CPI International Announces First Quarter 2009 Financial Results
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 first quarter of
fiscal 2009 ended
(Logo: http://www.newscom.com/cgi-bin/prnh/20060426/CPILOGO)
In the first quarter of fiscal 2009, CPI International (CPI) generated
total sales of
the same quarter of fiscal 2008. Sales were essentially unchanged in the
company’s medical and industrial end markets, and decreased in the defense
(radar and electronic warfare), communications and scientific markets. CPI
booked orders totaling
decreased in all of the company’s markets.
“Although lower than a year ago, CPI’s first quarter sales were in line
with our expectations,” said
“Our fiscal 2009 orders got off to a slow start, as several of the orders that
we had hoped to book in the first quarter were delayed out of the quarter due
to economic or timing factors. In the first few weeks of the second quarter,
however, we have received several large orders, including an approximately
million
Tactical (WIN-T) program and an approximately
customer to support a radar system. In addition, CPI Malibu Division is
finalizing contract details on several large orders which are expected to be
booked in the second quarter, including an approximately
a tactical common data link (TCDL) program and an approximately
order for a foreign telemetry program. With these and other expected orders,
we believe our second quarter orders will be stronger than usual at more than
the higher order levels – and subsequent higher sales volume – will result in
improved financial results in the second half of the fiscal year.”
CPI generated cash flows from operating activities totaling
or
million
company made debt repayments of
January, after the quarter ended, Communications & Power Industries also
repurchased
8.5 percent discount to par value.
CPI’s net income in the first quarter of fiscal 2009 totaled
or
2008. This increase is due to the recognition of
share on a diluted basis, of non-recurring income tax benefits in the first
quarter of fiscal 2009. These benefits included a
related to an outstanding audit by the Canada Revenue Agency (CRA) that, as a
result of the approval of a new U.S.-Canadian tax treaty in
believes will have a more favorable settlement than had previously been
expected. The benefits also included a
deferred tax accounts as a result of a reduction in future Canadian corporate
income tax rates that were effective in the first quarter of fiscal 2008 but
were recorded by the company in the first quarter of fiscal 2009. Excluding
these two non-recurring tax benefits, net income was
per share on a diluted basis, in the first quarter of fiscal 2009, a decrease
from
same quarter of fiscal 2008; this decrease was primarily due to the impact of
lower sales volume on gross profit in the first quarter of fiscal 2009.
EBITDA equaled
of fiscal 2009, compared to
quarter of the prior fiscal year. The decrease in EBITDA was primarily due to
the negative impact of lower sales volume on gross profit in the most recent
quarter and was partially offset by reduced spending for administrative and
research and development expenses.
As of
million
remains committed to using its positive cash flow to retire debt, and has
retired
First Quarter Fiscal 2009 Sales and Orders Highlights
In the first quarter of fiscal 2009, in the defense markets, which consist
of CPI’s radar and electronic warfare markets on a combined basis, orders and
sales were negatively impacted by ongoing delays in the receipt of orders.
The company expects delays to continue for the foreseeable future.
In the commercial markets, which consist of CPI’s medical, commercial
communications, industrial and scientific markets, orders and sales were
negatively impacted by the weakening of the U.S. and foreign economies.
Customers have delayed, reduced or cancelled their equipment upgrade or
infrastructure expansion programs due to the challenging economy.
In the first quarter of fiscal 2009, key sales and orders highlights
included:
-- For orders in the defense markets, CPI saw no long-term or
significant changes to any core programs in the first quarter of
fiscal year 2009. Sales in the defense markets decreased from $33.9
million in the first quarter of fiscal 2008 to $28.0 million in the
first quarter of fiscal 2009. This decrease was primarily due to an
expected $2.1 million decrease in sales of CPI products to support
the Aegis weapons system, as well as decreases in sales to support
several other radar and electronic warfare programs due to delays in
the placement of orders for those programs. As CPI has previously
announced, the company expects its sales of products to support the
Aegis weapons system in fiscal 2009 to total approximately $10
million, or approximately half of its fiscal 2008 sales, because it
has completed supplying products for funded new ship builds for the
Aegis weapons system.
-- Medical sales were essentially unchanged at $15.6 million in the
first quarter of fiscal 2008 as compared to $15.8 million in the
same quarter of fiscal 2009. During the recent quarter, the
weakening of global economies resulted in decreased sales of x-ray
generators and products to support magnetic resonance imaging (MRI)
applications. These decreases were offset by increased sales of
products to support radiation therapy applications.
-- In the communications market, orders decreased from $30.0 million in
the first quarter of fiscal 2008 to $17.4 million in the first
quarter of fiscal 2009, primarily as a result of delays in certain
key programs, as well as decreases in orders to support commercial
communications applications, such as international satellite news
gathering and direct-to-home broadcast applications. CPI believes
that these delays and decreases are related to the weakening of
global economies. Delays in the placement of orders for telemetry
programs also contributed to the decrease in communications orders.
CPI expects to receive a number of the delayed communications orders
later in fiscal 2009, and believes that the performance of its
communications business for the fiscal year will be comparable to
fiscal 2008. In the first quarter of fiscal 2009, increases in
orders for military communications programs partially offset the
decreases in commercial communications and telemetry orders.
-- Communications sales decreased from $28.3 million in the first
quarter of fiscal 2008 to $26.2 million in the first quarter of
fiscal 2009. This decrease was due primarily to lower sales to
support certain commercial communications applications, including
domestic and international direct-to-home applications. Offsetting
these decreases, sales of products for military communications
programs continued to increase in the most recent quarter.
Fiscal 2009 Outlook
“We will continue to manage our business in a conservative and prudent
manner, and we are actively managing our expenses in light of the current
challenging economic conditions,” said Caldarelli. “We have undertaken a
number of cost-cutting initiatives in the past few months, including reducing
our headcount by approximately 70 people, implementing additional temporary
shutdowns and requiring employees to take additional mandatory time off during
the next few months. We believe these and other cost-cutting actions we are
taking will keep CPI well-positioned to successfully weather the current
economic storm while continuing to provide the flexibility necessary to meet
our customers’ needs.”
“In the first quarter, we experienced delays in certain programs that
pushed the placement of orders for those programs out beyond the quarter. We
expect a number of those delayed orders to be placed in the second quarter
and, as a result, we expect that CPI’s order levels will increase
significantly in the second quarter. We anticipate booking orders of more
than
would offset the orders weakness in our first quarter,” continued Caldarelli.
“Despite this high second quarter orders level, based on the detailed forecast
information we have collected from our customers, we expect that our financial
performance in the first half of the fiscal year will be weaker than it was in
the same period last year, and that our financial performance in the second
half of this fiscal year will likely be stronger than our performance in the
first half of this year. However, our expectations and forecasts are based on
certain assumptions that both we and our customers are making about
macroeconomic conditions, and our financial performance could be impacted in
either direction should current macroeconomic conditions significantly
change.”
CPI expects to continue to generate free cash flow in excess of
million
Financial Community Conference Call
In conjunction with this announcement, CPI will hold a conference call on
broadcast live over the Internet on the company’s Web site. To participate in
the conference call, please dial (877) 874-1569, or (719) 325-4814 for
international callers, enter participant code 6691410 and ask for the CPI
International First Quarter 2009 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
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, 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. 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, 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, 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, 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, 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, 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; 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; U.S. government contracts laws and
regulations; changes in technology; the impact of unexpected costs; 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 OPERATIONS AND COMPREHENSIVE INCOME
(in thousands, except per share data - unaudited)
Quarter Ended
January 2, December 28,
2009 2007
Sales $77,146 $85,910
Cost of sales 57,230 61,774
Gross profit 19,916 24,136
Operating costs and expenses:
Research and development 2,183 2,724
Selling and marketing 4,989 5,172
General and administrative 5,204 6,153
Amortization of acquisition-
related intangible assets 694 781
Net loss on disposition of fixed
assets 20 34
Total operating costs and expenses 13,090 14,864
Operating income 6,826 9,272
Interest expense, net 4,455 4,812
Income before income taxes 2,371 4,460
Income tax (benefit) expense (5,284) 1,950
Net income $7,655 $2,510
Other comprehensive income, net of tax
Net unrealized loss on cash flow hedges (3,879) (1,201)
Comprehensive income $3,776 $1,309
Earnings per share - Basic $0.47 $0.15
Earnings per share - Diluted $0.44 $0.14
Shares used to compute earnings per
share - Basic 16,269 16,371
Shares used to compute earnings per
share - Diluted 17,388 17,832
CPI International, Inc.
and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data - unaudited)
January 2, October 3,
2009 2008
Assets
Current Assets:
Cash and cash equivalents $28,045 $28,670
Restricted cash 1,323 776
Accounts receivable, net 42,040 47,348
Inventories 65,867 65,488
Deferred tax assets 13,556 11,411
Prepaid and other current assets 4,171 3,823
Total current assets 155,002 157,516
Property, plant, and equipment, net 61,411 62,487
Deferred debt issue costs, net 4,689 4,994
Intangible assets, net 77,779 78,534
Goodwill 162,293 162,611
Other long-term assets 3,856 806
Total assets $465,030 $466,948
Liabilities and stockholders' equity
Current Liabilities:
Current portion of long-term debt $3,000 $1,000
Accounts payable 18,033 21,109
Accrued expenses 28,786 23,044
Product warranty 3,990 4,159
Income taxes payable 1,794 7,766
Advance payments from customers 11,208 12,335
Total current liabilities 66,811 69,413
Deferred income taxes 26,851 27,321
Long-term debt, less current portion 217,913 224,660
Other long-term liabilities 4,714 1,689
Total liabilities 316,289 323,083
Commitments and contingencies
Stockholders' equity
Common stock ($0.01 par value,
90,000 shares authorized; 16,690
and 16,538 shares issued;
16,484 and 16,332 shares
outstanding) 167 165
Additional paid-in capital 72,916 71,818
Accumulated other comprehensive loss (5,688) (1,809)
Retained earnings 84,146 76,491
Treasury stock, at cost (206 shares) (2,800) (2,800)
Total stockholders' equity 148,741 143,865
Total liabilities and stockholders'
equity $465,030 $466,948
CPI International, Inc.
and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands - unaudited)
Quarter Ended
January 2, December 28,
2009 2007
Cash flows from operating activities
Net cash provided by operating
activities $4,599 $9,560
Cash flows from investing activities
Capital expenditures (904) (1,687)
Payment of patent application fees - (147)
Net cash used in investing
activities (904) (1,834)
Cash flows from financing activities
Repayments of debt (4,750) (1,000)
Proceeds from issuance of common
stock to employees 423 210
Proceeds from exercise of stock
options 7 -
Net cash used in financing
activities (4,320) (790)
Net (decrease) increase in cash and
cash equivalents (625) 6,936
Cash and cash equivalents at
beginning of period 28,670 20,474
Cash and cash equivalents at end of
period $28,045 $27,410
Supplemental cash flow disclosures
Cash paid for interest $1,503 $155
Cash paid for income taxes, net of
refunds $819 $2,533
CPI International, Inc.
and Subsidiaries
NON-GAAP SUPPLEMENTAL INFORMATION
EBITDA and Adjusted EBITDA
(in thousands - unaudited)
Three Months Ended
January 2, December 28,
2009 2007
Net income $7,655 $2,510
Depreciation and amortization 2,698 2,650
Interest expense, net 4,455 4,812
Income tax (benefit) expense (5,284) 1,950
EBITDA 9,524 11,922
Adjustments to exclude certain non-
recurring or non-cash items:
Stock-based compensation expense (1) 621 424
Total adjustments 621 424
Adjusted EBITDA $10,145 $12,346
EBITDA margin (2) 12.3% 13.9%
Adjusted EBITDA margin (3) 13.2% 14.4%
Net income margin (4) 9.9% 2.9%
(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 2,
2009
Net cash provided by operating
activities $28,920
Capital expenditures (3,479)
Free cash flow 25,441
Adjustments to exclude certain non-
recurring items:
Cash paid for debt extinguishment
costs, net of taxes (1) 132
Total adjustments 132
Adjusted free cash flow $25,573
Free cash flow $25,441
Net income $25,594
Free cash flow conversion (2) 99%
Free cash flow per share (3) $1.45
(1) Represents redemption premiums and other expenses associated with the
repurchase and redemption of CPI's floating rate senior notes, net of
taxes.
(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 fiscal quarters'
"Shares used to compute earnings per share: Diluted" is 17,588,000
shares.
SOURCE CPI International, Inc.