PALO ALTO, Calif. - August 12, 2014 - CPI International Holding Corp., the parent company of CPI International, Inc. (CPI), today announced financial results for its third quarter of fiscal year 2014. CPI's sales, backlog and adjusted EBITDA increased in the third quarter of fiscal 2014 as compared to the same quarter of fiscal 2013. The company's quarterly and year-to-date sales and adjusted EBITDA results were the highest third quarter and nine-month levels in CPI's history.
"After an excellent first half of the year, CPI's results in the third quarter were favorable and in line with our expectations," said Joe Caldarelli, chief executive officer of CPI. "Market conditions have remained steady and generally positive, but the timing of orders for several large defense and communications programs are showing signs of greater unpredictability and volatility. We remain on track for healthy sales and profit results in fiscal 2014."
CPI generated sales of $119 million in the third quarter of fiscal 2014, an approximately nine percent increase from the $110 million in sales recorded in the same quarter of fiscal 2013. The Radant Technologies business, which CPI acquired in October 2013, contributed approximately $12 million in defense and communications sales to the most recent quarter.
In comparison to the same quarter of fiscal 2013, CPI's sales in its three largest markets were as follows in the third quarter of fiscal 2014:
In the first nine months of fiscal 2014, CPI booked total orders of $334 million, a 14 percent decrease from the $386 million recorded in the same period of fiscal 2013. The approximately $27 million in defense and communications orders contributed by the recently acquired Radant Technologies Division in the fiscal 2014 period was substantially offset by the absence of a repeat of the more than $25 million, multi-year order received by the Malibu Division in the same period of fiscal 2013. That order for advanced TCDL antennas to support military communications applications was the largest single order ever booked by CPI, and it was not expected to repeat in the first nine months of fiscal 2014.
In comparison to the same period of fiscal 2013, CPI's orders in its three largest markets were as follows in the first nine months of fiscal 2014:
In April 2014, CPI closed a refinancing transaction that included an increase in the interest rate on its senior notes from 8.00 to 8.75 percent and a new credit agreement, consisting of a $310 million term loan and a $30 million revolving credit facility. 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. As a result of this refinancing, the aggregate amount of CPI's indebtedness rose and CPI's cash interest expense will increase by approximately $7.8 million over the next year.
Net Income and Adjusted EBITDA
CPI's third quarter net income totaled $3.5 million in fiscal 2014, as compared to $6.2 million in fiscal 2013. This decrease was due to expenses related to and resulting from the refinancing, including a $7.2 million loss on debt restructuring and a $2.3 million increase in interest expense, which includes debt issuance amortization, in the most recent quarter. The decrease was partially offset by the positive impact of higher total sales and discrete tax benefits in the third quarter of fiscal 2014.
Adjusted EBITDA was $22.9 million, or 19.2 percent of sales, in the third quarter of fiscal 2014, as compared to $22.0 million, or 20.1 percent of sales, in the same quarter of fiscal 2013. The increase in adjusted EBITDA was primarily due to higher total sales in the most recent quarter.
As of July 4, 2014, which was the last day of CPI's third quarter, the company's cash and cash equivalents totaled $40.5 million. CPI's cash flow from operating activities for the 12-month period ending on that date equaled $47.2 million. For this 12-month period, free cash flow totaled $41.4 million and adjusted free cash flow totaled $49.7 million.
Fiscal 2014 Outlook
CPI is reaffirming its previously issued sales and adjusted EBITDA guidance for fiscal 2014, and is raising its adjusted free cash flow projections. The company expects:
Financial Community Conference Call
In conjunction with this announcement, CPI will hold a conference call on Wednesday, August 13, 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 this conference call, please dial (800) 649-5127, or (253) 237-1144 for international callers, enter conference ID 80937819 and ask for the CPI International Third 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.Contact: