What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-08-14 compared with 2024-05-17 · 69 added, 51 removed, 118 unchanged (50% of the section changed)

25 unchanged sentences

All subsequent forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements.

Additional factors that may have a direct bearing on our operating results are discussed in Part II, Item 1 A “Risk Factors” in this Quarterly Report on Form 10-Q for the period ended March 31, 2024 and in Part I , Item 1 A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023 period.

Additional factors that may have a direct bearing on our operating results are discussed in Part II, Item 1 A “Risk Factors” in this Quarterly Report on Form 10-Q for the period ended June 30, 2024 and in Part I , Item 1 A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023 .

BUSINESS OVERVIEW

5 unchanged sentences

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

On March 11, 2024, we announced a one-time special cash dividend of $0.50 per share of ClearOne common stock, payable on April 10, 2024 to shareholders of record on April 2, 2024.

On January 23, 2024 we launched the DIALOG® 20 USB wireless microphone system at Integrated Systems Europe (ISE) 2024, a major global audiovisual expo.

ClearOne’s booth at ISE 2024 recorded a 319% increase in unique visitors compared to the number of unique visitors the Company’s booth recorded in 2023.

The DIALOG® UVHF Wireless Microphone System also received AV Technology Magazine’s Best in Show award at ISE 2024, having previously garnered other notable industry awards in 2023.

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 13 % in the first quarter of 2024 when compared to the first quarter of 2023 , primarily due to a significant decrease in revenues from the audio conferencing category.

On March 11, 2024, we announced a one -time special cash dividend of $ 0.50 per share of ClearOne common stock, paid on April 10, 2024 to shareholders of record on April 2, 2024.

On January 23, 2024 we launched the DIALOG® 20 USB wireless microphone system at Integrated Systems

Europe (ISE) 2024 , a major global audiovisual

ClearOne’s booth at ISE 2024 recorded a 319 % increase in unique visitors compared to the number

of unique visitors the Company’s booth recorded in 2023 .

The DIALOG® UVHF Wireless Microphone System also received AV Technology

Magazine’s Best in Show award at ISE 2024 , having

previously garnered other notable industry awards in 2023.

Overall revenue decreased by 58 % in the second quarter of 2024 when compared to the second quarter of 2023 , primarily due to a significant decrease in revenues from the audio conferencing category.

The revenue decline was also caused by significantly reduced demand for our products in many regions including USA, Europe and China when compared to 2023 -Q2 revenues.

2 unchanged sentences

Historically, we have seen a lag of several months between the time that our professional conferencing products are specified for installation and the date when those products are installed.

Since our product availability was constrained through a significant part of Q4 2023, we believe our revenue could be impacted negatively by these market dynamics through much of Q2 2024.

Since our product availability was constrained through a significant part of Q 4 2023 , we believe our revenue was impacted negatively by these market dynamics through much of Q 2 2024 .

We have also faced sales headwinds from our products’ lack of Microsoft Teams certification, despite their longtime functional compatibility with this platform.

Our work through early 2024 has focused on mitigating these impacts through maintaining consistent dialogues, product demonstrations, and feedback cycles with end users and channel partners, along with improving our visibility at key industry events.

Our work through the first half of 2024 has focused on mitigating these impacts through maintaining consistent dialogues, product demonstrations, and feedback cycles with end users and channel partners, along with improving our visibility at key industry events.

In addition, we saw a reduction in sales in the Middle East region, where we had previously experienced consistent sales growth, as we transitioned to a new distributor for the Middle East region.

We believe o ur revenue performance in 2024 -Q2 also was to a small extent impacted negatively due to increased costs associated with electronic raw materials that have affected the global manufacturing of high tech products.

We expect these increased costs in various degrees to continue through 2024 and 2025 .

Our gross profit margin increased to 31.8 % during the first quarter of 2024 from 31.5 % during the first quarter of 2023 .

The marginal increase in gross profit is mainly due to savings in freight cost wherein air shipments were reduced and replaced by ocean shipments wherever feasible.

Net loss increased from $ 0.8 million in the first quarter of 2023 to $ 1.9 million in the first quarter of 2024 .

The increase in net loss was mainly due to (a) a decrease in revenues partially offset by a decrease in operating expenses and (b) a recognition of $1.35 million from a one-time legal settlement of a contract dispute in first quarter of 2023.

Our gross profit margin decreased to ( 0.9 )% during the second quarter of 2024 from 33.7 % during the second quarter of 2023 .

Our gross profit margin decreased to 19.1 % during the first six months of 2024 compared to 32.7 % during the first six months of 2023 .

This is due to scrapping of inventory items and increase in the reserve on Unite Camera from 35% to 50%.

Net loss increased from $ 1.0 million in the second quarter of 2023 to $ 2.8 million in the second quarter of 2024 .

The increase in net loss was mainly due to (a) decrease in revenues and increase in operating expenses related to inventory .Net loss increased from $ 1.9 million for the first half of 2023 to $ 4.7 million for the first half of 2024 .

The increase was mainly due to (a) decrease in revenue by $3.7 million, (b) significant decrease in Gross margin from 32.7% to 19.1% and (c) decrease in interest income.

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.

8 unchanged sentences

Our installed professional audio conferencing products, which is our flagship product category, continue to be ahead of the competition despite the reduction in revenues.

Our strength in this space is largely due to our fully integrated suite of products consisting of DSP mixers, wide range of professional microphone products and video collaboration products.

Despite our strong leadership position in the installed professional audio conferencing market, we face challenges to revenue growth due to the limited size of the market, pricing pressures from new competitors attracted to the commercial market due to higher margins, and the lack of certifications from Microsoft.

Our strength in this space is largely due to our fully integrated suite of products consisting of DSP wide range of professional microphone products and video collaboration products.

Despite our strong leadership position in the installed professional audio conferencing market, we face challenges to revenue growth due to the lack of component availability to build our products in 2023 driving growth to competitors, pricing pressures from new competitors attracted to the commercial market due to higher margins, and the lack of certifications from Microsoft.

Notably, the Microsoft Teams device certification program is closed to new meeting room devices and solutions.

3 unchanged sentences

We expect our strategy of making our products more interoperable with other audio-visual products, continuing to improve the quality of our high-end audio conferencing products and microphones, and offering a wide range of innovative professional cameras will generate growth in the near future.

We derive a significant portion of our revenue (approximately 70% in the first three months of 2024) from international operations and expect this trend to continue in the future.

We derive a significant portion of our revenue (approximately 61% in the first six months of 2024 ) from operations outside North and South America and expect this trend to continue in the future.

Most of our revenue from ou tside the U.S.

5 unchanged sentences

Deferred Product Revenue

Deferred product revenue decreased to $ 26 thousand on March 31, 2024 compared to $ 30 thousand on December 31, 2023 .

Deferred product revenue decreased to $23 thousand on June 30, 2024 compared to $ 30 thousand on December 31, 2023 .

A detailed discussion of our results of operations follows below.

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

Results of Operations for the three months ended March 31, 2024

The following table sets forth certain items from our unaudited condensed consolidated statements of operations for the three months ended March 31, 2024 (“ 2024 - Q1 ”) and 2023 (" 2023 - Q1 ") , respectively, together with the percentage of total revenue which each such item represents:

Three months ended March 31,

Results of Operations for the three and six months ended June 30, 2024

The following table sets forth certain items from our unaudited condensed consolidated statements of operations for the three and six months ended June 30, 2024 (“ 2024 - Q2 ”) (" 2024 - H1 ") and 2023 (" 2023 - Q2 ") (" 2023 - H1 ") , 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

7 unchanged sentences

Provision for income taxes

Our revenue decreased to $ 3.6 million in 2024 - Q1 compared to $ 4.2 million in 2023 - Q1 due to a 35 % decline in audio conferencing and a 19% decline in video products, offset by a 31 % increase in microphones.

Except for BMA all other product categories suffered revenue declines year over year.

Our revenue decreased to $ 2.3 million in 2024 - Q2 compared to $ 5.5 million in 2023 - Q2 due to a 60.5 % decline in audio conferencing, a 30 % decline in video products, and a 61 % decrease in microphones.

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

During the first quarter of 2024 , revenues from Asia including India and the Middle East as a whole increased by 18 % while all other regions suffered revenue loss.

During 2024 - Q1 revenues from Americas declined by 30 % and from Europe and Africa declined significantly by 42 %.

When comparing 2024-Q2 to 2023-Q2, all sales regions suffered revenue loss.

Revenues from Americas declined by 64 %,from Europe and Africa by 41 %, and from Asia Pacific (including Middle East, India and Australia) by 50 %.

Our revenues decreased to $ 5.9 million in 2024-H1 compared to $ 9.7 million 2023 -H1 due to a 47 % decline in audio conferencing, a 24 % decline in video products, and a 33 % decrease in microphones.

Our traditional ceiling mics, personal audio conferencing products.

and video cameras suffered revenue declines due to lack of demand.

When comparing 2024-H1 to 2023-H1, all sales region suffered revenue loss.

Revenues from Americas declined by 54%, from Europe and Africa by 42% ,and from Asia Pacific (including Middle east , India and Australia) by 16%.

Costs of Goods Sold and Gross Profit

Cost of goods sold includes expenses associated with finished goods purchased from outsourced manufacturers, the repackaging of our products, our manufacturing and operations organization, property and equipment depreciation, warranty expense, freight expense, royalty payments, and the allocation of overhead expens es.

Our gross profit margin increased from 31.5 % during 2023 - Q1 to 31.8 % during 2024 - Q1 .

The marginal increase was due to saving in freight cost wherein air freight was controlled by replacing air freight with ocean freight.

Our gross profit margin decreased from 33.7 % during 2023 - Q2 to( 0.9 ) % during 2024 - Q2 .

Our gross profit margin decreased from 32.7 % during 2023 - H1 to 19.1 % during 2024 - H1 .

The declines in the periods represented were due to increased

inventory scrap costs, increasing the inventory reserve to write down the value

for certain items, and an increase in purchase price variance from increasing

vendor costs.

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

6 unchanged sentences

Total operating expenses in 2024 - Q2 was $ 2.9 million compared to $ 3.2 million in 2023 - Q2 .

Total operating expenses were $ 6.1 million for 2024 -H 1 compared to $ 6.7 million for 2023 -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 2024 - Q1 increased marginally to $ 1.3 million from $ 1.2 million for 2023 - Q1 .

The increase was primarily due to i ncrease in trade-show related expenses.

S&M expenses decreased in 2024 - Q2 to $ 1.2 million from $ 1.3 million in 2023 - Q2 .

The decrease was primarily due to decrease in salaries, commissions, and consulting

expenses from sales department restructuring .

S&M expenses remained consistent at $2.5 million when comparing 2024 - H1 to 2023 - H1 .

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 2024 - Q1 compared to $ 1.0 million for 2023 - Q1 .

The decrease was primarily due to decrease in legal expenses and project related expenses.

R&D expenses were consistent at $ 0.9 million when comparing 2024 - Q2 to 2023-Q2.

R&D expenses decreased to $ 1.8 million in 2024 - H1 compared to $ 1.9 million for 2023 - H1

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 $ 0.8 million in 2024 - Q2 compared to $ 1.0 million in 2023 - Q2 .

The reduction was primarily due to (a) a decrease in legal expenses, (b) and a decrease in insurance expenses, (c) and a reduction in employee related expenses.

The reduction was primarily due to (a) decrease in insurance expenses, (c) and a reduction in amortization expense.

G&A expenses decreased to $ 1.9 million in 2024 - H1 compared to $ 2.3 million in 2023 - H1 .

The reduction was primarily due to (a) a decrease in legal expenses, (b) and a decrease in insurance expenses, (c) reduction in employee related expenses.

(d) and a reduction in amortization expense.

Interest Expense

I nterest expense decreased to $ 0.0 million in 2024 - Q1 compared to $0.3 million in 2023 - Q1 .

The interest expense declined due to repayment of all the debts in full in 2023.

I nterest expense was $0 in 2024 - Q2 compared to $ 0.1 million in 2023 - Q2 .

I nterest expense decreased to $ 0.0 million in 2024 - H1 compared to $ 0.4 million in 2023 - H1 The interest expense was NIL due to repayment of all the debts in full in 2023 .

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

1 unchanged sentence

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

Other income for 2024 - Q1 included $0.2 million of interest income received on marketable securities.

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

Other income for 2024 - Q2 included $0.3 million of interest income received on marketable securities compared to $0.5 million in 2023 - Q2

Provision for income taxes

During each of the three months ended March 31, 2024 and 2023 , we did not recognize any benefit from the losses incurred due to setting up a full valuation allowance.

During each of the six months ended June 30, 2024 and 2023 , 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, 2024 , our cash and cash equivalents were approximately $ 18.5 million compared to $ 17.8 million as of December 31, 2023 .

Our working capital was $ 21.4 million and $ 39.1 million as of March 31, 2024 and December 31, 2023 , respectively.

Net cash provided by opera ting activities was approximately $ 0.4 million in the three months ended March 31, 2024 , a decrease of net cash provided by ope rating activities of approximately $ 59.9 million from $ 60.3 million of net cash used by operating activities in the three months ended March 31, 2023 .

The decrease in cash inflow was primarily due to $56.4 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 in the three months ended March 31, 2023.

These receipts were partially offset by operating losses.

Net cash provided by investing activities in the three months ended March 31, 2024 was $ 0.3 million compared to $ 0.1 million of net cash used in investing activities in the three months ended March 31, 2023 .

The increase in cash provided by investing activities was primarily due to an increase in sale of marketable securities (net of purchases) by $0.3 million and an increase in purchase of property and equipment by $0.06 million.

These increases were partially offset by the elimination of capitalized legal expenses of $0.03 million.

Net cash provided by financing activities in the three months ended March 31, 2024 was $ 0.007 million compared to $2.2 million used in payments of principal amounts due on senior convertible debt in the three months ended March 31, 2023 .

As of March 31, 2024 , our cash and cash equivalents were approximately $ 18.5 million compared to $ 17.8 million as of December 31, 2023 .

Our working capital was $ 21.4 million as of March 31, 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 May 17, 2025 .

As of June 30, 2024 , our cash and cash equivalents were approximately $ 2.5 million compared to $ 17.8 million as of December 31, 2023 .

Our working capital was $ 21.7 million and $ 39.1 million as of June 30, 2024 and December 31, 2023 , respectively.

Cash used in opera ting activities was approximately $ 2.7 million in the six months ended June 30, 2024 , a decrease of approximately $ 55.6 million from $ 52.9 million of cash provided by operating activities in the six months ended June 30, 2023 .

The decrease in cash inflow was primarily due to the difference between $55 million in receipts from legal settlements received in first half of 2023 and $0 received in fist half of 2024.

Cash provided by investing activities in the six months ended June 30, 2024 was $ 1.8 million compared to $ 7.4 million of cash used in investing activities in the six months ended June 30, 2023 .

The increase in cash provided by investing activities was primarily due to proceeds from sale of marketable securities of $5.4 million offset by purchases of marketable securities of $3.4 million in the six months ended June 30,2024 compared to $2.3 million and $9.3 million respectively compared to the six months ended June 30,2023.

Cash used in financing activities in the six months ended June 30, 2024 was $ 14.5 million compared to $31.4 million of cash being used in the six months ended June 30, 2023.

This was comprised primarily of dividend distributions payments made.

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;

1 unchanged sentence

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, 2024 , we had open purchase orders of approximately $ 4.5 million mostly for the purchase of inventory.

As of March 31, 2024 , we had inventory totaling $ 15.6 million, of which non-current inventory accounted for $ 4.2 million.

As of June 30, 2024 , we had open purchase orders of approximately $3.02 million mostly for the purchase of inventory.

As of June 30, 2024 , we had inventory totaling $ 16.4 million, of which non-current inventory accounted for $ 1.8 million.

This compares to total inventories of $ 13.8 million, which includes non-current inventory of $ 3.1 million as of December 31, 2023 .

1 unchanged sentence

Contractual Obligations and Commitments

The following table summarizes our contractual obligations as of March 31, 2024 (in millions):

The following table summarizes our contractual obligations as of June 30, 2024 (in millions):

Payment Due by Period

14 unchanged sentences

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