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CPI International Announces Third Quarter 2007 Financial Results

Company's net income, EBITDA and free cash flow increase in comparison to prior fiscal year Company's net income, EBITDA and free cash flow increase in comparison to prior fiscal year

CPI International Announces Third Quarter 2007 Financial Resul

PALO ALTO, Calif., Aug. 13 /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 fiscal 2007 third quarter ended June 29, 2007.

In the third quarter, CPI International (CPI) generated total sales of $87.3 million, a slight decrease from the $87.8 million generated in the same quarter of fiscal 2006.

Net income for the third quarter of fiscal 2007 equaled $8.1 million, or $0.46 per share on a diluted basis, a significant increase from the $4.5 million generated in the same quarter of fiscal 2006. CPI's net income in the most recent quarter was favorably impacted by a $1.8 million non-recurring tax benefit related to the filing of amended income tax returns for previous fiscal years. Excluding this tax adjustment, CPI's net income would have equaled $0.35 per share on a diluted basis. Net income in the third quarter of fiscal 2006 equaled $0.27 per share on a diluted basis.

For the first nine months of fiscal 2007, CPI booked orders totaling $269.4 million and generated sales totaling $259.5 million. As a result, the book-to-bill ratio for the period was 1.04. In comparison, for the first nine months of fiscal 2006, the company booked orders totaling $246.2 million and generated sales totaling $257.1 million, resulting in a book-to-bill ratio of 0.96.

"In the third quarter of fiscal 2007, we continued to profitably manage CPI's businesses and to generate growth in our net income, EBITDA and free cash flow," said Joe Caldarelli, chief executive officer. "Demand for CPI's products remains solid, as evidenced by the increase in our year-to-date orders. Our sales in the most recent quarter were healthy, decreasing only slightly from last year's record third quarter sales levels due to the timing of order placements and the resulting shipments on certain key programs. Our outlook for coming quarters remains solid."

CPI generated $17.3 million, or 19.8 percent of sales, in EBITDA in the third quarter of fiscal 2007, a 13 percent increase from the $15.3 million generated in the comparable quarter of the previous year.

CPI's financial results in the third quarter of fiscal 2006 included certain unusual, material charges. In the year-ago quarter, the company's financial results were impacted by move-related expenses, including indirect expenses for unfavorable overhead absorption and manufacturing variances related to the relocation of the company's Eimac operations. In addition, in the third quarter of fiscal 2006, CPI had higher net debt levels and, as a result, higher interest expense than in the third quarter of fiscal 2007.

As of June 29, 2007, CPI's cash and cash equivalents totaled $39.4 million, an increase from the $12.6 million reported as of June 30, 2006. For this 12 month period, net cash provided by operating activities totaled $28.2 million, free cash flow totaled $19.4 million and adjusted free cash flow totaled $30.0 million.

On August 10, 2007, Communications & Power Industries completed the acquisition of Malibu Research Associates, Inc. for approximately $22.0 million in cash, funded entirely from cash on hand. Communications & Power Industries has also agreed to make up to $15.0 million in additional earnout payments, which are primarily contingent upon the achievement of certain financial objectives over the three years following the acquisition. Malibu Research Associates is a leader in the design, manufacture and integration of advanced antenna systems for radar, radar simulators and telemetry systems, as well as for strategically vital data links used in unmanned aerial vehicles (UAV) and other military systems.

Third Quarter Fiscal 2007 Sales and Orders Highlights

CPI serves the radar, electronic warfare, medical, communications, industrial and scientific markets. In the third quarter of fiscal 2007, key sales and orders highlights in these markets included:

Debt Refinancing

On August 1, 2007, Communications & Power Industries entered into an amended and restated senior credit facility in the aggregate principal amount of $160 million, consisting of a $100 million term loan and a $60.0 million revolving credit facility, which replaced the existing $130 million credit facility. The net proceeds from this debt refinancing will be used to repurchase and redeem $58.0 million in principal amount of CPI's floating rate senior notes. Borrowings under the amended credit facility will generally bear interest at a rate of LIBOR plus two percent; in comparison, the floating rate senior notes bear interest at a rate of LIBOR plus 5.75 percent. CPI estimates that its debt refinancing will result in annual interest savings of approximately $2.0 million in the first year.

In the fourth quarter of fiscal 2007, the company expects to incur approximately $5.0 million in one-time, non-cash costs associated with the write-off of deferred debt issue costs and approximately $2.0 million in redemption premiums and other expenses associated with the repurchasing and redemption of the $58.0 million of floating rate senior notes.

Fiscal 2007 Outlook

CPI is updating its previously issued financial outlook for the current fiscal year to reflect the company's performance in the first three quarters of the fiscal year and its current expectations for the fourth quarter of fiscal 2007.


    (in millions, except per share data)  Previous Outlook  Updated Outlook(a)
    Total sales:                           $350 - $355          unchanged
    Net income per share on a diluted
     basis(b):                             $1.24 - $1.30      $1.27 - $1.31
    Net income(b):                         $21.9 - $23.0      $22.5 - $23.2
    Adjusted EBITDA:                       $68.0 - $70.0        unchanged
    Adjusted free cash flow:               $20.0 - $25.0      $22.0 - $25.0
    (a) Excludes acquisition of Malibu Research Associates.
    (b) Assumes a fourth quarter effective tax rate of approximately
        38 percent and excludes the $1.8 million, or $0.10 per share on a
        diluted basis, non-recurring tax benefit in the third quarter and
        approximately $7.0 million, or $0.24 per share on a diluted basis, in
        one-time expenses (including approximately $5.0 million in non-cash
        costs) expected in the fourth quarter related to the company's
        recently completed debt refinancing.

Financial Community Conference Call

In conjunction with this announcement, CPI will hold a conference call on Tuesday, August 14, 2007 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 (866) 356-3095, or (617) 597-5391 for international callers, enter participant pass code 75024660 and ask for the CPI International Third Quarter 2007 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 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; 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, adjusted EBITDA margin, free cash flow 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 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. Free cash flow represents net cash provided by operating activities minus capital expenditures. 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; 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, 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, 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, adjusted EBITDA margin, free cash flow and adjusted free cash flow of other companies. Because EBITDA, adjusted EBITDA, adjusted EBITDA margin, free cash flow and adjusted free cash flow 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), 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; 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)

                                                      Three Months Ended
                                                   June 29,          June 30,
                                                     2007              2006
     Sales                                         $87,318           $87,761
     Cost of sales                                  58,667            60,867
     Gross profit                                   28,651            26,894
     Operating costs and expenses:
       Research and development                      2,232             2,515
       Selling and marketing                         4,911             5,248
       General and administrative                    5,835             5,441
       Amortization of acquisition-related
        intangible assets                              548               548
       Net loss on disposition of fixed assets          16               212
     Total operating costs and expenses             13,542            13,964
     Operating income                               15,109            12,930
     Interest expense, net                           5,143             5,945
     Income before income taxes                      9,966             6,985
     Income tax expense                              1,835             2,517
     Net income                                     $8,131            $4,468

     Other comprehensive income, net of tax
      Net unrealized gain (loss) on cash
       flow hedges                                     820              (196)
    Comprehensive income                            $8,951            $4,272

     Earnings per share - Basic                      $0.50             $0.30
     Earnings per share - Diluted                    $0.46             $0.27

     Shares used to compute earnings per
      share - Basic                             16,306,256        15,039,754
     Shares used to compute earnings per
      share - Diluted                           17,796,425        16,766,822


                             CPI International, Inc.
                                and Subsidiaries

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

                                                      Nine Months Ended
                                                  June 29,          June 30,
                                                    2007              2006
     Sales                                        $259,485          $257,069
     Cost of sales                                 176,548           179,223
     Gross profit                                   82,937            77,846
     Operating costs and expenses:
       Research and development                      6,475             6,366
       Selling and marketing                        14,539            14,952
       General and administrative                   16,085            17,419
       Amortization of acquisition-related
        intangible assets                            1,642             1,642
       Net loss on disposition of fixed assets          74               420
     Total operating costs and expenses             38,815            40,799
     Operating income                               44,122            37,047
     Interest expense, net                          15,757            18,409
     Income before income taxes                     28,365            18,638
     Income tax expense                              8,639             7,610
     Net income                                    $19,726           $11,028

     Other comprehensive income, net of tax
      Net unrealized gain (loss) on cash
       flow hedges                                     414              (685)
    Comprehensive income                           $20,140           $10,343

     Earnings per share - Basic                      $1.22             $0.80
     Earnings per share - Diluted                    $1.11             $0.71

     Shares used to compute earnings per
      share - Basic                             16,206,873        13,736,031
     Shares used to compute earnings per
      share - Diluted                           17,696,217        15,443,427


                             CPI International, Inc.
                                and Subsidiaries

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

                                                   June 29,      September 29,
                                                     2007              2006
    Assets
    Current Assets:
      Cash and cash equivalents                    $39,420           $30,153
      Restricted cash                                3,046             1,746
      Accounts receivable, net                      46,591            43,628
      Inventories                                   60,350            54,031
      Deferred tax assets                           11,190            11,520
      Prepaid and other current assets               5,907             3,080
        Total current assets                       166,504           144,158
    Property, plant, and equipment, net             65,362            63,851
    Deferred debt issue costs, net                   8,543             9,644
    Intangible assets, net                          73,689            75,489
    Goodwill                                       147,270           147,489
    Other long-term assets                             844             1,128
        Total assets                              $462,212          $441,759

    Liabilities and stockholders' equity
    Current Liabilities:
      Current portion of long-term debt             $1,000            $1,714
      Accounts payable                              20,580            19,101
      Accrued expenses                              26,037            23,269
      Product warranty                               5,527             5,958
      Income taxes payable                           6,820            10,693
      Advance payments from customers                8,970             6,310
        Total current liabilities                   68,934            67,045
    Deferred income taxes                           29,865            29,933
    Long-term debt, less current portion           240,822           245,067
    Other long-term liabilities                         79                41
        Total liabilities                          339,700           342,086
    Commitments and contingencies
    Stockholders' equity
      Common stock ($0.01 par value,
       90,000,000 shares authorized;
       16,333,794 and 16,049,577 shares issued
       and outstanding)                                163               160
      Additional paid-in capital                    67,991            65,295
      Accumulated other comprehensive income         1,093               679
      Retained earnings                             53,265            33,539
        Total stockholders' equity                 122,512            99,673
        Total liabilities and stockholders'
         equity                                   $462,212          $441,759


                             CPI International, Inc.
                                 and Subsidiaries

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

                                                         Nine Months Ended
                                                    June 29,          June 30,
                                                      2007              2006

    Cash flows from operating activities
       Net cash provided by operating activities    $19,259            $1,918

    Cash flows from investing activities
      Deferred expenses relating to sale
       of San Carlos property                            --              (212)
      Capital expenditures                           (6,392)           (8,419)
      Capitalized expenses relating to
       potential business acquisition                  (395)               --
       Net cash used in investing activities         (6,787)           (8,631)

    Cash flows from financing activities
      Proceeds from issuance of debt                     --            10,000
      Repayments of debt                             (5,000)          (47,500)
      Proceeds from issuance of common stock             --            52,942
      Proceeds upon exercise of stock options           604                --
      Proceeds from ESPP shares issued                  520                --
      Payment of IPO financing costs                     --            (5,634)
      Stockholder distribution payments                  --           (17,000)
      Excess tax benefit on stock option exercises      671                --
       Net cash used in financing activities         (3,205)           (7,192)

    Net increase (decrease) in cash and
     cash equivalents                                 9,267           (13,905)
      Cash and cash equivalents at
       beginning of period                           30,153            26,511
      Cash and cash equivalents at end of period    $39,420           $12,606

    Supplemental disclosure of cash flow information
      Interest paid                                 $11,562           $13,714
      Income taxes paid, net of refunds             $12,799            $5,205


                             CPI International, Inc.
                                 and Subsidiaries

                        NON-GAAP SUPPLEMENTAL INFORMATION
                            EBITDA and Adjusted EBITDA
                            (in thousands - unaudited)

                                        Three Months Ended  Nine Months Ended
                                        June 29,  June 30,  June 29,  June 30,
                                          2007      2006      2007      2006
     Net income                          $8,131    $4,468   $19,726   $11,028
         Depreciation and amortization    2,225     2,335     6,607     6,786
         Interest expense, net            5,143     5,945    15,757    18,409
         Income tax expense               1,835     2,517     8,639     7,610
     EBITDA                              17,334    15,265    50,729    43,833

     Add as defined adjustments:
         Stock-based compensation
          expense                  (1)      337       108       889       109
         Special bonus             (2)       --        --        --     3,250
         Move-related expenses     (3)       --     1,310        --     3,833
     Total adjustments                      337     1,418       889     7,192
     Adjusted EBITDA                    $17,671   $16,683   $51,618   $51,025

         Adjusted EBITDA margin    (4)   20.20%    19.00%    19.90%    19.80%
         Net income margin         (5)    9.30%     5.10%     7.60%     4.30%

     (1)  Represents a non-cash charge for stock options, restricted stock
          awards and the employee discount related to CPI's Employee Stock
          Purchase Plan.
     (2)  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.
          The special bonus was approved in December 2005 and paid in
          April 2006.
     (3)  Represents direct costs related to the relocation of the Eimac
          operations from the San Carlos, Calif. facility to CPI's Palo Alto,
          Calif. and Mountain View, Calif. facilities.  This adjustment does
          not include indirect costs for overhead absorption and manufacturing
          variances due to the accelerated delivery of products into fiscal
          year 2005 and the offsetting delivery reductions in fiscal year 2006
          for CPI's Eimac operations.
     (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 and Adjusted Free Cash Flow
                           (in thousands - unaudited)

                                                                     Twelve
                                                                  Months Ended
                                                                    June 29,
                                                                      2007
     Net cash provided by operating activities                      $28,238
     Capital expenditures                                            (8,886)
     Free cash flow                                                  19,352

     Add as defined adjustments:
         Move-related expenses, net of taxes        (1)               1,358
         Income tax payments related to gain
          on sale of San Carlos property            (2)               4,500
         Capital expenditures for expansion of
          Canadian facility                         (3)               4,800
     Total adjustments                                               10,658
     Adjusted free cash flow                                        $30,010

     (1)  Represents non-recurring expenditures, net of taxes, related to the
          Eimac relocation, including capital expenditures of $0.667 million.
          This adjustment does not include indirect costs for overhead
          absorption and manufacturing variances due to the accelerated
          delivery of products into fiscal year 2005 and the offsetting
          delivery reductions in fiscal year 2006 for CPI's Eimac operations.
     (2)  Represents an income tax payment related to the taxable gain on the
          sale of CPI's San Carlos, Calif. property.
     (3)  Represents capital expenditures for the expansion of CPI's Canadian
          facility.



SOURCE CPI International, Inc. - 08/13/2007

CONTACT:
Amanda Mogin, Communications & Power Industries, investor relations, of CPI International, Inc.,
+1-650-846-3998, amanda.mogin@cpii.com
Web site: http://www.cpii.com - http://investor.cpii.com

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