News Column

CPI International Reports Second Quarter 2014 Financial Results

May 16, 2014

CPI International Holding Corp., parent company of CPI International, Inc. (CPI), announced financial results for its second quarter of fiscal year 2014 ended April 4.

In a release on May 13, the company noted earnings details:

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, CEO 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."

Sales

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:

-In the defense market, sales increased 12 percent to $46.9 million due primarily to the inclusion of sales from CPI's Radant Technologies Division.

-In the communications market, sales increased 30 percent to $45.2 million, primarily due to higher sales to support military communications applications, including sales of advanced tactical common data link (TCDL) antennas from CPI's Malibu Division and sales from the Radant Technologies Division. The increase in advanced TCDL antenna sales was largely the result of a significant multi-year order for these products that was received in fiscal 2013. Sales to support commercial communications applications also increased.

-In the medical market, sales decreased two percent to $17.6 million due to lower sales to support MRI applications.

Orders

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:

-In the defense market, orders increased two percent to $94.6 million due to the inclusion of orders from the Radant Technologies Division and higher demand to support certain domestic radar and electronic warfare systems, including Aegis radar systems. These increases were offset by lower demand to support certain defense programs due to the timing of those programs.

-In the communications market, orders decreased 35 percent to $72.2 million, primarily due to the advanced-TCDL-antenna order totaling more than $25 million that was received in the first six months of fiscal 2013, but, as expected, did not repeat in the most recent period. In addition, demand for certain commercial communications applications, including satellite broadcast applications such as broadband data communications, was lower due to the timing of large programs for these applications. Partially offsetting these decreases, the first six months of fiscal 2014 included orders from the Radant Technologies Division.

-In the medical market, orders increased one percent to $41.2 million, primarily due to higher demand to support x-ray imaging applications, particularly in Asia.

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.

Cash Flow

As of April 4, 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, 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:

-Total sales of between $475 million and $500 million;

-Adjusted EBITDA of between $84 million and $88 million; and

-Adjusted free cash flow of more than $24 million.

Excluding discrete tax adjustments, the effective tax rate for fiscal 2014 is expected to be approximately 38 percent.

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 provider of microwave, radio frequency, power and control solutions for critical defense, communications, medical, scientific and other applications.

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