CPI International Announces Fiscal Year 2011 Financial Results
PALO ALTO, Calif., Dec. 8, 2011 /PRNewswire/ -- CPI International Holding Corp., the parent company of CPI International, Inc. (CPI), today announced financial results for the fourth quarter and fiscal year ended September 30, 2011. In comparison to the previous fiscal year, in fiscal 2011, CPI:
- Increased sales by eight percent to $389 million;
- Increased orders by five percent to $393 million; and
- Increased adjusted EBITDA by one percent to $62.4 million. In comparison, net income decreased from $6.7 million in fiscal 2010 to a net loss of $11.2 million in fiscal 2011, primarily due to the impact of expenses related to the acquisition of CPI by The Veritas Capital Fund IV, L.P. in February 2011; these expenses are among the items excluded from CPI's adjusted EBITDA calculation.
CPI's other notable financial achievements during fiscal 2011 included:
- Increases in sales in all four quarters in comparison to the same quarters of the previous fiscal year and, in the third quarter, achievement of the highest quarterly sales in the company's history;
- Four consecutive quarters of robust order rates averaging more than $98 million per quarter, resulting in a book-to-bill ratio of 1.01;
- A record year-end backlog of $247 million; and
- Cash flow from operating activities of $17.8 million, free cash flow of $10.5 million and adjusted free cash flow of $25.3 million.
"For CPI, fiscal 2011 was an excellent year that was greatly impacted by milestone events in some very large programs, as well as by the acquisition of the company by Veritas Capital," said Joe Caldarelli, chief executive officer. "In the defense markets, we began and completed production shipments totaling $18 million for a one-time, new, counter-improvised explosive device program. This electronic warfare program necessitated an extremely fast ramp up schedule and high degrees of coordination across multiple product lines and CPI divisions, and was an enormous success for the company. Fiscal 2011 also saw the completion of our largest military communications program, Increment One of the WIN-T program, for which we've shipped approximately $55 million in communications products since mid-2007. At the time this program began, we were a fairly new player in military communications, but we have grown our expertise, market presence and business volumes in the intervening years. Our milcom business has exceeded 10 percent of our total annual sales in the past couple of years, and we expect it to continue to be a solid performer for CPI, notwithstanding the completion of Increment One of WIN-T. From a corporate standpoint, fiscal 2011 was a momentous year due to the sale of the company to Veritas Capital and the related refinancing of our capital structure."
In fiscal 2011, CPI generated total sales of $389 million, representing an eight percent increase from the previous year's sales of $360 million. Sales increased 15 percent in the company's defense markets, primarily due to a one-time, counter-improvised explosive device (counter-IED) program for which the entirety of CPI's $18.0 million in production shipments took place in fiscal 2011. Sales decreased by three percent in the medical market as a result of the inconsistent nature of orders and sales of products to support MRI applications. Sales increased by nine percent in the communications market because of increases in sales of products to support military communications and satellite broadcast applications.
CPI booked fiscal 2011 orders totaling $393 million, a five percent increase from the $375 million in orders booked in the prior year. Orders increased 20 percent in the company's defense markets due to a significant increase in orders for the non-recurring, counter-IED program that CPI undertook in fiscal 2011. Orders increased three percent in the medical market, principally due to increased orders for x-ray imaging products for foreign customers. Orders decreased four percent in the communications market, primarily as a result of the expected conclusion of Increment One of the WIN-T military communications program in which CPI has participated for several years; strong sales for this program in fiscal 2011 were due principally to the fulfillment of orders booked in previous fiscal years.
Net loss for fiscal 2011 was $11.2 million, a decrease from the $6.7 million in net income generated in fiscal 2010. This decrease was primarily due to expenses related to the February 2011 acquisition of CPI by Veritas Capital, including higher amortization, depreciation and other expenses resulting from the application of purchase accounting, as well as higher interest expenses due to the refinancing of the company in connection with the acquisition.
In fiscal 2011, CPI generated adjusted EBITDA of $62.4 million, or 16 percent of sales, as compared to adjusted EBITDA of $61.6 million, or 17 percent of sales, in the previous year. The increase in adjusted EBITDA, which excludes expenses related to the acquisition and other non-recurring, non-cash or unusual items, was due to higher sales volumes in fiscal 2011 and the related improvements in gross profit and operating efficiencies. The impact of these positive factors was partially offset by the unfavorable impact of the strong Canadian dollar in comparison to the U.S. dollar.
As of September 30, 2011, CPI had cash and cash equivalents totaling $35.0 million. In fiscal 2011, cash flow from operating activities was $17.8 million, free cash flow was $10.5 million and adjusted free cash flow was $25.3 million. Adjusted free cash flow excludes, among other items, certain payments related to the February 2011 acquisition.
Fourth Quarter 2011 Financial Results
In the final quarter of fiscal 2011, CPI achieved total sales of $100.5 million, representing an increase of five percent from $95.4 million in the same quarter of the previous year and setting a new high for fourth quarter sales. Sales increased eight percent in the defense markets, 16 percent in the medical market and 10 percent in the communications market; these increases were partially offset by decreases in the company's two smallest markets.
Net income totaled $2.5 million in the fourth quarter of fiscal 2011, as compared to a net loss of $5.8 million in the fourth quarter of the previous fiscal year. The most recent quarter included $4.9 million in expenses resulting from the amortization of acquisition-related intangible assets, as compared to $0.7 million in similar expenses in the fourth quarter of fiscal 2010, as well as higher interest expenses due to the refinancing of the company in connection with the February 2011 acquisition, an unfavorable U.S.-to-Canadian-dollar exchange rate and an additional loss reserve provision for a telemetry contract due to cost overruns. CPI's net loss for the fourth quarter of fiscal 2010 included $16.1 million in strategic alternative expenses related to the termination of the company's prior merger agreement with Comtech Telecommunications Corp.; these expenses did not recur in the same period in fiscal 2011.
Adjusted EBITDA equaled $14.3 million, or 14 percent of sales, in the fourth quarter of fiscal 2011. In comparison, adjusted EBITDA in the same quarter of the previous year, totaled $17.3 million, or 18 percent of sales. Adjusted EBITDA in the most recent quarter was impacted by the unfavorable U.S.-to-Canadian-dollar exchange rate and the telemetry contract loss reserve provision.
Fiscal 2012 Outlook
For fiscal 2012, CPI expects:
- Total sales of between $380 million and $395 million;
- Adjusted EBITDA of between $63 million and $65 million; and
- Adjusted free cash flow of more than $17 million.
The company assumes that its effective tax rate will be approximately 37 percent for fiscal 2012.
Financial Community Conference Call
In conjunction with this announcement, CPI will hold a conference call on Friday, December 9, 2011 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) 245-0987, or (913) 312-1449 for international callers, enter participant pass code 6634242 and ask for the CPI International Fiscal Year 2011 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, a leading provider of microwave, radio frequency, power and control solutions for critical defense, communications, medical, scientific and other applications. Communications & Power Industries LLC 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 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 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.
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