did not recognize any benefit from the losses incurred due to setting up a full valuation allowance.

Other income for 2023-Q2 included $0.45 million of interest income received on marketable securities.

Other income in 2022-Q2 and 2022-H1 included $1.5 million in gain from the forgiveness of CARES Act Paycheck Protection Program Loan.

2023-H1 included a receipt of $1.35 million from a one-time legal settlement of a contract dispute and $0.8 million of interest income received on marketable securities.

All other items not discussed herein included in other income remained immaterial during 2023-H1, 2022-H1, 2023-Q2 and 2022-Q2 .

I nterest expense remained almost the same at $0.1 million in 2023-Q2 and 2022-Q2.

I nterest expense increased to $ 0.4 million in 2023 - Q 1 compared to $ 0.2 million in 2022 - Q1 primarily due to interest associated with the prepayment of the $2 million bridge loan in January 2023.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Provision for income taxes

During each of the six months ended June 30, 2023 and 2022, we did not recognize any benefit from the losses incurred due to setting up a full valuation allowance.

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2023, our cash and cash equivalents were approximately $59.0 million compared to $1.0 million as of December 31, 2022.

Our working capital was $ 68.7 million and $69.3 million as of March 31, 2023 and December 31, 2022, respectively.

As of June 30, 2023, our cash and cash equivalents were approximately $15.1 million compared to $1.0 million as of December 31, 2022.

Our working capital was $ 37.5 million and $69.3 million as of June 30, 2023 and December 31, 2022, respectively.

Net cash provided by opera ting activities was approximately $52.9 million in 2023 -Q2 , an inc rease of cash provided by ope rating activities of approximately $55.6 million from $2.7 million of cash used by operating activities in 2022-Q2.

The increase in cash inflow was primarily due to $55 million in receipts from legal settlements, the receipt of $4.5 million from the return of a bond deposited with a court, and a $1.3 million refund of income taxes with interest.

These receipts were partially offset by operating losses.

These receipts were partially offset by operating losses and $6.5 million in income tax payments.

Net cash used in investing activities in 2023-Q2 was $7.4 million compared to $2.4 million of net cash provided by investing activities in 2022-Q2.

In 2022-Q1 cash provided by investing activities primarily consisted of $2.0 million in proceeds from sale of marketable securities, partially offset by capitalized patent defense costs of $0.2 million.

Net cash used in financing activities in 2023-Q1 was $2.2 million, comprised primarily of repayment of the bridge loan of $2.0 million and $0.2 million payments of principal amounts due on senior convertible debt.

This compares to $0.4 million used in principal amounts due on senior convertible debt in 2022-Q1 .

As of March 31, 2023 , our cash and cash equivalents were approximately $ 59.0 million compared to $1.0 million as of December 31, 2022 .

Our working capital was $ 68,7 million as of March 31, 2023 .

Net cash provided by operating activities was $ 60.3 million for the three months ended March 31, 2023 , an increase of $ 61.4 million compared to $ 1.0 million of cash used in operating activities for the three months ended March 31, 2022 .

The company announced a special one -time cash dividend of $ 1.00 per share or eligible warrant (please see Note 10 - Subsequent events) which will be paid on May 31, 2023 and is expected to generate cash outflows of approximately $29.0 million.

The increase in cash used in investing activities was primarily due to increase in purchase of marketable securities (net of sales) by $4.0 million and increase in purchase of property and equipment by $0.3 million.

These increases were partially offset by the elimination of capitalized legal expenses of $0.5 million.

Net cash used in financing activities in 2023-Q2 was $31.4 million, comprised primarily of dividend distributions of $29.0 million, repayment of the bridge loan of $2 million and $0.5 million payments of principal amounts due on senior convertible debt.

This compares to $0.4 million used in principal amounts due on senior convertible debt and a receipt of $0.8 million in loan repayments refunded upon forgiveness of CARES Act Paycheck Protection Program loan in 2022-Q2.

As of June 30, 2023 , our cash and cash equivalents were approximately $15.1 million compared to $1.0 million as of December 31, 2022 .

Our working capital was $37.5 million as of June 30, 2023 .

Net cash provided by operating activities was $52.9 million for the six months ended June 30, 2023 , an increase of $55.6 million compared to $2.7 million of cash used in operating activities for the six months ended June 30, 2022 .

The company announced and paid in May 2023 a special one -time cash dividend of $ 1.00 per share or eligible warrant totaling $29.0 million.

The Company also paid approximately $6.5 million towards income taxes in April 2023.

The Company believes that the Company's core strategies of product innovation and prudent cost management will bring the company back to profitability in the future.

The Company believes, although there can be no assurance, that the current cash position and all of these measures and effective management of working capital, will provide the liquidity needed to meet our operating needs through at least May 15, 2024 .

The Company believes, although there can be no assurance, that the current cash position and effective management of working capital will provide the liquidity needed to meet our operating needs through at least August 10, 2024 .

The Company also believes that its strong portfolio of intellectual property and its solid brand equity in the market will enable it to raise additional capital if and when needed to meet its short and long-term financing needs;

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If the Company needs additional capital and is unable to secure financing, it may be required to further reduce expenses, or delay product development and enhancement.

As of March 31, 2023 , we had open purchase orders of approximately $1.6 million mostly for the purchase of inventory.

As of March 31, 2023 , we had inventory totaling $11.3 million, of which non-current inventory accounted for $2.9 million.

This compares to total inventories of $11.7 million and non-current inventory of $2.7 million as of December 31, 2022 .

As of June 30, 2023 , we had open purchase orders of approximately $2.1 million mostly for the purchase of inventory.

As of June 30, 2023 , we had inventory totaling $10.9 million, of which non-current inventory accounted for $3.4 million.

This compares to total inventories of $11.7 million, which includes non-current inventory of $2.7 million as of December 31, 2022 .

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Contractual Obligations and Commitments

The following table summarizes our contractual obligations as of March 31, 2023 (in millions):

The following table summarizes our contractual obligations as of June 30, 2023 (in millions):

Payment Due by Period

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis