ClearOne(CLRO) - 2023 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements The company presents its unaudited condensed consolidated financial statements as of September 30, 2023 Note 1. Business Description, Basis of Presentation and Significant Accounting Policies The company outlines its business as a global AV solutions provider and the basis of its financial reporting - The company is a global market leader in conferencing, collaboration, and AV streaming solutions for voice and visual communications[5] - The financial statements are interim, unaudited, and prepared pursuant to SEC rules, containing all necessary normal recurring adjustments for a fair presentation[7] - In Q1 2023, the Company adopted ASU 2016-13 (Financial Instruments - Credit Losses), which did not have a material impact on the results of operations[9] Note 2. Revenue Information Revenue declined in Q3 and YTD 2023, with decreases observed across most product groups and regions Revenue by Product Group (in thousands) | Product Group | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Audio conferencing | $1,867 | $3,201 | $6,484 | $9,655 | | Microphones | $2,355 | $2,475 | $6,239 | $8,525 | | Video products | $667 | $588 | $1,827 | $3,004 | | Total | $4,889 | $6,264 | $14,550 | $21,184 | Revenue by Region (in thousands) | Region | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | North and South America | $2,400 | $3,251 | $7,353 | $10,211 | | Asia Pacific | $2,058 | $2,018 | $5,426 | $6,560 | | Europe and Africa | $431 | $995 | $1,771 | $4,413 | | Total | $4,889 | $6,264 | $14,550 | $21,184 | Note 3. Loss Per Share The company reports a net loss for Q3 and YTD 2023, with basic and diluted loss per share detailed Loss Per Share Calculation (in thousands, except per share amounts) | Metric | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Net loss | $(1,351) | $(1,248) | $(3,202) | $(3,472) | | Basic weighted average shares | 23,960,313 | 23,952,555 | 23,957,311 | 23,933,033 | | Basic & Diluted Loss Per Share | $(0.06) | $(0.05) | $(0.13) | $(0.15) | Note 4. Marketable Securities The company held $6.28 million in available-for-sale marketable securities as of September 30, 2023 Available-for-Sale Securities as of September 30, 2023 (in thousands) | Security Type | Amortized Cost | Estimated Fair Value | | :--- | :--- | :--- | | US Treasury securities | $3,281 | $3,278 | | Mutual funds | $1,169 | $1,171 | | Certificates of deposit | $859 | $859 | | Corporate bonds and notes | $989 | $973 | | Total | $6,298 | $6,281 | Note 5. Intangible Assets Net intangible assets decreased, and amortization expense was significantly lower in 2023 compared to 2022 Net Intangible Assets (in thousands) | Date | Net Intangible Assets | | :--- | :--- | | September 30, 2023 | $1,794 | | December 31, 2022 | $2,071 | Amortization of Intangible Assets (in thousands) | Period | 2023 | 2022 | | :--- | :--- | :--- | | Three months ended Sep 30 | $141 | $686 | | Nine months ended Sep 30 | $388 | $2,038 | Note 6. Inventories Total inventories remained stable, with a portion classified as long-term assets Inventory Breakdown (in thousands) | Inventory Type | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Current | $8,664 | $8,961 | | Long-term | $2,870 | $2,707 | | Total | $11,534 | $11,668 | Note 7. Leases The company details its operating lease liabilities and associated rent expenses, which have decreased year-over-year Lease Liabilities and Assets (in thousands) | Balance Sheet Item | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Operating lease right-of-use assets | $1,081 | $1,047 | | Total operating lease liabilities | $1,145 | $1,133 | Rent Expense (in thousands) | Period | 2023 | 2022 | | :--- | :--- | :--- | | Three months ended Sep 30 | $110 | $169 | | Nine months ended Sep 30 | $369 | $518 | Note 8. Shareholders' Equity Shareholders' equity decreased significantly due to a special cash dividend payment of $29.0 million - On May 8, 2023, the Board of Directors declared a special one-time cash dividend of $1.00 per share, resulting in a payment of $28.98 million on May 31, 2023[52] - On August 1, 2023, the company received a delisting notification from Nasdaq because its common stock closing bid price was below $1.00 for 30 consecutive trading days[54] Note 9. Debt The company holds senior convertible notes maturing in December 2023 and repaid a bridge loan in January 2023 - The company has senior convertible notes with a principal amount of $1.245 million maturing on December 17, 2023[57][62] - In January 2023, a $2.0 million bridge loan obtained in October 2022 from affiliate Edward D. Bagley was repaid in full, including applicable interest[63] Note 10. Share-based Compensation Share-based compensation expense remained consistent, with $186 thousand in unrecognized costs remaining Share-based Compensation Expense (in thousands) | Period | 2023 | 2022 | | :--- | :--- | :--- | | Three months ended Sep 30 | $33 | $24 | | Nine months ended Sep 30 | $80 | $89 | - As of September 30, 2023, the total remaining unrecognized compensation cost for non-vested stock options was approximately $186 thousand, to be recognized over a weighted average period of 2.42 years[66] Note 11. Income Taxes The company recorded a full valuation allowance against its deferred tax assets due to recent pre-tax losses - The company recorded a full valuation allowance against expected tax benefits from its current year loss, concluding it was more likely than not that its deferred tax assets were not realizable[68] - As of September 30, 2023, the company had approximately $962 thousand of uncertain tax positions[69] Note 12. Fair Value Measurements The company's financial instruments, valued at $6.28 million, are categorized under Level 1 and Level 2 fair value hierarchies Fair Value of Financial Instruments as of Sep 30, 2023 (in thousands) | Asset Type | Level 1 | Level 2 | Total | | :--- | :--- | :--- | :--- | | Mutual funds | $1,171 | $— | $1,171 | | US Treasury securities | $— | $3,278 | $3,278 | | Certificates of deposit | $— | $859 | $859 | | Corporate bonds and notes | $— | $973 | $973 | | Total | $1,171 | $5,110 | $6,281 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes the Q3 2023 revenue decline, margin contraction, and improved cash position from legal settlements Business Overview The company launched several new products in 2023 but faced a 22% year-over-year revenue decrease in Q3 - The company introduced several new products in 2023, including the CHAT® 150 BT speakerphone, UNITE 260 Pro camera, DIALOG® UVHF wireless microphone system, and BMA 360D Dante-compatible microphone array[77][79][80] - Overall revenue decreased by 22% in Q3 2023 compared to Q3 2022, attributed to a significant decrease in audio conferencing revenues and manufacturing transition issues[88] - Gross profit margin decreased to 33.1% in Q3 2023 from 41.0% in Q3 2022, mainly due to increased overhead costs and a change in product revenue mix[89] Results of Operations Q3 2023 revenue and gross profit declined, widening the operating loss, though YTD net loss improved slightly Consolidated Statements of Operations Summary (in thousands) | Metric | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $4,889 | $6,264 | $14,550 | $21,184 | | Gross Profit | $1,616 | $2,570 | $4,779 | $8,193 | | Operating Loss | $(1,489) | $(1,130) | $(5,033) | $(4,632) | | Net Loss | $(1,351) | $(1,248) | $(3,202) | $(3,472) | - Q3 2023 revenue decreased by 22% YoY, driven by a 42% decline in audio conferencing and a 5% decline in microphones, partially offset by a 14% increase in video products[102] - Total operating expenses decreased by 16% in Q3 2023 and 23% YTD, primarily due to reduced General & Administrative expenses[110][117][118] - Other income for the nine months ended Sep 30, 2023 included $1.34 million from a one-time legal settlement and $1.0 million of interest income[121] Liquidity and Capital Resources The company's cash position improved significantly due to legal settlements, despite large dividend and debt payments Cash and Working Capital (in millions) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $13.7 | $1.0 | | Working capital | $36.7 | $69.3 | - Net cash provided by operating activities was $51.1 million in the first nine months of 2023, primarily due to $55 million in receipts from legal settlements[124] - Net cash used in financing activities was $31.7 million, mainly comprising $29.0 million in dividend distributions and repayment of a $2.0 million bridge loan[126] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section is marked as not applicable in the report - The report states this item is not applicable[137] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2023 - Based on an evaluation as of September 30, 2023, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures are effective at a reasonable assurance level[138] - There were no changes in the Company's internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, these controls[139] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company reports that there were no legal proceedings during the period - None[141] Item 1A. Risk Factors The company reports no new risk factors to supplement its most recent annual report - None[142] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reports no unregistered sales of equity securities during the period - None[143] Item 3. Defaults Upon Senior Securities The company reports no defaults upon senior securities - None[36] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including required certifications and XBRL data - The exhibits filed with this report include Section 302 and 906 certifications for the CEO and Principal Financial Officer, as well as various XBRL instance and taxonomy documents[29]