Cobra Electronics Management Discusses Q1 2013 Results - Earnings Call Transcript

| About: Cobra Electronics (COBR)

Cobra Electronics (NASDAQ:COBR)

Q1 2013 Earnings Call

April 26, 2013 11:00 am ET

Executives

James R. Bazet - Chairman and Chief Executive Officer

Robert J. Ben - Chief Financial Officer and Senior Vice President

Sally A. Washlow - President

Analysts

David Rode

Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Cobra Electronics Corporation First Quarter 2013 Conference Call. [Operator Instructions] This conference is also being recorded today, April 26, 2013.

I would now like to turn the conference over to our host, Chairman and CEO, Mr. Jim Bazet. Please go ahead, sir.

James R. Bazet

Thank you, operator. Good morning, and welcome to the Cobra Electronics First Quarter Earnings Conference Call. With me today, I have Bob Ben, Senior Vice President and Chief Financial Officer; and Sally Washlow, President of Cobra Electronics. Each of them will have an opportunity to address our results shortly. And I'll be available to respond to your questions at the conclusion of the call. I'm now going to ask Bob to give some opening remarks regarding our call today.

Robert J. Ben

Before we begin, please keep in mind that our call today will include certain forward-looking statements and that actual results could differ materially from the results projected in the forward-looking statements. We refer you to our Forms 10-K and 10-Q, especially the risk factors, for information that could cause actual results to differ materially from the results projected in the forward-looking statements.

Please also keep in mind that this conference call is being simultaneously broadcast over the Internet, and a replay will be available on the Cobra website for 30 days shortly after our call.

Now I'd like to turn the call back to Jim to share his thoughts on our first quarter results.

James R. Bazet

Thanks, Bob. I will provide some highlights and thoughts on the performance or lack thereof in the first quarter. But not just the performance, I want to give you a flavor for what's going on in the industry, and then talk about why we're optimistic about the year and the back half and what is driving that optimism. You'll hear sharing this with me today Sally Washlow and Bob Ben as well.

This morning, we reported to our shareholders a net loss of $1.5 million, or $0.23 per share, for the first quarter compared to the net income of $339,000, or $0.05 a share, in the first quarter of 2012. In addition, there was an operating loss of $1.7 million for the current quarter compared to an operating income of $161,000 in the same quarter last year.

I'd like to spend a little bit of time reviewing the first quarter net sales and gross margins, then we'll talk a little bit about some of the flavor.

First, consolidated net sales for the quarter of 2013 were $21.6 million, or $4.8 million lower than in the first quarter of 2012, due to the decreases in both of our reporting segments. The Cobra segment sales were $4.6 million lower than the prior year's first quarter. The sales drop in the Cobra segment resulted from lower Eastern European sales of radar detectors and lower European sales of two-way radios, as well as lower domestic sales of citizens band radios. The decreases in both European and domestic sales reflected a more-than-usual seasonal slowdown in store traffic largely as a result of weaker economic -- economy and consumer spending, and harsher global winter weathers in Eastern Europe. While we are disappointed with these results, we know that others in the consumer electronics industry have also been severely impacted by these negative business conditions. You'll note today several people released earnings that were much less than expected.

Turning to some brighter news. In our newer products, the revolutionary Cobra Vedetta, a series of detectors, made a strong contribution in the first quarter sales. Sally will talk more about the new products in a few minutes. The good -- the better news is we seem to be getting measurable and meaningful placement of some of our other new products as well as the Vedetta for the back half of the year.

PPL segment net sales were $206,000 lower than in prior year's quarters. The sales decrease was attributable to a very difficult economic environment across Europe. As you may know, there has been an expanded recession in the U.K. and other areas of Western Europe.

Consolidated gross margins for the first quarter of 2013 was 28.9% compared to 28.7% in the first quarter of 2012 as a result of increased percentage of higher-margin PPL sales. For the Cobra segment, the gross margin was 27.4%, the same as in the first quarter of last year. PPL's gross margin decreased from 38.1% in the first quarter of 2012 to 37.4% in the current quarter, reflecting mainly foreign exchange losses compared to gains in the same quarter. The takeaway here is that our gross margins are holding well. And when consumers show up in the stores, our sell-through is robust, and that gives us pause to consider some optimism going forward.

We had an unusually high expense level this quarter. I'd like to address this increase in SG&A expenses. These expenses increased to $8 million in the current quarter from $7.4 million in same quarter last year as a result of significant legal expenses incurred for the Fleming patent infringement lawsuit that the company believes is totally without merit and we are vigorously defending. We do expect ongoing expenses for this lawsuit but at a lower level.

Let's talk about the outlook. As to the outlook for the second quarter of 2013 and for the entire year, as noted in our press release this morning, we expect to achieve a lower operating income in the second quarter of 2013 than in the second quarter of 2012, primarily due to certain initial heavy load-ins of Truck Navigation products that will not be repeated at the same level in 2013. We're not losing space, we're not losing shelf space, but the load-in will be a little bit smaller as these products transition into 2013. The company does anticipate a higher level of profitability in 2013 as compared to 2012, as Cobra's business will be more successful in the current economic environment from the introduction of a variety of innovative products and planned expansion of distribution worldwide. I just returned from Washington, D.C., where I attended the Consumer Electronics Association Board of Industry Leaders Meeting. In that meeting, CEA's chief economist let us know that the industry, in general, is expecting a much more robust back half but a challenging first half.

In conclusion, the U.S. economy is reflecting very inconsistent consumer spending, which appears to be driving both greater peaks and valleys in product purchases relative to the past. The better news is that most of the retailers right now have been managing their inventory so closely that they will have to buy their sales as the store traffic returns.

Continuing high unemployment and higher taxes are key factors that caution further improvements to consumer spending. However, Cobra is still well positioned for future quarters for the following reasons. One, we have a strong brand name and a growing brand equity. Our company has been in business for more than 50 years and have shown great resilience during these types of periods. We continue to expand our marketing and distribution networks worldwide, which provides more storefronts for consumers to find purchases of our products. The Cobra brand products are sold now in more than 75 countries and 55,000 storefronts. Additionally, we continue to use this network more promotionally oriented to increase the sales and the sell-through of our products. Mainly, with our develop or die philosophy, we continue to introduce and develop exciting award-winning new products that take advantage of marketing and distribution channels and also targeting younger consumer. We continue investing in cost-effectively building awareness about these new products, thereby getting the word out and helping to drive consumer demand. And I might want to point out at this point in time, these new products are just not replacement products for the legacy products we have, but a good capturing [ph] of new products and new product categories offering more opportunity.

At this point, I'm going to turn the call over to Bob. And then Sally will give you an update on our marketing and product initiatives and a little more detail on why we have optimism for the year. So, Bob, why don't you talk a little bit about the financial performance?

Robert J. Ben

Thanks, Jim. Good morning, everyone. As Jim noted earlier, Cobra reported a net loss for the first quarter of $1.5 million, or $0.23 per share, as compared to net income in the prior year's first quarter of $339,000, or $0.05 per share. This drop from the first quarter of 2012 resulted from primarily lower sales and higher SG&A expenses, but it was partially offset by a higher gross margin. The company reported net sales of $21.6 million in the current quarter as compared to $26.4 million in the first quarter of 2012. Consolidated gross margin was up slightly to 28.9%, primarily due to an increased percentage of PPL sales, which have a higher margin.

Turning to selling, general and administrative expenses. These increased to $8.0 million from $7.4 million in the prior year's first quarter. Variable selling expenses, however, declined, consistent with the net sales. Fixed expenses, though, were higher, primarily in the Cobra segment, reflecting mainly the increased legal expenses resulting from the ongoing Fleming patent infringement lawsuit that Jim talked about earlier.

As a result of all these factors, Cobra reported an operating loss of $1.7 million for the current quarter compared to an operating income of $161,000 in the prior year's first quarter.

Interest expense for the first quarter of 2013 was $160,000 compared to $253,000 in the same quarter of 2012, or a drop of $73,000. This reflected a lower interest rate with the amendment and extension of our revolving credit facility that was completed in December of last year.

Other income was $353,000 compared to $493,000 in the prior year's first quarter due to foreign exchange losses compared to foreign exchange gains in the same quarter of last year.

Turning to a review of the March 31 balance sheet. Accounts receivable at the end of the quarter were $13.6 million compared to $17.0 million 1 year earlier. Days sales outstanding was 48 days compared to 47 days in the prior year. Inventories at the end of the first quarter increased to $33.1 million from $30.2 million at March 31, 2012, as a result of the lower-than-expected sales. However, please note that inventory did decrease from December 31, 2012.

As a result, Cobra had interest-bearing debt of $18.2 million as compared to $13.4 million at March 31, 2012, and cash of $4.9 million compared to cash of $1.2 million at March 31, 2012. This was mainly due to the timing of some significant cash receipts coming in on the last day of the quarter that were not able to be applied to our debt. However, it was -- it reduced our accounts receivable. Therefore, debt, net of unapplied cash as of March 31, 2013, was $13.3 million compared to $12.2 million at March 31, 2012.

I would like to turn the call over to Sally now to provide you with an update on our markets and products. Sally?

Sally A. Washlow

Good morning. While we are not pleased with our Q1 results, I will provide an overview of our initiatives and recently announced products to improve results for the year. We are focused on controlling the elements of the business that we can, which is timely introduction of new products, along with strengthened and improved channel and distribution strategies.

As referenced in our fourth quarter and 2012 earnings conference call, we have a number of products launching in the second quarter, as well as throughout the year. We expect these products to start building momentum in time for the key holiday selling season.

The Cobra AirWave will be available in mid-May. The Cobra AirWave is a portable, Bluetooth-based music receiver that allows users to wirelessly stream audio from their Bluetooth-enabled smartphones or tablet devices to millions of existing older-generation home stereos, car stereos or standalone speakers. Now consumers can enjoy wireless audio on any of their older-model stereo systems at a fraction of the cost of replacing them. What's more, users can experience today's music in premium sound quality while having the freedom to control their music from anywhere within Bluetooth range. Cobra's new line of two-way radios with all-new designs began shipping early this month. Not only as a new line of powerful two-way radios or walkie-talkies, but each model contains a built-in NOAA weather radio. NOAA weather radio, sometimes called NWR, is a nationwide network of radio stations broadcasting continuous weather information directly from the nearest National Weather Service office. Working with the FCC's Emergency Alert System and local agencies, this radio broadcast also provides comprehensive weather and emergency information. NWR also broadcasts federal, state and local warnings and posts event information for all types of hazards, including earthquakes, avalanches, chemical or oil spills, and public safety information, such as AMBER alerts. The line consists of the 100, 300 and 500 series, each with unique designs, feature sets and price points.

The new line of handheld floating VHF radios has been well received by the boating community. We have product placement and key promotions going to kick off the boating season during the key Memorial Day weekend, the unofficial start of the boating season for most of America. The Cobra HH350 and sister radio, the HH500, are great additions for Cobra's marine lineup. The HH350 is the key price point for boaters and provides increased power, up to 6 watts, and full access to all NOAA weather channels. The patented HH500 Floating VHF Marine Radio is not only a handheld, waterproof VHF marine radio, but it also includes Bluetooth wireless technology. The wireless capability allows users to pair their smartphones to the radio, so they can answer and make phone calls while keeping their cellphones safe and dry.

In late March, we were at the Mid-America Trucking Show, where we had the opportunity to meet with professional drivers. We were pleased with the current response to our line of LX Citizens Band radios, as well as drivers commenting on the recent bundle pack promotions. These PRO packs for drivers have been well received, as it provides essential work tools for the professional driver. The 29 LCD PRO packs contain a 29 LCD TV and an external speaker and a mic holder. All of these are essential for the driver and a helpful starter kit for the new driver on the road. The 5825 LX Bundle pack included a 5-inch navigation unit, along with the 25 LX CB radio. We had several drivers at the show comment on their purchase of the bundle pack and the ease of use.

Our navigation unit for professional driver received many compliments from the drivers as an essential tool to utilize every day as they transport goods across the country. We are pleased that drivers have found the 6000 and 8000 navigation units as essential business tools to route them legally, safely and efficiently to their destination.

We also introduced Cobra HomeBase, which is a software update for our trucking navigation unit. HomeBase allows drivers to download the latest map and software updates and also provides a backup for personal data, such as address book and state mileage logs.

Cobra further demonstrated several products designed to help drivers abide by hands-free legislation, including the industry's most advanced Citizens Band radio, the 29 LX Bluetooth, plus Cobra's new All-In-One Wireless CB Headset. The 29 LX Bluetooth CB radio leverages Bluetooth technology, allowing truckers to connect their CB radio to their mobile phones. With the 29 LX Bluetooth, drivers can make and receive phone calls through the radio without ever touching their phone. Other hands-free compliant features include voice announcement of incoming callers, caller ID display on the unit, text-to-speech conversion for listening to incoming e-mail messages and responding simply by talking. Cobra's All-In-One Wireless Headset consists of a lightweight and ergonomic Bluetooth and RF-capable headset, featuring a state-of-the-art boom mic and integrated noise canceling technology and heavy-duty push-to-talk button, which keys the CB microphone. This headset supports hands-free cell phone usage for both inbound and outbound one-touch calling and can be used with virtually any Bluetooth-enabled cell phone and Citizens Band radio.

We also have some innovative radar products that are shipping throughout the year. The iRadar ATOM is the most innovative, user-friendly and technologically advanced radar/laser/camera detection system on the market that employs highly miniaturized ultrahigh performance components, making it the smartest detection system with the smallest footprint in the industry. The unit shares alerts in real time when paired with the all-new updated Cobra iRadar app. The Cobra iRadar app, with over 0.5 million users, just received a major upgrade called version 3.1. Version 3.1 of the iRadar app reinvents the user experience from the ground up with an updated map view, tools menu, live traffic view and a car-finder function.

The Cobra SPX Radar line includes 3 new models, the SPX 5300, 5400 and 5500, all which include supercharged performance in a more compact unit size. The 3 models offer double the detection range with less false alerts, all at a highly affordable price.

We are also pursuing expanded distribution channels throughout the summer, which includes new products and territories. You will hear more throughout the year as we come closer to launching the products in those markets.

This concludes my overview of our key sales and marketing initiatives. We remain optimistic regarding our future and we look forward to sharing with you the results of our efforts.

Operator, we are now ready to take questions.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from the line of private investor, Timothy Stavros.

Timothy Stabosz

Well, pretty disgusting results, I would say, all in all. Here's my question right off the bat. The company said it expects lower operating income in the second quarter of 2013. How on God's green earth and why is this management team willing to suggest that for the year that the company is going to -- and by the way, I missed the first 15 minutes of the call, so I apologize if this was answered -- that you're going to have higher operating income, higher level of profitability for the year versus last year? Seems incredulous to me.

James R. Bazet

Yes. It's not so incredulous, Tim, I think, as we look back at where we have trended in the past. First of all, as you well know, you've been with us for a while, our business is heavily skewed on the back half of the year anyway. We're normally about 40% on the front side -- maybe 35% to 40% on the front side and 60% to 65% on the backside. So that alone indicates higher revenue and higher earnings just on a trend basis. Secondly, as I've mentioned, I didn't know if you had heard, but I just got back from Consumer Electronics Association Conference in Washington, D.C., and our economist mentioned that the industry is seeing just what we have put out here today in front of us, Tim, and talked about. And we share your opinions about it being not a good quarter. However, they are predicting and expecting a robust back half for a variety of reasons. Third...

Timothy Stabosz

Aren't we going out on a limb, Jim, to be talking about higher income for the year, I mean, say with disappointment in the last 2 or 3 quarters?

James R. Bazet

We're out on a limb right now, Tim. And I'm not trying to minimize the limb by talking about the back half. But based on what we're seeing, what we're hearing, the trends of our business and the new products that we're introducing, we believe this to be the case.

Timothy Stabosz

Okay. I hate to ask this, but I think the question needs to be asked, and it needs to be asked publicly. Does management understand how some shareholders feel it insults the intelligence of the shareholder base when you talk about weaker consumer spending to blame and the harsh global winter weather conditions, and the "slow and uneven pace" of the global economic recovery? Is there a point in time when this company will take responsibility for its own results and not blame something else on the outside?

James R. Bazet

Sure. And I think we're doing that. I think we have to state the facts of what occurred. Russia had 4-foot snow and shut down for 10 days. Eastern Europe was just about paralyzed. That, unfortunately, does affect the stream of sales, of expected sales, that we were going to have. That's something we can't predict. Secondarily, the new Social Security tax has really slowed down customers going into the stores, and this is not speculation...

Timothy Stabosz

I don't believe that, Jim. I don't believe that. I don't see that. We don't see that in the GDP figures for Q1. We got a 3% GDP growth going on in Q1, Jim.

James R. Bazet

Maybe we can debate this offline, but what I was going to tell you is, is that it is a fact of our industry right now and...

Timothy Stabosz

Okay, I don't accept that but -- I don't see that, but maybe you can talk to me offline and prove to me that that's the case. To me, that's just more excuse-making. My question -- my next question is, do we have an inventory problem at this point? We got inventory, it's up 10% or more. Did we write off any inventory in Q1? And are we going to have to write off some of the inventory going forward?

Robert J. Ben

Absolutely not, Tim. This is Bob. As I noted in my comments, the inventory is down from year-end significantly. It's still higher than we'd like and that it should be, but I expect that to continue to come down. We've adjusted our ordering accordingly. I do not expect any write downs or anything of significance.

Timothy Stabosz

Okay, that's good to hear. And my final question is a broader question about the company. I think these results are quite disgusting. And so my question is, to point out to management or ask you, the volatility in the earnings history, to me, as a 1% owner of the company, seems to destroy the ability to get an appropriate valuation on Wall Street because no one ever knows what your earnings are going to be from quarter-to-quarter, and it's like being on a roller coaster ride. It's harrowing, and it's jarring. Company is selling for about half of book value now at today's plunge. The brand has value. You've done a good job, and I'll praise you accordingly for burnishing that value over the last few years. So I guess my question is, isn't Cobra worth more to its shareholder base dead than alive? I think if we sold the company, we could get a big premium to the current $3 trading price. We're never going to get the valuation on the Street with this type of roller coaster earnings that we have. So when is the board going to get off its duff and start marketing the company, so shareholders can maybe get the bird in the hand rather than the one in the bush that seems to be perennially in the future?

James R. Bazet

Well, Tim...

Timothy Stabosz

With all due respect to the board.

James R. Bazet

No, I understand, and I understand your frustration. But I think you have take some things into consideration. First of all, I totally disagree that this company is worth more dead than alive in today's times. Our shareholders would get little value in a time where you have not grown your business and done the things that are necessary to keep performance.

Timothy Stabosz

Fair enough.

James R. Bazet

Second of all, this is not the start of a trend, but instead, it's a perfect storm-type of situation. I think, and you would agree because you were a 10% shareholder. You made a lot of money, as you deserved to do, on your sale of stock based on our performance. The stock went up big on our performance. The stock did not go up based on financial engineering. So at the end of the day -- although I do respect your position and concern, and, believe me, I'm a big shareholder too here, and I've got lots to gain in this game. And as such, I have to totally disagree with you that this company is worth more dead than alive in today's times.

Timothy Stabosz

What about the volatility to earnings history and how that gets the attitude on the Street towards the company of investors when they see that? It's quite astonishing, the ups and the downs.

James R. Bazet

Absolutely, Tim, and we're working hard to change some of that. Part of it is -- and it's not an excuse, these are facts, part of it is surrounding with customer concentration, and we've been trying to get that resolved out because you get more volatility when we get into those things. You have to understand the industry that both with the consolidation that is going on in the customer bases, the concentration is the problem for all of us in the industry. Additionally, if you look back at our history, we have -- in the last 15 years, we have had much more profitability than we had lack of profitability in terms of earnings up and down, up and down. There have been some things that have affected us. We have had some situations that have occurred. There are some things that are beyond our controls. When you get sued, and you have to have a significant amount of earnings to protect that because it's without merit, but nonetheless, it's something we have to deal with. So I think what I would like to say to you is that, yes, we have had a bad year. You can call it disgusting. You can call it a bad quarter. Whatever you want to call it, there's no words to put into it. The objective now is let's get this thing back on track, which I think you would have to agree, you've seen us do this before. Let's get it moving. Let's get it growing. I think Sally's talked about a whole list of products that we have coming out here. And we're expanding more into Europe and expanding other distributions and so forth so that we're positioning ourselves very well. The economic conditions are not so much within our control, but I can assure you, if it's any consolation, that we are not sitting on our hands here. I mean, we are very busy putting together things that we can do, promotional season in the back half. I'm really pleased with the promotional activity we're starting to get that will tell us that we're going to -- our revenues are going to be fine. So let's see how we move forward. And we have a plan. We're moving forward with that plan, and we have to get out of this. And I respect your right to be dissatisfied with this.

Operator

[Operator Instructions] Our final question comes from the line of Dave Rode from Stifel, Nicolaus.

David Rode

Let's see, I had just some offbeat questions. I know we've got a lot of product introductions coming here. And my question is, I've seen several product introductions in the last couple years, whether it be PhoneLynx and whatnot, and again, thought there'd be some significant promise for these situations as they've come up. What is being done differently this time around as these product introductions come out so it could have more of a rippling effect as they unfold versus the past? Again, just in the PhoneLynx scenario, I look, I see, I'm like, Hey, that's a really cool product, looks like a good fit in an AT&T store, whatnot, and then I don't hear anything about it. So can you talk broadly about product introductions? What's going to be different about these product introductions versus last couple years?

Sally A. Washlow

Dave, I can talk about that. Yes, we've reviewed past performance as well with some of the introductions and had not been pleased with them. What we're doing now is we're working, one, closer internally with the kind of launch but getting more engaged with gathering more data of current Cobra owners, going directly to them, we're utilizing social media to build the platform of the awareness of it, and then working with our key channel partners as we announce these products, that they'll be available for sale at the point of retail, whether it's online, in-store or direct through Cobra. So we have a full initiative onboard from the marketing teams, the product teams and the sales team to better coordinate the launches of all of these products, and also engage in our public relations team as well so that we can hit better product introductions with more strides.

James R. Bazet

Dave, one of the -- just to add to that, one of the things that Sally said, we went back and started to look at some of these things and said, Why, with all the excitement that this created and everything, did these products not take off as good as expected? Whether it's your expectations or ours, it's still higher than the performance. What we discovered was something very interesting that we'd probably been making some mistakes along the way. In our zeal to make everyone aware of what we think are great products, particularly some new channels, we have been introducing these products and getting press about it much too early on in the process. So what we see has been happening is it gets a big excitement about it, and the news media picks it up, and they photograph. The products aren't available for sale. And in today's world, where a lot of people are buying online and everything, people would go to look for the product and it's not there yet. And so then it goes quiet. And then when we launch the product when it's available, we have to start pretty much all over again. So one of the things that's going to be different about some of these new products, we've decided, is we're going to start making our launch information and our noise about it closer to the date of it being available, so we don't get this lift in excitement about the product and then it dies down before we can get it in the stores.

David Rode

Okay. Question, do you have board seats open right now?

James R. Bazet

Not right now. No. We have 4 counsels that are board members.

David Rode

Okay. And do you have anybody on the board -- it seems to me that there's a lot of moving parts that are starting to come together a little bit. I know you guys tried the Groupon thing in late 2011, had some success with it. You've mentioned the social media aspect of the company. There's been some referencing in the past about the big data, if you will, to use the term, and as many as 500,000-plus downloads. Where do you -- what kind of a outside source are you utilizing on a consulting basis, or whatnot, to really tie that end? Or is it all being done internally? Are you using a specialist to tie all that stuff together? I mean, this Internet is a big thing. The social media is a big thing. It seems like you've got your toe in the water, and you've got some opportunities out there.

Sally A. Washlow

Well, we've got a couple of things, Dave. We hired the -- a director of new business development, who is extremely well versed in the territory of social media and e-commerce, but not only that, working in conjunction with some marketing firms that are experts in this to monitor us on those sites, to expand us on those sites. Eventually, could it turn, not from an agency to in-house positions as well? I think it could. It's the wave of the future. We've been working hard combining all of our databases of users across a single platform so that we have more insight and information to them and really starting to capitalize on the use of tens of thousands of -- or hundreds of thousands of Cobra customers that have been out there and accessing that information and leveraging that information.

David Rode

Okay. And can you talk a little bit about your -- either your continued presence or your presence in the Apple stores?

Sally A. Washlow

We have continued presence in there. You'll still continue to find iRadar in there. Of course, we're always looking to expand our presence there, too. And we think we have some products that could be a good fit for not only that retail chain but the entire ecosystem.

David Rode

And is there any look -- any reviews being done on PhoneLynx and reenergizing that all? Is there any progress or possibilities of getting into Verizon stores, AT&T stores with that product at all or?

Sally A. Washlow

We continue to reenergize that category. And we've been working on some promotions that you'll see throughout the year on that specific product and that entire category.

David Rode

Okay. And, Bob, could -- or Jim, could you -- again, I saw the margins have held, which I'm grateful for, with everything else going on. What kind of a gut feel is there going forward? Can you share any goals on margin? I know you were 1 percentage point or 2 higher, say, 3 or 4 quarters ago. Can you give us any ramp up or ramp down on expectations there or not?

Robert J. Ben

Sorry, Dave, I didn't hear the last part of your question.

David Rode

Can you give us any expectations as far as margins ramping up or ramping down? Anything in that area?

Robert J. Ben

I think that the margins this quarter, of course, as you indicated, held up. I expect, going forward, they're going to be similar to what they were this quarter. We -- there are a number of factors that go into it, as you know. Among them, foreign currency fluctuations and new products that come out from quarter to quarter. So I don't have a lot of guidance on that other than to say that I expect them to be similar to this quarter going forward.

David Rode

Okay. And the expenses in this first quarter, there was reference to the patent trolls, the lawsuits. Again, are we front-end-loading some of this? Do we have any expectations on a conclusion or anything? Do we expect ongoing expenses? Can we share a little bit as far as how that's being handled from an expense point of view?

James R. Bazet

Very careful. Dave, there's just a couple things. First of all, because there is a court matter pending on this, and I can't comment quantitatively other than to say it's significant. We expect, as Bob said, some continued expenses on this thing, albeit, lower than what we've seen in the last 5 months because a lot of the stuff, it's just keyed up now to move forward. If there is a trial and we don't reach some other conclusion, it's probably going to be a year away. Now you get to a point of diminishing returns on expenses, where everything is prepared and you're just waiting for a court docket date and stuff like that. As we said, though, to be clear, that we believe this is without merit. And all the people involved believe it's without merit. And so we are going to try to move this thing to the most economical and best settlement or best outcome for the company. It's kind of not up to us, but it's kind of up to the plaintiff. So having said all of that, our counsel, our people around here, we're all cognizant of trying to manage these expenses to a clear end. And it's a problem that the industry is experiencing. For example, in 2009, patent troll problems were $11.3 million -- $11.3 billion, I'm sorry. Just 2 years later, they went to $29.7 billion. So again, it's not an excuse, it's just a fact. And so that's where we are with these things. And we're moving forward and all. And I hope you respect the fact that there's a lot we can't comment on because of a pending court case.

David Rode

Yes. Can you give us a little bit of a sense of a vibe in the trucking industry through the feeling that you get with the success or not with travel centers or whatnot?

Sally A. Washlow

Certainly, I can. Just that from that aspect of meeting with professional drivers at the end of March for a couple days at the Mid-America Trucking Show, we certainly got a great vibe from them. Their industry is starting to take off again, and as vehicle sales improved and just the overall economy in the U.S. improves, we'll see some improvement in that channel. We're also looking forward to more drivers coming on the road, new drivers. And there's almost a generational shift going on with drivers today. So that's where we're really pleased to have some of the advancements that we've had in citizens band radios that can bring new technologies to the radio that allow drivers to connect. Every one of them has a smartphone today, but they still use a CB radio as an essential work tool. So we look to provide drivers with the convenience and access to be able to use new technology with some of our current product lines. So that's certainly been tremendous. With some of the travel center partners, we've had great promotional efforts with them. I mentioned a couple of the bundle packs that were developed that were very successful for not only us but for that retailer as well. So we continue to work with them on promotion. We'll have some strong promotion going into the May-June time frame as well as more and more drivers hit the road with the overall weather being better across the country. So we're very enthused about that channel, and not only that, but delivering more products to this channel throughout the -- mainly in the back half of the year.

David Rode

Okay. And, Jim, I know Tim had addressed it. Maybe trying to get more definition either from wording from you or whatnot. But in reading the release today, it says, however, the company anticipates a higher level of profitability in 2013 as compared to 2012, as Cobra's business will be more successful in the current economic environment, da, da, da, da, da. Now the last 3 years, on an EPS standpoint, after hemorrhaging in '08, '09, we did $0.21, $0.47, $0.48, respectively, in EPS the last 3 years. In reading that statement of the second quarter, does that mean that as a goal or as an anticipation, we are anticipating exceeding $0.48 this year, or we can't say that?

James R. Bazet

I don't think we can be that specific, and I would rather not be, whether it's less or more, but the -- we're giving an outlook for where we think the business is going to be in the back half and how that will climb -- claw back to the first half. And what we're saying, just to be clear, is that we believe the first half is going to be challenged. We believe we're going to have improved performance over the first quarter and the second quarter but not quite as good as the second quarter of last year. And the industry's predicting, with the promotions that we have going and the new products that we're introducing, if these things happen, that we should have a better 2013 than we did in 2012.

David Rode

Okay. And, Bob, without getting too much into it because I know I brought it up last time, again, on the "tax credit," we don't know when, and, again, it's about $1.31-ish, I think, as far as number, $9 million, that's -- and is that -- can we quantify that as a non-expiring deal?

Robert J. Ben

I think, first of all, it's $8.9 million at March 31 and, obviously, with the loss, we weren't able to do anything. We monitor it quarterly, and at the time that conditions are well, we'll reverse it accordingly. But now it doesn't expire, to your question.

David Rode

Okay. Good to know. And then lastly, on the product side, do we have any -- again, a lot of new product introductions. Do we have any new game-changing products down the pike that we can visit on right now, or not quite yet? Or...

Sally A. Washlow

We can't visit on them quite yet. Part of it is, as Jim mentioned, that we're going wait until we're closer to introduction on this for better coordination. But we do have some exciting new things in the pipeline.

Operator

[Operator Instructions] And I'm showing no further questions at this time. Please continue with any closing remarks.

James R. Bazet

Thank you, operator. We certainly appreciate your participation today. We recognize that it has been a tough quarter, and we do understand the frustration. Believe me, there's a lot of it here as well. I want to give you some comfort that this is not the start of a trend, but instead, it was the perfect storm between our legal expenses and the lack of customer traffic, both in Eastern Europe and here. It couldn't have been worse. And we regret that we're embattled in patent litigation, coupled with our significant downturn in the industry. So the timing of this couldn't have been worse. It's not an excuse, it's a fact. But we're not sitting on our hands, as I told Tim and as we talked about things. We're expanding our distribution. We're adding new distributors every day itself. We're ham-and-egging it at different places both Europe, where we see spots of -- or rays of sunshine, and also different types of businesses over here from a category standpoint. We're launching, perhaps, the best assortment of new products that -- in several years and within this year and aggressively pursuing the younger consumer and the places that they shop. We are making corrective action in how we launch products and how we keep the excitement going and our expectations about those products. We're successfully pushing promotions, both at retail and travel centers, now and in the back half. We're pleased with the results, and we're starting to see some successes there in terms of some promotions that will be happening in the back half with some of these new products and some of our existing products. And we're reaching out directly to the consumers through new programs and marketing initiatives, where Sally had mentioned that we're going to some of our databases and going into consumers. And we have promotions that are running, and that is being launched as we speak, and we've already had a few successes in that. One of the things we are not doing -- we are going to manage our expenses, but one of things we're not doing is mortgaging the future of this company and bringing the value of the brand. Instead, we're continuing our develop or die philosophy and launching innovative products. And as the ups and downs occur in this economy, we are hoping that the downs are shallower and the ups are higher peaks. But that's what the economy is going through right now. I can assure you, it's no level of comfort for us necessarily, but there are a lot of people in our industry, the consumer electronics industry, who are suffering through this same type of problem. We have to figure out better how to handle it. As with others in our industry, we know there are some challenges ahead of us, particularly with an uneven economy. But at the same time, we feel we're well positioned. Our growing brand equity and strong distribution network in North America and Europe, as well as these exciting products I just spoke of, will help us with the brand equity, geographic positioning, and drive sales. The uncertainties in the economy, like the inconsistent consumer confidence, are real. The consumers aren't showing up. I don't propose to say that it's because of this, that or the other. We know that we're hearing from the industry experts, like the Walmarts of the world and the Best Buys of the world and the others of the world, that they believe, because of the demographics of their customer, that the 2% increase had a huge, huge effect on the store traffic in the first quarter. Well, that's opinions, but there's a lot of those opinions going around. It seems to be a consistent trend. As a result, we'll continue to be diligent containing costs and expenses and managing our working capital as well as staying in touch with the current and targeted customers' needs, so we can respond quickly to all opportunities. We've moved this thing from a disastrous couple of years in a really tough economy and brought it back, and we've done it before, and we'll do it again. We are not losing track of growth, and, particularly, we are focus on growing our top line and brand equity, through new initiatives, not just the same old, same old.

As you've heard from Sally, new product development in accordance with our develop or die philosophy continues. And we look forward to announcing more innovative products and introducing those previously announced in the near future. We're going to be more conservative, and we're going to announce them at a more appropriate time so that we keep the momentum going with these products. But we will not cut back on the product development, as it represents the future lifeblood and value of this company.

As noted in our press release this morning, we expect to achieve a lower operating income in the second quarter of 2013 than in 2012 due to initial heavy load-ins of new Truck Navigation products. These, again, are situations that we have to deal with, but they, too, shall pass. We anticipate a higher level of profitability in 2013 than in 2012 due to sales of a variety of new products, growth initiatives under way, promotions that are in place and the general outlook by the professionals, the professional trade association, the Consumer Electronics Association. We're not sitting back just waiting for something to happen, but we're being proactive in that respect. Again, if you need more information, please do not hesitate to call one of us if we can be of assistance. And again, thank you for your continued support of Cobra Electronics.

Operator, this concludes our Q1 earnings conference call.

Operator

Thank you for your participation. You may now disconnect.

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