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Cobra Electronics Corporation (NASDAQ:COBR)

Q2 2008 Earnings Call

July 23, 2008 11:00 am ET

Executives

James Bazet – President and Chief Executive Officer

Michael Smith – Senior Vice President and Chief Financial Officer

Tony Mirabelli – Senior Vice President of Marketing and Sales

Analysts

Steve Denault - Northland Securities Inc.

Sam Bergman - Bayberry Capital Management

Bruce Baughman - Franklin Templeton Investments

Scott Hodgson - Midsouth Investor Fund LP

Operator

Welcome to the Cobra Electronics Corporation second quarter 2008 earnings conference call. (Operator Instructions) At this time, I would now like to turn the conference over to our host, Jim Bazet, who is President and Chief Executive Officer.

James Bazet

Thank you very much and welcome to our second quarter investor conference call. With me today is our Senior Vice President of Marketing and Sales, Tony Mirabelli, and our Senior Vice President and CFO, Michael Smith. Before we begin I am going to turn it over to Michael to read the Safe Harbor Statements. Michael?

Michael Smith

Good morning. 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 form 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 broadcasted over the Internet and a replay will be available on the Cobra website for 30 days. Now, I would like to turn the call back to Jim to cover highlights from the second quarter and share his thoughts on the strategic context for our performance.

James Bazet

Thanks, Michael. This morning, we were pleased to report to our shareholders, profitable results for the second quarter as continued support for the success of the strategic restructuring and turn around that was initiated late last year. Cobra had net earnings in the second quarter of $1.7 million or $0.26 per share. Cobra was profitable in spite of a nearly 12.5% decline in sales for the quarter as compared to one year earlier as gross margins improved and operating expenses declined.

The consolidated gross margin increased to more than 33% as compared to 21.4% last year and operating expenses declined by more than 8%. A closer examination of our results provides insight to the strategic performance of our businesses. Sales for performance products or PPL segment increased by more than 40% as compared to last year, driven by an increase in mobile navigation sales and sales of encrypted SD cards for smart phones that include their proprietary speed camera and golf course databases.

The increase in mobile navigation reflected the availability of a broad array of products as our management teams worked together to overcome the development and production difficulties that hampered sales last year. The sale of a key database information on SD cards for use in smart phones may open the door to a new delivery mechanism and distribution channel for PPL and their intellectual property that Cobra acquired in late 2006. And we are working with management to address the full potential of this opportunity.

As we view this channel to date, there will be promotional sales rather than regular inline sales, and that they are large, long lead term opportunities that provide a tremendous sales and earnings potential although not as predictable a schedule as one might see in inline product placements. Sales for the Cobra segment declined by $6.5 million or 18.4% as compared to last year.

A significant element of the sales decline was mobile navigation with a $4 million decline in net sales that reflects the change in our North American mobile navigation strategy that was announced in December. Sales in other product lines also declined as compared to last year and we are clearly seeing the impact of reduced consumer spending, lower store traffic and signs of hesitancy among our retailers to build inventory.

Two-way radio sales and radar detection sales both declined as compared to last year due to a combination of reduced store traffic and competitive pressures. Citizen's band radio sales increased for the quarter as the launch of our Bluetooth enabled radio led to substantial placement and generated strong worldwide consumer interest. Additionally, Cobra's European sales increased reflecting a significant broadening of their distribution network.

Later in this call, Tony will discuss some of our product and promotional initiatives that addresses these challenges and the current economic climate to the extent possible. We are also encouraged by improvement in gross margins in the second quarter, with an increase on a consolidated basis to 33.3% from 21.4% for the second quarter of last year.

Our margin improvement which Michael will address in greater details shortly was driven by a greater contribution to sales by PPL with their higher margin product lines. A mix of higher margin products for the Cobra segment and substantial improvement in the Cobra segment mobile navigation margins due to the sale of products at higher prices than anticipated when reserves were established in the fourth quarter of last year.

SG&A expenses declined by more than 8% in this quarter as compared to last year. In addition to a decline in variable selling expenses that accompanied the decline in sales, management has made concerted efforts to contain fixed selling and marketing, and general and administrative expenses. These efforts will continue through the year.

The containment of fixed expenses in this quarter reflects in part, the elimination of certain positions as we have evaluated our needs in light of current conditions. In addition, where possible, we have curtailed outside professional fees.

Looking at our year to date results, Cobra has generated net earnings of $1.8 million or $0.28 per share as compared to a loss of $1.2 million or $0.18 per share for the six months ending of 2007. Although sales have declined on a year to date basis to $63.2 million from $71.3 million, gross margins have improved to 32.2% from 23.1% and operating expenses have declined by nearly $1.6 million.

Turning to our third quarter outlook, we are forecasting substantially improved bottom line performance in the third quarter as compared to last year, in spite of somewhat lower revenues. Efforts to contain operating expenses will continue and we anticipate higher gross margin than in last year's third quarter. Similarly, we are forecasting a significant improvement in financial performance for the year. We anticipate that Cobra sales will decline from 2007 levels, but that our Company will be profitable in 2008. As far as the economy, we have attempted to temper the forecast and outlooks to take into consideration the weakened state of the economy today.

Before I turn the call over to Michael to discuss our results in detail, I want to emphasize our ongoing confidence in Cobra and our enthusiasm for our prospects. Our decision to modify our mobile navigation strategy, although difficult and painful, clearly was the right decision for Cobra and in light of the current industry turmoil and the continued exit from the category of other companies, it was well-timed.

We continue to experience success in our legacy categories, providing brand equity, strong distribution and marketing channels, and positive cash flow. We are pleased with the performance of PPL in the second quarter and on a year to date basis. It is clear that we have acquired a company with substantial brand equity, intellectual property, and a top notch management team.

While the performance of the second quarter reflects in part a promotional opportunity that might not be counted on as a quarter to quarter line as opposed to an inline sale, it clearly points the way towards future opportunities to exploit the assets we have acquired and build the business accordingly. At this point, let me hand the call over to Michael, Tony will then update you on markets and product initiatives and we will open the call for questions. Michael?

Michael Smith

Thank you, Jim and good morning once again. As Jim mentioned in his opening remarks Cobra reported net earnings for the second quarter of $1.7 million or $0.26 for fully diluted share as compared to a net loss of $434,000 or $0.07 per share for the second quarter of 2007. This transition to profitability is attributable to substantially improved performance at PPL, improved gross margins across many of our Cobra segment product lines and expense management at Cobra. Offsetting these benefits were a decline in sales for the Cobra segment and an increase in other expenses primarily due to a decline in the cash surrender value of life insurance.

Consolidated net sales for the quarter declined by $4.9 million or 12.5% in spite of an increase at PPL of $1.6 million or 42.6%. Sales for the Cobra business segment declined by $6.5 million or 18.4% principally due to a $4 million decline in mobile navigation sales. We also saw a decline from the sale of other product lines, including two-way radios and radar detection, both due to competitive pressures and reduced store traffic.

Gross margins for the quarter increased to 33.3% from $21.4% in the second quarter of 2007. This improvement reflected an 8.9 point increase in the Cobra segment margin to 28.4% and the benefit of a 60% gross margin from the Performance Products segment, an increase from 39% in the prior year. The Cobra segment gross margin improvement reflected the improved margins for each product line as air freight expense were curtailed and new products were launched. Additionally, mobile navigation sales remained at higher prices than anticipated as reserves were established in the fourth quarter of last year.

As we are observing other manufacturers of mobile navigation exit the business, and see continued excess inventories of navigation devices enter the market, we do not anticipate that this pricing favorability will continue as we have included in this quarter's results, additional reserves that will permit us to dispose the final pockets of inventory in an orderly manner. Turning to selling, general and administrative expenses, these declined to $8.8 million from $9.6 million in the prior year. SG&A expenses for the PPL segment were flat with last year, while the Cobra segment SG&A expenses declined by 9.9%, reflecting lower sales and lower variable selling expenses as well as a significant decline in fixed sales and marketing and general and administrative expenses.

As noted earlier, other expenses were $114,000 in the quarter as compared to other income of $358,000 in the second quarter of 2007. The primary driver of this swing was the cash surrender value of life insurance that the Company carries to support deferred compensation programs for certain current and former officers of the Company. This cash surrender value declined by $113,000 in this second quarter as compared to a gain in CSV of $152,000 in the prior year.

As noted in this morning's press release. This decline is a result of the overall decline in the financial markets and will not affect the Company's ability to meet its obligations to these executives or to recover the designated cost of the deferred compensation programs.

Turning quickly to the balance sheet. Please note that as of June 30th, Cobra had interest bearing date of $17.1 million and cash of $7.7 million for net debt of $9.4 million. We continue to have significant availability under our credit line.

Accounts receivables were $19.4 million a decline from the second quarter of last year reflecting lower sales for Cobra. This amount includes accounts receivables from performance products of $1.3 million a slight increase from the prior year as sales increase. Cobra ended the quarter with inventories at $30.2 million, including $4.2 million at Performance Products. We are very comfortable with the integrity and quality of our inventories and believe that they are fully in line with the anticipated needs.

Book value increased to $10.25 per share from $10.06 at year end, but is lower than the book value per share of $10.52 one year ago. Before I conclude, I want to address earn out associated with the acquisition of PPL. When Cobra acquired PPL in October 2006, the agreement included two earn out periods. The first, which concluded in March 2007, did not result in any payments to the former shareholders as the earnings did not exceed the threshold for an initial payment.

The second earn out period concluded in May 2008, and it is anticipated that former shareholders have reached the earnings threshold for earn out payment. The exact amount to be paid will be determined after a 90-day period at the tail of the earn out period, that is through the end of August during which all return and other potential deductions from earnings will be taken into account. However, initial estimates indicate that the earn out payments will not exceed $10 million. We anticipate that we will have more complete information for our shareholders regarding this payment at the time of our next earnings release and conference call. Let me now turn the call over to Tony to provide update on our markets and products.

Tony Mirabelli

Thank you, Michael and good morning to everyone. The end of the second quarter provides a point at which we were able to gain some perspective on the market, the performance of our key product lines and address some of the key dynamics that we see for the balance of this year. We have had questions from investors in the past weeks regarding the overall economy and the impact on Cobra's business.

In our first quarter conference call, we noted that we were beginning to see signs of caution and concern among our customers and consumers. This has been reinforced by continuing macroeconomic and microeconomic reports, including observations by some of our largest customers.

As the CFO of BestBuy noted last month, it is very clear in what we will expect that it will be a volatile year for the consumers. Clearly, we now are seeing store traffic declines and the ripple effect on sales toward consumer electronics. We are also seeing an increase in the competitive environment as consumer electronic manufacturers are aggressively pushing for that great privilege of shelf space at the retailers and fielding promotions to try and secure that space.

Absent a substantial and sustained decline in the price of oil and an improvement in the housing and financial markets, we expect consumer confidence to continue to be tepid and the competition for the consumer dollar to be intense for the balance of the year. We expect that Cobra will be a strong competitor in each of our product lines and I want to use this call to convey to our shareholders what we are doing to respond to the current environment. Efforts to stimulate consumer demand includes launching new products and features that distinguish Cobra from our competitors.

We are working with our customers to develop and execute promotions that will stimulates store traffic and sell through and we are working with our vendors to provide opportunity buys that permit us to pass along to our customers and consumers cost savings.

New products have been the lifeblood of Cobra and are increasingly important in today's economic climate. As Jim noted earlier, the second quarter saw the launch of Cobra's Bluetooth enabled citizen's band radio, a patent-pending industry first that continue Cobra's tradition in leading the field in this product category. While still a little bit too early to provide sell through information, we are seeing strong demand from all of our distributors and retailers and we anticipate the strong demand from professional drivers even with today's sky high fuel prices. Bluetooth wireless communications will also play a role in our marine communications product line.

Last week, at the Marine Aftermarket Accessories Trade Show or MAATS, Cobra debuted a Bluetooth-enabled handset for our marine radios allowing loud and clear cellular phone communications while on the water capable of hooking up to any cellular phone that has Bluetooth built in. Cobra has announced last week a licensing agreement that will provide Bluetooth-enabled mobile phone headsets marketed under the Cobra name. This agreement both reinforces and expands the brand equity that the Cobra name carries in the marketplace.

Earlier this year, we introduced a new line of radar detectors including the industry's first OLED display or if you will almost like a video display for greater visibility for more information than any other radar detector on the market. Cobra has also provided the purchasers of our high end radar detectors the ability to acquire our exclusive verified database for photo enforcement locations throughout the United States, speed and red light camera locations, that is. While this will ultimately be a subscription based business, early adopters are receiving access to this driving tool that will become increasingly important as states and municipalities across the country are turning into photo enforcement as a method for ticketing those who drive too fast or get caught in intersections as the lights turn red.

Additionally, as countries in Eastern Europe open up we are finding new distribution opportunities for our current products as well as opportunities for new products that are currently under development.

Promotional activities will also play a major role in stimulating consumer demand in this challenging economy. We are meeting with each and every one of our customers to ensure that the promotional activities that are on our drawing board or have come off our drawing board or placed in the marketplace are being executed and executed well. For example, we are paying very special attention to the new Bluetooth 29 LTD CB that today, can be found, now that it is distributed at every major travel center in the United States.

Additionally, we will launch similar programs for the Bluetooth handset in the Marine Marketplace that will start shopping in the fourth quarter of this year and similar promotional programs and merchandising programs will follow that product as well. We are now looking for new opportunities that will benefit our entire supply chain.

As we look for these new opportunities, our long time vendors are working with us to provide the best chance for success that can benefit each and every one of us. That concludes my overview of our markets and products. While we recognize that we are facing a difficult economy, we remain excited and optimistic regarding our future and we look forward to sharing with you results of these efforts as we move forward. Operator, we are now ready to take questions.

Question-and-Answer Session

Operator

Certainly. Ladies and gentlemen, at this time we will now begin the question and answer session. (Operator Instructions). One moment please for our first question and our first question comes from the line of Steve Denault from Northland Securities. Please go ahead at this time

Steve Denault - Northland Securities Inc.

Good morning, everybody, nice quarter.

James Bazet

Thank you.

Steve Denault - Northland Securities Inc.

This is in regards to the Performance Products and the solid quarter that Performance Products realized unbelievable gross margins and it sounds like the operating margin was substantial also. Help me understand the channel for the SD cards and you make reference to one time versus ongoing, is it a sale, is it a subscription, I mean what exactly is going on there, who are you selling it to?

James Bazet

Steve, this is Jim. First of all, let me explain what the sale of the SD card does. We are selling through a major smart phone provider to be bundled in a package with the smart phone as a promotional opportunity to add content to these smart phones and be competitive. That is the nature of the sale, what happens here is we put in our database on this SD card in an encrypted manner. The good news about this, this is a new channel of distribution or a new vehicle to which we can take the proprietary product category, one of the strategic reasons we bought PPL and put this on a new delivery mechanism, vehicle, or channel of distribution.

And let me correct you with one thing, we did not say this is one time, what we said was, because we had multiple opportunities that we are exploring right now for these things. But they are of a promotional nature. A lot of our business is of a promotional nature. And promotional nature business is a little hard for predictability that inline because you do not exactly know when they are ready for another one. We know preliminarily that the sale that we made is doing very, very well. They are excited about it and have told us they like to do it again sometime. And that is all we know at this because this is the first of what we hope to be many sales of this particular vehicle to deliver the content or the database.

So, we do not want to overcaution or undercaution on this, but we want to manage expectations in the sense that we may have another one of these in the third quarter or we may not, we may have in the fourth quarter or we may not, but it is hard to predict at this time.

The good thing about it is that we are looking at those opportunities as well over here and again, we have this content. We have a database here that Tony mentioned that we have gotten the knowhow, technology and processing from PPL and it can open new doors for us. But it is just so early to tell how big the apple will be since we do not have any trend analysis or predictions on where it is going, but we are talking to multiple providers now. So we are optimistic, generally, about this being an ongoing business for us, but it will always be promotional in nature because they are not going to use these SD cards in every phone that they sell and that is the best I can give you right now and I hope I have answered your question.

Steve Denault - Northland Securities Inc.

That did help. So it is recognized as revenue upfront, who is the smart phone provider?

James Bazet

Nokia.

Steve Denault - Northland Securities Inc.

Who is it?

James Bazet

Nokia.

Steve Denault - Northland Securities Inc.

Okay. Now, this is the first time I have heard you reference golf course database, is that part of the SD card database also?

James Bazet

Yes. Let me back up a minute, Steve, and help you with this. When we did due diligence and acquired PPL, PPL has a database for speed cameras, school zones, work zones and things such as this. Anything can be added to that content to provide it to the consumer through whatever sales vehicle, whether it is SD cards, locator technology, in with a mobile navigation device, et cetera. PPL has created and you may or may not have heard us talk about the three in one product, they have created a product that is handheld, much like a SkyCaddie or something like that, but does more than just golf. What it does is you can go out and you can use it for navigation, you can use it for location of speed red light cameras, black spots and school zones, and then you can take it on to the gold course and you can use it much like some of the products that are out there today.

In order to be successful with that, PPL had to develop their own golf course database and that is what they have over there and so on the SD card, when the sale occurred, they gave all of their content on the encrypted SD card so that it would have more value to the smart phone provider. We are also looking at that same type of technology over here, whether we will be successful or not, it is too early to tell, but that also opens the opportunities of the knowhow and the particular proprietary technology and how to gain that technology that PPL has come over here and helped us to do.

Steve Denault - Northland Securities Inc.

Okay. So the golf course database, is it as detailed as an application that it allows you to know how far you are from the hole?

James Bazet

Yes. I can tell you that I have gotten one of the competitor products and that product side by side as we played golf which is tough duty as you can imagine. But we got out and played golf with it and it provides you hole locations and so forth. Is it as comprehensive? Some areas it is, some areas it is not just like any other content. But it does provide you hole locations, distance to the hole and other things that would interest and golfer and they have some 2,500 golf courses already in Europe loaded into this.

Steve Denault - Northland Securities Inc.

Okay. So the golf course database is Europe?

James Bazet

The gold course database right now is primarily Europe. We are looking at it here in the US. I think it is important Steve, to point out that we believe that content such as the speed camera, red light camera, golf courses, work zones, school zones, any kind of content you can put together offers a company and it has been proven at PPL by the SD card sales and some other thing, it offers a strategic initiative for us to create other products to accommodate those databases, to sell those databases in other marketing channels and vehicles and so forth. And so while we have moved away from retail sales and development of mobile navigation, these are some of the initiatives that we talked about that we are examining and they are also some of the things that we think are going to create growth for PPL into the future.

Steve Denault - Northland Securities Inc.

Okay. How much of the mobile navigation reserve was reversed in the quarter?

James Bazet

Michael?

Steve Denault - Northland Securities Inc.

If any at all?

Michael Smith

Steve, it is Michael Smith. The reserves that were established from mobile navigation remain intact for what we believe will be coming back in the future. There is very little remaining in the $7.7 million writes down that we took in December because most of the action necessary to dispose of inventory and write down liquidation process and so forth had been realized.

Steve Denault - Northland Securities Inc.

Okay. From a tax rate perspective, what is a good tax rate to assume for the full year?

Michael Smith

It really will depend upon the mix as we look going forward on taxable income because as you know, we have three different tax rates that we have to take into account that would be Dublin, that would be the UK, and that would be the US. I believe for the second quarter, we have used an effective tax rate of around 25% and that will reflect our assumptions for the year.

Steve Denault - Northland Securities Inc.

Okay. You also made reference to data download fees, what exactly is that?

James Bazet

Steve, data download fees are fees, like the best way to describe it is not unlike you see for satellite radio where you pay for a service and the ability to go in and download those, Steve, that has been one of the keys to PPL's high profitability in a sense that this is a, you have a database here and you have the cost of the establishments this database covered and these things are pretty much all profit.

What they do is when someone buys one of their products. They go in and it comes with a certain amount of database on it and the consumer can go to their website and can subscribe if you would to their upgrade to the database and they can upgrade 24 hours a day, 7 days a week and so forth.

We are looking into that here too to say okay, we are developing a database here, we have got 96% coverage at this point in time. We intend to roll it out at the Consumer Electronics Show this year and then what we are going to do is we are going to charge a fee for this database much like that mirrored of PPL.

Now, what this means, Steve is that in order to get there, the database has to be built and perfected and we are almost there. But what we are offering to our consumers, as Tony mentioned is we are saying okay, we will grandfather you on the upgrade because we got to get beta test users and everything on this thing, you cannot just roll it out and start charging the fee without some point-to users and so forth.

And so that is our strategy right now, we are rolling out limited amounts of product with the grandfathering of the database and it is a learning experience for us too of what is good and not good and how they access it at the website and so forth and we are not ready to announce when this will be ready yet on our website, but we are working on it and our intention is to roll out the whole concept and everything at the Consumer Electronics Show in January.

Steve Denault - Northland Securities Inc.

Okay. Perfect, thank you.

Operator

And our next question comes from the line of Sam Bergman with Bayberry Capital Management. Please go ahead at this time.

Sam Bergman - Bayberry Capital Management

That is Sam Bergman, good morning, Jim, Michael, and Tony…

Tony Mirabelli

Sam, you need to speak up a little bit, we are having trouble hearing you please.

Sam Bergman - Bayberry Capital Management

Okay, there you. Okay good morning gentlemen, how are you?

Tony Mirabelli

Good morning.

Sam Bergman - Bayberry Capital Management

A couple of questions, first of all, it was definitely a nice quarter, but can you tell me how it was arrived in the $10 million or roughly a $10 million number for earn out fee back when you did the deal? And why was not it a $5 million number? Why such an extreme amount?

Tony Mirabelli

The purchase agreement with the former shareholders of PPL established this, I know there are separate earn out periods and each earn out period, there is a specified and very detailed calculation of what is called in there, an earn out contribution. It takes into account gross profit less direct selling expenses to put it very simply. The earn out contribution for the second earn out period once you achieve the threshold, the balance is multiplied times GBP3.84 to arrive at a final figure of what the shareholders have earned.

So as of right now, on a preliminary basis, the calculation comes out to approximately GBP5 million or just under $10 million. So it is a calculation that was specified at the beginning. It rewards the performance that they have achieved.

James Bazet

Sam, this is Jim, also, I think your question of why not $5 million instead of $10 million? At the time we did the transaction, we consulted our advisers and they told us that it was a fair and equitable type of calculation for us to buy the Company and the criteria that they had to achieve in terms of rolling sales and callbacks and all were typical for the type and size of deals that were being done in England and so forth at the time. So it was well looked at by us, our accountants, our advisers and so forth say that what we were offering was fair and equitable and in fact, if it was achieved, it would lower the multiples of purchase. So we feel like that the deal we did with them was the right deal.

Sam Bergman - Bayberry Capital Management

Can you tell me perhaps can Tony tell me the pipeline of new products at PPL next year versus this year?

James Bazet

Sam, I am more involved with the product development of PPL than Tony is directly anyway. I can tell you we are not prepared to announce the things that we are doing, but there are multiple new products coming out at PPL in multiple categories, a lot of them employ GPS technology for location of different things and assets and so forth. We are looking at things. I can say in the trucker space right now, we are beginning to sell products that have both GPS capabilities and telematics to perform work for the independent trucker and the fleet trucker that will get them to and from a place and so on and so forth.

We are looking of tracking various things of assets and so on and so forth and some of these are under development and I hate to give you a listing of what we are doing until we are prepared to roll these out and they have been beta tested, but suffice it to say that there are product plan for 2009 that will be at the Consumer Electronics Show will be extensive.

Sam Bergman - Bayberry Capital Management

The last question I wanted to ask you is with regard to the stock price and book value. If you take any list of companies regardless of whether it is 20 companies or 100 companies on the over the counter, they tend to have a book value of $1 and they are selling at $10, here you have a book value of $10 and your stock is selling at $2.50, $2.60, whatever, this morning from the bounce of the earnings report. What should the Board do at this time and you, management, to get the word out that the book value is realistic and the stock is tremendously undervalued?

James Bazet

That is a good question, Sam, we just had our Board meeting yesterday and so forth, but I would like if I could, to defer this to the end of the presentation because I am going to address this and some of the things we are doing.

Sam Bergman - Bayberry Capital Management

Okay. So in other words, if I had to ask you this question, I do not know if you are going to put this in your text regarding buybacks by the Board, buybacks by management, will that be talked about or not?

James Bazet

I will discuss this, Sam, if you do not mind, please, at the end of the presentation of some of the things we are doing.

Sam Bergman - Bayberry Capital Management

Okay, and the last question is regarding to the guidance for upcoming quarters, are you giving us the guidance for the best case scenario on this new Bluetooth product for truckers or not?

James Bazet

No, I think what we said, Sam, is that the guidance were given you, we have looked at it and we have tempered it somewhat for what we feel the economic conditions are going to be in the back half as I described and then Tony described, and that is probably the best we can do right now, I would not call it a best case, I would call it a realistic case based on the weakened economic situation right now, and what we know today.

Sam Bergman - Bayberry Capital Management

Thank you very much.

James Bazet

You are welcome.

Operator

And our next question comes from the line of Bruce Baughman with Franklin Templeton. Please go ahead at this time.

Bruce Baughman - Franklin Templeton Investments

Good morning, just to follow up a bit on the payout. How will you fund that? I presume it is a cash pay out.

Michael Smith

It is a cash payout as you note from our call, we do have substantial cash on the balance sheet today that will as we look towards paying the earn out. We will use that cash and we will fund it off of our credit line. We have substantial credit availability as well.

Bruce Baughman - Franklin Templeton Investments

And is it fair to say that if they payout is $10 million then the goodwill account increases by $10 million?

Michael Smith

Yes, sir.

Bruce Baughman - Franklin Templeton Investments

Okay. Toward the end of the call when you address some of the factors involved in book value and market and so on, will it encompass the pro forma balance sheet for this additional payout?

Michael Smith

I do not believe it will, I think that the issue that was raised by the prior caller was how are we going to better communicate and better manage investor needs and expectations regarding book value to market value today, I do not think that we will be taking into account at that point, the perspective earn out and how that might affect the book value of a Company.

Bruce Baughman - Franklin Templeton Investments

Okay, thank you. And one last question, do you have a figure for trailing 12 months EBITDA?

Michael Smith

That one, we are going to include that in our 10-Q filing. I did not include it in the press release, but it will be part of the filing.

Bruce Baughman - Franklin Templeton Investments

Thank you.

Michael Smith

You are welcome.

Operator

And our next question comes from the line of Scott Hodgson with Midsouth Investor Fund. Please go ahead at this time.

Scott Hodgson - Midsouth Investor Fund LP

Hi guys, can you give me a dollar value of international sales please?

Michael Smith

International sales for the fourth quarter excluding PPL, give me one moment while I look this up, just under $6 million.

Scott Hodgson - Midsouth Investor Fund LP

Okay. And I probably missed this, what were sales for PPL, Q4?

Michael Smith

PPL sales for Q2…

Scott Hodgson - Midsouth Investor Fund LP

Yes.

Michael Smith

Were about $5 million.

Scott Hodgson - Midsouth Investor Fund LP

Great, thanks so much.

Michael Smith

You are welcome.

Operator

(Operator Instructions). And gentlemen, at this time, there do not appear to be any further questions, please continue with any comments you may have.

James Bazet

Thank you very much. We certainly appreciate your participation today. We are pleased with our second quarter results as well as our outlook for the year. However, we recognize we are facing a challenging economic environment here in the United States and in some sections of Europe. We will remain nimble through the balance of the year to ensure that we can exploit new opportunities, manage expenses, and continue to improve performance. As we wrap up today's call, allow me to address the significant decline in our stock price over the past 15 months.

Clearly, as shareholders and management, we are very concerned that investors are not recognizing the inherent value of Cobra, including strong cash flows, low debt, and tremendous brand equity.

At the same time we recognize that it is our job to communicate this message to investors. We have been reluctant to invest substantial time and money into our investor relations activities without having a track record to which we could point and possibly distracting us from the performance efforts.

The results of the past two quarters provide tangible evidence that our strategic restructuring efforts are working. As a result, we will launch a proactive investor outreach program in the third quarter that will continue through the balance of the year and into next year. We do not expect instant results nor do we anticipate efforts that are so extensive that we lose sight of our day to day business; however, we are confident that we have a story to tell and that there are investors who want to hear our story and will react to it in a positive manner.

We will also continue to evaluate with our Board of Directors, any strategic initiatives that might have a positive effect on shareholder value. These initiatives are currently under evaluation and anyone that we feel would add positive value to the shareholders and that makes sense for us to do in the climate that we are in. The funding we have available we certainly will initiate these. We have appointed a special committee to look into and evaluate these things and we will be dealing with outside advisors accordingly.

In closing, we view 2008 as a pivotal year for Cobra. We believe that we have stabilized our business and in spite of the macroeconomic challenges facing our Company. We are anticipating a return to profitability and positive cash flow for the year. We are paying down debt and setting the stage for future growth. Moreover, we bring to these effort substantial strengths, including good distribution, brand equity, a significant depth and breadth of distribution and history of innovation and value for customers and consumers.

Moreover, the acquisition of performance products has opened new opportunities to Cobra both here and in Europe. We are confident in the future and we appreciate your continued support.

Please do not hesitate to call Michael or me if we could be of any assistance. Thank you for your continued support of Cobra Electronics and this concludes our second quarter conference call.

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Source: Cobra Electronics Corporation Q2 2008 Earnings Call Transcript
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