CPI International Announces Fourth Quarter and Fiscal Year 2009 Financial Results
PALO ALTO, Calif., Dec 10, 2009 /PRNewswire-FirstCall via COMTEX News Network/ -- CPI International, Inc. (Nasdaq: CPII), the parent company of Communications & Power Industries, Inc. (CPI), today announced financial results for its fourth quarter and fiscal year ended October 2, 2009.
"In the past several months, CPI's business has been gaining momentum, and we ended fiscal 2009 with the strongest quarter of the year. We are well-positioned for continued progress in fiscal 2010," said Joe Caldarelli, chief executive officer.
CPI's notable financial achievements during the most recent fiscal year include:
-- Quarter-over-quarter increases in sales, net income (excluding non-recurring discrete tax benefits) and adjusted EBITDA, culminating in robust fourth quarter results that illustrate improving market conditions; -- Record high end-of-the-year backlog, totaling $226 million; -- Strong cash flow from operating activities, totaling $30.1 million, or $1.72 per share on a diluted basis. Free cash flow exceeded the company's expectations, totaling $26.7 million, or $1.53 per share on a diluted basis; and -- Retirement of $30.8 million of aggregate principal amount of debt, contributing to a $2.1 million, or 11 percent, decrease in interest expense in comparison to the previous fiscal year.
In fiscal 2009, CPI generated total sales of $333 million and booked total orders of $356 million. In comparison, in fiscal 2008, sales and orders totaled $370 million and $374 million, respectively.
Fiscal 2009 net income totaled $23.5 million, or $1.34 per share on a diluted basis. In comparison, fiscal 2008's net income totaled $20.4 million, or $1.16 per share on a diluted basis. The increase in net income was the result of the recognition of $8.0 million, or $0.46 per share on a diluted basis, in non-recurring tax benefits in the most recent fiscal year, as well as reduced expenses due to the implementation of cost-savings initiatives and lower interest expense, partially offset by the impact of lower sales in fiscal 2009.
CPI generated adjusted EBITDA of $53.5 million, or 16.1 percent of sales, in fiscal 2009, as compared to $64.0 million, or 17.3 percent of sales, in the previous fiscal year. The decrease was primarily due to lower sales volume in the most recent year, partially offset by reduced expenses from the implementation of cost-savings initiatives.
As of October 2, 2009, the company's cash and cash equivalents totaled $26.2 million.
Fourth Quarter 2009 Financial Results
The fourth quarter was the strongest quarter of the fiscal year, and CPI's sales, net income and EBITDA results increased in comparison to each of the first three quarters of fiscal 2009. In the fourth quarter, CPI generated total sales of $91.3 million, as compared to $82.5 million in the previous quarter.
Net income totaled $8.3 million, or $0.47 per share on a diluted basis, in the fourth quarter of fiscal 2009. In the previous fiscal year, fourth quarter net income totaled $6.0 million, or $0.34 per share on a diluted basis. The increase in net income was, in part, the result of the recognition of $1.3 million, or $0.07 per share on a diluted basis, in non-recurring tax benefits in the fourth quarter of fiscal 2009, as well as reduced expenses due to the implementation of cost-savings initiatives in the most recent fiscal year and lower interest expense. Excluding these non-recurring tax benefits, net income and net income per share in the most recent quarter were approximately 17 percent higher than in the comparable quarter of fiscal 2008.
CPI's fourth quarter adjusted EBITDA equaled $17.6 million, or 19.3 percent of sales, in fiscal 2009. In comparison, in the fourth quarter of fiscal 2008, adjusted EBITDA equaled $18.1 million, or 18.4 percent of sales.
Fiscal 2010 Outlook
"Our end markets have stabilized and are showing tangible signs of improvement in recent months, and we are confident that fiscal 2010 will be a stronger year than fiscal 2009. In particular, we have seen further indications that our defense markets have stabilized, our medical market is showing signs of improvement, and we are enjoying very high backlog in our communications market," said Caldarelli.
For fiscal 2010, CPI expects:
-- Total sales of between $350 million and $360 million; -- Net income of between $1.05 and $1.13 per share on a diluted basis; and -- Adjusted EBITDA of between $58 million and $61 million.
The company is assuming an effective tax rate of approximately 36 percent for fiscal 2010.
CPI expects the seasonal pattern of fiscal 2010 to be similar to that of fiscal 2009, and, as economic conditions continue to improve, financial results in all quarters are expected to exceed the results in the corresponding quarters of fiscal 2009.
Financial Community Conference Call
In conjunction with this announcement, CPI will hold a conference call on Friday, December 11, 2009 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) 599-4879, or (913) 312-1432 for international callers, enter participant pass code 7360844 and ask for the CPI International Fourth Quarter and Fiscal Year 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 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 CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (in thousands, except per share data) Sales $91,307 $98,566 $332,876 $370,014 Cost of sales 63,782 69,072 239,385 261,086 Gross profit 27,525 29,494 93,491 108,928 Operating costs and expenses: Research and development expense 2,449 2,369 10,520 10,789 Selling and marketing expense 4,914 5,632 19,466 21,144 General and administrative 5,220 5,967 20,757 22,951 Amortization of acquisition- related intangibles assets 693 759 2,769 3,103 Total operating costs and expenses 13,276 14,727 53,512 57,987 Operating income 14,249 14,767 39,979 50,941 Interest expense 4,014 4,811 16,979 19,055 Loss (gain) on debt extinguishment - 119 (248) 633 Income before income taxes 10,235 9,837 23,248 31,253 Income tax expense (benefit) 1,983 3,876 (218) 10,804 Net income $8,252 $5,961 $23,466 $20,449 Other comprehensive income, net of tax Net unrealized gain (loss) on cash flow hedges and minimum pension liability adjustment 2,323 (812) 2,407 (3,711) Comprehensive income $10,575 $5,149 $25,873 $16,738 Earnings per share - Basic $0.50 $0.37 $1.44 $1.25 Earnings per share - Diluted $0.47 $0.34 $1.34 $1.16 Shares used to compute earnings per share -Basic 16,425 16,278 16,343 16,356 Shares used to compute earnings per share -Diluted 17,627 17,637 17,478 17,697
(in thousands, except per share data) Assets Current Assets: Cash and cash equivalents $26,152 $28,670 Restricted cash 1,561 776 Accounts receivable, net 45,145 47,348 Inventories 66,996 65,488 Deferred tax assets 8,652 11,411 Prepaid and other current assets 6,700 3,823 Total current assets 155,206 157,516 Property, plant, and equipment, net 57,912 62,487 Deferred debt issue costs, net 3,609 4,994 Intangible assets, net 75,430 78,534 Goodwill 162,225 162,611 Other long-term assets 3,872 806 Total assets $458,254 $466,948 Liabilities and stockholders' equity Current Liabilities: Current portion of long-term debt $- $1,000 Accounts payable 22,665 21,109 Accrued expenses 19,015 23,044 Product warranty 3,845 4,159 Income taxes payable 4,305 7,766 Advance payments from customers 12,996 12,335 Total current liabilities 62,826 69,413 Deferred income taxes 24,726 27,321 Long-term debt, less current portion 194,922 224,660 Other long-term liabilities 2,227 1,689 Total liabilities 284,701 323,083 Commitments and contingencies Stockholders' equity Preferred stock ($0.01 par value; 10,000 shares authorized and none issued and outstanding) - - Common stock ($0.01 par value, 90,000 shares authorized; 16,807 and 16,538 shares issued; 16,601 and 16,332 shares outstanding) 168 165 Additional paid-in capital 75,630 71,818 Accumulated other comprehensive income (loss) 598 (1,809) Retained earnings 99,957 76,491 Treasury stock, at cost (206 shares) (2,800) (2,800) Total stockholders' equity 173,553 143,865 Total liabilities and stockholders' equity $458,254 $466,948
Cash flows from operating activities Net income $23,466 $20,449 $22,503 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 7,773 7,607 6,562 Amortization of intangibles 3,021 3,356 2,536 Write-off of patent application fees 83 - - Amortization of deferred debt issue costs 1,241 1,197 1,401 Amortization of discount on floating rate senior notes 12 15 49 Non-cash loss on debt extinguishment 144 420 4,659 Discount on repayment of debt (392) - - Non-cash defined benefit pension expense 39 55 - Stock-based compensation expense 2,679 2,135 1,239 Allowance for doubtful accounts 6 - (329) Deferred income taxes (1,000) (1,360) (561) Net loss on the disposition of assets 130 205 129 Tax benefit from stock option exercises 212 50 1,281 Excess tax benefit on stock option exercises (54) (18) (781) Changes in operating assets and liabilities, net of acquired assets and assumed liabilities: Restricted cash (785) 1,479 (509) Accounts receivable 2,197 5,241 (7,388) Inventories (1,495) 1,986 (8,473) Prepaid and other current assets 841 (470) (811) Other long-term assets (3,167) (208) 476 Accounts payable 1,556 (685) (215) Accrued expenses (4,107) (4,953) (320) Product warranty (314) (1,419) (653) Income taxes payable (3,461) (779) (2,262) Advance payments from customers 661 203 2,202 Other long-term liabilities 828 (625) 924 Net cash provided by operating activities 30,114 33,881 21,659 Cash flows from investing activities Capital expenditures (3,365) (4,262) (8,169) Acquisitions, net of cash acquired - 1,615 (22,174) Payment of patent application fees - (147) - Net cash used in investing activities (3,365) (2,794) (30,343) Cash flows from financing activities Proceeds from issuance of debt - - 100,000 Proceeds from stock purchase plan and exercises of stock options 1,037 891 1,436 Repayments of debt (30,358) (21,000) (100,750) Debt issuance costs - - (2,462) Purchase of treasury stock - (2,800) - Excess tax benefit on stock option exercises 54 18 781 Net cash used in financing activities (29,267) (22,891) (995) Net (decrease) increase in cash and cash equivalents (2,518) 8,196 (9,679) Cash and cash equivalents at beginning of year 28,670 20,474 30,153 Cash and cash equivalents at end of year $26,152 $28,670 $20,474 Supplemental cash flow disclosures Cash paid for interest $16,081 $18,720 $22,255 Cash paid for income taxes, net of refunds $6,539 $13,099 $13,631
Net income $8,252 $5,961 $23,466 $20,449 Depreciation and amortization 2,714 2,792 10,794 10,963 Interest expense, net 4,014 4,811 16,979 19,055 Income tax expense (benefit) 1,983 3,876 (218) 10,804 EBITDA 16,963 17,440 51,021 61,271 Adjustments to exclude certain non-recurring or non-cash items: Stock-based compensation expense (1) 655 567 2,679 2,135 Loss (gain) on debt extinguishment (2) - 119 (248) 633 Total adjustments 655 686 2,431 2,768 Adjusted EBITDA $17,618 $18,126 $53,452 $64,039 EBITDA margin (3) 18.6% 17.7% 15.3% 16.6% Adjusted EBITDA margin (4) 19.3% 18.4% 16.1% 17.3% Net income margin (5) 9.0% 6.0% 7.0% 5.5% (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) For the year ended October 2, 2009, represents the following related to repurchase of $8.0 million of 8% Senior Subordinated Notes at a discount of 4.9%: $0.392 million discount, partially offset by $0.144 million write-off of unamortized deferred debt issue costs. For the three months and year ended October 3, 2008, respectively, represents the following expenses related to the redemption of $2.0 million and $10.0 million of floating rate senior notes: $0.081 million and $0.420 million for non-cash costs associated with the write-off of unamortized deferred debt issue costs and issue discount costs; and $0.038 million and $0.213 million in cash payments for redemption premiums and other expenses. (3) Represents EBITDA divided by sales. (4) Represents adjusted EBITDA divided by sales. (5) Represents net income divided by sales.
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) Net cash provided by operating activities $30,114 Capital expenditures (3,365) Free cash flow 26,749 Adjustments to exclude certain non- recurring items: Cash paid for prior year transfer pricing audit (1) 917 Total adjustments 917 Adjusted free cash flow $27,666 Free cash flow $26,749 Net income $23,466 Free cash flow conversion (2) 114% Free cash flow per share (3) $1.53 (1) Represents a payment 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 "Shares used to compute earnings per share: Diluted" for the year ended October 2, 2009, or 17,478,000 shares.
SOURCE CPI International, Inc.
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