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Huge Downdraft Challenges ClearOne - Q4 2016

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Huge Downdraft Challenges ClearOne - Q4 2016
    

By: -
14 Mar 2017
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ClearOne reported revenues of $10.73M for the fourth quarter, down 25% from Q4-2015.  Net income swung from earnings of $1.572M to a loss of $1.088M as a result.  Company management cited several factors for this temporary setback, including:

  • The transition to the company’s next generation professional audio conferencing platform has taken, or is taking, longer than expected.  Customers appear to be waiting before placing orders.
  • To stimulate customer interest in buying the current generation produced, ClearOne reduced pricing on that product line.  This stimulated sales, but not enough to make up the hoped-for revenue shortfall.  It did however contribute to a 37% decline in gross profit.  Gross profit dropped from 63.6% of sales in Q4-15 to 53.0% in Q4-16.
  • The political climate in Europe (Brexit, Spain) aggravated infrastructure and capital equipment spending.
  • The political climate in USA around the election cycle did not help business either.

The company did not provide a revenue breakdown this time around, but provided a few anecdotes such as video (which includes a mix of the company’s room video conferencing systems, Unite PTZ cameras, and Spontania VCaaS / streaming services) was up 40% year over year, to allow me to make the estimates used in the following graph for Q4.

Company management cited "video" as a high growth opportunity for ClearOne given its strong audio product line and its products and services coverage.  Short term optimism is based on the traction exhibited by the new Converge Pro 2 audio system and on the company's Beamforming Microphone Array 2.

The company ended the year with over $17M in cash and marketable securities on the balance sheet and continues to both pay a dividend and engage in share buybacks.  I'm not qualified to offer opinions on share prices - whether they are overpriced or underpriced - but the recent history of ClearOne's annual revenue results suggests a company that is struggling to grow.  When does a downdraft become a nasty undertow?

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