PALO ALTO, Calif. - May 13, 2014 - CPI International Holding Corp., the parent company of CPI International, Inc. (CPI), today announced financial results for its second quarter of fiscal year 2014 ended April 4, 2014. CPI achieved higher sales, backlog, net income and adjusted EBITDA in the second quarter of fiscal 2014 as compared to the same quarter of the previous fiscal year. CPI's sales and adjusted EBITDA in the first six months of fiscal 2014 were the highest year-to-date levels in the company's history.
"On the heels of a very strong fiscal 2013, fiscal year 2014 is shaping up to be a financially successful year for CPI. Our defense market remains healthy due to significant backlog levels and recent orders. Our medical market is stable and is enjoying improved demand for x-ray imaging products, particularly in Asia," said Joe Caldarelli, chief executive officer of CPI. "In addition, the integration of the Radant Technologies business, which we acquired in October 2013, has progressed seamlessly, and together with our other recent acquisitions, the new Radant Technologies Division is making significant contributions to our product portfolio and financial results."
CPI recorded sales of $121 million in the second quarter of fiscal 2014, an increase of approximately 19 percent from the $102 million recorded in the same quarter of the prior year. Excluding the approximately $9 million in defense and communications sales generated by the recently acquired Radant Technologies business, CPI's total sales increased approximately nine percent.
In comparison to the same quarter of the previous year, in the second quarter of fiscal 2014, CPI's sales in its three largest markets were as follows:
CPI booked total orders of $229 million in the first six months of fiscal 2014, a 14 percent decrease from the $264 million booked in same period of the previous fiscal year. The inclusion of approximately $24 million in defense and communications orders from the Radant Technologies Division in the most recent period was more than offset by the absence of the multi-year order totaling in excess of $25 million that was received in the same period of the previous fiscal year. This order for advanced TCDL antennas to support intelligence, surveillance and reconnaissance (ISR) military communications applications was the largest single order ever booked by CPI and it was not expected to repeat in the first six months of fiscal 2014.
In comparison to the same period of the previous year, in the first six months of fiscal 2014, CPI's orders in its three largest markets were as follows:
Net Income and Adjusted EBITDA
In the second quarter of fiscal 2014, CPI's net income totaled $5.9 million, an increase from the $1.3 million recorded in the same quarter of fiscal 2013.
CPI generated adjusted EBITDA of $23.3 million, or 19.3 percent of sales, in the second quarter of fiscal 2014, an increase from the $16.2 million, or 15.9 percent of sales, that was recorded in the same quarter of the previous fiscal year.
The increases in net income and adjusted EBITDA in the second quarter of fiscal 2014 were primarily due to higher total sales and a more profitable mix of products sold in the most recent quarter as compared to the year-ago quarter.
As of April 4, 2014, CPI's cash and cash equivalents totaled $41.8 million. For the 12-month period ending on that date, CPI's cash flow from operating activities was $48.5 million, its free cash flow was $43.1 million and its adjusted free cash flow was $45.9 million.
April 2014 Refinancing
On April 7, 2014, CPI closed a refinancing transaction that included a new credit agreement, consisting of a $310 million term loan, due November 2017, and a $30 million revolving credit facility, due August 2017; if CPI repays or refinances at least 65 percent of its senior notes before August 2017, however, the term loan and revolving credit facility will mature in five and seven years, respectively. As part of the refinancing, the interest rate on CPI's senior notes increased from eight percent to 8.75 percent and the aggregate amount of CPI's permitted indebtedness increased. 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. The refinancing did not have a material impact on CPI's results in the second quarter of fiscal 2014 because the company entered into the new credit agreement at the start of its third quarter.
Fiscal 2014 Outlook
CPI is updating its previously issued financial guidance for fiscal 2014 to raise its adjusted EBITDA and adjusted free cash flow ranges; CPI's sales projections remain unchanged. The company expects:
Excluding discrete tax adjustments, the effective tax rate for fiscal 2014 is expected to be approximately 38 percent.
Financial Community Conference Call
In conjunction with this announcement, CPI will hold a conference call on Wednesday, May 14, 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 the conference call, please dial (800) 649-5127, or (253) 237-1144 for international callers, enter conference ID 36129762 and ask for the CPI International Second 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.
Amanda Mogin, Communications & Power Industries, investor relations, 650.846.3998, firstname.lastname@example.org