CPI International Announces Third Quarter 2013 Financial Results

PALO ALTO, Calif., Aug. 7, 2013 /PRNewswire/ -- CPI International Holding Corp., the parent company of CPI International, Inc. (CPI), today announced financial results for its third quarter of fiscal year 2013 ended June 28, 2013.  For the third consecutive quarter, CPI's orders, sales, net income and adjusted EBITDA results increased in comparison to the same quarter of the prior fiscal year.

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"In the third quarter, CPI's strong operational and financial performance continued.  We generated our highest quarterly sales rate ever, recorded our highest quarterly backlog level ever, and also set new highs for our sales and orders for the first nine months of a fiscal year.  In addition, in comparison to last year's third quarter, our orders and sales grew in each of our largest end markets, and our profitability measures increased," said Joe Caldarelli, chief executive officer.  "Market conditions continue to be generally favorable, our investments in our communications business and solid-state offerings are driving positive results and we look forward to continued positive momentum in the coming quarters."

Orders

During the first nine months of fiscal 2013, CPI booked orders totaling $386 million, an increase of 37 percent from the $282 million booked in the same period of the previous year.  In particular, orders for radar and military communications programs increased during the recent period.

For the 12-month period ending on June 28, 2013, CPI's book-to-bill ratio was 1.18.  As of that date, the company's order backlog totaled $324 million.

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

  • In the defense market, orders increased 28 percent to $153 million due to greater demand for products to support U.S. and foreign military radar systems and U.S. military electronic warfare systems.  In particular, orders of radar products to support the Aegis radar system were very strong due to new ship builds and replenishment of spare and repair stocking levels; shipments for certain of these orders are expected to continue through fiscal 2015.
  • In the medical market, orders increased 14 percent to $55.9 million due to higher demand for products to support radiation therapy, x-ray imaging and magnetic resonance imaging (MRI) applications.
  • In the communications market, orders increased 72 percent to $151 million due, in large part, to a sizeable multi-year order for advanced tactical common data link (TCDL) antenna products to support intelligence, surveillance and reconnaissance (ISR) military communications applications.  In addition, orders to support other military communications applications, including other advanced TCDL antenna programs, and commercial communications applications, including broadband data communications programs, 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

In the third quarter of fiscal 2013, CPI generated total sales of $110 million, an increase of 13 percent from the $97.2 million recorded in the same quarter of the previous year.  In comparison to the year-ago quarter, in the third quarter of fiscal 2013, CPI's sales in its largest end markets were as follows:

  • In the defense market, sales increased 14 percent to $41.5 million due to higher sales of products to support U.S. and foreign radar systems.
  • In the medical market, sales increased one percent to $18.4 million due to higher sales of products for x-ray imaging applications.
  • In the communications market, sales increased 16 percent to $38.4 million due to the inclusion of Codan Satcom sales in the most recent quarter, as well as higher sales for military communications applications, including advanced TCDL antenna programs, and higher sales for commercial communications applications, including direct-to-home broadcast programs.

Net Income and Adjusted EBITDA

CPI's net income in the third quarter of fiscal 2013 totaled $6.2 million, an increase from the $2.9 million recorded in the previous year's third quarter.  The increase in net income was primarily due to higher total sales and sales of products with higher margins in the most recent quarter.  Net income also benefited from a decrease in intangible asset amortization related to the acquisition of CPI by The Veritas Capital Fund IV, L.P. in February 2011.

Adjusted EBITDA equaled $22.0 million, or 20.1 percent of sales, in the third quarter of fiscal 2013, an increase from the $19.0 million, or 19.5 percent of sales, in the same quarter of the prior year.  This increase was primarily due to higher total sales and sales of products with higher margins in the most recent quarter.

Cash Flow

As of June 28, 2013, CPI had cash and cash equivalents totaling $61.3 million.  For the 12-month period ending on that date, CPI's cash flow from operating activities was $41.2 million, its free cash flow was $36.3 million and its adjusted free cash flow was $35.3 million.

Fiscal 2013 Outlook

"Due to CPI's excellent financial performance in fiscal 2013 to date, we are tightening and raising our guidance for the remainder of the year," said Caldarelli.  For fiscal 2013, CPI expects:

  • Total sales of between $420 million and $425 million;
  • Adjusted EBITDA of more than $70 million; and
  • Adjusted free cash flow of more than $20 million.

The effective tax rate for fiscal 2013 is expected to be approximately 37 percent, excluding discrete tax adjustments.

Financial Community Conference Call

In conjunction with this announcement, CPI will hold a conference call on Thursday, August 8, 2013 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 24504565 and ask for the CPI International Third 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

(in thousands - unaudited)


























Three Months Ended


Nine Months Ended


June 28,


June 29,


June 28,


June 29,


2013

2012

2013

2012

Sales

$

109,616


$

97,193


$

309,396


$

286,631

Cost of sales, including $0, $13, $261 and $20 of utilization of net increase in cost basis of inventory due to purchase accounting, respectively

75,704


67,676


220,810


206,635

Gross profit

33,912


29,517


88,586


79,996

Operating costs and expenses:








Research and development

3,850


3,370


11,081


10,397

Selling and marketing

5,618


5,209


16,455


16,345

General and administrative

7,227


6,310


20,805


18,483

Amortization of acquisition-related intangible assets

1,947


2,664


7,019


11,252

Total operating costs and expenses

18,642


17,553


55,360


56,477

Operating income

15,270


11,964


33,226


23,519

Interest expense, net

6,753


6,784


20,467


20,437

Income before income taxes

8,517


5,180


12,759


3,082

Income tax expense

2,366


2,235


3,857


2,093

Net income

6,151


2,945


8,902


989









Other comprehensive (loss) income, net of tax








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

(490)


(356)


(1,524)


688

Total other comprehensive (loss) income, net of tax

(490)


(356)


(1,524)


688

Comprehensive income

$

5,661


$

2,589


$

7,378


$

1,677













 

CPI International Holding Corp.

and Subsidiaries


CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data - unaudited)














June 28,


September 28,

2013

2012

Assets




Current Assets:




Cash and cash equivalents

$

61,272


$

43,006

Restricted cash

2,451


1,926

Accounts receivable, net

55,001


51,076

Inventories

92,212


83,937

Deferred tax assets

14,292


14,186

Prepaid and other current assets

4,308


10,400

   Total current assets

229,536


204,531

Property, plant, and equipment, net

77,068


81,601

Deferred debt issue costs, net

10,282


11,954

Intangible assets, net

242,569


248,877

Goodwill

179,594


178,934

Other long-term assets

1,034


1,105

      Total assets

$

740,083


$

727,002





Liabilities and stockholders' equity




Current Liabilities:




Current portion of long-term debt

$


$

3,200

Accounts payable

25,337


26,331

Accrued expenses

31,922


26,707

Product warranty

4,105


4,066

Income taxes payable

6,158


2,852

Advance payments from customers

16,201


14,434

   Total current liabilities

83,723


77,590

Deferred income taxes

87,103


88,879

Long-term debt, less current portion

358,703


358,613

Other long-term liabilities

6,206


5,704

   Total liabilities

535,735


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

199,319


198,565

Accumulated other comprehensive (loss) income

(1,075)


449

Retained earnings (accumulated deficit)

6,104


(2,798)

   Total stockholders' equity

204,348


196,216

   Total liabilities and stockholders' equity

$

740,083


$

727,002







 

CPI International Holding Corp.

and Subsidiaries


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands - unaudited)














Nine Months Ended


June 28,


June 29,

2013

2012

Cash flows from operating activities




Net cash provided by operating activities

$

30,627


$

14,485





Cash flows from investing activities




Capital expenditures

(3,790)


(6,441)

Acquisitions

(5,371)


(400)

Net cash used in investing activities

(9,161)


(6,841)





Cash flows from financing activities




Repayment of borrowings under CPII's term loan facility

(3,200)


(1,125)

Net cash used in financing activities

(3,200)


(1,125)





Net increase in cash and cash equivalents

18,266


6,519

Cash and cash equivalents at beginning of period

43,006


34,955

Cash and cash equivalents at end of period

$

61,272


$

41,474





Supplemental cash flow disclosures




Cash paid for interest

$

14,426


$

14,754

Cash (received) paid for income taxes, net

$

(3,006)


$

376







 

CPI International Holding Corp.

and Subsidiaries



















NON-GAAP SUPPLEMENTAL INFORMATION

EBITDA and Adjusted EBITDA

(in thousands - unaudited)






















 Three Months Ended 



 Nine Months Ended 




June 28,


June 29,


June 28,


June 29,




2013


2012


2013


2012

Net income


$

6,151


$

2,945


$

8,902


$

989


Depreciation and amortization


5,058


5,473


16,438


19,517


Interest expense, net


6,753


6,784


20,467


20,437


Income tax expense


2,366


2,235


3,857


2,093

EBITDA


20,328


17,437


49,664


43,036











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










Stock-based compensation expense

(1)

251


251


754


746


Acquisition-related expenses

(2)

810


722


2,786


722


Write-off of inventory step-up

(3)

-


13


261


20


Veritas Capital management fee

(4)

658


555


1,682


1,405

Total adjustments


1,719


1,541


5,483


2,893

Adjusted EBITDA


$

22,047


$

18,978


$

55,147


$

45,929



















EBITDA margin

(5)

18.5 %



17.9 %



16.1 %



15.0 %


Adjusted EBITDA margin

(6)

20.1 %



19.5 %



17.8 %



16.0 %


Net income margin

(7)

5.6 %



3.0 %



2.9 %



0.3 %













 

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




June 28,




2013

Net cash provided by operating activities


$

41,192

Capital expenditures


(4,933)

Free cash flow


36,259






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





Cash paid for acquisition-related expenses, net of taxes

(1)

2,463


Cash paid for Veritas Capital advisory fee, net of taxes

(2)

1,253


Cash received for prior year transfer pricing audit

(3)

(4,648)

Total adjustments


(932)

Adjusted free cash flow


$

35,327






Free cash flow


$

36,259

Net income


$

11,598

 

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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