CPI International Announces Third Quarter 2012 Financial Results

PALO ALTO, Calif., Aug. 8, 2012 /PRNewswire/ -- CPI International Holding Corp., the parent company of CPI International, Inc. (CPI), today announced financial results for its third quarter of fiscal year 2012 ended June 29, 2012.

(Logo: http://photos.prnewswire.com/prnh/20060426/CPILOGO)

"CPI's third quarter continued the trends that we enjoyed in the first half of the year, and our traditional core programs continued to drive a successful year," said Joe Caldarelli, chief executive officer of CPI.  "Despite the recent expected conclusions of a few atypically large programs, conditions and demand in our three largest markets – the defense, medical and communications markets – remain favorable, particularly for our core programs."

In the third quarter of fiscal 2012, CPI generated total sales of $97.2 million, as compared to total sales of $104.2 million in the same quarter of the previous fiscal year.  The decrease in sales was due to CPI's participation in a counter-improvised explosive device (counter-IED) program in fiscal 2011 that has not recurred, and is not expected to recur, during the current fiscal year.  In the third quarter of fiscal 2011, CPI recorded $13.9 million in sales for this one-time program, as compared to no sales for this program in the most recent quarter, as expected.  Excluding this non-recurring program, CPI's sales increased by eight percent in the third quarter of fiscal 2012.

In comparison to the same quarter of the previous year, CPI's third quarter fiscal 2012 sales in its largest end markets were as follows:

  • In the defense market, sales decreased 23 percent to $36.5 million due to the absence of the aforementioned non-recurring counter-IED program.  Excluding this program, CPI's sales in the defense market increased 10 percent as a result of higher sales to support radar applications.
  • In the medical market, sales increased 10 percent to $18.3 million due to increases in sales for radiation therapy and x-ray imaging applications.
  • In the communications market, sales increased two percent to $33.0 million as a result of increased sales to support commercial communications applications.

 

In the first nine months of fiscal 2012, CPI booked total orders of $282 million, generating a book-to-bill ratio of 0.98.  In comparison, during the first nine months of the prior fiscal year, CPI booked total orders of $302 million, which included $18.1 million in orders to support the non-recurring counter-IED program that was completed in fiscal 2011.  Excluding this program, the orders level was effectively unchanged.  As of June 29, 2012, CPI's order backlog totaled $244 million.

In comparison to the same period of fiscal 2011, CPI's orders in its largest end markets during the first nine months of fiscal 2012 were as follows:

  • In the defense market, orders decreased seven percent to $119.5 million due to the expected absence of the one-time counter-IED program.  Excluding this program, defense orders increased nine percent as a result of higher demand for products to support radar applications.
  • In the medical market, the orders level was essentially unchanged at $49.0 million.
  • In the communications market, orders decreased by 10 percent to $87.9 million, primarily as the result of lower orders to support certain military communications applications, in particular telemetry antenna applications and the Warfighter Information Network – Tactical (WIN-T) program.  CPI has substantially completed its involvement in Increment One of the WIN-T program.

 

CPI's net income in the third quarter of fiscal 2012 was $2.9 million, an improvement from the $1.8 million net loss recorded in the third quarter of the prior year.  In connection with the February 2011 acquisition of CPI by Veritas Capital, CPI revalued its inventory and intangible assets in fiscal 2011.  Significant decreases in amortization related to these revaluations were the primary contributor to the improvement in net income in the third quarter of fiscal 2012.

Adjusted EBITDA for the third quarter of fiscal 2012 totaled $19.0 million, or 20 percent of sales, as compared to $19.5 million, or 19 percent of sales, in the same quarter of the previous fiscal year.  In the most recent quarter, adjusted EBITDA was negatively impacted by the lower sales volume and related decrease in operating efficiencies.  Partially offsetting this impact, in contrast with the third quarter of fiscal 2011, the most recent quarter did not include costs for a telemetry antenna development program.

As of June 29, 2012, CPI had cash and cash equivalents totaling $41.5 million.  On June 30, CPI acquired the Codan Satcom business from Codan Limited for an initial payment of approximately $9 million in cash, funded entirely from CPI's cash on hand.  Codan Satcom designs and manufactures solid-state radio frequency subsystems for satellite communications services to commercial and government customers.

For the 12-month period ended June 29, 2012, CPI's cash flow from operating activities totaled $20.7 million and free cash flow totaled $11.8 million.  Adjusted free cash flow for the period was $11.1 million.

Fiscal 2012 Outlook
"Fiscal 2012 is proceeding largely according to plan, and we are reconfirming CPI's sales and adjusted EBITDA projections for the year," said Caldarelli.  "We expect to generate total sales of $385 million to $395 million and adjusted EBITDA of $63 million to $65 million.  We currently expect our adjusted free cash flow to total between $13 million and $17 million."  The recent acquisition of the Codan Satcom business is not expected to have a material impact on CPI's financial results in fiscal 2012.

Financial Community Conference Call
In conjunction with this announcement, CPI will hold a conference call on Thursday, August 9, 2012 at 11:00 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 15698586 and ask for the CPI International Third Quarter Fiscal 2012 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


CONSOLIDATED STATEMENTS OF

OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(in thousands)











Three Months Ended 



June 29,
2012

July 1,
2011

 Sales 

$ 97,193

$ 104,206

 Cost of sales, including $3,907 of utilization of net increase in cost 




 basis of inventory due to purchase accounting for the three 




 months ended July 1, 2011 

67,676

77,077

 Gross profit 

29,517

27,129

 Operating costs and expenses: 




 Research and development 

3,370

3,269


 Selling and marketing 

5,209

5,300


 General and administrative 

6,310

6,427


 Amortization of acquisition-related intangible assets 

2,664

4,853


 Strategic alternative transaction expenses 

-

344

 Total operating costs and expenses 

17,553

20,193

 Operating income 

11,964

6,936

 Interest expense, net 

6,784

6,811

 Income before income taxes 

5,180

125

 Income tax expense 

2,235

1,957

 Net income (loss) 

2,945

(1,832)





 Other comprehensive loss, net of tax 




Unrealized loss on cash flow hedges, net of tax

(356)

-

 Total other comprehensive loss, net of tax 

(356)

-

 Comprehensive income (loss) 

$   2,589

$   (1,832)

 

CPI International Holding Corp.

and Subsidiaries


CONSOLIDATED STATEMENTS OF

OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(in thousands)

















 Fiscal Year 



2012


2011



Nine Months Ended
June 29,
2012


February 11
to July 1,
2011

October 2, 2010
to February 10,
2011

Nine Months Ended
July 1,
2011



 Successor(1) 


 Successor(1) 

 Predecessor(1) 

 Combined(2) 

 Sales 

$                   286,631


$         164,010

$             124,223

$                   288,233

 Cost of sales, including $7,474 of utilization of net increase in cost 







 basis of inventory due to purchase accounting for the period 







 February 11 to July 1, 2011 and the nine months ended July 1, 2011 

206,635


121,073

91,404

212,477

 Gross profit 

79,996


42,937

32,819

75,756

 Operating costs and expenses: 







 Research and development 

10,397


5,432

4,994

10,426


 Selling and marketing 

16,345


8,002

8,264

16,266


 General and administrative 

18,483


9,552

11,853

21,405


 Amortization of acquisition-related intangible assets 

11,252


7,282

999

8,281


 Strategic alternative transaction expenses 

-


9,129

4,668

13,797

 Total operating costs and expenses 

56,477


39,397

30,778

70,175

 Operating income 

23,519


3,540

2,041

5,581

 Interest expense, net 

20,437


10,949

5,788

16,737

 Loss on debt extinguishment, net 

-


134

-

134

 Income (loss) before income taxes 

3,082


(7,543)

(3,747)

(11,290)

 Income tax expense 

2,093


1,462

983

2,445

 Net income (loss) 

989


(9,005)

(4,730)

(13,735)








 Other comprehensive income, net of tax 






Unrealized gain on cash flow hedges, net of tax

688


225

284

509

Unrealized actuarial gain and amortization of prior service cost







for pension liability, net of tax

-


-

175

175

 Total other comprehensive income, net of tax 

688


225

459

684

 Comprehensive income (loss) 

$                       1,677


$           (8,780)

$               (4,271)

$                   (13,051)

(1) "Successor" refers to CPI International Holding Corp. and its subsidiaries following the February 11, 2011 merger with Veritas Capital. "Predecessor" refers to CPI International, Inc. and its subsidiaries prior to the February 11, 2011 merger.


(2) Represents the combined results of Successor for the period February 11, 2011 through July 1, 2011 and Predecessor for the period October 2, 2010 through February 10, 2011. This presentation of the combined results of operations for the nine months ended July 1, 2011 does not comply with generally accepted accounting principles in the United States or with the rules for pro forma presentation. CPI believes that this presentation facilitates the ability of its investors to more meaningfully compare its combined operating results for this period with past and future periods.

 

 

CPI International Holding Corp.

and Subsidiaries


CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)














June 29,

September 30,




2012

2011

Assets



Current Assets:




Cash and cash equivalents

$   41,474

$            34,955


Restricted cash

2,185

2,370


Accounts receivable, net

47,513

45,610


Inventories

83,020

78,296


Deferred tax assets

12,986

14,414


Prepaid and other current assets

6,092

6,486



Total current assets

193,270

182,131

Property, plant, and equipment, net

80,500

81,675

Deferred debt issue costs, net

12,494

14,073

Intangible assets, net

250,483

262,232

Goodwill 

178,730

178,983

Other long-term assets

5,560

5,205



Total assets

$ 721,037

$          724,299






Liabilities and stockholders' equity



Current Liabilities:




Current portion of long-term debt

$     3,100

$              1,500


Accounts payable

24,023

27,188


Accrued expenses

28,686

27,301


Product warranty

4,447

5,607


Income taxes payable

4,808

2,912


Advance payments from customers

13,080

14,661



Total current liabilities

78,144

79,169

Deferred income taxes

86,182

87,268

Long-term debt, less current portion

359,058

361,697

Other long-term liabilities

5,334

6,269



Total liabilities 

528,718

534,403

Commitments and contingencies



Stockholders' equity




Common stock ($0.01 par value, 2 shares authorized:





1 share issued and outstanding)

-

-


Additional paid-in capital

198,310

197,564


Accumulated other comprehensive loss

(497)

(1,185)


Accumulated deficit

(5,494)

(6,483)



Total stockholders' equity

192,319

189,896



Total liabilities and stockholders' equity

$ 721,037

$          724,299

 

CPI International Holding Corp.

and Subsidiaries


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)




 Fiscal Year 


2012


2011


Nine Months Ended
June 29,
2012


February 11
to July 1,
2011

October 2, 2010
to February 10,
2011


 Successor(1) 


 Successor(1) 

 Predecessor(1) 

Cash flows from operating activities





Net cash provided by operating activities

$                     14,485


$             7,340

$                 4,277






Cash flows from investing activities





Capital expenditures

(6,441)


(2,483)

(2,434)

Acquisitions

(400)


(370,490)

-

Payment of patent application fees

-


-

(6)

Net cash used in investing activities

(6,841)


(372,973)

(2,440)






Cash flows from financing activities





Equity investment, net

-


197,144

-

Proceeds from issuance of CPII's senior notes

-


208,550

-

Borrowings under CPII's term loan facility

-


143,815

-

Debt issue costs

-


(3,071)

-

Redemption and repurchase of Predecessor's senior subordinated notes and





floating rate notes

-


(129,000)

-

Repayment of borrowings under Predecessor's term loan facility

-


(66,000)

-

Repayment of borrowings under CPII's term loan facility

(1,125)


(750)

-

Payment for Predecessor's senior credit facilities agreement amendment

-


-

(379)

Proceeds from issuance of common stock to employees

-


-

217

Proceeds from exercise of stock options

-


-

174

Excess tax benefit on stock option exercises

-


-

2,191

Net cash (used in) provided by financing activities

(1,125)


350,688

2,203






Net increase (decrease) in cash and cash equivalents

6,519


(14,945)

4,040

Cash and cash equivalents at beginning of period

34,955


46,869

42,829

Cash and cash equivalents at end of period

$                     41,474


$           31,924

$               46,869






Supplemental cash flow disclosures





Cash paid for interest

$                     14,754


$             3,361

$                 6,451

Cash paid for income taxes, net of refunds

$                          376


$                  56

$                 6,284

 

(1) "Successor" refers to CPI International Holding Corp. and its subsidiaries following the February 11, 2011 merger with Veritas Capital. "Predecessor" refers to CPI International, Inc. and its subsidiaries prior to the February 11, 2011 merger.

 

 

CPI International Holding Corp.

and Subsidiaries












NON-GAAP SUPPLEMENTAL INFORMATION

EBITDA and Adjusted EBITDA

(in thousands - unaudited)
















 Three Months Ended 


 Nine Months Ended 





June 29,


July 1,


June 29,


July 1,





2012


2011


2012


2011 (1)

Net income (loss)



$   2,945


$ (1,832)


$      989


$  (13,735)


Depreciation and amortization



5,473


7,438


19,517


15,226


Interest expense, net



6,784


6,811


20,437


16,737


Income tax expense



2,235


1,957


2,093


2,445

EBITDA



17,437


14,374


43,036


20,673












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











Stock-based compensation expense

(2)


251


234


746


5,101


Loss on debt extinguishment

(3)


-


-


-


134


Merger expenses

(4)




344


-


13,797


Acquisition-related expenses

(5)


722


-


722


-


Write-off of inventory step-up

(6)


13


3,907


20


7,474


Veritas Capital management fee

(7)


555


600


1,405


900

Total adjustments



1,541


5,085


2,893


27,406

Adjusted EBITDA



$ 18,978


$ 19,459


$ 45,929


$   48,079













EBITDA margin

(8)


17.9%


13.8%


15.0%


7.2%


Adjusted EBITDA margin

(9)


19.5%


18.7%


16.0%


16.7%


Net income (loss) margin

(10)


3.0%


(1.8%)


0.3%


(4.8%)

 

1)

For the nine months ended July 1, 2011, based on the combined results of CPI International Holding Corp. for the period February 11, 2011 through July 1, 2011, and the predecessor, CPI International, Inc. (the "Predecessor"), for the period October 2, 2010 through February 10, 2011. This presentation of the combined results of operations for the nine months ended July 1, 2011 does not comply with generally accepted accounting principles in the United States or with the rules for pro forma presentation. CPI believes that this presentation facilitates the ability of its investors to more meaningfully compare its combined operating results for fiscal year 2012 with its results for fiscal year 2011.

2)

For the periods ended July 1, 2011, represents a charge for stock options, restricted stock awards, restricted stock unit awards and the employee discount related to CPI's Employee Stock Purchase Plan, including for the acceleration of vesting of stock options in conjunction with the sale of the Predecessor, as well as compensation expense for Class B membership interests by certain members of management and independent directors in the company's parent, CPI International Holding LLC. For the periods ended June 29, 2012, 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.

3)

Represents bond tender fees and other related expenses related to the retirement of debt obligations of the Predecessor, net of a gain from debt repayment at less than fair value.

4)

Represents non-recurring transaction costs, such as fees for investment bankers, attorneys and other professional services rendered in conjunction with the sale of the company. Also includes cash payments for the unvested portion of restricted stock awards for which vesting was accelerated.

5)

Represents non-recurring transaction costs related to closing and integration of the Codan Satcom acquisition, such as fees for attorneys and other professional services, and expenses related to integration of the Codan Satcom operations into those of CPI.

6)

Represents a non-cash charge for utilization of the net increase in cost basis of inventory that resulted from purchase accounting in connection with the sale of the company for periods ended July 1, 2011, and in connection with the purchase of Freeland Products, Inc. for the periods ended June 29, 2012.

7)

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

8)

Represents EBITDA divided by sales.

9)

Represents adjusted EBITDA divided by sales.

10)

Represents net income 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






June 29,






2012


Net cash provided by operating activities



$                         20,712


Capital expenditures



(8,876)


Payment of patent application fees



(4)


Free cash flow



11,832








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






Cash paid for merger expenses, net of taxes

(1)


731



Cash paid for Veritas Capital advisory fee, net of taxes

(2)


936



Cash received for prior year transfer pricing audit

(3)


(2,380)


Total adjustments



(713)


Adjusted free cash flow



$                         11,119








Free cash flow



$                         11,832


Net income



$                           3,511


 

1)

Represents cash paid, net of income taxes, for: (i) fees for investment bankers, attorneys, other professional services and for transaction costs in connection with the sale of the company, and (ii) cash payments for the unvested portion of restricted stock awards for which vesting was accelerated in connection with the sale of the company.

2)

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

3)

Represents payments received 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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