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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