COSTAR TECHNOLOGIES INC (OTC:CSTI)

CSTI ($10.85) - We are removing CSTI from the GeoBargain list and placing it on the “GeoBargain On the Radar” list.    As we stated in our May 19, 2015 email when the stock was trading at ~$13.00, we have lightened up our position in CSTI.  Since we coded CSTI as a GeoBargain on November 15, 2013 shares are up 104% at current levels and at their peak were up 230%.  In our August 14, 2015 email, we stated it was management's past track record that had prompted us to keep CSTI on our radar.   

CSTI ($11.20) announced second quarter 2015 results:

• Sales of $9.3 million vs $8.3 million in the prior year period

• EPS of $0.26 vs $0.64 in the prior year

Quotes from management:

“We posted another profitable quarter as our core business, outside of our largest customer and CohuHD, grew 8%. We expect continued headwinds from that customer as they move to smaller footprint stores. New sales initiatives yielded significant progress in expanding our customer base and diversifying our business. Among other things, this has resulted in increased demand for our network products, which has helped our gross margins." Mr. Pritchett went on to say, "We believe that we are well positioned for a more profitable second half of the year as we approach our seasonally strong quarters and the release of the CohuHD RISE product line."

$CSTI ($13.78 as of yesterday) Reported Q1 2015 results:

• Q1 2015 revenues of $8.1 million vs $8.3 million in the prior year

• Q1 2015 EPS of $0.02 vs $0.70 in the prior year period

• Posted profit for the quarter in spite of the anticipated decline of $4.2 million in revenue from its largest customer.

Quotes from management:

"We are pleased with the performance of our team and their ability to deliver a profitable quarter despite many obstacles. The first quarter is a historically soft quarter for both Costar and CohuHD, in addition, our largest customer reduced inventory and there was significant inclement weather in the Northeast." Mr. Pritchett added, "The CohuHD integration is progressing as planned as CohuHD finalizes its launch of the new RISE product line. We believe the Company is aligned to take advantage of specific vertical market opportunities in 2015 as we stay focused on our commitment to increase shareholder value through long term revenue and profitability growth."

$CSTI ($13.60) - GeoBargain CSTI develops, designs and distributes a range of security solution products including surveillance cameras, lenses, digital video recorders and high-speed domes.  CSTI reported Q4 2014 results:

• Revenue for the fourth quarter of 2014 totaled $10,492, as compared to revenue of $4,331 for the fourth quarter of the prior year, an increase of approximately 142%.

• Net income for the fourth quarter of 2014 was approximately $254, or $0.16 fully diluted earnings per share. This compares to net (loss) for the fourth quarter of 2013 of $(177), or $(0.12) fully diluted earnings per share.

Commentary from management:

"We are pleased with the strong contribution that CohuHD made to the Company in 2014. After aligning sales strategies this past year, we continue to be encouraged by the many opportunities this combination presents. We look to maintain the momentum of 2014 by expanding our footprint with our existing customer base through our increasingly broad product line. We believe this is the best way to continue to create value for our shareholders."

Third Quarter 2014 Results

• Revenue for the third quarter of 2014 totaled $8,976, as compared to revenue of $8,617 for the third quarter of the prior year, an increase of 4%.
• Net income of $409 and earnings per diluted share of $0.26, for the three months ended September 30, 2014, as compared to $1,050 and earnings per diluted share of $0.69 in the same period last year.

James Pritchett, President and Chief Executive Officer of the Company, stated, "We remain excited with the CohuHD acquisition (June 6, 2014) as we integrate the two companies. The Q3 results for CohuHD were very promising as they approach the end of year spending associated with city, state and federal budgets."

Mr. Pritchett added that "Severe delays caused by International Longshore & Warehouse Union slowdowns, equipment and driver shortages have delayed Costar's regularly scheduled quarterly shipments in excess of $1,000. Delays are expected to continue for 4-6 weeks before they return to normal."

"We continue to invest in improving customer service practices, increasing trade show exposure, and expanding into new geographical regions to grow our business and create long-term value for our shareholders," said Mr. Pritchett.

Reported Second Quarter 2014 Results

• Revenue for the second quarter of 2014 totaled $8.3 million as compared to revenue of $6.2 million for the second quarter of the prior year, an increase of 33%.
• Q2 2014 non-GAAP EPS of $0.82 vs $0.30 in the prior year period.

James Pritchett, President and Chief Executive Officer of the Company, stated, "We are delighted to be able to share the initial results of adding CohuHD to Costar after completing the first quarter of integration. We have identified multiple cross selling opportunities with our full portfolio of products and have been able to leverage our shared engineering talent to the benefit of both Costar Video Systems and CohuHD. The acquisition adds significant shareholder value, with the Company delivering $0.82 per share on an adjusted basis for the second quarter after adding back one-time transaction expenses, and provides a compelling story in the security market."

Acquisition of CohuHD

On June 6, 2014, the Company purchased, CohuHD, the camera products and video solutions division of Cohu, Inc., with the Company's new $7,000 revolving line of credit and $3,000 term loan. As of June 30, 2014, the outstanding balance on the revolving line of credit was $2,705, with $3,000 outstanding on the term loan. Further information can be found in Note 3 and Note 7 of the Company's financial statements for the second quarter of 2014.

COPPELL, Texas, June 4, 2014 /PRNewswire/ -- Costar Technologies, Inc. (OTC Markets Group: CSTI) announced today that it has signed a definitive agreement to acquire CohuHD, the camera products and video solutions division of Cohu, Inc. (NASDAQ: COHU). The purchase price for CohuHD, including potential earn-out payments, is expected to be $10 million in cash, subject to certain post-closing adjustments set forth in the definitive agreement. The acquisition, which is structured as an asset purchase, is subject to customary closing conditions and is expected to be completed later this week. Costar is financing the transaction with proceeds from a new credit facility with Bank of Texas. The present CohuHD management team and other CohuHD employees are expected to join Costar following the closing of the acquisition.

CohuHD is a leading provider of video cameras and related products, specializing in IP video solutions for traffic monitoring, security, surveillance and military applications; and accessories such as cables, camera mounts, lenses and data storage devices. CohuHD is the market leader in offering high-definition video systems designed for the performance requirements associated with critical infrastructure environments, and sells to a customer base that includes corporate end-users, state and federal government agencies, original equipment manufacturers, distributors, system integrators and value-added resellers.

In making the announcement, Costar President and Chief Executive Officer James Pritchett stated, "This is a great strategic fit for Costar as we combine with one of the most well respected brands in the industry. We look forward to welcoming the team from CohuHD to Costar. The combination will yield meaningful operational benefits, together with significant synergies in many areas, including marketing, sales and product development. CohuHD's product offerings are complementary to Costar's current products and solutions, and, because Costar and CohuHD serve different channels and customers, the acquisition creates numerous cross-selling opportunities. We believe our combined sales organization will be able to expand CohuHD's product penetration in existing markets and promote CohuHD's products to new markets, accelerating the growth of our sales footprint. With the addition of CohuHD, we expect Costar to become one of the 50 largest video security companies in the world, with more than $40 million in revenue per year."

He went on to say, "The CohuHD acquisition is consistent with our strategy of providing high quality solutions to our customers. Our customers will have access to a broader product line while continuing to receive the same high level of sales, service and support that they have come to expect from Costar and CohuHD."

"We are very excited to be joining the Costar team and to carry on CohuHD's 60 year history of leadership in the video camera market," said Tom Kampfer, President and General Manager, CohuHD Division.  "Our combined resources and broader product offering will generate growth opportunities for CohuHD's rugged, outdoor video cameras into new commercial channels, and access to Costar's products will enable further sales opportunities within our core transportation markets."        

Costar is being advised in connection with the transaction by Alston & Bird LLP.

First Quarter 2014 Results

• Revenue for the first quarter of 2014 totaled $8,307 compared to revenue of $7,309 for the first quarter of 2013, an increase of approximately 14%. The increase was primarily due to a large restocking order from a major retailer.
• Net income for the first quarter of 2014 was approximately $1,072, or $0.74 per share. This compares to net income for the first quarter of 2013 of $596, or $0.41 per share.

James Pritchett, President and Chief Executive Officer of the Company, stated, "Over the past quarter, our net income and revenue benefited from a substantial order from one of our largest retail customers. The customer significantly increased their remodel program in 2013 and the first quarter of 2014, making up for a limited number of remodels in the prior two years. During the quarter, the "catch up" period of its remodel program was completed and resulted in approximately $3,300 in revenue. In coming quarters, we expect this customer to return to more normal ordering patterns. We continue to be pleased with our year-over-year performance improvements and are dedicated to pursuing growth and improved profitability."

Fourth Quarter 2013 Results

• The company reported revenue of $4.3 million compared to $4.2 million for the same quarter 2012.
• The company reported a of loss of $0.12 compared to a loss of $0.04 for the same quarter 2012.

Third Quarter 2013 Results

• Sales increased 113% for the third quarter of 2013 as compared to the same period for 2012. Sales increased 44% for the nine month period ended September 30, 2013 as compared to the same period in 2012.
• Net income of $1,050, or $0.72 basic earnings per share, for the three months ended September 30, 2013, as compared to $2, or $0.00 basic earnings per share, for the three months ended September 30, 2012.
• Book value increased to $6.96 per share.

James Pritchett, President and Chief Executive Officer of the Company, stated, "Our Q3 marked the strongest quarter in the history of the Company as we delivered 113% year on year sales growth and generated record cash flows. While the industry is still adjusting to the slow economic recovery, we are encouraged by our results and are dedicated to delivering on our commitment of strong earnings and double digit sales growth in 2013."

Second Quarter 2013 Results

• Revenues for the second quarter 2013 were $6.2 million compared to $4.7 in the prior year.
• EPS for the second quarter 2013 were $0.30 compared to $0.04 in the prior year.

First Quarter 2013 Results

• Revenue for the first quarter of 2013 totaled $7,309 compared to revenue of $6,616 for the first quarter of 2012, an increase of 10.5%
• Net profit for the first quarter of 2013 was approximately $596, or $0.41 earnings per share. This compares to a profit for the first quarter of 2012 of $591, or $0.41 earnings per share.

On April 1, 2013, the Company entered into a new one year $1,000 credit facility with Bank of Texas. Borrowings under the credit facility accrue interest at a rate equal to Bank of Texas Prime, currently 4.0% per annum. Further information can be found in note 11 of the Company’s financial statements for the first quarter of 2013 and the Company’s April 3, 2013 press release.

James Pritchett, President and Chief Executive Officer of the Company, stated, “ Our quarter-over-quarter improvement is in line with our forecast as the new additions to our sales team and the new network product offerings make a difference. We are delivering on our commitment of strong earnings and double digit sales growth. We are pleased with the start of 2013 but remain cautious due to the continued slow recovery of the economy. In addition, our new credit facility meets our current cash flow needs at a significantly reduced interest rate and fees than our previous facility.”

Fourth Quarter 2012 Results

• Revenue for the fourth quarter of 2012 totaled $4,220 compared to revenue of $5,289 for the fourth quarter of 2011, a decrease of 20.2%.
• Net (loss) for the fourth quarter of 2012 was approximately $(59), or ($0.04) earnings per share. This compares to a profit for the fourth quarter of 2011 of $160, or $0.11 earnings per share.
   
  James Pritchett, President and Chief Executive Officer of the Company, stated, “Our year-over-year improvement in a difficult economic environment marked a turnaround year for Costar Technologies, Inc. as we added salespeople and new network product offerings. We delivered on our commitment to increase revenue and profits. Most importantly, we are well positioned to extend our track record of strong earnings growth year-over-year and achieve double digit sales growth in 2013.”