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Cubic Corporation (CUB)

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Cubic Corporation (CUB)

Q1 2017 Earnings Conference Call

February 09, 2017 04:30 PM ET

Executives

Diane Dyer - IR

Brad Feldmann - President and CEO

Jay Thomas - EVP and CFO

Paul Ketchum - VP, Accounting

Analysts

Julian Mitchell - Credit Suisse

Jim Ricchiuti - Needham & Company

Mark Strouse - JP Morgan

Brian Ruttenbur - Drexel Hamilton

Presentation

Diane Dyer

Thank you, operator. Hello, everyone, and thank you for joining Cubic's webcast. Today, shortly after market close, we reported our first quarter fiscal year 2017 results. We encourage you to refer to the Company's press release and the most recent reports filed with the SEC as well as today's presentation slides. You can access these documents on the Investor Relations tab of Cubic's website at www.cubic.com, or on the SEC's website.

On today's call, Brad Feldmann, Cubic's President and CEO, and Jay Thomas, Executive Vice President and CFO, will comment on Cubic's first quarter 2017 results. Paul Ketchum, Cubic's Vice President of Accounting, will join us for the Q&A session.

Please note that certain information discussed on the call today is covered under the Safe Harbor provisions of the Private Securities Litigation Reform Act. I caution listeners that during this call, Cubic management will be making forward looking statements about future events or Cubic's future financial and operating performance. Actual results could differ materially from those stated or implied by these forward looking statements due to risks and uncertainties associated with the Company's business. These forward looking statements should be considered in conjunction with and are qualified by the cautionary statements contained in Cubic's earnings press release and SEC filings, including its annual report on Form 10-K and quarterly reports on Form 10-Q.

This conference call contains time sensitive information that is accurate only as of the date of this broadcast, February 9, 2017. Cubic undertakes no obligation to revise or update any forward looking statements to reflect events or circumstances after the date of this conference call.

This conference call also includes a discussion of non-GAAP financial measures as that term is defined in Regulation G. Cubic believes this information is useful to investors because it provides a basis for measuring the Company's available capital resources, the actual and forecasted operating performance of the Company's business, and the Company's cash flows. Any discussion of non-GAAP measures is not intended to detract from the importance of comparable GAAP measures.

With that said, I'll turn the call over to Brad Feldmann, our President and CEO.

Brad Feldmann

Thank you, Diane. Thank you, everyone for joining us on the call. Today, I will discuss our first quarter results for fiscal year 2017 together with the highlights of the quarter and a brief update on our strategy. I will also address the perceived potential impact of the incoming administration on Cubic's overall business and give an update on our Cubic mission solution C4ISR business. Jay will cover our consolidated operating and financial results.

On slide 3, you will find an overview of our first quarter results. I am pleased to report a growth in sales to $334.7 million for the first quarter of the year, up $20.9 million, or 6.7%, from the same quarter last year despite foreign currency exchange headwinds of $8.7 million. Adjusted EBITDA was $20.1 million, also up by $8.8 million, or 78%, from the same period last year net of $1.7 million foreign currency exchange headwinds and $1.2 million of New York City Fair Payment System pre contract R&D investments. Overall, our performance was in line with our expectations. Our Q4 FY16 results had funding and shipment delays primarily in our defense systems business.

We've made great progress to settle and equitable contract adjustment with the U.S. Navy on our Littoral Combat Ship virtual training contract an expect to complete negotiations soon. In the fourth quarter, we saw some delays and shipment changes to our delivery schedule. We have now resolved these issues, and virtually all of these delayed shipments are on track for completion by our second quarter. Lastly, we experienced funding delays on approximately $20 million in new orders for tactical networking equipment in September. We have now received about 6 million of these orders and expect the balance to be received and shipped in the second half of the fiscal year.

Moving on to slide 4 and turning to the new Trump administration. The outlook for Cubic remains consistent with the assessment provided in our Q4 FY16 call. We believe the initiatives to improve the U.S. military and infrastructure under the new administration will be beneficial for our Company's growth and profitability over the next few years. President Trump's executive order rebuilding the U.S. armed forces places high importance on military readiness. We're also heartened by Senate Armed Services Committee Chair Senator McCain's white paper, Restoring American Power, that calls for significant increase in the defense budget over the next five years. In addition, the impetus to have our allies carry a larger share of the defense cost burden could also open up additional international opportunities for Cubic. In all, we believe these initiatives will increase the demand for Cubic's defense products and services.

With the change in administration, we expect the Budget Control Act and sequestration will be replaced with a long term budget deal that addresses necessary increases in discretionary funding, including much needed increases in defense communications and training. These outcomes would lead to more predictable and stable budget cycles, particularly for the defense department. We also expect lower corporate tax rates and an opportunity to repatriate our offshore cash more tax efficiently. We believe these changes will help accelerate our Cubic 2020 growth strategy.

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