Business News

CPI International Announces Third Quarter 2009 Financial Results

Thursday 13. August 2009 - Sales, net income and EBITDA increase from previous quarter Company continues debt reduction program, retires additional $5 million

CPI International, 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 third quarter of fiscal 2009 ended July 3, 2009.

In the third quarter of fiscal 2009, sales, net income and EBITDA results all increased in comparison to the previous quarter. Sales increased $0.6 million to $82.5 million. Excluding non-recurring tax benefits recognized in the second quarter, net income increased by approximately 45 percent to $3.9 million, or $0.22 per share on a diluted basis. EBITDA increased by approximately 28 percent to $13.8 million, or approximately 17 percent of sales, in the third quarter. CPI International (CPI) had previously announced that it expected its third quarter financial performance to be similar to, or slightly better than, its performance in the second quarter.

“We are pleased by CPI’s financial performance in the third quarter. Our sales, net income and EBITDA results increased from the previous quarter. We continued to operate responsibly and profitably, enabling us to generate positive cash flow and retire debt. We also successfully cut costs without sacrificing our ability to provide the high level of service expected by our customers,” said Joe Caldarelli, chief executive officer of CPI. “Furthermore, our end markets are stabilizing, leading to respectable orders and sales levels during the quarter. As a result of record high orders of $116 million in the previous quarter and a healthy orders rate in the third quarter, our backlog now exceeds $230 million for the first time, indicating continued demand for our products. Many of the orders in our current backlog are for long-term programs and have extended delivery schedules, which will benefit our sales levels in fiscal 2010.”

In the twelve months ending July 3, 2009, CPI’s cash flow from operating activities totaled $29.5 million, or $1.69 per share on a diluted basis. Free cash flow totaled $26.2 million, or $1.50 per share on a diluted basis. CPI remains committed to using its positive cash flow to retire debt, and, during the first nine months of fiscal 2009, retired $12.75 million principal amount of debt, including repurchasing, in the most recent quarter, $5.0 million of Communications & Power Industries, Inc.’s 8% Senior Subordinated Notes. As of July 3, 2009, CPI’s cash and cash equivalents totaled $35.2 million, as compared to $28.7 million as of October 3, 2008.

Net income totaled $3.9 million in the third quarter of fiscal 2009, or $0.22 per share on a diluted basis, as compared to net income of $5.8 million, or $0.33 per share on a diluted basis, in the corresponding quarter of the previous year. The decrease in net income was primarily due to the impact of lower sales volume, and was partially counteracted by reduced expenses due to the recent implementation of cost-saving measures and by lower interest expense in the third quarter of fiscal 2009.

CPI generated $13.8 million in EBITDA, or 17 percent of sales, in the third quarter of fiscal 2009, as compared to $16.1 million, or 18 percent of sales, in the same quarter of the prior year. The decrease in EBITDA was primarily the result of the impact of lower sales volume, and was partially offset by reduced expenses due to the recent implementation of cost-saving measures.

In the first nine months of fiscal 2009, CPI has instituted a number of permanent and temporary cost-saving measures, including workforce reductions, salary freezes and reductions, temporary shutdowns of its facilities, increased mandatory time off, participation in work-share programs and reductions in contributions to certain employee retirement plans. The company believes that these measures enable it to mitigate the impact of the challenging economic environment while preserving the flexibility and resources necessary to continue to meet the requirements of its customers at current and improved activity levels.

Orders and Sales Highlights

In recent quarters, CPI’s defense markets have experienced delays in the receipt of orders that have resulted in subsequent delays in the corresponding shipments and sales in those markets. The company believes that order levels are stabilizing in these markets.

In commercial markets, which include CPI’s medical, commercial communications, industrial and scientific markets, customers have delayed, reduced or cancelled a number of their equipment upgrade or infrastructure expansion programs in recent quarters due to economic conditions.

In the first nine months of fiscal 2009, key orders highlights included:
— Overall orders booked totaled $271.3 million, compared with $279.9
million in the same period of the previous year.
— Orders in the defense markets totaled $113.0 million, as compared to
$105.2 million in the first nine months of fiscal 2008. This increase
was primarily due to the timing of the receipt of orders to support
certain domestic and foreign electronic warfare programs and the
timing of the receipt of several large development orders to support
radar programs, such as the U.S. Navy’s APN-245 Automatic Carrier
Landing System (ACLS) Beacon.
— Orders in the medical market totaled $49.5 million, as compared to
$48.3 million in the corresponding period of the previous year. This
increase was primarily the result of increased demand for products to
support magnetic resonance imaging (MRI) and radiation therapy
applications, and was offset, in part, by a decrease in demand for
products to support x-ray imaging applications.

— Orders in the communications market totaled $91.0 million, as compared
to $96.9 million in the first nine months of the prior year. This
decrease was mainly due to lower demand for products to support
commercial communications applications as a result of the weakness of
global economies, partially offset by growth in orders for military
communications programs. CPI received one approximately $12 million
order for the WIN-T military communications program in the first nine
months of fiscal 2008, as compared to two similarly sized orders for
that program in the first nine months of fiscal 2009.


In the third quarter of fiscal 2009, key sales highlights included:
— Overall sales totaled $82.5 million, as compared to $90.7 million in
the corresponding quarter of fiscal 2008.
— Sales in the defense markets totaled $35.7 million, as compared to
$38.0 million in the third quarter of fiscal 2008. This decrease was
mainly the result of an expected $2.3 million decrease in sales to
support the Aegis weapons system. As previously reported, CPI
anticipates that its fiscal 2009 sales in support of the Aegis weapons
system will total approximately $10 million, or approximately half of
its sales to support the system in fiscal 2008.
— Sales in the medical market totaled $15.5 million, as compared to
$16.8 million in the same quarter of the prior year. This decrease
was caused by lower sales of x-ray imaging products.

— Sales in the communications market totaled $24.0 million, as compared
to $28.2 million in the corresponding quarter of fiscal 2008. This
decrease was primarily due to lower sales to support commercial
communications applications and was partially offset by an increase in
sales to support military communications programs.


Fiscal 2009 Outlook


The company believes that stabilizing defense and commercial end markets will have a positive impact on its financial performance in the fourth quarter. Therefore, affirming its previously issued guidance, CPI expects its financial performance in the fourth quarter to exceed that of the previous three quarters.

CPI is also affirming its previous guidance of free cash flow in excess of $20 million in fiscal 2009.

The company believes that its financial results in fiscal 2010 will be better than its results in fiscal 2009. Furthermore, the company believes that its historical seasonal pattern of lower first quarter financial results, as compared to the subsequent three quarters of the year, will continue in fiscal 2010.