Communications & Power Industries Logo

Print Print page   Email Email page   PDF Download PDF    Add to Briefcase
« Previous Release | Next Release »



CPI International Announces Second Quarter Fiscal 2006 Financial Results

PALO ALTO, Calif., May 15, 2006 /PRNewswire-FirstCall via COMTEX News Network/ -- 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 the second fiscal quarter ended March 31, 2006.

(Logo: http://www.newscom.com/cgi-bin/prnh/20060426/CPILOGO )

In the second quarter of fiscal 2006, CPI International, Inc. (CPI) generated total sales of $86.9 million, an increase from the $84.5 million recorded in the same quarter of the prior year. This increase was primarily driven by growth in sales in the company's radar and communications markets, the two largest markets CPI serves.

"CPI's operating and financial performance met our internal expectations during the second quarter, and we are pleased with the continuing strength, growth and profitability of our business," said Joe Caldarelli, chief executive officer of CPI. "During the quarter, we continued to drive sales growth in our four largest markets, manage our facility consolidation project on schedule and within budget and run our business profitably. The strength of our performance in the second quarter was masked somewhat by the impact of the facility consolidation project that is currently underway."

In February 2003, CPI entered into an agreement to close and sell the San Carlos, Calif. facility of its Eimac division so that it could consolidate the division's operations into the company's existing facilities in nearby Palo Alto, Calif. The facility consolidation project is expected to be completed by September 30, 2006. During fiscal 2005, in preparation for the expected manufacturing disruptions resulting from the relocation, many customers accelerated their demand for Eimac's medical, communications and industrial products. As a result, in the second quarter of fiscal 2005, as compared to the average for the Eimac unit over the preceding three years, Eimac orders were approximately $6.0 million, or 50 percent, higher, and Eimac sales were approximately $1.0 million, or nine percent, higher. This acceleration of orders and sales into fiscal 2005 contributed to CPI's unusually strong financial performance during the second and third quarters of fiscal 2005.

The advancement of orders and sales for Eimac products into fiscal 2005, however, has resulted in an expected, offsetting reduction in demand for Eimac's medical, communications and industrial products in fiscal 2006, resulting in a $4.8 million, or 41 percent, reduction in Eimac sales in the second quarter of fiscal 2006, as compared to the same quarter in fiscal 2005. Eimac sales of medical, communications and industrial products decreased $1.2 million, $2.1 million and $1.4 million, respectively, in the second quarter of fiscal 2006, as compared to the same period in the prior year.

CPI serves six end markets: radar, electronic warfare, medical, communications, industrial and scientific:



-- In the radar market, the company's sales increased approximately six percent to $30.3 million in the second quarter of fiscal 2006, as compared to the $28.5 million recorded in the same quarter in the prior year, primarily due to increased sales of its products for a broad range of government and military programs.

-- In the electronic warfare market, sales increased by approximately six percent from $6.9 million in the second quarter of fiscal 2005 to $7.3 million in the second quarter of fiscal 2006, driven by increased activity on a high- power Active Denial System development program for the U.S. Air Force.

-- In the medical market, sales increased from $13.9 million in the second quarter of fiscal 2005 to $14.1 million in the same quarter in fiscal 2006, principally due to an approximately 15 percent increase in sales of the company's medical imaging and radiation therapy products from $11.0 million in the second quarter of fiscal 2005 to $12.6 million in the most recent quarter. Growth in CPI's medical business during the second quarter was offset by a $1.2 million reduction in medical product sales from the company's Eimac division due to the facility consolidation.

-- Sales in the communications market increased approximately eight percent to $28.6 million in the second quarter of fiscal 2006, as compared to $26.4 million in the same quarter in the prior year, primarily driven by growth in amplifier sales for satellite communication applications. This growth was partially offset by a $2.1 million decrease in Eimac communications product sales.

-- In the industrial market, one of CPI's smaller markets, sales decreased from $6.4 million in the second quarter of fiscal 2005 to $5.3 million in the second quarter of fiscal 2006, due to a $1.4 million decrease in Eimac industrial product sales as a result of the ongoing consolidation project.

-- Sales to the company's smallest market, the scientific market, equaled $1.3 million during the second quarter of fiscal 2006, as compared to the $2.4 million recorded in the same quarter of the prior year. CPI's scientific business typically consists of large, non-recurring orders, and the timing of an order can significantly impact any one quarter's results in this market, particularly given the relatively small size of this business.

CPI generated net income of $4.3 million, or $0.29 per share on a diluted basis, in the second quarter of fiscal 2006, a decrease from the $6.3 million, or $0.46 per share on a diluted basis, generated in the same quarter of the prior year, but consistent with the company's expectations. The majority of this decrease was due to the impact of the consolidation of the company's Eimac unit and higher interest expense related to higher debt levels and higher interest rates on variable rate debt, which were partially offset by lower amortization of acquisition-related intangibles in the second quarter of fiscal 2006, as compared to the same quarter of the previous year.

During the second quarter of fiscal 2006, CPI achieved EBITDA of $16.1 million, as compared to EBITDA of $18.4 million in the second quarter of fiscal 2005. Both quarters contain non-cash and/or non-recurring charges, including:

-- In the second quarter of fiscal 2005, the company incurred a $0.4 million non-cash charge related to performance-based stock options. All performance-based stock options have fully vested.

-- In the second quarter of both fiscal 2005 and 2006, CPI incurred $0.3 million and $1.4 million, respectively, of expenses and move-related inefficiencies in conjunction with the relocation of its San Carlos facility.

During the second quarter of fiscal 2006, the company's adjusted EBITDA, which excludes these non-cash and non-recurring items, was $17.5 million, or approximately 20 percent of sales, a decrease from the $19.1 million, or approximately 23 percent of sales, recorded in the second quarter of fiscal 2005. This decrease was primarily due to cost variances at the Eimac division related to the division's lower sales in the second quarter of fiscal 2006 as compared to the same quarter of fiscal 2005, the shipment of products with unusually high profit margins in the second quarter of fiscal 2005, start-up manufacturing costs for new satellite communication products in the second quarter of fiscal 2006 and the impact of the weaker U.S. dollar as compared to the Canadian dollar in fiscal 2006.

As of March 31, 2006, CPI's cash and cash equivalents totaled $7.8 million, a decrease from the $12.5 million reported as of April 1, 2005. This $4.7 million decrease over the past 12 months was primarily due to $25.0 million in non-operating or non-recurring expenditures, including $14.2 million in capital expenditures related to the Eimac facility consolidation during the year, $2.4 million in after-tax, non-capital expenses for the consolidation, $7.0 million in cash utilized to pay a special cash dividend to stockholders in December 2005 and $1.4 million in costs for the company's recent initial public offering. Excluding the impact of these items, the increase in cash over the past 12 months equaled $20.3 million. On April 28, 2006, CPI's common stock began trading on the Nasdaq National Market. The company will use its $47.2 million in net proceeds from this initial public offering to repay term loan amounts outstanding under its senior credit facilities.

"We are very satisfied with the result of CPI's initial public offering," said Joel Littman, chief financial officer of CPI. "After applying the proceeds to reduce debt, we have reached a comfortable net debt level of approximately $245 million, and we are well-positioned to continue to grow our business and pay down our debt."

Financial Community Conference Call

In conjunction with this announcement, CPI will hold a telephonic conference on Tuesday, May 16, 2006 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 800-798-2864, or 617-614-6206 for international callers, enter participant pass code 94428751 and ask for the CPI International Second Quarter 2006 Financial Results Conference Call. To access the call via the Web, 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 and transmit 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 communications; providing power and control for medical diagnostic imaging; 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 and adjusted EBITDA margin presented above and in the financial statements attached hereto are non-generally accepted accounting principles (GAAP) financial measures. EBITDA represents earnings before provisions for income taxes, net interest expense and depreciation and amortization. Adjusted EBITDA represents EBITDA further adjusted to exclude certain non-cash and non-recurring items. Adjusted EBITDA margin represents adjusted EBITDA divided by sales. 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 statements; this press release and the attached financial statements 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 highly leveraged businesses, such as the company's business, should be supplemented by EBITDA, adjusted EBITDA and adjusted EBITDA margin 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, as a component in the calculation of management bonuses, to monitor compliance with certain covenants of its senior credit facility and to make day-to-day operating decisions. Other companies may define EBITDA, adjusted EBITDA and adjusted EBITDA margin differently and, as a result, the company's measures may not be directly comparable to EBITDA, adjusted EBITDA and adjusted EBITDA margin of other companies. Because EBITDA, adjusted EBITDA and adjusted EBITDA margin do not include certain material costs, such as interest and taxes, 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), cash flows from 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; our significant amount of debt; changes or reductions in the U.S. defense budget; U.S. government contracts laws and regulations; changes in technology; the impact of unexpected costs; inability to obtain raw materials and components; and currency fluctuations. 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 share and per share data - unaudited)

                                                         Quarter Ended
                                               March 31, 2006    April 1, 2005
     Sales                                         $86,929           $84,463
     Cost of sales                                  61,185            55,386
     Gross profit                                   25,744            29,077
     Operating costs and expenses:
        Research and development                     1,941             1,858
        Selling and marketing                        4,680             4,585
        General and administrative                   4,676             5,658
        Amortization of acquisition-related
         intangible assets                             546             1,486
        Net loss on disposition of assets              143               192
     Total operating costs and expenses             11,986            13,779
     Operating income                               13,758            15,298
     Interest expense, net                           6,400             4,732
     Income before income taxes                      7,358            10,566
     Income tax expense                              3,013             4,246
     Net income                                     $4,345            $6,320

     Other comprehensive income, net of tax
       Net unrealized loss on cash flow hedges        (306)             (433)
    Comprehensive income                            $4,039            $5,887

     Net income per share:
       Basic                                         $0.33             $0.48
       Diluted                                       $0.29             $0.46
     Shares used to compute net income
      per share:
       Basic                                    13,078,954        13,078,954
       Diluted                                  14,784,947        13,849,673


                           CPI International, Inc.
                               and Subsidiaries

                            CONDENSED CONSOLIDATED
              STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
         (in thousands, except share and per share data - unaudited)

                                                       Six Months Ended
                                               March 31, 2006    April 1, 2005
     Sales                                        $169,308          $158,196
     Cost of sales, including $351 of
      amortization of acquisition-related
      inventory write-up for the six months
      ended April 1, 2005                          118,356           105,415
     Gross profit                                   50,952            52,781
     Operating costs and expenses:
        Research and development                     3,851             3,306
        Selling and marketing                        9,704             8,653
        General and administrative                  11,978             9,627
        Amortization of acquisition-related
         intangible assets                           1,094             6,392
        Net loss on disposition of assets              208               248
     Total operating costs and expenses             26,835            28,226
     Operating income                               24,117            24,555
     Interest expense, net                          12,464             8,812
     Income before income taxes                     11,653            15,743
     Income tax expense                              5,093             6,325
     Net income                                     $6,560            $9,418

     Other comprehensive income, net of tax
       Net unrealized (loss) gain on cash
        flow hedges                                   (489)              383
    Comprehensive income                            $6,071            $9,801

     Net income per share:
       Basic                                         $0.50             $0.72
       Diluted                                       $0.44             $0.68
     Shares used to compute net income
      per share:
       Basic                                    13,078,954        13,078,954
       Diluted                                  14,776,514        13,788,835


                           CPI International, Inc.
                               and Subsidiaries

                    CONDENSED CONSOLIDATED BALANCE SHEETS
         (in thousands, except share and per share data - unaudited)


                                                   March 31,     September 30,
                                                     2006             2005
           Assets
           Current Assets:
             Cash and cash equivalents              $7,801           $26,511
             Restricted cash                         1,127             1,287
             Accounts receivable, net               46,463            39,295
             Inventories                            53,101            50,620
             Deferred tax assets                    11,611            12,346
             Prepaids and other current assets       3,470             3,981
               Total current assets                123,573           134,040
           Property, plant and equipment, net       85,995            83,624
           Deferred debt issue costs, net           10,339            11,061
           Intangible assets, net                   76,716            77,941
           Goodwill                                145,462           145,462
           Other long-term assets                    3,681             2,416
               Total assets                       $445,766          $454,544

           Liabilities and Stockholders' Equity
           Current Liabilities:
             Accounts payable                      $20,879           $21,421
             Accrued expenses                       25,588            27,247
             Product warranty                        6,418             6,359
             Income taxes payable                    2,951             1,546
             Advance payments from customers         6,866            12,067
               Total current liabilities            62,702            68,640
           Deferred income taxes                    33,596            35,556
           Advance payments from sale of
            San Carlos property                     13,450            13,450
           Long-term debt                          294,258           284,231
           Other long-term liabilities                  21                --
               Total liabilities                   404,027           401,877
           Commitments and contingencies
           Stockholders' Equity:
             Common stock ($0.01 par
              value, 90,000,000 shares
              authorized; 13,078,954 shares
              issued and outstanding)                  131               131
             Additional paid-in capital             17,596            34,595
             Accumulated other
              comprehensive income                   1,132             1,621
             Retained earnings                      22,880            16,320
               Total stockholders' equity           41,739            52,667
               Total liabilities and
                stockholders' equity              $445,766          $454,544


                           CPI International, Inc.
                               and Subsidiaries

               CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                          (in thousands - unaudited)

                                                        Six Months Ended
                                                   March 31,        April 1,
                                                     2006             2005
    Operating Activities
        Net cash (used in) provided by
         operating activities                      $(4,515)           $4,875
    Investing Activities
        Deferred expenses relating to
         sale of San Carlos property                    (4)             (203)
        Purchase of Econco, net of cash acquired        --           (18,685)
        Capital expenditures                        (5,817)           (4,428)
        Net cash used in investing activities       (5,821)          (23,316)
    Financing Activities
        Proceeds from issuance of floating rate
         senior notes                                   --            79,200
        Payments for debt issue costs                   --            (3,375)
        Proceeds from (repayments on)
         senior term loan                           10,000            (9,550)
        Special cash dividends                     (17,000)          (75,809)
        Payment of IPO costs                        (1,374)               --
        Repayments on capital leases                    --               (20)
        Net cash used in financing activities       (8,374)           (9,554)
    Net Decrease in Cash and Cash Equivalents      (18,710)          (27,995)
    Cash and cash equivalents at beginning
     of period                                      26,511            40,476
    Cash and cash equivalents at end of period      $7,801           $12,481

    Supplemental Disclosures of Cash Flow
     Information
        Cash paid for interest                     $12,378            $7,066
        Cash paid for taxes, net of refunds         $4,607            $7,699


                           CPI International, Inc.
                               and Subsidiaries

                           SUPPLEMENTAL INFORMATION
                          (in thousands - unaudited)

                                            Quarter Ended    Six Months Ended
                                         March 31, April 1, March 31, April 1,
                                             2006     2005     2006     2005

    Net income                              $4,345   $6,320   $6,560   $9,418
       Depreciation and amortization         2,295    3,150    4,451    9,369
       Interest expense, net                 6,400    4,732   12,464    8,812
       Income tax expense                    3,013    4,246    5,093    6,325
    EBITDA                                  16,053   18,448   28,568   33,924

    Add As Defined Adjustments:
       Compensation expense from
        performance-based stock
        options                       (1)       --      387       --      432
       Amortization of acquisition-
        related inventory write-up    (2)       --       --       --      351
       Special bonus                  (3)       --       --    3,250       --
       Move-related expenses          (4)    1,400      300    2,523      376
    Gross Adjustments                        1,400      687    5,773    1,159
    Adjusted EBITDA                        $17,453  $19,135  $34,341  $35,083

       Adjusted EBITDA margin         (5)    20.1%    22.7%    20.3%    22.2%
       Net income margin              (6)     5.0%     7.5%     3.9%     6.0%

     (1)  Represents a non-cash charge related to employee performance-based
     stock options.  All employee performance-based stock options are now
     vested.
     (2)  Represents a non-cash charge related to purchase accounting for the
     acquisition of Econco Broadcast Service, Inc.
     (3)  Represents a one-time special bonus to employees and directors
     (other than directors who are employees or affiliates of The Cypress
     Group) to reward them for the increase in company value.
     (4)  Represents expenses and move-related inefficiencies related to the
     relocation of our San Carlos, California facility to our Palo Alto,
     California and Mountain View, California facilities.
     (5)  Represents adjusted EBITDA divided by sales.
     (6)  Represents net income divided by sales.

SOURCE CPI International, Inc.

Amanda Mogin, Communications & Power Industries, Investor Relations, +1-650-846-3998, or amanda.mogin@cpii.com

http://www.prnewswire.com

Close window | Back to top