Costar Technologies, Inc. Announces Financial Results For the Third Quarter Ended September 30, 2019

Press Releases

Nov 15, 2019

COPPELL, Texas, Nov. 14, 2019 /PRNewswire/ — Costar Technologies, Inc. (the “Company”) (OTC Markets Group: CSTI) announced today its financial results for the third quarter ended September 30, 2019 that have been reviewed by the independent accounting firm BKD, LLP.

Financial Results for the Quarter Ended September 30, 2019

Revenues of $17,774, a 6.3% decrease compared to the third quarter of 2018. The Arecont Vision (AVC) acquisition closed in the prior year quarter and results are included beginning July 14, 2018.
Operating expenses were down 6.4% to $6,283, compared to $6,711 in the third quarter of 2018. The third quarter of 2018 included $243 in expenses related to the AVC acquisition.
GAAP net income of $840, or $0.51 per diluted share, compared to a GAAP net income of $56, or $0.04 per diluted share, in the third quarter of 2018.
Adjusted earnings of $1,287, or $0.79 per diluted share, compared to $1,099, or $0.69 per diluted share for the quarter ended September 30, 2018. Adjusted earnings, a non-GAAP measure, is defined below.
Adjusted EBITDA of $2,010, compared to $1,560 for the quarter ended September 30, 2018. Adjusted EBITDA, a non-GAAP measure, is defined below.

Scott Switzer, Chief Operating Officer and Chief Financial Officer, stated, “This quarter marks our second consecutive profitable quarter since the acquisition of Arecont Vision. The third quarter is historically our strongest quarter, and 2019 was no exception. Except for CohuHD and Arecont Vision, our divisions were up 11% over the third quarter of 2018. We have experienced softness in CohuHD’s transportation market segment, which generated $4M in revenue during the third quarter of 2019, a decline of over $0.6M from the third quarter of 2018 due to weather delays and tariffs affecting state budgets.”

President and Chief Executive Officer, James Pritchett stated, “We have made significant advances at Arecont Vision Costar in a relatively short period of time. The effects of the bankruptcy still impact the division’s revenues, but the cost reduction actions taken early in 2019 are having a positive result. Arecont Vision’s third quarter was the division’s second positive quarter as revenues stabilized. We recently won two major long-term contacts with financial institutions, both domestic and international, that will begin shipping in the fourth quarter. We continue to invest in developing artificial intelligence for our cameras for retail, financial and Smart City applications. I am confident the changes we have made, and are continuing to make, will position us for long-term growth and profitability for our shareholders.”

The Company’s outside independent auditors completed their analysis of the Company’s financial condition. The Independent Auditor’s Review Report, including financial statements and applicable footnote disclosures, is available on our website at www.costartechnologies.com.

Non-GAAP Financial Measures

The Company defines adjusted earnings, a non-GAAP measure, as net income (loss) excluding stock-based compensation and amortization of acquisition-related intangible assets. The Company defines adjusted EBITDA, a non-GAAP measure, as earnings before interest, taxes, depreciation, amortization and stock-based compensation. The following tables reconcile the non-GAAP financial measures disclosed in this release to GAAP net income (loss):


	Quarter Ended 9/30/19	Quarter Ended 9/30/18
Adjusted Earnings	1,287	1,099
Less:
Stock-Based Compensation	(124)	(66)
Intangible Amortization	(323)	(324)
Transaction and Related Expenses		(243)
Loan Forgiveness Required Under AVC Purchase Agreement		(410)
Net Income (Loss)	840	56

	Quarter Ended 9/30/19	Quarter Ended 9/30/18
Adjusted EBITDA	2,010	1,560
Less:
Interest	(350)	(329)
Income Taxes	(255)	(24)
Depreciation	(118)	(108)
Intangible Amortization	(323)	(324)
Stock-Based Compensation	(124)	(66)
Transaction and Related Expenses		(243)
Loan Forgiveness Required Under AVC Purchase Agreement		(410)
Net Income (Loss)	840	56

These reconciliations of GAAP to non-GAAP measures should be considered together with the Company’s financial statements. These non-GAAP measures are not meant as a substitute for GAAP, but are included solely for informational and comparative purposes. The Company’s management believes that this information can assist investors in evaluating the Company’s operational trends, financial performance, and cash generating capacity. Management believes these non-GAAP measures allow investors to evaluate the Company’s financial performance using some of the same measures as management. However, the non-GAAP financial measures should not be regarded as a replacement for (or superior to) corresponding, similarly captioned, GAAP measures.

About Costar Technologies, Inc.

Costar Technologies, Inc. develops, designs, manufactures and distributes a range of security solution products including surveillance cameras, lenses, digital video recorders and high-speed domes. The Company also develops, designs and distributes industrial vision products to observe repetitive production and assembly lines, thereby increasing efficiency by detecting faults in the production process. Headquartered in Coppell, Texas, the Company’s shares currently trade on the OTC Markets Group under the ticker symbol “CSTI”. Costar was ranked as the 35^th largest company in a&s magazine’s Security 50 for 2019. Security 50 is an annual ranking by the magazine of the world’s largest security manufacturers in the areas of video surveillance, access control and intruder alarms, based on sales revenue.

Cautionary Statement Regarding Forward Looking Statements

This press release contains forward-looking statements, including statements regarding the Company’s ability to grow revenue and earnings, that are subject to substantial risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements, including but not limited to risks related to the ability to diversify business across vertical markets, secure new customer wins, and launch new products. You can often identify forward-looking statements by words such as “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “plan,” “expect,” “predict,” “potential,” or the negative of these terms or other comparable terminology. These forward-looking statements are based on management’s current expectations but they involve risks and uncertainties. Actual results and the timing of events could differ materially from those anticipated in the forward-looking statements as a result of the risks and uncertainties.

You should not place undue reliance on any forward-looking statements. The Company assumes no obligation to update forward-looking statements to reflect actual results, changes in assumptions, or changes in other factors affecting forward-looking information, except to the extent required by applicable laws.

COSTAR TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(AMOUNTS SHOWN IN THOUSANDS)



		September 30, 2019		December 31, 2018
			(Reviewed)		(Audited)
ASSETS

Current assets
Cash and cash equivalents		$	1	$	189
Accounts receivable, less allowance for doubtful accounts
of $570 and $859 in 2019 and 2018, respectively			9,250		9,333
Inventories, net of reserve for obsolescence
of $1,026and $1,101 in 2019 and 2018, respectively			20,525		20,618
Prepaid expenses and other current assets			2,573		1,531
	Total current assets		32,349		31,671

Non-current assets
Property and equipment, net			991		915
Deferred financing costs, net			69		99
Deferred tax asset, net			3,766		3,766
Trade names, net			2,289		2,561
Distribution agreements, net			827		905
Customer relationships, net			4,361		4,884
Covenants not to compete, net			68		92
Patents, net			177		200
Technology, net			285		335
Goodwill			6,513		6,513
Other non-current assets			149		109

	Total non-current assets		19,495		20,379

	Total assets	$	51,844	$	52,050


LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities
Accounts payable		$	4,885	$	5,786
Accrued expenses and other			7,026		7,075
Line of credit			14,772		11,738
Current maturities of long-term debt, net of unamortized
financing fees			779		773
Current portion of contingent purchase price			992		1,048
Current maturities of notes payable, unrelated party			833
Current maturities of notes payable, related party			206		805
	Total current liabilities		29,493		27,225

Long-Term liabilities
Long-term debt, net of current maturities and
unamortized financing fees			3,788		4,373
Contingent purchase price, net of current portion					992
	Total long-term liabilities		3,788		5,365
	Total liabilities		33,281		32,590


Stockholders’ Equity
Preferred stock
Common stock			3		3
Additional paid-in capital			157,363		157,029
Accumulated deficit			(134,282)		(133,051)
Less common stock held in treasury, at cost			(4,521)		(4,521)
	Total stockholders’ equity		18,563		19,460

	Total liabilities and stockholders’ equity	$	51,844	$	52,050

CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS SHOWN IN THOUSANDS, EXCEPT NET INCOME (LOSS) PER SHARE)



			Three Months Ended September 30,				Nine Months Ended September 30,
		2019		2018		2019		2018
			(Reviewed)		(Reviewed)		(Reviewed)		(Reviewed)

Net revenues		$	17,774	$	18,960	$	52,588	$	41,864
Cost of revenues			10,054		11,426		31,527		25,400

Gross profit			7,720		7,534		21,061		16,464

Selling, general and administrative expenses			4,821		5,264		17,358		12,327
Engineering and development expense			1,462		1,204		4,411		2,746
Transaction and related expense					243				307
			6,283		6,711		21,769		15,380

Income (loss) from operations			1,437		823		(708)		1,084

Other expenses
	Interest expense		(350)		(329)		(1,006)		(521)
	Other income (expense), net		8		(414)		9		(414)
Total other expenses, net			(342)		(743)		(997)		(935)

Income (loss) before taxes			1,095		80		(1,705)		149
Income tax provision (benefit)			255		24		(474)		81

Net income (loss)		$	840	$	56	$	(1,231)	$	68


Net income (loss) per share:
	Basic	$	0.53	$	0.04	$	(0.78)	$	0.04


	Diluted	$	0.51	$	0.04	$	(0.78)	$	0.04


Weighted average shares outstanding:
	Basic		1,597		1,546		1,576		1,546


	Diluted		1,633		1,600		1,576		1,600