Cubic Reports Record Fourth Quarter and Fiscal Year 2017 Sales
SAN DIEGO, Nov. 20, 2017 /PRNewswire/ -- Cubic Corporation (NYSE: CUB) today announced its financial results for the fourth quarter and fiscal year ended September 30, 2017.
"We are very pleased by our strong fourth quarter performance with record sales, near-record Adjusted EBITDA and strong order intake. With the recent New York Metropolitan Transportation Authority contract win, we now have the highest backlog in the company's history and are well positioned to deliver strong organic growth," said Bradley H. Feldmann, president and chief executive officer of Cubic Corporation. "Our investments, innovation and overall strategy are paying off for our customers, shareholders and employees."
Financial Results Comparison
Years Ended Three Months Ended
September 30, September 30,
------------- -------------
2017 2016 2017 2016
---- ---- ---- ----
(in millions)
Sales $1,485.9 $1,461.7 $445.6 $406.6
Operating income $17.5 $7.2 $25.4 $10.5
Adjusted EBITDA
(1) $105.6 $118.0 $50.2 $35.7
Net income (loss) $(11.2) $1.7 $13.2 $(7.5)
EPS $(0.41) $0.06 $0.49 $(0.29)
Acquisition-
related costs
(excluding
amortization) (2) $(0.3) $28.7 $0.6 $1.0
Strategic and IT
system resource
planning expenses
(2) $34.4 $34.8 $10.8 $10.4
Depreciation and
amortization
expense $51.1 $45.5 $12.9 $13.5
Research and
development
expense $52.7 $32.0 $13.9 $13.8
Income tax
provision
(benefit) $15.1 $(9.2) $9.3 $11.1
(1) Adjusted EBITDA is
a non-GAAP
financial measure
- see the
section titled
"Use of Non-GAAP
Financial
Information" for
additional
information
regarding this
non-GAAP
financial
measure.
(2) See the section
below titled "Use
of Non-GAAP
Financial
Information" for
a description of
the composition
of these items.
(3) Guidance assumes a
constant currency
basis with fiscal
year 2017.
Cubic had record annual and quarterly sales of $1.486 billion for fiscal 2017 and $445.6 million for the fourth quarter. On a constant currency basis, fiscal 2017 sales grew 3.0 percent compared to the prior year. Fiscal 2017 sales were impacted by $19.9 million of foreign currency exchange rate headwinds compared to fiscal 2016.
The increase in operating income in the fourth quarter and full year of fiscal 2017 was supported by higher sales. Operating income for the full fiscal year was further positively impacted by a reduction in general and administrative expenses, primarily attributable to the decrease in acquisition-related expenses. The increases in operating income for the fourth quarter and full fiscal year were partially offset by significant acceleration of investment in research and development (R&D) activity in fiscal 2017.
The changes in Adjusted EBITDA for the fourth quarter and full fiscal year are primarily attributable to the same matters noted above that impacted operating income, with the exception of the reduction in acquisition-related expenses, as acquisition-related expenses are excluded from the calculation of Adjusted EBITDA. The most significant matter that caused the decrease in Adjusted EBITDA from fiscal 2016 to 2017 was a $20.7 million relative increase in R&D investment.
The change in net income was primarily caused by the change in the effective tax rate. Cubic's income tax provision totaled $15.1 million for fiscal 2017, compared to an income tax benefit of $9.2 million in fiscal 2016. The tax benefit recorded in fiscal 2016 primarily related to acquired deferred tax liabilities of $23.8 million that reduced the U.S. valuation allowance. The expense for income taxes in fiscal 2017 primarily results from tax on foreign earnings and U.S. tax expense related to the amortization of indefinite lived intangible assets, partially offset by benefit related to the release of reserves for uncertain tax positions due to the positions being effectively settled. Due to the effects of the deferred tax asset valuation allowance, the effective tax rate for fiscal 2016 and 2017 does not correlate to the amount of the pre-tax income or loss.
Reportable Segment Results
Years Ended Three Months Ended
September 30, September 30,
------------- -------------
2017 2016 2017 2016
---- ---- ---- ----
(in millions)
Sales:
Cubic Transportation
Systems $578.6 $586.4 $170.7 $155.9
Cubic Global Defense
Systems 529.1 484.2 178.4 152.9
Cubic Global Defense
Services 378.2 391.1 96.5 97.8
----- ----- ---- ----
Total sales $1,485.9 $1,461.7 $445.6 $406.6
======== ======== ====== ======
Operating income (loss):
Cubic Transportation
Systems $39.8 $57.5 $23.2 $13.6
Cubic Global Defense
Systems 18.8 (17.1) 14.8 6.6
Cubic Global Defense
Services 6.7 11.2 1.9 1.9
Unallocated corporate
expenses (47.8) (44.4) (14.5) (11.6)
----- ----- ----- -----
Total operating income $17.5 $7.2 $25.4 $10.5
===== ==== ===== =====
Cubic Transportation Systems:
Cubic Transportation Systems (CTS) sales and operating income for the quarter were higher primarily due to the resolution of negotiations to clarify pricing and service level provisions of customer contracts. CTS had deferred revenue on these contracts until such negotiations were complete.
The decrease in sales for fiscal 2017 compared to 2016 is due to the adverse impacts of foreign currency exchange rates. CTS operating income was lower for the full year due to increases in R&D and bid preparation expenditures including $6.4 million of costs incurred in fiscal 2017 for the development of advanced technologies that will be applied on a contract with the New York Metropolitan Transit Authority that was awarded in early fiscal 2018. Operating income in 2017 was also negatively impacted by losses on a market-entry contract in the road tolling industry.
Cubic Global Defense Systems:
Cubic Global Defense Systems (CGD Systems) sales were positively affected by increases in product sales from acquired businesses. Sales from businesses acquired by CGD Systems in 2016 and 2017 for the fourth quarter of fiscal 2017 were $39.7 million compared to $31.3 million for the fourth quarter last year, and $108.9 million for fiscal 2017 compared to $59.3 million for fiscal 2016. Operating income increased in the fourth quarter and full year of fiscal 2017 due to increased sales by those acquired businesses. Operating income for the full fiscal year benefitted from an $8.0 million gain recognized in the third quarter of fiscal 2017 related to the approval of a contract adjustment with the U.S. Navy for a virtual training system. The improvement in CGD Systems operating income for fiscal 2017 compared to fiscal 2016 year was also positively impacted by the effects of accounting for business acquisitions. The increases in operating income for the fourth quarter and full fiscal year were partially offset by increased R&D expenditures in fiscal 2017, primarily for the development of innovative ground live and virtual training technologies.
Cubic Global Defense Services:
Cubic Global Defense Services (CGD Services) sales and operating income for the fourth quarter and full fiscal year were lower primarily due to lower activity supporting Special Operations Forces training as well as decreased activity on U.S. Army contracts, other than the contract with the Joint Readiness Training Center. In addition, certain contracts that were retained after re-compete were won in the first quarter of fiscal 2017 at reduced pricing. These reductions in operating profit were partially offset by a decrease in the amortization expense on purchased intangible assets.
Fiscal 2018 Guidance
-- Sales guidance for fiscal 2018 of $1.51 billion to $1.56 billion.
-- Adjusted EBITDA((1)(2)) guidance of $110 million to $135 million((3)).
The midpoint of this range represents a 16 percent increase from fiscal
2017.
"With our strong bookings and recent wins driven by our investments in technology we are optimistic about the momentum building in our business," said Anshooman Aga, executive vice president and chief financial officer of Cubic Corporation.
Conference Call
Cubic management will host a conference call to discuss the company's fourth quarter and fiscal 2017 results today, Monday, November 20 at 4:30 p.m. EST/1:30 p.m. PST, which will be simultaneously broadcast over the Internet. Bradley H. Feldmann, president and chief executive officer, and Anshooman Aga, executive vice president and chief financial officer, will host the call.
Conference Dial-In Information
Financial analysts and institutional investors interested in participating in the call are invited to dial:
-- (877) 407?9708 for domestic callers
-- (201) 689?8259 for international callers
Please dial-in approximately 10 minutes prior to the start of the call.
Audio Webcast
A live webcast of the conference call and presentation slides will be accessible on our website under the "Investor Relations" tab at www.cubic.com. Please visit the website at least 15 minutes prior to the call in order to register, download and install any streaming media software needed to listen to the webcast. A replay of the broadcast will be available on the "Investor Relations" tab of Cubic's website.
About Cubic Corporation
Cubic Corporation designs, integrates and operates systems, products and services focused in the transportation, defense training and secure communications markets. Cubic Transportation Systems is a leading integrator of payment and information technology and services to create intelligent travel solutions for transportation authorities and operators. Cubic Global Defense is a leading provider of live, virtual, constructive and game-based training solutions, special operations and intelligence for the U.S. and allied forces. Cubic Mission Solutions provides networked Command, Control, Communications, Computers, Intelligence, Surveillance and Reconnaissance (C4ISR) capabilities for defense, intelligence, security and commercial missions. For more information about Cubic, please visit the company's website at www.cubic.com or on Twitter @CubicCorp.
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are subject to the safe harbor created by such Act. Forward-looking statements include, among others, statements about our expectations regarding future events or our future financial and/or operating performance; our expectations regarding organic growth; and the use of our technologies on a transportation contract that was awarded early fiscal 2018. These statements are often, but not always, made through the use of words or phrases such as "may," "will," "anticipate," "estimate," "plan," "project," "continuing," "ongoing," "expect," "believe," "intend," "predict," "potential," "opportunity" and similar words or phrases or the negatives of these words or phrases. These statements involve risks, estimates, assumptions and uncertainties that could cause actual results to differ materially from those expressed in these statements, including, among others: our dependence on U.S. and foreign government contracts; delays in approving U.S. and foreign government budgets and cuts in U.S. and foreign government defense expenditures; the ability of certain government agencies to unilaterally terminate or modify our contracts with them; the effect of sequestration on our contracts; our assumptions concerning behavior by public transit authorities; our ability to successfully integrate new companies into our business and to properly assess the effects of such integration on our financial condition; the U.S. government's increased emphasis on awarding contracts to small businesses, and our ability to retain existing contracts or win new contracts under competitive bidding processes; negative audits by the U.S. government; the effects of politics and economic conditions on negotiations and business dealings in the various countries in which we do business or intend to do business; risks associated with the restatement of our prior consolidated financial statements, including our identification of material weaknesses in our internal control over financial reporting; competition and technology changes in the defense and transportation industries; the change in the way transit agencies pay for transit systems; our ability to accurately estimate the time and resources necessary to satisfy obligations under our contracts; the effect of adverse regulatory changes on our ability to sell products and services; our ability to identify, attract and retain qualified employees; our failure to properly implement our ERP system; unforeseen problems with the implementation and maintenance of our information systems; business disruptions due to cyber security threats, physical threats, terrorist acts, acts of nature and public health crises; our involvement in litigation, including litigation related to patents, proprietary rights and employee misconduct; our reliance on subcontractors and on a limited number of third parties to manufacture and supply our products; our ability to comply with our development contracts and to successfully develop, introduce and sell new products, systems and services in current and future markets; defects in, or a lack of adequate coverage by insurance or indemnity for, our products and systems; and changes in U.S. and foreign tax laws, exchange rates or our economic assumptions regarding our pension plans. In addition, please refer to the risk factors contained in our SEC filings available at www.sec.gov, including our most recent Annual Report on Form 10?K and Quarterly Reports on Form 10?Q. Because the risks, estimates, assumptions and uncertainties referred to above could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements, you should not place undue reliance on any forward-looking statements. Any forward-looking statement speaks only as of the date hereof, and, except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date hereof.
Use of Non-GAAP Financial Information
We believe that the presentation of Earnings before interest, taxes, depreciation, and amortization (EBITDA) and Adjusted EBITDA included in this report provides useful information to investors with which to analyze our operating trends and performance and ability to service and incur debt. Also, we believe EBITDA facilitates company-to-company operating performance comparisons by backing out potential differences caused by variations in capital structures (affecting net interest expense), taxation, variations in organic vs. inorganic growth (affecting amortization expense) and the age and book depreciation of property, plant and equipment (affecting relative depreciation expense). We believe Adjusted EBITDA further facilitates company-to-company operating comparisons by backing out items that we believe are not part of our core operating performance. Items backed out of Adjusted EBITDA are comprised of expenses incurred in the development of our ERP system and the redesign of our supply chain which include internal labor costs and external costs of materials and services that do not qualify for capitalization, business acquisition expenses including retention bonus expenses, due diligence and consulting costs incurred in connection with the acquisitions, expenses recognized related to the change in the fair value of contingent consideration for acquisitions, restructuring costs, gains and losses on disposals of fixed assets, and income and expenses classified as other non-operating income and expenses which may vary for different companies for reasons unrelated to operating performance.
In addition, EBITDA and Adjusted EBITDA are key drivers of the company's core operating performance and major factors in management's bonus compensation each year. Management has excluded the effects of these items in these measures to assist investors in analyzing and assessing our past and future core operating performance.
In addition, we believe that EBITDA and Adjusted EBITDA are frequently used by securities analysts, investors and other interested parties in their evaluation of companies, many of which present EBITDA, Adjusted EBITDA and/or other adjusted measures when reporting their results.
EBITDA and Adjusted EBITDA are not measurements of financial performance under GAAP and should not be considered as alternatives to net income as a measure of performance. In addition, other companies may define EBITDA and Adjusted EBITDA differently and, as a result, our measures of EBITDA and Adjusted EBITDA may not be directly comparable to EBITDA and Adjusted EBITDA of other companies. Furthermore, EBITDA and Adjusted EBITDA have limitations as analytical tools, and you should not consider either of them in isolation, or as a substitute for analysis of our results as reported under GAAP.
Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as measures of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using EBITDA and Adjusted EBITDA only supplementally. You are cautioned not to place undue reliance on EBITDA or Adjusted EBITDA.
The following table reconciles EBITDA and Adjusted EBITDA to net income (loss), which we consider to be the most directly comparable GAAP financial measure to EBITDA and Adjusted EBITDA.
Years Ended Three Months Ended
September 30, September 30,
------------- -------------
2017 2016 2017 2016
---- ---- ---- ----
(in thousands)
Net income (loss) $(11,209) $1,735 $13,155 $(7,493)
Add:
Interest expense,
net 14,033 9,723 2,550 3,472
Income taxes 15,059 (9,212) 9,326 11,069
Depreciation and
amortization 51,099 45,478 12,945 13,535
------ ------ ------ ------
EBITDA 68,982 47,724 37,976 20,583
------ ------ ------ ------
Adjustments to
EBITDA:
Acquisition
related expenses,
excluding
amortization (274) 28,682 560 1,049
ERP system
development and
supply chain
process redesign
expense 34,406 34,819 10,829 10,391
Restructuring
costs 2,468 1,852 518 237
Loss on sale of
fixed assets 405 - - -
Other non-
operating expense
(income), net (369) 4,972 353 3,440
---- ----- --- -----
Adjusted EBITDA $105,618 $118,049 $50,236 $35,700
======== ======== ======= =======
Financial Statements
CUBIC CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except per share data)
Years Ended September 30,
-------------------------
2017 2016 2015
---- ---- ----
Net sales:
Products $681,559 $661,904 $607,226
Services 804,302 799,761 823,819
------- ------- -------
1,485,861 1,461,665 1,431,045
Costs and expenses:
Products 473,670 473,444 451,295
Services 648,472 643,462 640,031
Selling, general and
administrative expenses 258,088 269,593 212,518
Research and development 52,652 31,976 17,992
Amortization of purchased
intangibles 32,997 34,120 27,550
Restructuring costs 2,468 1,852 6,272
----- ----- -----
1,468,347 1,454,447 1,355,658
--------- --------- ---------
Operating income 17,514 7,218 75,387
Other income (expenses):
Interest and dividend income 994 1,476 1,809
Interest expense (15,027) (11,199) (4,400)
Pension settlement loss - (2,671) -
Other income (expense), net 369 (2,301) (885)
--- ------ ----
Income (loss) before income taxes 3,850 (7,477) 71,911
Income tax provision (benefit) 15,059 (9,212) 48,997
------ ------ ------
Net income (loss) (11,209) 1,735 22,914
Less noncontrolling interest in
income of VIE - - 29
--- --- ---
Net income (loss) attributable to
Cubic $(11,209) $1,735 $22,885
======== ====== =======
Net income (loss) per share:
Basic $(0.41) $0.06 $0.85
Diluted $(0.41) $0.06 $0.85
Weighted average shares used in
per share calculations:
Basic 27,106 26,976 26,872
Diluted 27,106 27,040 26,938
CUBIC CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30, September 30,
2017 2016
---- ----
ASSETS
Current assets:
Cash and cash equivalents $60,143 $197,127
Restricted cash 8,434 75,648
Marketable securities - 12,996
Accounts receivable:
Trade and other receivables 12,378 15,488
Long-term contracts 416,808 367,419
Allowance for doubtful accounts (436) (326)
---- ----
428,750 382,581
Recoverable income taxes 5,360 9,706
Inventories 87,715 66,362
Other current assets 31,141 38,231
------ ------
Total current assets 621,543 782,651
------- -------
Long-term contract receivables 17,457 20,926
Long-term capitalized contract costs 56,471 65,382
Property, plant and equipment, net 113,686 96,316
Deferred income taxes 2,206 2,194
Goodwill 415,912 406,946
Purchased intangibles, net 98,495 123,403
Other assets 10,515 6,590
------ -----
Total assets $1,336,285 $1,504,408
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $55,000 $240,000
Trade accounts payable 95,837 81,172
Customer advances 57,477 49,481
Accrued compensation 79,577 73,619
Other current liabilities 78,750 74,071
Income taxes payable 9,838 1,450
Current portion of long-term debt - 450
--- ---
Total current liabilities 376,479 520,243
------- -------
Long-term debt 199,761 200,291
Accrued pension liability 25,375 46,865
Deferred compensation 11,435 10,643
Income taxes payable 7,465 11,855
Deferred income taxes 10,407 3,980
Other non-current liabilities 15,732 20,635
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value:
Authorized--5,000 shares
Issued and outstanding--none
Common stock
Authorized--50,000 shares
36,072 issued and 27,127 outstanding
at September 30, 2017
35,937 issued and 26,992 outstanding
at September 30, 2016 37,850 32,756
Retained earnings 794,485 813,035
Accumulated other comprehensive loss (106,626) (119,817)
Treasury stock at cost - 8,945 shares (36,078) (36,078)
------- -------
Total shareholders' equity 689,631 689,896
------- -------
Total liabilities and shareholders'
equity $1,336,285 $1,504,408
========== ==========
CUBIC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended September 30,
-------------------------
2017 2016 2015
---- ---- ----
Operating Activities:
Net income (loss) $(11,209) $1,735 $22,914
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization 51,099 45,478 37,662
Share-based compensation expense 5,269 8,762 8,325
Change in fair value of contingent
consideration (3,878) 1,274 3,607
Loss on disposal of assets 405 - -
Deferred income taxes 5,540 (23,988) 33,816
Net pension cost (benefit) (1,046) 1,102 (3,224)
Excess tax benefits from equity incentive
plans (35) 3 33
Changes in operating assets and
liabilities, net of effects from
acquisitions:
Accounts receivable (40,015) 4,409 (2,230)
Inventories (18,867) (62) (21,669)
Prepaid expenses and other current assets 7,763 3,403 (15,045)
Long-term capitalized contract costs 8,911 7,635 3,192
Accounts payable and other current
liabilities 10,919 19,874 25,599
Customer advances 7,364 (24,900) (10,200)
Income taxes 8,240 (5,519) 8,847
Other items, net (5,724) 5,396 (1,938)
------ ----- ------
NET CASH PROVIDED BY OPERATING ACTIVITIES 24,736 44,602 89,689
------ ------ ------
Investing Activities:
Acquisition of businesses, net of cash
acquired (16,830) (243,459) (92,178)
Purchases of marketable securities (19,121) (28,470) (58,855)
Proceeds from sales or maturities of
marketable securities 31,868 43,456 51,173
Purchases of property, plant and equipment (36,932) (32,093) (22,202)
Proceeds from sale of assets 1,233 - -
Purchase of non-marketable debt and
equity securities (2,700) - -
Purchases of other assets - - (2,993)
--- --- ------
NET CASH USED IN INVESTING ACTIVITIES (42,482) (260,566) (125,055)
------- -------- --------
Financing Activities:
Proceeds from short-term borrowings 130,780 288,900 111,300
Principal payments on short-term
borrowings (315,780) (108,900) (51,300)
Proceeds from long-term borrowings - 75,000 25,000
Principal payments on long-term debt (978) (494) (537)
Deferred financing fees - (3,647) -
Stock issued under employee stock purchase
plan 2,234 - -
Purchase of common stock (2,444) (1,563) (2,652)
Dividends paid (7,341) (7,285) (7,256)
Excess tax benefits from equity incentive
plans 35 (3) (33)
Contingent consideration payments related
to acquisitions of businesses (2,625) (2,479) -
Purchase of noncontrolling interest - - (1,029)
Net change in restricted cash 66,293 (6,403) (189)
------ ------ ----
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES (129,826) 233,126 73,304
-------- ------- ------
Effect of exchange rates on cash 10,588 (38,511) (10,950)
------ ------- -------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (136,984) (21,349) 26,988
Cash and cash equivalents at the beginning
of the period 197,127 218,476 191,488
------- ------- -------
CASH AND CASH EQUIVALENTS AT THE END OF
THE PERIOD $60,143 $197,127 $218,476
======= ======== ========
Supplemental disclosure of non-cash
investing and financing activities:
Liability incurred to acquire Deltenna,
net $1,327 $ - $ -
Liability incurred to acquire Vocality,
net $271 $ - $ -
Liability incurred to acquire GATR, net $ - $6,788 $ -
Liability incurred to acquire TeraLogics,
net $ - $4,998 $ -
Liability incurred to acquire H4 Global,
net $ - $952 $ -
Liability incurred to acquire DTECH, net $ - $ - $11,808
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SOURCE Cubic Corporation
