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CPI International Announces First Quarter 2010 Financial Results

Business momentum continues to improve; Company raises outlook for FY 2010

PALO ALTO, Calif., Feb 10, 2010 /PRNewswire via COMTEX News Network/ -- CPI International, Inc. (Nasdaq: CPII), the parent company of Communications & Power Industries, Inc. (CPI) today announced financial results for its first quarter of fiscal 2010 ended January 1, 2010.

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

"CPI's business momentum continued to build in the first quarter of fiscal 2010, and we generated stronger results in our top and bottom lines in comparison to the year-ago quarter. Orders and sales rose in our commercial end markets and demand remained firm in our defense markets," said Joe Caldarelli, chief executive officer. "We continue to be encouraged by improving market conditions, and our outlook is for sustained progress in fiscal 2010."

Notable financial achievements during the first quarter of fiscal 2010 include:

In the first quarter of fiscal 2010, CPI generated total sales of $82.8 million and booked total orders of $92.7 million. In the same quarter of the prior year, CPI's sales equaled $77.1 million and orders equaled $67.0 million. Sales and orders rose in each of the company's largest end markets: the communications, medical and defense markets.

Net income in the first quarter of fiscal 2010 totaled $3.8 million, or $0.21 per share on a diluted basis. In comparison, net income in the previous year's first quarter equaled $2.0 million, or $0.11 per share on a diluted basis, excluding the recognition of $5.7 million, or $0.33 per share on a diluted basis, of non-recurring discrete tax benefits. The improved operating performance in the first quarter of fiscal 2010 was primarily due to higher sales volume and increased operating efficiencies, and was aided by lower interest expense in the first quarter of fiscal 2010. CPI's interest expense decreased as a result of the company's repayment and retirement of $30.8 million of aggregate principal amount of debt in fiscal 2009, resulting in lower outstanding debt obligations.

CPI generated adjusted EBITDA of $13.1 million, or 15.8% of sales, in the first quarter of fiscal 2010. In the same quarter of the prior year, adjusted EBITDA was $10.1 million, or 13.2% of sales. The increase was primarily due to higher sales volume and increased operating efficiencies.

As of January 1, 2010, CPI's cash and cash equivalents totaled $35.1 million.

Fiscal 2010 Outlook

"With our excellent results in the first quarter, CPI's fiscal year is off to a strong start, and we are further encouraged by recent successes in our end markets. We are therefore updating our guidance to reflect our improved expectations for fiscal 2010," said Caldarelli.

For fiscal 2010, CPI expects:

The seasonal pattern of fiscal 2010 is expected to be similar to that of fiscal 2009. Financial results in all quarters are expected to exceed the results in the corresponding quarters of the previous year. In particular, CPI is expecting net income to equal between $0.21 and $0.25 per share, on a diluted basis, in the second quarter of fiscal 2010.

Financial Community Conference Call

In conjunction with this announcement, CPI will hold a conference call on Thursday, February 11, 2010 at 11:00 a.m. (EST) that will be simultaneously broadcast live over the Internet on the company's Web site. To participate in the conference call, please dial (888) 631-5928, or (913) 312-1483 for international callers, enter participant pass code 8421424 and ask for the CPI International First Quarter 2010 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, 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, free cash flow per share, free cash flow conversion 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 net interest expense, provisions for income taxes and depreciation and amortization. Adjusted EBITDA represents EBITDA further adjusted to exclude certain non-recurring 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. Free cash flow per share represents free cash flow divided by average shares outstanding on a fully diluted basis. Free cash flow conversion represents free cash flow divided by net income, expressed as a percentage. 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. In addition, 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, EBITDA margin, adjusted EBITDA margin, free cash flow, free cash flow per share, free cash flow conversion 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, free cash flow per share, free cash flow conversion 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, free cash flow per share, free cash flow conversion and adjusted free cash flow of other companies. Because EBITDA, adjusted EBITDA, EBITDA margin, adjusted EBITDA margin, free cash flow, free cash flow per share, free cash flow conversion 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; the impact of a general slowdown in the global economy; our significant amount of debt; changes or reductions in the U.S. defense budget; currency fluctuations; goodwill impairment considerations; U.S. government contracts laws and regulations; changes in technology; the impact of unexpected costs; the impact of environmental 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, INC.
                                 and Subsidiaries

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

                                                           Quarter Ended
                                                          ---------------
                                                       January 1,  January 2,
                                                         2010        2009
                                                       ----------  ----------
     Sales                                              $82,767     $77,146
     Cost of sales                                       59,327      57,230
                                                         ------      ------
     Gross profit                                        23,440      19,916
                                                         ------      ------
     Operating costs and expenses:
       Research and development                           2,556       2,183
       Selling and marketing                              5,040       4,989
       General and administrative                         5,525       5,224
       Amortization of acquisition-related intangible
        assets                                              687         694
                                                            ---         ---
     Total operating costs and expenses                  13,808      13,090
                                                         ------      ------
     Operating income                                     9,632       6,826
     Interest expense, net                                3,881       4,455
                                                          -----       -----
     Income before income taxes                           5,751       2,371
     Income tax expense (benefit)                         1,910      (5,284)
                                                          -----      ------
     Net income                                          $3,841      $7,655
                                                         ======      ======

     Other comprehensive income, net of tax
      Net unrealized gain (loss) on cash flow hedges and
        minimum pension liability adjustment                844      (3,879)
                                                            ---      ------
    Comprehensive income                                 $4,685      $3,776
                                                         ======      ======

     Earnings per common share - Basic                    $0.23       $0.47
                                                          =====       =====
     Earnings per common share - Diluted                  $0.21       $0.44
                                                          =====       =====

     Shares used to compute earnings per common share
      - Basic                                            16,452      16,269
                                                         ======      ======
     Shares used to compute earnings per common share
      - Diluted                                          17,630      17,363
                                                         ======      ======





                              CPI INTERNATIONAL, INC.
                                 and Subsidiaries

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


                                                        January 1,  October 2,
                                                          2010        2009
                                                          ----        ----
    Assets
    Current Assets:
      Cash and cash equivalents                          $35,110     $26,152
      Restricted cash                                      1,780       1,561
      Accounts receivable, net                            40,159      45,145
      Inventories                                         70,895      66,996
      Deferred tax assets                                  8,585       8,652
      Prepaid and other current assets                     7,269       6,700
                                                           -----       -----
        Total current assets                             163,798     155,206
    Property, plant, and equipment, net                   56,725      57,912
    Deferred debt issue costs, net                         3,282       3,609
    Intangible assets, net                                74,682      75,430
    Goodwill                                             162,225     162,225
    Other long-term assets                                 3,903       3,872
                                                           -----       -----
        Total assets                                    $464,615    $458,254
                                                        ========    ========

    Liabilities and stockholders' equity
    Current Liabilities:
      Accounts payable                                   $20,156     $22,665
      Accrued expenses                                    22,084      19,015
      Product warranty                                     3,961       3,845
      Income taxes payable                                 4,383       4,305
      Deferred income taxes                                  212           -
      Advance payments from customers                     13,302      12,996
                                                          ------      ------
        Total current liabilities                         64,098      62,826
    Deferred income taxes, non-current                    24,342      24,726
    Long-term debt, less current portion                 194,925     194,922
    Other long-term liabilities                            2,071       2,227
                                                           -----       -----
        Total liabilities                                285,436     284,701
                                                         -------     -------
    Commitments and contingencies
    Stockholders' equity
      Common stock ($0.01 par value, 90,000 shares
        authorized; 16,833 and 16,807 shares issued;
        16,627 and 16,601 shares outstanding)                168         168
      Additional paid-in capital                          76,571      75,630
      Accumulated other comprehensive income               1,442         598
      Retained earnings                                  103,798      99,957
      Treasury stock, at cost (206 shares)                (2,800)     (2,800)
                                                          ------      ------
        Total stockholders' equity                       179,179     173,553
                                                         -------     -------
        Total liabilities and stockholders' equity      $464,615    $458,254
                                                        ========    ========





                              CPI INTERNATIONAL, INC.
                                 and Subsidiaries

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

                                                           Quarter Ended
                                                          ---------------
                                                      January 1,    January 2,
                                                         2010          2009
                                                         ----          ----

    Cash flows from operating activities
        Net cash provided by operating activities       $9,564        $4,599
                                                        ------        ------

    Cash flows from investing activities
      Capital expenditures                                (811)         (904)
                                                          ----          ----
        Net cash used in investing activities             (811)         (904)
                                                          ----          ----

    Cash flows from financing activities
      Repayments of debt                                     -        (4,750)
      Proceeds from issuance of common stock to
       employees                                           189           423
      Proceeds from exercise of stock options               14             7
      Excess tax benefit on stock option exercises           2             -
                                                           ---           ---
        Net cash provided by (used in) financing
         activities                                        205        (4,320)
                                                           ---        ------

    Net increase (decrease) in cash and cash
     equivalents                                         8,958          (625)
      Cash and cash equivalents at beginning of
       period                                           26,152        28,670
                                                        ------        ------
      Cash and cash equivalents at end of period       $35,110       $28,045
                                                       =======       =======

    Supplemental cash flow disclosures
      Cash paid for interest                            $1,054        $1,503
                                                        ======        ======
      Cash paid for income taxes, net of refunds        $2,273          $819
                                                        ======          ====





                        CPI International, Inc.
                           and Subsidiaries

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

                                                Three Months Ended
                                                ------------------
                                               January 1,  January 2,
                                                  2010        2009
                                                  ----        ----
    Net income                                  $3,841      $7,655
      Depreciation and amortization              2,735       2,698
      Interest expense, net                      3,881       4,455
      Income tax expense (benefit)               1,910      (5,284)
                                                 -----      ------
    EBITDA                                      12,367       9,524
                                                ------       -----

    Adjustments to exclude certain non-
     recurring or non-cash items:
      Stock-based compensation expense    (1)      730         621
                                                   ---         ---
    Total adjustments                              730         621
                                                   ---         ---
    Adjusted EBITDA                            $13,097     $10,145

      EBITDA margin                       (2)     14.9%       12.3%
      Adjusted EBITDA margin              (3)     15.8%       13.2%
      Net income margin                   (4)      4.6%        9.9%


    (1) Represents a non-cash charge for stock options, restricted stock
    awards, restricted stock unit awards and the employee discount related to
    CPI's Employee Stock Purchase Plan.
    (2) Represents EBITDA divided by sales.
    (3) Represents adjusted EBITDA divided by sales.
    (4) Represents net income divided by sales.





                           CPI International, Inc.
                               and Subsidiaries

                      NON-GAAP SUPPLEMENTAL INFORMATION
      Free Cash Flow, Adjusted Free Cash Flow, Free Cash Flow Conversion
                         and Free Cash Flow per Share
        (in thousands, except per share and percent data - unaudited)

                                                      Twelve Months Ended
                                                           January 1,
                                                             2010
                                                             ----
    Net cash provided by operating activities              $35,079
    Capital expenditures                                    (3,272)
                                                            ------
    Free cash flow                                          31,807

    Adjustments to exclude certain non-recurring items:
      Cash paid for prior year transfer pricing audit  (1)   1,291
                                                             -----
    Total adjustments                                        1,291
                                                             -----
    Adjusted free cash flow                                $33,098
                                                           =======

    Free cash flow                                         $31,807
    Net income                                             $19,652
    Free cash flow conversion                          (2)     162%

    Free cash flow per share                           (3)   $1.82


    (1) Represents payments made to the Canada Revenue Agency ("CRA") related
    to an audit of Communications & Power Industries Canada Inc.'s ("CPI
    Canada") income tax returns for fiscal years 2001 and 2002. CPI Canada has
    received a tax assessment, including interest expense, from the CRA for
    fiscal years 2001 and 2002, based on tax deductions related to the
    valuation of the Satcom business, which was purchased by CPI Canada from
    Communications & Power Industries, Inc. in fiscal years 2001 and 2002.
    While the Company believes it has meritorious defenses and is in the
    process of pursuing these defenses, certain payments are required to be
    made in the meantime.  The Company considers this a non-recurring use of
    cash as it pertains to previous years.
    (2) Represents free cash flow divided by net income, expressed as a
    percentage.
    (3) Represents free cash flow divided by the simple average of the last
    four fiscal quarters' "Shares used to compute earnings per share -
    Diluted." The simple average of the last four quarters' "Shares used to
    compute earnings per share - Diluted" is 17,510,000 shares.




SOURCE CPI International, Inc.

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