CPI International Announces Fourth Quarter & Fiscal Year 2008 Financial Results

December 16, 2008 by Jeff Shepard

CPI International, Inc., the parent company of Communications & Power Industries, Inc. announced financial results for its fourth quarter and fiscal year 2008, which ended October 3, 2008.

In fiscal 2008, CPI International (CPI) generated total sales of $370.0 million, a five% increase from the $351.1 million generated in fiscal 2007. Sales increased in the defense (radar and electronic warfare), communications, industrial and scientific markets. Orders booked in fiscal 2008 totaled $374.2 million, a nine% increase from the $343.7 million booked in the prior fiscal year. Orders increased in all of CPI’s markets.

In fiscal 2008, CPI generated cash flow from operating activities totaling $33.9 million, or $1.91 per share on a diluted basis, and free cash flow totaling $29.5 million, or $1.67 per share on a diluted basis. During the fiscal year, the company made debt repayments of $21.0 million, in aggregate.

Net income for fiscal 2008 totaled $20.4 million, or $1.16 per share on a diluted basis, a decrease from the $22.5 million, or $1.27 per share on a diluted basis, generated in fiscal 2007. The decrease in net income was primarily due to the shipment of products with lower margins, including a significantly greater percentage of new products and products from engineering development programs, particularly from the CPI Malibu Division, which was acquired in August 2007; the unfavorable impact from the weakness of the U.S. dollar in relation to the Canadian dollar; and higher research and development expenses. Net income for fiscal 2008, as compared to fiscal 2007, was favorably impacted by higher sales volume, lower debt-extinguishment costs and lower interest expense.

EBITDA equaled $61.3 million, or 17% of sales, in fiscal 2008, decreasing from $64.3 million, or 18% of sales in the previous fiscal year. The decrease in EBITDA was primarily due to the same factors that impacted net income.

"Despite challenging global economic conditions, CPI maintained our traditionally strong operating performance in fiscal 2008," said Joe Caldarelli, Chief Executive Officer of CPI. "We grew our sales and orders levels and remained solidly profitable. Fiscal 2008’s profitability was especially noteworthy because a larger portion of our sales were for lower- margin development programs and products than has historically been the case. CPI’s total spending on research and development, which includes both customer-sponsored and company-funded activities, increased approximately 40% in fiscal 2008 compared to fiscal 2007. Furthermore, in fiscal 2008, we again generated very strong cash flow, which was used to retire a significant amount of our debt and repurchase $2.8 million of our common stock. CPI’s free cash flow conversion, which represents the amount of net income we were able to convert to free cash flow during the fiscal year, was exceptionally strong at 144%. In August 2007, we successfully recapitalized our debt, and the resulting senior credit facility has one significant financial covenant, requiring that we maintain a senior secured leverage ratio of 3.75-to-one; our actual ratio is approximately one-to-one, well within the required ratio. With this low senior secured leverage ratio and our healthy levels of profitability and cash generation, we do not anticipate any need to restructure our debt or reenter the capital markets before fiscal 2011."