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Cubic Corporation (CUB)

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Cubic Corporation (CUB)

Q3 2018 Earnings Conference Call

August 8, 2018 11:00 AM ET

Executives

Kirsten Nielsen – Vice President of Investor Relations

Brad Feldmann – Chairman, President and Chief Executive Officer

Anshooman Aga – Executive Vice President and Chief Financial Officer

Analysts

Louie Dipalma – William Blair

Brian Ruttenbur – Drexel Hamilton

Presentation

Operator

Greetings, and welcome to the Cubic Corporation Third Quarter Fiscal Year 2018 Earnings Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

It’s now my pleasure to turn the call over to Kirsten Nielsen, Vice President of Investor Relations for Cubic. Please go ahead, Kirsten.

Kirsten Nielsen

Thank you. I’d like to welcome everyone to our third quarter fiscal 2018 earnings conference call. I’m joined today by Brad Feldmann, Chairman, President and Chief Executive Officer; and Anshooman Aga, Executive Vice President and Chief Financial Officer. I’ll remind everyone that statements made on today’s call that are not historical fact are considered forward-looking statements and are made pursuant to the Safe Harbor provisions of federal securities law.

You can find factors that could cause the company’s actual results to differ materially from our expectations listed in today’s press release and most recent SEC filing. In addition, we have included some non-GAAP financial measures in our discussion. Reconciliations to the most directly comparable GAAP financial measures can be found in today’s press release and in the appendix to today’s presentation.

With that, I’ll turn the call over to Brad.

Brad Feldmann

Thank you, Kirsten. Thank you, everyone, for joining us today. On today’s call, I will start by discussing our third quarter and year-to-date results for fiscal year 2018 followed by a strategy update. Then I’ll hand the call over to our CFO, Anshooman Aga, who will cover the financial results in more detail.

Starting with Slide 3. You will find an overview of our financial results from continuing operations as we closed on the sale of our non-original equipment Manufacturer Training Services business in May. Sales for the third quarter were $296 million, an 11% increase compared to the third quarter last year. Sales for the first nine months were $823 million, a 9% increase over prior year.

Adjusted EBITDA for Q3 was $28.2 million, a 123% increase compared to the third quarter of last year and $55.5 million for the nine months, an increase of 32% compared to last year. Our backlog continues to grow and is now at $3.7 billion, another record in Cubic’s history. Following the sale of the Defense Services business, we have revised our Goal 2020 revenue target to $1.55 billion to $2 billion in revenue, including 10% annualized organic growth, with 11% to 12.5% adjusted EBITDA margins.

Turning to Slide 4. We are pleased to have successfully achieved five of the six growth catalysts that we had strategically targeted several quarters ago, including win in New York, Boston and Brisbane, achieving the T2C2 full rate production decision and completing our ERP implementation. With strong confidence of our perspective win in the Bay Area, all six of the catalysts will be achieved.

Looking forward, our upcoming growth catalysts in transportation include AFC upgrades with existing customers as well as competitive opportunities in cities such as San Diego, Paris, Toronto and Montreal and the expansion of our presence in adjacent markets of Surface Transport Management, tolling and congestion charging and our NextBus 2.0 market entry. In Mission Solutions, we are ramping up on our FirstNet program with AT&T and preparing for SATCOM convergence as the U.S. Army considers common solutions. In defense training, we continue to develop our synthetic training environment solution, part of the Army’s modernization priorities.

Moving to Slide 5. Along with our major wins, we continue to make overall progress with our Winning the Customer initiative. In Q3, we completed our defense services divestiture, and we’ll deploy cash from its proceeds to further drive our market-leading, technology-driven strategy. To better serve our small- and mid-market transportation customers with an appropriately scaled fare collection solution, we have made an investment in Delerrok, an automated fare collection company that has focused on this market segment.

By combining Delerrok solutions with NextBus 2.0, initially through a reseller agreement, we believe we can offer subscription-based applications to small and mid-market, combining market-leading payment and real-time information functionality at an affordable and profitable price point. We are pleased to strengthen our relationship with AT&T and Verizon as an exclusive FirstNet Radio over Internet Protocol interoperability provider.

Our RoIP solution will allow first responders across the U.S. to use radios with cellphones over the mandated FirstNet network. Finally, we had a successful flight test of the Secure Live, Virtual, Constructive Advanced Training Environment Advanced Technology Demonstration, SLATE ATD. As the sole integrator of the program, we will provide next-generation Live, Virtual, Constructive Air Combat Maneuvering Instrumentation to the SLATE ATD program. This successful test flight moves us well along the path to revolutionize Air Combat Maneuvering Instrumentation with combined secure LVC simulation techniques.

Turning to Slide 6. We recently announced that Cubic has acquired the assets of Shield Aviation unmanned systems. As a result, Cubic will provide an affordable airborne intelligence surveillance and reconnaissance, ISR, capability with expanded range and payload over other existing systems in its class. We have been working with Shield for many months, and we’ll integrate our C4ISR capabilities into this unique platform.

Read the rest of this transcript on seekingalpha.com