Cubic Reports First Quarter Fiscal Year 2019 Results; Delivers Solid Performance and Confirms Full Year Guidance
SAN DIEGO, Feb. 6, 2019 /PRNewswire/ -- Cubic Corporation (NYSE: CUB) today announced its financial results for the first quarter ended December 31, 2018.
"We are pleased with our strong growth and progress on our strategic initiatives in the first quarter of fiscal year 2019. The broad-based strength in our business and high backlog provides a clear path to achieving Goal 2020," said Bradley H. Feldmann, chairman, president and chief executive officer of Cubic Corporation. "Additionally, the acquisitions of Trafficware and GRIDSMART establish us as the technology-driven, market leader for intersection traffic management within our NextCity vision."
Financial Results Summary
Three Months Ended
December 31,
2018 2017
(in millions, except per share
data)
Sales $
305.3 $
248.4
Operating loss (0.6) (11.9)
Adjusted EBITDA (1) 20.0 11.5
Loss from continuing
operations attributable to
Cubic before income taxes $
(4.2) $
(14.2)
Income tax provision
(benefit) from continuing
operations attributable to
Cubic 2.4 (2.7)
Net loss from continuing
operations attributable to
Cubic $
(6.6) $
(11.5)
Loss per share from
continuing operations
attributable to Cubic $
(0.23) $
(0.42)
Net income from
discontinued operations
before income taxes
$ $
7.0
Income tax provision from
discontinued operations 5.4
Net income from
discontinued operations
$ $
1.6
Earnings per share from
discontinued operations
$ $
0.06
Acquisition-related
expenses, excluding
amortization (1) $
2.5 $
1.4
Strategic and IT system
resource planning expenses
(1) 1.6 8.0
Depreciation and
amortization 16.0 12.4
Research and development
expense 12.0 12.0
(1) See the
section
below
titled "Use
of Non-
GAAP
Financial
Information"
for
additional
information
regarding
Non-GAAP
financial
measures.
Recently Adopted Accounting Pronouncements
Effective October 1, 2018, we adopted Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers, as amended (commonly referred to as ASC 606), using the modified retrospective transition method. The adoption of ASC 606 resulted in a change in our significant accounting policy regarding revenue recognition and resulted in changes in our accounting policies regarding contract estimates, backlog, inventory, contract assets, long-term capitalized contract costs and contract liabilities. See "New Accounting Standards Implemented" in Note 2 of the Condensed Consolidated Financial Statements of our Form 10-Q for disclosure of the impact of the adoption of ASC 606.
First Quarter Fiscal Year 2019 Results
Sales for the first quarter of fiscal 2019 increased 23% to $305.3 million, compared to $248.4 million in the first quarter of fiscal 2018, reflecting organic growth and the inclusion of Trafficware, which was acquired on October 24, 2018 and increased first quarter sales by $10.5 million. Additionally, the adoption of the new revenue recognition standard increased sales by $28.4 million. Foreign currency translation had an unfavorable impact of $5.5 million.
Operating loss in the first quarter of fiscal 2019 improved to $0.6 million, compared to an operating loss of $11.9 million in the first quarter of fiscal 2018. The increase primarily reflects sales growth, lower expenses related to Enterprise Resource Planning (ERP) initiatives and a favorable impact of $3.3 million due to the adoption of the new revenue recognition standard. Foreign currency translation had an unfavorable impact of $0.6 million.
Adjusted EBITDA in the first quarter of fiscal 2019 increased 74% to $20.0 million, compared to $11.5 million in the first quarter of fiscal 2018. Foreign currency translation had an unfavorable impact of $0.7 million.
Net loss from continuing operations attributable to Cubic in the first quarter of fiscal 2019 was $6.6 million, compared to a net loss of $11.5 million in the first quarter of fiscal 2018. The year-over-year improvement reflects the reduction in operating loss.
Net cash used in continuing operations was $61.2 million in the first quarter of fiscal 2019, compared to a cash use of $11.5 million in the first quarter of fiscal 2018. Operating cash flow was negatively impacted by the timing of milestone payments related to contracts in the transportation business.
Reportable Segment Results
Three Months Ended
December 31,
2018 2017
Sales:
(in millions)
Cubic
Transportation
Systems $
181.8 $
146.5
Cubic Mission
Solutions 46.4 33.1
Cubic Global
Defense 77.1 68.8
Total sales $
305.3 $
248.4
Operating
income:
Cubic
Transportation
Systems $
11.0 $
9.9
Cubic Mission
Solutions (4.9) (8.9)
Cubic Global
Defense 2.9 1.4
Unallocated
corporate
expenses (9.6) (14.3)
Total operating
income $
(0.6) $
(11.9)
Adjusted
EBITDA:
Cubic
Transportation
Systems $
19.4 $
13.4
Cubic Mission
Solutions 0.7 (1.6)
Cubic Global
Defense 5.7 4.1
Unallocated
corporate
expenses (5.8) (4.4)
Total adjusted
EBITDA $
20.0 $
11.5
Cubic Transportation Systems (CTS)
CTS sales increased 24% to $181.8 million in the first quarter of fiscal 2019, compared to $146.5 million in the first quarter of fiscal 2018, driven by the New York and Boston next-generation fare payment systems, the inclusion of $10.5 million of sales from Trafficware and the adoption of the new revenue recognition standard. Foreign currency translation had an unfavorable impact of $4.8 million.
CTS Adjusted EBITDA increased 45% to $19.4 million in the first quarter of fiscal 2019, compared to $13.4 million in the first quarter of fiscal 2018. The increase in Adjusted EBITDA reflects higher sales, solid project execution, the addition of Trafficware and the impact of the new revenue recognition standard. Foreign currency translation had an unfavorable impact of $0.7 million.
Cubic Mission Solutions (CMS)
CMS sales increased 40% to $46.4 million in the first quarter of fiscal 2019, compared to $33.1 million in the first quarter of fiscal 2018, driven by increased shipments of expeditionary satellite communications products.
CMS Adjusted EBITDA increased to $0.7 million in the first quarter of fiscal 2019, compared to a loss of $1.6 million in the first quarter of fiscal 2018 primarily due to higher sales.
Cubic Global Defense (CGD)
CGD sales increased 12% to $77.1 million in the first quarter of fiscal 2019, compared to $68.8 million in the first quarter of fiscal 2018. Sales increased primarily due to the impact of the adoption of the new revenue recognition standard. Foreign currency translation had an unfavorable impact of $0.7 million.
CGD Adjusted EBITDA increased 39% to $5.7 million in the first quarter of fiscal 2019, compared to $4.1 million in the first quarter of fiscal 2018, due to the recognition of revenue and margin on the contracts that were impacted by the adoption of the new revenue recognition standard as well as operational improvements. Foreign currency translation did not have a significant impact.
Backlog
Total backlog decreased by $250.2 million from September 30, 2018 to December 31, 2018. Foreign currency translation had an unfavorable impact of $32.7 million.
December 31, September 30,
2018 2018
(in millions)
Total backlog
---
Cubic Transportation Systems $
3,346.6 $
3,544.9
Cubic Mission Solutions 93.3 77.0
Cubic Global Defense 374.4 442.6
Total $
3,814.3 $
4,064.5
Fiscal 2019 Full Year Guidance((2))
-- Sales: $1,400 million to $1,475 million
-- Adjusted EBITDA: $140 million to $160 million
(2) Constant
foreign
currency
exchange;
Includes
impact of
adoption of
ASC 606;
updated to
include the
expected
fiscal 2019
impact of
GRIDSMART,
which was
acquired on
January 2,
2019 (Sales
of
approximately
$24 million
and Adjusted
EBITDA of
approximately
$5 million,
9-month
impact).
Discontinued Operations
On May 31, 2018, Cubic sold Cubic Global Defense Services (CGD Services). Beginning in March 2018, all criteria were met for the classification of CGD Services as a discontinued operation. As a result, the operating results of CGD Services have been classified as discontinued operations in the condensed consolidated statements of income (loss) for all periods presented.
Conference Call and Webcast
Cubic will host a conference call today, Wednesday, February 6 at 5:00 p.m. Eastern Time to present first quarter results. Access the live audio webcast via: https://event.webcasts.com/starthere.jsp?ei=1228555&tp_key=ddfc3b3bbc
An archive of the webcast and presentation materials will be made available on the Investor Relations section of Cubic's website at https://www.cubic.com/investor-relations/financials.
Financial analysts and institutional investors are invited to dial:
-- 877-407-9708
-- 201-689-8259 (international)
To avoid delay in the start time, please dial in beginning 4:45 p.m. Eastern Time.
About Cubic Corporation
Cubic is a technology-driven, market-leading provider of integrated solutions that increase situational understanding for transportation, defense C4ISR and training customers worldwide to decrease urban congestion and improve the militaries' effectiveness and operational readiness. Our teams innovate to make a positive difference in people's lives. We simplify their daily journeys. We promote mission success and safety for those who serve their nation. For more information about Cubic, please visit 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, including achieving our Goal 2020 objective and fiscal 2019 full year guidance. 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 effects of potential sequestration on our contracts; our assumptions covering behavior by public transit authorities; our ability to successfully integrate new companies, including Trafficware and GRIDSMART, 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; 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; unforeseen problems with the implementation and maintenance of our information systems, including our new ERP system; 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. 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 versus 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.
EBITDA and Adjusted EBITDA are not measurements of financial performance under GAAP and should not be considered as measures of discretionary cash available to the company or 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.
The following table reconciles EBITDA and Adjusted EBITDA to net income (loss), which we consider to be the most directly comparable GAAP financial measure. We have not reconciled Adjusted EBITDA guidance to projected net income (loss) because we do not provide guidance on net income (loss) or the reconciling items between Adjusted EBITDA and net income (loss) as a result of the uncertainty regarding, and the potential variability of, certain of these items. Accordingly, a reconciliation of the non-GAAP financial measure guidance to the corresponding GAAP measure is not available without unreasonable effort.
On May 31, 2018 Cubic sold the CGD Services business. The operating results of this business and loss on sale have been excluded from the figures for all periods presented.
GAAP to Non-GAAP Reconciliation
Earnings before interest, taxes, depreciation and amortization (EBITDA) and Adjusted EBITDA
($ In Millions) Three Months Ended December 31,
Cubic Transportation Systems 2018 2017
---
Sales $
181.8 $
146.5
Operating income $
11.0 $
9.9
Depreciation and amortization 7.7 3.3
Acquisition related expenses,
excluding amortization 1.8
Restructuring costs 0.4 0.2
Adjusted EBITDA $
19.4 $
13.4
Adjusted EBITDA margin 10.7% 9.1%
Three Months Ended December 31,
Cubic Mission Solutions 2018 2017
---
Sales $
46.4 $
33.1
Operating income (loss) $
(4.9) $
(8.9)
Depreciation and amortization 5.4 5.9
Acquisition related expenses,
excluding amortization 0.2 1.4
Adjusted EBITDA $
0.7 $
(1.6)
Adjusted EBITDA margin 1.5% -4.8%
Three Months Ended December 31,
Cubic Global Defense 2018 2017
---
Sales $
77.1 $
68.8
Operating income $
2.9 $
1.4
Depreciation and amortization 2.2 2.1
Acquisition related expenses,
excluding amortization 0.5
Restructuring costs 0.1 0.6
Adjusted EBITDA $
5.7 $
4.1
Adjusted EBITDA margin 7.4% 6.0%
($ In Millions) Three Months Ended December 31,
Cubic Consolidated 2018 2017
---
Sales $
305.3 $
248.4
Net income (loss) from continuing
operations attributable to Cubic $
(6.6) $
(11.5)
Noncontrolling interest in loss of
VIE (4.0)
(Benefit) provision for income
taxes 2.4 (2.7)
Interest expense, net 2.8 2.3
Other non-operating expense
(income), net 4.8
Operating income $
(0.6) $
(11.9)
Depreciation and amortization 16.0 12.4
Other non-operating (expense)
income, net (4.8)
Noncontrolling interest in EBITDA
of VIE (1.5)
EBITDA $
9.1 $
0.5
Acquisition related expenses,
excluding amortization 2.5 1.4
Strategic and IT system resource
planning expenses 1.6 8.0
Restructuring costs 2.0 1.6
Other non-operating expense
(income), net 4.8
Adjusted EBITDA $
20.0 $
11.5
Adjusted EBITDA margin 6.6% 4.6%
CUBIC CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except per share data)
Three Months Ended
December 31,
2018 2017
Net sales:
Products $
182,253 $
131,743
Services 123,006 116,648
305,259 248,391
Costs and expenses:
Products 125,485 91,573
Services 92,785 86,217
Selling, general and administrative
expenses 62,986 61,680
Research and development 12,012 11,977
Amortization of purchased
intangibles 10,565 7,351
Restructuring costs 1,992 1,495
305,825 260,293
Operating loss (566) (11,902)
Other income (expenses):
Interest and dividend income 1,234 482
Interest expense (4,032) (2,674)
Other income (expense), net (4,753) (78)
Loss from continuing operations
before income taxes (8,117) (14,172)
Income tax (benefit) provision 2,497 (2,737)
Loss from continuing operations (10,614) (11,435)
Net income from discontinued
operations 1,649
Net loss (10,614) (9,786)
Less noncontrolling interest in
loss of VIE (4,027)
Net loss attributable to Cubic $
(6,587) $
(9,786)
Amounts attributable to Cubic:
Net loss from continuing operations $
(6,587) $
(11,435)
Net income from discontinued
operations 1,649
Net loss attributable to Cubic $
(6,587) $
(9,786)
Net income (loss) per share:
Basic
Continuing operations attributable
to Cubic $
(0.23) $
(0.42)
Discontinued operations
$ $
0.06
Basic earnings per share
attributable to Cubic $
(0.23) $
(0.36)
Diluted
Continuing operations attributable
to Cubic $
(0.23) $
(0.42)
Discontinued operations
$ $
0.06
Diluted earnings per share
attributable to Cubic $
(0.23) $
(0.36)
Weighted average shares used in per
share calculations:
Basic 28,492 27,207
Diluted 28,492 27,207
CUBIC CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31, September 30,
2018 2018
ASSETS
Current assets:
Cash and cash equivalents $
75,174 $
111,834
Cash in consolidated VIE 421 374
Restricted cash 17,889 17,400
Restricted cash in consolidated VIE 10,000 10,000
Accounts receivable:
Long-term contracts 119,943 393,691
Allowance for doubtful accounts (1,652) (1,324)
118,291 392,367
Contract assets 320,277
Recoverable income taxes 1,321 91
Inventories 92,201 84,199
Assets held for sale 8,177 8,177
Other current assets 40,924 43,705
Total current assets 684,675 668,147
Long-term contracts receivables 6,134
Long-term contracts financing receivables 44,936
Long-term contracts financing receivables in consolidated VIE 52,996
Long-term capitalized contract costs 84,924
Long-term capitalized contract costs in consolidated VIE 1,258
Property, plant and equipment, net 125,298 117,546
Deferred income taxes 4,687 4,713
Goodwill 484,329 333,626
Purchased intangibles, net 137,201 73,533
Other assets 13,871 14,192
Other assets in consolidated VIE 962 810
Total assets $
1,548,955 $
1,304,883
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $
64,500
$
Trade accounts payable 109,094 125,414
Trade accounts payable in consolidated VIE 205 165
Contract liability 69,713
Customer advances 75,941
Accrued compensation and other current liabilities 82,323 118,233
Income taxes payable 6,771 8,586
Total current liabilities 332,606 328,339
Long-term debt 199,801 199,793
Long-term debt in consolidated VIE 15,357 9,056
Other long-term liabilities 43,838 43,486
Other long-term liabilities in consolidated VIE 6,146 13
Shareholders' equity:
Common stock 260,141 45,008
Retained earnings 815,083 801,834
Accumulated other comprehensive loss (112,642) (110,643)
Treasury stock at cost (36,078) (36,078)
Shareholders' equity related to Cubic 926,504 700,121
Noncontrolling interest in consolidated VIE 24,703 24,075
Total shareholders' equity 951,207 724,196
Total liabilities and shareholders' equity $
1,548,955 $
1,304,883
CUBIC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Three Months Ended
December 31,
2018 2017
Operating Activities:
Net loss $
(10,614) $
(9,786)
Net income from discontinued operations (1,649)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 16,011 12,433
Share-based compensation expense 2,720 1,627
Change in fair value of contingent
consideration 429 298
Changes in operating assets and
liabilities, net of effects from
acquisitions: (69,713) (14,437)
NET CASH USED IN CONTINUING OPERATING
ACTIVITIES (61,167) (11,514)
NET CASH USED IN OPERATING ACTIVITIES FROM
DISCONTINUED OPERATIONS (15,424)
NET CASH USED IN OPERATING ACTIVITIES (61,167) (26,938)
Investing Activities:
Acquisition of businesses, net of cash
acquired (247,150) (4,650)
Purchases of property, plant and equipment (12,045) (6,318)
Purchase of non-marketable debt and
equity securities (671)
NET CASH USED IN INVESTING ACTIVITIES (259,195) (11,639)
Financing Activities:
Proceeds from short-term borrowings 372,000 82,000
Principal payments on short-term
borrowings (307,500) (49,000)
Proceeds from long-term borrowings in
consolidated VIE 5,798
Purchase of common stock (3,419) (2,256)
Contingent consideration payments related
to acquisitions of businesses (435) (656)
Proceeds from equity offering, net 215,832
NET CASH PROVIDED BY FINANCING ACTIVITIES 282,276 30,088
Effect of exchange rates on cash 1,962 677
NET DECREASE IN CASH AND CASH EQUIVALENTS (36,124) (7,812)
Cash and cash equivalents at the beginning
of the period 139,608 68,577
CASH AND CASH EQUIVALENTS AT THE END OF
THE PERIOD $
103,484 $
60,765
Supplemental disclosure of non-cash
investing and financing activities:
Receivable recognized in connection with
the acquisition of Trafficware, net $
1,588
$
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