CPI International Announces Second Quarter 2014 Financial Results - KTRE.com | Lufkin and Nacogdoches, Texas

CPI International Announces Second Quarter 2014 Financial Results

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

PALO ALTO, Calif., May 13, 2014 /PRNewswire/ -- CPI International Holding Corp., the parent company of CPI International, Inc. (CPI), today announced financial results for its second quarter of fiscal year 2014 ended April 4, 2014.  CPI achieved higher sales, backlog, net income and adjusted EBITDA in the second quarter of fiscal 2014 as compared to the same quarter of the previous fiscal year.  CPI's sales and adjusted EBITDA in the first six months of fiscal 2014 were the highest year-to-date levels in the company's history.

CPI International, Inc. logo

"On the heels of a very strong fiscal 2013, fiscal year 2014 is shaping up to be a financially successful year for CPI.  Our defense market remains healthy due to significant backlog levels and recent orders.  Our medical market is stable and is enjoying improved demand for x-ray imaging products, particularly in Asia," said Joe Caldarelli, chief executive officer of CPI.  "In addition, the integration of the Radant Technologies business, which we acquired in October 2013, has progressed seamlessly, and together with our other recent acquisitions, the new Radant Technologies Division is making significant contributions to our product portfolio and financial results."

Sales

CPI recorded sales of $121 million in the second quarter of fiscal 2014, an increase of approximately 19 percent from the $102 million recorded in the same quarter of the prior year.  Excluding the approximately $9 million in defense and communications sales generated by the recently acquired Radant Technologies business, CPI's total sales increased approximately nine percent.

In comparison to the same quarter of the previous year, in the second quarter of fiscal 2014, CPI's sales in its three largest markets were as follows:

  • In the defense market, sales increased 12 percent to $46.9 million due primarily to the inclusion of sales from CPI's Radant Technologies Division.
  • In the communications market, sales increased 30 percent to $45.2 million, primarily due to higher sales to support military communications applications, including sales of advanced tactical common data link (TCDL) antennas from CPI's Malibu Division and sales from the Radant Technologies Division.  The increase in advanced TCDL antenna sales was largely the result of a significant multi-year order for these products that was received in fiscal 2013.  Sales to support commercial communications applications also increased.
  • In the medical market, sales decreased two percent to $17.6 million due to lower sales to support MRI applications.

Orders

CPI booked total orders of $229 million in the first six months of fiscal 2014, a 14 percent decrease from the $264 million booked in same period of the previous fiscal year.  The inclusion of approximately $24 million in defense and communications orders from the Radant Technologies Division in the most recent period was more than offset by the absence of the multi-year order totaling in excess of $25 million that was received in the same period of the previous fiscal year.  This order for advanced TCDL antennas to support intelligence, surveillance and reconnaissance (ISR) military communications applications was the largest single order ever booked by CPI and it was not expected to repeat in the first six months of fiscal 2014.

In comparison to the same period of the previous year, in the first six months of fiscal 2014, CPI's orders in its three largest markets were as follows:

  • In the defense market, orders increased two percent to $94.6 million due to the inclusion of orders from the Radant Technologies Division and higher demand to support certain domestic radar and electronic warfare systems, including Aegis radar systems.  These increases were offset by lower demand to support certain defense programs due to the timing of those programs.
  • In the communications market, orders decreased 35 percent to $72.2 million, primarily due to the advanced-TCDL-antenna order totaling more than $25 million that was received in the first six months of fiscal 2013, but, as expected, did not repeat in the most recent period.  In addition, demand for certain commercial communications applications, including satellite broadcast applications such as broadband data communications, was lower due to the timing of large programs for these applications.  Partially offsetting these decreases, the first six months of fiscal 2014 included orders from the Radant Technologies Division.
  • In the medical market, orders increased one percent to $41.2 million, primarily due to higher demand to support x-ray imaging applications, particularly in Asia.

Net Income and Adjusted EBITDA

In the second quarter of fiscal 2014, CPI's net income totaled $5.9 million, an increase from the $1.3 million recorded in the same quarter of fiscal 2013.

CPI generated adjusted EBITDA of $23.3 million, or 19.3 percent of sales, in the second quarter of fiscal 2014, an increase from the $16.2 million, or 15.9 percent of sales, that was recorded in the same quarter of the previous fiscal year.

The increases in net income and adjusted EBITDA in the second quarter of fiscal 2014 were primarily due to higher total sales and a more profitable mix of products sold in the most recent quarter as compared to the year-ago quarter.

Cash Flow

As of April 4, 2014, CPI's cash and cash equivalents totaled $41.8 million.  For the 12-month period ending on that date, CPI's cash flow from operating activities was $48.5 million, its free cash flow was $43.1 million and its adjusted free cash flow was $45.9 million.

April 2014 Refinancing

On April 7, 2014, CPI closed a refinancing transaction that included a new credit agreement, consisting of a $310 million term loan, due November 2017, and a $30 million revolving credit facility, due August 2017; if CPI repays or refinances at least 65 percent of its senior notes before August 2017, however, the term loan and revolving credit facility will mature in five and seven years, respectively.  As part of the refinancing, the interest rate on CPI's senior notes increased from eight percent to 8.75 percent and the aggregate amount of CPI's permitted indebtedness increased.  Borrowings on the term loan were used primarily to repay the $139 million outstanding under the company's previous credit agreement and to pay a dividend of $175 million to CPI International Holding Corp.'s sole stockholder, CPI International Holding LLC.  The refinancing did not have a material impact on CPI's results in the second quarter of fiscal 2014 because the company entered into the new credit agreement at the start of its third quarter.

Fiscal 2014 Outlook

CPI is updating its previously issued financial guidance for fiscal 2014 to raise its adjusted EBITDA and adjusted free cash flow ranges; CPI's sales projections remain unchanged.  The company expects:

  • Total sales of between $475 million and $500 million;
  • Adjusted EBITDA of between $84 million and $88 million; and
  • Adjusted free cash flow of more than $24 million.

Excluding discrete tax adjustments, the effective tax rate for fiscal 2014 is expected to be approximately 38 percent.

Financial Community Conference Call

In conjunction with this announcement, CPI will hold a conference call on Wednesday, May 14, 2014 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 36129762 and ask for the CPI International Second Quarter Fiscal 2014 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 and Communications & Power Industries Canada Inc., which together are a leading provider of microwave, radio frequency, power and control solutions for critical defense, communications, medical, scientific and other applications.  Communications & Power Industries LLC and Communications & Power Industries Canada Inc. develop, manufacture and distribute 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 acquisition-related transaction and start-up costs, management fees to Veritas Capital, refinancing expenses 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.  Adjusted free cash flow represents free cash flow further adjusted to exclude certain acquisition-related transaction and start-up costs, management fees to Veritas Capital or other unusual 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 or zoning 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


Six Months Ended




April 4,


March 29,


April 4,


March 29,




2014


2013


2014


2013

 Sales 


$ 121,159


$  102,219


$ 245,038


$  199,780

 Cost of sales, including $0, $0, $1,604 and $261 of utilization of net increase  in cost basis of inventory due to purchase accounting, respectively 


84,901


74,503


175,373


145,106

 Gross profit 


36,258


27,716


69,665


54,674

 Operating costs and expenses: 










 Research and development 


3,808


3,863


7,617


7,231


 Selling and marketing 


5,807


5,458


11,744


10,837


 General and administrative 


8,137


7,411


15,173


13,578


 Amortization of acquisition-related intangible assets 


2,629


2,342


5,478


5,072

 Total operating costs and expenses 


20,381


19,074


40,012


36,718

 Operating income 


15,877


8,642


29,653


17,956

 Interest expense, net 


6,863


6,853


14,122


13,714

 Income before income taxes 


9,014


1,789


15,531


4,242

 Income tax expense 


3,117


489


6,490


1,491

 Net income 


5,897


1,300


9,041


2,751











 Other comprehensive loss, net of tax 









Unrealized loss on cash flow hedges, net of tax


(577)


(571)


(1,088)


(1,034)

 Total other comprehensive loss, net of tax 


(577)


(571)


(1,088)


(1,034)

 Comprehensive income 


$     5,320


$         729


$     7,953


$      1,717

 

CPI International Holding Corp.

and Subsidiaries


CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data - unaudited)
















April 3,


September 27,




2014


2013

Assets




Current Assets:





Cash and cash equivalents

$   41,769


$            67,051


Restricted cash

2,859


2,571


Accounts receivable, net

51,639


52,160


Inventories

102,073


89,832


Deferred tax assets

15,291


13,486


Prepaid and other current assets

4,582


7,068



Total current assets

218,213


232,168

Property, plant, and equipment, net

77,739


76,333

Deferred debt issue costs, net

8,502


9,713

Intangible assets, net

255,230


239,495

Goodwill 

196,386


179,727

Other long-term assets

1,069


935



Total assets

$ 757,139


$          738,371







Liabilities and stockholders' equity




Current Liabilities:





Current portion of long-term debt

$     3,100


$              5,500


Accounts payable

26,752


26,742


Accrued expenses

30,598


27,348


Product warranty

4,790


4,706


Income taxes payable

74


98


Advance payments from customers

17,409


17,996



Total current liabilities

82,723


82,390

Deferred tax liabilities

96,848


89,178

Long-term debt, less current portion

350,200


353,233

Other long-term liabilities

11,162


5,818



Total liabilities 

540,933


530,619

Commitments and contingencies




Stockholders' equity





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

-


-


Additional paid-in capital

200,076


199,575


Accumulated other comprehensive (loss) income

(1,002)


86


Retained earnings

17,132


8,091



Total stockholders' equity

216,206


207,752



Total liabilities and stockholders' equity

$ 757,139


$          738,371

 

CPI International Holding Corp.

and Subsidiaries


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands - unaudited)


















Six Months Ended



April 3,


March 29,



2014


2013

Cash flows from operating activities




Net cash provided by operating activities

$    20,251


$      9,905






Cash flows from investing activities




Capital expenditures

(3,125)


(2,691)

Acquisition, net of cash acquired


(36,908)


-

Net cash used in investing activities

(40,033)


(2,691)






Cash flows from financing activities




Repayment of borrowings under CPII's term loan facility

(5,500)


(3,200)

Net cash used in financing activities

(5,500)


(3,200)






Net (decrease) increase in cash and cash equivalents

(25,282)


4,014

Cash and cash equivalents at beginning of year

67,051


43,006

Cash and cash equivalents at end of year

$    41,769


$    47,020






Supplemental cash flow disclosures




Cash paid for interest

$ 12,431


$ 12,482

Cash paid for income taxes, net of refunds

$   4,962


$      517

Decrease in accrued capital expenditures

$      239


$         -

 

CPI International Holding Corp.

and Subsidiaries












NON-GAAP SUPPLEMENTAL INFORMATION

EBITDA and Adjusted EBITDA

(In thousands - unaudited)
















 Three Months Ended 


 Six Months Ended 





April 4,


March 29,


April 4,


March 29,





2014


2013


2014


2013

Net income



$   5,897


$      1,300


$   9,041


$      2,751


Depreciation and amortization



5,784


5,495


12,235


11,380


Interest expense, net



6,863


6,853


14,122


13,714


Income tax expense



3,117


489


6,490


1,491

EBITDA



21,661


14,137


41,888


29,336












Adjustments to exclude certain acquisition-related transaction and start-up costs, management fees to Veritas Capital, refinancing expenses or non-cash items:











Stock-based compensation expense

(1)


250


252


501


503


Acquisition-related expenses

(2)


527


1,327


871


1,976


Write-off of inventory step-up

(3)


-


-


1,604


261


Veritas Capital management fee

(4)


704


532


1,405


1,024


Refinancing expenses

(5)


183


-


183


-

Total adjustments



1,664


2,111


4,564


3,764

Adjusted EBITDA



$ 23,325


$    16,248


$ 46,452


$    33,100













EBITDA margin

(6)


17.9%


13.8%


17.1%


14.7%


Adjusted EBITDA margin

(7)


19.3%


15.9%


19.0%


16.6%


Net income margin

(8)


4.9%


1.3%


3.7%


1.4%

 



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 the Radant, MCL and Codan Satcom acquisitions. Costs include fees for attorneys and other professional services, as well as expenses related to the integration of the Codan Satcom and MCL 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 expenses incurred in connection with the senior notes consent solicitation, entering into a new senior secured credit facility and issuance of a special dividend, all of which were consummated in the company's third quarter of fiscal year 2014.



6)

Represents EBITDA divided by sales.



7)

Represents adjusted EBITDA divided by sales.



8)

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






April 4,






2014


Net cash provided by operating activities



$

48,511


Cash capital expenditures



(5,372)


Free cash flow



43,139









Adjustments to exclude certain acquisition-related transaction and start-up






costs, management fees to Veritas Capital or other unusual items:







Cash paid for acquisition-related expenses, net of taxes

(1)


2,012



Cash paid for Veritas Capital advisory fee, net of taxes

(2)


1,381



Cash received for prior year transfer pricing audit

(3)


(638)


Total adjustments



2,755


Adjusted free cash flow



$

45,894









Net income



$

17,179


1)

Represents transaction costs, net of income taxes, related to the negotiation, closing and integration of the Radant, MCL and Codan Satcom acquisitions. Costs include fees for attorneys and other professional services, as well as expenses related to integration of the Codan Satcom and MCL 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 the net of income tax refunds, partially offset by 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 from the Company in fiscal years 2001 and 2002.  The Company considers this a non-recurring source of cash as it pertains to previous years.

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