PALO ALTO, Calif. - May 12, 2015 - CPI International Holding Corp., the parent company of CPI International, Inc. (CPI), today announced financial results for its fiscal year 2015 second quarter ended April 3, 2015.
"Fiscal 2015 is progressing largely as anticipated. We are encountering expected delays in the placement of orders for some government programs, resulting in short-term softness in certain parts of our defense and communications businesses, partially offset by above-average demand for other defense programs. The current challenges are not unexpected, given the very strong orders year that we enjoyed in fiscal 2013 and the unusually strong sales year that we enjoyed in fiscal 2014, which were, in large part, due to the then-favorable timing of several significant defense and communications programs," said Joe Caldarelli, chief executive officer. "Nevertheless, the fundamental demand and long-term drivers of our business remain stable and encouraging. We are confident that CPI will continue to execute our plan for fiscal 2015 and that our business will continue to grow in the long-term as the currently delayed orders are ultimately placed and fulfilled."
Orders and Sales
CPI booked orders totaling $227 million in the first six months of fiscal 2015, a one percent decrease from the $229 million booked in the same period of the previous year. Orders decreased slightly in the defense market and increased in the communications and medical markets.
CPI's sales in the second quarter of fiscal 2015 totaled $108 million, an 11 percent decrease from the $121 million generated in the same quarter of the prior year. Sales in the defense and communications markets decreased in comparison to the unusually strong second quarter of fiscal 2014 but were higher than those of the same quarter of previous years. Sales in the medical market were essentially unchanged.
Net Income and Adjusted EBITDA
In the second quarter of fiscal 2015, CPI recorded a net loss of $0.9 million; in the same quarter of the prior year, the company generated net income of $5.9 million. The decrease in net income was primarily due to a less profitable mix of products and lower sales in the most recent quarter, as well as a $2.3 million increase in interest expense as a result of the debt refinancing transaction that CPI completed in April 2014. Lower income tax expense partially offset the decrease in income.
Adjusted EBITDA for the second quarter of fiscal 2015 totaled $16.6 million, or 15.3 percent of sales. In comparison, adjusted EBITDA for the second quarter of the prior year totaled $23.3 million, or 19.3 percent of sales. The decrease in adjusted EBITDA was primarily due to a less profitable mix of products and lower sales in the most recent quarter.
In the defense market, orders decreased three percent to $92.0 million in the first six months of fiscal 2015. This decrease was primarily due to the periodic timing of defense programs, which resulted in lower orders for electronic warfare programs and for Aegis radar systems.
CPI's defense market sales in the second quarter of fiscal 2015 totaled $43.0 million, decreasing eight percent from the same quarter of fiscal 2014. This decrease was primarily due to lower sales for a radar program that has fluctuating annual demand levels and for two programs that are completed or nearly completed. Partially offsetting this decrease, sales of radomes and sales of products for Aegis radar systems increased.
In the communications market, orders increased six percent to $76.4 million in the first six months of fiscal 2015. This increase was due to higher orders for certain military and commercial communications applications, particularly fixed-satellite services applications.
Sales in the communications market decreased 15 percent to $38.4 million in the second quarter of fiscal 2015. This decrease was primarily due to lower sales of products for military communications programs, in particular, lower sales of advanced tactical data link (TCDL) antenna products, as expected. Sales for certain commercial communications applications, particularly fixed satellite services applications, increased.
In the medical market, orders increased 10 percent to $45.4 million in the first six months of fiscal 2015. This increase was primarily the result of higher orders for MRI and x-ray imaging applications.
Sales in the medical market totaled $17.4 million in the second quarter of fiscal 2015, essentially unchanged from the same quarter of the prior year.
CPI's cash and cash equivalents totaled $48.3 million as of April 3, 2015. For the 12-month period ending on that date, the company's cash flow from operating activities was $35.7 million, free cash flow totaled $28.0 million and adjusted free cash flow equaled $32.8 million.
Fiscal 2015 Outlook
"After the extraordinary strength of fiscal 2014, we are not surprised that our business has been somewhat slower in the first half of fiscal 2015. We are expecting our business to pick up in the fourth quarter, and we continue to expect fiscal 2015 to be a successful year for CPI," said Caldarelli.
Financial Community Conference Call
In conjunction with this announcement, CPI will hold a conference call on Wednesday, May 13, 2015, at 11:00 a.m. (EDT) that will be broadcast simultaneously 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 34812811 and ask for the CPI International Second Quarter 2015 Financial Results Conference Call. To access the Web cast, 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. Together, Communications & Power Industries LLC and Communications & Power Industries Canada Inc. develop, manufacture and globally distribute components and subsystems used in the generation, amplification, transmission and reception of microwave signals for a wide variety of systems including radar, electronic warfare and communications (satellite and point-to-point) systems for military and commercial applications, specialty products for medical diagnostic imaging and the treatment of cancer, as well as microwave and RF energy generating products for various industrial and scientific pursuits.
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 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.
Amanda Mogin, Communications & Power Industries, investor relations, 650.846.3998,