Cubic Reports Fourth Quarter and Fiscal 2018 Results; Record Quarter, Annual Sales and Backlog

SAN DIEGO, Nov. 15, 2018 /PRNewswire/ -- Cubic Corporation (NYSE: CUB) today announced its financial results for the fourth quarter and fiscal year ended September 30, 2018.

"We are extremely pleased by the strong growth in fiscal 2018, driven by record fourth quarter sales and Adjusted EBITDA. Additionally, we yet again have the highest backlog in our history with the most recent Bay Area win," said Bradley H. Feldmann, chairman, president and chief executive officer of Cubic Corporation. "This year, our team achieved the six Goal 2020 growth catalysts that will drive accelerated growth and value for our customers, shareholders and employees going forward."

Fourth Quarter Fiscal 2018 Results

Sales in the fourth quarter of fiscal 2018 increased 9% to $379.7 million from $349.1 million in the fourth quarter of fiscal 2017 driven by growth in Cubic Transportation Systems (CTS) and Cubic Mission Solutions (CMS). Foreign currency translation had an unfavorable impact of $3.0 million.

Operating income in the fourth quarter of fiscal 2018 increased 30% to $27.7 million compared to $21.2 million in the fourth quarter of fiscal 2017. The increase reflects higher sales, improved performance and lower expenses related to Enterprise Resource Planning (ERP) initiatives. Operating income increased year-over-year despite an $8.0 million gain recognized on an equitable contract adjustment in Cubic Global Defense (CGD) in 2017.

Adjusted EBITDA in the fourth quarter of fiscal 2018 increased 8% to $49.1 million, compared to $45.5 million in the fourth quarter of fiscal 2017. Foreign currency translation had an unfavorable impact of $0.3 million.

Net income from continuing operations attributable to Cubic in the fourth quarter of fiscal 2018 was $22.0 million compared to $9.6 million in the fourth quarter of fiscal 2017. The increase in net income reflects higher operating income and a lower effective tax rate.

Operating cash flow from continuing operations was $40.4 million in the fourth quarter of fiscal 2018 compared to $42.3 million in the fourth quarter of fiscal 2017.

Full Year Fiscal 2018 Results

Full year fiscal 2018 sales increased 9% to $1.203 billion from $1.108 billion in fiscal 2017 driven by growth in CTS and CMS and reflects growth in both products and services. In fiscal 2018, 59% of sales were derived from products while 41% of sales were derived from services. Foreign currency translation had a favorable impact of $11.9 million.

Operating income in fiscal 2018 was $24.4 million compared to $2.6 million in fiscal 2017. The increase reflects higher sales, improved performance and a decrease in expenses related to ERP initiatives. Foreign currency translation had a favorable impact of $2.1 million.

Adjusted EBITDA in fiscal 2018 increased 20% to $104.6 million compared to $87.5 million in fiscal 2017. Foreign currency translation had a favorable impact of $2.2 million.

Net income from continuing operations attributable to Cubic in fiscal 2018 was $8.1 million compared to a net loss of $25.7 million in fiscal 2017. The increase in net income reflects higher operating income, lower interest expense and a lower effective tax rate, inclusive of a $7.1 million one-time, non-cash tax benefit in 2018. 

Net income from discontinued operations was $4.2 million in fiscal 2018 compared to $14.5 million in fiscal 2017. In fiscal 2018, net income from discontinued operations includes a loss on the sale of CGD Services of $6.1 million.

Operating cash flow from continuing operations was a net inflow of $8.6 million in fiscal 2018 compared to a net outflow of $3.0 million in fiscal 2017.

Discontinued Operations

On May 31, 2018, Cubic sold 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. In the application of the accounting requirements for discontinued operations, corporate overhead is not allocated to discontinued operations. Therefore, certain corporate overhead costs that had previously been allocated to CGD Services have been included in the unallocated corporate expenses amounts below. Such amounts totaled $5.3 million and $8.0 million for the full year fiscal 2018 and 2017, respectively.

Cubic Transportation Systems (CTS)

Fourth quarter CTS sales increased 13% to $192.6 million compared to $170.7 million in the fourth quarter of 2017. Full year sales increased 16% to $670.7 million compared to $578.6 million in 2017. The increase in fourth quarter and full year sales was supported by system development work on the New York New Fare Payment System contract and reflects overall growth in both products and services. Foreign currency translation had an unfavorable impact of $2.0 million in the fourth quarter and a favorable impact of $12.4 million in fiscal 2018.  

Fourth quarter CTS Adjusted EBITDA was $20.9 million compared to $25.3 million in the fourth quarter of 2017. Full year Adjusted EBITDA increased 50% to $73.3 million compared to $48.8 million in 2017. The increases in quarterly and full year Adjusted EBITDA reflect higher sales, operating cost reductions, lower research and development (R&D) investment and strong execution. Foreign currency translation had an unfavorable impact of $0.4 million in the fourth quarter and a favorable impact of $2.4 million in fiscal 2018.

Cubic Mission Solutions (CMS)

Fourth quarter CMS sales increased 45% to $95.1 million compared to $65.6 million in the fourth quarter of 2017. Full year sales increased 23% to $207.0 million compared to $168.9 million in 2017. The increase for the fourth quarter and full year reflects increased shipments of expeditionary satellite communications, tactical networking and C2ISR (Command, Control, Intelligence, Surveillance and Reconnaissance) products.

Fourth quarter Adjusted EBITDA increased 119% to $25.0 million compared to $11.4 million in the fourth quarter of 2017. Full year Adjusted EBITDA increased 82% to $26.2 million compared to $14.4 million in 2017. The increase in Adjusted EBITDA reflects higher sales, favorable sales mix and improved performance which more than offset a $10.8 million increase in R&D investment in fiscal 2018.

Cubic Global Defense (CGD)

Fourth quarter CGD sales were $92.0 million compared to $112.8 million in the fourth quarter of 2017. Full year sales were $325.2 million compared to $360.2 million in 2017. The decrease in sales for the fourth quarter and full year reflect the completion of various projects.

Fourth quarter Adjusted EBITDA was $5.7 million compared to $12.5 million in the fourth quarter of 2017. Full year Adjusted EBITDA was $26.3 million compared to $39.4 million in 2017.

Comparative sales and Adjusted EBITDA between fiscal years 2017 and 2018 were impacted by an $8.0 million gain recognized on an equitable contract adjustment in the third quarter of fiscal 2017 for our Littoral Combat Ship virtual training contract. Fourth quarter and full year 2018 Adjusted EBITDA was also negatively impacted by a $1.7 million settlement of a legal arbitration matter, which is now closed. Full year R&D investment in CGD increased by $1.8 million year-over-year. 

Backlog

Total backlog increased $1.528 billion from September 30, 2017 to September 30, 2018 driven by significant contract wins. In particular, in fiscal 2018, we were awarded a contract by the New York Metropolitan Transportation Authority to replace the MetroCard system with a New Fare Payment System; a contract by the Massachusetts Bay Transit Authority to provide the CharlieCard system with a next-generation fare payment system; a contract by the Queensland Department of Transportation & Main Roads to provide a new fare system for the state of Queensland, Australia; and a contract by the San Francisco Bay Area's Metropolitan Transportation Commission to deliver next-generation fare payment technology and operational services to the Clipper smart card system serving the Bay Area.

Fiscal 2019 Full Year Guidance
Constant currency basis with 2018; Adoption of Accounting Standards Codification (ASC) Topic 606

• Sales: $1,370 million to $1,450 million
• Adjusted EBITDA: $135 million to $155 million

Conference Call and Webcast

Cubic will host a conference call today, Thursday, November 15 at 11:00 a.m. Eastern Time to present fourth quarter and fiscal 2018 results.  Access the live audio webcast via: https://event.webcasts.com/starthere.jsp?ei=1218760&tp_key=8685c66645

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 10:45 a.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 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, including our Goal 2020 growth catalysts driving future accelerated growth and value 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 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. 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.

SOURCE Cubic Corporation