Sales, net income and EBITDA increase from previous quarter Company
continues debt reduction program, retires additional $5 million
PALO ALTO, Calif., Aug. 12 /PRNewswire-FirstCall/ -- CPI
International, Inc. (NASDAQ:CPII), the parent company of
Communications & Power Industries, Inc., a leading provider of
microwave, radio frequency, power and control solutions for
critical defense, communications, medical, scientific and other
applications, today announced financial results for its third
quarter of fiscal 2009 ended July 3, 2009. (Logo:
http://www.newscom.com/cgi-bin/prnh/20060426/CPILOGO) In the third
quarter of fiscal 2009, sales, net income and EBITDA results all
increased in comparison to the previous quarter. Sales increased
$0.6 million to $82.5 million. Excluding non-recurring tax benefits
recognized in the second quarter, net income increased by
approximately 45 percent to $3.9 million, or $0.22 per share on a
diluted basis. EBITDA increased by approximately 28 percent to
$13.8 million, or approximately 17 percent of sales, in the third
quarter. CPI International (CPI) had previously announced that it
expected its third quarter financial performance to be similar to,
or slightly better than, its performance in the second quarter. "We
are pleased by CPI's financial performance in the third quarter.
Our sales, net income and EBITDA results increased from the
previous quarter. We continued to operate responsibly and
profitably, enabling us to generate positive cash flow and retire
debt. We also successfully cut costs without sacrificing our
ability to provide the high level of service expected by our
customers," said Joe Caldarelli, chief executive officer of CPI.
"Furthermore, our end markets are stabilizing, leading to
respectable orders and sales levels during the quarter. As a result
of record high orders of $116 million in the previous quarter and a
healthy orders rate in the third quarter, our backlog now exceeds
$230 million for the first time, indicating continued demand for
our products. Many of the orders in our current backlog are for
long-term programs and have extended delivery schedules, which will
benefit our sales levels in fiscal 2010." In the twelve months
ending July 3, 2009, CPI's cash flow from operating activities
totaled $29.5 million, or $1.69 per share on a diluted basis. Free
cash flow totaled $26.2 million, or $1.50 per share on a diluted
basis. CPI remains committed to using its positive cash flow to
retire debt, and, during the first nine months of fiscal 2009,
retired $12.75 million principal amount of debt, including
repurchasing, in the most recent quarter, $5.0 million of
Communications & Power Industries, Inc.'s 8% Senior
Subordinated Notes. As of July 3, 2009, CPI's cash and cash
equivalents totaled $35.2 million, as compared to $28.7 million as
of October 3, 2008. Net income totaled $3.9 million in the third
quarter of fiscal 2009, or $0.22 per share on a diluted basis, as
compared to net income of $5.8 million, or $0.33 per share on a
diluted basis, in the corresponding quarter of the previous year.
The decrease in net income was primarily due to the impact of lower
sales volume, and was partially counteracted by reduced expenses
due to the recent implementation of cost-saving measures and by
lower interest expense in the third quarter of fiscal 2009. CPI
generated $13.8 million in EBITDA, or 17 percent of sales, in the
third quarter of fiscal 2009, as compared to $16.1 million, or 18
percent of sales, in the same quarter of the prior year. The
decrease in EBITDA was primarily the result of the impact of lower
sales volume, and was partially offset by reduced expenses due to
the recent implementation of cost-saving measures. In the first
nine months of fiscal 2009, CPI has instituted a number of
permanent and temporary cost-saving measures, including workforce
reductions, salary freezes and reductions, temporary shutdowns of
its facilities, increased mandatory time off, participation in
work-share programs and reductions in contributions to certain
employee retirement plans. The company believes that these measures
enable it to mitigate the impact of the challenging economic
environment while preserving the flexibility and resources
necessary to continue to meet the requirements of its customers at
current and improved activity levels. Orders and Sales Highlights
In recent quarters, CPI's defense markets have experienced delays
in the receipt of orders that have resulted in subsequent delays in
the corresponding shipments and sales in those markets. The company
believes that order levels are stabilizing in these markets. In
commercial markets, which include CPI's medical, commercial
communications, industrial and scientific markets, customers have
delayed, reduced or cancelled a number of their equipment upgrade
or infrastructure expansion programs in recent quarters due to
economic conditions. In the first nine months of fiscal 2009, key
orders highlights included: -- Overall orders booked totaled $271.3
million, compared with $279.9 million in the same period of the
previous year. -- Orders in the defense markets totaled $113.0
million, as compared to $105.2 million in the first nine months of
fiscal 2008. This increase was primarily due to the timing of the
receipt of orders to support certain domestic and foreign
electronic warfare programs and the timing of the receipt of
several large development orders to support radar programs, such as
the U.S. Navy's APN-245 Automatic Carrier Landing System (ACLS)
Beacon. -- Orders in the medical market totaled $49.5 million, as
compared to $48.3 million in the corresponding period of the
previous year. This increase was primarily the result of increased
demand for products to support magnetic resonance imaging (MRI) and
radiation therapy applications, and was offset, in part, by a
decrease in demand for products to support x-ray imaging
applications. -- Orders in the communications market totaled $91.0
million, as compared to $96.9 million in the first nine months of
the prior year. This decrease was mainly due to lower demand for
products to support commercial communications applications as a
result of the weakness of global economies, partially offset by
growth in orders for military communications programs. CPI received
one approximately $12 million order for the WIN-T military
communications program in the first nine months of fiscal 2008, as
compared to two similarly sized orders for that program in the
first nine months of fiscal 2009. In the third quarter of fiscal
2009, key sales highlights included: -- Overall sales totaled $82.5
million, as compared to $90.7 million in the corresponding quarter
of fiscal 2008. -- Sales in the defense markets totaled $35.7
million, as compared to $38.0 million in the third quarter of
fiscal 2008. This decrease was mainly the result of an expected
$2.3 million decrease in sales to support the Aegis weapons system.
As previously reported, CPI anticipates that its fiscal 2009 sales
in support of the Aegis weapons system will total approximately $10
million, or approximately half of its sales to support the system
in fiscal 2008. -- Sales in the medical market totaled $15.5
million, as compared to $16.8 million in the same quarter of the
prior year. This decrease was caused by lower sales of x-ray
imaging products. -- Sales in the communications market totaled
$24.0 million, as compared to $28.2 million in the corresponding
quarter of fiscal 2008. This decrease was primarily due to lower
sales to support commercial communications applications and was
partially offset by an increase in sales to support military
communications programs. Fiscal 2009 Outlook The company believes
that stabilizing defense and commercial end markets will have a
positive impact on its financial performance in the fourth quarter.
Therefore, affirming its previously issued guidance, CPI expects
its financial performance in the fourth quarter to exceed that of
the previous three quarters. CPI is also affirming its previous
guidance of free cash flow in excess of $20 million in fiscal 2009.
The company believes that its financial results in fiscal 2010 will
be better than its results in fiscal 2009. Furthermore, the company
believes that its historical seasonal pattern of lower first
quarter financial results, as compared to the subsequent three
quarters of the year, will continue in fiscal 2010. Financial
Community Conference Call In conjunction with this announcement,
CPI will hold a conference call on Thursday, August 13, 2009 at
11:00 a.m. (EDT) that will be simultaneously broadcast live over
the Internet on the company's Web site. To participate in the
conference call, please dial (800) 474-8920, or (719) 457-2637 for
international callers, enter participant pass code 5032848 and ask
for the CPI International Third Quarter 2009 Financial Results
Conference Call. To access the call via the Internet, please visit
http://investor.cpii.com/. About CPI International, Inc. CPI
International, Inc., headquartered in Palo Alto, California, is the
parent company of Communications & Power Industries, Inc., a
leading provider of microwave, radio frequency, power and control
solutions for critical defense, communications, medical, scientific
and other applications. Communications & Power Industries, Inc.
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, free
cash flow per share, free cash flow conversion and adjusted free
cash flow presented above and in the financial information attached
hereto are non-generally accepted accounting principles (GAAP)
financial measures. EBITDA represents earnings before net interest
expense, provisions for income taxes and depreciation and
amortization. Adjusted EBITDA represents EBITDA further adjusted to
exclude certain non-recurring or non-cash 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. Free cash flow per share
represents free cash flow divided by average shares outstanding on
a fully diluted basis. Free cash flow conversion represents free
cash flow divided by net income, expressed as a percentage.
Adjusted free cash flow represents free cash flow further adjusted
to exclude certain non-recurring items. For more information
regarding these non-GAAP financial measures for the periods
presented and a reconciliation of these measures to GAAP financial
information, please see the attached financial information. In
addition, this press release and the attached financial information
are available in the investor relations section of the company's
Web site at http://investor.cpii.com/. 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, free
cash flow per share, free cash flow conversion 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, free cash flow per share, free cash flow conversion
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, free cash flow per share, free cash flow conversion and
adjusted free cash flow of other companies. Because EBITDA,
adjusted EBITDA, EBITDA margin, adjusted EBITDA margin, free cash
flow, free cash flow per share, free cash flow conversion 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 operations 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; the impact of a general slowdown in
the global economy; our significant amount of debt; changes or
reductions in the U.S. defense budget; currency fluctuations; U.S.
government contracts laws and regulations; changes in technology;
the impact of unexpected costs; 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, Inc. and Subsidiaries CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (in thousands,
except per share data - unaudited) Three Months Ended Nine Months
Ended ------------- ------------------- July 3, June 27, July 3,
June 27, 2009 2008 2009 2008 ------- -------- ------- --------
Sales $82,520 $90,734 $241,569 $271,448 Cost of sales 58,236 63,502
175,603 192,014 ------ ------ ------- ------- Gross profit 24,284
27,232 65,966 79,434 ------ ------ ------ ------ Operating costs
and expenses: Research and development 2,731 2,766 8,071 8,420
Selling and marketing 4,762 5,012 14,552 15,512 General and
administrative 5,066 5,136 15,466 16,781 Amortization of
acquisition- related intangible assets 691 782 2,076 2,344 Net loss
on disposition of fixed assets 7 128 71 203 --- --- --- --- Total
operating costs and expenses 13,257 13,824 40,236 43,260 ------
------ ------ ------ Operating income 11,027 13,408 25,730 36,174
Interest expense, net 4,204 4,627 12,965 14,244 (Gain) loss on debt
extinguishment (51) 121 (248) 514 --- --- ---- --- Income before
income taxes 6,874 8,660 13,013 21,416 Income tax expense (benefit)
3,004 2,836 (2,201) 6,928 ----- ----- ------ ----- Net income
$3,870 $5,824 $15,214 $14,488 ====== ====== ======= ======= Other
comprehensive income, net of tax Net unrealized gain (loss) on cash
flow hedges and minimum pension liability adjustment 3,346 1,268 84
(1,934) ----- ----- --- ------ Comprehensive income $7,216 $7,092
$15,298 $12,554 ====== ====== ======= ======= Earnings per share -
Basic $0.24 $0.36 $0.93 $0.88 ===== ===== ===== ===== Earnings per
share - Diluted $0.22 $0.33 $0.87 $0.82 ===== ===== ===== =====
Shares used to compute earnings per share - Basic 16,362 16,395
16,316 16,384 ====== ====== ====== ====== Shares used to compute
earnings per share - Diluted 17,577 17,669 17,428 17,719 ======
====== ====== ====== CPI International, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except per
share data - unaudited) July 3, October 3, 2009 2008 ---- ----
Assets Current assets: Cash and cash equivalents $35,185 $28,670
Restricted cash 767 776 Accounts receivable, net 41,369 47,348
Inventories 68,900 65,488 Deferred tax assets 12,916 11,411 Prepaid
and other current assets 4,382 3,823 ----- ----- Total current
assets 163,519 157,516 Property, plant, and equipment, net 58,907
62,487 Deferred debt issue costs, net 3,923 4,994 Intangible
assets, net 76,251 78,534 Goodwill 162,230 162,611 Other long-term
assets 3,448 806 ----- --- Total assets $468,278 $466,948 ========
======== Liabilities and stockholders' equity Current liabilities:
Current portion of long-term debt $- $1,000 Accounts payable 19,200
21,109 Accrued expenses 22,419 23,044 Product warranty 3,802 4,159
Income taxes payable 5,562 7,766 Advance payments from customers
12,355 12,335 ------ ------ Total current liabilities 63,338 69,413
Deferred income taxes 26,910 27,321 Long-term debt, less current
portion 212,919 224,660 Other long-term liabilities 2,974 1,689
----- ----- Total liabilities 306,141 323,083 ------- -------
Commitments and contingencies Stockholders' equity Common stock
($0.01 par value, 90,000 shares authorized; 16,792 and 16,538
shares issued; 16,586 and 16,332 shares outstanding) 168 165
Additional paid-in capital 74,789 71,818 Accumulated other
comprehensive loss (1,725) (1,809) Retained earnings 91,705 76,491
Treasury stock, at cost (206 shares) (2,800) (2,800) ------ ------
Total stockholders' equity 162,137 143,865 ------- ------- Total
liabilities and stockholders' equity $468,278 $466,948 ========
======== CPI International, Inc. and Subsidiaries CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands - unaudited)
Nine Months Ended ------------------- July 3, June 27, 2009 2008
---- ---- Cash flows from operating activities Net cash provided by
operating activities $20,308 $24,699 ------- ------- Cash flows
from investing activities Capital expenditures (2,349) (3,288)
Proceeds from adjustment to acquisition purchase price - 1,615
Payment of patent application fees - (147) --- ---- Net cash used
in investing activities (2,349) (1,820) ------ ------ Cash flows
from financing activities Purchases of treasury stock - (1,800)
Repayments of debt (12,358) (16,000) Proceeds from issuance of
common stock to employees 781 639 Proceeds from exercise of stock
options 82 3 Excess tax benefit on stock option exercises 51 2 ---
--- Net cash used in financing activities (11,444) (17,156) -------
------- Net increase in cash and cash equivalents 6,515 5,723 Cash
and cash equivalents at beginning of period 28,670 20,474 ------
------ Cash and cash equivalents at end of period $35,185 $26,197
======= ======= Supplemental cash flow disclosures Cash paid for
interest $9,742 $10,020 ====== ======= Cash paid for income taxes,
net of refunds $2,417 $9,846 ====== ====== CPI International, Inc.
and Subsidiaries NON-GAAP SUPPLEMENTAL INFORMATION EBITDA and
Adjusted EBITDA (in thousands - unaudited) Three Months Nine Months
Ended Ended ------------- ------------ July 3, June 27, July 3,
June 27, 2009 2008 2009 2008 ---- ---- ---- ---- Net income $3,870
$5,824 $15,214 $14,488 Depreciation and amortization 2,703 2,779
8,080 8,171 Interest expense, net 4,204 4,627 12,965 14,244 Income
tax expense (benefit) 3,004 2,836 (2,201) 6,928 ----- ----- ------
----- EBITDA 13,781 16,066 34,058 43,831 ------ ------ ------
------ Adjustments to exclude certain non-recurring or non-cash
items: Stock-based compensation expense (1) 702 594 2,024 1,568
(Gain) loss on debt extinguishment (2) (51) 121 (248) 514 --- ---
---- --- Total adjustments 651 715 1,776 2,082 --- --- ----- -----
Adjusted EBITDA $14,432 $16,781 $35,834 $45,913 EBITDA margin (3)
16.7% 17.7% 14.1% 16.1% Adjusted EBITDA margin (4) 17.5% 18.5%
14.8% 16.9% Net income margin (5) 4.7% 6.4% 6.3% 5.3% (1)
Represents a non-cash charge for stock options, restricted stock
awards, restricted stock unit awards and the employee discount
related to CPI's Employee Stock Purchase Plan. (2) For the three
month and nine month periods ended July 3, 2009, respectively,
represents the following related to repurchase of $5.0 million and
$8.0 million of 8% Senior Subordinated Notes at a discount of 2.75%
and 4.9%: $0.137 million and $0.392 million discount, partially
offset by $0.086 million and $0.144 million write-off of
unamortized deferred debt issue costs. For the three and nine month
periods ended June 27, 2008, respectively, represents the following
expenses related to the redemption of $6.0 million and $8.0 million
of floating rate senior notes: $0.084 million and $0.339 million
for non-cash costs associated with the write-off of unamortized
deferred debt issue costs and issue discount costs; and $0.037
million and $0.175 million in cash payments for redemption premiums
and other expenses. (3) Represents EBITDA divided by sales. (4)
Represents adjusted EBITDA divided by sales. (5) Represents net
income divided by sales. CPI International, Inc. and Subsidiaries
NON-GAAP SUPPLEMENTAL INFORMATION Free Cash Flow, Adjusted Free
Cash Flow, Free Cash Flow Conversion and Free Cash Flow per Share
(in thousands, except per share and percent data - unaudited)
Twelve Months Ended July 3, 2009 ---- Net cash provided by
operating activities $29,490 Capital expenditures (3,323) ------
Free cash flow 26,167 Adjustments to exclude certain non- recurring
items: Cash paid for debt extinguishment costs, net of taxes (1) 24
--- Total adjustments 24 --- Adjusted free cash flow $26,191
======= Free cash flow $26,167 Net income $21,175 Free cash flow
conversion (2) 124% Free cash flow per share (3) $1.50 (1)
Represents redemption premiums and other expenses associated with
the repurchase and redemption of CPI's floating rate senior notes,
net of taxes. (2) Represents free cash flow divided by net income,
expressed as a percentage. (3) Represents free cash flow divided by
the simple average of the last four fiscal quarters' "Shares used
to compute earnings per share: Diluted." The simple average of the
last four fiscal quarters' "Shares used to compute earnings per
share: Diluted" is 17,480,000 shares.
http://www.newscom.com/cgi-bin/prnh/20060426/CPILOGO
http://photoarchive.ap.org/ DATASOURCE: CPI International, Inc.
CONTACT: Amanda Mogin, investor relations of Communications &
Power Industries, +1-650-846-3998, , for CPI International, Inc.
Web Site: http://www.cpii.com/
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