CPI International Announces Second Quarter 2013 Financial Results

PALO ALTO, Calif., May 7, 2013 /PRNewswire/ -- CPI International Holding Corp., the parent company of CPI International, Inc. (CPI), today announced financial results for its second quarter of fiscal year 2013 ended March 29, 2013.  In the second quarter of fiscal 2013, CPI increased its orders, sales, net income and adjusted EBITDA results in comparison to the same quarter of the previous fiscal year.  The company also recorded its highest second quarter sales and largest backlog level ever.

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"CPI's second quarter saw a continuation of the positive momentum and trends that we have enjoyed in recent quarters.  Our revenue and profitability continue to grow, demand for our products is healthy, and conditions within our end markets are stable.  We have seen no measureable impact from sequestration and other potential government budget cuts; in fact, our defense market sales and orders each grew by double digits in the second quarter.  Additionally, the integration of the Codan Satcom business into our North American facilities has gone smoothly, and this business has had a favorable impact on our communications market sales and orders results this year," said Joe Caldarelli, chief executive officer.

Orders

Orders booked during the first six months of fiscal 2013 totaled $264 million, an increase of 35 percent from the same period of the previous fiscal year.  A major contributor to this increase was a sizeable multi-year order that was booked in the most recent period for CPI's advanced tactical common data link (TCDL) antenna products to support intelligence, surveillance and reconnaissance (ISR) military communications applications.

For the 12-month period ending on March 29, 2013, CPI's book-to-bill ratio was 1.13.  As of that date, CPI's order backlog was $307 million, representing the company's highest ever level of backlog.

In comparison to the same period of the prior year, in the first six months of fiscal 2013, CPI's orders in its largest end markets were as follows:

  • In the defense market, orders increased 17 percent to $93.0 million due to higher demand for several U.S. and foreign military radar systems and U.S. military electronic warfare systems.
  • In the medical market, orders increased four percent to $40.7 million due to higher demand for x-ray imaging products from customers in Europe and North America.
  • In the communications market, orders increased 84 percent to $112 million, benefitting from the aforementioned sizeable order for advanced TCDL antenna products for ISR applications.  Shipments for this program are expected to begin in late fiscal 2013 and continue into fiscal 2015.  In addition, orders to support other military communications and commercial broadcast applications increased.  The most recent period also benefited from the inclusion of orders from the Codan Satcom business that CPI acquired in the fourth quarter of fiscal 2012.

Sales

CPI's total sales equaled $102 million in the second quarter of fiscal 2013, increasing six percent from $96.5 million in the same quarter of the previous year.  In comparison to that quarter, CPI's second quarter 2013 sales in its largest end markets were as follows:

  • In the defense market, sales increased 18 percent to $41.7 million due to higher sales for several U.S. and foreign radar systems and a U.S. military electronic warfare system.
  • In the medical market, sales decreased 11 percent to $17.9 million due to lower sales for x-ray imaging applications, driven by the timing of customer needs in China and Russia.
  • In the communications market, sales increased 15 percent to $34.8 million due to the inclusion of revenues from the Codan Satcom business that CPI acquired in the fourth quarter of fiscal 2012 and higher sales for commercial communications applications.

Net Income and Adjusted EBITDA

CPI's net income totaled $1.3 million in the second quarter of fiscal 2013, improving from a $0.3 million net loss in the same quarter of the prior year.  The increase in net income was principally due to higher total sales in the most recent quarter.  Net income in the most recent quarter also benefited from a decrease in intangible asset amortization related to the February 2011 acquisition of CPI by The Veritas Capital Fund IV, L.P.  Partially offsetting these positive factors, CPI incurred expenses related to the negotiation, closing and integration of acquisitions, including the integration of the Codan Satcom business into CPI, in the second quarter of fiscal 2013; there were no such expenses in the year-ago quarter.

Adjusted EBITDA in the second quarter of fiscal 2013 totaled $16.2 million, or 15.9 percent of sales.  CPI's adjusted EBITDA increased from $14.2 million, or 14.7 percent of sales, in the same quarter of the previous year, primarily due to higher total sales in the second quarter of fiscal 2013.

Cash Flow

As of March 29, 2013, CPI had cash and cash equivalents totaling $47.0 million.  In the 12-month period ending on that date, CPI's cash flow from operating activities was $31.1 million, free cash flow was $25.2 million and adjusted free cash flow was $27.5 million.

Fiscal 2013 Outlook

For fiscal 2013, CPI expects:

  • Total sales of between $415 million and $425 million;
  • Adjusted EBITDA of between $66 million and $68 million; and
  • Adjusted free cash flow of more than $17 million.

CPI expects its effective tax rate for fiscal 2013 will be approximately 39 percent.

Financial Community Conference Call

In conjunction with this announcement, CPI will hold a conference call on Wednesday, May 8, 2013 at 10:00 a.m. (EDT) that simultaneously will be broadcast live over the Internet on the company's Web site.  To participate in the conference call, please dial (800) 649-5127, or (253) 237-1144 for international callers, enter conference ID 50901026 and ask for the CPI International Second Quarter Fiscal 2013 Financial Results Conference Call.  To access the call via the Internet, please visit http://investor.cpii.com and click "Events."

About CPI International Holding Corp.

CPI International Holding Corp., headquartered in Palo Alto, California, is the parent company of CPI International, Inc., which is the parent company of Communications & Power Industries LLC, a leading provider of microwave, radio frequency, power and control solutions for critical defense, communications, medical, scientific and other applications.  Communications & Power Industries LLC develops, manufactures and distributes products used to generate, amplify, transmit and receive high-power/high-frequency microwave and radio frequency signals and/or provide power and control for various applications.  End-use applications of these systems include the transmission of radar signals for navigation and location; transmission of deception signals for electronic countermeasures; transmission and amplification of voice, data and video signals for broadcasting, Internet and other types of commercial and military communications; providing power and control for medical diagnostic imaging; and generating microwave energy for radiation therapy in the treatment of cancer and for various industrial and scientific applications.

Non-GAAP Supplemental Information

EBITDA, adjusted EBITDA, EBITDA margin, adjusted EBITDA margin, free cash flow and adjusted free cash flow presented here are non-generally accepted accounting principles (GAAP) financial measures.  EBITDA represents earnings before net interest expense, provision for income taxes and depreciation and amortization.  Adjusted EBITDA represents EBITDA further adjusted to exclude certain non-recurring, non-cash, unusual or other items.  EBITDA margin represents EBITDA divided by sales.  Adjusted EBITDA margin represents adjusted EBITDA divided by sales.  Free cash flow represents net cash provided by operating activities minus capital expenditures and patent application fees.  Adjusted free cash flow represents free cash flow further adjusted to exclude certain non-recurring, unusual or other items.

CPI believes that GAAP-based financial information for leveraged businesses, such as the company's business, should be supplemented by EBITDA, adjusted EBITDA, EBITDA margin, adjusted EBITDA margin, free cash flow and adjusted free cash flow so that investors better understand the company's operating performance in connection with their analysis of the company's business.  In addition, CPI's management team uses EBITDA and adjusted EBITDA to evaluate the company's operating performance, to monitor compliance with its senior credit facility, to make day-to-day operating decisions and as a component in the calculation of management bonuses.  Other companies may define EBITDA, adjusted EBITDA, EBITDA margin, adjusted EBITDA margin, free cash flow and adjusted free cash flow differently and, as a result, the company's measures may not be directly comparable to EBITDA, adjusted EBITDA, EBITDA margin, adjusted EBITDA margin, free cash flow and adjusted free cash flow of other companies.  Because EBITDA, adjusted EBITDA, EBITDA margin, adjusted EBITDA margin, free cash flow and adjusted free cash flow do not include certain material costs, such as interest and taxes in the case of EBITDA-based measures, necessary to operate the company's business, when analyzing the company's business, these non-GAAP measures should be considered in addition to, and not as a substitute for, net income (loss), net cash provided by (used in) operating activities, net income margin or other statements of income or statements of cash flows data prepared in accordance with GAAP.

Certain statements included above constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended.  Forward-looking statements provide our current expectations, beliefs or forecasts of future events.  Forward-looking statements are subject to known and unknown risks and uncertainties, which could cause actual events or results to differ materially from the results projected, expected or implied by these forward-looking statements.  These factors include, but are not limited to, competition in our end markets; our significant amount of debt; changes or reductions in the U.S. defense budget; currency fluctuations; goodwill impairment considerations; customer cancellations of sales contracts; U.S. Government contracts; export restrictions and other laws and regulations; international laws; changes in technology; the impact of unexpected costs; the impact of a general slowdown in the global economy; the impact of environmental laws and regulations; and inability to obtain raw materials and components.  These and other risks are described in more detail in our periodic filings with the Securities and Exchange Commission.  As a result of these uncertainties, you should not place undue reliance on these forward-looking statements.  All future written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.  New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect us.  We undertake no duty or obligation to publicly revise any forward-looking statement to reflect circumstances or events occurring after the date hereof or to reflect the occurrence of unanticipated events or changes in our expectations.

 

 

CPI International Holding Corp.

and Subsidiaries


CONDENSED CONSOLIDATED

STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands - unaudited)


























Three Months Ended


Six Months Ended


March 29,


March 30,


March 29,


March 30,


2013

2012

2013

2012

Sales

$

102,219


$

96,457


$

199,780


$

189,438

Cost of sales, including $0, $7, $261, $7 of utilization of net increase in cost basis of inventory due to purchase accounting, respectively

74,503


70,349


145,106


138,959

Gross profit

27,716


26,108


54,674


50,479

Operating costs and expenses:








Research and development

3,863


3,639


7,231


7,027

Selling and marketing

5,458


5,695


10,837


11,136

General and administrative

7,411


6,021


13,578


12,173

Amortization of acquisition-related intangible assets

2,342


3,733


5,072


8,588

Total operating costs and expenses

19,074


19,088


36,718


38,924

Operating income

8,642


7,020


17,956


11,555

Interest expense, net

6,853


6,827


13,714


13,653

Income (loss) before income taxes

1,789


193


4,242


(2,098)

Income tax expense (benefit)

489


510


1,491


(142)

Net income (loss)

1,300


(317)


2,751


(1,956)









Other comprehensive (loss) income, net of tax








Unrealized (loss) gain on cash flow hedges, net of tax

(571)


579


(1,034)


1,044

Total other comprehensive (loss) income, net of tax

(571)


579


(1,034)


1,044

Comprehensive income (loss)

$

729


$

262


$

1,717


$

(912)

 

CPI International Holding Corp.

and Subsidiaries


CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data - unaudited)














March 29,


September 28,

2013

2012

Assets




Current Assets:




Cash and cash equivalents

$

47,020


$

43,006

Restricted cash

2,147


1,926

Accounts receivable, net

48,745


51,076

Inventories

91,221


83,937

Deferred tax assets

14,104


14,186

Prepaid and other current assets

7,897


10,400

Total current assets

211,134


204,531

Property, plant, and equipment, net

78,413


81,601

Deferred debt issue costs, net

10,845


11,954

Intangible assets, net

243,318


248,877

Goodwill

178,934


178,934

Other long-term assets

1,126


1,105

Total assets

$

723,770


$

727,002





Liabilities and stockholders' equity




Current Liabilities:




Current portion of long-term debt

$


$

3,200

Accounts payable

27,370


26,331

Accrued expenses

22,726


26,707

Product warranty

3,758


4,066

Income taxes payable

4,244


2,852

Advance payments from customers

15,317


14,434

Total current liabilities

73,415


77,590

Deferred income taxes

87,250


88,879

Long-term debt, less current portion

358,673


358,613

Other long-term liabilities

5,996


5,704

Total liabilities

525,334


530,786

Commitments and contingencies




Stockholders' equity




Common stock ($0.01 par value, 2 shares authorized: 1 share issued and outstanding)


Additional paid-in capital

199,068


198,565

Accumulated other comprehensive (loss) income

(585)


449

Accumulated deficit

(47)


(2,798)

Total stockholders' equity

198,436


196,216

Total liabilities and stockholders' equity

$

723,770


$

727,002

 

CPI International Holding Corp.

and Subsidiaries


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands - unaudited)














Six Months Ended


March 29,


March 30,

2013

2012

Cash flows from operating activities




Net cash provided by operating activities

$

9,905


$

3,859





Cash flows from investing activities




Capital expenditures

(2,691)


(4,363)

Acquisition


(300)

Net cash used in investing activities

(2,691)


(4,663)





Cash flows from financing activities




Repayment of borrowings under CPII's term loan facility

(3,200)


(750)

Net cash used in financing activities

(3,200)


(750)





Net increase (decrease) in cash and cash equivalents

4,014


(1,554)

Cash and cash equivalents at beginning of period

43,006


34,955

Cash and cash equivalents at end of period

$

47,020


$

33,401





Supplemental cash flow disclosures




Cash paid for interest

$

12,482


$

12,680

Cash paid (received) for income taxes, net of refunds

$

517


$

(23)

 

 


CPI International Holding Corp.

and Subsidiaries


NON-GAAP SUPPLEMENTAL INFORMATION

EBITDA and Adjusted EBITDA

(in thousands - unaudited)


























 Three Months Ended 



 Six Months Ended 






March 29,


March 30,


March 29,


March 30,






2013


2012


2013


2012

Net income (loss)




$

1,300


$

(317)


$

2,751


$

(1,956)


Depreciation and amortization

5,495


6,484


11,380


14,044


Interest expense, net


6,853


6,827


13,714


13,653


Income tax expense (benefit)

489


510


1,491


(142)

EBITDA




14,137


13,504


29,336


25,599













Adjustments to exclude certain non-recurring, non-cash or other unusual items:










Stock-based compensation expense

(1)


252


274


503


495


Acquisition-related expenses

(2)


1,327



1,976



Write-off of inventory step-up

(3)



7


261


7


Veritas Capital management fee

(4)


532


428


1,024


850

Total adjustments



2,111


709


3,764


1,352

Adjusted EBITDA



$

16,248


$

14,213


$

33,100


$

26,951




















EBITDA margin

(5)


13.8

%



14.0

%



14.7

%



13.5

%


Adjusted EBITDA margin

(6)


15.9

%



14.7

%



16.6

%



14.2

%


Net income (loss) margin

(7)


1.3

%



(0.3)

%



1.4

%



(1.0)

%




















1) Represents compensation expense for Class B membership interests by certain members of management and independent directors in the company's parent, CPI International Holding LLC.

2) Represents non-recurring transaction costs related to the negotiation, closing and integration of acquisitions. Costs include fees for attorneys and other professional services and expenses related to integration of the Codan Satcom operations into those of CPI.

3) Represents a non-cash charge for utilization of the net increase in cost basis of inventory that resulted from purchase accounting in connection with acquisitions.

4) Represents a management fee payable to Veritas Capital for advisory and consulting services.

5) Represents EBITDA divided by sales.

6) Represents adjusted EBITDA divided by sales.

7) Represents net income (loss) divided by sales.

 

 


CPI International Holding Corp.

and Subsidiaries


NON-GAAP SUPPLEMENTAL INFORMATION

Free Cash Flow and Adjusted Free Cash Flow

(in thousands - unaudited)









Twelve Months Ended





March 29,





2013


Net cash provided by operating activities


31,096


Capital expenditures


(5,912)


Free cash flow


25,184







Adjustments to exclude certain non-recurring or other unusual items:





Cash paid for acquisition-related expenses, net of taxes

(1)

1,689



Cash paid for Veritas Capital advisory fee, net of taxes

(2)

1,266



Cash received for prior year transfer pricing audit

(3)

(656)


Total adjustments


2,299


Adjusted free cash flow


27,483







Free cash flow


25,184


Net income


8,392






1) Represents non-recurring transaction costs, net of income taxes, related to the negotiation, closing and integration of acquisitions. Costs include fees for attorneys and other professional services and expenses related to integration of the Codan Satcom operations into those of CPI.

2) Represents a management fee paid to Veritas Capital for advisory and consulting services, net of income taxes.

3) Represents refunded income tax payments with respect to an audit by the Canada Revenue Agency ("CRA") of Communications & Power Industries Canada Inc.'s ("CPI Canada") purchase of the Satcom Division in fiscal years 2001 and 2002.  The Company considers this a non-recurring source of cash as it pertains to previous years.

 

 

SOURCE CPI International Holding Corp.; CPI International, Inc.



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